Colombia - Current economic position and prospects

R1N TO RESTRICTED I R U Tfl I Report No. WH-136a REPORTS DESK I WITHIN 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 oublished nor may it be auoted as representina their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION CURRENT ECONOMIC POSITION AND PROSPECTS OF COLOMBIA May 4, 1964 Department of Operations Weter~iv~nvv4a~n. CURRENCY EQUIVALENTS U.. $1 W. / Peso 1 peso = U.S. $0. 11 1 million pesos = U. S. $111, 000 approx. 1/ Colombia has two exchange markets; an official ("Auction") market in which the rate is 9 pesos = U.S. $1, and a "free" market in WI1 .II L I'l .La 10 LV 1 -j n- U. 0.. .PL. jI r official buying rate on proceeds of coffee exports and on Petroleum Company conversions is 7. 30 pesos = U. S. $1. The "free" market is generally applicable on the proceeds of other P-3nortiq and nn rnnitnl tr~niQrtionnQ Page DACTfl nAmA QTThMfADV A'171 rnanT TTTman ~~JUrUT Lili UU14J 'llU L ull~U1 i -. The Basis for Colombian Development 1 U rinancial Measures in Support of the Development Program 3 A. National Budget 3 B. Money and Credit C. Price and Wage Increases in 1963 6 D. Balance of Payments in 1963 7 Imports 7 Exports 7 III Agriculture 8 A. Production Trends 8 B. Resource Base 8 C. New Programs 10 D. Markets and Prices 11 E. Extension, Training and Research 12 F. Fertilizers 12 G. Credit 13 H. Agricultural Planning 13 IV Manufacturing and Petroleum 14 A. Import Substitution 14 B. Expansion of Exports 16 C. Recent Developments in the Capital Market 18 Demand for Capital 18 Supply of Capital 18 Private Investment Fund. 19 D. Petroleum 21 V Public Sector Investment 23 A. Investment in 1963 23 B. Investment Prospects for 196h and 1965 25 C. Financing of Investment 25 Public Savings 27 External Credits 27 Financing by Domestic Credit 98 D. Investment by Sector 28 Elptrin Pnpr 28 Tel ecommunicat ions 30 Agriculture 33 Tndnu+try and Po.-rnl nmir? Education 34 HealthInd Sanitaion; Page 2 Page VI Financing Economic Growth 35 A. Capital Formation 35 B. Domestic Savings 3> C. External Resourpes 36 Trends in 15150s 36 Trends in 1960 36 Prospects for 196-65 and Subsequent Years 38 Exports 38 imports 39 Invisibles 39 Capital Account 40 VII Colombia's External Debt 40 A. Level and Structure of Debt 40 B. External Capital Requirements 41 C. Short-Term Financial Management 41 D. Basis for Long-Term External Finance 43 ANNEXES: I. Rroduction and Export Prospects for Leading Agricultural Commodities. II . Balance of Payments III . List of Individual Projects STATISTICAL APPENDIX 1 BASIU .DUTA Population: 15 million (mid-1962 estimate) Rate of growth: 2.8c, Area: 439,825 Square miles Gross Domestic Product: Real rate of growth 1950-55: 5.05 1956-63: LL.3 1961: 5.2% 1962: 5.4% Total GDP (1962): 32.7 billion pesos (preliminary estimate) Per Capita GDP: 2,180 pesos Per Capita GDP at rate of 10 pesos to U.S. .0l: !220 Exports: 1961 $ U.S. 477 million 1962 U.S. 492 million 1963 U.S. 482 million Imports: 1961 A U.S. 531 million 1962 1 U.S. 516 million 1963 3 U.S. 1161 million Foreign Exchange Reserves: U.S. 127 million (gross inMnrch. 196) External Public Debt (June 30, 1963): Total (includinp undishursed) 1U -S 715 million IBRD and IDA 0 U.S. 301 million Other U.S. )1 milion SUMIARY AND CONCLUSIONS 1. Colombia has a strong resource base for economic growth and has made effectivre uSe of its p.hysi-I and -Nnnnda resources to bI d' up and diversify its economy. With a brief interruption in 1956-58, ' .Uo AiI1_SUJA~IC I 11OUU U IL Utn L~L1 kj. C0UI 1r Cu C2,L U ~ U! L CLLJLAIIUJI)V ALJ'.- .L4J since 1orld War II. Prospects are favorable for continued economic growth rat of 11A~ ±) or moreL uI IL contuingLLJ efforts~ toU oncenrat reso.-' urce both public and private, on the priority needs of the economy and with contin.Lu.ing assistace 0o. tAextl1f@l Iinaancig .lur UI1u Ut1t P1V14~1JAU Ld. 2. In 1962 Colomola initiated a 10-year development program to provide a framework for growth in the 1960ts. The priorities and in- vestment levels indicated in the program were on the whole soundly con- ceived. To establish a financial basis for its development plan the government undertook a series of strenuous measures in iovember 1962. Through improved collection and new taxes, as well as restraint in its operational expenditures, public savings, which had fallen appreciably in the previous two years, were increased in 1963 and are expected to in- crease further in 196. In the National Government budget alone, savings are expected to rise from Col $200 million in 1962 to Col 350 million in 19b, rising from 0.6% of Gross Domestic Product to 3.Q0; A reform of the Colombian exchange system at the end of 1962 was essential to continued careful management of the balance of payments. The effectiveness of the exchange rate adjustments in expanding exports and restraining im- ports was reduced by subsequent domestic cost and price increases, but with the assistance of direct controls imports were nevertheless kept well within manageable limits. 3. The government's financial and economic policies have greatly encouraged private productive and investment activities. In agriculture an increase of production is of prime importance both for Colombiats ex- port diversification and for the supply of food and raw materials to the rapidly growing industrial and urban sectors. Commercial agriculture is continuing its expansion, especially in the Cauca Valley and the Bogota Plateau. A series of new agricultural programs are being undertaken, e.g. . land settlement and agrarian reform, "rersification of the Caldas Coffee Area, and expansion of banana, African palm and sugar production. Strong efforts continue to be necessary to overcome marketing and commodity pricing problems, strengthen extension,training and research activitie5, increase fertilizer production and. utilization,and increase the availability of agricultural credit. The key importance of agriculture for Colombiat economic growth calls for the rapid preparation of a comprehensive sector plan. 4. Industrial production and investment are also increasing after some hesitancy in early 1963. In recent years industrial expansion has become more dispersed, ranging from production of a variety of consumer goods to intermediate nroducts and capital goods. The finance corporations (financieras) have been promoting a wide range of industrial projects and are hplnins to mobilize financing. The Private Investment Fund (PIF). iii established in March 193 under the auspices of the Central Bank, provides a means for channeling external credits to supplement local savings in financing priority investments in industry and agriculture. PIF credits are concentrated on expanding production for export and on substitution of imports. Experience thus far indicates that the PIF has already become an effective means of providing financing for the growth of Colombia's industry and agriculture. 5. Production and export of petroleum are now increasing after de- clining in 1960-62; exports are expected to continue to increase with bhe development of proven fields. In addition, extensive exploration is under way particularly in the Putumayo area in southern Colombia. Refinery ex- pansion is also planned to meet the growing domestic needs. 6. Investment by the public sector plays a key role in Colombia's economic growth, particularly through providing the necessary transport, power and telecommunications facilities, improving the educational system and expanding agricultural capacity. In its investment policy the govern- ment has generally followedthe priorities indicated in the development pro- gram. However, the level of total investment decreased by nearly 20% in real terms in 1963, instead of increasing by 10 percent as projected in the Plan. National Government investment declined by about 20% in real terms prinarily because of a shortage of budgetary funds. In certain sectors. e.g. education and municipal works, there were shortfalls below planned levels because of technical and managerial reasons. 7. In 1964 and 1965 public investment, especially by the National Government is expected to increase considerably- In 1964 the increase will be concentrated mainly in transportation (all modes) and agriculture (esnncially land settlement) as these nrograms qather further momentum. and in refinery expansion. 8. Most of the expected increase in public investment will be finanne from the anticinated rise in national hudget savings and increaed disbursements of external loans. National Government savings are likely t ne.rly double between 1961 and 1964 nrovided innranss in oneratin expenses are restrained. The Government's revenue program does not assure the continnmd pnansion of savings nAded in lO and cuseh.qnnin+l to Pinnnrp. the investment program, particularly if an income tax surcharge expires at the end of 19,06 asnz ow- scnheduled, ndr t.he rb^-P + cffee isz -rduced.f Accordingly, consideration needs to be given to extension of these taxes, and/onr int_-roduction ofn hr -rvnuei measures Pul- itcenterpnrises na ovrnn- ted to continue their flexible tariff policies which in a number of cases will re1qui,ie 1UP-rr -ate- nr'ii+cri n , +-n f-r Thg.vm+ca 4f,^"y 1 na+ 7_fV' C+~ need to be provided by external loans. Gross disbursements of external lion in 1963 to US$110 million in 1964 and $166 million in 1965. After 21Lof"1g toa pb.Lin iJnY:LU96) ndU3 i n 19. OfthLIe USJUUJ$280 miz e141.Lv.lliU ton 21% of total public investment in 1964 and 32% in 1965. Of the US$280 million iv of external credit disbursements needed in 1964 and 1965 for the public sector, about US $160 million will be available from existing credits as Droject execution is expected to accelerate after a relatively slow start- up in the first two years of the investment program. The balance will need to be provided from new loans for the development program, particu- larly projects in the List to be submitted to the Consultative Group. 10. External credits for the public sector will need to be supple- mented by capital flow into the private sector. To estimate the possible magnitude of Colombia's total capital requirements, the Hission has made projections of the balance of payments which indicate that the current account deficit will increase from US $100 million in 1963 to US $230-250 million in 1970. These estimates are based on the likelihood that Colombiats export earnings will increase considerably over the short term (1964 and 1965) as a result of the current strength in coffee prices and that over the long term (1963-70) they will grow by about hV1 per annum. The growth and diversification of domestic production provide an ever strengthening basis for increasing exports, especially of aFricultural products. These can be expected to materialize at the pace foreseen if Colombia follows appropriate financial policies. Imports are projected to grow to meet the needs of the development program and an expanding economy, but the rise of imports should be somewhat below the growth rate of the economy as a whole if Colombia continues to manage carefully the level of its imports. To keep imports from rising faster will require vigorous con- tinuation of import substitution through increased industrial production and increasing commercial aaricultural production sufficiently to supply food for rapidly growing urban areas. In addition, continuation of direct controls. sunorted by annroriate exchange rate and customs tariff policies, will still be necessary. 11. Apart from direct private investment and short-term private credits needed to finance a rising volume of trade. most of the external financing for Colombia's development program ill need to be on the basis of long-term nublic loans- Tn vipw of the high level of niitstanina medium-term balance of payments credits and the Central Bank's short-term liabilities, it would not be wise to count on these sources to provide additional financing for Colombia's long-term development requirements. The current upswing in coffee prices and exnort earnings, most likely not to extend for more than one or two years, presents a favorable opportunity for the strenpthening of Colombints short-tterm financial nosition. The Mission's import projections for 1964 and 1965 envisage a substantial increasp in canital goods imnorts in line with the ernandina 1evPl of investment (and a corresponding increase in external loan disbursements), inci _; Tranl i nn~a~in i mn)rft.q nf' inrtermediatep goodsrl. a-nd rarw mateprials7. to keep pace with the rising volume of industrial production. 12. A policy of reducing short-term liabilities would be frustrated if' thei inncrasez in c- oe ear- n-ings weo-r use fo r" hIighennr i mports+ of cn- sumer goods. To keep higher coffee earnings from exerting excessive actdomesiccoffe pUVrceUJL WneUghapLropriate ecn Mand_LA taxLILVJC1U1 act domestic coffee price increases through appropriate exchange and tax measures (e.g. . .eep:Lnp. surrender. prices udown1 andi mJaintaining1LL1 Wte eChangeC1Jt v rate spread), which at the same time will strengthen the government to be supported by the provision of sufficient long-term external -~~~ ~ ~ ~ U ~ ~O.~J U U11~ %_ jiL_] .1 .L-,). Onl uhis~ bas i., UVUCLd! t:;2U1z-Ic.L. _LU1r-UUJLAI11 _LPctI LLLU L4.1SUE MUSii would need to approximate US $185 million in 1964 and US 8220 million in 19u, anu ligUtLy more bu ueu--- Year-- aciLeve these levels of disbursements new external loan commitments would have to average aiU uO scuu 0111m1ull in -Lo4 ana -yO). If contracted on an average term of 20 years amortization including 3-year grace period new loans of this magnitude will Keep debt service at or above she present level (167) in relation to prospective export earnings. 14. Colombia's creditworthiness in long-term loans of the magni- tudes required to assist in financing high priority public and private investment is based on its favorable growth prospects. Colombia has made vigorous efforts to mobilize domestic resources for development, both through increases in public revenue and encouragement of private savings. In addition, Colombia has been successful in maintaining a relatively rapid rate of growth through economic utilization of physical and financial resources: its public investments are concentrated on high-yielding projects and generally conform to the priorities indicated by its development program; increasing emphasis needsto be given to agri- culture and to the development of human resources through the improvement of educational facilities at all levels. Efforts in the public sector have been accompanied by a policy of encouraging private investment in high priority agricultural and industrial projects. The climate for private foreign investment is favorable. The diversification of the economy which has been under way for some years, provides a basis for export diversification and expansion, which will materialize provided Colombia follows appropriate exchange rate and domestic price policies and in- tensive production and marketing efforts are made. The growth of export earnings, together with a continuation of its cautious short-term financial management, should enable Colombia to manage its debt service without re- curring liquidity crises. 15. The level of debt service payments is such that increasing amounts of gross external borrowing will be needed to enable continuation of Colombia's development programs even if its external financing re- quirements are kept down by vigorous domestic savings efforts. In these circumstances there are strong reasons for improvement in the terms of lending by all of Colombia's creditors. who should give symnathetir consideration to long periods of grace, long periods of amortization, and. wherever nossible, to lowpr rates of interqt._ An innrvement in financial terms would be particularly appropriate in the case of supplier (-rp(it.. for imnortpvi (-,nit..q P_nninmfPn._ I. THE BASIS FOR COLOMBIAN DEVELOPMENT 1. Colombia's substantial economic growth in the past, as well as the potential for its continuation in the future, is based.on a number of assets. Colombia has a plentiful and varied resource base, an improving administrative machinery, a vigorous and forward-looking private sector., and increasing political and social stability. On the other hand, there are several handicaps to be overcome. High mountain ranges have divided the country into a number of separate centers of activity, thus offering the challenge of linking them both physically by means of improved trans- port and organizationally by suitable administrative coordination. Popu- lation has been increasing at an average rate of nearly 3% annually, requiring steadily increasing national output to avoid a decline in living standards. Furthermore, heavy dependence on coffee earnings, which de- clined. steadily in the last half of the 1950ts, has underscored the need for diversifying the economy. 2. Fortunately, the rich resource base offers a potential for ex- pansion and. diversification of production and.exports, given the appro- priate investment and suitable policies designed to encourage the develop- ment of those resources. Already the variety of soils and climates makes possible the production of most of the basic foods needed for domestic consumption and, in addition to coffee, other export crops - bananas, cotton, sugar. tobacco and meat - are being developed and still others have a good.potential. In addition, Colombia has rich mineral resources; oil production, already sufficient to meet domestic needs and. nrovid.e sub- stantial exports, is likely to increase further with the discovery of new fields: other minerals. such as gold and. emeralds. are of continuing significance. 3. As mentioned., Colombia's past performance has been closely linked with cnffee earnings- Colombia achieved n rntp of groth of gross domestic product of 5 - 6% during the decade 1945-55 when coffee exorts were providing a strong stimulus for enonomic grnwth- The growth of GDP then declined to an average of less than 2.b% during 1956-58 as an outgrowth of a qevert decline in coffee earnings (as well asa nriA of economic readjustment after an economic crisis and. the collapse of the Poi- ....iT goenmn in- -157)/ Since 198acceleration of the gr.-oth of GDP has occurred, with an average annual increase of about 5% during 1 ~ M~t,~f ±.-v~- ~ - y ,-i,4,-= has __ ___se i-" thLned o a rapidly rising population. Nonetheless, per capita incomes have been inncr-,q.i ac -nicYh1-Nr 91 nnrmin-)1k in rcn I.** Gi e Jts r4c re ou c base * * -1-4*-V,,- V -- - .- - 11 ~~ J 1 uLJcI J VU U ULJ. 0 . dfU CUIII growth has resulted largely because of a relatively high level of domestic -v- e a . AuV UtLAUov VV-vL AL CL -niIpU1 UcUU privdbVe 0t;UU(U, _L11VUUrt:nU 1. production enterprises has been very effective and has been supported by pub,c investment in economic and ocial overheads. Gross capital formation has averaged nearly 20% of gross domestic product during 1950-62. Al- though financed. predomiUantly from uomestIC savings, foreign credits have been a significant source of investment financing since 1960, as indicated -2- in Table 4. 5. Efforts to accelerate economic development through national planning were initiated in 1950 when a general survey mission organized by the IBRD visited. Colombia. In 1958 a national planning office was established with responsibility of coordinating work in the field of economic and social planning. It prepared a four-year public investment plan, published in December 1960 and a ten-year development plan which was published in January 1962. Subsequently work of the planning office has been focussed mainly on operational matters. In order to strengthen the organization, it has recently been reorganized and additional senior staff are now being recruited. At the same time, efforts are being made to develop national plans at the sector level and new units for this pur- pose are being established at the Ministries of Agriculture and Education. 6. The Colombian socio-economic structure has had a long tradition of local autonomy, An increasing coonerative spirit between regional interests has developed with the growth of communications within the country. Transport imnprovements since 194 have resulted in the inte- gration of the economy and wider domestic markets. Investment in trans- port continues to be larger than in any other sector and reoresents more than 1/3 of all public investment. Increasing cooperation in the field of power is indicated by the planning under way hv the Canca Valley Cor- poration and municipal power companies in Bogota and Medellin toward an intronnectio of their elcria facilities Ano1~+~ ther indication of increasing coordination is the effort of the 28 independent universities association. 7. National coordination in the economic field would not have been tutions. Colombia is now ruled by a coalition of the two major parties, the Liveral anu tne ConservativeP unuer an agreemuent to rotate uhe presidency and other posts for a 16-year period (1958 to 1974). This that was seriously hampering economic development. Although violence and progress has been made in suppressing the banditry which remains. 8. With most of the population traditionally identified with one party or the other and both in the government, the latter enjoys wide- spread confidence. This makes possible a concerted. attack on outstand- ing social and economic problems. A comprehensive land reform program is under way designed.to improve rural standards. A move toward social equity throughout the country is reflected in vigorous housing programs and new efforts in education, health and sanitation. Facedwith pro- blems of serious deficits in both the balance of payments and the national budget (discussed in the next chapter), the government has been strong enough to undertake important economic stabilization measures. IiT RAT,.-AT MfT A Q 'TTT) 70' T",J 'TTTT)n r )V -M-M, rn T ) T T 0 DUt1\MP -D r_AV L1aVJ IA ii U~-. 11~az~ JP )uIua J"I 11IIIJ IJi:.Uv 4 1 I LUULU 9. During 19oj tne government concenuraUu VuI carrYL Jg vUlt: stabilization program initiated in November 1962 to provide a stronger financial basis for the development program. Serious budgetary and foreign exchange problems had arisen in 1961 and 1962. The balance of payments problem had occurred because exports declined instead of -rising as projected in the Development Plan, while imports of raw materials and intermediate products were substantially higher than projected in the Plan. The budget deficit developed because revenues of the national government did not increase, while its operating expenditures rose sub- stantially more than projected in the plan and levels of investment were maintained. The resulting deficits in 1961 and 1962 were financed largely by Central Bank credit, which had also been made available to the private sector in substantial amounts during the same period. The combination of heavy budgetary deficits, rapidly expanding bank credit, and a large balance of payments deficit resulted in growing doubt that the exchange system could be maintained. In consegience, a speculative demand for imports occurred, as well as an intensification of private capital outflow. A. National Budget 10. The government attacked the budgetary problem by increasing revenues through new tax measures and improved collection, and by severe- ly restricting investments. According to preliminary estimates, budget income increased about 50% in monetary terms and about 20% in real terms from 1962 to 1963, mainly because of new revenue measures. National government revenue increased substantially in relation to GDP recovering to the 1960 level, when it ias 8" of GDP. The new foreign exchange system ornerat.e roughlv Col $600 millioh of additional revenues during the year. including about Co $475 million because of the exchange differential (ne-nor tav) on cnffee and Cnl 410 million beca.o of the imnpnt. of th higher exchange rate on ad valorem import duties. 11. The government also proposed a series of new tax reasures After an extended period of debate in Congress, the government obtained n n % tor' ini +in!+,o n ryvniin nf Mny +.- n t.Tall nq hrnnei authority to strengthen tax administration and reorganize ministries and Under this authority, decrees have been issued to improve tax loophole for Colombian companies abroad, improve procedures relating to inhefzritanceu dutes andu indirect-ain obtai mor relsi-val1uation of land values for tax assessments, and revise customs regulations includ- ing tne eLinaat u U1 exempions. To help in more effective goverm:1UaL planning and operations, decrees have also been issued revising the organi- zation of the Planning Office and Planning Council, Te Ministries 0 Heath and Agriculture, the superintendency of banks and the housing agency. A national monetary board and a transportation department nave been created and an office of financial and economic analysis in the Finance Ministry. 12. The major tax measures were: (1) a 20% income tax surcharge applicable to 1962 and 1963 corporate and individual incomes, payable during 1963 and 1964. The surcharge was made effective during 1963 and about Col $200 million were collected during the year, and (2) excise taxes varying from 3% to 10% on a wide range of commodities. Under this authority, a 10% tax on gasoline became effective at the start of 1964 and levies on an extensive list of other commodities are to become effective at the beginning of 1965. 