Economic growth of Colombia : problems and prospects

C~~~~~~~~~~~~~~~~~~~~ -- .-JS Z s | t t e-w1-i '-t^ *f- - S~~- -'1 ci~~~* Pi   ECONOMIC GROWTH OF COLOMBIA 3glw SvI9sF   ECONOMIC GROWTH OF COLOMBIA: PROBLEMS AND PROSPECTS Report of a mission sent to Colombia in 1970 by the World Bank Chief of Mission and Coordinating Author Dragoslav Avramovic THE JOHNS HOPKINS UNIVERSITY PRESS Baltimore and London  Copyright ( 1972 by the International Bank for Reconstruction and Development All rights reserved Manufactured in the United States of America Library of Congress Catalog Card Number 78-186501 ISBN 0-8018-1389-1 (cloth) ISBN 0-8018-1397-2 (paper)  FOREWORD This Report on Economic Growth of Colombia is the first Country Economic Report to be published by the World Bank. In earlier years, the Bank published a number of general survey mission reports on partic- ular countries. These were produced by special missions made up in varying proportions of Bank staff members and independent experts, and were designed for publication. This series has now been discontinued. In support of its own operations, the Bank has also prepared periodic reports on borrow- ing countries. These have not been intended for publication. They have been written mainly as a basis for decisions on Bank policy and for discussions with the government of the country. In the last few years, the number and depth of coverage of these reports has increased. Many of them have been used by consortia and consultative groups organized among all the govern- ments providing assistance to a particular country. Three of these reports have ultimately been published by the governments concerned, and one by the Bank, but most have remained unpublished. They have, however, been availa- ble to the Executive Directors of the Bank, and through them to member governments, and have been increasingly used by those with access to them as basic sources of information and analysis. It has now been decided to publish a selection of the Bank's Country Economic Reports, with the agreement of the government concerned, in order that they may be more generally available. The Colombia Report was chosen as the first partly because of an initiative by the Government of Colombia, partly because it is a relatively comprehensive report dealing with a number of long-term issues. Hollis B. Chenery Economic Adviser to the President International Bank for Reconstruction and Development   TABLE OF CONTENTS FOREWORD v PREFACE xix 1. The Overall View 1 The Problem I Bases for Growth 1 The Employment Challenge 7 Major Issues of Resource Allocation 10 Public Investment and Finance 22 Growth, Capital Requirements, and Debt 28 2. Population, Employment, and Unemployment 35 Salient Features 35 Supply of Labor 35 DemandforLabor 40 The Challenge 44 3. Growth, Capital Requirements, and External Debt, 1970-85 47 Conceptual Framework 47 The Model 48 The Assumptions 50 The Results 53 4. Regional and Urban Development 75 Background 76 Government Planning for Regional Development 78 Major Urban Centers 79 Community Upgrading and Development 82 5. Preinvestment Study Program 85 Objectives of the Prein vestment Study Program 85 Types of Studies, Time Span and Sectors Covered by the Program 86 Methods and Criteria Used in Program Preparation 86 Main Features of the Study Program 87 List of Proposed Prein vestment Studies 90 Specimen Study Data Sheets 97 vii  ECONOMIC GROWTH OF COLOMBIA 6. Role and Characteristics of Colombian Manufacturing 101 The Contribution of Manufacturing 101 The Growth of Manufacturing Since 1953 104 General Characteristics of Colombian Manufacturing 108 7. Government Measures Affecting Industrialization 115 Tax Policy 115 Monetary Policy Impact on Industry 118 Price Controls 118 Protection and Quantitative Controls 119 Export Promotion 127 Policy Alternatives 133 8. Industry Survey 137 Overall Structure 137 Non-Durable Consumer Goods 138 Intermediate Goods 144 Durable Consumer Goods 149 Capital Goods 154 9. Special Industry Studies: Steel; Pulp and Paper 159 The Iron and Steel Industry 159 The Pulp and Paper Industry 170 10. Special Industry Studies: Chemicals 175 11. Regional Structure of Industry 189 Location of Industry 189 Structure of Manufacturing Industries in the Major Industrial Centers 190 The Setting for Industrialization in the Major Centers 193 Regional Industrial Planning 197 12. Mining 199 13. Power 207 Present Supply 207 Integration of the System 208 Demand Growth and Capacity Expansion 212 Finance 218 Investment 218 Planning 224 viii  TABLE OF CONTENTS 14. Structure and Problems of Colombian Agriculture 225 Introduction 225 Salient Features 227 Reorganization of the Ministry of Agriculture 233 Problems and Potential of Agriculture 233 15. Coffee 259 The Production Process 259 Production and Consumption 262 Prices and Price Control 264 Organization and Policies 266 16. Growth Potential: Crops Other Than Coffee 273 Cotton 273 Sugar 273 Bananas 275 Cacao 276 Tobacco 277 Fats and Oils 278 Rubber 281 Rice 281 Corn and Sorghum 282 Wheat and Barley 283 Potatoes 286 Traditional Crops 287 17. Growth Potential: Livestock, Fisheries and Forestry 289 Livestock 289 Fisheries 297 Forestry 299 18. Unemployment, Labor Absorption and Future Possibilities in Agriculture 301 The Problem 301 Proposed Measures for Increasing Employment in Agriculture 302 Future Possibilities and Priorities 304 19. Transport: The System: Highways and Railways 309 The System 309 ix  ECONOMIC GROWTH OF COLOMBIA High ways 311 Railways 319 20. Other Transport and Telecommunications 333 Inland Waterways 333 Air Services 333 Ports 338 Telecommunications 341 21. Tourism 349 Colombia's Caribbean and OtherAssets 349 External and Internal Transport 352 The Present Pattern of Tourist Demand 357 The Supply of Tourist Facilities 360 Investment Requirements 369 Organization of the Tourist Industry 372 Prein vestment Studies 376 The Employment Effects and Other Economic Benefits of Tourism Development 378 Projections 382 22. Education and Training 391 The Administration of Education 391 The Structure and Operations of the Formal System 392 Education and Training Outside the Formal System 403 Financing 404 Future Programs: Priority Indicators 407 Future Programs: An Indicative Projection 409 23. Water Supply 415 24. The Present Health Situation 425 Introduction 425 The Health Care System 427 Major Outlays for Health and Medical Care 428 Demographic Variables Associated with Health 431 Morbidity Indices and Their Socio-Economic Relationships 433 Major Categories of Health Problems in Colombia 437 25. Resources for Health and the National Health Plan 445 Hospitals, Health Centers and Health Posts 445 Health Personnel: Supply and Distribution 447 Health Personnel: Education and Training 449 The National Ten-YearHealth Plan, 1968-77: Origins and Evolution 451 Major Elements of the Plan 452 x  TABLE OF CONTENTS STATISTICAL ANNEX Population and Employment, National Accounts Trade, Payments and External Financing Fiscal Statistics Money, Credit and Prices Manufacturing Agriculture Transport Education (For full list of tables see Statistical Annex.) TABLES 1-1: Gross Investment In Fixed Capital, 1950-69 1 1-2: Public and Private Investment, 1966-69 2 1-3: Commitments of Foreign Assistance for Development Projects, 1961-69 2 1-4: Merchandise Exports, 1960-70 3 1-5: Growth of Non-Traditional Exports 4 1-6: Coffee, World Consumption and Production 5 1-7: Urban Unemployment and Underemployment, 1967 7 1-8: Unemployment Rate in Bogota, 1963-70 8 1-9: Pattern of Land Distribution by Farm Size, 1960 10 1-10: Crop Area in Relation to Farm Size 12 1-11: Structure and Growth of Manufacturing Output 14 1-12: Portfolio of The Banking System by Interest Rates, 1968 16 1-13: Industry and Commerce: Loans by Commercial and Specialized Banks, 1960-69 17 1-14: School Enrollments, 1960 and 1968 19 1-15: Water Supply Services and Population Served, 1965 and 1970 22 1-16: Public Investment, Actual 1966-69 and Projected 1970-72 24 1-17: Financing of Public Investment, Actual 1966-69 and Projected 1970-72 26 1-18: Public Investment Program: Old and New Plan 28 1-19: 1970-75: Selected Variables, Rates of Change, and Coefficients 30 1-20: Balance Of Payments, Actual 1965-69 and Projected 1970-75 31 1-21: Commitments of New Loans on Public Account Actual 1966-69 and Projected 1970-75 32 1-22: Public Borrowing and Debt Service, 1970-85 33 2-1: Total Population Projections, by Age Group, 1970-85 36 2-2: Total Population Projections, by Department, 1970-85 38 2-3: Projection of Population Age Ten or More Years by Urban and Rural Residence, Sex, and Major Age Group, 1970-85 39 2-4: Projection of Economically Active Population by Urban and Rural Residence, Sex, and Major Age, Group, 1970-85 40 2-5: Summary Projection of Total and Economically Active Population, 1970-85 41 2-6: Output, Employment and Productivity by Section, 1970 42 2-7: Output, Employment and Productivity by Sector, 1985 43 2-8: Non-Agricultural Output, Employment and Productivity Projections, 1970-85 44 3-1: Symbolic Notation for Major Variables 49 3-2: Estimates of Sectoral Investment, 1968 51 3-3: Gross Fixed ICORs, 1950-68 54 3-4: Public External Capital Flow and Service Projections 55 xi  ECONOMIC GROWTH OF COLOMBIA 3-5: Summary Forecast of Basic Balance of Payments Entries 56 3-6: Projection of Selected Values at 7%and 8%Growth Rates and Different ICORs 56 3-7: Incremental Resource Flows Needed for Raising 7% to 8% Growth Rate 58 3-8: Export Values Specified in Low Export Growth Model 59 3-9: Incremental Capital-Output Ratios, 1950-68 59 3-10: Incremental Capital-Output Ratios, 1950-68 (1958 Col$) 60 3-11: Domestic Savings Ratios, 1950-68 61 3-12: F.O.B. Merchandise Exports, Actual 1950-68 and Projected 1969-85 62 3-13: Exports of Services, Actual 1950-68 and Projected 1969-85 64 3-14: Imports of Goods and Services, 1950-68 65 3-15: C.I.F. Imports of Goods, 1958-68 66 3-16: Projected Imports of Goods and Services, 1969-85 68 3-17: Balance of Payments, Actual 1950-68 and Projected 1969-85 69 3-18: Base Case Projection, 1969-85: Selected Values, Rates, and Coefficients 70 3-19: Variant Projections, 1968-85 71 3-20: External Public Debt Information, 1968 and 1969 72 3-21: Terms and Repayment Schemes Assumed for New Debt, 1970-85 73 3-22: External Public Debt Service Projection, 1970-85 74 4-1: Population of Thirty Largest Urban Centers 75 4-2: Urban Population by Community Size 76 4-3: Tax Collection and other Revenues of Selected Municipalities 1967 77 4-4: Proposed Planning Regions 79 5-1: Summary of Recommended Preinvestment Study Program 88 6-1: Value Added at Market Prices 101 6-2: Manufacturing Value Added, Total and Per Capita-Dollar Equivalents 102 6-3: Investment in Fixed Assets, 1957-1967 103 6-4: Market for Manufactures, 1967 103 6-5: Average Annual Growth Rates in Output, Value-Added and Employment 104 6-6: Growth Rates in Output by Size of Firms 106 6-7: Increases in Output, 1953-1967 107 6-8: Average Annual Growth of Output 108 6-9: Increases in Employment, 1953-1967 109 6-10: Gross Output per Paid Worker 109 6-11: Average Size of Establishments, 1967 110 6-12: Employment in Establishments Employing 100 or More Persons as a Percentage of Total Employment, by Industry 111 6-13: Composite Balance Sheet for Large Manufacturing Corporations, end 1968 112 6-14: Sources and Uses of Funds for Large Manufacturing Corporations 114 6-15: Sources of Funds by Size of Corporation 114 7-1: Level of Protection for Selected Manufactured Products 120 7-2: Share of Imports Requiring Prior License in Total Imports, 1956-1968 125 7-3: Percentage Share of Licenses Denied in Total Demand for Licenses 126 7-4: Tariff Frequencies for Manufactured Goods (May 1969) 128 7-5: Implicit Cost of Prior Deposits 130 7-6: Trade under Plan Vallejo-Registrations 131 7-7: Terms of PROEXPO Financing of Production of Exports and Promotional Activities 132 7-8: Colombian Exports of Manufactures to the Andean Group and LAFTA 134 8-1: Comparison of Colombian and Brazilian Industrial Structure 137 8-2: Comparison of Actual and Hypothetical Imports in 1960 140 8-3: Comparison of Actual and Hypothetical Imports in 1967 141 xii  LIST OF TABLES 8-4: Exports of Manufactured Products 142 8-5: Export Orientation of Output of Intermediate Products 145 8-6: Petroleum Production and Exports by Type of Ownership 147 8-7: Output, Value Added and Employment in the Durable Consumer Goods-Industries, 1967 149 8-8: Employment by Size of Firms in Major Industrial Sub-Groups, 1967 150 8-9: Employment by Size of Firms in Durable Consumer Goods Industries, 1967 151 8-10: Growth of the Electrical Appliance Industry 151 8-11: Motor Vehicle Industry Breakdown, 1967 152 8-12: Motor Vehicle Industry Productivity by Size of Establishment, 1967 153 8-13: Motor Vehicle Industry-Non-Labor Value Added 153 8-14: Output and Employment in the Capital Goods Industries 155 8-15: Distribution of Employment, Gross Output and Value Added in the Mechanical Ma- chinery Industry, 1967 156 8-16: Distribution of Employment, Gross Output and Value Added in the Electrical Ma- chinery Industry, 1967 157 9-1: Apparent Consumption, Domestic Production and Imports of Finished Steel Products, 1960-1968 160 9-2: Appaient Consumption of Rolled Steel Products in ILAFA Countries, 1967 162 9-3: Domestic Production of Finished Steel Products, 1951-1966 163 9-4: Demand Forecast for 1975 164 9-5: Trade in Semi-Finished and Finished Steel Products 165 9-6: Rates of Duty and Prior Deposits on Imports of Selected Steel Products 166 9-7: Movement of Prices of Representative Steel Products Nov. 1963-Nov. 1969 166 9-8: Price Comparison, Domestically Produced and Imported