Ecuador - Current economic position and prospects

RETURN TO RESTRICTED REPORTS DESK Report No. WH- 124a WITHI FILECOPY ONE WEEK This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION CURRENT ECONOMIC POSITION AND PROSPECTS OF ECUADOR February 26, 1963 Department of Operations Western Hemisphere CURRENCY EQUIVALENTS 1/ US$ 1 = 18 sucres - 1 sucre = US$ 0. 055 1 million sucres = US$ 55. 500 approx. 1/ Ecuador has two exchange markets; an official market in which the buying rate is S/ 18=US$1, and a free market rate in which the rate was about S/22. 80=US$1 in September 1962. The free market now encompasses some 20 percent of all exchange transactions. TABLE OF CONTENTS PAGE BASIC DATA ........... .. .... . .................. i SUMMARY AND CONCLUSIONS ......................... 111 INTRODUCTION . .................................... **** 1 CHAPTER I - THE ECONOMY A. Structure, Economic Growth and Investment ...... 0 .......... 2 B. Recent Development in Main Industries ................... 2 C. Growth Potential ................ 4 D. Policies for Economic Develop- ment ... ...... ... ............ 9 CHAPTER II - FINANCIAL SITUATION A. Money, Credit and Balance of Payments ....................... 14 B. Public Finances .................. 15 C. Financing of Plan Inmediato ..... 17 CHAPTER III - GROWTH AND BALANCE OF PAYMENTS PROSPECTS AND CREDITWORTHINESS STATISTICAL APPENDIX i BASTC DATA Area: 102,000 square miles Population (1961 - estimate): 4.46 million Annual rate of increase (1950-1961) 3.1% GNP (1961): 14.6 billion sucres Annual rate of increase in real terms: 1950-1960 5% 1960-1961 3% GNP per capita in 1961: 3270 sucres GNP per capita in U.S. dollars at the average free market rate of exchange: $163 Exports in 1961: US$ 132.6 million Bananas 80.9 " Coffee 14.3 " Cacao 15.6 Others 21.8 " Annual iate of increase in export value 1950-1960: 6.5% 1960-1961: -11.0% Prices Annual Average Change 1950/60 1960/61 Cost of Living 2% 5% Export Prices -1% -7% Import Prices +1.5% 1% Terms of Trade -2% -8. Free Market Rate of Exchange Sucres per U.S. dollar 1950 18.3 1955 17.4 1960 17.5 1961 20.0 1962 (first half) 22.5 1962 (September) 22.8 Official International Reserves End of May 1960 US$ 36.6 million End of September 1961 US$ 16.2 " End of September 1962 US$ 25.6 i" ii Public Finances Central Government revenues, 1961 1.5 billion sucres % of GNP 10.5% Annual rate of increase: 1950 - 1960 11% 1960 - 1961 7% Central Government expenditures 1961 2.0 billion sucres % of GNP 13.5% Annual rate of increase: 1950 - 1959 13.0% 1959 - 1961 9.01o Public sector revenues, 1961 3.1 billion sucres % of GNP 21.0% Public sector savings, 1961 748 million sucres % of GNP 5.1% External Public Debt, December 31/61: US$ 111.1 million of which undisbursed US$ 26.2 i Service payments as , of expected export earnings in: 1962 11% 1967 5% iii SUvRiARY AND CONCLUSIONS 1. The last economic report on Ecuador (WH-10hb) was written late Spring 1961. At that time the country was experiencing political and economic difficulties stemming mainly from inflationary policies initiated by the new Government in late 1960. The report pointed out that many of the structural weaknesses of the economy were still much as they were a decade earlier. Exports were predominantly agricultural, the extreme dispersion of authority and financial resources remained the dominant characteristic of the public sector and Central Government had increasing difficulties in finding non-inflationary funds for its investments. On the other hand, a vigorous, flexible and responsive private business sector had emerged and there was an increasing awareness of national development problems and opportunities of the public sector. The report concluded that prospects were for an improvement of the financial situation, but for a slow economic expansion and continued budgetary strain. 2. Developments in the one and a half years which have since passed confirm these conclusions. Whereas approximate internal equili- bit-um and part of the heavy losses of foreign exchange reserves have been regained, there has been virtually no improvement in the financial posi- tion of the Central Government. Economic growth is estimated at 3% in 1961, but about one-third of this can be attributed to an unusually large potato crop, The growth in 1962 is not likely to surpass the 1961 rate, which was about equal to the growth in population. 3. The slow growth in recent years can be attributed to the pre- gressive saturation in the world market for Ecuadorian principal export products, (bananas, coffee and cacao) accompanied by declining confidence of the priVate sector. Export earnings (in dollars) increased by an annual rate of 12% in the early 19's but only by 2% in the late 1950's and actually fell by 11% in 1961. As exports represent an important dynamic factor in Ecuador, this development in the export sector also adversely affected growth in domestically-oriented industry. Confidence in the economy began to diminish in the late 1950ts, evidenced by a fall of private fixed investment relative to GNP. The failure of inflationary policies in 1960/61 to stimulate economic growth resulted in a sharp further drop in confidence. The subsequent stabilization of the monetary situation has contributed to some improvement, but confidence of the private sector is still low. 4. The government is faced with a difficult task in trying to achieve a more satisfactory rate of expansion and to improve the lot of the poor farmers, mostly Indians, who live in the Sierras. Prospects for Ecuador's principal exports have not changed appreciably since the last report was written. An average rate of increase of 2-3% a year in export earnings from the 1960 level still seems realistic in the 1960-65 period. iv This rate will by itself be highly inadequate to bring about an overall rate of expansion significantly in excess of population growth and there is therefore a need for providing incentives for intensification of production and for diversification of the economy. 5. Ecuador is in the fortunate position of having excellent natural conditions for and long experience in growing tropical crops, much readily accessible good farm land and a demonstrated willingness of farmers to move to new areas. There are also large untapped resources of fish in Ecuadorian waters. The nature of the economic problems in Ecuador is progressively being realized by the Government and a public investment program has been prepared (Plan Inmediato) which includes nearly three- fifths of public sector investment. Under the plan, a large part of investment is devoted to transportation. However, much more emphasis than before is put on direct productive investment, such as the amplifi- cation of agricultural and industrial credit facilities, and projects for improving livestock, starting new production (African Palms) and intensi- fying old lines of production (cacao). The plan also envisages large increases in social investment, particularly housing. 6,, Public investment envisaged in the Plan Inmediato seems on the whole to point in the right direction and should contribute importantly to laying the foundation for an accelerated future economic growth. In- adequate project preparation is likely to hamper the implementation of the Plan, e3pecially in the short run. Lack of domestic funds available for investment under the Plan will also be an obstacle. Strong efforts will be necessary both to achieve increasing surpluses on current account in the Central Government budget and to divert funds from the rest of the public sector to projects under the Plan. A full implementation of the Plan Inmediato would imply a65%. increase in public investment but in view of technical and financial difficulties, a 30% increase seems more real- istic. As most of the projects will need several years before they become fully effective and as business confidence can only be expected to improve gradually, the rate of expansion is likely to be slow in the next two to three years, probably just keeping ahead of population growth. A resump- tion of a more rapid economic growth should be feasible once the trans- itional period is successfully completed. 7. In view of prospects for small increases in export earnings and in total output, the Central Government will be faced with delicate prob- lems both of restraining imports, without at the same time impeding acti- vities depending on imports, and of withstanding the political and social pressures for increased transfers to the rest of the public sector and for larger current and social expenditures. Restraints in both of these fields will be necessary to maintain internal and external equilibrium and to regain fully business confidence. 8. External capital is likely to play a more important role than in the past in Ecuador's economic rehabilitation and in the revival of the r economy. Ecuador's external public indebtedness, net of undisbursed amounts, rose from $67 million at the end of 1959 to $85 million at the end of 1961, and is estimated to amount to $98 million at the end of 1962. The undisbursed part of the loans committed at the end of 1961 amounted to some $26 million. Scheduled service payments on the external debt outstanding of $16 million in 1962 falling to $9 million in 1967 represent respectively 11% and 5% of projected export earnings. In 1962, service payments were equivalent to about one-third of public savings. 9. The Plan Inmediato for the 1962-1965 period envisages external assistance of about $40 million a year, representing about two-thirds of total investment included in the Plan. A more realistic figure might be about $3) million a year on a disbursement basis. About $8b million was obtained by late 1962 of which about $50 million was undisbursed and loans of about $L6 million for projects in the fields of transportation, develop- ment credit, agriculture, and water and sewage were under active considera. tion by various lending agencies. 10. In view of the slow growth in export earnings and public savings in prospect, the margin for incurring additional external debt on conven- tional terms is fairly limited. On the assumption that the service burden of the external debt ought not to rise substantially the present rate of about 11% of export earnings and the new debt on conventional terms is ob- tairied with maturities equivalent to the average of the present debt, ad- ditional ex,ernal debt of about $20 million a year in the next four-year period cou-d be serviced. This is considerably below the external finan- cing required for implementing essential high-priority projects in the next few years. In the rehabilitation and further economic expansion of an economy like Ecuador's, with a standard of living among the lowest in Latin America, public investment must play a very important role. In thea circumstances, part of the further external financial assistance to Ecuador should be made available on special terms. INTRODUCTION 1. The last Bank economic report on Ecuador (WH-104b) was prepared in the late spring of 1961. At that time the country was in the midst of a financial crisis. Very large Central Bank credit expansion, partly necessitated by deficit spending of the Government, resulted in a loss of two-thirds of net foreign reserves, a sharp increase in the free market rate of exchange and in the first major increase of prices since the Korean conflict. The crisis was accompanied by a rapid deterioration of confi- dence and by political upheaval under which the President (Dr. Velasco) was forced to resign. 2, In the one and a half years which have since passed, the finan- cial situation has improved appreciably. Prices have risen only moderately and part of the loss of foreign reserves has been regained. However, economic expansion has been slow, public finances are under pressure and investors' confidence is still low. The new Government which replaced Velasco in 1961 has been unable to arouse much popular support. A general feeling of discontent with the Government policy prevails and has been reflected in a number of changes in the Cabinet. Recently, however, there have been indications of improvements in the political environment. 