Colombia - Current economic position and prospects

RETURN TO RESTRICTED REPORTS DESK Repo r t N o. WH-92 1 WITHIN F COY ONE WEEK I This report was prepared for use within the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CURRENT ECONOMIC POSITION AND PROSPECTS OF COLOMBIA April 8, 1960 Department of Operations Western Hemisphere  CURRENCY EQUIVALENTS (December 29, 1959) Official buying rate - $1. 00 = 6. 1.0 Pesos Selling rate Auction $1. 00 = 6.40 Pesos 1 Peso = $0. 156 Free Market $1. 00 = 7.01 Pesos 1 Peso - $0. 142 1 m-illion pesos = $142, 000  TABLE OF CONTENTS PAGE BASIC DATA SUMMARY AND CONCLUSIONS i - iii CHAPTER 1 LONG-TERM1 TRENDS IN COLOMBIA'S ECONOMIC GROWTH 1 I. Introduction 1 II. Growth of Output 2 III. Money, Banking and the International Accounts 3 CHAPTER 2 THE END OF THE, COFFEE BOOM 5 I. Introduction 5 II. The Conmiercial Arrears 6 III. Settlement of Arrears 7 IV. Economic Policy from May 1957 through 1958 8 CHAPTER 3 CURRENT ECONOMiIC SITUATION 11 I. Introduction 11 II. Production and Income 12 III. The External Payments' Position 13 IV. Money, Credit and Prices 13 V. The Fiscal Situation 16 CHAPTER 4 ECONTOMIC PROSPECTS, THE BALANCE OF PAYMENTS AND THE EXTERN4AL DEBT 18 I. Economic Prospects 18 II. The Balance of Payments 20 III. Foreign Debt, Debt Service and the Debt Service Ratio 21 CHAPTER 5 CREDITWORTHINIESS 22 APPENDIX A FOREIGN EXCHANGE EARNINGS 1954 - 1959 AND PROJECTIONS. 1960 - 1970 STATISTICAL APPENDIX  BASIC DATA Area: 439,825 square miles Population: 13.8 million (mid-1959 estimate) Rate of growth 1949 - 1958: 2.25% Population in agriculture, 1958: 52% 1945: 60% Gross National Product: 16,2 billion pesos Real rate of growth 1945 - 1958: 6,01o Per capita income: $250 equivalent Gross domestic investment, 1957: 12.3% of GNP Origin of National Income., 1957: Agriculture 37.9% lMining and Constructing 5.3% Manufacturing 16.4% Other 40.4% Balance of Payments, 1958 (million US$) Current Account Capital Account Exports 544 Donations 6 Imports 379 Long-term capital Official 3 Private 12 Trade balance + 165 Short-term credits and changes in reserves - 51 Invisibles (net) 110 Errors and omissions - 25 Total + 55 Total - 55 Government Finance: 1958 1959 (Estimate) Current Revenue 1,442 1,735 Expenditures (excluding debt amortization) 1,573 1,700 Balance - 131 + 35 Debt amortization 111 Consumption expenditures 747 Transfer payments 272 Investment expenditures 554 Kvioney Supply. Prices and Foreign Exchange Reserves October1959 Increase since December 1958 Money Supply (million pesos) 3,614 8.9% Wholesale Prices (1952 = 100) 2C2.2 7.7% Foreign Exchange Reserves (million US$) (Dec.) 211.7 24.3% External Public Debt Outstanding, Total US$ 418.9 million June 1959: Long-term US$ 171.7 million Supplier credits US$ 59.4 million Balance of Payments credits US$ 187.8 million  SUIvlNARY AND CONCLUSIONS 1. During the decade preceding World lWar II Colombia's gross national product in real terms increased by approximately 3.8% per year. Since population was expanding at about 20Z% per year this left a considerable margin for growth of real per capita income. The post-war years brought an acceleration in growth rates. Between 1945 and 1956 real output appears to have expanded by over 7% per year -- a performance matched by few other countries in the world and surpassed in Latin America only by Venezuela. 2. The economic growth of the post-war years was spearheaded by a rapid rise in the price of coffee, Colombia's main export, and supported by increases in the output of other agricultural commodi- ties and by a process of industrialization which has profoundly changed the country's economic structure. Coffee prices reached their peak in June 1954 -- approximately 85 US cents per lb. for the hlanizales variety. Except for a temporary recovery during 1956 and early 1957, prices dropped from then on to their present levels of approximately 45 US cents per lb. Thus, the value of coffee exports, notwithstanding a substantial increase in volumes exported, dropped from $529 million in 1956 to $338 million in 1959. 3. Although the end of the coffee boom was evident by 1954 as wJorld supplies continued to grow, the Colombian government did not adjust imports and other expenditures abroad in line with the declining export earnings. At the same time inflationary pressures made their appearance as a result of substantial government deficits, the financing of coffee surpluses through central bank credit, and liberal credit policies which in three years led to a 60O increase in the money supply. The years 1954 to 1956 showed a cumulative deficit of $217 million in the balance of paynents on current account and losses of gold and foreign exchange reserves amounted to $126 million. In addition, the monetary authorities failed to make prompt payments for imports, services and transfers of interest and dividends. By i4ay 1957 the accumulation of commercial arrears had reached a total of $496 million. 4. The task of the government that came into power in Hay 1957 was not an easy one. In addition to restoring the country's exter- nal credit by settling short-term obligations equivalent to nearly one year's exports, it had to cope with internal economic problems resulting from inflation under conditions of rapidly declining export earnings. Severe foreign exchange and import restrictions were put into effect and a series of agreements with foreign creditors were concluded. The settlement of the commercial backlog proceeded rapid- ly and by the end of 1958 a substantial part of it had been paid off or consolidated. Credit expansion and fiscal deficits were also reduced.  - ii - 5. The stabilizing effects and overall success of the new measures became evident by the end of 1958. However, the deflation- ary measures inevitably had unfavorable repercussions on the level of economic activity. In 1957 the gross national product in real terms declined by 3.8%, but it rose again in 1958 and 1959 as domestic industry began to produce finished commodities hitherto imported. The production of a number of primary commodities also expanded. In 1959, the policies pursued since 1957 were continued, except for a relaxation of import restrictions on certain commodities to permit in- ventories to be replenished and to allow the industrial sector to bring in needed equipment. Prices increased by only 6-7% in 1959 as against l12 in l958 and over 20% in 1957. In the last six months of 1059 the cost of living remained unchanged. 