Steel Product 167 9-9: Raw Material Used in Paper Making 171 9-10: Supply and Demand for Short Fiber Pulp in Colombia 172 9-11: Percentage of Short Fiber Content Tolerable in Various Grades of Paper 172 10-1: Major Chemical Plants 176 10-2: Chemical Expansion Projects 178 10-3: Daily Production of Planta de Soda's Plants at Betania and Cartagena 180 10-4: Present and Anticipated Daily Requirements of Planta de Soda's Plants 181 10-5: Chemical Plants in the Mamonal Area, Investment and Labor Force 182 11-1: Value-Added and Employment in Manufacturing by Major Departments and Cities, 1967 190 11-2: Growth of Gross Value of Output in Major Departments 191 11-3: Structure of Manufacturing Industries in Major Departments, 1967 191 11-4: Percent Distribution of Value-Added in Selected Industries by Departments 192 11-5: Structure of Manufacturing in Medium Industrialized Departments, 1967 192 11-6: Average Annual Wages for Manufacturing Industries in Major Industrial Centers 194 11-7: Average Annual Wage in the Clothing and Footwear Industries 196 12-1: Break-down of Mine Production in 1962 and 1969 (excluding emeralds) 200 12-2: Production of Precious Metals, 1960 to 1969 201 12-3: Registered Emerald Exports, 1960 to 1968 202 12-4: Trade in Minerals and Mineral Products (excl. petroleum and petroleum products) 202 12-5: Indicated Phosphate Reserves 203 13-1: Percentage Shares of Electric Power Compared with Area and Population 207 13-2: Annual Peak Loads and Gross Generation, 1965-69 212 13-3: Composition of Energy Sales, 1969 216 xiii  ECONOMIC GROWTH OF COLOMBIA 13-4: Summary of Costs of Major Power Projects, 1970-76 217 13-5: Generating Plants Under Construction 219 13-6: Generating Plants Planned 220 13-7: Major Transmission Lines Under Construction 221 13-8: Major Transmission Lines Planned 222 13-9: Public Power Sector Investment Program, 1970-72 223 14-1: Area Under Cultivation and Output, Selected Crops, with Growth Rates, 1950-1969 226 14-2: Yield Per Hectare, Selected Crops, 1950-1969 228 14-3: Agricultural Exports by Value of Exchange Surrender, 1960-1969 229 14-4: Principal Imports of Agricultural Products, 1960-1967 230 14-5: Agricultural Export-Import Balance, without Coffee, 1961-1969 232 14-6: Land Use on Farms Enumerated in 1960 Census 234 14-7: Pattem of Land Distribution by Farm Size, 1960 234 14-8: Percentage of Land Declared to Various Uses by Size of Farm 235 14-9: Area Planted to Different Crops According to Farm Size 236 14-10: Crop Yields (Kgs./Ha.) by Size of Farm and for INCORA Projects 237 14-11: INCORA Use of Funds by Major Activities, 1962-1969 239 14-12: Land Acquired by INCORA According to the Manner of Acquisition and Use 239 14-13: Number, Area and Assessed Value of the Assessed Plots by Size Groups 241 14-14: Current Range in Crop Yields, Potential Productivity Under Improved Management 242 14-15: Percentage of Land Area Planted to Improved Seeds by Crops, 1953-67 244 14-16: Farm Mechanization, Irrigation and Use of Herbicides, Insecticides and Fungicides for the Main Agricultural Crops by Departments, 1968 245 14-17: Apparent Consumption of Fertilizers, in Thousands of Tons of Nutrients, 1955-69 246 14-18: Area Planted,% of Area Fertilized and Average Yields, Selected Crops, 1967-68 247 14-19: Comparison of Prices for Fertilizer and Farm Products, 1958-67 249 14-20: Distribution of ICA Expenditures by Locality, 1965-70 250 14-21: Distribution of Technical Personnel by Locality ICA, 1963-1970 251 14-22: IDEMA Purchases of Colombia Produced Basic Food Products, 1965-1969 253 14-23: Distribution of the Banking Portfolio by Activity in Actual and Deflated (Real) Prices, 1958-68 255 14-24: Number, Value and Area Covered, for Credits Approved by Fondo Financiero Agario in 1969, by Crops and Principal Departments 257 15-1: Number and Size of Coffee Farms in Caldas, Quindio, and Risaralda, 1965 260 15-2: Estimated Output and Yield by Farm Size in Caldas, Quindio, and Risaralda, 1965 261 15-3: Supply and Distribution of Green Coffee, 1958-59-1968-69 262 15-4: Coffee Exports by Country of Destination, Coffee Year 1968-69 263 15-5: Foreign and Domestic Prices for Colombian Coffee, 1948-70 265 15-6: Finance of Diversification Program, 1963-69 266 15-7: Sources and Application of Funds for Proposed Coffee Diversification Program 267 15-8: Producer Receipts With and Without Coffee Price Sharing Agreement 269 16-1: Cotton, Statistics and Forecasts 274 16-2: Sugar (White), Statistics and Forecasts 274 16-3: Bananas, Statistics and Forecasts 276 16-4: Cacao, Statistics and Forecasts 277 16-5: Tobacco, Statistics and Forecasts 278 16-6: Vegetable Oil and Fats-Production, Imports and Probable Consumption 278 16-7: Oil Seeds 280 16-8: Rice, Statistics and Forecasts 282 16-9: Corn and Sorghum, Statistics and Forecasts 284 16-10: Area, Production and Yield of Wheat and Barley, 1948-1969 285 xiv  LIST OF TABLES 16-11: Wheat Imports in Metric Tons and Value 1955-69 286 16-12: Potato Production, 1960-85 287 16-13: Two Estimates of Area and Yield of Three Traditional Crops, 1967 288 17-1: Cattle Numbers in the National Herd, Slaughter and Export of Live Animals, Extrac- tion and Production Rates, 1950-69 290 17-2; Average Prices Per Kg. of Live Cattle, 1964-69 292 17-3: Exports of Animals, Meat and Meat Products by Destination, 1969 293 17-4: Output of Selected Livestock Products, 1950-1967 295 17-5: Beef: Selected Indicators of Market Prices, 1955-1969 295 17-6: Distribution of the F.O.B. Value per Metric Ton of Beef 298 17-7: Shrimp Export: Volume and Value 298 18-1: Indices of Real Wages and Salaries in Industry and Agriculture, 1960 to 1968 301 18-2: Estimated Land Required for Production 303 19-1: Anticipated Public Sector Investment in Transport, 1970-1975 311 19-2: The National Highway Network 312 19-3: Departmental Roads 313 19-4: Past and Projected National Highway Expenditure 315 19-5: Vehicle Registrations, 1958-1967 315 19-6: Motor Fuel Consumption, 1958-1968 317 19-7: Colombian National Railroads: Derailments 322 19-8: Colombian National Railroads: Length of Haul and Revenue, Freight and Passengers, 1962-68 325 19-9: Colombian National Railroads: Rail Freight by Size of Shipment, 1969 331 19-10: Colombian National Railroads: Summary Income Accounts, 1962-1969 331 20-1: Air Passenger Demand in Colombia 334 20-2: Growth of Air Cargo, 1953-68 335 20-3: Port Traffic, Tonnages 340 20-4: Port Traffic, Percentage Composition 340 20-5: Distribution of Telephone Services According to Population 342 20-6: Automatic Exchanges, Local Telephone Service 343 20-7: Number of Centers, Lines Per Center, and Populations Served at Different Telephone Densities, 1969 and Planned for 1975 344 20-8: Local Tariffs in Selected Cities 345 21-1: Altitude, Average Temperatures and Rainfall, Selected Centers 350 21-2: Comparative Price Levels: Colombia vis-a-vis Rest of Caribbean 351 21-3: Airlines Serving Colombia 353 21-4: Air Fares: Competitiveness of Colombia With Other Nearby Tourist Areas and Europe 354 21-5: Cruise and Passenger Boats Serving Colombia 355 21-6: Various Official Estimates of Basic Tourism Data 356 21-7: Estimates of Foreign Arrivals at Colombian Caribbean Tourism Centers 359 21-8: Available Hotel Accommodation 1969: Analysis by Regions 362 21-9: Analysis by Category, Price and Occupancy of Hotel Accommodation-Selected Centers 365 21-10: Budget Allocations and Expenditures of Tourism Corporation 374 21-11: Potential Job Creation of One Hotel Room 380 21-12: Tentative Estimate of Present Job Creation from Existing Accommodation in Selected Centers 380 21-13: Projections of Foreign Visitor Bednights in 1975; Based on Increase in Supply of xv  ECONOMIC GROWTH OF COLOMBIA Accommodation in Selected Centers 384 21-14: Summary of Mission's Projections on Foreign Visitors to Selected Centers 387 21-15: Further Assumptions From Mission's Projections of Foreign Visitor Bednights 388 21-16: Projected Visitor Expenditures, 1969-1975 389 22-1: Enrollments All Levels, 1960 and 1968 394 22-2: Secondary Education, Enrollment by Type of Education, 1960 and 1968 395 22-3: Higher Education, Enrollment by Field of Study 397 22-4: Teachers by Qualifications, 1960 and 1968 398 22-5: Secondary Education, 1968 402 22-6: Enrollments in Servicio Nacional de Aprendizaje (SENA), 1965-69 404 22-7: Comparative Expenditures on Education, Selected Countries 405 22-8: Ministry of Education Budget for 1970 406 22-9: Flow of Students in the Formal Education System 410 22-10: Projection of Teacher Requirements, Formal Education System 411 22-11: Enrollments in '000s and as Percentage of Relevant Age Group 412 22-12: Projection of Public Education Budgets 413 23-1: Population by Agency Jurisdiction-1970 415 23-2: Municipal Public Utilities Operating in the Water Supply/Sewage Disposal Sector 416 23-3: Percentage of Population with Water Services-Ten Largest Towns Under the Jurisdiction of INSFOPAL, 1970 416 23-4: Water Supply in Relation to Population 418 23-5: Investment in Water Supply/Sewerage, 1965-69 419 23-6: INSFOPAL-Actual and Budgeted Investment, 1966-1969 422 23-7: Projected Investments in the Water Supply/Sewerage, 1971-75 422 24-1: Expenditures for Public Health, by Source of Funds 429 24-2: Public Expenditures for Health by Agencies which Serve the General Population, and which Serve Special Population Groups, 1961-70 430 24-3: Demographic Data for Some Latin-American Countries 432 24-4: Sickness During Two-Week Period, Per '000 Population, by Age and Sex 434 24-5: Restricted Activity During Two-Week Period, Per '000 Population, by Age and Sex 434 24-6: Days of Restricted Activity and in Bed Per Person Per Year, by Age and Sex 434 24-7: Rate of Illness, Per '000 Population, by Education and Urban or Rural Residence 436 24-8: Rates of Consultation with Health Personnel Per '000 Population, by Income and Zone 436 24-9: Adequacy, Percent, of Daily Per Capita Intake of Calories and Nutrients for Urban and Rural Zones and for Socio-Economic Classes 438 24-10: Specific Fertility Rate by Age, Zone and Annual Family Income 441 24-11: Estimates of Induced Abortions by Zone, Region, Annual Family Income and Edu- cation 442 25-1: Population With and Without Access to Hospitals According to Size of Community, 1966 446 25-2: Estimation of the Need for General Hospital Beds 446 25-3: Communities and Population According to Existing Resources of Personnel, by Com- munity Size, 1967 447 25-4: Funds Available at the National Level for Construction of Health Facilities and Equipment 456 MAPS 13-I: Electric Power Sector: Areas of Public Service 209 13-II: Electric Power Sector: Generation and Transmission Facilities 211 xvi  LIST OF MAPS AND CHARTS 19-I: Colombia National Highway System (Map Annex) 506 19-11: Colombia: Possible Future Highway Projects (Map Annex) 507 19-111: Colombian National Railroads 320 19-IV: Railroad Gradients 3 2 20-I: Air Routes in Colombia 33 21-I: Colombia in the Caribbean Tourist Market (Map Annex) 508 21-11: Colombia, Priority Tourist Areas (Map Annex) 509 CHARTS 1-I: Coffee: World Production and Consumption, 1900-1971 6 13-I: Installed Generation Capacity in the Public Sector 1945-1969 213 13-II: Power Generation by the Public Sector 1945-1969 214 22-I: Structure of Education, 1969 393 22-II: The Developing Educational Pyramid 396 22-III: The Developing Education System, 1970-1975 401 xvii   PREFACE This report was prepared by a Bank economic mission which visited Colombia in February-March 1970. The draft was completed in July and discussed with the Colombian authorities in September. The report was circulated in mimeographed form to the Bank Board of Executive Directors, other international agencies and the Consultative Group for Colombia - consisting of major donor countries and international agencies interested in assisting the development of Colombia - in November. It served as a background document for the Group's meeting held in Paris in February 1971, which decided to extend the required external support to the Colombian Economic and Social Development Plan 1970-73. The presenit published version is the same as the November 1970 mimeographed report with three exceptions. First, descriptive material easily found in other documents was deleted. Second, an attempt was made to eliminate duplications and repetitions in the different parts of the report. Third, the statistical material bearing on the economy as a whole, e.g., national accounts, fiscal developments, foreign trade, balance of payments, etc., was brought up to date wherever possible, and this provided an opportunity to com- ment on the report's projections in the light of actual developments in the last 18 months. It would not have been possible to prepare this report without the wholehearted support of the Colombian authorities. They placed at our disposal all necessary factual and analytical material and were always prepared to discuss their views with us and to comment on our findings. The mission's efforts were greatly facilitated by the cooperation received from the In- ternational Labor Organization team sent in early 1970 to study unemployment in Colombia. This report draws heavily on their findings. The mission worked closely with the United Nations Development Program resident staff in Colombia. Their help was especially valuable in the preparation of the Preinvestment Study Program, Chapter 5. This is the first time such a program has been undertaken by a Bank mission. The draft of the report has benefited greatly from the comments and suggestions of the secretariat of CIAP (Inter- American Committee on the Alliance for Progress). The report consists of 25 chapters. The different strands of the argument are pulled together in Chapter 