13. The increase in revenues which occurred during 1963 did not re- sult in a corresponding expansion in government savings because of rising operating expenditures, particularly for government salaries under the 1963 minimum wage legislation (see below). Nonetheless, budgetary savings rose by roughly Col $500 million in 1963, but these additional savings served to replace inflationary Central Bank financing of investment expendi- tures rather than as a snurce of financing an expanded program, Continuing efforts were made to restrict investment within the limits of available financing from noninflationary sources. As a result investment expenditures in 1963 were roughly 10% lower in monetary terms, and roughly 30% lower in real terms, than in 1962. National Government Budget (In millions of current pesos) 1961 1962 1963 1964 I. Revenue 2-199 2,114 3;200 4,00 II. Operating Expenditures 1 1,914 2,500 2700 III, Savings (I-II) '684 200 700 l1350 IV. Investment Expenditures 1,303 12016 L 1 V. Surplus or deficit (-) (III-IV=VI+VII) - 610 - 846 - 240 - 100 VI. Net External Financing - 278 - 192 - 68 117 VII. Net Domestic Financing - 31 - 6rl -172 - 217 Source: See Table 9. 14. An increase of Col $850 million in budgetary revenue is in prospect for 1964. Yields from income taxes are likely to rise more than Col $600 million in 1964, since they are based on incomes of 1963, a year in which personal and business incomes rose steeply. Indirect taxes are also expected to rise substantially because of the recent gasoline tax in- crease, collection of other new taxes on a full- year basis, and higher customs receipts. Operating expenditures are projected to increase by 8%. On this basis, savings available for financing invest- ment will be Col $600 to Col $700 million higher than in 1963. However, if prices rise by more than say 5% in 1964, current expenses can be ex- pected to be correspondingly higher andsavings lower than projected.. 15. While the governmentts revenue program is providing additional noninflationary financing of the investment program during 1963 and 196h, it does not, however, assure an adequate, continuing source of funds to finance the investment program. Investment outlays from the budget in 1964 although above 1963 are still appreciably below the levels projected in the general plan. While the tax base will continue to increase in 1965, the authority for the income tax surcharge expires at the end of 1964. In addition, the government has made a commitment to the coffee growers gradually to phase out the exchange rate differential. On the other hand, the new excise taxes on various consumers goods are expected. to yield about Col $150 million annually beginning in 1965, and col- lection of income taxes at the source, scheduled to become effective aIt the beginning of 1965 will also provide additional revenues. These addi- tional revenues will not be sufficient to provide ample noninflationary financing of the investment program. Accordingly, in addition to restraints on operational expenditures, continuing efforts will be needed to improve the tax collection system and. extension of the income tax surcharge also may be necessary. Consideration of an increase in the aasoline tax is also warranted since road user charges are low in relation to the capital cost of the highway system and the benefits highway users are receiving from the improved road system. A B. Money and Credit 16. Mainly because of the improvement in the governmentts fiscal situation mentioned above. rentral Bank credit inrrPqe .bPttntialiv iess in 1963 than in 1962, as indicated in Table 24. The stabilization program had provided, not only fonr reducling t.he budget?n ef-ici+ tn an avoidingcy n~~ Bank financing of the public sector, but also for restraining Central Bank credit to the nommPrniI banks, the noei.lizpA banks uch n the Arii- tural Bank, and. the rest of the private sector. Credit to the commercial hnk. nL-rlv doulhl in 1Q6A hmn-rT ra hv arit n +he no+.-1 Bank declined substantially. These two sources of funds enabled. a 15% in- craei 1mnQAi- redarit in 196,pedmnnlytAh1pia 17. NoT hee the 01harp in-c-rease in wage and other costs in :1963, especially in the first half of the year, caused many business enterprises Jin an t- g1 + ri -.,ci a r 4~~ + 4L~ o .L Th o- ,1 '--P -4- - 44 U}L. a ll P 1-1 contributed to a reduction in domestic liquidity. Total credit increased. ~- L * "J * 'J..J ki.V4XJ1i.J 1 L UI -L" -L7u_) -LI LU llulaziu W-LU1 J.7 C. 1A111t:JJ it substantially outpaced the growth of money incomes. /l As indicated in the report of the Transport Survey completed. in 1961 under the sponsorship of the government and the IBRD (summary report pp 85-90). - u 18. In view of the need to restrain imports and the upward pressure of domestic prices, additional restraints on bank credit were still neces- sary. Accordingly, the new Monetary Board, established in November 1963, has increased.reserve requirements and placed heavy penalty rates on banks failing to meet current reserve requirements. Restrictions on Central Bank credit have also been established by the government in connection with the February 1964 standby agreement with the IMF. The credit ex- pansion permittedunder the standby is designed to provide the funds necessary for economic growth with the assistance of prospective external credits to the private sector, particularly through the Private Invest-. ment Fund(See Chapter IV). C. Price and Wage Increases in 1963 19. Although the stabilization program has had considerable success in improving the budgetary position and curbing Central Bank credit, wages and prices rose considerably during 1963. During the first six months of the year, wage and price advances were rapid in contrast with the moderate increases which had occurred in previous years. Primarily, as a result of minimum wage legislation approved by the Congress in January, wage rates increased roughly 25% in the early months of 1963. The new legislation had also specified that minimum wages be reviewed each six months and raised proportionately whenever the cost of living increased by 5o or more. The Wage Board established under the new law has recommended that this escala- tion feature be abolished. In any event, it has not been applied, the main justification being that existing statistics were an inadequate measure of cost-of-living changes. Wage increases in the second.half of the year were much smaller than in the first half and resulted from collective bargaining. 20. Prices, as measured.by the cost-of-living and wholesale price indexes, increased about 25% during January-June. an increase much greater than would normally occur with the 34% increase in the import costs which are only one element in the total cost structure. The price rises also reflectedincreases in costs resulting both from higher wage rates and ad.. justments in various prices previously tightly controlled or subsidized by the government. An additional upward pressure on food prices also occurred because 1963 was an unfavorable crop year while growing conditions had been generally favorable in 1962. In part, the rapid price advances resulted from expectations that the general level of domestic prices and costs iinuiA ultimately rise by roughly the same percentage as the devaluation and a feeling on the part of many individual enterprises that the period of general adjustment immediately following the devaluation provided a golden opportun- ity for price increases. Prices levelled off during July and August, mainly because of seasonal declines in food prices, but the price advance again became appreciable in September (see Tables 25-26). The cost of living increased 26% in the first half of 1963 and an additional 7% in the second half of the year. D. Balance of Payments in 1963 Imports 21. Despite the efforts made under the stabilization program, Coombia continued to nave a balance or payments problem. One reason was that the devaluation of the exchange rate applicable to imports (from 6.70 to 9.00 Col $ to US $1) did. not have its intended effect in discour- aging imports because of advancing domestic prices. As a result, import restrictions remained tight and the licensing of imports represented diffi- cult administrative problems. Decisions were made largely on a case-by- case basis. There was no specific plan or program for import licensing by categories or items. In general, first priority was accorded to the im- port of raw materials and intermediate products needed for the operation of existing facilities and second priority to capital goods imports. More over. licensing has generally been more liberal when imports would be fi- nanced. with supplier or other credits. Business firms appear to be cri- tical of licensing procedures and technicalities being utilized as a basis for rejecting import licenses. 22. The Planning Office is now developing a systematic approach for an import licensing system through a specific import budget. However, even if action is taken to strengthen the licensing system. the strong pressure of demand will continue to impose the danger of arbitrariness in its application. Action is also needed to dampen the demand for im_ ports used in the production of consumer goods and to assure that a greater proportion of available foreign exchange is utilized to finance investment- This might be done through selective increases in customs duties on raw materials and intermediate products used entirly r n Inrrv fer +.h n-r- duction of consumer goods. Exports 23. The new foreign exchange system, introduced in November, 1962, resulted in only a small change in the rates annlinnhln Pv-rmn+.+- The buying rate on the proceeds of coffee exports was increased from 6.70 to Col $7.10 per US 91 (the rate iff innn d . t.nr.l $7 W) 30 pe U 1 in January 1964). The small increase in the coffee export rate also limited additional finannial inenti.ve to prouc coen an - av4 i ---- risks of production in relation to Colombiats export possibilities. The rate fo~r minor exports,: was-n incremaed about 12oc (fro anavrgeo 1C $8.92 in the third quarter of 1963 to Col $10 to US $1) and initially nffperpa an additio.naln- financial' incentive to- proucio fo xo t % estic price advances in the months after devaluation have, however, more -h - wie out ths -ddtina incentive UAU.- t:ea.E-."gZ are likely to rise about 18% in 1964 mainly because of currently favorable mres a . ousequent years exports are likely to rise much more slowly, as explained in Chapter VI (paragraphs 146-147). 24. After allowing for a net deficit of US $121 million on services and transfers, the totl current account deficit amounted to U6 $100 million in 1963 (see Table 16). In addition to this deficit Colombia had 0 -U to finance an outflow or snort term private capita', especiaLy neuvy iu the early part of last year, which was only partly offset by an increase in commercial credits for imports. In addition, U.S. 33 million of amortization of external public debt occurred in 1963, excluding repayment of debts owed by the Central Bank. The current account deficit and the outflow of funds on capital account during 1963 were offset mainly by an inflow of official long-term capital (US $108 million), and an !IF drawing (netting US $48 million). III. AGRICULTURE A, Production Trends 25. Agricultural expansion is of prime importance to Colombiats economic growth both to increase exports and to meet the rapidly rising demand for basic commodities resulting from an annual growth of nearly 3% in poulation and steadily rising incomes. Expanding production of basic commodities at lowered costs will also help curb the advance of food orices and the cost of livini. 26. The General Plan called for a L.1% annual increase in agricul- tural output. Agricultural products were to provide more than two-thirds of the nroiected exnansion of all exorts. Although the methods and data currently used to estimate production are not accurate enough to determine nricisel tht rntp of arowth in recent years. the best estimate is that it was only slightly more than the rate of growth of population. 27. During 1962, when weather and several other factors were fa- vora"ble- nc7-itinl+.i1rn1 nrrhinat.ion innreased by q-Mh. In 1963 there was only a 0.7% overall increase in agricultural production, which to a large eXtent can be ti++4h+p +n +he cnn+inued gro.h in 1 vo+.nok nrnftion. Crop production in 1963 declined by 0.9%. This decline was mostly in large decline which was partially offset by increases in bananas and pects are summarized in Annex I). B. Resource Base 28. Colombia has a total land area of about 114 million hectares, of which over one-half is in thesparely scttled regions east uo the Andes (Llanos). These eastern regions of reportedly enormous agricul-- tural potential are slowly being colonizedi however, lack of roads, ccmu- nications and public services will limit their contribution to Colombials total output to an insignificant sum in the next ten years. Whle rE..U construction is occurring in a few parts of the Llanos, the bulk of the construction is occurring in other sections of the country where sub- stantial benefits result more quickly. The immediate production potential will be dependent upon the amount, type and quality of land in the western regions, where over 95% of the people are now living. 29. The National Agrarian Reform Institute (INCORA) has recently made a reconnaissance of the agricultural production potentials of the more developed regions in the central mountain and west(rn areas of tha country. There are about S.2 million hectares in these regions. Of this amount, some 23.2 million hectares are suitable only for forestry and non- agriculture uses and a further 22.1 million hectares are suitable only for livestock grazing (much of it only on an extensive basis). Of the remainder, some 6.2 million hectares would. be suitable for intensive crop cultiva. tion only after rather large investment in land reclamation. 30. There are thus about 2.7 million hectares available for intensive crop cultivation with little or no investment in reclamation. These lands are generally to be found. at altitudes which are warm enough to permit the harvesting of two to three annual crops every year. If these lands were fully used for intensive crop cultivation, about 4.5 million hectares of harvested crops could be produced annually, allowing for perennials such as sugar cane, tree fruits and. alfalfa. 31. Colombia is now harvesting about 3.5 million hectares of cul- tivated crops annually of which about 1.0 million hectares are used.for coffee and panela. Since coffee and panela (unrefined brown sugar) are to a large extent grown on lands other than the top-quality 2.7 million hectares, it would appear that cultivated crop production areas can be increased by about 2.0 million hectares without initiating land reclama- tion projects requiring heavy investment per hectare in the western part of the country and without making large investments in roads and public services to speed up colonization of the Llanos- Heavy investments in reclamation and colonization projects may be justified under exceptionally favorable circumstances. However_ thr nmrrpnt. 1qnr iiq n4tern is m__ that, in general, governmental activities can most effectively be concen- trated on achieving better nltural nrnaties which ann ar,tiv innemaP the production on lands already under cultivation. As a matter of practise the government has concentratea it. actvities on the agriultural reons in the west, the north, and the center near the main population centers. 32. To exploit these possibilities, Colombia has a substantial and growing groun of entrenreneir- in r-nmmetniI f_qrmJna nmmo-ri-inl farmers have been mainly responsible for the rapid development of inten- sive ag"iculture in tlip rniinn~ Vnay andr th-i er ogot F2t+Iinmh last fifteen years. They have been instrumental in the rapid. growth of nyrliin(tinn r)f (t-)+.t.nr_ oi~icrq"_ wir- nnA A,'vr ,-no+- A-^n.rA-r 33.Thernra labonr fPorce is ample in numbfters to permnit both a mach larger agricultural production and a heavy migration to the urban areas. U~ U L ~ U. -LA LLiV. 4UCiLL', U.L U11Z _LCU111i _LCtUVE .LorcUt Many rural laborers are illiterate, a factor that greatly impedes the intro- ductiLon o more modern faming practs. Furtermore, the tenuency 10r people with most initiative to migrate to the cities further aggravates the situation. TO develuop modeln agriculture, a large number of farmers and. farm youth will need technical assistance, and more people will need uo Ve traned to fill ne technical and administrative posts. The difficulties in providing this technical and administrative training will - 10 - be the biggest handicap to a rapid increase in agricultural production and development. C. New Programs 34. Since its organization in late 1961, the Colombian Agrarian Reform Institute (INCORA) has concentrated its efforts on recruiting a staff, the training of new employees, and the developing of a series of agrarian reform projects. INCORA is working on projects and project plans which call for parcelization of about 250,000 hectares and the colonization of over 1 million hectares by 1970. The estimated cost of the program is over Col $1 billion or the equivalent of US $100 million. 35. As yet, the impact of the agrarian reform program on production has been very small because there have been unavoidable delays in working out procedures to follow in the acquisition of lands to be distributed under the parcelization schemes and in the development of projects for both the parcelization and colonization programs. By the end of 1963, about 500 families had been resettled on about 8,000 hectares of land which had been broken up under the parcelization program. Another 2,000 families had been settled on new lands under the colonization program, Much of the administrative work had. been completed for parcelization and distribution of land to another 1.200 families that will be resettled during 1964. 36. The initial work of training personnel and organizing a super- vised credit nrogram had been comnleted. Under this -rogram between 10,000 and 12,000 farmers will receive financial and technical assistance in 19I. esettlement anmn1i.qhPA under the narcelization schemes in 1963 should start having an impact on production in 1964. The colonization nuino-r -qrwill ano"malyv h-nvup li+.Ict l e imnrt. nn nrnrii.tion diiring the firqt and secona year, when efforts will be mainly in clearing land for crops and where loans are mad.e for crop production, but loans on livestock may not produce results before the end of three yearsp 17 A - , r. ^- n-ff i i-.il +iiY'n1 Alm-tri. ^ riY+. -n-rncY-rnYn --' tAno r-q1 r1n.q Diversification Plan initiated.in 1963. This is a comprehensive plan tensive use of resources in the coffee region of Manizales, where there isO a severeu Vp - L rou±; em, o iI1d L1V±L-L1r CLJ UAUU.1V1-V.L hI JULiIU .L11K- for individual commodities can be significant, as for example, eggs and P U I-.LY WILLULL U.I-t: d.L.Lrt;;cUJ iut:eLl61L, PP t,UU U111C DUrUVCL mI±LKV-U* 9 LU 1LOy =.hL lead to similar plans being initiated for a number of other regions, wIch in the more Cistant future woulu Uring auout a rpLu. growth in t1ae agricultural sector. 38. There are a number of new programs by private enterprises that will bring forth directly and. indirectly agricuiLtural growtn, Some of the more important are: (i) the banana export program being developed by Fruteria de Sevilla (local subsidiary of United Fruit Company), the Financieras of Medellin and new colonists in the Turbo area; (ii) the African oil palm program; (iii) programs to increase sugar production in the Cauca Valley for the export market; kiv) the recent establish- ment of several new plants and the expansion of existing plants which process farm products; (v) the program to grow hard.fibers for local use and export; (vi) the recent construction of two fertilizer plants, and (vii) the programs of individual firms for production of certified seeds. D. Markets and Prices 39. The shift toward more commercial production, with its emphasis on cash production costs in relation to the market prices, has been accompanied by a number of marketing and commodity pricing problems that did. not exist when production was primarily for home consumption and sale to the local urban centers. The main problem is to mitigate widely flu- ctuating production and, consequently, prices. The National Institute of Supply (INA) was established in 1944 to help stabilize the price structure through programs of price support to farmers and.the storage of surplus production for sale during periods of scarcities. 4O. The question of how successful the INA operations have been is much debated, but revisions in pricing policies are needed.. For example, INA was holding in storage large tonnages of rice in 1963 that were in excess of the local demands, yet could not be exported at world market prices without incurring heavy losses. The domestic orice had. been set by INA well above the world price in the interest of assuring self-suffi- ciency in rice. At the same time. the supply of potatoes was far below internal demands and prices had risen in most of the Colombian markets by 10Oo to 150 in October 1963 above those renorted in January of 1963. 11 One of t.h nronblems faced by any nancy +.hq+. a empts. +.n nnrate a price stabilization program in Colombia is the lack of a statistical renortinc system that nuickly and nnnuratelv renort. the sunn1v nnd nrin situation in the various regions of the country. Furthermore, very little informTAtion is availblpn n vernai nnrbintinn -nqt for HifffPrent tyns of commodities, and.still less is Rnown about the production costs under differen+.tvns af culitn1 nnd farm mannement +n.... TP AilY marof. news reports for highly perishable products and a weekly report on less v i -~b - - j- --. - -~v,,~ vt VTI1 f'-- ..- ",.- -,-vt- -,+ , ,.1,r- - (Bogota, Cali, Med.ellin, Buenaventura, Barranquilla and Bucaramanga), and. would no doubt result. With this type of market news service, dealers wVVVuJu. m11VvZ P.LUUULo L.uII 0P.Luo arteas nto areas of uScarCiv.cany U-Uu -VUU some of the short-term and. wid.e price fluctuations. More rational storage prugrams uuu.ue uLuoweu. vy vul'e govev:.sr1nmnu price - 'avudulauuri agecIUS and farmers would. eventually learn to plant in anticipation of what would be lkely oU nappen in tne iuture rather uhan base their plantings on price levels at the time of planting. - 12 - 42. Farm management and costs studies are needed.that will accurately show the costs of producing the different commodities in different regions and. under different cultural and farm management practises. Information of this type would permit the development credit agencies to channel their loans to those areas and to those crops where production costs were low. It would also permit the price stabilization agencies like INA to establish price supports at levels which would encourage the efficient farmer to produce more and discourage an inefficient producer. Part of the present rice surplus problem was no doubt caused by setting the support price too high in relation to the production costs of the efficient rice farmers. E. Extension, Training and Research 43. The recent establishment of the Colombian Agricultural Institute (ICA) offers a means by which agricultural extension, training and re- search can be coordinated and. increased. Experience thus far illustrates the importance of extension activities in exoandinE Droduction. Much of the growth in cotton production during the past ten years can be attributed to the educational and extension efforts of the Cotton Development Institute (IFA) and the work among farmers by the textile industry. Coffee quality and nroduntion would not have rach.c Pisting levels without the Pxt.en- sion work conducted by the Coffee Federation and the Coffee Bank (Banco Cafetern)- Althrnuh thp iinPrviaqH nrp.dit. 7Trk Hnn "hv thp Aarinitrl ti1rq] Bank (Caja d.e Credito Agrario) has been on a very small scale, its ex- tpnqo q-.tiutA.q hwvp hr-pn n~f npv-ma~-ptnei new.ly deveirledarea-r4cso tendency for it to be limited to only a few products with the work on each JLU L *U'..IALU kjJ OLl .AIU.L V -LUJ UA.OJ. CLU1U a 11"0 11CLO ~ P VLU U~ ~ .C1 results in expanding production of individual commodities. If the efforts nUwv11 JLLIU.V.LU.uruL UVI1vuU.UaLRumu c WI-: GUUUI11dUqU U11UU1 an agricultural extension service that treated each farm as a unit, however, oIL"LUluanially larger prouuction mr-iLglu oe U1orUnicuming from preenu resouj:ces. The advantages of coordinated extension efforts are being demonstrated under LUUU, OcU LLV~L ±L..U.Lin 1.ujtcUj. 1.Ls. pject mjI L ight11 well± Sei UO Ujiu example of how to develop an extension service for other farming areas. 