6. The increase in imports, added to the heavy burden of debt repayments and other current foreign exchange needs induced the Colombian government to obtain in the latter part of 1959 from the Eximbank and a group of US commercial banks, loans for a total of $51 million. In additionn, a stand-by arrangement with the DEh opens to Colombia the possibility of acquiring an additional $41.25 million. These new credits amount to a roll-over of existing obligations and postpone the final paying-off of Colombia's short-term indebtedness. However, amortization payments due during 1959 exceed $100 million and the net repayment of the external debt (amortization less actual drawings on loans) during 1959 was about $30 million; in addition gold and foreign exchange reserves had increased by the end of December 1959 by $54 million since December 1958. 7. Balance of payments projections indicate that during the next few years the Colombian economy will have to adjust to a level of imports somewhat lower than that of 1959. Since opportunities are promising for producing in Colombia a large variety of commodi- ties which are at present imported, import limitations need not prove a barrier to further growth. However, a resumption of growth at rates similar to those that prevailed before 1957 is unlikely until the country's export position improves. 8. Despite the drop in foreign exchange earnings the efforts to attain internal monetary stability, to balance the international accounts, and to consolidate and reduce the short-term balance of payments indebtedness, have been remarkably successful. i;ioreover, improvements in Colombia's productive facilities through the comple- tion of major investment projects -- a vastly expanded and improved highway system and a much greater power generating capacity -- have permitted better economic integration of the various sections of the country and the establishment of new industries, catering to national instead of regional markets. Great progress has also been made in eliminating internal political strife and in restoring social peace throughout the country. This has led to increased optimism of the  - iii - business community, incluiding foreign companies doing business in the country, and new increased readiness to expand private invest- ment. 9. The accomplishments of the last three years are the more remarkable since they have been brought about at a time when coffee prices fell and the foreign exchange income of the country was great- ly reduced. The combination of low exchange earnings that must be expected in view of the continued poor coffee outlook, and the con- centration of foreign debt in short maturities makes the burden of servicing the external debt very heavy for the next two years. From 1962 on, however, the ratio of service obligations, computed on the basis of presently existing debt, to prospective current exchange receipts remains at a level that need not be considered excessive. 10. On balance, the accomplishments of recent years and the pros- pect for continuing effective management of the country's economic affairs, weighed against the distinct possibility that export earnings may for some time grow at only a modest rate, lead to the conclusion that Colombia can incur a reasonable amount of additional long-term debt, provided that the proceeds of new loans are used to finance only high priority projects essential for the countryts continued economic advancement.  CHAPTER 1 LONG-TEi: TRENDS IN COLOXIIA'S ECONOMvIC GROW4TH I. Introduction 1. Because of its geographical position, with most of its 450,000 square miles of territory located within the first ten degrees north of the equator, Colombia might be thought of as a tropical country. ilany parts of Colombia are tropical but as a result of its topography nearly 15% of the country enjoys temperate or cold climates. This relatively small area accounts, however, for the bulk of the population. The western part of Colombia is tra- versed from north to south by three ranges of the Andes, creating a series of valleys and plateaus located at varying altitudes. East of the mountain ranges the country slopes gradually down into the "llanos" or eastern plains, and south-east into tropical jungles. The largest river in Colombia, the hagdalena, after draining a 600 mile long tropical valley, between the central and eastern ranges, flows into the Atlantic Ocean at the Port of Barranquilla. The Cauca, one of its tributaries, flows for a similar distance between the western and central ranges and crosses a fertile valley which in some sections enjoys a temperate climate. 2. The population of Colombia -- 13.8 million in 1959 -- has been groiing at the rate of about 2.2% per year during the past decade. It is highly concentrated within the country's mountainous areas and along the northern Atlantic coastal region. The llanos and tropical jungles account for close to 50% of the area bult only for 3% to 4L of the population. Transport barriers, now rapidly disappearing, have historically interfered with the economic integration of the country and led to the emergence of a fair number of highly self sufficient urban centers. This feature accounts for the strong regionalism characteristic of Colombia and for the existence of no less than nine cities with a population of over 100,000 persons, including Bogota, Medellin, Cali, Barranquilla, Bucaramanga, Cartagena, Manizales, Ibague and Cucuta which jointly account for only 23% of the total population. 3. The geography and topography of Colombia bring about climatic variations which allow it to produce within relatively short distances tropical crops like coffee, cacao and sugar cane as well as crops more typical of temperate climates such as wheat, barley and oats. The area of land under cultivation has been steadily increasing in recent years, and as transportation, irrigation and drainage projects advance, large stretches of land now unused will become available. Mviineral resources are abundant. The country is well endowed with iron ore and coal deposits. Other minerals exploited are gold, silver and platinum,  limestone and sulphur (Table 11). Hydroelectric resources are also extensive and good sites are located near population centers. 4. The economy of Colombia has developed around the production and export of a major product -- coffee. Petroleum began to be ex- ported in 1925, and bananas, also an old export commodity, follow in importance. Yet coffee has traditionally accounted for the bulk of Colombian exports and its relative importance has hardly changed through the years. Reliance on a commodity subject to periodic and violent price changes has colored the economic history of Colombia and introduced a high degree of instability from which the country is still to free itself. COMPOSITION OF COLOIiBIAN EXPORTS (In percentage of total value of exports) 1913 1925 1945 1958 Total Exports - $ value 100 100 100 100 Coffee 55 65 73 67 Bananas 9 5 1 3 Petroleum -- 21 16 12 Cattle hides 9 3 1 1/ Platinum and gold 13 4 1 2 Other products j 13 2 8 16L3 / Less than 1%. 