1 which presents the conclusions of the report. Chapters 2-5 analyze the issues which cut across particular sectors: employment, investment, public finance, regional development, planning; these chapters also contain the projections of growth, external capital prospects of specific sectors. Chapters 6-13 discuss the process of in- dustrialization, mining and energy supply. Chapters 14-18 analyze the situation in agriculture and its principal problems. Chapters 19-21 discuss transport, telecom- munications and tourism. Chapters 22-25 are devoted to the social sectors: education and training, water supply, and public health. xix  ECONOMIC GROWTH OF COLOMBIA The following Bank staff and consultants participated, full or part-time, in the mission. The chapters to which they made their main contribution are also indicated. Balkind, J. 20 Calvo, D. - Consultant 21 Darnell, G. 14,17,18 Dorich, L. - Consultant, Pan American Health Org. 4 Douglas, A. 20 Duarte, I. - Consultant, Pan American Health Org. 23 Dublin, T. - Consultant, US Public Health Service; Health, Education, and Welfare 24, 25 Dumoulin, J. 14, 18 Engelmann, P. 4, 5 Germanacos,G. - Consultant 22 Gillman, H. - Consultant 16 Glenshaw, P. 9, 10 Hurlebaus, J. 23 Hyde, G. 2, 3, 14, Statistical Annex Isla, M. 13 Jaffe, J. 9, 12 Lehbert, B. 14, 18, Statistical Annex Lipkowitz, S. 6, 8, 9, 10 McGarry, M. 14, 17 Minton, A. 20 Myren, D. - Consultant, Ford Foundation 14, 18 Naylor, G. - Consultant 8 Neufeld, H. 6, 7, 8, 11 Paschke, J. 8 Shields, B. 19, 20 Teigeiro, J. 6, 7, Statistical Annex Vander Meer, S. 20 The published version was edited by T. H. Silcock. The Coordinating Author is responsible for the scope and overall conclusions of the report. August 31, 1971 xx  ECONOMIC GROWTH OF COLOMBIA   CHAPTER I THE OVERALL VIEW The Problem As a result of several factors operating in the internal economy and its international economic relations, Colombia has achieved in recent years rates of growth in real income considerably above the historical average. The gross domestic product rose by 6.1% in 1968, 6.5% in 1969 and approximately 7.0% in 1970, compared to less than 5% per annum during 1950-67. At the same time there has been a growing concern, within the government administra- tion and in public opinion generally, for the high level of urban unemployment and the low standards of welfare in rural areas-a major cause of urban drift. The question is whether the recent acceleration of economic activity can be sustained and used to the best advantage for employment growth at a rapid rate. The alternative is a temporary cyclical upswing, much of it absorbed by rising personal consumption, to be followed by a settling back of the system to a relatively low rate of growth and labor force absorption. The next section reviews the circumstances that have brought about the recent acceleration. This is followed by the discussion of the employment challenge and of the rural problem. The remaining three sections analyze the issues of resource allocation and resource mobilization. Bases for Growth Two factors have led to the acceleration of growth: expansion of investment, and alleviation of the foreign exchange constraint. Investment A sharp increase has taken place in recent years in Colombia's capacity to undertake development projects. This has been reflected in an upward shift in the aggregate rate of investment, in a particularly sharp rise in public investment, and in a dramatic increase in the flow of projects submitted for financing to international lending agencies. The proportion of fixed capital investment to GDP in the last three years of around 19% is much higher than the historical average (Table I - 1). It was attained before the effects of the upward movement in coffee prices of late 1969 were felt, moreover. Table 1-1: GROSS INVESTMENT IN FIXED CAPITAL, 1950-69 (as % of GDP) Average 1950-54 15.0 1955-59 16.5 1960-64 17.4 1965-66 16.2 1967-691 19.1 lEstimated for 1969. Source: Banco de la Republica. This increase in aggregate investment was primarily a function of an upward shift in pub- lic investment (Table 1-2). 1  2 ECONOMIC GROWTH OF COLOMBIA Table 1-2: PUBLIC AND PRIVATE INVESTMENT, 1966-69 (Indices, in constant prices, 1966 = 100) 1966 1967 1968 19691 Public Investment, (Public Finance Definition) 100 131 158 178 Public Investment, (National Accounts Definition) 100 132 151 169 Private Investment (National Accounts Definition) 100 100 115 115 Public Investment as Percent of Total (National Accounts Definition)2 20.3 28.3 26.3 28.7 l Provisional. 2The national accounts understate public investment. They include only expenditure on buildings and other construction in the public sector; all expenditure on machinery and equipment is assigned to the private sector for national accounts purposes. Source: Banco de la Republica; Statistical Annex The increased capacity to prepare investment projects satisfactorily, from the engineering and economic viewpoints, has been reflected in a sharp upswing of project commitments of ex- ternal lending agencies in recent years (Table 1-3): Table 1-3. COMMITMENTS OF FOREIGN ASSISTANCE FOR DEVELOPMENT PROJECTS, 1961-69 (In millions of US$) Value of Project Year Commitments 1961 103 1962 89 1963 127 1964 91 1965 42 1966 89 1967 86 1968 179 1969 233 Source: Departamento Nacional de Planeacion. The prospects for future project availability are excellent. Through a special office in its Planning Department, the government has placed project preparation work and associated studies on a systematic and well-coordinated basis. This office, FONADE, has been well financed by the government and by the Inter-American Development Bank. The 1970 IBRD  THE OVERALL VIEW 3 Economic Mission, jointly with FONADE and the UNDP Resident Representative Office in Colombia, has prepared a draft preinvestment study program. The total investment which may be initiated on the basis of all proposed studies could range in the order of US$2-3 billion. During the 1970's, public investment should show an improvement in quality and expansion in scope. If the acceleration of growth in real income is sustained, prospects for private invest- ment should also be very good, particularly as full capacity utilization is approached. A major problem which can now be foreseen concerns the availability of local finance for investment, particularly in the public sector. In 1950-66, public savings averaged 4% of GDP. In 1967-69, they reached 6% of GDP, as a result of a sharp increase in public revenue (almost 40% in real terms in 1966-69). Despite this increase in savings the government had to resort to external borrowing to finance part of the local currency cost of projects; and the latter has taken the form, in part, of program loans. In the last four years program loans have financed 15% of public investment, on the average. As public investment expands the need for public savings will expand correspondingly; in particular, with the level of project commitments now being contracted the demand for local savings to support the foreign-financed projects will increase sharply. Foreign Exchange Supply Two developments have led to alleviation of the foreign exchange constraint to growth: expansion of non-traditional exports and a sharp upswing in the world coffee market (Table I-4). Table 1-4: MERCHANDISE EXPORTS, 1960-701 (In millions of US dollars) Non-Traditional Exports Coffee Petroleum Total 1960 52.3 332.2 80.0 464.6 1961 58.4 307.8 68.2 434.5 1962 70.8 332.0 60.6 463.4 1963 66.5 303.0 77.2 446.7 1964 78.9 394.2 74.9 548.1 1965 107.1 343.9 88.2 539.1 1966 108.7 328.3 70.6 507.6 1967 126.3 322.4 61.2 509.9 1968 170.6 351A 36.3 558.3 1969 207.2 343.9 56.7 607.8 1970 225.02 467.1 55.8 748.02 ICustoms clearance basis. 2Provisional. Source: Departmento Administrativo Nacional de Estadistica (DANE). In the three years 1966-69 non-traditional exports doubled-an average annual growth rate of 24% on a base which is not insignificant. Non-traditional exports consist of a large variety of items, both agricultural commodities and manufactures. Among the former, the most important are cotton, bananas, sugar, tobacco, and livestock; among the latter, textiles, leather, glass, wood products, cement, and paper. Lately, machinery, chemical products, and pharmaceuticals have been exported. One of the most impressive achievements of the Colombian economy has been the speed with which new products have been added to the export flow (Table 1-5).  4 ECONOMIC GROWTH OF COLOMBIA Table 1-5: GROWTH OF NON-TRADITIONAL EXPORTS (In thousands of US$) 1963 1966 1969 Commodities existing in 1955-57 24,967 49,714 68,989 Commodities initiated in 1959 5,184 12,251 27,015 1960 6,212 4,954 36,413 1961 3,210 4,548 16,021 1963 3,323 4,872 31,441 1964 - 2,449 909 1966 - 9,224 Source: Banco de la Republica. The Colombian authorities' target for non-traditional exports in 1974 ranges from a mini- mum of US$380 million to a maximum of US$600 million-annual average growth rates of 15%to 30%. The results in 1970 were disappointing-the value of shipments rose by 8% and registrations only 4%. It is of critical importance for the process of growth and diversification that this setback prove temporary. Since the world market outlook is not bright for bananas, sugar, and cotton (which account for 30%of non-traditional exports), it is other agricultural products and manufactures which have to expand very rapidly. One promising source of foreign exchange earnings that has been neglected in the past is tourism. In 1969 Colombia received 140,000 visitors and $16 million in exchange earnings, this compares with $65 million in Bermuda and $94 million in Jamaica. With 1,000 miles of Caribbean coast, Colombia has the potential for international tourism development on a sub- stantial scale. It has the same characteristics as the rest of the Caribbean: short distance from the U.S. supplier market and therefore relatively cheap air fares, reverse climatic seasons, and exceptional beach assets. In addition, it has historical and cultural attractions, particularly in Cartagena, and ethnic and cultural ties with neighboring Venezuela, another supplier market. As a South American country, Colombia forms part of package tours to the area, and Bogota can offer additional tourist circuits-the archeological remains in San Augustin, and the Popay- an and Boyaca areas. Prices in general and hotel prices in particular are at incentive levels compared with other Caribbean resorts. Recently, with the introduction of group inclusive tour fares, Colombia has become competitive in air fares with the rest of the Caribbean. A strong impetus to tourist development in the Santa Marta area will be given by the opening in late 1971 of the Caribbean Trunk Road linking Venezuela with the Colombian coast. Public sector support to tourist development would have to include improvement of infra-structure, partic- ularly water supply and sewerage, on the coast and on the island of San Andres. Tourist development will contribute, at a relatively low investment cost, to alleviation of unemployment which is particularly high in the coastal area (18% in Barranquilla).l The coffee upswing took place in the fall of 1969, with world market prices rising 40-50% in six months. Since coffee still accounts for a third of Colombian agricultural production, a tenth of gross domestic product, a tenth of central government revenue, and 60-65% of mer- chandise exports,2 the impact on the economy was pervasive. The immediate cause of the upswing was the frost which severely affected the Brazilian output of 1970/71. The underlying cause was the turn in the postwar world coffee cycle.3 1. See Chapter 21, Tourism. 2. See Chapter 15, Coffee. 3. Since the turn of the century, the world coffee economy has displayed distinctive wavelike movements, each lasting about 20 years, in which brief periods of shortages, high prices and excessive investment have been followed by prolonged periods of over-production, low prices and destruction of capital stock, leading to a new shortage and thus beginning of a new cycle.  THE OVERALL VIEW 5 Following its downward phase from the mid-1950s to the late 1960s, characterized by an avalanche of supplies, surplus stock accumulation and depressed prices the world coffee econo- my has been experiencing deficits of current production in relation to current consumption for a number of years and on a substantial scale (Table 1-6). The 1970/71 production deficit was the largest in recorded coffee history, equivalent to 24% of world consumption (Chart 1-I). Disposals from stocks filled the production deficits and dampened the rate of price increas- es. These disposals were accelerated sharply in late 1970, following a decision by the Internation- al Coffee Council in August requesting the producing countries to increase substantially the export quotas. World coffee prices immediately turned downward. The New York price of Colombian coffee which averaged 42.6 cents in 1968 and had risen to 60 cents in early 1970, fell to 47.6 cents by mid-1971. The official projections made in early 1970 anticipated the price decline but were wrong in its timing: it was expected that the price will remain unchanged in 1970 and 1971, and then fall gradually (by some 20% by 1975) as Brazilian production recovered and new output likely to be generated by higher prices reached the market. On these assumptions earnings from coffee were estimated to average US$500 million annually in 1970-72, compared to US$340 million in 1967-69-an increase of almost 50%. Actual exports in 1970 were US$467 million-see Table 1-4-quite close to the projection, but those for 1971 will be substantially lower. The level after 1971 will be determined by the manner in which the remaining world coffee stocks are handled, and by coffee production policies. The first issue very much depends on the position taken by the major consuming countries in the International Coffee Council, as demonstrated during the last year. Adequate stock management would strengthen prices in the short run. The second issue is in the hands of the producing countries: if major new investments in coffee plantings can be avoided-through coordinated export tax policies, price policies, credit restrictions, ad- ministrative measures or a combination-world coffee prices over the long-run would be consi- derably above the historical average. Colombia, which accounts for 14% of world coffee sup- Table 1-6: COFFEE, WORLD CONSUMPTION AND PRODUCTION1 (In millions of bags of 60 kgs) Surplus (+) Consumption Production or Deficit (-) Imports into Consumption Consuming in Producing Countries Countries Total 1961 44 13 57 67 +10 1962 47 14 61 73 +12 1963 49 14 63 69 + 6 1964 49 14 63 66 + 3 1965 47 15 62 59 - 3 1966 50 16 66 82 +16 1967 49 17 66 58 - 8 1968 56 17 73 69 - 4 1969 53 18 71 61 -10 1970 53 18 71 65 - 6 1971 532 192 72 55 -172 1972 542 192 73 67-713 -2 to-62 ICalendar year for consumption; preceding crop year for production (i.e., 1971 means crop year 1970/71). 