45. The development of an effective national extension service will 1u LI(e eUU;auucaLUo u)L0 muc[ larger numoers of agricultural and extenslon workers. It will also require the training of many specialists by the universities and agricultural schools in practical measures which farmers must adopt to get higher crop and livestock yields and better quality pro- ducts at lower per unit production costs. This training needs TO De based on expanded agricultural research. F. Fertilizers 46. Fertilizer experiments conducted by the Agricultural Research institute of the Ministry of Agriculture have shown quite clearly the great potential which currently exists to increase production and reduce costs through the proper use of larger quantities of fertilizers. Until recently, the only chemical fertilizers available to farmers were those made at the Paz del Rio steel plant and imports from abroad,. Te steel plant produces about 20,000 tons of basic slag annually which contains about 3,500 tons of phosphate (12)5) and about Z,00 tons of ammonium sulphate which contains about 600 tons of nitrogen. Imports have been increasing steadily and were ten times as high in 1962 as in 1950 at 169,000 tons as compared. with 16,000 tons. 47. The production plans of the two recently established domestic fertilizer plants are to produce 280,000 tons of fertilizer in 1964. This will permit a cutback in imports and still provide an increase in fertilizer consumption. It is estimated that total fertilizer consumption will be about 300.000 tons in 1964 or about 50% more than in 1963. Average fer- tilizer consumption will still be very low in Colombia in relation to that in most of the countries havinL a well developed agriculture. being about one-half the rate per hectare of Italy and one-tenth that of Netherlands. G. Credit 48. Prospects are currently favorable for investment in new agri- ciltural enternrises alono with Pirnansion of Pyisting ones, as was evi- denced by the desire of financial groups to expand. sugar, bananas, African nil nalm, and nroessed foods pnrodction These arounq ill continue to expand. their activities if provided. a relatively favorable economic climate rinTTb ,'hic +0 rnovat an o-ed+.o one. navailshlo +. ennrnl mnt n±. lo annor-e of financing. (The need for such financing through the Private Investment H. Agricultural Planning 49. A major weakness of the ten-year General Plan for Colombia is bvuci iv was nuy vaseu.uon a comiprehnsive sctour plan for agr-uLo.Lure. J_AV11 the Planning Office and the Land Reform Agency have been preparing an agri- of the Minister of Agriculture. The wid,e variety of measures which might UJ U &. LI .I .L .LU A JIUd.LU VUL UJJCU CL LL U LU. C".. XULA. L V1 !.J1 .L.1 Ulv'4J.CIV.LJL 1(14. UZI scarcities of technical, administrative and financial resources highlights thLe importance of rapid+ eStaishment.1111 of an1 aricL;UUradl p-Lan.9 v0. ie plan must be coordinated within the agricultural sector to assure that: (i) priorities are given to those commodities for which greater production is most urgently needed; (ii) increases in production of one commodity are not made at the expense of the production of another important product; (iii) production will reach optimum levels with the smallest pos- sible expenditure of imports, and (iv) the national goal of optimum economic growth is given preference over the vested. interests of special groups. Production goals established. for the various agricultural commodities Should. be coordinated with other related sectors of the economy, to assure that fertilizers, seeds, equipment, supplies and other production inputs become available when needed by the farmers. - -. 51. Strengthening the agricultural planning process over the years calls for a statistical collection and reporting service that provides data quickly and with reasonable accuracyothe country's agricultural production along with prices, storage stocks, production and marketing costs, and other data which are essential for sound agricultural planning. IV. 4ANUFACTUHING AND Y RuLu 52. The General Plan projected an increase of 8.6% annually in manu-_ facturing production during 1960-64. Output appears to have increased about 6% annually during 1960-63, continuing the average growth rate of the 1950ts. The share of manufacturing in gross domestic product has now risen to 18% in comparison with 15% in 1950. A. Import Substitution 53. About two-thirds of industrial production substitutes for consumer goods previously imported and consumed on a large scale. Purchasing power is directed mainly towards basic necessities, and. this may be sufficient to permit their production on a reasonably large scale and at low cost. But articles of relatively limited consumption, such as cars cannot be purchased at low cost because the market is insufficient to permit economies of scale. 5h. The replacement of imports of articles of large scale consumption was virtually complete by 1960 and in recent years investment became ds- persed as industry sought new opportunities for import substitution. The first new direction of the 1950ts was towards the manufacture of interm- mediate products. This movement was somewhat hesitant as there is less tariff protection for intermediate products than for finished articles.A Some big developments requiring heavy capital investment took place in the public sector with the construction of the Paz del Rio steel mill, and of plants for fertilizer and caustic soda. The steel mill and tire plant have since been converted to private ownership. Most of the developments were made in the private sector and. in several cases, such as the production of cotton and. nylon thread, paper and pulp, glass and cement, there was a not- able reduction of imports. 55. Another kind of import substitution which has developed in recent years is finished manufacturers of a more complex kind which have a rather small market, and definitely more limited than for simpler and less complex L When a new industry can supply the home market, imports are usually prohibited and the tariff becomes irrelevant. But prior to this stage the tariff can be significant to the extent that it establishes a price level for any particular item, suggests the prospect of high profits, and hence attracts capital into that particular field of investment. Thus the tariff is significant prior to the establishment of a new in- dustry, and for as long as that industry is unable adequately to supply the market. articles than were substituted earlier. One of the factors encouraging this development was the new tariff introduced. in May 19>>, which almost trebled the average incidence of the tariff on finished manufactures. 56. Some assembly industries realize certain savings in foreign exchange, as the components are cheaper and pay lower freights than do the finished articles. A few realize some saving in labor costs. But in most cases the prices of the domestically assembled.product will be higher than that of the imported finished article. 57. Nevertheless, assembly industry may often be justified as a first stage to familiarize labor and management with a new industry to be de- veloped later into fully integrated production. Most of the assembly plants have in fact been approved by the government on condition that they achieve 70O integration in periods of two to five years; but little attempt is made to honor these pledges because it has not been feasible to do so. For instance, there are already two auto assembly plants, and four more are under consideration. Six auto plants cannot proceed to establish any sub- stantial degree of integration in auto manufacture on the basis of a one-sixth share in a market totalling 30,000 vehicles annually. The criticism of many of the assembly industries so far established is that they have no prospect in the foreseeable future of further development, because the domestic market for their output is too small to warrant such development and their production costs too high to permit exports. 58. The progress of industry has thus been limited in several ways. After substitution of articles of mass consumntion was more or 1eqs completed, substitution of additional consumer items with a limited market ran into difficulties of organizing their nnntion on a small qnqlP leading to the solution of assembly industries with insignificant prospects of vertical develnment. On the ot.her hand subtitution of int.armediat.e products progressed. rather well. Industrial growth by entry into new Industrip-q hasq tepnrlpiti +.n 1-iaa sr%YrthTbefore The.n- estbline mass consumption industries continued to expand, stimulated.by the grouth of total national incnme. n1n. PYt.n.qinn of the onmmerial sc+.on niu any effects of income redistribution. This rate of growth was substantial, bearing in mind thatt nq+Jr)rml iiqncm co+.ntiued to i nas depit dE changes in the terms of trade; while the growth of the urban population accountedH fo-r antutrlbodnn of the commercial sector T 4n 1,.. five years 1956-61, the population of the 12 departmental capitals in- .'*H '.~-fW VJ UJ UULJ VLIU ±CLUU UJL ,.LVWUII VJ ULIU population in general. 59. There is a continuing emphasis on the substitution of inter- medIate~~~~ prdcs Th a eio steel mill is being enlagd" n modernized with a $30 million loan from IBRD. A large soda ash plant is~~~~LA 1-3ndUe." Cosruto Wit-h Ca' LLL±C.0111.l _LVail 11-UMU 1-u. OUUUaniUl.L 3.i- vestments in paper and pulp (from local hard woods) are going into pro- duction, There is a proec four a phosphoric acid plant to supply he fertilizer industry. In synthetic fibers, there is one project under way for tU integration of the existing nylon plant, previously using imported. chip; another project for an integrated plant to produce both nylon and polyester; two more plants would produce both nylon and polyester from imported chip; and two more would produce polyester fiber only from imported chip. Plans are being made for two PVC plants, two ethylene plants, a carbon black plant, one polystyrene plant, and one melamine plant. Some of those chemical projects are in early stages of considera- tion and their economic feasibility is still to be proven. Some small but useful engineering plants are under way for the purpose of supplying the textile industry with spares and eventually machinery. B. Expansion of Exports 60. Another and entirely novel trend is the development of industry with export markets deliberately in mind. For instance, some of the duplication in expansion plans listed in the previous paragraph may be justified on the ground that a large prooortion of output would be for export. In both new and established industries, businessmen are up aaainst the limits of the small domestic market. and take the view that expansion requires entry into foreign markets. Also, many new projects reauire foreign exchange earninas to offset the exchange risk on the foreign supplier credits used to finance their imported equipment. 61. Export projects are encouraged by the complete income tax relief on profits; ayirin f-rmn eorf sqales, andl thisQ isq an irnentive- becauseqp of the relatively high tax rates. In addition, industries producing for expor are _nJ ded, by sepci 1 my ln"A,ma~ fo", -11^"Jn -Pni y~rn+ " n !1 : mrit' -V ~L - --xe -.e- - - L. intermediate products free of duties, although these procedures could be O-AU -LL..VU I LAI VII1. ± III V tI1 iU UU~d. U. UIAUJ... LU~J J . V) ~ U4A~..Q through the development of the Latin American Free Trade Area, also will CJ U L .U.ALU.L L VPPJ.JI U_L"U. UQ _LUI kJV 1UJ.' L CLLI. AUJ.1 U01, PO-L- V.L U L J . mediate goods and smaller items of capital equipment. Finally, there is Ulle avrazui.LuLJ 0 uoV±Ug 1IcrULIVI- 1AP1kf iIUJt,-UU0 L.Aum ne u IrLvau Lnv:s'U- ment Fund., which is discussed below. 62. The immediate source of additional exports lies in the fields J-11 WJL"kall %JVJkUlI1L).L(J CdJ_Cc; IiLO~ OAuIlt ZAPV-UU ~ p ~~1 Pal ULLLLdL.L±LY A1tU for which it is well suited to serve the Caribbean Region, and cotton te,A.1iL.O The de:velo.pmet11 of a Ptr-o-chtemiLCdaL indUUutrY W"i ctLsov pr-vvude scope for exports after the home demand for these products has been met. 63. The basic condition for expanding exports of manufactured products is that costs and.prices will not change in such a way as to maKe Colombian manufactures uncompetitive in export markets. In this reopect, the ex- perience of 1963 with its substantial increase in prices and wages, has been to the detriment of Colombia's manufactures as possible export products. The competitive situation in Colombia is such that many manufacturers enjoy high margins and make considerable profits on domestic sales. In these circumstances it is doubtful if the substantial fiscal incentives available to exporters are sufficient to make it worth-while for many manufacturers to divert production from home to export markets. 64. In some cases lack of productive capacity is one influence restricting exports of manufactures; for instance, the cotton textile industry can appreciably increase its exports only by reducing supplies to the tend to lead to a rise in domestic prices with a consequent impact on wage costso up. Sometmes, however, Industrial capacity is more than adequate but the limitation is the lack of supply of materials and components. Luis is sometimes the case with industries assemoling products of more complex types, as distinct from mass consumption items. There is also a limit to the capacity of agriculture to supply fruits, good quality vegetables and meats for canning and refrigeration, cane for the sugar mills, corn for processed products, and wool for clothing. 66. Industry also needs imported materials and equipment, which are paid for 'Largely by agricultural exports; and the slow growth of exports restrains the development of many industries. Finally, industrial wage costs ina relatively poor country are determined largely by the price of food, and food supplies in the market have not kept pace with the very rapid growth of the cities. While much of the industry is modern and. efficient, it cannot, by improvements in productivity, offset the effect upon its costs of an increase in food prices such as took place in 1963. 67. Conditions of unrest in the countryside in the 1950's made invest- ment in agriculture less attractive than in industry, and the countryside is still less attractive than the cities as a place to live and work. In- dustrial plants are also more convenient to manage than farming of an ex- tensive kind in remote places. At the present time, it would serve the interests of industry, if a higher portion of funds for investment moved into agriculture. There are some indications that the fraction of invest- ment funds flowing into ariculture is beginning to increase. In some cases, the motivation is a decline in the opportunities to invest in some sectors of industry. There is also growing awareness of investment nossi- bilitiesth such fields as cattle and African palm projects. The rise in agricultural prices has also indicated to entrepreneurs that agriculture may offer a field of investment as profitable as industry. - 18 - 0 n~ '-velopxnents in thne Capital Mvarket" Demand for Capital va. Inausrys demand for capital notably increased in the second half of 1963, and 1964 promises to be a boom year. Evidence of this is provided by the large number of industrial projectsor substantial size noted earlier; and in the progress of the Private Investment Fund, tc be describea below, Boom conditions have been established by political stability, sound fiscal policies, the stimulus to the domestic econony of higher export earnings on coffee and the demonstration of the capacity of the monetary authorities to maintain the rate of exchange. A stable exchange rate reduces uncertainty, and facilitates the planning of projects. 69. But perhaps the critical incluence encouraging boom conditions is the course of wages and profits. The passage of the Wage Law in February 1963 had introduced the prospect of continuous wage escalation into business expectations, which had a deterrent effect on investment. But the National Wages Council recommended in the fall of 1963 that official escalation of wages should not go into effect, and this has helped improve confidence. Profits in money value have been higher than ever before, and this more than anything has induced a feeling of con- fidence among businessmen. Supply of Capital 70. The finance corporations (financieras) are promoting a wide range of industrial and agricultural ventures. Previously. new industry was mainly promoted by established industry. For instance, one textile- company has invested in the production of its own requirements of steel. spare parts and machinery, and is now going into the production of nylon. Over the years, a beer company has established a bank. an insurance company, the country's largest engineering works, a hotel, a bull ring and a radio station. selling off most of these investments once they were going concerns. Some former textile entrepreneurs have established half a dozen companies making building materials. Cement companies have bred other cement companies, and plants using cement products. This pattern still continues: but at the same time the finance corporations are enter- ing the field of industrial entrepreneurship, and are currently partici- pating in major ventures in sugar, cement. chemicals bananas and meat. 71. The finance corDorations lack the resources to finance these ventures alone, and would not in any case wish to undertake the risk of such heavy commitment. Their usual pattern is to take 9*1 of the ennity in new industrial projects, and make a small loan, but find the balance of the investment from a variety of other sonures. Tn +ta in dometic private investors, they have achieved a broadening of the capital market that amounts to a qtruntural rhano-e They are uindrwTritijngy industrZ+-ial sck - 19 - issues, and going out in the country to sell them to wealthy cattlemen and citizens of provincial towns formerly unacauainted with investment other than land. They are also tapping the large industrial corporations which are reQuired by law to reserve 5% of their profits for investments officially categorized as "basic". 72. The finance corporations are also playing a major role in organ. izina foreign financing for nrivate nroients. A characteristic financing plan used by one corporation may includ.e the offer of raising 25% of the eauitv from foreigners. nlus n innl i P r.q i ni at to 10 years for mnt. of the imported equipment. 73. Other developments in the capital market arose from government An+. i nrq ' -r+. -.h14--tr n-P£~Tr +-)in~ im-^.sv+ ^ ,,~ ,4h--54-^ discourage the import of capital goods by the use of Colombials own cash Investment Fund to convey foreign official aid to the private sector. Private Investment Fund 74. As a means of supplementing local resources to help finance .L V.L L .LU L11VVD me s IL L 11 Li L1UL1.JU1_, CLLIU. C1.'LLLL U_- IA: r'1-.LVCtUt- _UVUZjU111tiU Fund. was established in March 1963. Credits from external sources for the fund are lenu to tue Central BanK wLiQ in turn makes loans through existing intermediary institutions engaged in lending to the private sector, particularly the finance corporations (financieras) and the commercial banks. The arrangement is highly flexible in that external credits to the Fund can be in the form of either foreign exchange or the local currency proceeds of loans to finance imports into Colombia. By December 31, 1963 the equivalent of ub $20 million had been made available, consisting of $23.,3 of local currency counterpart by US AID under a $60 million loan and 93 million line of credit from the Inter-American Develop- ment Bank, 75, The PIF received its first application in April 1963, and. its operations since then have been as follows: Aplications to the PIF. Anril 6 - December 11. 1961 Amount Nnmhnr (millions of nos) Total applications 85 408 of which: Applications Rejected 20 69 A The difference of Col $46 million between this figure and that for total applications is accounted for by the fact that a portion of the loans approved were for less than the amounts applied. for. 76. The Fund is intended to provide supplementary financing beyond that available to the firm from local sources. The 8 projects received by the end of 1963 covered financing of Col $408 million from the Fund for proposed.investment totalling Col $l,h37 million. The Col 45241 million of loans approved through December, 1963, help finance investments totalling Col $1.2 billion. 77. To be eligible for consideration for credits from the Fund, a proposed investment must be directed toward expanding production for export or in substitution for imports, aside from exceptional cases where it would eliminate a critical "bottleneck" in the expansion of domestic production. The Government and the Central Bank appreciate the dangers of excessive import substitution in industry, outlined above, and are giving top priority in the field of industry to investments designed to expand production for export. In the case of both industry and agriculture the net impact which an investment would have for the balance of payments is evaluated by the Central Bank. 78. The effectiveness of the Fundts criteria for investment is indicated by the estimated exchange earnings and savings of PIF projects. The projects approved through mid-November are expected to yield an annual exchange saving of US $35 million, of which nearly US $6.0 million is es- timated.to arise from agricultural projects.primarily for the production of African palm. The balance of US 829 million is expected to arise from industrial projects, with paper products to Yield over US $10 million of import saving, basic metal industries nearly US $8 million, chemical pro- ducts nearly US $6 million. machinery US A2A million. ntroI.im and nnal by-products US $1.5 million, and.processed foodstuffs US $1.0 million. These estimates take account of direct imnort substitution only. 79. Exnort earninpp from PTP~ nrniPrt..q nnnnoup,ri +.hmiah mil vy'g are expected to start at nearly US $7 million in 1964, increasing to US $18 million in 1968 as nrnintA n int. n 1 prouctin wi i^e.ths of +iS is estimated to arise from the export of foodstuffs, mainly sugar; and. the balance Drimarily from bananas, textiles and machinerv ThPoje nrn tions are conservative, in the sense that the applicants own claims have to be suDorted by evidence of exnnrt prospects- such as arrancaments v.+h rnra4nt importers,and market information; and the figures quoted are deflated. by 50T. from the annlicants n lanmc 8o-. F3cnpri Pnt-P thim f'ar with the Fiind inncate tlhat it hasalrad become an effective means by which external credits can be utilized. to e-n m.t rrmnnl -rPr-r=Q in%- MA~ nooi ~ ~ JA~ U.LU* ;_± +I,- of agriculture and industry and improve Colombiats balance of paymentse 81. Loan commitments of PIF funds through December, 1963 were nearly ~equi- to~ -the of'. fin~P~ -ancin w1nich. had been, mad caca LCUL .L11UP UA... U ____ - 21 - sources (US 826 million). Experience of the PIF thus far and. the recent flow of project applications indicate that the equivalent of US $40 million can be effectively utilized by the PIF in 1964 for loans to help expani production for export and in substitution for imports. This non-inflationary financing of the private sector is needed to supplement local funds avail- able through the banking system. The new IF standby agreement approved in February 1964 indicates levels of credit expansion consistent with over all monetary stability. Under the program agreed. with the Fund. for 1964, total Central Bank credit would expand by about 6%, most of which would be for the private sector. The expansion in credit from domestic sources would be combined with disbursements under the Private Investment Fund. PIF disbursements would need to amount to at least US $0 million equivalent if total credit to the private sector is to increase by about the minimum necessary - about 10% - to provide adequate financing for the investment and working capital requirements of the private sector. Substitution of additional Central Bank credit for PIF financing would have unfavorable inflationary and balance of payments risks. 82. The amount of PIF credits needed. during 1965 will depend largely on whether current strong incentives for investment in private agriculture and industry continue and on the extent to which domestic savings can be increasingly channeled toward financing private investment. On a tenta- tive basis an additional US 340 million of external credits to the PIF have also been included.for 1965 in the Eoject List being submitted. to the Consultative Group for consideration. (Annex TTI) D. Petroleum 83. Petroleum is thE second most imnortant Pyrnrt frm rnihmbin- Output reached a peak of 56 million barrels in 1960 and then declined to 52 millinn barrels in 11962s thisq advenrsei trendl haqsm een reverd in 19h3 and output increased to 60 million barrels. The figures for production qnrl P.mnortsq are given) in thei fn1inT.-rncy tab'le: Production and exports of crude oil and fuel oil (Mlillion barrels) 1960 196l 1962 1963 Production of crude oil 55.8 53.2 51.9 60.3 Exports of crude oil 31.3 27.5 24.3 31.2 Exports as % of production 56% 52% 47% 52% Production of fuel oil 9.6 8.9 10.5 9.2 Exports of fuel oil 3.8 2.5 3.9 2.2 Exports as % of production 40% 28% 37%- 24% It is estimated that exports of crude oil increased by 9R in 1961. ql.[ though fuel oil exports have fallen, as has production. The fall in the production of crude oil after 1960 was accomnanied by a reduction in the proportion or total proauction aevoted to exportrs irom 5U70 in 17uu vo LIf in 1962. In 1963 this trend was also reversed, as exports accounted for 52% of production. 84. Production of crud.e oil in Colombia comes from a large number of concessions which are exploited by international companies, together with one State owned Colombian company. Although there are some 2o con- cession areas in production, seven main fields have accounted.for the greater part of the output. However, the rise in production in 1963 is accounted. for by the effect of new fields, three of which came into pro- duction late in 1962, ad whose output was more than sufficient to offset a further decline in output from the older fields. 85. There are good prospects that production will continue to rise in the future, although this will depend on complementary investment to expand transport facilities, particularly pipeline capacity. The latter is now limiting production in Colombia, possibly as much as 20%. Since there is a growing internal market for products, the ability to expand. exports depends on maintaining a rate of growth of production greater than that of domestic consumption. 