2/ Up to 1945 largely straw hats, tobacco, tagua nuts, rubber and balata. 3/ Includes unrecorded trade, in which coffee is represented. II, Growth of Output 5. The rate of economic growth of Colombia during fifteen years preceding World Uar II (1925-1940) was approximately 3.8% per year. During the same period population rose by about 2.2% per year so that real per capita income expanded 1.6% per year. By comparison with other underdeveloped countries during the same period this performance must be considered rather good. 6. The post-war years witnessed a dramatic change in the economic position of Colombia. Between 1945 and 1956 real income expanded at the rapid rate of 7.2% per year and per capita output at 5%, a rate matched by few other countries in the world and surpassed only by Vene- zuela in Latin America. The expansion of output and real income has  - 3 - been accompanied by the t-ypical structural changes of an economy in the process of developnent, viz. a shift of population from rural to urban areas and away from agriculture, by increases in agricultural efficiency and by a rapid growth in the importance of the manufactur- ing and service sectors. 7. The share of active population engaged in agricultural pur- suits declined from 68% in 1925 to 52% in 1958 (Table 1), but in the latter year it still exceeded the 1925 figure in absolute numbers. Agricultural efficiency has greatly improved. Output also increased because between 1934 and 1948 acreages under cultivation expanded by almost one-half. The share of manufacturing in total employment showed during the same period a small increase (from 11% to 14%), but these figures conceal an important change in the composition of manu- facturing employment, viz. the growing volume of employment in large scale processing activities, as against household industries. In 1958 factory employment was close to 240,000 persons; since 1953 it had in- creased by 2f/o. The greater economic importance of manufacturing is also showgn in the increasing contribution of the sector to the country's national income -- 16% in 1957 as against 12% in 1945 (Table 4), g. Data on investment in Colombia are particularly unreliable and contradictory, and no firm conclusions on the effects of capital accumulation on economic growth seem possible. One set of estimates shows an annual average rate of gross investment in the neighborhood of 25% for the pre-war period. Such rate does not seem compatible with the overall growth of output recorded for the period. Official estimates of the Banco de la Republica for the post-war period (between 10% and 12%) may, on the other hand, underestimate actual investment in view of the rapid rate of growth recorded since 1945. 9. On the other hand, the impact of international -trade on Colombia's economic growth is clear. Between 1935 and 1945 the value of exports at constant (1958) prices increased from $158 million to $242 million, i.e. at an average rate of 4.4% per year. The post-war accelerations of income growth coincides with a very rapid expansion in the country's levels of export trade which in real terms nearly trebled between 1945 and 1954. Per capita exports gradually rose from $19 in 1935 to P24 in 1945 and from then on shot up to $57 in 1954. The end of the coffee boom reversed this trend and per capita exports during 1959 probably amounted to only $37, or about 35% less than in the peak year of 1954. The drop in per capita imports has been even more pro- nounced - from $58 in 1954 to $30 in 1959 (Table 13). III. Money. Banking and the International Accounts 10. Inflation and balance of payments difficulties are not new in Colombia. The first world war did not greatly affect the economy of the  country nor did it interfere wiith the operation of its financial in- stitutions. But the post-war deflation and trade contraction of 1920-22 forced a thorough reorganization of the monetary and banking systems. In 1923 the central bank (Banco de la Republica) wvas esta- blished on the recommendations of the Kemmerer iiission. 11. During the 1920's Colombia borrowed heavily abroad. Long- term loans increased from 424 million in 1923 to ~203 million in 1928. In addition Colombia received during this period '025 million in con- nection with the settlement of the Panama controversy with the United States. Such a heavy inflow of foreign resources in a small country operating under the gold standard and with a banking system unprepared to counteract its monetary impact raised total rmoney supply from 61 million pesos in 1924 to 115 million pesos in 1928 and generated a rapid inflation. The 1929 depression put a sudden end to the expansion as the dollar value of exports dropped 40% between 1929 and 1932 and losses of gold and foreign exchange reserves mounted. By March of 1932 foreign reserves had been reduced to one fifth of their July 1928 level. Trade and exchange controls were established but the attempts to maintain the external value of the Colombian peso at its parity of 1.025 pesos per US dollar failed. In 1938 the peso was officially de- valued and its parity with the US dollar fixed at 1.75 pesos. 12. The start of the Second World WVar brought a new crisis to Colombia as coffee prices, coffee shipments and foreign investment declined. Exchange controls were reestablished but soon exports of coffee and other commodities began to soar and the problem of maintain- ing monetary stability with mounting export surpluses reappeared. Honey supply expanded from 160 million pesos in 1939 to 549 million pesos at the end of 1945. The end of the war found Colombia in a strong economic position wvith gold and foreign exchange reserves of nearly Q180 million and the stage set for a new rise in coffee prices which continued until 1954.  - 5 - CHAPTER 2 THE END OF THE COFFEE BOOM I. Introduction 13. In the course of 1957 the rapid rate of economic growth which characterized the post-war period suddenly came to a halt. For the first time in many years, real gross national product showed a drop of 3.8%, and per capita output declined by nearly 6%. Colombia was con- fronted with a major crisis, the outward sign of which, and its most acute problem, was the accumulation of commercial arrears amounting to nearly $500 million. 