3. The last economic report concluded that economic expansion would continue along traditional lines at a rate that, on the average, kept ahead of population growth. The developments of the last eighteen months suggest that even to attain this goal will require developing new lines of production. While possibilities for a diversification of production exist, it will at best take some time before the economy can achieve a rate of expansion significantly in excess of population growth. The duration of the period of readjustment will depend partly on how fast the confidence of the private sector can be regained and partly on the type and volume of public investment. The prospects for the immediate future seem uncertain. There is, however, a growing realization in many quarters of the need of a concentrated effort, both for keeping the economy on an even keel and for providing new stimuli to economic expansion which could have a favorable effect over a somewhat longer term. - 2 - CHAPTER I - THE ECONOMY Structure, Economic Growth and Investment 4. With about two-fifths of the GNP originating in agriculture, the Ecuadorian economy is predominantly agricultural. Most of the people engaged in agriculture live in the relatively resource-poor Sierra, where the cultivated area is still &Sy. a'ott one hectare per person, despite considerable emigration to the lowlands over the last decade. There is also a steady movement from farms to cities, but the share of industry, commerce and transport in the total product was unchanged over the last decade. The population is growing at a rate of 3% per annum, and now amounts to 4.5 million. 5. Over the last decade the increase in output has on the average been appreciably greater than population growth. However, the rate of growth even without taking into account the deteriorating terms of trade, has been declining since the mid-1950's. The declining rate is closely connected with the progressive saturation of the world market for Ecuador's principal exports: Annual rate of increase in: GNP in Exports 1950 prices in dollars 1950 - 1954 6.5% 12% 1954 - 1957 5.0 3 1957 - 1960 4.0 2 1960 - 1961 3.0 -11 Source: Table 3 and Table 26 6. The substantial expansion of exports in the early 1950's was an important stimulus for the domestically oriented industries, especially manufacturing and construction, which expanded between 40% and 50% from 1950 to 1954. The effect of this initial push lasted throughout the 1950's, but the expansion has levelled out in recent years. Investment rose at a higher rate than total output in the early 1950's and its share of GNP increased from about 11% to 16%, which can be considered as a fairly high ratio in a country like Ecuador. Because of stagnating private invest- ment, the ratio was reduced to about 15% by 1961 and it is likely to be still lower in 1962. B. Recent Development in Main Industries General 7. In 1961 the economy of Ecuador was influenced by conflicting factors. The stimulating effects on the economy of increased public investments and a substantial credit expansion were to a large extent - 3 - offset by declining export prices and by political and economic uncertain- ties, following in the wake of drastic changes in policies initiated by the new Government. GNP in 1950 prices rose in 1961 by 3%, but about one-third of this increase can be attributed to a bumper crop of potatoes (50% larger than in 1960). Mlost of the rest of the increase in GNP is due to continued expansion of livestock production, both to replace imports and for export to neighboring countries. A further substantial increase in public adminis- tration and defense also contributed to the rise in GNP. Fixed private in- vestment in 1950 prices continued to decline while there was some further increase of public investment. The share of public investment has risen from 32% of total fixed investment in 1950 to 37% in 1956 to 48% in 1961. This is a high proportion in comparison to other Latin American countries. Agriculture 8. The gross domestic product of atriculture valued in constant prices rose by 6.5% in 1961, as compared with an average rate of increase of about 4% in the 1950ts. Though primitive subsistance agriculture is still important, commercial farming has expanded substantially over the past de- cade and now probably accounts for more than half of total agricultural output. However, incomes earned from producing foodstuffs for commercial sales have lagged behind output in recent years, because of adverse trends in prices both for export crops and for products consumed in the domestic market. Thus, from 1956 to 1961 food prices relative to other prices declined by 3-4%. Aver7age export prices for bananas, cacao and coffee declined by about 10%. This means that the overall growth in real income of the agricultural sector over the last five years has been only about 3% per year. Real incomes of the traditional export agriculture (mainly located in the coast) hardly changed between 1956 and 1961. 9. The changes in the composition of agricultural production over the last eleven years can be summarized as follows: % of gross value of total agricultural production (current prices) 1950 1954 1956 1960 1961 Crops primarily for exports 35 45 42 37 31 Other crops 44 36 36 38 43 Livestock production 21 19 22 25 26 Total 100 100 100 100 100 Source: Table 5 and Central Bank 10. The high proportion in 1961 represented by crops mainly for in- ternal consumption can partly be attributed to the extraordinarily large crop of potatoes this year, but partly also to a substantial expansion of some relatively new crops such as sugar (50% increase of production over six years), vegetable oils, pyrethum and vegetables. Production of these crops nearly doubled over the past six years, while production of traditional food crops (rice, corn, potatoes, wheat and barley) rose by 37% in the same period, (one-third of which is due to the large potato crop in 1961). Livestock production, which jumped by nearly 20% in 1961, has been favored by relatively stable internal prices and export possi- bilities to neighboring countries. Manufacturing Industries 11. Ecuadorian industry is wholly oriented to the home market but largely import-oriented for raw materials. The 1961 devaluation of the sucre helped some industries competing with imported goods, particularly the textile industry. Sugar refining benefitted from rapidly expanding sugar production, which was induced by the expectation that Ecuador would get a non-quota allocation in the U.S. market. There was some further increase in the beverage and cement industries. A decline in production was registered in some other industries, in particular in the shoe and clothing industries. Overall, industrial GNP rose less than 1% in 1961, and industry's share of total GNP remained the same as in 1950. Extractive Industries and Other Industries 12. The extractive industries which only account for 2% of total GNP registered a small increase in 1961, due mainly to a rise in petroleum output. Output of petroleum was, however, still some 20% below the peak in 1955 and Ecuador became in 1960 for the first time since World War II an importer of crude oil. Gold, silver, copper and lead are produced in very small amounts and did not change significantly in 1961. There were small changes in output in other sectors of the economy; further small increases in production of electricity in commerce and services were offset by a decrease in other activities, mainly construction. C. Growth Potential 13. The progressively diminishing rate of increase of export earnings since 1954 and the absolute decline in 1961 have adversely affected entrepreneurial expectations of continued rapid growth of the Ecuadorian economy. To regain a satisfactory rate of growth there is a need for diversifying and expanding exports and for giving new direction and stimulus to the home industries. The existing and future possibilities for growth in the principal industries are reviewed in the following paragraphs. Production for Export 14. Ecuador's exports are almost exclusively agricultural and consist primarily of three commodities: bananas, coffee and cacao which have been accounting for about 90% of total export values. The changes in volume, price and value (in US dollars) of exports since 1950 have been as follows (1950=100): Indices of Production, Prices and Value of Export by Category 1950 - 100 1950 1954 1958 1960 19611/ Bananas: volume 100 290 420 525 500 price 100 102 100 99 95 value 100 295 420 520 470 Cacao volume 100 111 83 133 133 price 100 167 134 87 70 value 100 185 111 116 93 Coffee volume 100 104 149 155 125 price 100 140 94 75 67 value 100 1-46 139 116 83 Others value 100 57 75 69 79 Total voliume 100 137 180 212 205 price 100 118 98 90 83 value 100 162 176 191 170 Source: Table 2.8anK 31 1/ Inclusive of estimated contraband exports of cacao and coffee of respectively z1.6 and $1j.4 million. 15. The increase in the volume of bananas without offsetting price declines accounted for virtually the entire increase in total export value in the last decade. Bananas represented in 1960 63% of total exports. In 1961, export of bananas declined by 10% in value and 5% in volume, but part of the loss has been regained in 1962. For some time there have been excess supplies of bananas for export and for home consumption, and about one-third of total output is estimated either to go to waste or is used as cattle feed. Exporters adjust supplies to demand by varying minimum quality standards for accepting fruits at shipside and by regulating purchases of bananas from producers through a quota system rather than through varying prices. This procedure affects in particular small producers, who are having difficulties in marketing their crop in a remunerative fashion. Increased real income from banana production is thus almost entirely dependent upon finding new outlets in - 6 - the wDrld market. The situation in this respect has not changed appreciably from the evaluation given in the last Bank report (WH-10hb) and an increase by 3% to h% per annum from the current level seems realistic. At this rate Ecuador would about maintain its ahare of the world market and attain an export of bananas worth at present prices about $98 million by 1965, as compared with $89 million in 1960 and $81 million in 1961. Even this rate of expansion will depend on maintaining Ecuador's competitive position in the world market. The recent change in banana taxes/1 and the current shift from the stem method to the box method of shipment could be helpful in this respect. A more general use of boxes could also provide the basis for an important card-box industry in Ecuador partly based on the use of local raw materials (sugar bagasse). 16. The steady weakening of the price for coffee has resulted in a virtual discontinuation of planting new coffee trees in recent years. How- ever, on the basis of the present stock of coffee trees, production for exports could potentially reaci a maximum of 40,000 metric tons in 1963, or 40-50% above the 1960 level. Whether this maximum will be exported will depend on quotas and prices. Under the International Coffee Agree- ment for 1963 Ecuador obtained a quota of 33,120 metric tons, or about 15-20% below this maximum. Export of coffee has been assumed conserva- tively to increase by about 3-h% per year and might in 1965 approximate 36,000 metric tons. On the assumption of coffee prices of 26 per pound as compared with 31.5 'in 1960 and 28/ in 1961, the value of coffee ex- ports may in 1965 approximate $20.5 million, as compared with $15.7 mil- lion in 1,61 and $21.L- million in 1960. 17. Production of cacao was stimulated by favorable world prices in the mid-1950ts and again In 1958. A fairly extensive replacement of old trees now coming into production took place in these years. With favorable climatic conditions for growing high quality cacao and based on so.e new varieties with substantially higher yields than the old trees, the Plannirg Board has prepared plans for further large renewals of cacao plantations. These plans, which envisage planting of 25,000 hectares over a 5-year period, are estimated to cost some $8 million of which half is to be financed by external credits. Output from these trees would start in the late 1960's and reach a maximum of some 12,000 metric tons, equal to about one-third of current output. Prospects are for a depressed marlet with export prices from Ecuador around 20/ per pound, although an inter- national cacao agreement, which might raise prices, is under discussion. In view of these uncertain prospects, it is difficult to judge whether and to what extent the expansion plans for cocoa will be realized. In any event, output in the next few years would not be appreciably affected by these plans and exports in 1965 may approximate 38,000 metric tons worth about $17 million, as compared with $21.4 million in 1960 and $17.2 million in 1961. 1/ See paragraph 50. 