2Estimates. 3Preliminary for crop year 1971/72. Source. U.S. Department of Agriculture, Wor/dAgricultural Production and Trade, for production; George Gordon Paton & Co., Complete Coffee Coverage, for consumption.  COFFEE: WORLD PRODUCTION AND CONSUMPTION, 1900 TO 1971 a, (MILLION BAGS OF 60KG.) 100 I-T-T-I T I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I 100 80 80 WORLD PRODUCTION D 60 / 60 40 A 1 40 v~~~~~~~~~~~~~~~~ C z 0 20 20 ~~~~~~~t7l ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ o 0~~ NOTE: Before 1921, exportable Production and net imports. ' - IBRD - 4156(2R) >  THE OVERALL VIEW 7 ply, has been in the forefront of international efforts to control the world coffee market in a coordinated manner. Success in these efforts, which only.partly depends on Colombia, accom- panied by vigorous expansion of non-traditional exports, would mean that for the first time since the mid- 1950s growth of domestic output and investment would not be seriously con- strained by a shortage of exchange. Conversely, a prolonged slump in the coffee market and mediocre results in non-traditional exports, would make it very difficult to raise the economy's growth rate significantly above the historical average. The Employment Challenge Urban Unemployment In its recently published study,4 the ILO Inter-Agency Team has estimated open urban unemployment at 14% of the labor force in 1967. This is an average of sample surveys in eight cities, including the largest four. In addition, there is underemployment and "disguised" unemployment-persons without work who would probably seek it if open unemployment were lower. The ILO Team estimates these groups at 12%of the urban labor force on a full-time equivalent basis, again in 19.67 (Table 1-7). Table 1-7: URBAN UNEMPLOYMENT AND UNDEREMPLOYMENT, 1967 (Percentage of active urban labor force) Total Males Females 1. Open Unemployment --persons without work and seeking it 14 12 19 2. Disguised Unemployment -- persons without work and who would probably seek it if unemployment were much lower (7)3 10 n.a.2 3. Open Underemployment1 -- persons working less than 32 hours per week and seeking to work longer 2 2 1 4. Disguised Underemployment1 -- persons working less than 32 hours per week, and who would probably seek longer hours if the opportunity were available 3 2 4 TOTAL (25) 25 (25)3 1The proportion of the labor force working less than 32 hours a week is larger than this figure which is obtained by expressing the number of hours of underemployment in units of 48 hours (i.e. in its full-time equivalent) before the percentage is worked out. 2No estimate possible but probably substantial. 31ncomplete total; see footnote 2. Source: ILO, op. cit., p. 15. Partial evidence suggests that open urban unemployment has declined since 1967 (Table 1-8). 4. ILO, Towards Full Employment, A Programmefor Colombia, May 1970. The Inter-Agency Team was headed by Prof. Dudley Seers, Institute of Development Studies, University of Sussex.  8 ECONOMIC GROWTH OF COLOMBIA Table 1-8: UNEMPLOYMENT RATE IN BOGOTA, 1963-70 (%) 19631 1967 March 8.4 April 16.0 June 8.7 June 12.7 September 7.4 September 10.6 December 7.1 December 9.5 Average 7.9 Average 12.2 19641 1968 March 6.7 March 13.5 June 7.2 June 11.6 September 7.4 September 11.2 Average 7.1 December 9.8 Average 11.5 1965 1969 April 9.2 March 11.0 June 8.8 June 11.6 September 9.7 September 8.9 December 8.0 December 6.9 Average 8.9 Average 9.6 1966 1970 March 10.1 March 8.8 June 11.5 September 9.7 December 9.1 Average 10.1 IIn 1963 and 1964 the labor force includes persons of age 14 and over; in other years, to and over. Source: Centro de Estudios sobre Desarrollo Economico (CEDE), Universidad de los Andes. There are no recent unemployment surveys for cities other than Bogota. On the average, their unemployment in the past was higher by 2-3 percentage points. If they have experienced a similar movement but of a lesser magnitude than Bogota, open urban unemployment in Colombia now may average 10% to 12%. The massive increase in unemployment in the mid-1960s was associated with low output growth rates and depressed investment:5 the apparent improvement in the late 1960s coincided with acceleration in output growth and investment.6 5. In 1965-67 aggregate output rose at 4.4% per annum, industrial production at 5%, and gross fixed investment averaged 16.7% of gross product, all three below historical trend values. 6. In 1969-70 aggregate output rose at 6.5% to 7.0%, industrial production at 8.0%, and investment reached 20% of gross product, all three above historical trend values.  THE OVERALL VIEW 9 Labor Force Growth For the next ten to fifteen years Colombia's labor force is projected to grow at 3.5% per annum, one of the highest rates in the world. The expected labor force growth rate is higher than in the past, primarily because of an acceleration of population growth. Even if the latter, at present estimated at 3.3% per annum, were to fall off in the immediate future because of a reduction in the birth rate the growth of the labor force would be unchanged for the next fifteen years, since the expected entrants into the labor force have already been born. But unless the birth rate falls faster than the death rate, the problem, already grave, will be compounded in later years.7 During the last two decades employment rose by 2.2% per annum. This was associated with an output growth rate of less than 5% per annum. Continuation of these trends would lead to staggering numbers of unemployed, in view of the prospective labor force growth of 3.5% per annum. With an average productivity (output per man-year) growth of 3.2% per annum, output has to increase at 6.7% to absorb new entrants into the labor force. Output has to increase at 7% to 8% if unemployment is to be reduced. This is a challenge common to most Latin American countries-see the Prebisch Report.8 The Rural Problem Urban unemployment results in part from massive migration of the rural population. Between 1951 and 1964 the three largest cities grew at 7% per annum, more than double the rate of natural increase; all cities grew at 5.4%, while population in the rural areas increased at only 1.3%. More than one-half of the total population now lives in cities.9 A massive exodus from agriculture, in the face of insufficient employment opportunities in urban centers, is explained by poor living conditions for much of the rural population. It has been argued that agricultural real wages have changed little since 1935-a fall in the following 15-20 years being made up,by a rise which ended in 1963, and that the bottom third of the rural population is probably no better off than in the 1930s.10 The supply of basic facilities-water, health care, electricity-are vastly inferior in the rural areas. 11 Almost two-thirds of the schools in the rural areas provide only one or two years of schooling. As a result, of the total number of children enrolled in the first grade of primary schools, only 3% complete the fifth grade of such schools, while secondary education and vocational training facilities are virtually non- existent in the rural areas.12 Low incomes in agriculture reflect low productivity and the extremely small size of the vast majority of farms (minifundias). In 1960 a fourth of all farms enumerated contained only one-half of a hectare (1.25 acres) and half had less than three hectares. Many of these were un- doubtedly part-time farmers relying on other employment to assure livelihood. In contrast, three-and-a-half percent of large owners were recorded to hold two-thirds of all the farm area. Some of the largest holdings are in frontier areas which are not accessible for near-term devel- opment (Table 1-9). 7. The other factor determining growth in labor supply is the degree of participation of population in active labor force (participation rate). This rate has fallen in Colombia to a very low level of below 30%, partly as a result of changes in the demographic structure of the population (rising proportion of the very young) and partly as a result of growing unemployment (reducing the incentive to seek work and thus be counted as a member of the active labor force). A further fall is not anticipated; on the contrary, participation rates are now expected to start increasing. Hence, growth in labor supply exceeds the rate of population growth over the next fifteen years. (For detailed analysis see Chapter 2, Population. Employment, and Unemployment; ILO, op. cit.; and CIAP, Domestic Efforts and the Needsfor External Financing for the Development of Colombia, Volume 11, Appendix A, February 1970.) 8. Raul Prebisch, Change and Development, Latin America's Great Task. Santiago 1970. 9. Cities are defined here to include centers of 1,500 and more inhabitants. For discussion of urban and regional problems see Chapter 4, Regional and Urban Development. 10. Unpublished estimates by Prof. Albert Berry. 11. For details, see Chapters 13, Power, and 23, Water Supply, and 24-25, Public Health. 12. Chapter 22, Education and Training.  10 ECONOMIC GROWTH OF COLOMBIA Table j-9: PATTERN OF LAND DISTRIBUTION BY FARM SIZE, 19601 Percent of Farm Size Number of Total Number Total Area Percent of (Hectares) Farms of Farms (Hectares) Total Area less than 1 0 298,071 24 7 131,993 0 5 1-3 308,352 25 5 545,964 20 3-5 150,182 124 561,019 2 0 5-10 169,145 14 0 1,164,749 4 3 10-20 114,231 94 1,572,076 5 8 20-30 44,049 3 6 1,043,554 3 8 30-50 42,740 3 6 1,595,147 5 8 50-100 39,990 3 3 2,680,471 9 8 100-500 36,010 3 0 6,990,471 25 6 500-1,000 4,141 0 3 2,730,704 10 0 over 1,000 2,761 0 2 8,321,619 304 Total 1,209,672 1000 27,337,287 1000 isrnce 1960, 2 million additional hectares have been put under cultivation and 300,000 farms established Source Agricultural Census, 1960 According to officials of INCORA (the land reform agency), the figures in Table 1-9 tend to exaggerate the proportion of the land held in very large holdings some 3-4 million hectares should be deducted from the category above 1,000 hectares and regtstered as reverted to the public domain, and under INCORA's control This was mostly poor land deserted by the own- ers The quality of the land varies greatly, and while some of the large holdings are good arable land, it is maintained that the majority are not Drainage and irrigation are apparently needed in many holdings The problem is compounded by the improper utilization of good land, largely because of historical patterns of land ownership and use 13 Livestock raising goes on in large holdings in feriile valleys that should presumably be planted to crops, while sleep mountain slopes are frequently worked on and found denuded of their natural forests and therefore exposed to erosion Many family farrms are simply too small to support a decent level of living even where operated with reasonable efficiency These issues are discussed more thoroughly in the next section and in Chapter 14, Structure and Problems of Colombian Agriculture Major Issues of Resource Allocation A continuing emphasis on export diversification and a systematic policy of containment of the coffee sector represent necessary but not sufficient conditions for high rates of growth and employment Rates of growth in industry and non-coffee agriculture will have to be stepped up substantially, infrastructure facilities will have to be created, and there is a great need for new facilities in education, health, and water supply There is also a need for reasonable balance between capital and current expenditures Public policy influences resource allocation decisions in three ways through capital and current expenditures of the government and its decentralized agencies through the management of credit, and through price policy, including here tariff protection, pnce support, subsidies, tax incentives, and foreign exchange arrangements The Colombian authonties have made extensive use of all three devices The latter two-price policy and credit management-have been particularly important in the commodity producing sec- tors-agnculture and industry 13 See on this ILO, op cii, pp 59-63  12 ECONOMIC GROWTH OF COLOMBIA and cheap labor supply It is puzzling why long-run output growth has been so sluggish (3 4% per annum) With proper incentives since 1966, it has accelerated to more than 5 5% Agri- cultural trade balance (excluding coffee), on the average a negative US$25 million per annum in 1960-66 turned into a positive US$55 million in 1969, agricultural exports other than coffee have lately been increasing at 25% per annum Output expansion has been particularly rapid in grain sorghum, soybeans, cotton, sugar, and ricc The key problem of Colombia's agriculture is low average yield Its potential is indicated by high yields achieved on successful farms, yields which compare favorably with yields achieved in other developing countries, even those which have specialized in particular crops (see Chapter 18, UJnemploymetnt, Labor Absorption anzd the Future Possibilities in Agriculture) Two main policy questions loom very large in agriculture (a) Which crops should be stimulated, through price support, credit, and government investment and research? (b) At what speed should land reform be carried out7 In principle, the decisive considerations in answering the first question are the differences in time and costs involved in raising yields of different crops those crops should be slimulated for which time and cost requirements are likely to be lowest A complication arises because properly relations in agriculture differ considerably for different crops stimulation of a promis- ing crop grown prnmarily by large commercial farmers would not help the large majority of small farmers And the other way around a crop may not be particularly promising over the short run, but if grown primarily by large numbers of small farmers, might merit support on social as well as economic grounds In some cases the conflict can be avoided grain sorghum, output of which has increased rapidly, and which is badly needed as input for meat production, is primarily grown by small farmers, cocoa, which has excellent natural growing conditions and which is needed as a substitute for imports, is grown on medium-sized farms and its expansion is likely to be concentrated there as well (Table 1-10) But cotton, a very rapidly expanding crop, is pnmarily grown by large commerical farmers, while corn and wheat, the least compet- itive of all crops, are found primanly in smaller farms (There is, however, no reason why cot- ton cannot be grown by smallholders or corn or wheat on commercial scale farms) Table 1-10' CROP AREA IN RELATION TO FARM SIZE (Percentages) Farms Farms Farms Farms 0-5 5-50 50-200 over 200 Crop Hectares Hectares Hectares Hectares Total Cotton 3 9 18 8 28 6 48 7 100 0 Rice 7 1 26 2 28 2 38 5 100 0 SOTghum &MLElet 35 3 41 3 14 3 9 1 1000 Cocoa 17 1 538 IB6 105 1000 Corn 262 423 180 13 1 1000 Wheat 306 525 123 46 1000 Source Chapter 14, Structure and Prohlems of Colombian Agriculture These circumstances preclude ideal solutions, but they still allow for intelligent solutions Situations should be avoided in which support prices lead to such output expansion of a non-competitive crop that large financial losses are sustained by the government in exports, as happened with rice in 1969 Similarly, the objective of corn price support policy might not be to generate export surpluses, but to meet the rapidly rising doniestic demand for feed (together with sorghum) While support to domestic wheat production will continuc to be needed, it is  12 ECONOMIC GROWTH OF COLOMBIA and cheap labor supply. It is puzzling why long-run output growth has been so sluggish (3.4% per annum). With proper incentives since 1966, it has accelerated to more than 5.5%. Agri- cultural trade balance (excluding coffee), on the average a negative US$25 million per annum in 1960-66 turned into a positive US$55 million in 1969; agricultural exports other than coffee have lately been increasing at 25% per annum. Output expansion has been particularly rapid in grain sorghum, soybeans, cotton, sugar, and rice. The key problem of Colombia's agriculture is low average yield. Its potential is indicated by high yields achieved on successful farms, yields which compare favorably with yields achieved in other developing countries, even those which have specialized in particular crops (see Chapter 18, Unemployment, Labor Absorption and the Future Possibilities in Agriculture). Two main policy questions loom very large in agriculture: (a) Which crops should be stimulated, through price support, credit, and government investment and research? (b) At what speed should land reform be carried out? In principle, the decisive considerations in answering the first question are the differences in time and costs involved in raising yields of different crops: those crops should be stimulated for which time and cost requirements are likely to be lowest. A complication arises because property relations in agriculture differ considerably for different crops: stimulation of a promis- ing crop grown primarily by large commercial farmers would not help the large majority of small farmers. And the other way around: a crop may not be particularly promising over the short run, but if grown primarily by large numbers of small farmers, might merit support on social as well as economic grounds. In some cases the conflict can be avoided: grain sorghum, output of which has increased rapidly, and which is badly needed as input for meat production, is primarily grown by small farmers; cocoa, which has excellent natural growing conditions and which is needed as a substitute for imports, is grown on medium-sized farms and its expansion is likely to be concentrated there as well (Table 1-10). But cotton, a very rapidly expanding crop, is primarily grown by large commerical farmers; while corn and wheat, the least compet- itive of all crops, are found primarily in smaller farms. (There is, however, no reason why cot- ton cannot be grown by smallholders or corn or wheat on commercial scale farms.) Table 1-10: CROP AREA IN RELATION TO FARM SIZE (Percentages) Farms Farms Farms Farms 0-5 5-50 50-200 over 200 Crop Hectares Hectares Hectares Hectares Total Cotton 3.9 18.8 28.6 48.7 100.0 Rice 7.1 26.2 28.2 38.5 100.0 Sorghum & Millet 35.3 41.3 14.3 9.1 100.0 Cocoa 17.1 53.8 18.6 10.5 100.0 Corn 26.2 42.3 18.0 13.1 100.0 Wheat 30.6 52.5 12.3 4.6 100.0 Source: Chapter 14, Structure and Problems of Colombian Agriculture. These circumstances preclude ideal solutions, but they still allow for intelligent solutions. Situations should be avoided in which support prices lead to such output expansion of a non-competitive crop that large financial losses are sustained by the government in exports, as happened with rice in 1969. Similarly, the objective of corn price support policy might not be to generate export surpluses, but to meet the rapidly rising domestic demand for feed (together with sorghum). While support to domestic wheat production will continue to be needed, it is  THE OVERALL VIEW 13 debatable whether Colombia should strive for self-sufficiency if non-traditional exports grow rapidly (and therefore imports can be paid for). It is doubtful whether the policy of subsidized credit should continue with respect to large commercial farmers: social objectives would be adequately served if subsidized credit is available only to small farmers. (A dual support price system-higher prices for small farmers and lower for large ones-is difficult, but dual credit conditions are feasible.) Commercial farming appears sufficiently profitable to be able to afford the full cost of credit.17 The second question concerning the speed of land reform has been discussed extensively, most recently by the ILO team. A powerful agency, INCORA, has taken a leading role not only in agrarian reform but in rural development generally: it is engaged in supervised agricultural credit, in large-scale irrigation and drainage works, colonization, and preparation of preinvest- ment studies.18 Further preinvestment studies, one covering an entire region, are proposed.'9 The organization is now able to carry out land redistribution and to support the beneficiaries much better than several years ago. Over the long run, there is no reason to think that agrarian reform would adversely affect output. An individually operated farm is likely to enjoy a much larger labor input and can be planted to higher value crops than the farm worked by tenants and hired labor.20 Over the short run, the critical question is how adequate are supporting services following the reform. The experience thus far is encouraging: the yields on small holdings in the INCORA projects, where adequate technical assistance and credit are provided, compare favorably with yields on large commercial farms.21 If this pattern can be maintained fears of a short-run decline in output would not be justified, while social benefits of agrarian reform would be enormous. Income distribution in agriculture, which is more skewed than in the urban areas,22 would improve, and so would rural living standards; while the migratory flow off the land would be slowed down, relieving the pressure of unemployment in the cities. As pointed out by various qualified observers, a major constraint on acceleration of the pace of land redistribution and colonization in Colombia is the government's ability to provide adequate supporting services after settlement. The research, manpower training, and financing efforts needed to make land transfer an effective vehicle for rural improvement may already be near short-run limits. To step up the tempo of land distribution far beyond the country's ability to furnish these essential services could result in the creation of thousands of new subsistence farmers barely able to eke out a living from their new plots. Since this is not a pleasant prospect, it must be concluded that Colombia will do everything possible to train and recruit new agricultural extension people, soil scientists, crop experts, education and public health special- ists, and, in short, do what is necessary to permit a more rapid and equitable utilization of the country's land resources. 17. In a sample survey of fourteen export products in 1968, the highest profit margins were recorded in bananas and cotton, the chief non-coffee farm exports. Margins amounted to 16% of sales. 18. See Chapter 14. (Drainage and irrigation works have proven to be quite expensive per family benefited.) 19. See Chapter 5, Preinvestment Study Program 20. ILO, op. cit., pp. 64-65. There is an apparent inconsistency between the evidence shown in Chapter 14, which indicates that yields per hectare in a number of crops increase with farm size, and the evidence quoted by ILO which states that gross value of output per hectare on the sub-family farms is much higher than on the very large farms. One possible explanation may be that the very large farms normally use a large proportion of land for livestock grazing (which has low output value per hectare) or leave part of the land unworked, while sub-family farms use all the land for growing the highest value crop that is technically possible. The result would then be that even if large farms achieve higher yields in individual crops, they obtain lower gross value per hectare owned, on the average. 21. See Chapter 14. 22. In 1960 the 5% of the population in agriculture with highest incomes received 40% of total farm income, and had an average income which was twenty times as high as the median income of the agricultural population. In the cities in 1964, the corresponding figures are one-third and nine. (Albert Berry, The Distribution ofAgriculturally Based Income in Colombia, 1960; Miguel Urrutia y Clara Elsa Villalba, "La distribucion del ingreso urbano para Colombia en 1964, " Revista del Banco de la Republica, September 1969.) It is unlikely that the situation has changed radically since.  14 ECONOMIC GROWTH OF COLOMBIA Industry Tariffs for Colombian manufacturing are relatively high: two-fifths of the items carry duties above 45% implying an effective exchange rate in excess of Col$25 per US$ for the products concerned. It is questionable, however, how representative this is for the cost and price level of the industrial sector as a whole. About one-half of Colombian manufacturing still consists of non-durable consumer goods (Table I-11) where economies of scale are not important and where prices do not compare unfavorably with foreign prices at the exchange rate range of Col$20-23 per US$. Another third of industrial output consists of intermediate goods where economies of scale are relevant: in several major product groups in this category Colombia has become an exporter at the exchange rate of Col$20 per US$. The key issue for Colombian manufacturing is not that the present industrial structure is inefficient and high-cost, although inefficiencies exist, but what policies would have to be pursued in the future to avoid major mi- sallocations of resources while still assuring rapid industrial growth. This question is particu- larly relevant for the intermediate and capital goods industries. As for intermediate goods, Colombian prices are reasonably competitive with import prices in steel, for the limited range of products that are domestically produced, although this may be less so when the world market weakens as is now expected. Steel consumption is of the order of 600,000 tons and is projected to increase to close to I million tons by 1975. It is of crucial importance for the future of the Colombian engineering industries that they obtain as low-cost steel as possible, and the issue of phases of development and location of an integrated industry Table 1-11: STRUCTURE AND GROWTH OF MANUFACTURING OUTPUT Gross Value Added, 19671 Annual Growth (Col$ million) Rate 1953-1967 Non-durable consumer goods 8,430 5.3 Food 2,442 Beverages 2,072 Textiles 1,001 Clothing and footwear 644 Pharmaceuticals 1,183 Other 1,088 Durable consumer goods 1,004 8.0 Intermediate goods 4,940 8.7 Textiles 1,001 Chemicals 866 Non-metallic minerals 794 Metal products 674 Petroleum and coal products 572 Paper and products, basic metals, leather, and wood 1,034 Capital goods2 621 11.5 Other 412 13.3 15,406 6.7 l For conversion into dollars the 1967 exchange rate of Col$ 15 per US$ should be used. 2Except appliances and motor vehicles. Source: Chapter 6, Role and Characteristics of Colombian Manufacturing, and Statistical Annex.  