14. Two major factors brought about the 1957 crisis. The post-war boom in coffee prices which had been the main reason for the doubling of exchange proceeds from coffee exports since 1949, had already come to an end in 1954 (Table 15). But the decline in purchasing power of coffee exports was ignored by the Colombian government which failed to adjust foreign expenditures and to reduce imports in line with the new export conditions. In additiorn, a rapid monetary expansion and the maintenance of an artificial exchange rate led to very high imports by the private sector. As a result, the balance of payments on current account showed between 1954 and 1956 a cumulative deficit of $217 million, and official gold and foreign exchange reserves had by December 1956 been drawn down to $144 million from their high of $270 million at the end of 1954 (Tables 17 and 20). 15. Economic expansion during the post-war years was accompanied by a steady tendency towards inflation. This tendency accelerated after 1955. Wholesale prices which had risen an average of 6% per year between 1949 and 1955, increasecd by approximately 15% in 1956, 25% in 1957 and 12% in 1958. Inflationary pressures were the result of liberal credit policies of the central bank as well as credit expansion of commercial banks. Central bank credit more than trebled between 1953 and 1957. Its loans and discounts to member banks permitted in turn a doubling of com- mercial bank credit. Inflationary pressures were temporarily offset by large balance of payments deficits so that the money supply rose only 5% in 1955 as against later increases of 25% during 1956 and 14% during 1957 (Tables 21 and 22). 16. The financing of coffee production and marketing, including a policy of price support through purchases by the National Federation of Coffee Growers and the use of central bank credits for that purpose, was an important element in the process of inflation. Given the im- portance of coffee in the Colombian economy, the rise in coffee prices and in coffee income tended to influence strongly the domestic price level. On the other hand downward adjustments, once coffee prices began to decline, proved impossible. The magnitude of the coffee  _ 6 - price support operations can be judged by the fact that central bank credits to the National Federation of Coffee Growers reached the figure of 277 million pesos at the end of 1957, equivalent to over 10% of the total money supply. Inflationary financing of the coffee price support operations continued until the end of 1958 when total credits to the Federation reached the sum of 550 million pesos, or nearly 17 of the total mnoney supply. 17. Additional inflationary pressures arose from the financing of goverrmient deficits b;y the Banco de la Republica. During 1955 and 1956 net central bank financing of the national government amounted to 375 million pesos (Table 27). Government deficits resulted mainly from a rapid increase in expenditures -- since tax revenues between 1953 and 1956 show a roughly stable relationship (9%) to gross national product. The main expenditure increases were accounted for investment outlays, with a large part of them being used for military construction projects. II. The Commercial Arrears 18. The monetary expansion of 1954 to 1957 allowed the private sector to enjoy a high degree of liquidity and led to import pressures which the exchange and import controls were unable to restrain. Not- withstanding the rapid rise in the internal price level, the foreign exchange authorities attempted to maintain an official rate of 2.50 pesos per dollar which, as time went by, grossly overvalued the Colombian peso. In the meantime in the "free" market the peso steadily depreciated from 3.08 per U.S. dollar in 1950 to over 4.00 in 1955 and to over 6 pesos in 1956 and 1957 (Table 19). In an effort to control import demand and to promote exports a complex system of multiple ex- change rates was instituLted but, given the large monetary expansion and the wide differential between the official and the free rate, the system only led to a flourishing contraband trade in coffee and to widespread over-invoicing of imports. 19. Although the government closed the Exchange Registration Office for a period of nearly three months during 1955, import permits requiring use of foreigi exchange reached in that year an average of $52 million a month, and $39 million in 1956. Actual imports during these two years amounted to $669 million and $657 million respectively. Payments for imports, services and interest and dividends began to lag from the latter part of 1954. In June 1956 commercial arrears were estimated at $264 million. In that year the Exchange Registration Office offered to importers exchange authorizations for 50% of their unpaid obligations abroad--provided the balance was simultaneously settled through the free market. By May 1957 when the government changed, the commercial backlog had reached a total of $496 million dollars, an amount equivalent to ten months of exports.  - 7 - III. Settlement of Arrears 20. The government that came into power in lviay 1957 was con- fronted with the difficult tasks of restoring the country's external credit and of coping with the internal problems caused by the infla- tion. To make matters worse, these objectives had to be pursued in the face of rapidly declining foreign exchange earnings as coffee prices, which had averaged nearly 64 cents U.S. per pound, dropped to 58 cents by December L957. With exports of approximately 5 million bags (60 kg.), the price decline of six cents meant an exchange loss of 40 million dollars a year. 21. The private commercial backlog debt was assumed by the government. Its settlement was accomplished by various means, includ- ing cash payments in dollars and other foreign currencies and the issue of promisory notes. However, the country's own resources were inade- quate to carry out the settlement and for that reason part of the out- standing obligations was consolidated and refinanced by official short and medium-term loans. 22. The magnitude of the effort to settle the commercial arrears is reflected in the amount of net payments with the country's own resources, i.e. excluding borrowing, which as of June 30, 1959 had reached the figure of approximately $250 million. CHANGES IN THE TOTAL FORPEIGH DEBT OF C"iLOlviBIA January 1, 1957 - June 30, 1959 (In millions of US dollars equivalent) January 1 June 30 Change 1957 1959 Long term debt 188 172 - 16 Private bank and suppliers' credits 89 59 - 30 Private debt (assumed by the Government during 1957) 392 - - 392 Balance of payments credits to refinance private debt -- 188 + 188 Total Debt 669 - 250  - 8 - IV. Economic Policy from IMay 1957 through 1958 23. In addition to the agreements with foreign creditors regard- ing the settlement of commercial arrears the new government initiated in the course of 1957 a broad policy to correct the desequilibrium in the balance of payments and to reduce inflationary conditions. 