18. Over the past few years exports of petroleum and panama hats have declined and exports of vegetable oil, sugar and fish products have increased. These shifts in the miscellaneous category are likely to con- tinue in the next few years but with the forces making for increasing exports exercising a greater influence. There are also possibilities for some further diversification. Planting of African palms has been success- ful in Ecuador and plans exist for a further extension of the area planted with this crop, which will mean a 30% increase in production of vegetable oil over 10 years, a large part of which will be for exports. Sugar pro- duction expanded substantially in recent years and Ecuador obtained in 1961 for the first time a non-quota sugar allocation in the U.S. market of 25,000 metric tons. In addition, Ecuador may also be able to sell sugar profitably to the free market at prices around the present level (3.2 per pound). The fishing industry has expanded substantially in recent years, encouraged by favorable prices for shrimp and tuna fish in the U.S. market. The fish resources in the sea around Ecuador are being studied by a U.N. sponsored National Fishing Institute, and preliminary estimates indicate that ample possibilities exist for expanding the catches of shrimp and tuna fish, as well as for other kinds of fish not hitherto exported. Possibilities also exist for an expansion of such new products as dried bananas, pyrethrum (an insecticide-producing plant which is grown successfully at high altitudes), and pharmaceuticals. On the whole, prospects are for an appreciable increase in the value of other exports which by 1965 may approximate $28 million or about 50co larger than in 1961. 19. On the basis of the above analysis, the value of total merchan- dise exports may approximate $165 million by 1965 (Table 27), more or less the same level as projected in the last economic report. Compared with 1960 exports, this would represent an increase equivalent to 2-30 per year. In view of export possibilities in Ecuador, especially in the miscellaneous catr--ory, the rate of export expansion could be substantially higher over the longer term. Production Principally for the Domestic Market 20. With exports growing more slowly, it would be increasingly im- portant to explore the opportunities in the internal market for producing goods which are previously imported. Increased internal food production, especially of livestock products, has contributed to a reduction of food imports from about $19 million in 1954/55 to about $9.5 million in 1959/60, despite an appreciable increase in food consumption during this period. The success of the expansion of livestock production and the growing market for Ecuadorian meat in neighboring countries (now being supplied on a small scale by contraband exports) have encouraged further expansion, not only in the Sierra but also in the newly opened land in the coastal region. In order to improve sheep and cattle breeding, 500 pure-bred cattle were im- ported in 1962 and 20,000 sheep will be imported in 1962/66. Wheat produc- tion was more than doubled from 1957 to 1961 and the share of imports in total domestic consumption has dropped to about one-third. New varieties - 8 - of wheat have increased the possibilities for grnwing this crop in the Sierra and under favorable conditions a further expansion of wheat pro- duction seems probable. 21. With prospects for increasing production of sugar, meat, fish, edible fats and some other products, there is scope for further expansion of manufacturing industries processing local raw materials. In fact, plans have been studied and prepared for freezing plants for shrimps, sugar re- fineries, canning industries for fish and tropical fruits, plants for hy- drogenation of fats, etc. Prospects for carrying out these plans are good. In addition, apart from a continued modernization of the textile industry in order to meet the competition from widespread contraband im- ports of textiles, a tire plant and a new cement factory are under con- struction. Other import substituting industries which might be expected to continue to expand are the paper industries and the chemical and phar- maceutical industry. 22. Expansion of the production of other goods and services would on the whole depend on producers' expectations of further growth of the domes- tic market, largely reflecting the fortunes of the export and import sub- stitution sectors and the public investment activity. In view of existing supply conditions production of these goods and services could make a sub- stantial contribution to overall growth. Thus, there is considerable scope for increased production of traditional food crops, by applying more modern methods of cultivation and by extending the cultivated area. Fairly sub- stantial unused capacity exists in some parts of the manufacturing industry (eog, textile) and in construction, which should make possible increased production, without large new investment. The petroleum industry has had difficulties in keeping production up with internal demand; in fact Ecuador's position as a net exporter was reversed in 1960. This develop- ment is partly due to lower profits of the private oil companies following higher import costs which were not compensated by higher domestic prices whioh are subject to Government control. As the major present fields are old and will require increasing effort to maintain present output, it seems that the t,st which can be hoped for is that domestic production keeps pace with internal demand, and even this will require changes in Government pricing policies. D. Policies for Economic Development General 23. Favorable world market conditions for bananas in most of the 1950's and a rapidly growing population favored development policies directed to an extensive production. Main emphasis was put on opening up new land, and about 40% of public investment was devoted to transportation in 1956-61, which contributed greatly to the agricultural expansion, especially of bananas. Banana growing requires little capital, as banana trees can thrive on roughly cleared land and yield crops after one year. At the same time, bananas help to clear the land fully by providing shade, which retards under- growth, thereby preparing the land for other crops. The appearance of ex- cess supplies of bananas in recent years and prospects of a slow growth in - 9 - exports have, however, adversely affected this extensive method of produc- tion. This change in the situation makes necessary an intensification and diversification of production. As bananas can be used for cattle feed, an expansion of livestock production in the coastal region would be particu- larly helpful in this respect. 24. There is a growing realization in Ecuador of the need for more directly productive public investment and credit programs. The Planning Board has prepared a short-term public investment plan (Plan Inmediato) which in principle has been adopted by the Government, subject to available external and internal financial resources. The Plan envisages substantial increases in development credits to agriculture and industry and large credits to special agricultural projects. 25. The Plan Inmediato can be regarded as a first attempt to consoli- date and coordinate public investment on a somewhat longer term basis. How- ever, the Plan Inmediato includes less than half of the investment by auto- nomous entities, and almost none of the investment by municipalities and provincial consuls, Furthermore, the time period for the investment under the Plan Inmediato varies somewhat from sector to sector and some of the sector plans are also likely to be revised in the light of further studies. According to an unpublished version dated August 1962 (see Table 23) total public investment of the Plan, including government contributions for fi-- nancing private investment, amounts to $262 million, of which about one half is projected to be executed in 1962 and 1963. There is no indication about the time phasing of expenditures on the Plan after 1963, nor is it known whether and to what extent new projects will be added to the Plan in 1964 and later years. In view of the nature of the Plan it seems reasonable to assume that the Government intends the Plan to be almost fully carried out by the end of 1965. Even if the Government made no substantial additions to the Plan in 1964 and 1965, annual capital expenditures under central plan- ning in the period 1962-1965 would average about 65 million. Assuming that public investments outside the Plan Inmediato will continue at past rates, total public investment would average some 1600 million soles, which is about 655 higher than in 1960-61, This notional figure of the investment inten- tions of the Ecuadorian Government is used in this analysis, particularly for appraising the financial implications of the Plan (see paragraph 55). _k,nsportation 26. The Plan Inmediato includes the completion of the existing five- year program for improving and constructing a network of 750 kilometers of the Sierra and in the coastal area, expected to be finished in 1963. The Plan also envisages the start of a new road program which includes im- provements and construction of 500-600 km. of trunk roads. The technical studies of the new program are fairly well advanced and with some further preparation the implementation could start in 1963. Improvements of sea- ports and of airports will continue but at a lower level than before. The Quito - Guayaquil railroad, which is run-down and inefficient, is to be rehabilitated, although a detailed plan has not been prepared. The costs of the transport investments envisaged in the Plan Inmediato are estimated at some $30 million a year in the 1962-65 period, as compared with the equivalent of some $20 million in the last five-year period. Transport investment would however continue to be about 40% of total public investment. - 10 - 27. Further extension and improvements of the transpovtation system as envisaged in the Plan will still account for a large part of public in- vestment. Although cultivation of bananas is less favroable than in the 1950's, continued investment in trunk roads and feeder roads seems to be justified. One of the main sources for increasing or just maintaining per capita food supplies for the rapidly increasing population and for contain- ing the social and political pressure for improving the lot of the gener- ally poor Indians in the Sierra, lies in opening up new land. The expan- sion of products for exports will also, to some extent, depend on extend- ing the cultivated area. Finally, there is a need for further improvement of existing transport facilities to enable a larger volume of products to be marketed at a reasonable cost. 28. The relatively large investment envisaged in transportation and competing claims for investment in various means of transportation in Ecuador have prompted the Government to request the Bank to organize and help finance an overall transportation study, which is expected to be ready in the summer of 1963. It will contain recommendations for invest- ments in the transportation system during the next decade. - 11 - Agriculture and Fisheries 29. Public outlays over a three-to-six year period for investigation, development of exports (cacao), substitution of imports (African palm, sheep- and cattle-breeding, silos for wheat) are estimated to be about $23 million, of which about $20 million is for capital expenditures. Public investments in irrigation are projected at about 5.h million (6 years), in colonization Z15.7 million (3 years) and in fisheries *Sh million (5 years). Public investment envisaged in these fields will average about '$9 million per year, as compared with less than $2 million per year in the previous five-year period. 30. Apart from colonization projects, most of the projects in the agricultural sector are in an advanced stage of prep .:ion'- Q great importance to agricultural development is the projected increase of agricultural credits through the development bank system. Credits to agriculture made available by the banking system were almost unchanged in the second half of the 1950's. Despite a substantial increase during the inflationary period of 1960/61, bank credits extended to agriculture in 1961 represented only 5% of the current value of agricultural production, as compared with 10% in 1950. FurtAermore, as most of the bank credits are on short term, there has been an increasing shortage of medium- and long-tern credits. This situation is the result, partly, of mismanagement of the system of development banks, where loans in arrears as a percentage of loans outstanding approximated 400 in 1960, and partly of the lack of public funds for agricultural development credits. The system is now being overhauled and there are good prospects that the system could be put on nsound basis and effectively operated in early 1963. Under the Plan, the development banks will be supported by additional resources of about $9 million for extending agricultural credit on medium- and long-term basis for tne next 2 - 3 years. Indstry and Power 31 . Despite the recent slowdown in industrial e_xpansion, there is a sizeable demand for long-term credits, especially for new industries. In recognition of this'probler, public capital of 3.3.5 millicn is to be al located to the Development Bank System and to the "Comision de Valores" for channeling credits to industry. These funds, which are planned to be disbursed over a three-year period, would represent a sizeable increase in loan funds available to industry. 