86. The immediate prospects for increased production lie in the development of two new fields which have now been proved. The larger field, at Rio Zulia in the northeast, has a potential output of 25,000 barreis per day, but this output will not be realized. until late in 196 4 when a new pipeline is completed. The pipeline will permit the export of this additional output from a new maritime terminal in the Santa Marta area. 87- The location of the second field at Neiva. together with the relatively small size of the proved reserves, makes it unlikely that the antnut an be -cnorted nrofitahlv The conptruction of the nroposed new refinery in the Bogota area may provide an outlet for this additional output, 88. A third.potential new field, is in the area of the Putumayo River to the south of Colombia. The nresent size of this field is unknown. but considerable exploration is under way in 1964 in order to prove the siz e nf' +.h- reservesq The remotn Inoatinn nf' +.hp field, and th iffinilt terrain involved will mean that the proved reserves will have to be very la-rge. ton rna this- no-rr-~rinI p-roposit.ion- The outputif from sucnh a fiplrl would go for export, possibly via a pipeline to Buenaventura, assuming that th e new fiel c, pr i oo-vess to "h- -1' !3-rcro ann~-ile(In +-f ,-o T.vt-%-r+.h1 rl-m ^ T -i i. rT T\Tn1 nvrn-r+,z could be expected before 1967. The government also intends to make a com- gas pipelines is under way or planned. 89. The growth in the demand for products has been such that the have now been made to develop new capacity which will become available from nZl M1__ -- - it.1 - ;Up,) InemluMu6u auvanucl project is for Uue eXuenbiaLO Of te BarrancULvE-m:L refinery owned by the State enterprise, Ecopetrol. This will almost dCuble the present capacity from 45,000 b.p.d. to )jUUU D.p.a. "- 23 - 90. The cost of the new refinery will be 825 million, of which all but M".ILLi±Uon W.L reUlre foreign exchcaige, Arrngf1t,eIL1Ub LU0 _LL1L1U%: ILLO _Ln- vestment are still under discussion. In addition, plants are to be con.- structed at Barrancabermeja to produce polyetnelene and. paradfin wax. The latter will use crude oil from the Rio Zulia field and will make Colombia self sufficient in this product. 91. The most important market for refined products is in the Bogola area and this has been supplied by pipeline from Barrancabermeja. Plans for a refinery in the area have now reached the point where it has been decided, in principle, that the refinery, of 25,0O0 b.p.d.. capacity will be built near to Bogota and not at Honda or La Dorado as previously planned. It has also been decided.that the refinery will be built and operated. jointly by Ecopetrol and four international companies; the latter will provide the finances and Ecopetrol will, over the years, acquire full owner- ship of the facilities by buying out the other companiest interests. This new refinery will indirectly stimulate exports by utilizing crude which currently does riot have an export outlet because of lack of transport thus releasing for export other supplies previously required for the Bogota area. 92. Relationships of the government and Ecopetrol with the inter- national companies have on the whole been good.. During 1963 there was a wave of strikes against all the companies which ended when the government took strong action in the case of a strike called against Ecopetrol. Tio issues were causing the companies some concern at the end of the year; both concerned legal interpretations of laws and decrees bearing on taxation. V. PUBLIC SECTOR INVESTIENT A. Investment in 1961 93. In 1963. total public investment was about 2.7 billion pesos. or 6.5% of Gross Domestic Product. Of this total about three-fifths were carried out by the National Government. its agencies and enternrises; one- fifth by the electric power companies in Bogota, Cali and Medellin; and the remaininp one-fifth mainly hv ciPnqrtmnt.1 nnrl mnnininql mvxr,rnmPnt nd their enterprises (including waterworks). 94. In real terms 1963 total public investment declined nearly 20' below t.he 1 962 5)~ in r,.onf.rqq+ wTit*h t.he Ge,ne-ral P1 -qn pUir3)' r-n-n jected a 101o increase. The decline in investment in 1963 was most accen- tn~.~ 'rn i ~r~mens br Nt-tnalGovrnmntagencies, ..hose investment.. fell by about 20% in real terms. Close to three-fourths of the decline in MnAional Govrnent investme+"nts -q aCounted fPor by red ucti;ons in trans- portation investment, especially highway construction. Investments by in project execution by these Egencies for either technical or financial U1E-,uc.UJ._U U U,: CUU ava.Jlcibe oni thU dt_U- U1 'UUL1C;J-- invetment~iU - 24 - SUMMARY OF INVESTMENT BY NATIONAL GOVERNMENT AGENCIES BY SECTOR2 1961 - 1964t 1961 1962 1963 1964 1964 Seto Es. roj. % A. ECONOMIC 750 957 698 1,174 73 of which: Transport 468 633 411 629 39 Communications 21 61 18 28 2 Power 71 61 96 50 3 Mining 9 117 119 221 14 Agriculture 96 104 155 246 15 B. SOCIAL 256 396 320 336 21 of which: Education 60 126 90 129 8 Health and Sanitation 98 73 69 102 6 Housing 107 197 161 105 7 C. MISCELLANEOUS 119 91 41 99 6 TOTAL 1,135 1,44 1,159 1,609 100 Source: Planning Office and IBRD Staff 95. The causes of the decline in National Government investment in 1963 were primarily financial: the budget savings fell short of the fi-, nancial requirements of high priority investments which could technically and administratively have been carried out. Allocations of budgetary appropriations were very much restricted, especially in the first half of the year, as a part of the effort to curb the budget deficit. In addition, in certain sectors there were technical and administrative reasons for delays, especially in the national programs for aid in the construction of local water and. sewerage facilities, electrical capacity and schools. Agricultural investment increased over the 1962 level with the initiation of expenditures under the land reform program. 96. The composition of investment in 1963 generally conformed with the priorities indicated in Colombials development nlan, Tnvestment in all sectors was below the level projected in the development plan, except that, agricultural e7penditurem exceeded the total in .he plan because of the addition of land reform expenditures which originally were not in- cluded in the plan. (A summary of 1963 investment by sector in relation to the Plan is presented. in Table 12 ). B. Investment Prospects for 1964 and 190> 97. The total volume of public investment is likely to increase con- siderably in 1964 (roughly 20% to 25%) and less rapidly (perhaps about U/) in 190). The Planning Office has not yet been able to prepare coin- prehensive investment data for various levels of government for these two years - instead it has concentrated.on investment by National Govern- ment agencies in 1964. The real volume of investments by national agencies is expected to be about 3b7 larger in 1964 than in 1963. After allow- ing for a small increase in investment by power companies and a small de- Cline in investments by municipalities and departments, total public in- vestments are expected to be about one-fifth larger in 1964 than in 1963. 98. The increase in 1964 investments by National Government agencies is concentrated in transportation (all modes) and agriculture (land improve- ment projects) as these programs gather further momentum. Investment activities are not expected. to suffer from budget funds shortages to the same extent as last year and. increasing disbursements will be made under external credits - largely under loan commitments already made. In addi- tion, there will be a substantial increase in investments by the national petroleum company when it starts construction of its new_refinery capacity at Barrancabermeja and in the Bogota area. In the social sector, invest- ments are expected. to increase substantially for educational and health programs. On the other hand, the volume of housing investment directly by the national housing agency will decline because of a reduction in the amount financing available from local sources and the imact of increases which have occurred.in construction costs. The total volume of housing construction will not decline corresnondinglv. however- hetas of in-rP;ing qativity in the private sector aided by external credits for cooperatives, labor housing, and savinRs and loan associations which are now in a late stnge of consideration by external lending agencies. 99. In 1965, total investment by National Government agencies is likely to increase at least at the ame rnte as the Pnnted growth in the national economy. Present sector plans indicate prospects for increases in transnortation investment. Psnnial1v railrans telcommunicans, school construction, and agriculture, mainly by the land reform agency., C. Finnnrinc rf Tnve.mo+ 100. Tost of the incre-s in public investment in1 197%J andl19 will be financed from the anticipated rise in national budget savings the main elements in the financing of Colombia's public investment. - 26 - FINANCING OF PUBLIC INVESTMENT Total Public Sector (In millions of current Col 1) 1962 1963 1964 1965 '1~-1 .-~4- 0 Ei a 44eoI /WnC A o 1. National Budget Savings 200 700 1,350 1,650 2. Departmental & Municipal Savings 400 o 400 450 3. Public Enterprises, earnings, etc. 500 780 710 750 4. External Credits: a) Gross (535) (830) (1,000) (1,500) b) Less Amortization (155) (385) (260) (240) c) Net 380 J5 740 1,260 5. Other 930 340/1 380/2 40 of which: Central Bank Credit (net) 781 6 200 na Commercial & specialized Banks 59 94 na na External Financing as % of total Investment: Gross 22 31 28 38 Net 1-6 17 21 32 A The amount of investment expenditures and of financing actually done in 1963 from "other" sources was less than indicated because invest- ments are on a commitments basis and were somewhat higher than actual expenditures in 1963 due to a concentration of budgetary allocations of the National Government in the last half of the yea-. /2 Total of investment and financing from "other" sources may not be reached in 1964 because of limitations in the availability of such financing, Soure: Planning Olffie and RD Staff., - 27 - Public Savings 101, The sharp increase in national budget savings is expected to result fro a - risin tax bas,-%prve tncllet+ions nd the fiill results of tax measures authorized last year. At the same time the National Government has been assumed to follow a -P --njnpr- the increase in its operating expenditures at or below the growth rate in GDP. During '960-63 operating exp-enditures hamve ben nce-n steadily as a percent of GDP as indicated in Table 10. The largest increases were in the military and police category eCaUSe of intensi.fi- cation of the anti-violence campaign and transfer of police salaries to the national budget. Education expenditures also increased substantialLy because of coverage of teachers salaries previously paid by the local government. Rising operating expenditures in 19o also reflecUeU higher wages under wage legislation described in Chapter II. 102. The public savings from entities other than the National Government are assumed to remain about constant in real terms during 1964 and 1965. No data are available on the level of departmental and municipal savings. Savings generated by public enterprises have in- creased since 1962 mainly as a result of a flexible rate policy. It has been assumed that the government will continue this policy in 196 and 1965. This will require an increase in the rate of a number of public service companies whose tariffs have not yet been adjusted to compensate for last year's cost increases. External Credits 103. Gross disbursements from external credits for public investment are projected to increase from -92 million in 1963 (including $20 million of counterpart of a balance of payment loan) to 10 million in 1964 and ,166 million in 1965. On a net basis (i.e. after allowing for amortization payments) external finance contributed 17% of total public investment in 1963. As a result of both increased disbursements and a decline in amor- tization payments (associated with an improvement in terms) the net contri- bution of external finance is projected to rise to 21% of total public investment in 196h and 32% in 1965. inh. Projections of disbursements of external credits to the public sector have been based on a project by project review of prospective ut.liation of existing credits and of new credits included in the Project List (given in Annex III) to be submitted for consideration by participants in +1hr nnqit_JvP Group. In drawing up the Project List, projects hnave been considered eligible for external financing on the basis of their priority An rnlormbiaTdevelopment. their status of preparation. and the prospect that local sources will be able to provide a reasonable share of total require- ments. T estimating external lonn commitments for Drojects in the List it has been assumed that these loans will finance the import requirements of projects An transportaion power_ and t. ommunications but that they will cover about half of the total cost of projects in agriculture and the social -28- sector (education, waterworks, health and housing). 10. After a relatively slow start-up of projects during 1962 and 1963 it is expected. that project execution will accelerate this year and next with a corresponding increase in external credit dis- bursements. Disbursements in 1963 were well below the levels antici- pated in the General Plan and the 1962 IBRD Mission Report (WH-119a, June 21, 1962)./ The shortfall of external credit disbursements was particularly high in transport, power, education and water and sewage works. To some extent the shortfall was associated.with the shortage of budgetary funds referred to above, but in a number of cases there were executive and administrative delays in Colombian agencies while the pro- cessing of certain loan applicati:ns by external financing agencies tock longer than had been expected. Financing by Domestic Credit 106. In view of the high priority financing requirements of the private sector, the use of domestic credit either from the Central Bank or from other sources for public investment should be severely restricted. In 1963 it was possible to avoid virtually all Central Bank financing of public expenditures. For 1964 it has been tentatively assumed that about 200 million pesos of Central Bank credits will be available for the public sector. However, the amount of Central Bank financing comnatible with domestic stability and external equilibrium may turn out to be less than 200 million pesos. Some reductions in the reouirements for domestic credit could result from improvements of the savings of departments and munici- palities. Tn any event. the government ri11 Ihvp n rpin inder PnnqtPhnt review the level of investments which are dependent on budgetary resources f'r~ n1 I rr nr'+. r%f* ++iir "T. ---o fina~ncing T. __ ns J1-+1+ +j d- ,r-, ceeds the government will find it necessary to make some cutbacks in its ,~A +~ es , ~ f4 -- -1 'l t,,urn out to be higher than indicated in the accompanying table. D'. in&vesmn byU~LI SecLJU.tor I UUUU~ U.LJ L LJJ ~L U IU.L LL ildAf l t. j I t: ctoU :! L)y kU., _L_/O adifuuLy in major cities during the last few years. This is a reflection of newLy installed capacity, which was able to go some way to meet pent-up demand. Total installed capacity in Colombia, including all public and privately- %Wwoo_u' %CtaC%-UJuy LAVW -L_AJ%J CLOu UeL 1o _um il-UU WionL 7_)U I'WI aU ULnU V1nU U0 1960 but demand is still not completely met in certain areas. To meet this l For 1963 the IBRD Mission had projected external credit disbursements mproject loans to amounto 0L4e million (gross), or 259p (on a net basis) of total investment. This compares with actual project loan dis- bursements of are million and 17% of total investment (on a net basis). (See Tables l and 15). -29- demand, together with the prospective continuing increase in demand that further economic Lrowth will entail. further additions to capacity will be necessary. Reasonable demand estimates indicate that by the early 1970's a total inq.nllHd i-npn.ity of omn LOOCn MW mv he needed- 10R- Power programs ton datep hnup 'hppn nnnnP'iuP_ in t.prTn.q of Innxql systems, although recent investment in transmission and distribution faci- litiesnc arond AY'' prnec4p%!l urba,Nn ncenner have some ywhat_ exte.nded3( thesei syste.ms so that they are becoming more regional in nature. 109. Some 65% of the publicly-owned capacity is concentrated in the t-ree M.rajor producers olf _Qog'o+M' IMc. e 1-4 l' nand -h C'rpo.nr,.-.Jn Ato.-L.m.a Regional del Cauca (Cali), which are located in the major industrial areas orP 4-11- '-. Th intrcnnet- oos 4-L4 o1P- t.4hVS hX J- tOM.,~. S c,l d s0t-s- t kh e pattern by which central service could ultimately be extended to other parts ofJ~J t-Ile coAun1tr.y. -L.U. .Lilt: ljui UUCL .LL J' U UC Ut±.LVuU ±11 IL t' U~tA.L±V Uilu Ui.LLe systems will be twofold. First, by deferring plant additions, generation plant investments for an integrated operation are expected to be signifi- cantly less than they would be if each system continued as an isolated operation; and second, the choice of plant additions can be so controlled that investments made can be brought into full economic productivity sooner. These benefits can be gained by taking advantage of diversities in 10ad and hydrology in different parts of an integrated system, and by reducing re- quirements for reserve capacity. Agreement between autonomous agencies as to the appropriate organizational structure required to administer inter- connection will undoubtedly be the most difficult aspect of achieving true integrated operations. 11l. Important investments in electric power capacity are also taking place elsewhere in the country. In the north, particularly in Cartagena and Barranquilla, existing thermal facilities are being expanded. Even here, however, a rationalized regional approach is emerging. Construction of a thermal plant to burn natural gas from the Magangue Region may be justified within the next few years. This scheme would envisage the interconnection of the northern systems around Barranquilla into a small grid based on central station Magangue power. When justified,this grid could be tied into the central interconnection system. 112. While geographic reasons dictate that other areas must continue in the near future to augment their own local plants, economy of operation will require that they eventually be connected with a national grid. 113. For the country as a whole, investment plans for 1964 and 1965 indicate a level of expansion activity roughly equal to that which took place in 1963, a year which showed a marked rise in activity over the pre- vious year. In each year, somewhat more than half the funds invested are derived from external sources. - 30 - Telecommunications 114. Responsibility for providing telecommunications facilities is divided between a national company, TELECOM, which mainly operates inter- city trunk lines and overseas services, several departmental systems, and individual local utilities in numerous municipalities. The existence of large numbers of small local companies hampers national planning and, so far as local telephone systems are concerned, tends to weaken technical, administrative and financial arrangements. Some progress is being made toward integration. TELECOM is currently negotiating to undertake the operation of two departmental systems. The local telephone companies have joined together in a national organization, Associacion Nacional de Em- presas de Telecommunicaciones (ANET), which serves as a useful clearing house of information, but the individual companies nevertheless maintain complete autonomy. Consolidation of small individual companies into regional companies, or TELECOM, would help to improve service and achieve economies in many cases. 115. To aid in economic expansion and the growing integration of the economy, the provision of increased facilities for inter-city and overs5eas communications has high oriority. TELECOM is undertaking the initial chase of a long-term expansion program drawn up for it by foreign consultants. This calls for increasing lono-distance capacity by various means. in- cluding the establishment of microwave radio channels and long-distance quhqnri hpr di ling- Thp nlan as a whole is estimated to entail total expenditures of US $75 million and Col $100 million. The work is expected to get unm3r yjp-y by 19r asuming that a forpicn loan of about TTS A2p million can be negotiated to cover the needs for imported equipment during the first four ytears of the mynQn roram.Y Tln h Inbalanof t.he fin;ancingr would be provided from the companies own resources. 116. The ten-year programs of the various local companies include the AA4U Uu 4 U4 4, e)U ().. U . T'k'JJ iW ~ L1~ J L ~ JAJO ..~H '-- derance of these new lines are in the larger cities which already have contracted for 1964, the majority are to be installed.in Bogota, Cali, l' 'A L-L-LL , \ J.L± UJ U, CXJJ.. JI~~4A 'LIU LU 6 - ui- '-1 -- k- at the present time. In Bogota, for example, there are currently 118,000 ±lne wULle± outstadinUIg applications~ Uou d-k.J.) V\.Ju. -L.L f. arg n.LLLIIL 1Z:_ V U±dU _± ;LL.J_ LouwlI io ~ cut -o J .LX1LU V establish their own systems for the first time, often with as few as _LU%.)CVVU LUJ I_L t ' eI1iv-Lo t"U. VVLki I U J.VtV_UU0 t=A t,._L:LU;_11 OLLU VPt.LCLLLI of a telephone system, these smaller municipalities are likely to encounter many dIfficulti-e, even Uough ANZT will auempt some general guiuance. Usually it would be economically and technically more efficient if small towns combined in some way into a larger grouping. 110. The local utilities, which tend. to resort mainly to equipment sup- pliersr credits for financing, also rely on them for design, construction and. sometimes even planning. It is patently wrong to have the potential - 31 supplier also estimate the requirements for his own equipment: in at least one instance a local utility has been burdened with a prematurely large contract. Reference to ANETTs technical service in the future could obviate such planning errors. Furthermore, ANETts clearinghouse mechanism could be used to ensure that each utility obtains the most favorable going com- mercial terms for new supplier credits. Transport 119. Heavy emphasis is rightly being put on new investment in trans- port in view of its importance in reducing shipping costs and accelerating the flow of commodities in a rapidly growing economy. Roughly 40 of all national government investment during 1962-64 is for this sector. Within the field of transport, the national governmentts program is largely for highways as indicated in the accompanying table. However, because of ad- ministrative difficulties and budgetary limitations, expenditures on highway construction and maintenance dropped sharply in 1963 as compared. with 1962. BREAKDOWN OF TRANSPORT INVESTMENT BY NATIONAL GOVRNMENT AGENCIES 1962-6h (In millions of 1961 pesos) 1969 1963 19h Est. Proj. Highways, including maintenance 515 340 46o Railroads 73 o 1)A Airports 26 22 27 Ports 10 on 1o TOTAL 633 411 676 Source: Flanning Office 120. The total road network consists of 35.000 kilometers of national and departmental roads of all types, of which some 7,000 kilometers con- stitutes a system of main trunk and transversal roads. Investment is con- centrated. under the development plan on improving the latter system, rather than on extending it. This requires substantial reconstruction. naving Pnd urgent repairs, together with a proper system of maintenance. 121. Construction programed for the four years 1961-64 is behind. schedule, because of financial limitations and qaministrative drfencie Budget allocations are scheduled to be made in 1964 both for construction and maintenance and will be paralleled hv inreasing s.bursements unerrh + eiv ing IBRD loan and. IDA credit. Furthermore, the quality and organization of construction work is imnmving. Tn vie of the ag hic ha occyed A I construction with external credits already available, the initiation of new pri naR fnr hi romi a ndiin.-r,xna c +1-o u-l+ - ha-r beav4 b partial financing from additional external credits would hardly be advisable. - 32 - An exception is the first stage of the Medellin-La Dorado road which links with the prosperous Rio Negro Valley and also forms part of the future rnute to Bogota. 122. At present maintenance is handicapped, partly because of the adoption iLn 1961 of a highly i deenrized,organzato which removes maintenance from the direct control of Bogota and tends to permit local. experience and standards are hindered and resources are not concentrated. there are competent and dedicated personnel, but the system under which they operate is unsuitable for Colombia. A revised maintenance organiza- tion with effective control from headquarters in Bogota should improve this situation and an external credit to finance imports of maintenance equipment may be called for by 1965. 123. Investment in railroad transportation is entirely concerned with the renabilitation and reequipment of the existing system. Investment de- clined in 1963 because of budgetary restrictions. Most of the lines are in poor condition, there has been a shortage of modern locomotives and rolling stock, and there is need for a reequipment of maintenance work- shops. A loan of US $30 million, made in 1963 by IBRD, covers the foreign exchange part of this program. Investment activity will increase in 1964 and 1965 with rising disbursements from this loan and the national budget. 124. The object of the investment program in the ports is twofold: first, to increase efficiency and so reduce costs; and second, to increase total handling capacity. The five major ports of Colombia, administered by the National Port Authority, handled more than 2.8 million tons of cargo in 1963 compared with less than 2.0 million tons in 1961. Cargo to be handled in the future is likely to rise, but fairly slowly because imports, which form a major part of total freight handled, are subject to a policy of import restraint, while a number of the exports are subject to special handling outside the regular maritime terminals (e.g. petroleum products, cement, bananas). Also, increases in coastal and river transport are likely to be modest since alternative transport modes (road and rail) are being developed. A 125. The level of port investment is likely to rise in coming years from the recent level of Col $20 million annually. First, considerable development will take place at Buenaventura. supported by a recent IDB loan of US $10 million. Second, the Port Authority has a program for the northern ports of Cartagena, Barranquilla and Santa Marta. the first stages of vhich should be initiated without delay. An external credit is included in the L u1 Of tne 2.o million tons in 1903, about 1.9 million were in foreign trade and 0.9 million tons in coastal and river trade. Total freight handled is forecast to rise to 3.5 million tons in 1970, of which 2.5 million tons would be in foreign trade and 1.0 million tons would be in coastal and river trade. Thus, this trade is forecast to rise some 0.1 million tons a year, "r about 3.5% annually. project list to finance necessary imports of equipment. The port agency hsenough funds toinnc local cot of por invstmnt andpeaio, as well as service payments on external loans. 