THE OVERALL VIEW 15 (interior versus Atlantic coast) is suggested for a priority preinvestment study. Domestic pro- duction of fertilizer, another key intermediate product, appears competitive with import prices, but distribution costs are very high and there is great uncertainty regarding specific mixes needed for the different crops in the highly varied soils and climates of Colombia. This complex of issues and the associated further development of the industry also call for urgent detailed investigation. In other chemicals the production is new, technical efficiency is below international standards, and the scale of output too low. Prices are particularly high in synthe- tic fibers. It is suggested that further development of the petrochemical industry be planned in the context of the Andean regional market.23 Production of construction materials such as ce- ment and asbestos products is quite competitive: these materials enter the export market. Also competitive are petroleum and coal products, paper, wood products and textiles. The Colombian market for capital goods is now of the order of US$400 million per annum, and it should grow rapidly. The development of the domestic engineering industries would be stimulated if present high duties on imported inputs for these industries were reduced.24 Given the relatively small size of the market, the industry would find it useful to specialize in particular products and in parts of particular production lines-perhaps in interchange with major interna- tional manufacturers-to the maximum extent possible. Planning growth of a domestic engi- neering industry and associated adjustments in domestic tariff, licensing, and credit arrangements will be a novel experience. It is suggested that a special unit be established in the government to carry out the needed market and production studies and to make recommenda- tions concerning policy changes and specific licensing decisions. The introduction of the flexible exchange rate and the across-the-board export subsidy on non-traditional products in 1967 has played a crucial role in shaping the Colombian industrial structure. By this measure Colombia has taken a major step to insure not only that rising domestic demand for imported industrial inputs will be matched by an expansion of industrial exports and thus of import capacity needed to sustain rapid industrial growth, but also that specialized production for the world market can compete for productive factors with production for the protected domestic market, thus raising the efficiency in resource use all-around. It is of fundamental importance that this policy be continued, in one form or another. Thus, if in order to accelerate industrial growth it is necessary to raise effective protection on engineering and/or intermediate goods and this cannot be achieved by reducing duties on imported in- puts, the increase in protection should be accompanied by an increase in the export subsidy. This would obviate the need for extremely high protection and the associated increases in real costs and disincentives for capital investment, while still achieving the objective of rapid in- dustrialization. One of the major problems which will face industry in Colombia, in common with other developing countries, is trade restrictions in major foreign markets. Colombia has developed an efficient, high-quality textile industry, based on domestic raw materials, which is now emerging as a major exporter. Its export effort can be supplemented by a massive expansion of ready-made clothing, a field where other developing countries have made major advances. But if expansion is thwarted by foreign restrictions on trade, Colombia will be pushed into developing other subsectors where it is less efficient and where higher rates of protection and subsidy will be needed. The example of textiles is not unique. The objective of full employment will be much more difficult to attain if the present climate in international trade relations persists. Commodity Producing Sectors.: Credit Allocation Colombian industrialists and bankers maintain that the major obstacle to industrial expan- sion at the present time is shortage of credit for working capital. This complaint can mean two different things: (a) credit to industry and commerce is more expensive than credit to other sectors; and (b) credit from the organized banking system is simply not available for certain 23. See Chapter 5, Preinvestment Study Program. 24. The duty on copper products is 35-40%, on parts for electrical machinery 40% and on parts for mechanical machinery 50%.  16 ECONOMIC GROWTH OF COLOMBIA classes of industrial borrowers. The statistical evidence confirms (a): credit is regulated in such fashion that industry and commerce pay substantially higher interest rates than other sectors. Lending to industry and commerce for working capital is done mostly by commercial banks at the nominal interest rate of 14%;25 to this should be added commissions and there is also a frequent practice of requiring compensating balances; the result is an effective interest rate of 17-18%. Lending to agriculture, mostly through the Caja Agraria and the Livestock Bank, occurs predominantly at interest rates ranging from 8-1 1%(Table 1-12). Similarly, lending for housing carries interest rates of 9-13%.26 It is maintained that some industrial and commercial borrowers of lower credit standing have to obtain funds in the street market at 2%per month or higher; this market is allegedly fed in part from loans obtained by livestock raisers at low agri- cultural interest rates. Table 1-12: PORTFOLIO OF THE BANKING SYSTEM BY INTEREST RATES, 1968 (In thousands of Col$) Interest Commercial Caja Agraria & Rate Banks Banco Ganadero Mortgage Bank Financieras 0-6 186,407 173,444 72,287 - 7-8 919,579 1,272,564 44,985 5,746 9-10 1,139,826 949,398 428,800 566,347 11-12 928,522 1,804,788 1,121,822 197,354 13-14 4,800,004 91,615 263,810 596,158 15-16 125,255 1,774 - 306,251 17-18 9,188 - 822,866 586,631 Total 8,108,781 4,293,583 2,754,570 2,271,000 170% of the portfolio is owed by industry and another 25% by construction activities. Sources: Banco de la Republica, P.I.F. and I.F.I. There is no direct evidence to confirm (b), inability of certain classes of industrial borrow- ers to obtain short-term credit. Credit to industry and commerce has risen at a significantly lower rate than the gross product of these two sectors, however, (see Table 1-13) implying a credit shortage which may mean that commercial banks have tightened creditworthiness stan- dards and restricted lending to other than prime customers. This may have affected particular- ly severely the smaller firms with limited fixed assets: their ability to offer collateral is limited, although their potential to offer employment and thus the need for working capital may be substantial. Until recently it did not appear that there was a shortage of long-term funds for industrial investment: the industrial portfolio of the financieras rose from Col$981 million at the end of 1967 to Col$2,281 million at the end of 1969. Lately, the draw-down on financiera resources has accelerated and the applications for loans with the five largestfinancieras are now35%above the last year's level. At the same time demand for short-term credit, responding to an accelera- tion of industrial activity, must have risen sharply, bringing to a head the complaints about its shortage. This shortage appears to be felt in the first instance at the level of commerce: the lag in banking accommodation to commerce (the share of commerce in total credit has fallen from 22% in 1960 to 15% in 1969) is apparently offset by industry extending credit to distributors, which then causes a liquidity squeeze in industry itself. 25. The part of the portfolio of commercial banks at interest rates below 14%, shown in Table 1-12 is owed by privileged borrowers, mostly the agricultural sector, to which commercial banks have to lend a stated percentage of their resources. 26. The exception is lending by the mortgage bank for general purposes (30% of its portfolio where the house is collateral); these transactions take place at 17%  THE OVERALL VIEW 17 Table 1-13: INDUSTRY AND COMMERCE: LOANS BY COMMERCIAL AND SPECIALIZED BANKS (OTHER THAN FINANCIERAS) AND GDP, 1960-69 (In millions of current Col$) Credit out- Credit Outstanding GDP standing as percentage of Industry Commerce Total Industry Commerce Total GDP 1960 756 963 1,719 4,939 4,086 9,025 19 1961 933 1,128 2,061 5,655 4,476 10,131 20 1962 977 1,276 2,253 6,708 4,799 11,507 20 1963 1,372 1,452 2,824 9,050 5,990 15,04Q 19 1964 1,662 1,397 3,059 10,320 8,033 18,353 17 1965 1,763 1,635 3,398 11,966 9,803 21,769 16 1966 2,088 1,798 3,886 14,213 12,800 27,013 14 1967 2,443 2,146 4,589 15,662 13,879 29,541 16 1968 2,711 2,559 5,270 17,550 16,711 34,261 15 1969 3,112 2,786 5,898 20,095 19,210 39,305 15 Source: Banco de la Republica. Three conclusions follow from the above. First, if the demand for finance by the commodity producing sectors continues to be high, room for government borrowing from the banking system during the next several years will be narrow. Second, foreign lending agencies should consider allowing their credit lines to be used for lending for working capital. Third, a compre- hensive reform of the Colombian credit system is needed. As a result of a series of regulations over the years, there is at present an array of lending windows for different classes of borrowers, each class enjoying different terms; a very large proportion of the resources of the banking system is preassigned to favored borrowers; and the burden of adjustment, in terms of high interest rates and shortage of credit, falls with full force on the residual claimants. Credit management has not been pushed to the point at which there are significant classes of borrowers obtaining credit at negative real rates of interest, but while rates in real terms for industry are as high as 10-11% those for agriculture and housing range from 1-6%. There is a case for low subsidized interest rates for small farmers and also for low-income housing. It is difficult to find a case for such rates either for large commercial farmers or for middle-income and high-income housing. With respect to agriculture, there probably should be a transitional period in order to avoid the risk of disturbances to production. The authorities are aware of the imperfections and complexity of the present system and have been examining its operation and the possibilities of reform. This is an urgent issue requiring priority attention. Infrastructure: Transport and Power Considerable progress has been made in assuring improved supplies of transportation services and electric power. In both sectors large investments have been made in the past; public policy in both has faced the problem of integrating separate systems into national networks; both will continue to claim large public resources, although their proportionate shares, particularly that of transport, may decline; and in both there are unresolved issues of administration and of financial policy although in different degrees. Transport. Colombia has coastlines on both the Pacific Ocean and the Caribbean Sea; but this transport advantage is offset by the difficulty of movement between the coasts and the interior. The three massive ranges of the Andes present formidable barriers to communication between the main areas of population and production, which until recently developed as sep-  18 ECONOMIC GROWTH OF COLOMBIA arate and almost isolated communities. Transport investment policy over the past twenty years has been aimed at national integration and at overcoming the situation imposed by geography. Within the next few years the task of establishing what might be termed the basic transport network of the country should be completed. Investment in transport averaged 30% of public investment in the four years 1966-69, two-thirds of which was for highway construction and improvement. The emphasis has been on the main trunk system, and this component of expenditure will continue to loom large in the total during the next several years as projects now under way are completed. The emphasis will be gradually changing, however, with increasing attention being given to the subsidiary network, including feeder roads. It is suggested that planning of the latter be done in the context of specific schemes for agricultural improvement, to the maximum extent possible. This is the case in particular in the southern and south-eastern parts of the country (Narino, Caqueta and Meta) where colonization is taking place, as well as in the north (Cesar and Ariguani Valleys). In constructing feeder roads, the possibility of maximum use of labor should also be examined. Colombia's railways have been experiencing declining passenger traffic and stagnating freight traffic for a number of years, and they will face further problems of adjustment as the trunk road system is completed. About 260 km of apparently uneconomic lines (out of a total of 3,400 km) are being studied for possible closure. Further rationalization of operations is needed, to