32. The production of electric energy has increased at an average rate of 8% per year over the last five years. About one-third of the total production has been consumed in industry but many firms, especially outside Quito aid Guayaquil, have had to produce their own power from small thermal units at a high cost. The Plan Inmediato includes installation of six ships fitted with power plants (donated by the U.S. Government) for taking care of the urgent needs for electric power in the provinces of the Costa and construction and completion cf six power plants in the Sierra. - 12 - 33. These investments which are likely to be implemented over a period of 2 - 3 years and are estimated to cost $28 million, would represent power installations of 46,500 kw., equal to about one-third of the present capa- city. Public power installationsin recent years have averaged some $6 - 7 million. A substantial part of these power installations will provide electric supply in areas which are at present without a central supply sys- tem. In 1961 a National Electrification Institute was established, which is to harmonize rate structures and assist in the financing and co-ordina- tion of future power installations. A general survey of hydroelectric sources is planned to be implemented in the next few years. 34. A plan which will provide increasing opportunities for primary education in Ecuador is estimated to cost $10 million over a 5-year period, of which 70% will be for capital expenditures (building of new schools). Improvements in higher education (technical and university) are estimated to cost some 47.5 million over two years, of which half is for capital expenditures. With some further studies of the projects in the educational field, particularly in higher education, the implementation of these should not be seriously hampered by lack of technical preparedness. 35. Social investments included in the Plan Inmediato consist of a ,5 million program of supplying 14 towns in Ecuador with potable water, a housing program of '35 million, partly for direct financing of construction and reccnstruction of 11,000 homes, and partly for credits to housing. For public building, a program of $1.2 million is envisaged. Projects for improving the sewage and water systems in Quito ($4 million) and Guayaquil are not included in the plan. Apart from credits to private housing, the projects envisaged in the social field are likely to be implemented more or less in accordance with the plan. EvaTuation of the Plan 36. Public infrastructure investment and the technical and financial assistance to agriculture, industry and power from the public sector en- visaged in the Plan Inmediato seem on the whole to point in the right direction although the need for transportation investment might prove to be somewhat exaggerated. The Plan should provide the foundation for a sub- stantial recovery of the economy, and accelerated growth in the future. However, lack of organizational and technical preparedness may result in a somewhat slower implementation than envisaged in the Plan. Even though the Planning Board has progressed notably in preparing investment projects, many of the projects included in the Plan Inmediato are in a preliminary stage. Concentrated efforts in the preparation of the most important pro- jects are needed. The findings of the proposed transportation survey will be particularly helpful in this respect. Another limiting factor in the implementation of the Plan is likely to arise from the scarcity of domestic, non-inflationary investment resources. This will be discussed in Chapter II (c). - 13 - 37. Although public investment will play an important role in economic development in Ecuador, the rrte of growth of tie economy will also depend on creating an atmosphere conducive to an expansion of private enterprise. As mentioned, confidence was shaken during the political and financial crisis in 1961. The stabilization of the monetary situation in 1962 has contributed to some improvement, but confidence is generally still at a low level. As long as this situation prevails, specific measures taken to promote and encourage industril expansion such as the financial incen- tives offered in the Industri-I Development Law and technical and exploration assist-nce rendered by the Planning Board and the industrial development center, would probably have only limited effect. Great emphasis should thus be put on maintenance of financial stability and further strengthening of the balance of payments which are likely to be decisive factors in the full recuperation of business confidence. Prospects in these respects are discussed in the following chapters. - 14 - II. FINAHCIAL SITUATION A. ioney, Credit and Balance of Payments 38. In sharp contrast to the conservative monetary policy of the 1950's, bank credits were allowed to increase rapidly in 1960/61. From the first nine months of 1960 to the following nine months' period, Central Bank credits rose by nearly 40%, mainly because of deficit financing of the Central Government budget. Credits to the private sector from the Develop- ment Bank System rose by 50% and from the commercial banks by 3'/ during the same period. Uncertainties about fiscal, monetary and exchange rate policy, which accompanied this sharp reversal of the monetary policy, contributed to the loss of about two-thirds of official foreign exchange reserves. Prices which had risen by less than 2% per year in the previous decade, in- creased by 5% and the free market rate of exchange rose from 17.9 sucres to the U.S. dollar in September 1960, to 22.7 sucres in May 1961. 39. The heavy loss of foreign exchange reserves was due to both in- creased deficits on current account and capital flight. Between 1958/59 and 1960/61 the current deficit rose from $8 million to $36 million, mainly as a result of larger imports, but also because of declining export prices. Exports remained about unchanged over the same period, an increase in 1960 being offset by a drop in 1961. The net outflow of short-term private capital in 1960 and 1961 is estimated at some '20 million. The impact on the balance of payments of the declining trade surplus and capital flight was alleviated by the increased external borrowing of the Central Government. 40. In mid-1961, Ecuador obtained a standby credit of $10 million from the International M,bnetary Fund. The standby agreement was renewed in June 1962 for an amount of :5 million. Under these agreements, the Govern- ment has committed itself to a strict stabilization program, which, on the whole, has been successful in restoring internal price stability. Since mid-1961, prices have increased only 2%. The official exchange rate was devalued fr-om 15 sucres to 18 sucres to the U.S. dollar in mid-1961. Ecuador still operates with a dual exchange system, although a larger part -- about 80% -- of all transactions now are going through the official exchange market. 41. As a result of the measures taken in 1961, and of some improve- ments in the terms of trade, there has probably been an appreciable reduc- tion in the current deficits in 1962. Contributing to a reduction of imports is the system of advance import deposits, ranging from 25 - 100% of the import value, and the prohibition of imports of passenger cars. The severe limitation on bank credit expansion has virtually stopped further capital flight. With continued inflow of external capital to the Central Government, foreign reserves have increased somewhat. However, at the end of September 1962, reserves were still equivalent to only about two months of imports. The spread between the official and free market rate of ex- change of between 25% and 305 was still considerably larger than in the 1950's (15%). - 15 - 42. The credit market has been very tight. In the first half of 1962 bank credit rose by less than 1%; Central Bank credit contracted slightly while there were small increases of credit from commercial banks and the Development Banking System. The pinch was felt especially in the private sector, which was able to increase its bank credit (net) by less than half of one percent in this period. The Central Bank increased its bank lending to the Central Government by S/47 million in the first half of 1962, but bank credit to the rest of the public sector declined by S/30 million. 43. Considerable bank credit expansion was in the past based on mortgage bond sales. These bonds were sold to the Social Security Funds and to private insurance companies but mainly to the rest of the private sector. In 1961 sales of bonds decreased sharply and there was a net re- duction of bonds outstanding in the first half of 1962. This development is due partly to the general uncertainty of the financial situation, and partly to the shift of Social Security Funds' purchases from mortgage bonds to securities of the public sector. The general uncertainty also affected sales of bonds by institutions other than the banks, further curtailing availability of loan funds for private investment. 44. Ecuador obtained in 1961 and 1962 $10 million in external loans for medium- and long-term credits for financing private investment in indus- try and housing. In addition, the country obtained in October 1962 a $6 million loan for credits, mainly to agriculture. The external loans will only finance about half of the cost of the individual projects; the rest will have to be financed from local private or public resources. Although prospects are for a slower economic expansion than before, the need for economic diversification and social investment would imply a need for some amplification of domestic resources available for private investment. Such an amplification will depend on the possibilities of correcting imbalances in the finances cf the public sector, particularly in the Central Government budgat. In view of the still unresolved structural problems of the public sector, this is likely to be a difficult task. B. Public Finances 45. The public sector plays an important part in the Ecuadorian economy. In 1961, total revenues represented 21% of GNP 1/ and public in- vestment 6.4% of GNP, only slightly less than private fixed investment. 1The high proportion of GNP absorbed by public revenues is partly associated with a broader definition of public revenues in Ecuador than in most other countries. Thus, non-tax revenues in Ecuador represent more than one fifth of total revenues, which is much higher than in other countries (b@tween-5'1;: * These relatively large non-tax revenues are partly a result of the fact that income from state monopolies is computed on a gross basis (gross sales less purchases of raw materials). There are also indications that income from state properties and public enterprises are computed on a gross basis. However, even if these differences in the method of computation are taken into account, the revenue/GNP ratio in Ecuador still is among the highest in Latin-America. In Table 15 a comparison of the public revenue/GJF ratio in various Latin- American countries is given. - 16 - As explained in the last Bank report on Ecuador, there is little central control over the allocation of financial resources of the public sector, and expenditures are, in fact, disbursed through a great number of public entities. This characteristic of the public sector has become still more pronounced in recent years. The distribution of total revenues among the four main groups of the public sector, the Central Government, the 15 pro- vincial councils, the about 90 municipalities and the more than 700 sepa- rate autonomous entities and funds had been as follows: 195 6 1958 1961 Central Government 38 40 34 Provincial councils 2 1 1 Municipalities 14 15 17 Autonomous entities 46 _A4e Total 100 100 100 Source: Table 16 46. Savings of the public sector reached their maximum in 1959, when they represented 6.1% of GNP but have since declined both relatively and absolutely. However, public investment continued to increase in 1960 and 1961. Thus, whereas up to 1959 public savings were about equal to public investment, in 1960 and 1961 the public sector showed over-all de- ficits, equal to 13% and 20% respectively of public investment. Public savings have progressively been concentrated in autonomous entities, whose share of the total increased from 66% in 1956 to 83% in 1961. Central Government savings were 17% of the total in 1956-57, but actually became negative in 1.960 and 1961. This deterioration in the Central Government's position is partly associated with increasing assignment of revenues to autonomous entities (such new entities as the Irrigation Institute, the Colonization Institute, and the National Electrification Institute which have been established in recent years) without proportional transfer of responsibilities. It is, however, mainly a result bf increasingly large transfers by the Central Government to the rest of the public sector, mainly for investment purposes. In fact, from 1957 to 1961 transfers in- creased by 50'0 more than the increase in Central Government revenues. Administrative and service expenditures of the Central Government increased rather slowly up to 1960, but have risen substantially in recent years (about 10% a year), mainly due to higher wages and salaries. [7. The Social Security Funds (Caja de Pensiones and Caja del Seguro) account for a sizeable portion (about one third) of the savings generated in the autonomous entities. In recent years increases in reserves in these institutions have averaged about S/200 million a year and accumulated re- serves and capital amounted to some 3/1,96 million at the end of 1959. Only about one quarter of the reserves at the end of 1959 was invested in government and other public securities while the rest has been used mainly for purchases of mortgage bonds and for the financing of construction of public buildings. In recent years the portion going into public securi- ties has increased appreciably; thus in 1960 and 1961 purchases of Central Government securities accounted for about one-third of total savings in the two institutions. In 1962, the portion will probably be still larger. 