126. Because of geographical conditions, civil aviation has long played an important role in the econumic le of Clmma. isent i airports and.air navigation facilities, in recent years has totalled less than Col U30 million annually for construction and equipment at selected local airports, together with some initial works at Barranquilla where the airport is being upgraded. to international jet standards. A coung and somewhat augmented program of investment in local airports is planned. and Col $40 million has been budgeted for this purpose in 1964. The cu of continuation of work at Barranquilla would be in addition to this amount and depends upon the negotiation of an external loan. The airport enterprise has sufficient funds from landing charges to cover operating expenses and debt servicing; government assistance is limited, to capital expenditures not financed from abroad. Agriculture 127. Investment by the national government in the field of agriculture prior to 1963 has been less than Col $100 million annually, mainly for facilities for the Ministry, the National Supply Agency, and several agricultural institutes. The increases of 50% annually in 1963 and 1964 shown in the above investment table are mainly for the newland reform agency INCORA. Detailed planning is now under way toward external credits to assist in financing land reform projects. Agricultural expansion will continue to be financed mainly by the private investment, assisted by loans from public institutions. To help provide such financing the Project List includes external credits for agricultural diversification in the Caldas Coffee Area, livestock development, and agricultural machinery and equip- ment. Industry and Petroleum 128. The main investment projects in this category are those which have been planned by Ecopetrol, the state-owned.petraleum corporation. The main business of this corporation is the operation of oil fields and a refinery at Barrancabermeia, the largest in Colombia. In view of the substantial rate of growth of demand for products, Ecopetrol has planned a substantial expansion of its refinery capacity at Barrancabermeja to be accomplished over the next five years. This will increase its capacity 25-30 thousand barrels ner day at a cost of $25 million. Plants will also be built to produce polyethelene and paraffin wax at Barrancabermeja. 129. After considerable discussion,the government has consented. to the construction of a further refinery to be situated. in the Bogota area. This refinery will be operated by Ecopetrol and will eventually become the pro- perty of the company, (The arrangements for its construction and financing were discussed in Chapter IV). This refinery is to be constructed in 1964-65. The Project List does not include external credits for EnoetrollIs refinery expansion in the expectation that financing will be arranged with foreign peto+'llur _c 1 o7 _n n i -e 0 _)VL.A .U U.li LV J UIP U1"±Vt,10_ LUJ _LUV1.L JL U11UI UO PULJO ±U±J V1. UIL, Ministry of Education. Considerable progress in educational expansion had -1fl .L "I L -inl^on r_ _ ' _ - _ _ veen acuieveuin une iaue L7u's bUt, in nUIe aUIce oi a ueUvLUeu anu integrated national education plan, public education investment has lagged in the last R-w years behind the needs of the economy. The Colombian Govern- ment recognizes that an adequate supply of trained personnel is a necessary pre-condition of sustained economic growth and the planning of education expansion is now under way. The Ministry is reorganizing its planning section and. is being aided by a joint 1NESCO/AID education mission, although the plan is unlikely to have action impact before late 1965. In the mean- time, continuing building programs, particularly for secondary and tecinical schools, should continue at the 1963 rate, as a minimum, with continued. ex- ternal assistance. 131. At the university level, the National University has had relatively modest expansion programs in 1962 and 1963, but is now planning (with foreign assistance) a more rapid growth. The other 27 universities in the country have a variety of expansion plans. The Association of Universities is attempting to develop a coordinated university plan for Colombia. A planning advisory mission on university education from the United States is now in the country and is expected to report in early 1965. Health and Sanitation 132. In the field of health and sanitation, the major investment emphasis in recent years has been in expanding water and sewage works, mainly in the larger cities. 133. Expansion in health facilities has been very modest in the last two years, with investment expenditures by the Ministry of Health (which is also responsible for rural water supplies in locations of less than 2,000 inhabitants) running at less than Col $40 million annually. This relatively low level of activity has been due both to a slow start in planning and a lack of budgetary allocations. A national plan has now been drawn up and progress in its implementation will depend on completion of project planning and receipt of an external credit. as well as on in- creasing budgetary allocations. 134. Water and sewage works in the larger cities are the responsibility of the municinal corporations. uhile those in other cities are the resnon- sibility of the Instituto de Fomento Municipal (INSFOPAL). Most of the larger cornorations have long-term develenment nrograms. with a phased investment schedule, worked out by outside engineering consultants. Most of the cornorations in maior metronp1itqn nrns hqve reneiveL or are in the process of receiving, external financing. In general, the level of activity shows ste.ady proress, 135. The same is unfortunately not true of works in municipalities for W. 1±.'..l .LLJJ J l.J JO ..~ H.L .L U..L * .L; LL, 4. J*AI J I . *-Ltf.W IO I 5IU I 4 LtLC4140 24 . as a result, new investment activity in 1962 and 1963 was only about 30% of O.J. '-' U ' J U'. 4.4 V" 44 £J;V U.L /iJ4ULAV L_. L&.9 CX14U LAdV . Lzat ion~ o external credits from the Inter-American Development Bank were far below the rate Pxj 'J ,u~uu. Ud±L1_ .* U_LVt11 CL C)VLLU.Ln U1 U11U I1WU 1 1It::JU Y1_VLUL111 C11U C111 _L1 creased. contribution from the national budget, the prospective doubling of investment activity in 1YO Irom a total o Col U 3 Fillon in 1963 may be achieved. This would set the stage subsequently for further ex.- pausion (for which additional foreign lending would be appropriate). No new commitments of external credits to INSFOPAL are foreseen in 1964 and n -/,, Housing 1306. Public investment in housing is supervised by the instituto de Credito Territorial (ICT) which operates a variety of schemes all based on home oTnership and directed primarily to the lower income groups who would not otherwise be able to finance adequate housing for themselves. The ICT operates a number of self-help projects in various urban centers whereby the individual owners complete their dwelling units under ICT guidance. There is also the "three part" system under which the owner provides one-third of the cost of his unit, while special organizations, such as cooperatives provide a second one-third and ICT finances the re- mainder. And there are a number of other schemes, including direct con- struction by ICT. 137. In 1962, a peak year, ICT completed. 31,898 dwelling units while 25,077 such units were completed. in 1963. In 1962, for the first time the housing deficit was less at the end of the year than at the beginning. The volume of public investment in housing through the national housing agency is expected to decline substantially in 1965, as indicated above. This is the result of reductions in financing from local sources; both the national budget and revenues of the national housing agency. The total volume of construction of housing for low and middle income families is not likely to declire appreciably in 1964, however, with the expansion of building for cooperatives and labor unions, with the aid of external. credits. These programs, will be increasing in 1965, as well as housing financed. through savings and loan associations provided legislation is approved as a basis for an external credit for such associations. - 35a* VIT FITMAMOTG rC)OMT. rOWTV 137a. Prospects are favorable for the continued growth of Gross the development effort are met. This rate of growth has been possible L.LA X.- L A U tLCU 0 JJJCt_L.~y JCt~~UJ.L ecu eo a. combinti onj±L vI UV.Lmil s lavul-UcLt, resource base, a dynamic group of entrepreneurs in commercial agriculture Unu u a re±LUiUvLy LL11 1ciUt U1 UM!ULc [1VUU[U1U dU aVnU and a rising volume of external credits to help finance the development A. Capital Formation 13T. Gross capital formation has ranged from 1o7 to 227n of Gross Domestic Product during the past decade, as indicated in Table 4, a relatively high percentage for a country at Colombia's stage or develop- ment. After excluding inventory accumulation,formation of fixed capital has ranged from 1% to 1070. Investments nave generally been appropriate in type and composition,although the portion of iniestment in the field of agriculture has been relatively less and that in industry relatively more than the most appropriate division because of special tariff protection for industry, as indicated above. 13Tc. Prospects currently are favorable for extensive investment in agriculture and industry, as outlined above. In agriculture investment is increasing, particularly for producing African Palm, bananas and sugar. In industry major projects are the expansion of the Paz del Rio steel plant and construction of a soda ash plant, both with assistance of external credits. Substantial investments are under way or planned in various fields particularly chemicals. Public sector investment will also be rising under current budgetary plans of the National Government and with increasing use of external credits. 137d. In all, Gross Domestic Product is expected. to continue increasing by at least 5% annually and investment in fixed caital constituting about 18% of GDP, with public investment about one-third and private investment about two-thirds of total. B. Domestic Savings 138. During the decade of the 1950's capital formation was financed. predominantly from domestic savings of which roughly one-fourth was public savings and three-fourths private savin.:s. The general plan had projected that domestic savings would rise from 20.5% of GDP in 1959 to 23.3% in 1964 on the basis that both private and public savings would increase. Instead. of increasing in relation to GDP, total domestic savings declined, however, to around 18% of GDP in 1961 and 1962 because of declining savings by the public sector, particularly the National Government. Revenues of the National Government did not increase as had been projected in the Plan while its operating expenditures increased substantially. 139. The government has made a strong effort to attack the budgetary nroblem and rpvpnnes -md budgePtaqry snvinor. in(r,-qPr qtP1-,r asinictq W 36 - in Chapter II. Prospects are favorable for the further growth of National Government revenue in 1964 and 1965 as indicated in Chapter V. In addi- tion, major public power entities also are likely to generate some addi- tional savings because they have been permitted.to increase their electric rates in order to provide additional revenue for financing the local costs of their expanding investment programs. No data are available on recent or prospective savinps nf departments and municipalities but their savings are not likely to be increasing appreciably because revenues are quite inelastic and operating costs have been risine. In summary. total public savings are likely to continue to rise in 1964 and subsequent years with the growth of the economy and the progressive tax system of the National Government provided there is continued restraint in the extent of in- creases in its onerqt.inp Pxnpnditures. 1)[0- The major smirnp nf timp.stAc privatep sa;vings hAs in the past been depreciation allowances and retained earnings. These sources are likely tninnronpo P1. nrl iI I TA- +11 t.hP aT-n%+h n~f in-rnqt.rnPnt._ Rpfninprl inrni nrq airP also likely to rise with the growth of manufacturing industry and the continuing incentives +o plo tar lr -%f4+c int. rYther -ran on. Tn.. centives also exist for increases in personal savings because of growing efforts by the financieras. On the other hand, increasing tax levies by 4-he Mn+tnal Govrn entv V-Vi1"I lk- n,-+l -7 n+ I- - nvn e f? ' a QM-T?-;IffQ- U1i *C4.LJUO,L A'JV U flA~AU bV L.JJ U%- JJ 4 W.LtJ V. V-t ap .AALQ. -~~ 1- - - ' On balance, private savings are likely to rise steadily in the coming IJUAt ~ ~ ~ C LVJ V0JaJL~ . U CLVUJ.LU ULA= LJU ,UL .L. J J. J VW provide external savings to supplement domestic savings in financing capital Trends in IY_uS 141. In the early l9501s, as Colomlbia enjoyed rising coffee prices, external resources provided only a minor share of investment financing., After the end of the coffee boom in 19:5, howeverp as the governmenu kept investment at excessive levels and it proved difficult to reduce imports there was a large balance of payments deficit (Ly5->6) financed largely with increasing commercial debts. During 1957-1959, new governments took drastic stabilization measures which enabled. Colombia to generate substan- tial balance of payments surpluses and reduce its outstanding debt, while still maintaining a high rate of gross capital formation. In 1960 and subsequent years external resources have financed an increasing proportion of domestic investment, although domestic savings continued to be the pre- dominant source for financing investment. Trends since 1960 142. The pattern of external financing since 1960 turned out different from what had been envisaged in Colombia's Development Plan. The Plan had projected. a rapidly rising volume of disbursements under external credits during the 19601s, not only to supplement domestic savings - 37 - but alo to assure the neces,sa.r flo of import s u-nder, th develop1 nmnt4 program. Under the plan imports were to rise from a 1957-59 average of. "42L miLllLin to QU62) miLLllLin LA 1L76 5.particLularl~ .y toU provid the' qui ment and materials needed with expanding investment. The necessary foreign eAunuge fianiug was tu ve provueu maily uy risig exporvs anu radly increasing receipts of official long-term capital. Balance of payments developments during 1961 and y6 varied from the plans estimates as indicated in the previous Economic Report (WH-126a, pp 8-9 and 20-21). ExportU were abouO 10o below the plan projections. Imports were in line with the plan figures but imports of capital goods were well below the plan. External financing of development projects also was far below the plan. The deficit in the Balance of Payments was financed by heavy use of reserves and short-term borrowing. The stabilization program initiated in November 1962, summarized in Chapter II, sought to attack the balance of payments problem through an adjustment in the exchange system and re- straints on demand by new fiscal and monetary policies. The effectiveness of the program in restricting imports and offering additional incentives for export was undercut by advances in domestic prices during 1963. 143. Major features of the balance of payments in 1963 in comparison with the plan, presented in an accompanying table were: (a) a widening shortfall of exports (nearly 20) below the level projected in the plan; (b) total imports well below the levels of the plan, particularly capital goods, (c) net receipts of official capital about equal to the plan projection BALAINCE OF PAYIETS 1963 (In millions of US Q) 1962 IBRD Plan Missionzi Actual Exports 588 555 482 imports 584 615 h61 Trade bala~nce An Services (net) -126 -111 -121 Balance in goods, Services and Transfers -122 -171 -100 Financing of Deficit Private Long-term Capital (net) 35 20 15 Private short-term Capital (net) - - -19 (net) 87 166 75 Net change in other liabilities and reserves - -15 29 1 Report wH-11ya (june e, 19o2'. - 38 - 1-" derLU-L Ielow -1,~ 1 -rn- ^MYny rl I-N-% +.I 1 Q()9 TMpnTn i.q.i nn-. bJub cons-LU~. alyL UJA L~ the~ ~ ~ -L L4 .1. L ;V~UIIIPV0D.V.L%JL S.. -_ _ however, from what had been foreseen in the plan. The plan had.assumed. UL1UU U,LIU .LIIIUWt V.L VI.L.LQLxL UCL.Lua.L w IA'.L'IU~ V -J-A- specific projects, largely in the public sector. A substantial shortfall occurrel .L - ne p1 au- --nu -4cu1o us 14 --uv.-- nou a 4 n-v OC UTU L11 IIU P-dLUI1r WIU UAt:ULLULI U- LVI L., 0~UVV± V.- -' - dicated. in the previous chapter. This shortfall was roughly offset by receipt of a U.S. ADu loan in general juppVVy us viz uvevU mouIu, p4s-ue A substantial outflow of private capital also occurred, particularly in the first part of 1yo3, which was not foreeen in uhe plan uo Which was offset in part by an inflow of private short-term capital to finance in- ports. In addition, Colombia drew on the IM in support of its stabiiz.atVn efforts after the November 1962 exchange adjustments. Thus, during 1963, as in lo.L and 1902, Colombia's net reserve position continued uo oeteuuU,v. At the same time, imports of machinery, equipment and other items needed to carry out the investment program, continued to be appreciably lower than projected in the plan. rospects for 1964-65 and Subsequent Years 145. The wide divergencies during 1961-63 in the actual balance of payments from the projections of the plan, as well as in other develop- ments in the economy, call for the plan to be basically revised. Pending such a revision, the Mission has made a projection of the balance of pay- ments for 1964 and 1965, and 1970 in order to evaluate Colombials prospects and needs for external credits, The projection indicates that a gross inflow official long-term capital of roughly $185 million in 1964, $220 million in 1965, and $235 million or more in 1970 would be needed to fi- nance the development effort. (Details of the projections are given in Annex II). Exports 146. Colombiats export prospects are favorable. In the short-term (1964 and 1965) export earnings are expected to benefit substantially from the recent increase in coffee Drices. Over the longer term (1964-70) petroleum exports are likely to increase (by an average 8% per annum) as production from already known sources of supply are being developed for exoort. The slow growth in recent years of exports of agricultural goods (other than coffee) and, to some extent, of manufactured goods should be accelerated in the years ahead. The time has come when Colombiats ex- tensive diversification of the past several years will start paying off in terms of increasing exports. In all. exoort earnings are expected to rise by some 18% in 1964, 5% in 1965 and thereafter about 2% annually, reachine nerhaps $660 million by 1970. 17- Thpri are considerable uncertainties in Colombials exoort prospects and the Missionts projections should be used with due caution in hql nnn#* nf nqvmpnt nIanninry The ntmnal level of exnort earninLs from year to year may well fluctuate sharply with the upward and downward move- - 39 - mpnts in rn~ffpe An rni nac oq-nt-i nI I -ir %Thon~ n-f-. a" -iron, v,r y0 +h Inn-"c strength of coffee prices may recede, Moreover, for all other principal as for manufactured exports, the maintenance of a competitive domestic '~~~~~~~~~ 'C..- ~ a L~~J. J ~~ L~A~LU LL L UIiU IUJ&PUL-U PLUJt:UULLRi* Over both the short and.the long-term the competitiveness of Colombia's policies. Price rises in the period immediately following the November 1142u-v=3ua-on. wipeu ULAJ LMu IUU.U±unaL _eII(n;i.veU wucln 1. nau proviueu for increasing exports of "minor" exports (i.e. except coffee and. pet- roleum). rther suUsantal domestic price advances would maKe impossible attainment of the projected increases in "minor" exports under the present exchange system. _r!IU _L l40. The Mission considers that an average increase in imports of 3% to hfo per annum during 1964-70 is compatible with an expected 5% growth rate for the economy as a whole. To keep imports from rising faster will require vigorous continuation of import substitution through increased industrial production, continued increase in commercial agri- cultural production to supply food for urban areas, as well as the application of direct controls, supported by appropriate exchange rate and customs tariff policies, on both the level and composition of imports. On these assumptions it will be possible that consumer goods and fuel imports will remain at their present levels, while imports of intermediate pro- ducts and raw materials will rise somewhat more slowly than the growth of GDP. Moreover, as Colombia improves its production facilities for equip- ment and vehicles, imports of these goods are expected. to rise somewhat less rapidly than investment. However, caution is needed in expanding facilities to avoid high-cost, non-economic production. Invisibles 1149. While the trade deficit of 1970 is small under the projection, the deficit of invisibles would rise steadily from 1963 to 1970 (from I121 million to $220 million) reflecting primarily increasing interest and dividend. charges on expanded foreign loans and equity investments. Private interest and profits remittances would.rise substantially because of increasing remittances of petroleum and manufacturing companies, even though, with a continued favorable climate. they invested in Colombia a large fraction of their earnings. Interest payments on the external public debt would also rise steadily on the basis that $200 million of such debt is incurred annually with an average interest rate of 6%. The proJected increase in the invisibles deficit would be even larger if petroleum companies do not have a strong incentive to invest in Colombia or external public debt is incurred on lpss fqvorable terms +.han asmed.. On the other hand, intensified efforts to promote tourism earnings and to economize on shinin and other inviqiblp pervicn narmn+. ouil slownu down the projected steady growth in the deficit on invisibles account. - 4U - Capital Account 19. In contrast with 1960-63, when a large portion of the deficit on current account was financed by the use o reserves and sho'L-term borrowing,the projection assumes that Colombia's development requirements in 1you-tu will be financed predominantly from long-term capital, largeLy from public sources. Instead of further increasing short-term indebtedness it has been assumed that Colombia will use most of the expected. increase in coffee earnings in 1964 and 1965 to rebuild its reserve position and repay short-term debts. The gross inflow of official capital, including crealts for agricultural surpluses is projected as rising from $108 million in 1963 to $185 million in 196, 5220 million in l5b5 and to $235 milion or more by 1970. 151. Roughly half of the projected inflow of official capital in 1964 would be disbursements under existing project loans, mainly in the public sector, and A20 million would be from U.S. PLh80 credits. The remaining $75 million of disbursements would need to be under new loans. A part of the disbursements under new loans might be under external credits for specific projects. However, because of the time required for com- pletion of negotiations and the normal phasing of disbursements, they are not likely to be large during 1964 (perhaps only 110 million, not counting the PIF). Most of the 1964 inflow mf foreign funds undernew loans would accordingly need to be through credits for the Private Investment Fund or ona.program rather than specific project basis, such as the December 1962 U.S. AID program loan. The need. and scope of program lending in 1965 will depend on progress made in the negotiation and execution of project loans in the course of 1964. VII. COLOMBIA'S EXTERNAL DEBT A. Level and Structure of Debt 152, In the last three years Colombiats external public debt increased sunhtantially rising from $377 million in December 1960 to about $700 million in December 1963. Most of the new borrowing in recent years was fovp' hiah nrinrity develonment nroients for which long-term loans were available. Half of the increase in indebtedness since 1960 resulted from projoct. "lndina hv thp TBRn/TDA and most of the remainder from project and program lending by the U. S. Government and the IDB. 153. Colombiats external debt also includes a substantial amount of credits +-ith on nnortivzatinn +.orm rangin from three to seven rears which were contracted primarily for the financing of general balance of payments- requ-rements. rl- '104A ~~ +J)p arvtrc,rnmPnt, crave innreisinlg emphasis to development programs and projects. However, disbursements from project Loans tended to increase only sl191-r ommile rcia arcontinued to service debts contracted to refinance the 1954-56 commercial areas. Mo eo e A- th4 -4 --4 1~.4~ A +-- __"+ ..rndAr - h1 - tended to remain at about the same level (between $475 million and $500 million), as Colombia continued to suffer from the weakness in the markets for its principal export product, coffee, and the diversification of exports proved to be a difficult and slow process. In these circumstances, Colombia found it necessary to finance part of its imort payments with external credits. Most of the outstanding credits are Export-Import Bank loans and privately-placed debt. In addition. the balance of payments was financed. through a $130 million deterioration in the Central Bank's re- serve Dosition (1960-63). most of which renresents drawings on the IMF in support of the management of Colombia's exchange system. 