24. Foreign Exchange and Import Policy: In the field of foreign ex- change policy the government recognized the de-facto devaluation of the peso which had already occurred and simplified the exchange and import control regulations. With minor changes, these regulations are still in effect. A "certificate" (official) market and a free market were established. Transactions to be carried through the official market include the sale of all export proceeds, plus registered capital imports by the petroleum and mining companies. This market supplies exchange for the payment of imports, remittances on registered capital, 80/% of freight and insurance expenditures and certain other services, as well as foreign exchange for the servicing of the public foreign debt, including the settlement of commercial arrears. Sales of ex- change in the certificate market are carried out through public auctions. The official buying rate of 2.50 pesos per dollar was abandoned in 1957 and, after a transition period, replaced by the present rate of 6.10 pesos per dollar; the auction (selling) rate has remained since the end of 1958 at about 6.40 pesos per dollar. There is an exchange tax of 15% on the exchange proceeds of exports of coffee, bananas, raw cow- hides, and precious metals, and an exchange tax of 2 percent on all other exports. Coffee exporters must in addition, as part of the coffee stabilization program, deliver in kind to the National Coffee Fund a quantity of coffee equivalent to 17% of their exports. All official market remittances abroad were subject, until May 1959, to a 10 percent tax, payable in dollars. After the adoption of a new import tariff in May 1955 this tax applies only to invisible payments through the offi- cial market, but importers are required to pay the first 10 percentage points of the ad valorem duty in US dollars (or the full ad valorem duty if it is less than :L0 percent). The proceeds of this tax and of the 15% export tax are set aside for the servicing of the external debt. The free market is used for exchange transactions involving private foreign investments other than those of petroleum and mining companies, royalties and certain services such as tourism. The free market dollar rate moved from 7.58 in April 1958, when the system was set up, to 8.23 pesos at the end of the year. 25. The main aim of the import policy was to substantially reduce the level of purchases abroad. Supplementing the effects of the deva- luation, the import authorities prepared an extensive list of "prohi- bited" imports and adopted a series of measures designed to reduce the monetary causes of the high level of import demand. These measures included an exchange tax of 15% on exports of coffee, bananas and  - 9 - precious metals, a 2% tax on all other exports, and a 10% tax on foreign exchange transfers. The dollar proceeds of these taxes were set aside for the payment of commercial arrears and short-term loans obtained for the same purpose. Another exchange regulation with important monetary implications was the extension of the requirement of prior import deposits in pesos. After September 1957 in order to obtain an import licence importers were required to deposit with the central bank the equivalent of 100% of the value of their imports. 26. Honetary Policy: In the area of monetary policy the main measure was an increase of reserve requirements on bank deposits from 14% to 20% and, later on, to 23%. Rediscount rates were also raised and re- discount quotas were lowered. On new deposits reserve requirements were set at 80% and later 100%. Prior import deposits in the hands of commercial banks were transferred to the Banco de la Republica and thus effectively sterilized. 27. Coffee Retention Policv: After 1957 developments in the world coffee market led to a substantial accumulation of coffee surpluses which were largely financed with central bank credit. In order to reduce this source of monetary expansion coffee exporters were required during 1958 to pay a 17% export tax in kind. In addition the exchange differential between the buying and auction rates in the certificate market was allocated to the purchase of coffee surpluses. Even so, during 1958 the financing of the coffee surpluses required central bank credits of approximately 270 million pesos, figure which amounts to nearly 10% of the money supply at the end of 1957. 28. Effects of the New Policies: The effects of the new policies were soon felt. Already in the course of 1957 the economy showed some ten- dency towards stability. The balance of payments for 1957 closed for the first time in four years with a substantial ($120 imillion) surplus on current account. The surplus was mainly the result of a drastic cut in imports -- from a, total of $605 million in 1956 to $454 million in 1957. The continuation of import restrictions into 1958 further reduced imports to $379 million and resulted in another current account surplus of $55 million. This improvement in the external accounts was the more remarkable since it occurred in the face of rapidly declining export earnings. 29. Anti-inflationary measures were reinforced by the transfer of prior deposits from commercial banks to the central bank and by the payments of importers tc) discharge their accumulated foreign exchange obligations. kainly for this reason the rate of expansion of the money supply was reduced from 20% in 1956 to 14% in 1957 (Table 22). However, once the single impact of these measures was absorbed, inflationary pressures continued and during 1958 the money supply again increased by 21%. The index of wholesale prices, on the other hand, showed an increase of 23% in 1957 and of only 12% in 1958.  - 10 - 30. The stringent credit policy and drastic reductions in im- ports inevitably had a negative effect upon the pace of economic activity. In 1957 the gross national product in real terms was 3.e% lower than in 1956, but began to rise again in 1958 (Table 2). That the country was able to naintain levels of economic activity as well as it did, notwithstanding a 30% reduction in imports, was due to the drawing down of inventories, and by a partial replacement of imports by domestically produced goods. Also important was the fact that the 1955 and 1956 imports included a rather high proportion of consumers' goods whose disappearance did not interfere with the productive capaci- ty of the country.  