8. While the Central Governmentts capacity to finance investment de- clined in 1960 and 1961, investments undertaken by the Central Government, particularly in highways and buildings, rose appreciably. The growing dis- parity between investment and savings in the main groups of the public sector is shown below: - 17 - INVESTYMENT, PUBLIC SAVINGS AD OVERALL DEFICITS BY AUTHORITY IN 1957, 1959 AD 1961 (millions of sucres) 157 1959 1961 In- Over- In- Over- In- Over- vest- Say- all vest- Say- all vest- Say- all ment inps Balance ment ings Balance ment ings Balance Central Government 166 147 -19 225 148 -77 342 -66 -405 Provincial Councils 25 25 - 25 28 3 24 27 3 Municipalities 140 132 -8 212 133 -79 250 168 -82 Autonomous Entities 233 286 53 276 460 184 320 618 298 Total 564 590 26 738 769 31 935 748 -187 Source: Table 16 Central Government investment in 1960 and 1961 had to be entirely financed by external and internal borrowings, partly on an emergency basis (drawings on Central Bank credits, external budget support loans), making the situation rather unstable. In 1962 current expenditures and transfers continued to absorb the entire increase in current revenues. As drawings on Central Bank credits had to be severely limited under the stand-by agreement with the Inter- national MEonetary Fund, most of the resources for investment this year were obtained by borrowings from the rest of the public sector and from abroad. Despite an emergency decree obliging public entities to convert S/70 million of their deposits into Central Government bonds and a new budget support loan from the U.S. of 67 million, funds available for Central Government capital expenditures declined, and the Central Government was compelled to reduce its investment activity. C. Financing of the Plan Inmediato 49. Tentatively one-third of the investment included in the Plan Inmediato is to be financed domestically. 1b However, ways and means to obtain these resources are not indicated. A. full realization of this plan and a continuation of investment in other public sectors not included in the plan at past levels would mean an average annual public investment in the 1962-1965 period amounting to some S/1600 million (equivalent to 485 million). This level is about 65% higher than in 1960/61 and about twice as high as in 1956-1959, which seems overly ambitious. If one-third of the 1/ Problems and requirements of the economic development policy of Ecuador. Presentation to the U.S. Government by the Ecuadorian Government. July 1962, p. 47. - 18 - investment in the Plan Inmediato and most of the public investment not in- cluded in the plan were financed domestically, the following hypothetical plan for financing public investment in 1962-1965, as compared with the actual financing of public investment in 1956-1961, can be constructed: Annual Public Investments and Their Financing (millions of sucres) Hypothetical Actual (by fiscal year) Projection 1956 1957 1958 1959 1960 1961 1962-1965 (Annual Aver. Public Investment 584 564 567 738 882 935 1600 Financed by: Public Savings 567 590 604 769 766 748 875 Net Foreign Borrowing 49 -2 -19 94 155 187 725 Net Donestic Finan- cing 1 / -32 -24 -56 -125 -39 - - 1/ The negative figures reflect purchases of mortgage bonds by the Social Security Funds, see paragraph 43, and indicate that over-all the public secGor has made net transfers to the private sector. Source: Table 14 and 16 50. In the next few years the possibilities for an increase in local funds available for public investment seem rather limited. With an un- changed tax system and with prospects of slow growth in total output and exports, the increase of total revenues is likely only to keep up with the increase in administrative and other current expenditures. Public savings which represented 5.3% of GNP in 1960/61 are therefore likely to decline relatively to GNP, unless the tax system is modified. 51.0 Prospects for a substantial increase in taxes seem rather limited, particularly in the next year or two. The share of GNP absorbed by public revenues is already fairly high and the present Government appears not to have the broad political support which would be necessary to impose new taxes or to raise tax rates on a significa t scale. Recent changes in the income tax!7 and the export tax on bananas2 are likely adversely to affect tax re- ceipts, especially in the short run. Charges for public utilities (power rates, railway and air fares) are generally very low in Ecuador and are in many instances insufficient to cover even current expenditures. A substan- tial increase in power rates in Quito is now under consideration. These and other changes could contribute to some increase in public savings. Some attempts are also being made to improve tax administration and to improve efficiency in the operation of the Government. Several foreign expert mis- sions have been and are working on these problems. In September 1962 a National Commission for Financial and Administrative Reform was created, for 1/ Including lnrger exemption for the lower income brackets and higher tax rates for the higher income brackets. 2/ Exports of bananas over and above the average level of the preceding three years are exempted from the 5% export tax. - 19 - the purpose of simplifying the tax system, exploring possibilities for tax measures which could increase public revenues and for bringing about more efficiency in public agencies. Progress in these fields is, however, likely to be slow at best, with little immediate effect on over-all public savings. 2. A large part of total public savings will be absorbed by munici- palities, provincial councils and many small autonomous entities for invest- ment in local projects in roads, ports, public buildings, urban affairs and purchases of machinery and equipment. Investments in projects of these types not included in the Plan Inmediato, which roughly can be estimated at some S/50 million per year in recent years, are likely to continue at about the same level. While no analysis has been made of these projects, which loom so large in the total, it is reasonable to assume that many of them are relatively low yielding from both a social and economic point of view. The Plan Inmediato represents the first attempt to include a larger part of public investment related to a national program. In a long-term public in- vestment program now being prepared by the Planning Board, attempts will be made to include a still larger portion of all public investments. 53. Assuming that total public savings would approximate S/800 million, of which S/475 million would be absorbed by investment outside the Plan, domestic resources available for financing investment included in the Plan Inmediato would probably not exceed an average of some S/325 million a year, eou'valent to about two-thirds of the domestic financing envisaged in the Plhn. Even to direct these resources to investment under the Plan Inmediato may prove difficult in view of the present dispersion of financial resources in the public sec or. A reassessment of the financial policy relating to Social Security Funds and a strengthening of the Central Government finances will be es7ential in this respect. In the proposed 1963 budget reductions in transfer-s to the rest of the public sector are designed to produce a small current surplus as compared with current deficits of between S/70 and S/90 million a year in the last three years. Continued strong efforts will be necessary both to increase Central Government current surpluses and to divert non-inflationary domestic resources from the rest of the public sector to high-priority projects of the Central Government. 54. External credits available for projects in the Plan amounted to about $25 million at the end of 1961. In the first ten months of 1962 new credits of $32.2 million have been contracted-and a gift of eight ships with diesel generators (worth $17.2 million) was received. In addition, external loans of about $46 million have been requested. 55. On the whole the lack of domestic funds is likely to prove to be more of an immediate limiting factor in realizing the Plan Inmediato than the lack of both external resources and projects fully studied and prepared for execution. As noted above, even if public savings can be increased some- what, the availability of domestic finance to complement the external re- sources obtained in support of the projects in the Plan Inmediato will be a problem. Taking all factors into account, average public investment of about S/1,150 million a year is probably a realistic target for the 1962-65 period, which would mean that about two-thirds of the investment envisaged -20- under the Plan Inmediato could be implemented. This target represents an increase of 30% from the 1960/61 level. If a yearly average of about S/800 million of total investment is financed by domestic resources, the need for external financing can be estimated at S/350 million on a net basis, i.e. after a deduction for service on outstanding external public debt, or S/515 million ($29 million) per annum on a gross basis. This seems feasible in view of the undisbursed external commitments in support of the Plan Inmediato, which will amount to some $50 million at the end of 1962. On these assump- tions, external resources would on a gross basis in the 1962-65 period fi- nance about 45% of total public investment, compared with 30% in the 1950's and about two-thirds of the Plan Inmediato. On a net basis about 30% of total public investment would be financed from abroad, as compared with 9% in the 1950's. III. GROWTH AND BALANCE OF PAYMENTS PROSPECTS AND CREDITWORTHINESS 56. With the end of the fabulous growth in banana exports, which was the prime mover of the economic expansion in the 1950's, Ecuador now seems to have reached another crossroad in its economic history. While the re- adjustment that is required is not as drastic as what was required after World War I with the breakdown of the market for Ecuadorian cacao, the present situation will require strong and constructive policies in order to prevent undesirable economic and political repercussions. 57. Po5ibilities exist for expanding output for the internal market, but the smallness of the market sets rather narrow limits for such an ex- pansion. Favorable climatic and soil conditions for producing agricultural goods, especially tropical crops, together with large untapped natural re- sources seeri to indicate that the growth of the Ecuadorian economy for many years will depend mainly on expanding exports of products from agriculture and fishing. 