reduce the number of derailments, improve the service, and improve the financial position. Needed investments include track rehabilitation, replacement of old rolling stock, and acquisition of additional motive power. Recent and scheduled investments are expected to provide adequate capacity in the major ports. Cargo handling has presented a problem, particularly in customs clearance, and it is suggested that a management study of port operations be undertaken.27 Power. During the last twelve years, energy demand has been increasing at 11% per annum. This rate will be maintained and probably accelerated in the future. The resource base is excellent: large hydroelectric potential in the extensive central mountain system, oil in the north and southwest, natural gas in the north, and coal in several parts of the cordilleras. A large investment program is under way and additional investments are planned or are proposed for study.28 Steps have been taken since 1969 to interconnect the various regional systems in the central and southern parts of the country, which will permit the development of larger and more economical projects and joint planning of power utilization. Similarly, steps are now under way to interconnect individual systems in the north. With these developments Colombia is approach- ing a fully integrated national power network: it is suggested that a preinvestment study be undertaken to examine alternative programs of transmission and generation projects to achieve such full integration. Despite large investments in tinc past shortages of power have been frequent in particular areas, and they were especially noticeable in 1969 when demand accelerated. There have been gaps in both generating and distribution facilities; present investments are expected to fill the deficits in power generation, while studies are under way to develop a comprehensive program of subtransmission and urban distribution projects. The latter have been particularly lagging. The standardization of types and sizes of equipment and materials for distribution facilities, expected from ongoing studies, will facilitate greater use of local manufactures. Domestic industry is able to produce a fairly wide range of equipment: small transformers, cables, insulators, conduits and fittings, poles, steel towers, minor switchgear and control boards, lighting fixtures, etc. Practically all of these local manufactures include foreign components or materials in various degrees, and their prices are usually higher than those of foreign supplies for public utilities which are exempted from import duties. Domestic producers will have to undertake capacity expansion and improve quality control to be able to meet the expected increase of demand, while adjustments in tariffs and in procurement practices of the utilities 27. Chapter 5, Preinvestment Study Program. 28. See Chapter 13, Power.  THE OVERALL VIEW 19 are needed to enable the domestic producers to compete with foreign suppliers within a reasona- ble margin of effective protection. Rural electrification is in its initial stages in Colombia, and the only systematic program thus far has been carried out in the coffee-growing regions in cooperation with the Coffee Federation. There is an increasing awareness of the need to approach the program on a national scale. Solutions will have to be worked out through close coordination between the electrical agencies and agricultural entities, such as INCORA, the Caja Agraria and the Coffee Bank. Because of the magnitude and complexity of the issue it is suggested that a comprehensive preinvestment study be undertaken to prepare and evaluate alternative programs of rural electrification in priority areas, including preliminary designs, estimates of construction costs, and future financial position, which could then serve as a basis for determining the scope and the rate at which rural electrification can be undertaken. The power sector suffers from inadequate and poorly structured rates in parts of the system. The establishment of a comprehensive and rational tariff policy has been needed for years; until recently, tariff adjustments have been granted on an ad hoc basis, and sometimes they have been too little and too late. In 1968 the Government established the Public Utilities Board (Junta Nacional de Tarifas de Servicios Publicos) as part of the Planning Department to regu- late public utility tariffs, including their restructuring and upward adjustments to cover oper- ating expenditures and provide a reasonable return on revalued assets. A comprehensive sys- tem of analysis and procedure has been worked out, including national uniformity in account- ing, reporting, and valuation techniques. The Planning Department is now considering the re- vision of the basic structure of tariffs. The problem to be resolved by all these activities is of some significance: the national government's budgetary subsidies to service the debt of the In- stituto Colombiano de Energia Electrica, a holding company for 28 utilities, have increased from Col$45 million in 1968 to Col$73 million in 1969 and are programmed at Col$120 mil- lion for 1970 (US$6.0 million). Only a part of these amounts is channeled to rural electrifica- tion systems. Social Sectors Education. In the last decade, Colombia has been confronted with the problem of recon- ciling demands for school places and the need to improve and reorient the education system. Under the pressure of growing social aspirations and the strain of the population explosion, expansion in practice received priority. Overall enrollments between 1960 and 1968 increased on average at a rate of 6.2% , 11% and 14.2% per annum in primary, secondary and higher education respectively with enrollments in 1968 of 2.7 million in primary, 0.6 million in secondary and 64,000 in higher. (Table 1-14) Traditionally, there have been inequalities in the distribution of educational opportunity, and development of technical skills has been lagging. The overall rate of illiteracy was reduced considerably between 1951 and 1964, but it has remained three times higher in the rural areas Table 1-14: SCHOOL ENROLLMENTS, 1960 AND 1968 1960 1968 As Percentage of As Percentage of Appropriate Appropriate Enrollment School Age Enrollment School Age Level in '000's Population in o000's Population Primary 1,690 77 % 2,7331 94%1 Secondary 254 9.8% 587 17% Higher 22 1.6% 64 3% Total 1,966 32.9% 3,384 40.6% ltncluding 737,000 of over-age pupils; of the total 7 through 11 age group 69% were enrolled in 1968, compared with 59% in 1960. Source: Chapter 22, Education and Training.  20 ECONOMIC GROWTH OF COLOMBIA (41%) than in the urban (15%); the average length of schooling in the former was 1.7 years as compared with 5.1 years for the urban dwellers. A major problem in primary schools, particularly in the rural areas, is a large proportion of over-age students. Capital construction is lagging. Technical education has been insufficient, particularly at the medium level. Funding has not been adequate. A number of measures have been taken in recent years. They include: development of more modern curricula; reorganization and rehabilitation of school facilities with particular reference to rationalization and consolidation at secondary and higher levels; increased pre-service and upgrading teacher programs; expansion of the multiple-grade schools to improve educational opportunities in the rural areas, combined with expansion of the tested instructional television program; establishment of well-endowed, more centrally situated first-cycle comprehensive schools and provision of text books; more systematic educational research activities. What now appears to be needed is to formulate an overall program of reform and expansion covering the next ten years, within which both a short-term project-oriented plan and the needed preinvest- ment studies can be determined.29 The possible objectives of such program could be the following: (a) A smoothing of the flow of students through the primary education system. This would make possible achievement of universal primary education in the late 1970s, with special emphasis given to fulfilling needs in the rural areas; (b) a phasing out of first-cycle technical schools (which have proved ineffective), but combining this with increased provisions for first-cycle comprehensive secondary ed- ucation and assumption by SENA (a successful apprentice training system) of increas- ing responsibility for school leavers and dropouts who have no employment skills; (c) a shift in the proportion of students in second-cycle, technical education or technically- oriented education from 30% of total second cycle enrollments in 1968 to about 70% in 1980; (d) a shift in the proportion of students in technician level coursesin higher education as compared with students in degree courses from 16% of higher education enrollments in 1968 to 30% in 1980; (e) a giving of priority in the process of restructuring and rationalization, to conversion and reequipping over new construction, and always first providing improved facilities for the rural and rural-urban areas. The expansion implicit in such a program would, in addition to achieving universal primary education, raise the enrollments in secondary schools from 17% of the relevant age group in 1968 to 45% in 1980, and those in higher education from 3% to 5.5%. A substantial financial cost would be involved, both in capital and in current expenditures. Total education expend- itures would rise from 4% of GDP in 1968 to 4.6% and 5% in 1975 and 1980, respectively, which the country should be able to handle. The apparent alternatives, expansion or reforms, are mutually exclusive only for so long as expansion remains undirected and uncontrolled. Additional or expanded facilities have been and will be required for implementation of some of the reforms-for example, the IBRD- assisted diversified secondary education project; the UNDP/Unesco agricultural institutes pro- ject; the proposed centralization of industrial secondary facilities; expanded and improved facilities in educationally underprivileged areas; facilities for courses to train neglected or new skills. In judging the desirability of expansion and reform, one more factor has to be taken into account: the impact of education on fertility and on population growth. "The urban pregnancy rate of persons with some primary (and up to three years of secondary) education is some 13% 29. For specific suggestions see Chapter 22, Education and Training.  THE OVERALL VIEW 21 lower than for persons with no education, and a further 22% lower among persons with more than eight years of education. Differences of this order exist within both rural and urban areas, even though all the rural rates are higher. These differences are not alone sufficient to justify a program of educational expansion . .. ; but in conjunction with other programs, education can play an important part . . .-30 Public Health. Between 1961 and 1969, public health expenditures rose in real terms at 9.7% per annum. The main beneficiaries of this expansion of the public health system have been the relatively small fraction of the employed population covered by social security and other special programs. Per capita public health expenditures for the preponderant segment of the population outside these programs appear to have fallen in real terms. This has inevitably affected the rural population. It is in these areas that the availability of both health personnel and health facilities is particularly low. The above situation notwithstanding, substantial advances have been made in the reorgani- zation of the public health system, in the supply of health services and in the institution of a comprehensive National Health Plan, 1968-77. Future advances will be faster and even more substantial than in the past if the priorities established by that Plan are followed and its objectives are met. Almost all specific programs included in the Plan-improved environmental sanitation, mass vaccination against major epidemic diseases, widespread nutrition education and dietary fortification, tuberculosis prevention, malaria eradication, augmented maternal and child health services, and expansion of comprehensive health and medical systems-call for rapid increases in current spending. A family planning program has recently been launched to cope with the urgent and mounting problems of a rapidly increasing population complicated by accelerated mass migrations to urban centers. In the past, the building of health facilities was almost exclusively a responsibility of local authorities or local philanthropic groups. The absence of national or regional plans, insufficien- cy of funds to complete construction and install equipment or to initiate and maintain opera- tions, has resulted in a large proportion of unused capital resources. A recent inventory identified 865 partially completed and unequipped hospitals and other health care facilities scattered throughout the country. This compares with 1,800 facilities now in operation. The National Health Plan has attached priority to completion and equipment of some of those unfinished structures, as well as modernization and re-equipment of the majority of existing hospitals, health centers and health posts; and it has for the first time established a rational and systematic approach to future capital investments by creating the National Hospital Plan to set standards, review and approve construction plans and award funds on a competitive basis according to a national plan. Shortages of all categories of essential health personnel and the maldistribution of the limited health manpower supply comprise the most difficult and demanding problems currently being faced by Colombia's health leaders. These manpower problems require reorientation and augmentation of education and training at all levels, particularly for middle level personnel- auxiliary nurses, technicians of all types, medical and dental assistants, sanitarians, statistical assistants and higher level clerical workers. This will be feasible provided other educational institutions, in addition to the university medical schools, are fully mobilized for this purpose and their health manpower training programs are integrated within the framework of a national health manpower plan. Efforts in this direction are evolving but are handicapped by severe limitations in both capital and operational resources.31 Water Supply. Since the mid-1960s the Colombian authorities have been expanding water supply facilities at an accelerating rate. At present about one-half of the population is 30. ILO, op. cit.. p. 191, based on Carlos Agualimpia et al, "Demographic Facts of Colombia," Milbank Memorial Quarterly, July 1969. 