154. In the next few years the repayment of short and medium term loans bulks large in Colombits rlpht qPrvicina. Of +he debt outtanding at the end of-1963 (about $700 million) about 19% ($136 million) falls due in 196h and 196c anrl VA (A9 < mill-nl Aiiv4n coALAA Tn+-! 31 r-,' ments on outstanding public debt amount to $100 million in 1964, or about n~f py-r+. - r~i nff y, n e;!r An1 4 - , + 1^ ,.,4 dtf. 1 141 - + of projected. export earnings in 1970. (Export projections are discussed in Chan+.c VIT and Annex TT) I., ExA.verna l Capited4L~. Requreme L.Lit, s on the governmentfs policy of limiting public investment to high priority projcts an o subUanutlly increasing the amounts of public savings available for the financing of these investments. In the private sector Coombia s financial policies are designed to encourage private savings - both corporate and personal - and.to utilize all or most of these savings fUr te financing o private investment. The financing plan for the in- vestment program envisages that external credit disbursements of around $1u8 Maillion in 196 and $220 million in 1965 will supplement domestic resources. Of these amounts about '270 million will be required in the public sector of which a substantial share (S160 million) will be avail- able from existing loans and credits. 156. Colombiats development efforts in 1964 and 1965 and.subsequent years require additional external loan commitments as indicated in the Project List to be submitted to the Consultative Group. (See Annex III), This list includes firm projects totalling U.S. $174 million in 1964 and U.S. $165 million for 1965. Two-thirds of the projects are in the public sector, mainly for power, telecommunications and transport projects and the remainder are in the private sector, mainly for the Private Investment Fund. The list also identifies projects, largely in the public sector, which are now under study and which may later be included in the firm projects category and provide a basis for additional loan commitments. Ce Short-term Financial Management 157. Assuming that $200 million in new loans will be granted in 1964 and 1965 on an average term of 20-year amortization (including 3-year grace) and. 6% interest rate, Colombiats debt servicing ratio would , 42 - equal 15% of prospective export earnings in 1965 and 10% in 1970. Continuation of external borrowing at a pace of $200 million or more per year in 1966-70 would, of course, prevent the debt service ratio from falling below the present level - and may, in fact, increase it to about 19%. 158. These levels of service payments are such that Colombia needs to restrict its borrowing to long-term loans for projects of high priority. In the financing of its development program Colombia has thus far generally managed its external debt with caution, and there is every reason to expect that it will continue this nolicv. 159. A poliev of cautious debt management will not permit the continuation of balance of payments borrowing on the scale in recent years. Given their -resent high level and their usual short-term. further credits of this nature cannot be counted upon to provide additional fi.- nancing for ClonmhiqT- lon-term dePvPInmPnt. rnnirtmPnts. A further increase in these debts would substantially add to Colombia's debt ser.- vicinc nmbImq nnrl miaht well renit in runrrnin situation in which Colombia has to seek refinancing of its early debt maturities. 160. On the other hand, a reduction in the Central Bank's balance of pa-uments li abiIti Jes and an -Trv-e+ in it s ngt reserve p-ii would strengthen Colombia's debt servicing capacity. The gross reserve position of, th eta "'n' 1,as , lin ', eui valent to about 2)- months of import payments. Against these gross re- se ve on ~J 1 - - 4 -4 1 _ " L11:10 U~U UAJULAL' UU a- _ct± J.L±tL.O.MJ L ak)UU L) IL.LJJ 1IIAXn.LI for a negative reserve position of around l06 million. 161. The current upswing in coffee prices and export earnings, most L±Ly nUL vU uuu uI- rfmure unanl one or ojwu y UraI'Zi J v a favorable opportunity for the strengthening of Colombials short-term financial position. The Yissionts import projections for 1o0 and. 1965 envisage a substantial increase in capital goods imports in line W.Ln Une expanding ±tsV I 01 Uv.Uubeuve ranu ao UUertnC0 in external loan disbursements), and a gradual increase in imports of interriedlate goods and raw materialsto Keep pace vatn tne rising volume of industrial production. The policy of reducing short-term liabilities would. be frustrated if Colombia's higher export earnings, resulting from a temporary coffee price increase, would be used for higher imports of consumer goods. To keep higner coffee earnings from exerting excessive pressure on import demand the government would be well advised to counter- act domestic coffee price increases through appropriate exchange and tax measures (e.g. maintaining the exchange rate spread), which at the same time will strengthen the government budgetis capacity to finance invest- ment. 162. A careful management of the level and composition of imports calls for a program of import licensing coordinated with the objectives and priorities of Colombia's investment program, and for simultaneous measures to increase import prices and avoid excessive strains on the '14 0 I, - - I .0 -1,-)-- - - ' 4. 4. -L JLLL i _ .k Cl LJLit;J.. . U1 fJ.~ULLQ -L WtIJIIt:I bJ1UUU. lU accompanied by a policy of discouraging private short-term external Uredits. Me Misions external debt and balance of payments projections assume that these debts will not increase faster than will be required for the normal financing needs of a rising volume of imports. Never a simple task, the control of private credits should nevertheless be feasible in association with the application of existing registration and licensing requirements for a. wide variety of imports. D. Basis for Long-Term External Financing 164. Colombia's creditworthiness for long-term loans of the magnitudes reauired to assist in financing high priority public and private investment is based on its favorable growth prospects. Colombia has made vigorous efforts to mobilize domestic resources for development, both through increases in public revenue and encouragement of private savings. In addition, Colombia has been successful in maintaining a relatively rapid rate of growth through economic utilization of physical and financial resources: its public investments are concentrated on high- yielding projects and conform closely to the priorities indicated by its development program; increasing emiDhasis is now being given to agriculture and to the development of human resources through the improvement of educational facilities at all levels. Efforts in the public sector have been accompanied by a policy of encouraging private investments for high priority agricultural and industrial projects. The climate for private foreign investment is favorable. The diversification of the economy. which has been under way for some years, provides a basis for export diversification and expansion, which will materialize provided Colombia follows appropriate exchange rate and domestic price policies. The growth of exoort earnings, together with a continuation of its cautious short-term financial management, should enable Colombia to manage its debt service without recurring liouidity crises. 165. In view of the availability of domestic resources the amounts of net external financing needed to finance public investment are equivalent to about 21% of the total in 196h and. about 32) in 1965. On a Pross basis these percentages are 28 and 38 respectively. In order for these percentages of external financine to be reached it will be npe.sqry that certain loans will finance substantially larger Percentages of total project costs. In actual practice. many existing external 1nqns qlrP3v finance proportions of total project cost well above the average external assistance reauired for all public investment in 196) qnrl 19Q- Mranover, as discussed in Chapter VI, a part of new lending in the public sector may need to be on a program. rather thnn indivirii1 nrmi.ri- "hiq Tn the private sector the amounts of external financing needed to supplement domestic resources will reouirp the continuation of lending thrnlah the Central Bank's Private Investment Fund of at least the same magnitude (Rhi million/vear q; r.nnRidra necPeary n-eavioly The eer of dserlb servicg pilet needed tha inceasinuat amounts of gross external borrowing will be needed to enable continuation - 44 - of Colombiats development programs even if its external financing re- quirements are kept down by vigorous domestic savings efforts. In these circumstances there are strong reasons for improvement in the terms of lending by all of Colombia's creditors, who should. give sympathetic consideration to long periods of grace, long period,s of amortization, and, wherever possible, to lower rates of interest. An improvement in financial terms would be particularly appropriate in the case of supplier credits for imported capital equipment. AN!NEX I PRODUCTION AND EXPORT PROSPECTS FOR LEADING AGRICULTURAL COMHODITIES Coffee 1. About 800,000 hectares are at present planted to coffee, which accounts for nearly one-third of the cultivated crop land. It makes up about 20% of agriculturets share of the gross national product, accounts for 70% of all exports and isthe main source of cash income for about 10% of the Colombian farmers. 2. The importance of coffee in Colombian exports is underlined by the fact that in 1962, it accounted for 56% of the total value of exports of goods and services. Coffee is still likely to account for more than 50% of total export earnings in 1970, even with substantial efforts toward diversification. 3. The immediate prospects for coffee are dominated by the coming into effect of the International Coffee Agreement, adverse production conditions in Brazil, and.the reassessment of that countryts stock situa- tion. As a result of these developments, a sharp revival in world,market prices occurred at the end of 1963. Our agricultural exnort nrojections. summarized in Table 20 include an increase of about 20% in coffee exports from 1963 to 1964 (from S315 to 1380 million)* The 1964 total is based on an average price of 46 and total exports of 6.3 million bags which equals Colombia's recently expanded auta under the coffee agreement plus abont 0.2 million bags to non-quota countries. The projection for 1965-70 is on thbasi that th price- will deln to an averag o f yoCV in 19O70 while the volume of sales gradually rises after 1965. h. A total of 5360 million of coffee earnings would. again be reached by 1970 with projected exp~-orts of 6. milo bas in maing thsp jection, it is assumed that the present marketing arrangements through the National Coffe Fuciuain will ouinue ndu tnat there wK1 be ouly merginaJ1 sales to "non-traditional markets" outside the quota arrangements. 5. It can also be expected that more emphasis will be placed on that will result in (i) reduction in coffee acreage but increases in pro- duction through increaseu yielus; (A) lowering of coffee production costs; (iii) improvements in coffee quality, and (iv) conversion of coffee lands to other types of agricultural production; primarily poultry, dairying and fruits. Bananas 6. At present, the banana exporting area of Colombia is inland from Santa Marta, through which some 10 million stems are exported annually. Exports from this region of this order of magnitude are likely to continue. There are, however, good prospects of new banana-growing areas being opened. up. ANNEX T Page 2 7. Research work carried out by the Fruteria de Sevilla, a national subsidiary of the United.Fruit Company, during the past four years has shown that the Turbo area has about 100,000 hectares of virgin lands well suited, to the production of bananas for export. The Panama disease, which has been the curse of the banana industry in several Latin-American countries, has not been found in this area. The United Fruit Company has embarked on a program to invest about US $8 million in marketing installations needed eventually to export about 15 million stems annually. The company will not grow bananas on its own lands, but will assist new colonists to develop the area. At the end of 1963. there were about 3.000 hectares planted to bananas here and the first export shipments are expected to begin in April or May of 1964. Within the next three to five years. it is expected that banana plantings will have reached 25,000 hectares. Further expansion will depend upon the world market situation. comnetition for land. for other type crops. and.other factors. The maximum development of bananas in the Turbo area is not likely to exceed hniit 0..0nO hptpres and 4n million stems for eynort annually, as about one-half of the land suitable for bananas will no doubt he nIqnted tn other crnns P epneially Afrinn nil palms. potentially good banana area, but its development will be somewhat more difficult due to its +Aueptait+yn14+ir +o Panama ni and compet+tin with Ecuador for markets in Japan and. on the Western Coast of the United. S+tae Our ~ ~ ~ ~ a >~b oneor millionion ar temes-,+, plantings which have been made in the Turbo arelae about one million stems .L11± I 4 VVI VII 'IPC III.-L.L.iLUJL1, ±LIL U CD.L11r. LU Ud. CJ- L CL-O U R. ± 1 ILL-.L.LUIle. I vo UUD are favorable for an expansion of exports to 25 million stems in 1970 from nie-,,, an o.lu. d LUcLIU-1. U[IU±LIt:U UIJU -LU i.L -L-. Y. tEUUU Z V.1 ,?4i IFLL±L-LLLo U. Ine primary market for the additional output is ±ixely to oe Western Europe. The overall rate of growth of this market is not high., Tuveact area i beng developed by a leing banana marketing organization to produce and. market a quality product very efficiently offers a prospect tha UoIomuLa cal uUUin a larger bnare uf Ue European market as well as that in the United States. Cotton 11. Since the late 19401s, cotton acreage and production have varied up and down from year to year but the trend has been upward. There has been a still more rapid. increase in cotton textile production. Prior to 1959, there had been large imports of cotton to meet the needs of the tex- tile factories, but in 1959 Colombia made its first exports of cotton and in 1960 exports exceeded imports by 28,500 metric tons, and exports con- tinued to increase in 1961 and 1962. There was a decline in exports in 1963 which can be attributed to a decline in production associated with bad weather, and other unfavorable production factors which appear to be of a temporary nature. The volume of production and exports also are affected by the annual bargaining between cotton producers and textile ANNEX I Page 3 manufacturerst groups over the price of cotton. As a result of this bargaining the average price of cotton in Colombia during 1963 appears to have been about 10% over the world price. However, any year-to-year analysis which attempts to compare changes in production. imports. exports and consumption will result in some confusion because production is normally reported by the Institute of Cotton Development on a cron year basis end- ing July 31, while exports, imports and mi11 consumption are reported. by other aLencies on a alendlar year basis. 12. There is no aniiht thbq. nttnn producition will n'rnnimip im-nrH?r in Colombia, and that this increase will be large enough to provide a surplus fnr PYnort hnuv the i nrreinc int.rnal demands for cotton xrtila ods. It is much more difficult to predict whether these exports will be in the form. of ra-w.7 cotton, ygarn, cloth or readyr-m.ade clothingj"e. The Conlonn-ma textile industry is modern, efficient and managed by progressive entre- 'hii+. +.hn~~Ay~'+ nc ^r' .-,i4 - . 'k4 - +V,- ,-+.4v. p- m e --- the4jIf ---%A ofJ exLC IJL - d- ed _ the F _ + able on the home markets and intense competition abroad. Increasing pro- which are expected to total 40,000 tons by 1970 and yield US $20 million in ;1 ougar cane Is grown 1n all areas of Colombia wnere e1evatos do not exceed 5,0 feet. The area planted to cane in recent years is etimatea at 2$u,000 hectares, out only about 0.,000 hectares,all of wnich are located. in the Cauca Valley, is devoted to the production of refined. sugar. The other 200,000 hectares is used for the production of panela, a type of brown sugar produced under primitive conditions with inefficient and small-scale equipment. 14. Panela is consumed exclusively in the domestic market and, to a large extent, within a few miles of the places where the cane is grown and processed. Estimates or panela production vary greatly from 500,000 to 1,000,000 tons annually. Even less accurate information is available on trends in panela production over the past ten years, but the consen:us of those groups who have made studies of the sugar cane industry is that panela production and consumption have been declining. 15. The exceedingly rapid increase in national consumption of refined sugar is also an indication that panela production may have declined. The production of refined sugar has risen rapidly from 150,000 tons in 1950 to about 400,000 tons in 1961. During this period, consumption increases tended to follow closely the rise in production but, due to annual varia- tions in both consumption and.production, there were some years when a surplus was available for export and others when it was necessary to import sugar. Over the entire period., net exports averaged about 7,000 tons annually. In 1961, after a period of four years of net importations, there were net exports of 46,000 tons and export earnings of US S5 million. This has been followed by net exportation of 65,000 tons and earnings of $7 mil- lion in 1962. The statistics on exports (which are much more accurate than ANNEX I Page 4 the production and consumption estimates) indicate that production in recent years has been about 50,000 tons larger than annual consumption., 16. The recent world shortages and rise in world market prices for sugarhave caused some individuals in the sugar production and refining enterprises in Colombia to draw up plans with goals to increase exports to 400,000 tons annually within the next three to five years. These goals must be regarded as highly over-ontimistio. The areq of lnn that (an be converted to sugar production in the Cauca Valley is limited to about 90,000 hectares. If this additional land should be nTnte tn qiirrr P'qn within the next three years it will be about five years before maximum production would be reached as it take 1)i-1 mnnth. fnr t.ho no trn t Tn +u following the initial planting. Another six to eight months would elapse while the cane is being harvestd. the sanr refined and moved into the export markets. 17. The expansion of sugar as an export crop is hedged about by a number of nr.q.qh1Plmttos h mutofln.ta a epae under cane is limited., both by the competition of alternative crops and 'h 1 J.qtqnriP frnm +.1io~ rny+. A m-" --1 V-,~ +" -4s4-.- domestic demand for the product, as a result of rising incomes and. the sqhift+ f"rm pannla cosup -o -11 -,-- - --ud--3. n- 4-1 -41- U--± Ad, sugar has attracted the attention of the most progressive part of the comrca agricultura commLJ.~± LtLunA.it.L, supported~ by fin±anial L11sULU,L.LU11bO, The use of modern methods of production and.refining available to this part of t1,h i usry will be necesUary to raise productivity and reduce costs. Our projections foresee a growth of exports to 120,000 metric tons bY 1;Fu, with a value of apL million. this is based on the assumption that the price will decline gradually to 4.O5 a pound.in 1970. Leaf Tobacco 18. Production and exports have been rising with the opportunities offered by the Cuban situation. It is assumed that this crop will con- tinue to increase the export market that it has expanded by 20% in the Last year. Total exports are projected to reach 20thofusae tons by 1970, worth 12 million. Cattle 19. The cattle industry for beef production offers opportunities for a very rapid.development in Colombia, provided a number of actions are taken to promote better livestock husbandry and. a more realistic marketing policy. The cattle population, if effectively managed., is much larger than is needed to supply the internal market with nutritionally adequate quantities of animal proteins and still leave a large surplus for export. The recent government actions of placing certain types of beef on the free pricing basis and the granting of permission to export are steps in the right direction, but many additional measures must be taken. It will take several years for a disease control program to yield its maximum benefits, and a crash program to eradicate aftosa, brucellosis and parasites ANNEX I Page 5 will be uneconomic at this time. However, programs to bring about control and. eradication of aftosa in selected areas should be initiated. immediately. 20. During 1960 and 1961 some efforts were made to prenare a coor- dinated. and comprehensive livestock development plan, but this plan has not been completed and coordinated actions to build un thp livestock in- dustry have not been initiated.. The work started by the Departmento de Investigaciones Agricolas (nTA) with aistannP frmom +.hp Rn1rfPlr Foundation and the preliminary reports prepared by FAO and Michigan State TTnivrsity fr)p.r in general The t.ypesQ of na-.tin thatn+ sOnIl bekarrnvie out. The credit facilities that exist at the Caja Agraria and the Live- stock Tl4vPenmnt. Bank- +.naf.ho-rith the technical oaniion rf +h Instituto Colombiana Agropecuario (ICA), give Colombia the basic institu- 21- The aggregate. amount-- LL. ofW puli fud, now being spn on WIieV stock development will have to be increased and the amount of credit ncw channeling of credit into those items and to those farmers who are best prepared anfld. willing to develop_ the, industry - -- wil do muc to in - livestock production. Technicians who have studied the Colombian live-, ~~~~~; 4,1~1y ~ 1 ±d± d ~ ILctU .E:j t-~L1k,U bJU1U 1-Y LI[1UUL1UULi E-(-biI.LUL. 11 production costs which are too high to permit selling competitively on the orLu markets, but there is also general agreement by these technicians that production costs can be lowered by giving attention to the following: 1. Marketing animals at an earlier age; 2. disease control to bring about smaller death losses, heavy percentage of calving, more rapid. weight gains, and. more efficient use of available foodstuffs; 3. pasture improvements, through use of fertilizers, improved varieties, better quality seeds, weed control, and improved grazing methods; 4. breeding of heifers and cows at proper season, the separation of breeding bulls from the main herd, and castration of male calves intended.for beef production; 5. providing the animals supplemental grain rations, salt and minor elements; 6. building of water holes and pumping to provide animals with drinking water; 7. improvements in farm to market transport to reduce death losses, weight losses and crippling and bruising; 8. improved slaughtering and meat processing methods. 22. If a livestock development program were initiated and carried out along the previously listed lines, it is possible for Colombia to build up exports to 500,000 head annually by the yeaw 1975. To bring about a. development of this magnitude within this period of time would, however, require a well coordinated program, and a large investment of both private and. public funds. It would. also require the enactment and enforcement of a number of laws and regulations with respect to livestock diseases and. ft T".T1T Ir A2111lA .L Page 6 sanitation in the slaughtering plants, which could well be more difficult to attain than the funds for the needed investment. 23. The foregoing livestock production and export goals can be realized only if investments are made in disease control programs, meat processing, marketing and transport installations and equipment. In studies made by livestock specialists, it is conservatively estimated that a sani- tation and disease control program will cost US $6 million of which about US $2 million will be imported equipment, machinery and supplies. The eradication of foot and mouth disease would cost over US $30 million and the program would need to last for about ten years. A recent livestock marketing study recommended the building of two slaughtering and processing plants at an investment of US $11 million. If these plants were built im- mediately it is projected that they would be slaughtering and. processing 265,000 head of cattle annually by the end of 1968. If the entire cattle marketing system were modernized., investments in new slaughtering and. pro- cessing plants, might well total over US $50 million of which about $20 million would.have to be machinery and equipment imported from abroad. 