58, A satisfactory rate of growth of the economy will largely depend on the implementation of policies designed to provide more capital inten- sive techniques and to achieve a diversification of exports. In this re- spect, the implementation of the economic projects envisaged in the Plan Inmediato will play an important role. As most of these projects will need several years before they will come into production, and as business confi- dence can only be expected to improve gradually, the rate of economic growth in the next few years is likely to be rather slow, probably just keeping pace with the population growth. A resumption of a more rapid rate of econo- mic growth should be feasible once the transitional period is successfully completed. 59. Export earnings can be projected to increase by some 3% per year in the next few years. Although emphasis will continue to be put on import substitution, import demand is likely to continue to increase about in pace with total output, or about 3% per year. Thus, increases in current export earnings are not likely to permit any substantial increase in foreign ex- change reserves. In fact, if the present slim margin of reserves is to be protected and confidence of investors firmly re-established, strict fiscal and monetary policies will be required. - 21 - 60. Necessary adjustments to changing economic world conditions are likely to put great strain on the economy. Ecuado:td creditworthiness will to an important extent depend on the ability to contain this pressure and to maintain financial stability. Ecuador's long tradition of moderation in financial matters and the fact that the community has during the past 18 months, in the face of adverse world market conditions for the country's principal exports, managed to restore financial stability are favorable factors in this respect. It should also be noted that the public sector in Ecuador generates a substantial volume of domestic savingsJ even though the Central Government has not been fully successful in assuring their alloca- tion to high priority uses. 61. External public debt, net of undisbursed amounts, rose from about $67 million at the end of 1959 to $85 million at the end of 1961. The un- disbursed part of loans committed at the end of 1961 amounted to $26 millione Less than 20/o of the debt outstanding at the end of 1961 consisted of sup- pliers' credits with from 2 to 7 years repayment period. The rest consis- ted of long"term loans, mostly from the U.S. Government and IBRD. Debt service payments, amounting to about $16 million in 1962 and falling to $9 million in 1967 represent respectively about 11% and 5%o projected export earnings. In 1962, these service payments were equal to about one-third of public savings. 62. External credits have played an important strategic role in public investment; gross drawings on such credits, largely for transportation pro- jects, financed some 30% of public investment in the 1950's. With the nota- ble progrE:s made principally by the Planning Board in preparing projects and in cooxdinating public investment, external resources are likely to be even more important in the 1960's. About $80 million has already been ob- taired in support of the Plan Inmediato, of which about $39 million are in the form of grants or loans on special terms. Loans to Ecuador are under active consideration by various foreign lending agencies for a total of a- bout $46 mnllion, 63. In view of the slow growth in export earnings and public savings in prospect, the margin for incurring additional external debt on conven- tional terms is fairly limited. On the assumption that the service burden of the external debt ought not to rise substantially above the present rate of about 11% of export earnings and that new debt on conventional terms is obtained with maturities equivalent to the average of the present debt, additional external debt of about $20 million a year in the next four-year period could be serviced. This is considerably below the external financing required for implementing essential high-priority projects in the next few years. In the rehabilitation and further economic expansion of an economy like Ecuador's, with a standard of living among the lowest in Latin America, public investment must play a very important role. In these circumstances, part of the further external financial assistance to Ecuador should be made available on special terms. STATISTICAL APPENDIX Table No. External Public Debt 1 Estimated external public debt outstanding December 31, 1961. 2 Estimated contractual interest and amortization payments on external public debt outstanding including undisbursed as of Decembe'r 31, 1961. National Accounts 3 Expenditures on gross national product, 1955-1961 4 Gross national product, by origin, 1955-1961 Production 5 Structure of agriculture in 1955, 1958 and 1961. 6 Major agricultural products: production, area and yield, 195-1961. 7 Credit extended to agriculture by the banking system, 195-1961. 8 Industrial structure and changes in industrial output, 1955-1960. 9 Electric power: capacity, production and consumption, 1955-1961. 10 Mineral production, 1955-1961. 11 Exports and imports of petroleum products, 1955-1961. Banking 12 Changes in bank credit by origin and destination, 1956-1962. 13 Advanced import deposits, 1960-1962. Public Finances 14 Consolidated finances of the public sector, 1955-1961. 15 General government revenue as percenta3e of gross national product in various countries. 16 Finances of the public sector, by authority, 1956-1961. 17 The Central Government budget, 1956-1963. 18 Central Government expenditure, by purpose, 1956-1960. - 2 - Table No. Capital Formation 19 Gross fixed capital formation, by sector and purpose, 1956-1961. 20 Gross fixed capital formation of the private sector, 1956-1961. 21 Gross fixed capital formation of the Central Government, 1956-1961. 22 Gross fixed capital formation of the rest of the public sector, 1956-1961. 23 Public.investment projects in Ecuador (Plan Inmediato). Capital Market 24 External credits obtained or being sought for, for financing projects of the Plan Inmediato. 25 Negotiable securities outstanding end of 1959 and end of 1961, by purchasers and by securities. Balance of Payments 26 Balance of international payments, 1956-1961. 27 Merchandise exports, by value, 1956-1961. 28 Merchandise exports, by volume and value, 1956-1961. 29 Merchandise imports, 1956-1961. 30 International reserves of the Central Bank, 1954-1962. Prices 31 Terms of trade, 1950-1962. 32 Free market rate of exchange, 1950-1962. 33 Cost of living index, 1950-1962. 34 Wholesale price index, 1956-1962. Table 1: ECUADOR - EXTERNAL PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF DECEMBER 31, 1961 WITH MAJOR REPORTED ADDITIONS TO OCTOBER 11, 1962 Debt Repayable in foreign Currencies (In thousands of U.S. dollar equivalents) Debt as of December 31, 1961 Major additions Net of Including January 1 - undisbursed undisbursed O TOTAL EXTERNAL PUBLIC DEBT 84,918 111,057 14,220 Publicly-issued bonds 6,715 6,71- Privately-placed debt 16,106 19,533 12720 IBRD loans 31,360 40,561 - IDB loans - _3,715 - U.S. Government loans 26,634 38,430 12,500 Exmprt-Import Bank 17,561 18,307 500 Reconstruction Fdnance Corp. 3 3 AID (formerly IC) 2,160 2,160 - AID (formerly DLF) 2,610 9,960 5,000 AID 4,000 8,000 7,000 Colombian Government loans 2,103 2,103 - IBRD - Economic Staff November 14, 1962 Table 2: ECUADOR - ESTI14.TED CONTRACTUAL SERVICE FAYkENTS ON EXTERNAL PUBLIC DEBT GUTSTANDING INCLUDING UNDISBURSED AS OF DEC!7BER 31, 1961 WITH niAJOR REPORTED ADDITIONS TO OCTOBER 11, 1962 1/ Debt Repayable in Foreign Currencies (In thousands of U.S. dollar equivalents) Total Debt Debt out- Total service payments by category of debt standing Payments during year Year plus un- Aorti- In- Publicly Privately IBRD U.S. Colombian IDB disbursed aoti- r Total issued placed loans Govt. Govt. loan3 January 1 zation terest bondsissdebtp1/ lac loans loans 1962 109,482 12,044 3,672 15,716 292 7,940 3,957 3,217 287 23 1963 111,656 10,968 4,101 15,069 292 6,068 4,914 3,416 279 100 1964 100,686 8,654 3,838 12,!492 292 4,073 4,154 3,497 270 206 1965 92,030 5,777 3,549 9,326 292 1,642 3,387 3,422 262 321 1966 86,251 5,758 3,329 9,087 292 1,285 3,387 3,403 302 413 1967 80,491 5,677 3,107 8,784 292 637 3,384 3,778 196 497 1968 74,812 5,608 2,898 8,506 292 108 3,385 4,106 189 426 1969 69,203 6,047 2,668 8,715 292 3,386 4,461 182 394 1970 63,154 5,375 2,427 7,802 292 3,387 3,653 175 295 1971 57,778 5,174 2,202 7,376 292 3,386 3,039 168 491 1972 52,603 5,267 1,978 7,245 292 3,385 2,934 161 473 1973 47,325 5,165 1,749 6,914 292 3,386 2,793 154 289 1974+ 42,168 5,019 1,527 6,546 292 3,386 2,444 146 278 1975 37,148 5,056 1,307 6,363 292 3,384 2,420 - 267 1976 32,091 5,019 1,085 6,104 292 3,367 2,385 - 260 1/ Does not include service on $1,575,000 of privately placed debt for which repayment terms are not available. 2/ It was assumed that bonds would be retired by the sinking fund through purchases in the open market at prices below par at approxir.ate present yields. IBRD - Economic Staff November 14, 1962 Table 3: EXPENDITURES ON GROSS NATIONAL PRODUCT, 1955-1961 (millions of sucres at current market prices) 1955 1956 1957 1958 1959 1960 1961 Consumption Expenditures 9,22h 9,92 9,944 10,393 10,803 11,925 12,985 Private 7,850 8,125 8,537 8,93o 9,270 10,112 10,928 Public 1,374 1,367 1,407 1,413 1,533 1,813 2,057 Gross Investment Expenditures 1,80 1,780 1,811 1,772 1,921 2,081 2,255 Fixed capital 1,538 1,560 1,561 1,516 1,734 1,856 1,946 Private 901 977 997 949 997 974 1,011 Public 637 583 564 567 737 882 935 Inventories 268 220 250 256 187 225 309 GROSS AVAILABLE RESOURCES FOR DOEESTIC USE 11,030 11,272 11,755 12,165 12,724 100 15,240 Net Exports of Goods and Services - 289 - 375 - 124 - 112 - 100 - 344 - 616 Exports 2,070 2,097 2,377 2,312 2,454 2,30 2,513 Imports -2,051 -2,103 -2,125 -2,120 -2,169 -2,476 -2,677 Services (net) -303 -369 -376 -304 -385 -398 -452 GROSS NATIONAL PRODUCT 10,741 iQ897 11631 12,053 12,624 13,662 14,624 GNP at 1950 prices 9,165 9,443 9,950 10,249 10,726 11,385 11,690 Gross Investment as % of GNP 161 15.8 15.4 14.6 15.1 14.9 14.8 Source: Central Bank, Table 4: GROSS NATION7AL PRODUCT BY ORIGIN, 1955-196. (1950 = 100) % of GNP in 1955 1955 1956 1957 1958 1959 1960 1961 Agriculture 36 119.7 126.9 131.3 132.7 140.8 149.4 158.9 Industry 15 121.2 128.4 131.8 140.2 147.4 158.8 160.3 Commerce 13 158.3 162.4 164.7 167.8 170.0 185.5 188.9 Services 8 123.7 114.5 134.5 143.6 149.9 153.9 155.1 (wnership of buildings 8 122.7 126.0 129.0 131.5 134.5 134.6 134.6 Public Adminis- tration and Defense 6 135.1 1142.1 141.6 144.8 151.6 166.2 185.9 Transport 5 136.5 133.6 140.2 141.8 145.9 145.6 n.a. Construction 3 147.2 170.6 180.6 183.3 218.3 243.9 n&a. Mining, petrol- eum 2 138.0 132.0 132.0 126.0 132.0 173.3 181.3 Banking, insur- ance 2 157.4 171.3 219.1 258.5 297.9 302.1 307.4 Power, water, sanitation 1 273,5 276.5 302.9 314.7 344.1 364.7 n.a. Total 100 128.7 133.5 139.4 143.5 151.2 161.0 166.5 Source: Central Bank. n.a. = not available Table 5: STRUCTURE OF AGRICULTURE: 1955, 1958, 1961 (value of production as percentage of total value of agricultural production) Product 1955 1958 1961 Primarily for-eport 43 38 31 Bananas 28 25 23 Coffee 9 7 4 Cacao 6 6 h Primarily-for internal consumption 57 62 69 Rice 5 5 6 Corn 5 4 3 Potatoes 5 4 5 Wheat 2 1 2 Barley 2 1 1 Other crops 18 24 26 Total crop for inte-nal consumption 37 39 43 Cattle and products 20 23 26 Total agricultural prcdu3tion 100 100 100 Source: Central Bank. Table 6: MAJOR AGRICULTURAL PRODUCTS: PRODUCTION, AREA HLARVESTED AND YIELDS, 2955-1961 Unit 1955 1956 1957 1958 1959 1960 1961 Crops primarily for export Bananias: Production '000 metric tons 1,873 1,953 1,669 1,755 1,898 2,075 2,050 Area '000 hectares 135 147 156 164 169 n,a. n.a. Yield ton/hectare 13.9 13.3 10.7 10.7 11.2 n.a. n.a. Coffee: Production t000 metric tons 36 30 34 37 30 38 30 Area '000 hectares 84 83 105 114 109 n.a. n.a. Yield ton/hectare 0.4 0.5 0.3 0.3 0.3 n.a. n.a. Cacao: Production t000 metric tons 28 33 31 27 33 41 38 Area '000 hectares 205 202 243 230 237 n.a. n.a. Yield ton/hectare 0.1 0.2 0.1 0.1 0.1 n.a. n.a. Total export crops: Production '000 metric tons 100 102 93 103 100 115 108 (1955=100) Area '000 hectares 100 102 119 120 121 n.a. n.a, Yield ton/hectare 100 100 78 86 83 n.a. n.a, Crops primarily for internal consumption Rice: Production 1000 metric tons 115 119 144 148 160 175 169 Area '000 hectares 79 93 104 109 116 n.a. n.a. Yield ton/hectare 1.5 1.3 1.4 1.4 1.4 n.a. n.a. Corn: Production 1000 metric tons 164 164 132 143 166 159 144 Area '000 hectares 241 240 218 221 240 n,a. n.a. Yield ton/hectare 0.7 0.7 o,6 0.6 0.7 n.a. n.a. Potatoes: Production '000 metric tons 164 177 154 161 183 187 298 Area '000 hectares 45 51 56 58 59 n.a. n.a. Yield ton/hectare 3,6 3.5 2.8 2.8 3.1 n.a. n.a. ....continued Page 2 Unit 1955 1956 1957 1958 1959 1960 1961 Wheat: Production '000 metric tons 42 40 35 39 47 58 78 Area 1000 hectares 70 65 61 56 55 n.a. n.a. Yield