Announcement of Eleven Million Dollar Loan to El Salvador for Coastal Highway on October 12, 1954

\) ,. FOR IM.MEDJ.ATE RELEASE • , . INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (WORLD BANK) 1818 H STREET, N.W., WASHINGTON 25, D.C. TELEPHONE: EXECUTIVE 3-6360 PRESS RELFASE NO. 376 STJBJ~T: $11,100,000 Loa.n to El Salvador for Coastal Highway October 12, 1954 The Interna·tional Bank for Reconstruction and Development today made a loan of $11,100,000 to El Salw:i,dc,r to pay the foreign exchange costs of completing an all-weather :highway along the Pacific Coast. The highway will be 190 miles long and will extend from the Guatemalan border to the Port of La Union on the J~-ulf of' Fonseca. The Philadelphia N2tional Bank is participating in the loan, without the • International Bank's guarantee, to the extent of $250,000 of the first maturity falling due on April 15, 1959. The primary purpose of the highway is to open new areas to cultivation and make possible increased agricultural production. El Salvador has a good highway system but lacks all-weather roao ... -,"ln the coa.stal zone. This region contains the only sizeable expanse of fertile land remaL"'ling to be developed in El Salvador. The coastal highway will provide an artery, connecting with existing roads, through the entire region and will be an important step toward opening the country's last major land reserve to oiltivation and settlement. Eventually, the highway may also become an important international highway linking El Salvador 'with Guatemala and Honduras.  )I I/ - 2 - • Construction of the co~.stal highway was sta,rted several years a:~o. At present 25 miles are open to traffic, and another 17 miles are being constructed and financed by the Government ·without outside assistance. The Bank's loan will finance the foreign exchange costs of the remaining sections totaling 148 miles. These sections are e:xpected to cost the equ.ivalent of $16 million a.nd to take four years to complete. Construction will be done by contractors chosen through international com- petitive bidding for unit-price contracts based on deta.iled specifications of each section to be built. The Government is taking steps to retain an experienced firm of consul'~,:ng e:.1g:i_neers, to prepare the detailed plans and specifications for the p:roj0ct and invitations to bid1 to 2.nalyze and make reconnnendations on bids, and to supervise construction. Apart from some minor items, construction equipment 2.nd materials will be supplj_ed by the contractors. The proceeds of • the loan, therefore, will be used mainly to cover the foreign exchange portion of paymsnts to contractors. The Government will provide the required local curreney from budgetary appropriations. The Highway Department of El Salvador will maintain the new highway and -vifill expand its rna.intenance facilities for this purpose. Be.cause of inadequate roads in the coastal zone., transport costs are high throughout most of the area., access to .markets is difficult, :;3.nd farmers receive low prices fm· their produce.- Considerable waste is caused by the slow haulage of crops j the movement of livestocl, on the hoof, and the stoppa;$e of transport during the rainy season. As a result, operators of large farms concentrate on producing a fevr cash crops of sufficient value to support high trar..sport costs, and small farm 01:mers find it difficult to do more than subsistence farming. The new highway, with feeder roads to be bu.ilt by the Government, should • alleviate this si t·u.ation. With good roads,. provir:li.ng year-round access to wider  - 3- rrarkets ~-t lower tra21sport costs., agricultural :production in the co8sta1 zone • should :increase in value by the equivalent of about $10 million a year. In a.dclit,j_on., denser settlement of the zone w"ill help relieve population pressure elsewhere in El Salvador. Roads alone will. not bring about these results, but the Government is also p1( .1ing to continue its efforts to improve heal th con- ditions in the coastal plains, to promo-t,e soil conservation and better production methods through agricultural extension services, and to facilitate the establish- ment of more adequa.te processing:, storage and credit facilities. The loan is for a term of 12 years and bears interest of 4~ per anmun, including the statutory 1% commission charged by the Bank. Amortization will begin April 15, 19S9. This is the second Bank loan to El Salvador. A loa.n of $12.,.545,000 was made in December 1949 for the construct,:i.on of a 30., 000-kilowatt hydroelectric • :plant on the Lempa River, which began operating in June 19545 Most of the electricity from the new plant is being distributed in San Salvador, the capital, and in San Miguel, a key industrial center. After having been approved by the Executive Directors, the loan documents were signed today by His Excellency Hector David Castro, Ambassador for El Salvador in Washington, and VJ!'. Rafael Meza Ayau, Minister of Economy of El Salvador, on behalf of the Government of El Salvador, and by Mr. Eugene R. Black, Presj_dent, on beh..~J..f of the International Bank • •  -4- • ~pplement.a.1 Stat0.ment on loan to El Salva1or General El Sa.lvador is the smallest and most densely populated of the Central American countries. Its main 9art is a broad, sani-tropical valley which in- the south is separated from ,the Pacific Coast by_ a low mountain range and in the nort{, extends into the mountains along the borders of Guatemala and Honduras. The country's most important riyer, the Rio Lempa., cuts back ,,and forth through the central valley, crosses the narrow, tropical coastal plain az~d empties into the Pacific. Coffee, the main crop of the country, is grown on the slopes of the central valley, and especially in the Santa. Ana Usulutan and San Miguel areas. Cotton for domestic use and export is grown on the coast, and the production of co:rn, ~ugar, rice and beans is almost sufficient to cover the country's food requirementsr • Gold and silver are the only rrd.J.1erals. Although El Salvador has few industrial raw materials and the domestic market is small, a number of manufacturing in- dustries, mainly located in the capital., San Salvador, produce consumer goods for the local market. Current Economic Position El Salvador has long pursued a sound monetary pol~cy and has been able to maintain free exchange and a stable currency. After some inflation from foreign exchange inflow and domestic credit expansion in 1949-1952, monetary sta.bility has been maintained in the past year and a half'., Coffee accoW'!ts for almost 9076 of Salvadorean exports, and "the value :,,of experts has in.creased with increasing coffee prices from about $40 milli9n in 1947 to $90 million in 1953. Imports have also increased substantially, but - much less than exports (from $37 million in 1947 to $72 million in 1953). As a • result substantial surpluses on current account were realized.  .. - 5- • Production in E1 Salvador increased little between·l939 and 1952. The annual average incre8.se of about 2 -..6% in gross natiomi:;l product only slightly exceeded the 2% average rate of population increase. Real income, however, rose greatly owing to higher prices for e:{ports, especially coffee. The average a~~iuc1l increase in real national income was aL-rnost 5%, and the increase per capita. was between 2 and 3%• 11.'he slow grovirth in production was due to the difficulty of increasing coffee '\ cultivation, and to low :tnvestment in agriculture and industry. \ 1owever, in I the past three years the Government and Central Bank have initiated policies stimulating economic development. At the same time private investment has increased substantially in response partly to the Government's new policies and partly to high prices for coffee, cotton and oilseeds; and the financing of new investment has been facilitated by high coffee profits. • Total domestic investment, private and pubiic, increased from 10% of gross national product in 1947-195{) to 15% in 1951-52. The increase in pri v-ate inves·t- ment during this period was from 8 to 10% of gross national product, and that of public investment from 2 to 5%. Private L.'1Vestment was directed towards industry, agriculture and transportation rather than housing. 'I'his higher level of investment is recent, and has not yet had much effect upon output, which, according to the information available, continued to increase in 1951-1952 at a rate a little below 3% per annum as in previous years. However, the investments of recent years, such as the Rio Lempa hydroelectrtc project, for which the International Bank made a loan of *t12,545 ,000 in 1949, are beginning to bear fruit., and with continued public and private efforts for economic development growth should be quicker in the future.