24. Recognizing the problems of organizing a large livestock im- provement program and the competition to be facedfrom other countries, careful planning is needed of an integrated, time-phased program in Colombia covering sanitation and disease control, nutrition and meat pro- cessing. With a much more modest program than outlined above it appears feasible to gradually increase meat exports. Our export projections are on the basis that exports will rise gradually and reach a total of 110.000 head and $11 million by 1970. A sharp increase in exports is in prospect for 1964 because of a special contract to sell low-grade beef abroad.. Kenaf 25. Colombia has several areas where climate and soils are favorable for the production of fibers, especially kenaf. During the last ten years, considerable experimental work has been done on abaca and kenaf. lith the recent increase in barley production and the planned production by the new fertilizer plants, there is a demand for burlap bags. There is a group of farmers who are planning to produce 30,000 M.T. of kenaf fiber by 1967, of which 10,000 M.T. will be sold for internal use and 20,000 M.T. for export. This plan may be too ambitious but it is reasonable to expect total production to reach about 30,000 M.T. of kenaf and jute fibers in 1970 of which about one-half will be used for the internal market and one-half exported as bags and raw fiber. Fruits 26. A wide variety of tropical and sub-tropical fruits are grown for home consumption in most of the farming regions of Colombia. It has only been in recent years with the development of the food canning and processing industries, that any interest has been shown in the commercial production of tropical and sub-tropical fruits. The first fruit canning factories ANNEX I Page 7 were established about 15 years ago. In the beginning, these plants were successful in filling certain luxury food. markets that had been supplied. by high priced imported articles. As the industry grew, it was able to lower costs to a point where a few processed products are beginning to be competitive with the fresh product. 27. The future of the tropical fruit industry for processing is contingent upon a decrease in processing costs and the price of raw materials. The fruit and vegetable canning enterprises are owned and operated by enterprising progressive businessmen who have some very capable technicians. Individual firms in the industry are planning an expansion program, in which they hone to increase sales to the internal market and develop exports in the amount of $500,000 annually by 1970. The potential exists for develoning an exnort several times this magnitude, but it is dependent upon a program of increased production of raw products at prices which will nermit comnetition in the export markets The evension and research work which is being provided farmers by the private processing firms will be augmented under the government' la n to provid more ser vice of this type. Among the products which might be grown for processing andi export are: (i) pyine-VnIn (41) paaa QJJ)n ( - -ge (;,I fruit, and (v) citrus fruits. African Oil Palm 28. Experimental plantings by private groups in recent years show that Colombia can meet its edible oil requirements from domestic pro- duction of the African oil palm. The successful cultivation of the oil. palm is~ retice to certain cliatic, rainfll±± ad soil conitLins. LTere are three areas, namely: Turbo, Tumaco and parts of the Magdalena Valley where oil palms can be succesfully grown. in the Turbo area, 1,050 hectares were planted in 1962; another 1,000 hectares will be planted in 1964. There are 200 hectares in production in the Magdalena Valley and about 4,000 additional hectares were planted between 1958 and 1963. The latter will stam JrodVuwCti b e uL4 IU anu 170. in the TumaoUU anU BuraVenura areas there is reported to be about 200 hectares in production and another 800 hectares of various ages which will begin producing before 1970. 29. it takes the African oil palm a minimum of five years to start producing and about 12 years to reach optimum yields. If present planting goals for the country are reached there will be about 10,000 hectares approaching full production by 1970 and another 10,000 to 20,000 hectares planted that will start producing between 1970 and 1975. When in full production a hectare of oil palms will yield about 2,000 kilograms of oil. Recent imports of edible oils, oil seeds and copra have been the equivalent of over 20,000 metric tons of oil annually. It will, therefore, be pos- sible for Colombia to become self-sufficient in edible oils some time after 1970. ANNEX I Page d Corn 30. C6rn is harvested from about 700,000 hectares annually) and is decond to coffee in area planted. 31. Corn does not offer a prospect as an export crop but expandKe production is needed for livestock and poultry in order to help overcome serious nutritional deficiencies of the Colombian population and expand livestock production f6r export. Corn yields are far below the optimums that dan and should. be obtained. In 1962. the average yield was only 1,078 kilograms per hectarea Aith the favorable climate and fertile soils found in those labep where corn is the nrin6inal cltivated crop, yields of 3,000 to 4,00 kilograms can readily be obtained with the use of fertili- zers and good quality hybrid seeda Tf corn vielA cnuld he raised to a national average of 2,500 kilograms per hectare, then prices will drop greatlv and it will he no hi n to nrnmote liveto.nk fattning, hog nro- duction and to develop the poultry industry even more rapidly than is now 32a To achieve greater production and yields of corn, additional financial assistance will need to be provided the private groups which aetrodnuwrhri to e a are to plan imroved se and tac follo exctension work to encourage farmers to plant improved seeds and to follow betr cultural~ practice on lands used. for corn production. THE BALANCE OF PAYMENTS Since 1950 major movements in the Balance of Payments have been closely related to movementsin Colombials Terms of Trade, especially the price of coffee. The Balance of Payments on Current Account (goods, ser- vices and transfers) is shown in Table 17. In the years of high coffee prices, up to 1953, there were surpluses, or relatively small deficits. When coffee prices broke (in 1954) exports were at an all time high; as coffee prices declined there were deficits in 1955 and 1956. In 1957-69 there was a substantial surplus totalling $200 million/1) brought about by austerity policies, in order to repay commercial debts built up in the previous years. Since 1960 there have been substantial deficits associated. with higher imports as the development program gathered momentum. These deficits were partly financed by the rising disbursements of external credits. 2. The main element in the current account deficit has been the ad- verse balance of Service Transactions and Transfers. The Trade Balance has been relatively small and was positive in 1963. The Trade Balance was kept within bounds only because of severe restrictions upon imports, in the face of exports which have not increased.in value. Current Account 3. Prospects for the Current Account up to 1970 will depend upon. the execution of policies that will restrain the growth of imports, while permitting exports to expand again after several years of stability. The long-term rate of growth of export earnings is thus the key variable, in that it mill 1argelv determine the nossible level of imports and. in. turn, provide the basis for servicing the extcrnal capital inflow required to mnintin .n1nmhin1. ivtamentand oroth. Prniet.~inn. for vi .ihlp. Pornmrts- tnoPPthPr with actual fiLrures for recent years, are given in Tables 19 and 20. The projections en- isza tha+t after several years of st.anation in total eynort earnings. they will grow l8,. in 1964 mainly because of higher coffee earnings anc. vv,y J411 noc ui 1bV4-r tywrev hv 4 no hfrgn 10AC nn 1 070- The Awnpnterl export growth in 1965-70 would be from additional earnings on a variety ofe products.tsa bsd nth reisetan h internal diversification of the Colombian economy, already under way for OLJI'1O~~~~- -JW - -04 - -w..L. J -0J.I JS S.,-lJ. LL0. I movement of total exports has been dominated by coffee and petroleum; over /1 All references are to US dollars. ANNIE I Page 2 that they will still account for 77% of the total in 1970. Coffee, how- ever, is expected to decline from 67$ to 56% of the total in 1970, while petroleum will have increased in importance from 15% to 21% of the total. Other commodities will increase from 18% to 23% of the total. c. The 1% increase in export earnings projected for 1964 is accounted for very largely by the increase in coffee exports (by 20%). This projection is on the basis that Colombia will sell her temporarily increased quota under the International Coffee Agreement (6.1 million bags) at an average price of 46 U.S. cents a pound (f.o.b.) and., in addition, will sell about 200,000 bags to countries not covered by the Agreement. It has not been assumed that the world market conditions which raised prices early in 1964 will last although they may still affect prices favorably during 1965. It is assumed that prices will average 46 cents per pound in 1965 and will fall in later years: export proceeds will then depend unon a gradual increase in the volume of sales as the world market expands. 7. Exports of petroleum and fuel oil are projected to increase from U.S. :82 million in 1963 to U.S. $40 million by 1970- A rite f incren of 8% p.a. This amounts to a major change in trend, since, on average, there has been no increase in the nhysical volumt nf P-ets frnm thi source for the previous ten years. Production increased slowly and the rapid rate of arowth of home consumntinn nhorhpri 11 tJo nc-+. )nCe in output available. Since 1960, however, consumption has increased at the rate of 6% D.a. and it has been assumnd that this rate A-11 not cele- ate in the second half of the decade. Given that rate of increase of con- sumption. the anticinated gronth in outpii. rilI be Suficient to pe.i.t exports to increase at the higher rate mentioned above. The immediate growth in exnorts expected in 1Q6o and l91 ifmnown-- our-es - uP. ply which are being developed specifically for export. After 1965, it is assumed that there will be an overal -i In production fo xi_ ing concessions, with the output from newer areas more than offsetting the decline eeted from some - to fields. Te proJt f cru oil exports is conservative in the sense that it takes no account of new major areas of nroduction th+. may he mveloped beore 197A 0 _1 Explo.at continues in Colombia and prospects for further development are favorable; in D rticul ar. the nrojec+in allowS '- +h4n" ng-- - ----a-' development of the utumayo-field. in which extensive trial drillings are ISdr 1v Ft pcvud to provide more than a small increase in exports; there have been big variations in exports in the past, with no Pvi H n~ of rend Ymraten-. of growth 8he- '"" mnor exporus of Colombia consist largely or agricultural products (other than coffee), miscellaneous manufactures and minerals-- anovnontary guL.* here is also a projected item of q20 to $25 million for unrecorded.border trade. Together these amounted in A Little gold is actually exported; most of the output is sold to the 1anco U La Republica and becomes part of the countryfs international assets. ANNEX~ H Page 3 total to $85 million in 1963, or 18% of total visible exports, a pre- portion of which has not changed in recent years. The projections assume that this group will increase to $130-"160 million by 1970, or 23% of the total visible exports. The major part of this projected increase is accounted for by agricultural products, which are estimated to increase in value Irom 49 million in 1963 to $75 to 5105 million in 1970. Little change is expected in non-monetary gold or unrecorded border trade, while exports of manufactures are expected to increase from $10 to $20 million. 9. In 1963, total minor agricultural exports were largely accounted for by four items - cotton, bananas, sugar and leaf tobacco, and the ex-- pected increase in exports to 1970 will also depend largely upon these four. Production and export projections for these commodities are discussed in detail in Annex I. The projected increase in cotton exports over seven years assumes that production will increase sufficiently to provide this amount and fulfil domestic demand as well. This can only be satisfied if the appropriate policies are followed in pricing and the regulation of marketing. A substantial increase is projected in the export of bananas amounting to $29 million, which is twice the 1963 figure. This increase would come from the development of the new production area and would be largely sold. in Western Europe. The growth in consumption in that market is not large, but the new development in Colombia is associated with well established marketing interests and is particularly well placed tn com- pete in the European market, as well as in the U. S. market. In arriving at the export projection. allowance has already been made for the markef-.- ing difficulties that will be encountered. It should be feasible to increase sugar exoorts from the 96 million achieveH in 1Q61 to A,'> millin in 1970. This will depend, in the first place,upon production increasing sufficiently to provide a marain for emports over andhave risng dmoms demand.. The projected growth in exports depends also upon the world price not droTpine below b. cents nr nond. The develpAment of an expor market for leaf tobacco has been a recent phenomena in Colombia; in pro- Jectin-a a f'UYFTer inraein export (from $7 milio tle $12 "4 * 1970) it has been assumed that the market gained can be consolidated and. the Quantity sold ineased. 10. Other Pxnnr+.R mf'arctul and fisherie- products inclu-derie shrimp and cattle. There have been intermittent exports of rice but the growf~~~~~~~hU in-.LIL Dt. 'upini ulkl oprihese to continue L11 the future. Cattle are exported at the moment, although largely as contra- ba,nd- Ifr thogaiztina changes now takr-ing place in the-rluiryae completed some growth in exports can be expected.; although this will depend ~ ' ~ OU%,"l ' H'-" UO IIIL, JLU WIUI LUO Q-U M.L.L.Lion by 1970, or half the total anticipated from this miscellaneous group of *. wEports of manufacure secuding processea agricultural products) has never been very important either in absolute or relative terms. In 1963 they amoundU to some :F' to 1m0 million and consisted of a group of miscellaneous items, the most important of which were cement,cotton yarn, vexiles and pharmaceutical products. The changes now taking place in the industrial and commercial structure discussed in the main report will re- ANNEX II Page 4 .Qll+. in r m A an. .-.C n.n,C,n nn --.,AUC+ n i n th fu ur C,I-..a + 1" " ,n the competitiveness of these exports will depend upon the monetary and ex- V . '- L-.j~ LkJ0 L L J etJ .L LIK- P±LJJ,U UL.UL10 1IIIUX YV VALLUV ULICLL ULIV, value of exports of manufactures will double by 1970, reaching $20 million. 4.aJ .LI..L V 11 ZAPUI-VO~ J-0 UU U&~AU Wle~ formU oU. a nIIube o. small increases in the sales of a wide range of manufactired products, rather UIan in lrge ciwangtae in Euy oie L1M. Imports 12. Imports of most goods have not been free to find their own level, but have been and are subject to strict licensing and control. Any fore- cast, therefore, implies some judgment as to the continuation of this con- trol system, or of some alternative. It has been assumed that a continuation of the exchange rate and directly restrictive policies will be followed. to restrain the demand for certain categories of imnorts. Total imnorts are expected to rise steadily during the remainder of the 1960ts, because of the growing needs for intermediate nroducts nnd annital onds- as in- dicated in the following projections: IMPORTS . TS millions) 119 TQt I 0A), I0 A4 1070 Consumer Rnond (a) 6n An An An 6n Fuel 5 5 5 5 5 TntP_rmP_Hi .t Prniints 258 260 280 300 Wn ILn Capital Goods (b) 217 175 255 265 300 TOTAL c.i.f. Sho 500 600 630 705-725 TnTAT. f_no 516 4 .41 f70 600 6-70-690 (a) Tncludin small nmint n1ninnnIqqiqfoAn 197 min -on in I KoAO (b) Including construction mate.rials 13. In recent years imports of consumers goods and fuels have remained rel J a-i-l constant as Coobasgyj~n aaiyt roduce these0Tr ProdVuctsU has increased. On the basis of these trends it appears likely that total ~~~fWU C21JU L ~i U V.D tI . 1e r~ esturaineu to a totlJ 04. ' million annually during the coming years. Colombia's growing industrial capacity has also been eabl to supply Inereasing quanities of raw materials and intermediate products. The demand for these has been growing faster than the Lcal supply, hUwever, and. imports nave Deen rising steadily. The projection is based on the assumption that imports will rise by the same percentage as the G.D.P. in -06o4 and. 1Yo> (estimated at 5%) but that the effects of growing import substitution in subsequent years will be to reduce the rate of growth of imports somewhat below that of the G.D.P., so that they will amount to $340 to $360 million in 1970. Imports of capital goods have constituted about 30' of gross fixed capital formation in recent years. More than half of these imports have been industrial machinery, followed by ANNEX II Page 5 transpo'E and. ciuuicaions items and coisructlon maerials. It has been assumed that a similar proportion of capital formation will come from abroad in 196D and 1yo, but the projection lor 17u anticipates that Tne expansion of industrial capacity will permit this percentage to be reduced to about £X/o oy ThaT year. Tne net result of these assumptions is a rate or growth of total imports of only 3% to 4% p.a., between 1964 and 1970, compared with a projected 5% growth in GDP. 14. Invisible items are an important element in the Balance of Payments, accounting for the major part of the deficit on current account in recent years. It is estimated that the deficit on invisibles will rise from itspresent level of $120 to $125 million to $220 million in 1970, largely because of increasing interest paymentson external debt and profit remittances, as indicated in the following table: INVISIBLE ITEMS IN THE BALANCE OF "AYENTS, 1962-1970 (US $ millions) 1962 1963 1964 1965 1970 Interest & Profit Remittances (net) -55 -75 -66 -75 -160 Other items (net)A -4o -46 -54 -50 - 60 TOTAL (Net) -95 -121 .120 125 -220 /1 Including Transfers 15. Payments on account of interest and nrofit remittancns have risen from U.S. $26 million in 1957 to U.S. $75 million in 1963, when approximately half of the oayments were nrofit remittanes, main1v etro nienum onmnaniso and the other half were interest payments on external public debt. Pro- jections are difficult to make in this field for a number of reasons. Tn the first place, the available data on profit remittances and the reinvest- ment of profits is not comnlete- This item iq qnnP-rPntiv r1mnate by trh actions of the petroleum companies, whose net remittances depend largely upon the amount of exnlorati on currently under way in rolmbia. Ti reent years, however, there has been a flow of foreign capital into other fields of activity. Tt is not kno%m to -what. wy-t.ntt +.hi hn led +- f-n-cA outward remittances as yet. By 1970, however, a continuing flow of invest- ment and reinvestment might well lead to a change in +he pttern of pri remittances. Similarly, the remittances of the petroleum companies are r'tto roect msnce he depend upon the uninoun factor of futUre" exploration and investment activities; historically such remittances have climate has become unfavorable. In these circumstances it has been assumed. that profit remittances in 170 will s1til be dominated by those of the petroleum companies and that they will increase with the projected increase iA ouVuU. As far as ouer ureign capital is concerned, it is assumed that there will be no net remittances, on balance, in that gross payments will be ANNEX I Page 6 matched by reinvestment. Interest payments are projected as rising very substantially from 1963 to 1970 under the assumption, discussed below, that there will be an annual gross inflow of official capital of U.S. $220 to $210 million a year in the latter sixties. 16. The other itEms in the invisible account include transportation, tourism and insurance. While earnings from these sources will show some increase, payments are likely to increase somewhat, in line with the growth of visible trade. As a result the deficit on these items has been projected to increase slightly through 1970. Capital Account 17. Tables 16 and 18 show the financing of the Balance of Payments on current account and the changes in the Central Bank1s net inter- national position. Long-term capital inflow financed only a minor part of the overall deficit in 1960 and 1961, but increased substantially in 1962 and 1963. In these years there was extensive use of IMF facilities and Central Bank reserves, as well as increases in the liabilities of the Central Bank. Between 1960 and 1963, the net international reserves de.- teriorated by $154 million, i.e. from $24 million to a negative figure of $-130 million. The greater part of this deterioration was due to an increase in liabilities of $106 million, mostly to the IMF, although assets also fell by $48 million, or 31%. Within the liabilities category, how- ever, there was a net repayment of debt to the Export-Import Bank and of loans and acceptance credits to foreign commercial banks. In 1963, for example there was a repayment of $32 million to the Export- Import Bank and to foreign commercial banks. There was also a reduction in acceptance credits of $6 million. These repayments of debt were accompanied by an increase !n assets of $10 million, the two together being financed.by a purchase of 848 million from the IM and. a loan of $30 million from the Federal Reserve Bank of New York. A net reduction in the liability to the DF of $10 m-illion is projected fo r 196 18. In view of the low net Central Bank reserve position, it has been assumed that in 1964 and 1965, Colombia will use part of its coffee export increase to strengthen t-his position. The projection assumes that Colombia will use long-term capital inflows and direct foreign investment to sup- plement its own resources for de-elop- Between 196 and 1970, private short-term capital has been projected to increase gradually with a growing flow of imports producinganet inflow of about $10 million a year. 19. The net inflow of private long-terM capital has been very variable in recent years, being only $15 million in 1963. The annual in- flow of such funds will depend upon the general level of confidence in Colombian economic and political stability and the rate of growth of the economy. It is a basic premise of all the balance of payments projections that Colombia will continue to provide a climate suitable for international investment; allowing for a $7 average growth rate, it seems reasonable to project private long-term investment to increase gradually to reach $35 to $4- million to 1970. Substantial petroleum discoveries and. exploration could increase this figure. ANNEX II C 7 20, The main factor in financing the projected balance of pay- ient1's Uel.LLXL U~ W.LJ.L L)e a furthier in ease~~t in bh net Iinfow 0 fL -_ ffci long-term capital over the level of the last two years. It has been -fujected-- i--l-.easerom UU U t U million acheveu in _ uL19 u to around "185 to 195 million in 1970. This net inflow is based upon projected gross lending of ;220 Uo e4U millon per annum cULonisi of $-200 to '220 million of project loans and $20 million of agricultural surpluses from the United States. Projected repayments are bsed un te schedules for the repayment of existing loans and an assumption that new lending would be at an average interest rate of 07 and woulU be for an average term of 20 years, including a three-year grace period. 21. Roughly half of the "ross inflow of official capital envisaged for 1964 (';185 million) is based on disbursements foreseen irom existing project loans, The balance is projected as coming from a combination of disbursements under new loans for speciric projects, the Private Invest- ment Fund and Credits on a pro7ram rather than a specific project basis. The necessary amount of the latter will depend on the rate of acceleration which occurs in project planning, review and execution, particularly on credits to finance local costs. ANNEX III COLOMBIA . CONSULTATIVE GROUP 1964 and 1965 PROJECT LIST /1 (Summary of External Credits Needed for Development Projects) 1964 1965 Total I. FIRM PROJECTS A. STUMARY BY SECTORS PUBLIC SECTOR Power 41.2 69-7 1109 Telecommunications 2LO . 23. Transport 1lC 90 3h.n Agriculture (exel PTP) IA A Ln 20.6 Water and Sewage718. 740,n. Housing 7-< 7 J5.O Edunatin r A.i Sub-Total 122.2 108.7 230.9 PRIVATE SECTCR Private Investment Fund o.o 4o.o 80.0 Other 12.0 16.0 28.0 RDAATE PAPAT 9e. a / A lepned by oe auvenment of Colombia for presentation to the Con- sultative Group for consideration at its June meeting. ANNEX III Page 2 B - LIST OF INDIVIDUAL PROJECTS Project Potential Lender* 1964 1965 PUBLIC SECTOR Power 1. Expansion program of CVC prior to interconnection IBRD 10.0 2. Interconnection IBRD - 26.0 3. Addtl. capacity after intercon- nection (San Francisco and/or Colegio II and/or Canoas) IBRD - 20.0 4. Barrancabermeja Thermal Ex-Im Bank 6.5 5. Chinu Gas Thermal Ex-Im Bank 2.7 - 6. Barranquilla Gas Thermal Ex-Im Bank 4.3 1.7 7. Rio Mayo (3rd unit & transmission) Ex-Im Bank 1.6 - 8. Cartagena (additional gas unit) Ex-Im Bank 1.5 - 9. Magangue Thermal IBRD - 22.0 10. Cooperative Rural Electrif. (Pilot projects) AID 1.3 - 11. Tibu Gas Thermal & Interconnection with Venezuelan System IDB 3.3 12. Rio Prad.o IDB 9.0 13. Movable Emergency Power Plants UK 1.0 - 41.2 69.7 Telecommunications 14. Expansion of National System (Staoe T) TRR.D 93.0 - Agency to wnich Government of Colombia has made a loan application, or in a few cases, plans to make one. ANNEX III Page 3 Project Potential Lender 1964 1965 Transport 15. Barranquilla Airport AID 2.5 Open 5.5 16. Northern Ports IDB 2.6 2.6 UK 3.0 17. Road Maintenance Eauipment Open - 12.0 18. Medellin-Santuario Road IBRD - 6.0 Agriculture kzxc±. ru) 19. Supervised credit for the Depart- ment of Caldas IDB 7.0 20. Agricultural Cooperatives AID 0.6 - 21. Livestock Credit AID 4.0 - 22. Agricultural Equipment & Machinery Ex-Im Bank 2.5 4.0 23. Land Appraisal AID 2.6 - 16.6 .o Water and. Sewa,ae 24. Bogota - Expansion of Sewage System AID 7.0 7.0 25. Medellin - Expansion of Sewage System AID 6.7 - 26. Barranauilla - Expansion of Water Supply Ex-Im Bank 2.6 Open 2.0 ±f a il "Oell melp" mousing Lb t Open - 7.5 7.5 7.5 ANNEX 11-1 Page 4 Project Potential Lender 1964 1965 Education 28* National University - Acquisition of Equipment IDB 1.1 - 29, University of the Andes - Cost New Engineering School AID 1.0 - TOTAL PUBLIC SECTOR 199 in-7 PRIVATE SECTOR 30. Private Investment Fund a) IBRD 10.0 10.0 b) AID) 115.0 - c) Open 15.0 30,0 O0.0 4000 Other 31. Add ri Steel Processing facilities at Pal del Rio BRD - 16, 32. Cooperative Housing AID 10.0 - 33. Cali Financiera Open 0.7 - 34. African Palm Production IDB 1.3 - 12.0 16.0 GRAND TOTAL 174.2 164.7 TT FORAT( jEt1 T.TT f1U MI TAmV T M'n = A nTnn mI 'r'm r FIRM mviBmT AmE - 1111 11 Uilal Di kUL)JrJJ .tU JC01 Ur nVI11 d2i~ATL- STUDIES PRESENTLY IN PROGRESS ARE COMPLETED Projects and.Potential Lender (where identified) PUBLIC SECTOR Power 35. Additional capacity in early 19701s after interconnection. (Selection to be made from among the following projects- Salvajina, Chivor, or Nare II). ANN~EX MI Page 5 Telecommunications 36. Municipal telephone systems. TransDort 37. Cali Airport. Agriculture 38. Incora Agrarian Reform Projects (IDB) Water and Sewage 39. Medium-sized cities (e.g. Pereira, Armenia, Manizales, Palmira, Tulua). Education 40. Pre-University - all levels and.types. 