ton/hectare 0.6 0.6 0.6 0.7 0.9 n.a. n.a. Barley: Production '000 metric tons 79 77 61 69 76 83 70 Area '000 hectares 125 133 129 130 132 n.a. n.a. Yield ton/hectare 0.6 0.6 0.5 0.5 06 n.a. n.a. Sugar Cane: Production '000 metric tons 2,135 2,413 3,343 3,802 4,325 4,951 5,614 Other Crops: Production 1000 metric tons 1,032 1,144 1,195 1,497 1,691 1,767 1,917 Total crop Production '000 metric tons 100 102 97 102 115 121 137 for interno..Area '000 hectares 100 104 101 103 107 n.a. n.a. consumption:Yield ton/hectare 100 98 96 99 107 n.a. n.a. Rice, corn, potatoes, wheat and barley (1955-100) Sugar Cane Production 1000 metric tons 100 110 121 145 163 180 193 & other crops (1955=100) All Crops for internal Production '000 metric tons 100 106 108 122 138 149 163 consumption (1955=1oo) All Crops Production 100 104 100 108 117 130 133 (1955=1O) Animal Products (1955=100) 100 113 125 135 144 155 185 Total Agricultural Production 100 106 105 113 122 135 143 n.a. = not available Source: Central Bank. Table 7: CREDIT EXTENDED TO AGRICULTURE BY THE BANKING SYSTEM, 1955-1961 (million of sucres of new loans) 1955 1956 1957 1958 1959 1960 1961 Central Bank 36 44 37 59 40 36 114 Commercial Banks 53 52 68 83 94 109 102 Development Banks 261 254 302 266 189 189 234 All Banks 350 350 407 408 323 334 450 Source: Central Bank. Table 8: INDUSTRIAL STRUCTURE IN 1958 AND CHANGES IN INDUSTRIAL OUTPUT, 1955-1960 Percentage in 1958 of: Industrial Production (1955=100) Employment Gross Value Value Added 1955 1956 1957 195b 1959 1960 Foods ) 100 11$ 126 130 135 151 Beverages) 42 55 54 100 104 120 128 138 143 Tobacco ) 100 125 113 111 110 109 Textiles 25 14 18 100 106 135 131 139 148 Petroleum 8 8 10 100 102 102 118 153 217 Shoes, Clothing 3 2 1 100 93 91 83 74 47 Chemicals 4 6 5 100 91 94 100 107 117 Lumber, wood industry 4 2 2 100 122 113 145 168 201 Cement 3 4 3 100 104 106 110 107 137 Others 11 9 7 100 125 125 128 184 200 Total 100 100 100 100 107 116 124 135 156 1/ Provisional Source: Central Bank. Table 9: ELECTRIC POWER: CAPACITYA PRODUCTION AND CONSUMPTION, 1955-1961 1955 1956 1957 1958 1959 1960 1961 Installed capacityl/ 66 70 84 101 106 110 131 Hydro 26 29 33 34 35 35 55 Thermal h0 h1 51 67 71 75 76 Production2/ 259 281 299 324 349 389 429 Residential commercial 98 105 113 13L is 162 175 Industrial 84 95 101 107 110 127 146 Strecet lighting 16 19 21 23 27 26 27 Other 61 62 64 60 68 74 81 9/ Provisional. 1/ Thousands of kilowatts. 2/ Millions of kilowatt-hours. Source: Central Bank. Table 10: MINERAL PRODUCTION, 1955-1961 1955 1956 1957 1958 1959 1960 1961 ('000 troy ounces) Gold 15 15 17 20 19 15 15 Silver 48 52 61 85 163 126 101 (metric tons, metal content) Copper 9 12 16 48 135 221 223 Lead 85 116 110 120 107 238 245 (millions of U.S. gallons) Petroleum - crude 148 144 134 131 116 116 123 - gasoline 28 29 27 30 37 63 51 - kerosene 8 9 9 10 11 13 1b - diesel 11 15 15 19 27 29 31 - residual 33 32 34 39 29 52 65 Source: Central Bank. Table 11: EXPORTS AND TIMPORTS OF ?ET?LOLEUY PRODUCTS, 1955-1961 (millions of U.S. dollars) 1955 1956 1957 1958 1959 1960 1961 Exports (rude oil 2.1 1.7 1.8 0.8 0.6 - - Imports 3.4 3.1 5.0 3.9 3.0 - - Gasoline 2.1 2.3 3.3 1.0 2.2 - - Diesel 0.3 0.3 0.7 0.6 0.3 - - Residual 0.6 0.5 0.1 0.3 0.5 - - Balance -1.3 -1.4 -3.2 -3.1 -2.4 - - Imports Crud- oil - - - - 0.1 1.7 1.5 Gasoline for Aviation n.a. n.a. n.a. n.a. n.a. 0.6 0.6 Source: Ministry for Development. - = zero n.a. = not available. Table 12: CdANGES IN BANK CREDIT BY ORIGIN ANiD DESTINATION, 1956-1962 (millions of sucres) First Balance Half Jun.3 1956 1957 1958 1959 1960 1961 1962 1962- ORIGIN: Central Bank Credit 118.8 1.4 -143.2 1.0 147.7 378.3 - 1.6 1044.6 Central Government: 54.2 -16.9 - 66.9 - 12.8 54.1 148.8 50.4 228.3 Loans & Investment . - 7.3 - 7.1 - 11.0 229.9 - 21.5 37.1 4h6.3 Less: Deposits - 2.1 - 9.6 - 59.8 - 1,8 -245.8 170.6 13.3 -218.0 Rest of Public Sector 16.3 -31.5 - 66.3 35.4 W1.7 37.6 -26.4 69.6 Loans 2r Investment 27.3 -37. 4 - . 75.7 2.2 -. 215.0 Less: Deposits - 8.0 5.9 - 19.6 - 7.4 - 33.9 35.4 -31.7 -148.4 Private Sector/2 66.5 55.9 - 30.7 - 6.1 94.1 121.5 -31.9 507.6 Commercial Banks 5.4 - 9.4 10.6 1.3 0.1 - 0.6 9.8 36.7 Development Banks -23.6 3.3 10.1 - 16.8 - 42.3 71.0 - 3.5 202.4 Commercial Bnk Credit 154.0 174.2 144.3 216.4 234.1 77.2 27.3 2135.7 Loans an-d Inves,tm-ents to Private Sector 159.4 164.8 154.9 217.7 234.2 76.6 37.1 2172.4 Less: Financing through Central Bank - 5.4 9.4 - 1.0.6 - 1.3 - ,0.1 0.6 - 9.8 - 36.7 Development 3ank Credit 33.6 38.4 35.1 - 12.6 22.9 18.5 5.3 602.2 To: Central Government (Deposits) - 1.5 0.7 7.3 0.3 - 2.3 4.8 - 3.1 - 11.2 Rest of Public Sector (Deposits) 2.1 - 6.9 - 9.3 1.2 - 3.4 1.2 - 4.0 - 34.2 Private Sector 9.4 47.9 47.2 - 30.9 - 13.7 83.5 8.9 850.0 10.0 4T1 7 - 29.T - -19.4T 71.7 5h.6 Less: Financing through Central Bank 23.6 - 3.3 -10.1 16.8 42.3 -70.0 3.5 -202.4 Total Banking System Credit Central Government 52.7 -16.2 -59.6 -12.5 51.8 153.6 47.3 217.1 Rest of Public Sector 18.4 -38.4 -75.6 36.6 38.3 38.8 -30.4 35.4 Private Sector 235.3 268.6 171.4 180.7 314.6 281.6 14.1 3530.0 Total 3064 214.0 3. 200 3. C7oi2. ...Continued Page 2 One- Balance Half 'Jun,39. 1956 1957 1958 1959 1960 1961 1962L 1962L IESTINATION: ?rivate Holdings of 3ank Debt 284.0 250.5 14.6 298.3 299.2 300.2 -.8.6 3517.5 Currency in circulation 80.4 13.2 - 15.1 42.1 96.4 33.2 - 7.0 853.0 Demand deposits 76.8 41.0 1.5 127.4 72.2 26.0 -18.0 916.8 Total Money Supply 157.2 54.2 - 13.6 169.5 168.6 59.2 -25.0 1769.8 Mortgage Bonds 82.2 142.7 98.9 112.4 86.1 18.6 - 6.0 1033.1 Time, Savings and Foreign Exchange Deposits - 44.6 53.6 - 70.7 16.4 44.5 222.4 22.4 714.6 Gold and Foz-eign Exchange Holdings of Eankj (increase- - 6.8 -55.5 - 31.6 - 76.2 55.2 -107.3 81.5 -512.1 Capital, Reserves and Other (net) Liabilities 29.2 19.0 53.2 - 17.3 50.3 281,1 -41.9 777.1 Total 306.4 214,0 36.2 204.8 404.7 474.0 31.0 3782.5 Provisional. 2 Includes advanced import deposits. Source: Central Bank. Table 13: ADVANCE IPORT DTOSITS, 1960-1962 (millions of sucres) End of Period At rates of Total 250% 5 100%o 1960 - December n.a. n.a. - 16.5 1961 - M-arch 9.8 23.4 - 33.2 June 49.7 50M8 - 100.5 3eptember 71.0 $1.h 26.6 149.0 December 70.8 33.2 42.5 146.6 1962 - March 64.7 15.1 49.5 129.3 June 72.1 15.4 54.8 142.3 Source: Central Bank. Table 14: CONSOLIDATED FINANCES OF THE PUBLIC SECTOR, 1955-1961 (millions of sucres) 1955 1956 1957 1958 1959 1960 1961 Revenue Direct taxes 579 613 694 731 803 840 903 on: income 371 393 431 468 524 522 564 inheritance 57 68 73 79 80 81 84 exports 104 110 136 134 144 175 188 other 47 42 54 50 55 62 67 Indirct taxes 1,028 965 1,109 1,15b 1,187 1,205 1,390 on: imports 484 447 544 571 579 642 682 consumption 372 353 388 392 401 437 461 transactions 22 25 27 36 37 35 39 other 150 140 150 155 170 171 208 Other revenue 548 576 610 689 719 810 851 Total revenue 2,155 2,154 2,413 2,574 2,709 2,935 3,144 Current expenditures 1,635 1,587 1,823 1,970 1,940 2,170 2,396 Saving 520 567 590 604 769 766 748 Investment expenditures 644 584 564 567 738 882 935 Surplus, or deficit (-) -124 -17 26 37 31 -116 -187 Financed by: External gross borrowing 140 93 59 85 204 293 349 less amortization 52 44 61 66 110 138 162 External borrowing (net) 88 49 -2 19 94 155 187 Domestic borrowing (net) and use of cash balance 36 -32 -24 -56 -12.5 -39 0 Source: Central Bank. TABLE 15 - FNERiXAL GOE-T 1T REVENUE AS PERCENTAGE OF GROSS NATIDIJAL RODUCT IN VARIUS COUNTRIES Period Revenues as percentage of GNP Total Indirect Direct Income from property Current revenues taxes taxes and entrepreneurial activities Ecuador 1950 - 59 19.7 10.9 3.7 4.2 Chile 1950 - 59 19.7 8.6 10.2 0.6 Colombia 1950 - 59 12.0 6.9 4.2 0.9 Costa Rica 1950 - 59 18.5 9.6 3.6 1.1 Paname 1950 - 58 16.3 7.7 4.1 1.0 Peru 1953 - 58 12.6 5.8 6.5 0.3 Source. Simon Kuznets "Quantitative aspects of the economic growth of nations; VII The share and structure of consumption." Volume X, No. 2, Part II of Economic Development and Cultural Changes (January 1962). 16g: FINANCES OF THE PUBLIC SECTOR, Bf AUTHORITY 1956-1961 1956 1957 1958 1959 1960 1961 Central Government Revenue 820 1,011 1,025 975 86o 1,086 Non-investment expenditure 772 864 879 827 970 1,152 Saving 7 7 -110 -66 Investment expenditure 242 166 147 225 284 342 Surplus, or deficit (-) -19 -19 -1 -77 -_3T -170 Total expenditure 1,O1 1,030 1,602 1,0,2 1,25 1,6 Investment as % of total expenditure 24 16 14 21 25 23 Saving as % of revenue 6 15 14 15 -13 -6 Provincial Councils Revenue 32 37 36 35 39 40 Non-investment expenditure 9 12 12 9 12 13 Saving 23 7 28 27 27 Investment expenditure 18 25 22 25 22 24 Surplus, or deficit (-) __ - 2 3 T 3 Total expenditure 27 37 34 37 Investment as % of total expenditure 67 68 65 73 65 65 Saving as % of revenue 72 68 67 25 31 33 Municipal Councils Revenue 303 352 382 372 511 502 Non-investment expenditure 180 220 261 239 289 334 Saving 123 132 121 133 222 16 Investment expenditure 132 140 134 212 241 250 Surplus, or deficit (-) -9 -' -13 -79 -19 782 Total expenditur-e 312 36 39 Z30 5 Investment as % of total expenditure 42 39 34 47 43 43 Saving as J' of revenue 41 38 32 36 43 33 Autonomous Entities Revenue 999 1,013 1,131 1,327 1,526 1,516 Non-investment expenditure 626 727 818 866 899 898 Saving 373 2F 313 ~T6ST 627 ~T1T Investment expenditures 192 233 264 276 335 320 Surplus, or deficit (-) 73 49__ 187 292 298 Total expenditure 918 96 1,082 1,142 T, 234 1,218 Investment as / of total expenditure 23 24 24 24 27 26 Saving as * of revenue 37 28 28 35 41 41 .... .continued Page 2 1956 1957 1958 1959 1960 1961 Total Public Sector Revenue 2,154 2,413 2,574 2,709 2,936 3,144 Non-investment expenditure 1 587 1 823 1 970 1 940 2 170 2 396 Saving '60h Investment expenditure 584 566 567 738 882 935 Surplus, or deficit (-) -17 37 31 -116 -187 Total expenditure 2,171 2,387 2,537 2,678 3,02 3,331 Investment as % of total expenditure 27 24 22 27 29 28 Saving as % of revenue 26 24 23 28 26 27 Central Government as % of Total Public Sector Revenue 38 42 40 36 29 34 Non-investment expenditure 49 47 45 43 45 48 Saving 8 25 24 19 -14 -8 Investment expenditure 35 29 26 30 32 37 Total expenditim-e 47 43 41 39 41 47 Source: Central Bank. Note: As these data reflect the public sector finances after consolidation, Central Government data shown here do not agree in all respects with Central Government budget data shown in Table 17. Revenue for each segment of the public sector is shown here after transfers from the Central Government to the rest of the public sector. Revenue does not include proceeds of loans or cash balances, expenditure does not include amortization of debt. Table 12: THE CENTRAL GOVERNMENT 'S BUDGET, 1956-1963 (millions of sucres) 1956 1957 1958 1959 1960 19611/ 19622/ 19632/ Revenues Indirect taxes 22. 934 935 958 1,034 1,028 1,100 1,250 on: imports 413 545 554 558 639 639 670 consumption 285 293 288 304 299 273 300 others 75 95 92 96 96 116 130 Direct taxes 249 280 304 290 280 344 2L 440 on: income 147 158 183 166 173 207 210 exports 79 98 87 90 84 lo9 120 others 23 24 34 34 23 28 45 Other revenues 113 141 140 90 113 1 192 100 Total 1,135 1,355 1,379 1,338 1,427 1,548 1,667 1,790 Current Expenditures and Transfers 1,06 1,173 12189 1,519 6 1,744 1,770 Consumption 675 729 682 696 790 880 999 1,050 Transfers 411 444 479 493 729 736 745 720 SavinEs 49 182 218 149 - 92 - 68 - 77 20 Investment Expenditures 238 165 147 226 284 350 270 200 Budget Surplus, or Deficit (-) -189 17 71 -77 -376 -418 -34Y -180 Financed By External borrowing (net) .2 -21 -2 138 210 170 Gross borrowing 47 5 1 91 194 287 240 Less-Amortization 14 26 18 78 56 77 70 Domestic borrowing (net) 1 6 4 -69 64 238 208 17 Central Bank 2*'7 T -7 2W 7 i National Security Commission 3 -23 14 107 92 88) 90 Social Security fund -5 -7 -6 -5 - -29) Borrowing from private sector 46 17 -18 -21 -21 51) Use of cash balances 20 26 -45 -18 -89) 81) Other -3 -2 -1 8 12) 1/ Provisional 2/ Estimated partly by Central Bank, partly by IBRD staff (Investment and Financing of Deficit) 3/ Proposed budget; IBRD staff estimates of special acccunits Source: Central Bank - 1956-1962 Rinistry of Treasury - 1963 Table 18: CENTRAL GOVERNM\ENT EX ENDITURE, BY PURPOSE, 1956-1960 Purpose 1956 1957 1958 1959 1960 General administration 13 13 14 13 13 National defense 23 22 21 18 18 Police and justice 5 5 5 5 5 Education 11 11 11 12 11 Public health 3 3 3 2 3 Social welfare, labor 4 4 4 6 5 Housing, communal services /1 /1 L 1 1 Agriculture, forestry, fisher-es 1 1 1 2 2 Industry and commerce /1 /1 /1 1 1 Transportation, communication 20 17 17 23 19 OtherZ2 19 24 24 18 22 100 100 100 100 100 1/ Less than 0.5 2/ Includes customs duties collected by the Central Government on behalf of autonomous entities. Note: These figures do not include repayment of debt. Source: Central