CHAPTER 3 CURRENT ECONON1IC SITUATION I. Introduction 31. The only major change which occurred during 1959 in the policy described in Chapter 2 has been to allow a greater flow of imports. During 1957, monthly import registrations rose from an average of $24.6 million in the first quarter to an average of $33.5 for the full year. Import restrictions were extremely severe during 1958 and average monthly registrations amounted to only $23.3 million i/or an annual rate of $280 million. However, the effect of the high 1957 registrations was felt in 1958 and total imports, including those not requiring use of foreign exchange, reach- ed in that year the sum of $400 million, c.i.f. as compared with values in excess of $650 million during each of the three years 1954 to 1956. Exhaustion of inventories and the need to provide industry with essential equipment and raw materials led the import authorities to liberalize the granting of import registrations during the course of 1959 from $23.0 million in January-February to an average of $31.3 million for the first ten months of the year. 32. Although irnport controls are the actual instrument of import policy, Colombia adopted in May 1959 a new import tariff. The new tariff is frankly restrictive and designed to foster the production of com- modities now imported. The irmport duties on finished consumer goods are in many cases well above the level necessary to protect domestic producers. iviost commodities are subject to both specific and ad- valorem duties, with major reliance placed on the latter. A group of agricultural commodities (wheat, oats, wheat flour and grits, malt, oil seeds such as peanuts and copra, tobacco and cotton) are subject to regular specific duties of between .10 and .60 pesos per kilogram, ad-valorem duties which range from 10% to 50% as well as a special tax, the yield of which is to be allocated to promoting domestic production of the same commodities. In a few cases (e.g. cacao and copra) import duties are graduated so as to increase over time, thus assuring an increasingly remunerative market to domestic producers. Duties were imposed with a view; to reducing the country's dependence on imported raw materials and fostering the establishment of intermediate j/ The figure refers to import registrations requiring use of foreign exchange. Imports of oil companies and foreign investments in the form of equipment and goods are granted "non-reimbursable" regis- trations.  - 12 - and finished capital and consumption goods industries. These duties are at least 207b higher than those in effect before the introduction of the newi tariff. II. Production and Income 33. During 1958 the gross national product began to recover from the decline suffered in the previous year. For 1959 all indi- cations point to a further increase. Per capita gross national pro- duct may now be at the 1958 level or somewhat higher. 34. Increases in output mainly took place in the agricultural sector. Reliable figures are not available, but it is known that cotton production more than doubled between 1958 and 1959 and that a small surplus (about 3,000 tons) may be available for export. The crops of cacao, barley, corn and sugar cane also were larger in the crop year 1959/60. Coffee production is expected to exceed in volume last year's crop. Banana plantations, on the other hand, suffered from windstorms and output may not exceed last year's level. Much of the increase in agricultural production is due to a comprehensive system of support prices administered by the National Supplies' Insti- tute (Instituto Nacional de Abastecimentos -- INA) and certain special- ized agencies such as the Tobacco Institute and the Coffee Promotion Institute. In regard to livestock production, the Ministry of Agri- culture is engaged in a large-scale development scheme which involves the importation of cattle, sheep, and horses for the improvement of native breeds. A recent project contemplates the application of a 2% tax on the commercial value of farm property -- a measure which may have far reaching effects upon the future utilization of agricultural land. 35. h!lanufacturing industries continued to expand. Employment in manufacturing at the end of August showed in the last year increases in all sectors (Table 12), the same is true of cement, sugar and elec- tric energy for which indices of physical output are available (Table 6). 36. Production of crude oil showed during the first ten months of 1959 an increase of 15% over the same period of 1958 (Table 9). i4ost of the increase was due to greater production of the Cicuco field which was opened in January 1958 and the San Pablo field which has been in operation since 1955. Two new fields, Lebrija and Floresanto, were opened during 1958 (Table 10). Output of refinery products increased by 21%, and the country supplies all its needs except for aviation gasoline.  - 13 - III. The External Payments Position 37. Table l presents the foreign exchange position of Colombia from January to September 1959 and a projection for the last quarter of the year. During the first nine months of the year purchases by the Banco de la Republica in the certificate market to cover current account needs exceeded sales by US71 mil lion. This amount plus new external credits (US'39 million) allowed external debt amortization payments of US89 million as well as an increase of 4~21 million in official gold and foreign exchange reserves. Estimates for the free market, on the other hand, show a small "deficit" of US66 million, covered probably by drawings on private foreign exchange holdings. Projections for the last quarter of 1959 point to a possible deficit of US$37 million in the official market and an excess of supply of per- haps US10 million in thes free market. The main reason for the change in supply and demand conditions seems to be a reduction in official surrender requirements for coffee and banana exports decreed in September 1959. As a result a larger proportion of export proceeds could be sold in the free market. This measure, perhaps strengthened by an inflow of foreign capital and repatriation of domestic funds, had an effect upon the free market quotation of the Colombian currency. The free peso which until August 1959 had been rather stable at about 8 pesos per dollar began to appreciate in September, reaching a value of 6.88 to the dollar on October 9. On December 29 the rate had risen to 7.01 pesos per dollar. 