4l. National University and various other educational projects, including the University del Valle. Health 42. National Plan, Stage I (Various projects) PRIVATE SECTOR Water and Sewage 43. Bucaramanga Water Supply Expansion (ATD) Industry and Agriculture 44. Small Industry. 6. Various Projects. STAibTICAL AFHENDIX Table No. External Public Debt 1. External public debt outstanding including undisbursed as of June 30, 1963 with major reported additions July 1 - December 31, 1963. 2. Estimated contractual service payments on external public debt outstanding including undisbursed as of June 30, 1963 with major reported additions July 1 - December 31, 1963. National Accounts and Production 3. Supply and use of resources 1959 - 63. 4. Capital formation and its financing as a % of G.D.P. 5. Gross Domestic Product, by sectors. 6. Estimated Production from agricultural sources. 7. Estimates of agricultural production 1956 - 1964 and 1964 production goals under development plan. 8. Buildine activity 19q9 . 196'l Public Tnvestment and Finann 9- OnArtin of thp nt.ionl GrmPrnmePnt. 10. National EhiRdget 190 - AEL '1 - nm7nn-mr of Publ1Jir Tn-xrp+.mc%y). In-r ,'~a~gv~~et1OA-3-41 19. Sumrn-v nf Inves~tment by Mathin-al 4"vi stn+ OA4, I by sector. 13. Financing of electric power investments of major local power 1. r.i aq pv p-p -JJP 4- 4 4 '104, LI,eIIJIU LA .L7. .L-'-* LJUJIIICL.Jwv Lic"Clutz UIL Payflu'luL 7VV"(V*UfU r7. Balance of paymens on current account l90-3. . inernaulonal Heuerve position of Central BanK lYOU-O. STATISTICAL APPENDIX Page 2 19. Exports of goods and services 1961-70. 20. Projected exports of agricultural products 1963-1970. 21. Imports by type of goods 1960-63. 22. Indices of export and import prices and the Terms of Trade 1953-63. Money and Prices 23. Means of payment, (1958-63). 24. Summary Accounts of the Banco de la Republica, 1961-63. 25. Cost of living index for workers, 1958-63. 26. Index of wholesale prices, 1958-63. Private Investment Fund 27. Private Investment Fund - applications approved up to December 31, 1961 by industries. 28. Private Investment Fund - estimated vanlu of imnort.pi nommnitiR replaced. and of commodity exports produced by PIF projects. Table 1: EXTERNAL PUBLIC DEBT OUTSTAiDING, uivubuJnU vivmonno,ac OF JUNE 30, 1963 WITH MAJOR REPORTED ADDITIONS JULY 1 - DECEMBER 31, 1963 Debt Repayable in Foreign Currency (Thousands of $ U.S. equivalents) Major reported Debt outstanding June 30, 1963 additions Loans with July 1 Item Net of Including terms of December 31, undisbursed undisbursed 1-5 years A 1963 TOTAL EXT-bdINAL PUBLIC DEBT 486,552 715,253 56,932 30,000 Publicly-issued bonds 43,190 43,190 - - Private1y-placed debt /2 78,834 114,304 56,932 IBRD loans 176,185 281,201 - 5,OCO IDA credits 4,085 19,500 - - IDB loans 2,905 13,080 - 25,000 U.S. Government loans 181,453 243,978 - Export-Import Bark 111,644 112,528 - - Agency for Inter- national Devclop- ment 69,8C9 131,450 - - A Including undisbursed. Consists of those debts reported by Colombia as having term of 1-9 years from date of contract. 1/ In addition information has ehn received that suppliers! credits were approved during 1963 to the value of $14.55 million. Source: Statistics Division, IBRD-Economic Staff, January 8, 1964 Table 2: ESTIMATED CONTRACTUAL SERVICE PAYIEUTS ON EXTERNAL PUBLIC DEBT OUTSTANDING, INCLUDING UNDISBURSED. AS OF JUNE 30, 1963 WITH MAJOR REPORTED ADDITIONS JULY 1 - DECEMBER 31, 1963 /1 Debt Repayable in Foreign Currency (Thousands of $ U. S. equivalents) Total debt outstanding Total Payments during year Total Service payments by Category of debt Year plus un- Publicly Privately US disbursed Amorti- In- issued placed IBRD IDA Govt. IDB January 1 zation terest Total bonds debt loans credits loans loans 1963A 715,215 82,468 2b,095 106,563 3,8981 51,649 17,o08 44 33,818 146 1961; 698,99 75,982 23,762 99,744 3,898 41,293 16,656 101 37,004 792 1965 621,991 61,053 23, 141 84,194 3,898 23,930 19,895 146 34,980 1,35 1966 560,028 44,403 21,902 66,305 3,898 12,349 24,191 146 23,268 2,453 1967 514,785 39,452 20,495 59,947 3,898 9,689 25,337 146 16,463 4,414 1968 4714,563 35,629 18,789 54,418 3,898 6,738 27,092 146 11,807 4,737 1969 438,237 28,318 17,263 45,581 3,898 2,674 28,535 146 5,742 4,586 1970 409,297 28,233 15,987 4,220 4,986 432 28,369 116 5,853 4,434 :1971 380,557 24,694 14,739 39,433 1,898 258 26,949 244 5,807 4,277 1972 355,443 24,336 13,603 37,939 2,183 250 25,605 340 5,595 3,966 1973 330,723 27,144 12,422 39,566 1,632 242 25,435 339 8,221 3,724 1974 303,222 27,902 11,207 39,109 1,632 183 25,269 337 8,101 3,587 1975 274,994 28,639 9,927 38,566 1,632 56 24,915 336 8,177 3,450 :1976 246,060 28,396 8,612 37,008 1,632 23,987 334 8,039 3,D16 1977 217,402 25,459 7,145 32,604 1,632 21,281 333 6,665 2,893 1 Includes service on all debts shown in Table 1, except for publicly-issued bonds with $38,000 outstanding at June 30, 1963. /2 Figure shown as outstanding is for June 30, 1963; payments are full year 1963. Source: Statistics Division, IERD - Economic Staff, January 8, 1964 Table 3: bUPFLY AND UbE U NEhUURGE lyby - 63 (Billions of Pesos at 1958 Prices) 1959 1960 1961 1962 1963 Supply GDP at market prices 22.2 23.0 24.2 25.5 26.5 Imports 3.7 4.3 4.2 3.8 3.2 TOTAL 25.9 27.3 28.4 29.3 29.7 Private .%nan+nn 16. 1 17 '1 17 A 17 0 vq A G ov e rn-.m en1t Consumption 1.2 1.3 1.4 1.1 1.1 Gross Domestic Fixed Tuv nvuJ± n ve) Un) Uovy U.U Uo U MrTI A T Vl l 0 Exports 4.5 4.1 4.1 4.5 4.7 TOTAL 25.9 27.3 28.. 29.3 29.7 Source: 1959-61 and G.D.P. for 1962 - Banco de la Republica.1962 and 1963 breakdown - preliminary estimates by Bank Staff. Table 4: CAPITAL FOIATION AND ITS FINAIu T AS A vr U .U .r. (Current Prices) n on " an u ,h1m A t' L n ID P Gross r n ru E . L. * Domestic Gross Fixed Product Capital Capital Private Public External (Bi-lion Formation Formation Savings Savings Savings Year pesos) 7 7 1950 7.9 17 14 12 4 1 1951 8.9 15 13 10 4 1 1952 9.6 16 14 11 4 1 1953 10.7 15 17 10 4 1 1954 12.8 17 17 11 5 1 1955 13.2 18 18 12 4 2 1956 14.9 18 17 15 4 -1 1957 17.8 20 15 17 4 -1 1958 20.7 19 16 14 5 *9 1959 23.5 19 17 16 5 -2 1960 26.4 21 18 13 5 3 1961 30.1 21 18 15 3 3 1962 *32.7 *22 *19 *17 *2 *3 1963 *41.5 *20 417 *14 -3 *3 * Very preliminary estimates by IED Staff ** Negligible Source: Banco de la Republica Table : GROSS DOMESTIC PRODUCT, BY SECTORS (millions of pesos in 1958 prices) % change % change % change Sector 1961 during 1962 during 1963 during year year year Agricultbure (Including livestock, fishing & forestry) 7,950 + 4.2 8,310 + 4.5 8,370 + 0.7 Mining 031 - 6.5 828 - 0.4 910 + 9.9 Manufacturing 4,376 + 6.0 4,673 + 6.8 5,010 + 7.2 Construction 790 +13.7 858 + 8.6 770 -10.3 Commerce 3,727 + 4.3 4,005 + 7.5 4,320 + 7.9 Transport 1,439 + 6.8 1,503 + 4.4 1,560 + 3.8 Communications 144 + 8.3 160 +11.1 180 +12.5 Electricity, gas and water 196 + 1.6 23L +19.4 290 +23.9 Finance and Real Estate 562 +13.1 638 +13.5 730 +14.4 Rents 1,294 + 7.0 1,377 + 6.4 1,460 + 6.0 Personal Services 1,714 + 2.7 1,772 + 3.4 1,800 + 1.6 Government Services 1,158 + 7.3 1,140 - 1.6 1,140 - TOTAL 24,181 + 5.1 25,498 + 5.4 26,540 + 4.1 Source: 1961 and 1962 Banco de la Republica; 1963 estimates by IBRD Staff. Table 6: ESTIv"TE=D PROUUCTION FROM AGRICLiTuuRIL SOURkJES (miLlons of pesos in 195 prices) item 1959 1960 1961 1962 1963 All crops & livestock 7,370.6¯¯ 7,734.7~ 7,804.4 8,245.6 8,300.0 Ali crops 4,565.6 4,859.7 4,756.4 5,159.6 5,115.2 Coffee 1,610.0 1,648.5 1,596.0 1,638.0 1,575.0 Crops other than coffee 2,955.6 3,211.2 3,160.4 3,521.6 3,542.0 Livestock. & Products 2,805.0 2,875.0 3,048.0 3,086.0 3,184.8 /a Central Bank figure is 7,505.0 /b Central Bank figure is 7,513.0 PERCENTAGE CHAITGE IN AGRICULTURAL PRODUCTION 1959 1Q60 1961 1962 199 Item to to to to to 1960 1961 1962 1963 1963 All crops and livestock 4.9 0.9 5.6 0.7 12.6 rfe2 -. 2.6 -.1 -- Crop othr thp a cff0 fore IBR StgaffR- Table 7: ESTIKATES OF AORICULTURAL PRoDUCTION 1956-1964 and 19 64 PRODUoTIoN oALS UMDER DEÅLOPIPENT PLANj (Thousands of Metric Tons) Develop- 1956 Pro- ment Plan to jected Goals 1958 1959 1960 1961 1962 1963 1964 3964 Livestock Products: Meat 488 hoo 41o 435 453 468 490 596 Milk 950 na na na 1.800 1.830 1,870 1,286 Eggs 69 na na na 71 73 75 106 oereals: oorn 800 6c0 866 733 75h 7h0 800 1.037 Barley 70 115 106 101 108 110 115 142 Wheat 132 lhL LL5 1h2 162 125 150 173 Rice 386 456 450 470 555 511 525 507 Coffee 555 460 471 456 468 450 462 683 Cotton with seed 73 157 194 196 218 223 250 190 Pulses10) 60 103 95 72 71 79 13-6 Refined Sugar 233 255 341 330 325 384 450 367 Panela 523 500 50o 500 590 600 650 633 Sesame 16 10 20 23 23 35 32 32 Soybeans 9 na 18 19 22 28 30 15 Peanuts - na na na i 1 5 46 Bananas for export 191 911 231 250 510 580 650 330 Potatoes 595 685 653 544 871 780 850 763 Tobacco 38 39 32 31 38 39 11 Cocoa 12 12 14 15 15 16 18 P -,39 na ,2 1,301 1,120 1, '31 1,200 1,76) Yucca 9h 720 68o 735 780 800 850 1,152 MSurce IBRDJ Staff Source: IBRD Staff Table 8: BULDU TIMu 1ivl 97-176 (Area - OUX Square Metres) Housing Commercial Industrial Construction Other TOTAL 1949 P8)I -AWA 255 31 11 3,881 1960 21h? 366 172 22 313 3.15 1961 2-567 316 182 30 450 3,545 19A 3 357 2 __ hh1 LAh6 -IA iRonn00n na b.100 (Estimated) ESTIMATED VALUE - MILLION PESOS IN CURRENT PRICES Official -- l -. 4 - -4 rTnr AT Housing Wommerula. Lur.e. I- ulan I er U 1959 430 55 32 12 94 623 1960 383 72 22 6 73 556 1961 42 80 27 5 96 629 1962 579 89 43 5 114 830 1963 640 90 40 na na 6o (Estimated) Source: DANE Table 9: OPERATIONS OF THE NATIONAL GOVERNMENT (Millions of Pesns) 1962 1963 1964 I. Revenues 2,114 3,200 4,050 A. Direct Taxes 1,215 1,655 2,300 B. Indirect Taxes 702 1,300 1,470 C. Fees and Fines 65 70 80 D. Other 132 175 200 II. Operating Expenditures 1,914 2,00 2,7OC III. Current Account Surplus (I-II) 200 700 1,2C IV. Investment Expenditures 1,0 6 940 1L450 A. Direct 627 na na B. Tnfli rpbt. bn nf V. Snrnii or Deficit (- (TTT-TVvT+VT)T ALA 1o __n I-.-5hp-rnn1Finqncnn A19R6 117 B. Foreign debt amartization 73 167 187 VII. Domestic Financing -654 172 -217 A. Borrowing or use of cash balances k.Lc* -1 ((U J3Y5 -' >y B. Debt Amortization 124 223 380 Source: 1962 Colombia National Budget and Planning Offices, -;ru.l anci J-;IU L Dr-WD Staff Table 10: NATIONAL BUDGET 1960-65 (In millions of Col ) Operating Year Revenues Expenditures Savings 1960 1,982 1,281 701 1961 2,199 1,515 68h 1962 2,114 1,914 200 1963 3,200 2,500 700 196h 4,050 2,700 1,350 1965 4,300 2,850 1,h50 (In Percent of GDP Year Revenues Expenditures Savings 1960 7.5 h.8 2.7 196, 7.-. . UOD 1963 7.7 1966 89 5.93.0 1965 86 5.72.9 Cource: 1.-63 CoomiUdautonalu Budget ufilce; 196h-65 Projections by I-ui Staff. Table 11: SUMMARY OF PUBLIC IVESTIENT BY LEVEL OF GOVERNMENT 962-6 (In millions of current Col. $) 1962 1963 1964 National Government 1,560 1,630 2,425 Major local Power Companies 400 565 655 Other AJ. 450 470 500 TOTAL 2,410 2,665 3,580 jj. Highly preliminary Source: Planning Office and TBRD Staff. Table 12: SUMMARY OF INVESTHENT BY NATITONAL GOVERNMENT AGENCIES IN 1963 BY MAJOR SECTOR (Amounts in millions of 1961 Col $) General 1962 IBRD Plan Mission 1 Actual Sector Amount o Amount Amount Maintenance) 734Z2 42/2 618/ 34/2 411 35 Power 189 11 180 9 96 8 Agriculture 109/ 6/ 305 17 155 3 Education 151 9 200 11 90 8 Health & Sanitation 210 12 28 14 69 6 Housing 201 12 167 9 161 14 Other 151 9 116 6 177 15 TOTAL 1,745 100 1,834 100 1.159 100 / WH 119a, June 21, 1962 Fla d1r~rid not+ re~flect+ lower esiae of the~ Trnpr Suve - whc a still in process, mission figures incorporated its recommendation. Z3 Plan did not reflect needs of land reform program which was still being for-lated, Mission total include anLk amun for) land reform progra. Sore Pflannin Office a !BD Staff TalL1 TTjTAAj%T(r'T'Nf- I 1('rP0Tr4 n(ti.Mt) TM.,C!M rrE M C t' VtA Tn~D T 00( AT POWER AGENCIES 1962-65 1) (in rillions of current Col. $) .L7 r- -L7 .) -LUL4 JL1u-, Total Investment 400 565 655 733 Source of Financing: External Credits 251 347 364 358 Earnings and other receipts of Agencies 129 204 271 375 Other 20 4 20 C 1) In Bogota, Medellin and the Cauca Valley (CVC) Source: Planning Office and Empresas Publicas de Nedellin. a) Table 14: GROSS EXTERNAL FINANCING OF PUBLIC INVESTMENT 1963-05 (In millions of US $) 1963 1964 1965 1962 IBRD Plan Missionc) Actual d.) d) National Government 85 107 35 44 70 b) Large Power Entities 24 31 30 41 31 b) Other 3 7 15 36 Total 109 142 72 100 137 a) Covers disbursements of foreign exchange under project loans, 1-i) Tn-nl~ fnrY In cr rv%!TV ,?,r ~ o.Qnl ze i , 1 iirla-z nn-x7 -nm in+V.cz f^-r smaller companies and other credits directly to Municipalities. c) Report VM 119a. d) Excludes petroleum refinery expansion estimated at US $10 million LnI l71- ad 'Us q6P.e'P muLL..4U 11 J.-1 -I n4 - ~~ ~ ,c~Z±" ~ U.. -n ,&.~ 00"aL0e * J-7U4 d1uO P-JjL-UJ1=UU1 0,) UY -LURLI ) OUa.L.L Table 15: EXT'ERNAL FINANCING OF PUBLIC INV7STM,NT IN 1963 IN COMPARISON WITH PROJECTIOiS OF 0 NERAL PLAN UenelUd -L 7UC LD L)UJ R c UuL.i Plan Mission ( Current (1O prices) (1961 prices) prices; (in millions of Col $) Investment 2,.775 2,863 2,665 !xternal Finance: . n_ 2/ Gross 735 1,001 O3 - Net 630 829 445 7xternal Finance (net) as % of total 23% 29% 17% Project Loan Disbursements (U.S. $ million) 109 142 72 1/ Report WH-119a, June 21, 1962 2/ Including $20 million of counterpart of a balance of payments loan Table 16: SUMMARY BALANCE OF PAYMENTS 1960 - 1970 ($ U.S. millions) 1960 1961 1962 1963 1964 1965 1970 Est. Proj. 1. Exports, f.o.b.* 495 477 492 482 570 600 660 2. Imports, f.o.b. 496 -531 -516 461 570 600 670-690 3. Trade Balance (1-2) 1 -54 -24 +21 0 0 -10-30 4. Service Transactions & Transfers (net) -78 80 -9 -121 -120 .125 -220 5. Deficit on Current Account -79 -13h 120 100 Q 5 -230-250 Financing of Deficit: 6 Lone-Term Canital -6 30 91 90 138 180 2202h0 Private (net) 35 -L 10 15 2 20 35 -4 Official (gross) 31 96 lrog 108R 8 220 235-25 Amortization =30 ZW3 -2 -33 to -0 Net inflow 1 64 81 75 136 160 185-195 Capital (Private) 57 33 -15 -19 -2 10 10 8. Net Purchases from repayment) -15 65 8 48 -10)) ) 1 1 ) ) 9. Errors &uz Om .iss±ins -25 -9 -2 - - )-65, o v0. vo'us neserves anu/ or increases in other iabU±ite U±26 4'e 15 +38 -19 "6) Source: 1960-62, Balance of Payments Yearbook; 193/6h, Banco de la Republica and IMF and E.B.R.D. Staff estimates. Table 17: BALANCE OF PAYENTS ON CU!E {N'T ACCUNT 195h - 1962 - , (U4Si $ millions) Stfts or Year 'n- o4 1950 41 3.5 1951 + 4.6 1952 +29.1 1953 +15.1 1954 .2.8 1955 -124.7 1956 .12. 1957 +80.7 1958 +63.2 1959 +62.7 1960 -79.2 1961 -134.0 1962 -120.1 1963 -100.3 Source: IMF Balance of Payments Yearbook, except for 1963 whihh is from nreliiminary estimates of the Banco de la Republica. ±av± 10:iNTM:U'ATIONA1L RESEtR~VE. TOS.IUTN OF THEs CEAL~Thi BANK] 1960 - 1963 (U.S. m lillions) END OF YEAR 1960 1961 1962 1963 A. Assets 153.4 149.3 95.7 105.8 1. Gold & convertible foreign exchange 144.6 140.3 85.2 86.8 2. Net balances on bilateral accounts 6.8 9.0 10.5 19.0 B. Liabilities 129.8 205.8 195.3 235.7 1. To DIF - 65.0 72.5 121.0 2. To Export-Import Bank 96.0 78.0 62.4 47.0 3. To Federal Reserve Bank of New York - 15.0 - 30.0 4. To foreign commercial banks (loans) 20.6 15.5 49.1 32.7 5. To U.S. commercial banks (acceptance credits) - 31.5 11.3 5.0 6. To others 13.2 0.8 - - C. Net International Reserves (A-B) 23.6 -56.5 -99.6 -129.9 Source: Banco de la Republica Table 19: EXPORTS OF GOODS AND SERVICES 1961 - 1970 (U.S. $ millions) ACTUAL PR 0 JECTI 0 NS 1961 1962 1963 1964 1965 1970 Coffee 318 332 315 380 380 360 /1(311) /1(310) /11018) Other Agricul- tural Products/ 41 45 49 59 70 75-105 Petroleum and fuel oil 73 68 82 8q in2 IMn Non-monetary gold Ith 1 11 13 Th 14 Manufantures Pnd Others 5 8 10 13 14 20 Unrecorded Border Tnrnnrlc 2A ).o 1A' 20 20% 20 ToI God 17 1492 1482 C70 600 ( U uv U ) k 10 r- -LUU4 UUJ [1) L{*) OU A Sales, as distinct from exports. Z2 Including fisheries products. Source: IBRD Staff projections. Table 20: PROJECTED EXORTS OF AGRICULTURAL PRODUCTS 1963 - 1970 ($ U. S. millions) 1962 1963 1964 1965 1970 (A CT U A L) (PR 0 J E C T I 0 N S) Coffee, millions of bags 6.6 6.1 6.3 6.3 6.8 Value 332 315 380 380 360 US cents per lb. 38 39 46 46 40 Cotton, 000 metric tons 29.5 19. 25e0 30.0 40.0 Value 16 9 12 15 20 US cents per lb. 25 21 22 23 23 Bananas, millions of stems 7.4 lOz5 13.0 15.0 25.0 Value 11 13 16 22 h2 US 8 per stem 15 1.2 1.2 1.5 1.7 Sugar. 000 metric tons 65&1 42o8 75.0 82.0 120.0 Value 7 6 10 9 12 US cents per pound 4.9 5.8 6.0 5.0 .1 Leaf Tobacco, 000 metrin tons 10.0 11.' 15.0 15.0 20.0 Value 6 7 7 9 12 Other Products 5 lh l 15 20 TOTAL 377 364 439 650 466 Source: IBRD Staff Projections. Table 21: IMPORTS BY TYPE OF GOODS (c.i.f.) 1960-63 (U.S. millions) 1960 1961 1962 1963 (11 months ) Consumer Goods 53.8 10 '9.9 11 53.7 10 2ý.8 6 Durable 16.6 15.9 13.0 1L2 3 Non-durable 37.2 4h.0 40.7 11.6 2 Fuel 3.6 1 h.7 1 5.1 1) Intermediate ) Produrts 230.5 h 2hh.1 h 257.9 8) 227.8 )9 ) Construcition) Materials 27.7 5 31.5 6 31.h 6) Capital Goods 199.5 38 214.1 38 185.6 3h 137.3 30 Agricultural industrial" Machinery 109.7 116.5 123.7 Transport EL'quip-men-I 6. 75f6. hrr1 1 69.5 TJOTA±-L 51. 10 55.1 10 50. 00 6. 0 L V.LJ j -LUV *-L. -LUU -)1.u4 4 UU L4QU L4 -LUU & Not classified Source: DANE Table 22: INDIuE Ok E)TORT AND IMPRUT PUluS ADD -HE TER M OF TRADE (indexes of prices in US $) 1958 - 100 Terms of Trade Export Prices Import Prices 1 4 2 Year (1) (2) (3) 1953 110 98 112 1954 143 98 146 1955 116 100 116 1956 133 102 130 1957 118 103 115 1958 100 100 100 1959 87 101 86 1960 87 99 88 1961 84 100 84 1962 80 96 83 1963 78 94 /1 82 /1 /L Based on 9 months Source: International Financial Statistics Table23: ~EANS OF PIMENlfT (A tmij u YPSIUD) (Miili.ons of Pesos ) 1 2 3 Ourrency Demand Total / Index % Increase in Deposits Means of 12/508 over pre- Circulation /l Payment =100 vious period (Col 1+2) 1958 Dec. 1,360.5 1,957.5 3,318.0 100 1959 Kg 1 5 u2 2 1. 3 71. 0 1192 + 12.n 1960 " 1,605.8 2,496.8 4,102.6 123.6 + lo.h -96 AL 1,e. 3,6. 1,1. 154. + 2 nw49.7 LYML4_4: J,.)3.L4 Cl.+*.' . -'-+%§ 1962 " 2,.1147 4,o54.1 6,168.8 185.9 + 20.6 1963 " 2,37 .n 1. 6PC,2. 20. ÷ 1n2 .2 January 1,410.5 3,759.3 5,169.8 155.8 + 1.1 February-- 1,36. 3,2 n. 5,19.6C 15. + . March 1,403.9 3,74.2 5,148.1 155.2 - 0.8 å- 41'1 r 1. n^7N nN 1 1fV f i n nIc. 4i11 May 1,324.4 3,629.5 4,954.0 149.3 - 3.4 Jun1 1.9 - ,-10 1 r' non,0 . 3n + 2 . v Ul - 4LL2*7 jjqULU.A4 ;>jufuq.)D ?o C July 1,364.5 3,689.4 5,054.0 152.3 - 0.5 September 1,454.6 3,791.6 5,246.2 158.1 + 0.8 October i,h30.2 3,900.2 5,330.5 16u.6 + 1.6 November 1,509.5 4,211.0 5,720.5 172.4 + 7.3 December 2,14h.7 ,O4S.1 6,168.8 185.9 + 7.8 19/3 January 1,715.7 4,379.8 6,095.6 183.7 - 2.2 February l,543.5 4,191.1 5,734.6 172.8 - 5.9 March 1,609.4 4,147.6 5,756.9 173.5 + 0.h Apri. 13 D L0o.6 4 .2 ,4.5 10.4 + 1. May 1,600.0 4,339.3 5,939.3 179.0 + 1.5 june . OU4.4 44J3.7 6,235.1 107.9 + 5.0 July 1,677.0 4,675.4 6,352.4 191.4 + 1.9 August 1,755.3 4,658.0 6,413.3 193.3 + 1.0 September 1,724.8 4,701.4 6,426.2 193.7 + 0.2 October ,794.3 h,802.2 6,596.5 19.8 + 2.6 November 1,878.8 4,717.6 6,596.4 198.8 December 2,537.0 4,385.5 6,922.5 208.6 + 4.9 /1 Excluding official deposits Source: Banco de la Republica Table 24: SUMARY ACCOUNTS OF THE ICO DE Lk REPUBLICa (Millions of Pesos) At End of Year /2 /2 19(1 1962 1962 1963 A. Net foreign reserves -367.3 -647.7 -896.6 -1,176*3 1. Assets 970. 621.8 2 953.0 2. Liabilities -1,337.7 -1,269.5 -1,757.8 -2,129.3 B. credit 3,452.1 4,625.5 4 916.2 5 547.5 T.To Government (net) ZU27.7 1,606.6 1 1,666.1 2. To rest of public sector (net) 168.3 170.2 263.8 237.3 3. To specialized banks 487.3 599.5 552.0 678.5 4. To commercial banks 511.3 585.4 660.4/3 1,149.0/3 5. To coffee sector 854.9 687.4 849.7 774.8 6. To rest of private sector 483.0 459.7 436.3L3 542.4/3 7. Deposit obligations to AID - - - -169,1 8. Exchange adJustment account 287.4 686.5 44.5 538.8 9. Net unclassified assets -167.8 -169.8 -136.2 - 72.3 A+93=C+D+E 3,084.8 3,977.8 4,019.6 4,371.2 C. Deposit obligations to baks 170 o 0 -1CQ 0C)7-'A 1. To specialized banks -0. 57.7 52.0 33.9 -I i c,1 -ia 9 91 n 9-2521),~f 2iP-61-o E. .Ij J.. U uw private sector 791.4 847.8 898.3 1,116.3 'I A - . .4. .1. Auvanue .umpor deposits 651.2 748.0 748.0 1,018.8 /1 At Col $6.50 per U. S. dollar. RM U1o oy.uu per U. S. dollar. Excluding operations financed through the Private Investment Fund. Source: DF Staff. Table 25: COST OF LIVING IMDEX FOR !ORKERS (July 1954 - June 1955 - 100) % Increase % Increase oVer OVer Total previous Food previous Yea Mont Ind'ex pero Stuf.Ls U0U1I-i Period1 1950 Average for year 140.4 13.2 145.0 12.3 10o it nO n fl- n a e n r n r7r 1960 I M nc" 7 1(,II Q 1961 " 174.1 8.5 180.9 10.6 1962 " " 181.6 4.3 182.8 1.1 1963 " 231.1 27.2 238.7 30.6 1962 October 184.0 0.3 182.5 -0.2 November 185.1 0.6 183.1 0.3 December 186.7 0.9 185.3 1.2 1963 January 194.2 4.0 196.6 6.1 February 206.2 6.2 207.0 5.3 March 217.3 5.4 220.1 6.3 April 227.1 4.3 234.9 6.7 May 229.9 1.2 239.0 1.7 June 235.4 2.4 248.8 4.1 July 237.0 0.7 249.9 0.4 August 237.6 0.2 249.0 -0.4 September 240.1 1.1 251.8 1.1 October 244.6 1.9 259.2 2.9 November 250.4 2.4 269.6 4.0 December 252.8 1.0 272.3 1.0 19614 January 256.5 1.5 278.7 2.4 February 2q7.6 o-, 97.1 0.9 Source: DANE Table 26: INDEX OF WHOLESALE PRICES (1952 - 100) % In- In- fo in- crease crease crease Total over Food over Other over Year Month Index previous Products previous Products previous period period. period 1958 Average for year 180.3 17.3 174.7 13.4 187.8 22.7 1959 n n 197.6 9.6 191.5 9.6 205.7 9.5 1960 n n 205.9 4v2 199.1 4.0 214.9 1. 1961 1 n T 219.4 6.6 214.7 7.8 225.1 1-.7 1962 " H H 225.2 2.6 217.2 1.2 235.7 1..7 1963 " 284.1 263 2 73.5 2.9 29.1 2L.8 1962 October 226.4 0.6 216.5 0.6 239.6 0a7 November 228.8 1.1 219.1 12 241. 0.8 December 233.1 1.9 223.6 2.1 245.7 1.7 1963 January 240.8 3.3 229.4 2.6 256.0 La February 256.0 6.3 240.3 4.8 276.9 8.? March 270.1 5.5 257.5 7.2 286.9 3.6 April 284.8 5.h 279.0 8.3 292.5 2.0 May 285.8 0.4 277.8 -0.4 296.5 1.14 June 290.5 1.6 285.5 2.8 297.1 0.2 July 290.1 -0.1 281.8 -0.22 August 290.8 0.2 282.9 -0.7 301.5 1. 4, September 294.9 1.4 288.4 1.9 303.5 0.7 October 298.4 1.2 293.5 1.8 304.8 0.4 NoVember 3. 2.0 303.0 3.2 306.3 0.5 December 309.5 1.7 307.5 1. 308.3 0.6 1964 January 312.3 0.9 314.7 2.3 308.9 0.2 Source: Banco de la Republica Tale 7 PPTIVATE TVTTWTM' FTN Applications approved up to December 31, 1963. a. LU a u 5Z104 .LUUIA. CJLIUAI V JUIU tAAU VA4 Number of of investment PIF Loans Applicants projects AppruveU TOTAL 50 1,211 241 Primary Prduction 13 148 33 (Agriculture, forestry & fishing) Manufacture and.Processing 36 1,056 208 Foodstuffs 9 397 92 Textiles 2 6 3 Clothing and other articles made of textiles 1 2 1 Paper and paper products 2 145 31 Printing and Publishing 1 3 2 Chemicals & Chemical products 7 287 26 (including rubber) Coal & netroleum bv-nroducts 1 38 12 Mther non-Mptql ic minprql nrndunt. )1 37 11 Razin Mpa Tnd-.ltrien 1 Engineering industries (other than machinery & transport equipment) 3 8 4 Machinery, other than electrical 3 8 k Electrical machinery & appliances 1 10 3 Other 1 1 0.4 P1h14h. TT14+a 1 7 A P-A c ,o .P , ,-.4_-;, + 4 A^t _- -n AI cf IJ~t...L AJWU V L thUW L4..IAJ.t & A 4 J Table 28: PRIVATE I1V-ST1ENT FUND ESTIMATED VALUE OF IM PORTED COMM1ODITIES REPLACED, AND OF EXPORTS PRODUCED BY PIF PROJECTSA_ (Millions of U.S. $) No. of Substitution INDUSTRIAL GROUP loans of imported Projected Exports Approved2 Products 1964 1965 1966 1967 2968 AGRICULTURE, FORESTRY AND FISHING 11 5.8 0.3 0.6 0.7 0.7 0.7 Agriculture Banana 3 - 0.3 o.6 0.7 0.7 0.7 Sugar Cane 1 - - - - - Cacao 1 0.3 - African Palm 3 5.4 * -* Mint 1 Cattle Sheep raising 2 L- - - - - MANUFACTURE AND PROCESSING 27 29.3 6.5 9,7 11.8 15.5 17.5 Foudstuffs 7 1.0 7.- 7.7 9 7 13T5 .71. Textiles 2 - 0.9 0.9 0.9 0.9 0.9 Clothing 1 - 0.1 0.2 0.2 0.2 0.2 Paper and. paper products 2 10.3 - - - - - Chemical Products 4 5.8 - - - - By-products of oil and coal 1 1.5 - - Non-metallic mineral products 3 o.4 - 0.1 0.2 0.2 0.3 Basic metal industries 1 7.8 - - - - - Metal Products 1 /3 0.1 0.1 0.1 0.1 0.1 Machinery other than electrical 2 2.5 0.2 0.5 0.6 0.6 0.6 Electrical machinery nnd anliances 1 0.1 0.1 0.2 0.2 0.2 0.2 Other 1 - PUBLIC UTILITIES 1 - - - - - - TOTAL 39 35.1 6.8 10.3 12.6 16.2 18.2 The import substitution is in terms of imported commodities to be -e- placed; the export earnings are defliated around )u0 from applicantis own claims. Up to the end of November, 1963. Less than $0.1 million.