Bank. Table 19: GROSS FIXED CAPITAL FORMATYI B. SECTOR AND PURPOSE, _956-1961 (millions of 1950 - sucres) 1956 1957 1958 1959 1960 1961 TOTAL: 1.352 1.335 1.289 1.474 1.547 1.556 By Sector: Private sector 847 853 807 847 812 809 Central Gov. other Public sector 505 482 482 627 735 747 By Purpose: Transportation 247 212 180 221 277 305 roads, bridges 191 178 164 186 190 220 railroads 17 l4 6 1 9 8 airports 23 12 1 4 22 77 ports 16 8 9 30 56 Electrification 18 40 35 97 104 98 Irrigation 5 4 4 8 l 14 Housing 218 233 223 240 202 202 Non-residential building 132 126 140 131 174 172 Other construction 110 109 103 121 113 93 Vehicles,machinery and equipment 622 611 604 656 663 672 Source: Central Bank. Table 20: GROSS FIXED CAPITAL FORMATTON OF THE PRIVATE SECTOR, 1956-1961 (millions of 1950 - sucres) 1956 1957 1958 1959 1960 1961 Housing 211 214 208 174 166 162 Other building and construction 70 82 61 84 52 47 Vehicles, machinery and equipment 566 557 538 589 594 600 TOTAL: 847 853 807 847 812 809 Source: Central Bank, Table 21: GROSS FIXED CAPITAL FORMATION OF THE CENTRAL GOVERNENT, 1956-1961 (millions of 1950 - sucres) 1956 1957 1958 1959 1960 1961 Transportation 180 116 89 154 173 223 roads, bridges 144 101 87 135 150 178 railroads - --- -- --- --- --- airports 23 12 -- --- --- 20 ports 13 3 2 19 23 25 Electrification --- --- -- --- --- -- Irrigation --- -2 --- Buildings and other construction 20 15 23 20 42 37 Water, sewage --- --- -- 3 9 -- Communication 1 3 -- 5 --- --- Vehicles, machinery and equipment 9 8 13 10 11 13 TOTAL: 210 142 125 192 237 273 Source: Central Bank. Table 22: GRO7S FIED C'APIT7L FORMTTO OF THE REST OF TIHE PUBLIC SECTOR, 1956-1961 (millions of 1950-sucres) 1956 1957 1958 1959 1960 1961 Transportation 67 96 91 67 104 82 Roads, bridges 47 77 77 51 40 42 Railroads 17 14 6 1 9 8 Airports - - 1 4 221 Ports 3 ) 7 11 33) 32 Electrification 18 40 35 97 104 98 Irrigation 5 4 4 8 12 14 Buildings and other constructions Hous i ng 7 19 15 66 36 40 Non-residential buildings 55 67 81 46 100 107 Water and sewage 66 34 27 47 46 45 Urban affairs 26 25 25 26 37 25 Other 1 9 24 16 - 3 Communications 3 - 2 5 1 1 Vehicles, Machinery, Equipment 47 46 53 57 58 59 TOTAL 295 340 357 435 498 474 Source: Central Bank. Table 23: PUBLIC INVESTMENT PRIJECTS1/ IN ECUADOR PLAN EZEDIATO) (millions of U.S. dollars) Financed by Projected Investment Total External Internal Cost Credit Resources 1962 1963 1964 & later Agriculture Central Government (investigation, ex- tension service, projects for special crops) 20.0 8.4 11.6 3.0 3.0 14.0 National Irrigation Institute 5.4 1.0 4.4 1.8 3.0 0.6 Colonization Inst. 15.7 10.3 5.4 0.7 6.8 8.2 Fishing Institute 4.0 1.3 2.7 0.3 1.0 2.7 Development Banks (credits to agric.) 8.9 6.0 2.9 - 3.0 5.9 Industry (credits to Industry) Comision de Valores 7.5 5.0 2.5 - 4.0 3.5 Development Bank 6.0 4.0 2.0 - 2.0 4.0 Roads Central Government 47.5 25.0 22.5 13.8 12.3 21.4 Municipalities and Provinces 25.6 12.6 13.0 1.8 2.3 21.5 Bridges Central Government 0.2 - 0.2 0.2 Ports Port Authority in Guayaquil 7.8 6.2 1.6 7.8 - - Central Government 8.5 6.0 2.5 0.5 2.5 5.5 Railroads National Railroad 19.3 17.2 2.1 - 2.9 16.1 Electrification National Electri- fication Institute 27.7 23.2 4.5 12.0 8.3 10.14 Education Central Government 7.2 4.0 3.2 2.5 1.6 3.1 Municipalities 1.2 0.5 0.7 0.6 0.1 0.2 Communications Central Government 3.2 3.2 - 0.2 0.8 2.2 ... continued Page 2 Financed by Projected Investment Total External Internal Cost Credit Resources 1962 1963 1964 & later Social Welfare Potable water supply: 20 municipalities 5.0 4.6 0.4 - 2.5 2.5 Housing Banco de la Vivienda 9.2 5.0 4.2 - 3.0 6.2 Instituto Nacional de la Vivienda 25.8 16.3 9.5 2.9 11.5 12.4 Other Services Government 6.2 3.7 2.5 1.4 0.8 4.0 Total 261.9 164.5 97.4 49.5 68.7 143.7 Central Government 89.6 47.1 42.5 21.4 20.6 47.6 Rest of public sector 172.3 117.4 54.9 28.1 48.1 96.1 I/ Including government contributions to the financing of private investment. Source: Planning Board. Note: Since this Plan was prepared, some of the cost-estimates of the various projects have been revised, resulting in substantial increases. This applies in particular to investment in roads. Table 216: EXTERNAL CREDITS UNDISBURSED AT THE END OF 161 EXTJER,AL ASSISTANCE 0B_EAT_ 1 AND REQUESTED (in millions of U.S. dollars) Assistance Ghdisbursed Obtained Loans Projects Lender end of 1961 in 1962 Requested Total Agriculture: total 0*3 African Palms IDB ) .0.0 Wool ) Cattle Eximbank 0.5 0.5 Colonization IDB 2.9 2.9 Rural Development IDB 2.0 2.0 Agricultural credit IDB 4.0 2.0 6.0 Industry: total 9.0 Industrial credit AID 5.0 *7 Industrial credit IDB 2.0 2.0 4.0 Roads: total 33.9 1st 5-year plan IBRD 2.7 DLF 2.3 _*0 Suppliers' credit 1.4 1.4 2nd 5-year plan IBRD, IDA /1 IDB, AID 25.3- 25.3 Faute-Mendey highway IDB 2.2 2.2 Ports New port - Guayaquil IBRD 6.5 6.5 Electrification 6 ships with pow.er plants AID 17.2 17.2 Education Central University IDB 0.8 Manabi University IDB ? 0.8 Housing: total 15.8 Housing Bank AID 5.0 5*0 Housing Institute IDB 10.6 10.6 Water and Sewage *. Quito IDB 3.5 3.5 14 towns IDB 5.0 5.0 Other Service iapping AID 1.8 1.8 Budget Support Loan and AID 2_ 7.0 16-5 Ceceral Com. Development 1/ With the upward revision of cost-estimates for the road projects, the requested external credits for road financing has been increased to $36 million Source: Table 1 and Planning Board. Z/ Of which $7.7 million is repayable in lccal currency. 3/ Of which $17.2 million is a grant (6 ships with po,er plants) and $13.6 f illion is repayable in local currency. Table 25: NEGOTIABLE SECURITIES OUTSTA{DTIAG, DECEM'BER 31, 1961 BY PURCHASES AND BY SECURITY (millions of sucres) Central Gov't. Total Total Mortgage Municipal and other pub- Dec. 31 Dec. 31 Holders Bonds Bonds lic bonds Other 1961 1959 Social insurance funds 194 132 247 161 734 567 Insurance companies 54 2 1 10 67 63 Commercial banks 27 8 - 21 56 42 Development banks 22 - - 5 27 30 National Security Commission 20 - 264 3 287 230 The Public 719 - - 719 550 Total anount outstanding December 31, 1961 1,036 142 512 200 1,890 - Total anount outstanding December 31, 1959 930 125 326 100 - 1,1481 Source: Central Bank Note: This table does not include private holdings of privately-issued securities, for which no data are available. Amounts of less than 0.5 are not s ho wn. Table 26- BALINCE OF I\jT?R. IONAL PAYMf?TS, 1956-1961 (millions of dollars) 1956 1957 1958 1959 1960 1961 Nerchandise exports 117.8 137.1 136.9 143.4 148.1 132.0 Merchandise imports - 95.9 - 98.5 -102.2 - 96.1 -109.8 -110.7 Trade balance 21.9 3. 7h 37 7. 3 21.3 Transportation - 14.9 - 13.4 - 15.0 - 15.0 - 17.6 - 16.8 Investment income - 20.3 - 21.6 - 21.8 - 23.3 - 22.8 - 23.0 Other services, net and transfers - 8.2 - 6.8 - 6.2 - 9.5 - 9.3 - 6.8 Balance on goods, service and transfer payments - 21.5 - 3.2 - 8.3 0.5 - 11.0 - 25.3 Private long-term capital (net) 9.9 9.4 7.8 13.0 11.3 10.4 Private and bank short-term capital (net) 4.4 - 4.8 - 2.4 4.7 - 12.7 - 7.1 Government capital (net) 13.4 - 1.2 - 2.4 - 10.8 8.0 Subscription to IiF - 5.0 - - - 5.0 - - Change in net foreign exchange reserves of Central Bank (increase -) - 0.5 - 2.7 - 2.1 - 5.9 5.2 12.4 Errors and Omissions - O 7 2.5 7.4 - 7.3 - 3.8 1.6 Source: Central Bank. Table 27: MERCHANDISE EXPORTS, B 7ALUE, 1956-1961 1956 1957 1958 1959 1960 1961 (millions of U.S. dollars) Bananas 59.8 69.0 72.9 89.7 88.9 80.9 Coffee 29.3 29.9 26.3 17.5 21.9 15.71 Cacao 17.4 18.6 20.4 21.8 21.4 17.2 Rice 1.6 4.9 3.5 2.3 3.7 3.0 Panama hats 1.5 1.1 0.9 0.8 1.1 0.5 Crude petroleum 1.7 1.8 0.8 0.3 - - Pharmaceuticals 0.7 0.4 0.7 0.7 0.9 1.5 Balsa vood 1.0 1.9 1.5 1.5 1.3 1.2 Fish and fish products ) ) 3.7 3.9 3.6 5.4 5.4) 10.1) Others ) ) 6.9 5 7 5.0 7.2 Total 113.4 137.7 137.6 144.1 147.8 132.6 (percentages of total exports) Bananas 51 50 53 62 60 61 Coffee 25 22 19 12 15 12 Cacao 15 14 15 15 15 13 91 86 87 89 90 86 Others 9 14 13 11 9 14 100 100 100 100 100 100 1/ Including contraband exports of $1.4 million 2/ Including contraband exports of $1.6 million Source: Central Bank. Table 28: MAJOR MBY VOLUME AND VALUE 1996-1961 AND 10JECTED FOR 1Q61 Projected Product 1956 1957 1958 1959 1960 1961 1965 Volume (1000 metric tons) Bananas 579 669 717 885 900 848 1000 (mln. 25.7 kg. stems) 22.6 26.1 27.9 34.0 35.0 33.0 39 Coffee 24.5 29.0 30.2 23.4 31.3 22.9 36 Cacao 29.2 26.9 22.2 28.2 35.6 32.4 38 Unit Value (U.S. cents per pound) Bananas 4.7 4.7 4.6 4.6 4.5 4.3 4.45 Coffee 55 47 39 34 31 28 26 Cacao 27 31 42 35 27 22 20 Value (millions of U.S. dnllars) Bananas 59.8 69.0 72.9 89.7 88.9 80.9 98 Coffee 29.3 29.9 26.3 17.5 21.9 15.71 21 Cacao 17.4 18.6 20.4 21.8 21.4 17.21/ 17 106.5 117.5 119.6 129.0 132.2 113.8 136 Others 11.9 19.6 17.3 14.9 15.9 18.2 28 117.8 137.1 136.9 143.9 148.1 132.0 164 1/ Including estimated contraband exports of coffee and cacao; see Table 27 Source: Central Bank Table 29: COM,POSITION OF IMPORTS, 1956-1961 1956 1957 1958 1959 1960 1961 (millions of U.S. dollars) Total imports 88.8 90.8 94.5 89.2 105 10% (percentages of total imports) Consumers' goods 20.4 21.9 22.9 22.9 22.0 21.8 Direct 12.. ]. 1)4.1 13.1 2. of which: antibiotics 1.0 1.4 1.T 1.2 cigarettes 1.8 2.7 2.8 4.5 oats 06 0.6 0.6 0.6 Semi-durable 3.0 2.6 2.7 2.7 3.1 3.1 of which: dinnerware 0.2 0.2 0.2 0.2 glassware 0.1 0.2 0.1 0. phono, records 0.1 0.1 0.1 Durable 4.6 5.1 6.1 6.1 5.8 6.2 of which: radios 0.4 0.7 0.4 7. refrigerators 0.4 0.6 0.7 0.6 sewing machines, manual 0.8 0.4 0.7 0.3 Fuels and lubricants 4.2 6.0 5.1 5.0 4.2 4.4 of which: gasoline 2.2 3.1 3.0 2.5 diesel and fuel oil 0.1 1.5 0.7 0.8 lubricants 1.1 1,2 1.1 1.3 Raw materials and supplies 29.8 30.2 28.0 30.2 30.0 32.3 of which: whGat 5.8 -. 3.3 T.7 - artificial silk thread 1.1 1.3 1.2 1.1 newsprint 0.9 1.1 1.0 1.3 Capital goods 45.5 42.0 44.2 42.0 43.8 41.5 of which: trucks 1.2 1.3 1.4 1.T tires 2.3 2.6 2.5 2.8 truck chassis 2.4 2.4 2.7 2.3 1/ Less than 0.5 Source: Central Bank. Note: The above import figures are based primarily on customs data, and do not include adjustments normally made for balance of payments purposes. There- fore, tie totals shown here differ slightly from those shown in Table 25. The largest differences, which occur in the years 1956-1959, amount to no more than $7 to $8 million in any year. The items identified under each category currently represent the three largest in that category. Table 30: INTERNATIONAL RESERVES OF THE CENTRAL BANK, 1954-1962 (millions of U.S. dollars) ASSETS LIABILITIES Payments To For- Payments Reserves as % End of Foreign Agreements Gross eign Banks Agreements Net of same year's Period Gold Exchange (credit) Reserves and IMF (debit) Total Reserves Imports c.i.f. 1954 22,9 11.2 4.4 38.5 0.8 1.8 2.6 35.9 32 11955 22.9 5.3 5.4 33.7 6.0 2.9 8.9 24.8 23 1956 21.7 4.9 5.0 31.7 4.5 1.9 6.4 25.3 23 :1957 21,7 9.5 7.9 39.1 8.1 3.0 10.2 28.0 26 1958 21.7 5.5 8.1 35.3 3.2 2.0 4.3 30.1 27 1959 20.4 12.1 7.4 39.9 1.3 2.6 3.8 36.0 33 1960 20.0 12.3 4.7 37.0 3.0 3.2 4.6 30.8 22 1961 19.2 13.7 5.4 38.3 19.9 - 19.9 18.4 14 Sept.1261 19.9 6.5 6.1 32.5 16.2 - 16.3 16.2 12 Sept.1962 19.1 16.2 5.6 40.9 1593 - 15.3 25.6 13 Source: Central Bank. Table 31: TLRIS OF TRADE, 1950-1962 (1955 = 100) Unit value of Terms of Year Exports Imports Trade 1950 100 87 114 1951 101 95 106 1952 105 99 106 1953 102 96 106 1954 118 98 121 1955 100 100 100 1956 103 102 101 1957 101 107 95 1958 98 106 92 1959 96 99 97 1960 90 102 87 1961 83 103 80 !.962 (first half) 87 103 84 Source: Central Bank. Table 32: FREE MARKET RATE OF EXC ANGE, 1950-1962 End of Sucres per U.S. dollar 1950 18.3 1951 17.2 1952 17.4 1953 17.4 1954 17.4 1955 17.4 1956 18.8 1957 16.6 1958 16.7 1959 17.0 1960 17.5 1961 20,C 1962 (first half) 22.5 Source: Central Bank. Table 33: COST OF LIVING INDEX, 1950-1962 (1950 = 100) Year Index 1950 100 1951 112 1952 114 1953 115 1954 118 1955 121 1956 115 1957 116 1958 117 1959 117 1960 119 1961 124 1962 (first half) 127 Source: Central Bank. -Lable 3: 4HOLE3ALE ICE INDEX, 1956-1962 (1956 100) 1956 1957 1958 1959 1960 1961 1962 Jan/Mar Beef 100.0 100.2 100.8 101.3 101.5 109.1 109.8 - ilk 100.0 100.6 97.0 94.7 94.6 88.1 87.5 Corvina 100.0 107.6 102.1 107.2 112.5 108.3 102.8 Theat flour 100.0 97.2 103.6 103.8 102.8 100.3 101.0 Rice 100.0 97.9 94.2 94.1 101.6 106.8 107.0 Corn 100.0 121.3 109.7 95.4 106.2 120.1 120.8 Vermicelli 200.0 10l.1 97.6 96.9 96.8 97.3 96.8 Sugar 100.0 07.8 93.7 96.4 95.2 97.2 95.2 Oranges 100.0 l0.6 115.9 87.5 123.9 90.2 113.6 Bananas 100.0 110.4 J07.] 102.5 105.1 118.2 103.0 PotFtoes 100.0 156.6 114.6 84.3 134.3 88.2 82.2 Lentils 100.0 132.2 121.9 107.8 111.7 121.6 123.0 Toratoes 100.0 44.1 36.2 36.2 3L.8 36.3 53.9 Butter C10.0 97.9 101.3 99.7 98.8 101.5 101.5 TOTAL 100.0 105.4 101.7 100.7 102.1 105.6 105.8 Source: Central University.