38. Concerned about the possibility of a substantial decline in official gold and foreign exchange reserves, the Colombian government negotiated in November 1959 for a Q41.25 million stand-by arrangement with the International Monetary Fund. Repurchases -- in case drawings are made -- will take place three years after each drawing. In addition, the Eximbank granted Colombia a $25.0 million loan repayable in four years beginning January 1964 while a group of 12 US commercial banks extended $25.76 million in new credits repayable over a period of five years beginning in 1960. Both of these loans carry interest at the rate of 5.75% annually. As of the end of December the e;xternal payments position showed, however, an unexpected improvement reflected in a sizeable increase in official gold and foreign exchange reserves which reached a total of $224 million, as against '$190 million at the end of September. Part of the improvement is explained by the utilization of the U.S. commercial bank credits (minus repayment of $P17 million of existing liabilities to the same banks); an additional factor is the postponement of commercial payments made possible by the extension of the normal maturities of private commercial credits granted to Colombian importers. IV. liioney. Credit and Prices 39. During the first ten months of 1959, the money supply increas- ed by 9% as against 175o during the preceding ten-month period. The in-  - 14 - crease was entirely caused by greatcr comnercial bank credit. Central bank loans and discounts actually declined from 2,548 million pesos at the end of December 1958 to 2,469 million pesos at the end of September. Central bank credit to the official sector increased by 29 million pesos and this sum was more than offset by a reduction of 57 million pesos in loans and discounts to the private sector. The expansion of bank credit which amounted to 219 million pesos did not result from a liberalization of rediscount facilities by the Banco de la Republica but from changes in reserve requirements, the partial re- lease of peso import deposits, and the increase in international reserves. MIONEY SUPPLY AND CREDIT (In millions of pesos) December 195g September 1959 Change Central Bank Credit 2.548 2,469 - ?9 To commercial banks 754 704 - 50 To private firms 742 685 - 57 To official sector 1,052 1, 081 + 29 National government (-) (25) (+ 25) Official agencies (366) (356) (- 10) Investments in public debt bonds (686) (700) (+ 14) Commercial Bank Credit 3,214 3,533 +319 Private banks l1.79 1,992 +113 Official banks Banco popular 136 124 - 12 IMlortgage banks 569 663 + 94 Caja agraria 630 754 +124 Ploney Supply, Excluding Treasury Deposits 3,317 3,588 271 Demand deposits 1,957 2,564 +607 Treasury deposits 142 194 + 52 Currency in circulation 1-,360 1,024 -336 40. In line with the restrictive credit policy adopted in 1957 reserve requirements of commercial banks have been maintained at high levels, viz. 23% on demand and time deposits up to 30 days, and 17% on all other. But the 100% marginal reserve requirement established in 1958 was liberalized so as to release resources equivalent to 128 million pesos in the form of additional credit to the agricultural sector. A further factor contributing to the expansion of commercial credit was the de- crease of prior-peso deposits required for imports of capital goods and essential equipment.  - 15 - 41. Financing of coffee surpluses ceased to be a source of mone- tary inflation during 1959. Since October 1958 the coffee retention program was financed by means of a tax in kind equivalent to 17% of exports, a special 5% tax - also payable in kind through delivery of low quality non-exportable coffee ("Pasilla") - and, finally by the allocation to coffee purchases of the differential between the buying and the selling auction rate of foreign exchange in the certificate market, amounting to about 30 centavos per US$. The agreement between the government and the National Coffee Growers' Federation which in- stituted the above system of financing also provided that the Banco de la Republica would make available to the Federation for a three-year period beginning October 1, 1958 enough resources to acquire yearly up to 570,000 bags of coffee for retention purposes. 42. The greater than anticipated level of coffee exports in 1959 made it unnecessary to use central bank credit and only a small part of the proceeds of the exchange differential. In summary, the 1958-1959 coffee retention program operated as follows: 1000 Bags (60 kgs.each) Exports (1958 - 1959 Crop) 6,000,000 17% retention in kind 1,020,000 5% "pasilla" tax 300,000 Domestic consumption 400,000 Total 7,720.000 Financed with Exchange differential 80,000 Total Production 7.800,000 43. No financial problems are expected in regard to the 1959- 1960 coffee retention program. The International Coffee Agreement signed in Washington last October gives to Colombia an export quota of 5,969,000 bags (60 kgs. each). This figure is sufficiently high to allow the surplus from the forthcoming crop to be financed without resorting to inflationary means, even if the crop reaches 8 million bags, as is currently forecast. 44. In the latter part of 1959 the rise in prices practically came to an end. The national index of consumer prices rose 5-6% during the first six months of the year but has remained stable since then. Wholesale prices show a similar behaviour.  - 16 - PRICE MOVEEaTTS DtlRING 1959 June 1959 October 1959 (December 1958 = 100) National Index of Consumer Prices Employees 105 107 Workers 106 107 Wholesale Prices 107 107 V. The Fiscal Situation 45. According to Colombian law the government budget as present- ed to Congress must show that expenditures are either covered by reve- nues or otherwise financed. The estimated yield of any tax must not exceed by more than 10s that of the previous year. This system leads to a sometimes over-conservative estimate of revenues. 46. On a cash basis the national government budget showed defi- cits from 1954 on to 1958. The cash deficit for 1958 may be estimated at 130 million pesos. Thae year 1959, however, may close with a surplus of 35 million pesos if debt amortization (146 million pesos) is not included among expenditures. The improved situation is due to a con- siderable increase in income tax receipts resulting from better col- lection, and from larger import duties after the introduction of the new tariff. The monetary effect of this change is reflected in Table 27 which shows that during the first ten months of 1959 net advances of the central bank to the national government amounted to only 12 million pesos. 47. Government expenditures in 1959 are expected to show an in- crease of approximately 10% over 1958; this would be equivalent to 1C% of the gross national product, the same proportion as in 1954, and a significant increase over recent years. Since 1954, current expendi- tures have shown a lower rate of growth than capital expenditures, the latter having risen 43% between 1954 and 19,8, as against 39% for current expenditures. 