31. See Chapter 24, 7he Present hlealth Situation, and Chapter 25, Resources for Hlealth and the National Health Plan.  22 ECONOMIC GROWTH OF COLOMBIA connected to a water system or has access to water services; this compares with 40% five years ago (Table 1-15). Table 1-15: WATER SUPPLY SERVICES AND POPULATION SERVED, 1965 and 1970 Estimated Population Under Agency Estimated Population Percentage of Jurisdiction with Water Services Population Agency (millions) (millions) Served 1965 1970 Increase 1965 1970 Increase 1965 1970 Empresas (larger cities) 5.8 7.2 1.4 4.0 5.9 1.9 69 82 INSFOPAL (medium and smaller cities) 4.6 5.8 1.2 2.0 2.8 0.8 43 48 INPES (cities under 2,500 population and rural areas) 8.0 8.6 0.6 1.5 2.2 0.7 18 25 18.41 21.61 3.2 7.5 10.9 3.4 41 51 lEquals total population of Colombia. Source: Chapter 23, Water Supply. Faster advance in the larger cities than in the rest of the country is explained by their financial strength and better organization. In smaller cities very low internal cash generation and the absence of long-range investment programs represent major obstacles to expansion. In the rural areas, additional factors are dispersal of population and, until recently, the absence of a national organization responsible for construction of rural water systems. Since 1968 such an organization, the National Institute for Special Health Programs (INPES), has been operat- ing within the Ministry of Health. Between 1965 and 1969 investment in water supply doubled; it is expected to double again by 1975. The planned expansion should meet 85% to 90% of the demand in the cities and 50% in the rural areas. Substantial advance will also have been made in the supply of sewerage facilities where the lag has been much greater than in water supply. The achievement of these objectives will call for a major organizational effort, particularly in smaller cities and in their holding company, INSFOPAL, as well as in INPES for the rural systems. It will also call for an improvement in the financial position of the urban water systems. The national government's budget for 1970 includes subsidies to INSFOPAL for operating expenditures and debt service of its subsidiaries in the amount of Col$40 million. The gov- ernment intends to reduce and eventually to eliminate these subsidies, and to use authorizations for external credits and internal financing to induce the companies to adopt the criteria which govern the operations of the Public Utilities Board. The capacity of the companies to generate funds internally and thus to meet at least a part of local currency expenditures will be a significant factor in the implementation of their plans to attract foreign finance. Public Investment and Finance Note: The first two parts of this section review the public investment program and financing plan 1969-72; they were written in mid-1970. The third part, written in mid-1971, summa- rizes the recent developments. 1970-72 Public Investment Program Toward the end of 1969 the Government presented to Congress a Development Plan 1969-72. The plan includes a public investment program in low, medium, and high versions.  THE OVERALL VIEW 23 These versions correspond to different assumptions concerning growth rates of output and exports. For 1970 the government has accepted the high version and it is this version which is discussed below for the period 1970-72. It is associated, according to the plan, with overall growth rates ranging from 6.6% to 7.3% per annum. For the purposes of the plan the public sector has been defined to exclude departments and municipalities but includes entities which "participate in foreign credit extended through the mechanism of the Consultative Group." Public investment includes debt amortization, adminis- trative expenditures of many decentralized agencies, gross purchases of products by IDEMA (the price support agency), and various current expenditures, mainly in the field of technical assistance, training, extension services and maintenance expenditures, as well as the entire portfolio of some specialized semi-official banks. For the purposes of the analysis below the public sector has been redefined to agree with available historical statistics as well as to correspond to the more conventional concept of public investment. Table 1-16 shows the redefined public investment program: it consolidates central, departmental, and municipal investments as well as those of decentralized agencies; it includes budgetary transfers to the private sector; but it excludes current expenditures, amortization payments, banks' portfolios, and the like. Table 1-16 also shows the mission's adjustments to the redefined program. They are mainly in electric power, water supply, education, industry, and transport. Power projects firmly planned for the next few years will require larger invest- ments than were foreseen in the program; in water and sewerage, larger investments than those planned would be needed to achieve the objectives stated in the plan; in industry, a rescheduling of expenditures is required in view of known and probable delays in project execution; and in transport, in addition to rescheduling, there is a suggestion for a reduction. In the aggregate, these adjustments of the redefined program call for an expenditure level 4% higher than was programmed, over the three-year period. In real terms the increase between 1969 and 1972 works out at 12% per annum. This is a deceleration from the 1966-69 period when public investment rose at the extraordinary pace of 21 % per annum, but investment was starting then from a depressed level. With a 12% annual increase now projected, public investment will still be rising faster than gross product and total investment.32 Most of the planned increase is concentrated in 1970. Although executive capacity has risen substantially in recent years it is doubtful that the 1970 schedule can be met. Slippages which can be clearly foreseen have been taken into account in the mission's adjustments. Finance in 1970-72 Table 1-17 sets forth the pattern of financing for 1966-69 and the projections for 1970-72. The basic assumptions underlying the projections are: (a) In the absence of new revenue measures current income of all levels of government and its decentralized agencies will increase in real terms at 8.5% per annum. The projection is based on specific assumptions concerning individual major sources of revenue and an overall assumption that GDP will grow at 7%. The projected revenue growth rate is lower than recorded in 1966-69 (11.5%), when new income sources were introduced and the system of collection accelerated, but it is much higher than the long-run growth rate of 5% annually. (b) Current expenditures will increase in real terms at 9% per annum, a deceleration from the 12% rate of 1966-69, but again much higher than the long-run average of 4.8% per annum. The projection is a composite of a faster growth than in the recent past for the central government and departments and a deceleration for decentralized agencies. The former need more funds, particularly in education and health, while the latter have already undergone a major expansion. 32. This has been the long-run trend in Colombia. In 1950-68 public investment rose at 9.5% annually, total investment 4.1%, and private investment 3.2%. The share of public investment was I1% in 1950; it is now nearly 30%, and this is an understatement.  Table 1-16: PUBLIC INVESTMENT, ACTUAL 1966-69 AND PROJECTED 1970-72 (In millions of current Col $)1 1966 1967 1968 19692 1970 1971 1972 Adjusted Adjusted Adjusted Program Program Program Program Program Program Transport 1,205 1,826 1,957 2,300 3,321 2,974 2,931 2,989 3,076 3,139 Energy 596 776 944 1,180 1,951 2,226 1,671 1,959 1,909 2,473 Communications 144 206 256 335 661 661 474 474 533 533 Water and Sewerage 365 422 591 737 765 888 1,095 1,187 1,335 1,422 Housing 269 385 577 640 724 724 720 720 861 861 Education 180 241 374 365 478 504 567 634 649 690 Health 69 142 148 260 228 228 326 326 303 303 Agriculture 498 784 1,127 1,260 1,884 1,884 2,293 2,293 2,694 2,784 Industry 162 199 392 590 1,166 977 1,141 1,041 1,001 1,018 Tourism - - 10 30 55 55 87 87 106 1063 Studies and Research 4 13 25 50 101 101 132 1324 146 1464 Other 229 273 423 465 664 664 661 661 682 682 rn Total 3,721 5,267 6,824 8,212 11,998 11,886 12,098 12,503 13,295 14,157 z 0 lFor 1970-72, it is assumed that prices will increase at 7% per annum. 2Provisional. 0 3An increase likely if studies are accelerated. i 4An increase likely on account of the Preinvestment Study Program.  THE OVERALL VIEW 25 (c) Internal government borrowing does not exceed amortization of internal debt. The latter is quite large for Colombian conditions. The demand for credit by the commodity producing sectors is heavy and will continue so if a 7% growth rate of GDP is attained; under these conditions, net government borrowing could raise interest rates and aggra- vate the already tight credit position of the manufacturing sector. Furthermore, the government in 1970 will already be engaged in a form of deficit spending by drawing on its cash balances. The assumptions concerning government borrowing should be reexamined if coffee prices go up sharply. (d) There will be no delay in utilizing existing project loans, and continuing efforts will be made to resolve all problems faced in contracting new project loans. While a major advance has been made in project preparation and in contracting project loans, there have been occasional difficulties in arriving at satisfactory arrangements concerning availability of matching peso funds and future operating conditions of the projects. This issue is particularly relevant for the projects of enterprises of municipalities and depart- ments, which are now increasingly offered for foreign financing. The major findings emerging from the projections are: (a) Without new revenue measures the current budgetary surplus continues to grow in real terms, but at a rate (4.8% per annum) slower than real income. In 1972 it is expected to account for 5.4% of GDP, compared to 6% in 1967-69. (b) A very large proportion of aggregate capital claims (investment and amortization) continues to be met out of internal resources-70% in 1970-72. There is a decline in the proportion from the earlier period, but this is caused by a sharp rise in the amount of claims. (c) A financing gap is apparent in 1971 and it continues to grow in the subsequent two years (line (p) in Table 1-17). Its precise magnitude depends on the flow of disbursements on project loans to be contracted in 1970-72. A higher estimate of this flow (line (o), Series B) is based on the preliminary listings of project commitments prepared by the planning authorities and adjusted by the mission to reflect the foreign exchange component of project disbursements; but this listing contains an element of target setting particularly in the years 1970 and 1971 and is therefore on the high side. The lower estimate (line (o), Series A) is derived from the planning authorities' aggregative estimate of disburse- ments (including a certain element of local cost, on the average of 8% of total project cost) and probably approximates reality more closely.33 The deficit may exceed Col$1, 000 million in 1971 and approach Col$2,500 million in 1972. The Colombian authorities count on further U.S. program loans to help fill a part of the gap. If new program loans in 1971 and 1972 amount to US$60 million and $50 million, respectively (compared to $85 million in 1969 and $70 million in 1970), peso disbursements would work out at Col$565 million in 1971 and Col$1,100 million in 1972.34 The gap which would remain would be moderate in 1971 (Col$500-700 million). It would tend to increase considerably in 1972. These findings are broadly consistent with the projections of the 1969-72 Development Plan that the gap to be filled by additional domestic savings will run at Col$800 million in 1971 and Col$2,000 million in 1972.35 CIAP in its analysis in early 33. Conceptually, any lower level of disbursements would lead to a reduction in aggregate investments of the size approximately double the lag in disbursements (foreign financing on the average works out at 50% of total project cost). But in reality the relation is not so close, since construction activity goes on even when equipment is delayed. 34. It is assumed that one-half of the loan is disbursed in the year of commitment and the other half in the following year. 35. Development Plan, p. VI, B. The plan used a coffee price projection of 50-52