A program for Colombian public investment and external borrowing (Vol. 1 of 5) : Part one : the mission's principal conclusions

RESTRICTED RETURN TO REPORTS DESK REPORT NO. Z-6 mClllA TING COpy PART ONE ro .... WITHIN L-_O_N_E_W_E_E_K_ D~ RmJbfJ) TO ARCRms DJYJSION A PROGRAM FOR COLOMBIAN PUBLIC INVESTMENT AND EXTERNAL BORROWING Part One: THE MISSION'S PRINCIPAL CONCLUSIONS INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D. C. February 1956  Table of Contents Part One The Mission's Principal Conclusions I. Introduction l II. Rehabilitation of Colombia's Short-Term International Position 4 III. Public Investment Program 7 IV. External Borrowing l~ General l~ Specific Recommendations 21 Appendix 1 24 Appendix 2 30 Appendix 3 33 Appendix 4 37 "  PART ONE THE lYlISSluN'S PEDCIPAL CO~JCLUSIONS I. Introduction At the request of the Colombian Government, a mission* from the Inter national Bank visited the country in September and October 1955 to consult with the National Government regarding its development plans. The mission "'Jas asked to make recommendations on the priorities to be established in the official investment pro gram and to study and report on an external borrowing program which would best serve the needs for promoting Colombia's economic development in the coming years. The following report gives the mission1s views on these subjects and on other aspects of Colombian economic and fL~ancial policy which are L~ediately related thereto. During the decade since the war, Colombia has enjoyed an unprecedented period of economic expansion" stimulated by governmental policies which have been well designed on the whole to promote the development of the country1s resources. The Government has stepped up its investment activities greatly and has taken numerous measures to lay a broader basis for the growth and development of the country's resources. By developing new means of taxation it has placed itself in a relatively strong revenue position to finance growing public investment expenditures. At the sa.lle time" private investment has increased steadily and has absorbed a relatively large share of total output, particularly during recent years. The high level of investment has necessitated a large vol~~e of capital goods imports" but Colombia has taken advantage of the high export receipts resulting from the post-war coffee boom to meet these needs. In fact capital goods imports have made up about half of total imports during recent years. " * The mission consisted of the following persons: Albert Waterston, Chief of }ussion; Adam J. Hazlett, Chief Adviser on Steel Industry; Daniel R. Loughrey, Adviser on Steel Technology; Francis Juraschek, Adviser on Steel Harketing; J. l{loodrovl Hathews, Adviser on Steel Industry Accounting; O. R. Crooks, Adviser on Railroads; Gordon Grayson, Project Adviser; Neil Bass, Engineer; Clarence I. Sterling, Jr., Adviser on iflater Supply; vJolfgang Jahn, Project Analyst; Henry Heuser, Economist.  - 2 - Agaimt this oac::.gnnuld Jf ra.pid e:<::;an... ion aad develcp:ncmt, the d.ecline in coffee earnings since the middle of 1954, a.'1d the further decline 1-rhich is expected in tile naxt few years, creates a nevJ situation in t'l1hich the Colombian Government confronts a very difficult problem in bringing its investment pro gram into line iil'ith financial possibilities. The encouraging achievements of recent years ,vould be threatened and could not be continued during the years ahead unless the Government definitely determines to keep investment activities t'lithin limits consister:t uith internal financial stability and the :protection of its external credit standing. In both respects the situation has evident dangers 1,Jhich can only be warded off if the C-overp.rnent is prepared to take resolute action to limit its cor.wdtments. In general, the main elements of the problem Hhich must nOVJ be fa.ced are as follol1S: (A) At its present stage of economic developmer,t, the Colombian economy is vitally dependent upon iFtported goods and services to meet both investment rJeeds and rising consun!ption demands. (B) The country depends heavily upon a single crop, coffee, to earn the foreign exchange required to pay fvr these imports. (C) An i~~ediate financial problem has been created by the considerable recession in the coffee market, and the delay in adjusting imports to the de cline in export proceeds. As a result a serious "backlog" of commercial pay ments has been alloHed to accumulate, and the country I s reserves of gold and foreign exchane:e have been allo1rled to run do,m to very 1017 levels. (:D) In these circumstances there exists a strong temptation to resort to external credit both to clean up the short-term financial arrears and to maintain lon6 -term investnent activities on a continuously expanding scale. (E) If the general prognostications of the coffee market are correct,  - 3 however, the recession in export earnings is not merely a temporary phenomenon, ar~ the current strength of prices (February 1956) cannot be expected to last long. On the contrary, over the next decade, Colombia is likely to experience great dif