48. Revenues and expenditures of departments and municipalities are equivalent to approximately SO/Z of those of the central government. They normally operate with more or less balanced budgets. The latest figures (for 1957) show an aggregate surplus of 52 million pesos. 49. The most important development in the fiscal field in 1959 was the presentation to Congress of a major tax reform bill. This bill is now the subject of an intense debate not only in Congress but also  - 17 - among representatives of many interested groups. It provides for a large increase in the tax burden of the agricultural sector which except for coffee production is now practically exempt from taxation. It would also reduce income taxes of the lower income groups, parti- cularly on labor and substantially modify the taxes on earnings of corporations and partnerships in order to promote capital accumula- tion and economic growth.  CHAPTER 4 ECONOYIC PROSPECTS, TH{E BALANCE OF PAYIENTS AND THE EXTERNAL DEBT I. Economic Prospects 50. Between 1948 and 1956 a period during which real per capita output expanded at the rate of 4.5% per year, the dollar value of Colombian exports increased by 136%, i.e. an average of 11% per year. A large increase in productive capacity became possible through a steady inflow of capital equipment, raw materials and intermediate goods for domestic processing. The importance of increased earnings from exports was particularly significant in its impact on the rate of investment. While the estimates of the rate of investment have limited reliability, there is no doubt that the investment rose substantially between 1945 and 1958. 51. The problem that arises at the present juncture is whether a rate of increase of, say, 0.5% per year, in export earnings during the next ten years or so is compatible with a steady improvement in per capita real income. Since the population of Colombia has been expanding at a rate of about 2.2% per year the rate of growth of the national product would have to be greater if it is to permit an improvement in per capita income. Whether this is possible will largely depend on the country's ability to increase the production of goods which are at present imported, and to pursue such policies as to assure an increase in export earnings. It is clear that the growth prospects of Colombia would be considerably better if it could be safely assumed that export earnings would grow at a satisfactory rate. Economic growth without a simultaneous growth of ex- ports is much more difficult, if not impossible, than with it. Fortunate- ly, the experience of the last three years indicates that Colombia's re- source endowment and ability to mobilize resources is such as to expand the production of a wide range of goods which have been imported in the past. Some of these commodities are grains, cacao, paper, fats and oils, window glass, light bulbs, electrical appliances, agricultural equipment, fertilizers and a number of chemical products. Among the latter, the Instituto de Fomento Industrial is studying the possibility of producing sulfite, citric acid, potassium chlorate, and extracting a tanning com- pound from dividivi bark. The reorganization and expansion of the Paz del Rio steel mill would make possible the local production of many steel products now imported. It should be stressed, however, that so far in- creases in output have largely taken place under the cover of import restrictions, so that production costs, with few exceptions, have tended to be high. Unless productive efficiency is somehow improved and costs reduced this situation will have unfavorable repercussions on future growth rates. 52. Notwithstanding these possibilities of supplementing the supply of imports with local products, it is clear that the rate of growth of the post-war years cannot be regained unless the export position  - 19 - of the country is strengthened by the promotion of export products other than coffee. The need to do so is widely recognized, but with the exception of petroleum the list of minor exports has shown little change in the last seven or eight years, except for "unrecorded trade" (i.e. border trade and smuggling) the composition of which is of course unknown. A few years ago the Minister of Finance sponsored an export promotion law under which foreign raw materials to be used in the pro- duction of export commodities were to be exempted from import duties. (Jnly six licences involving raw material imports worth $1.5 million a year and exports of finished products of $2.5 million have been issued so far. 53. The opinion is widely held among Colombian producers and mainufacturers that uncertainties such as fluctuations in exchange rates and frequent modifications of administrative regulations make the export business excessively risky and unattractive. Another, perhaps more important reason, which applies mainly to manufactured commodities, is that the high protection accorded to domestic producers does not lead to the development of low cost industries able to compete abroad. At a recent convention, the Colombian Exporters' Federation (Fedexco) proposed that producers of exportable commodities be given adequate tax and credit incentives; that administrative export restrictions be limited in num- ber and issued for specified periods of time and that the Colombian Foreign Service be organized to serve the needs of the country's interna- tional trade. Whatever the reasons for the slow growth of minor exports may have been in the past, it is fairly clear that the export potential of Colombia is largely unutilized and that measures to make effective use of it deserve a high priority. 54. Aside from the problem of increasing the production of commo- dities directly affecting international trade, prospects for increasing output are far from discouraging. Agricultural output has been expanding (although complete data to show the degree of progress are lacking). The production of wheat, barley and cotton has increased in recent years. The production of cotton more than doubled between 1957 and 1959 and by now exceeds domestic needs. Agricultural prospects in the tem- perate Cauca Valley are promising and the production of the area should greatly increase as irrigated farming takes the place of cattle-raising. The completion of the Atlantic Railroad also promises to enhance output in the tropical Mlagdalena River Valley. Cotton, rice, African oil palms and cattle seem to be most immediate possibilities there. 55. The mineral resources of Colombia are extensive and varied. The country is rich in iron ore and coal deposits, particularly of the bituminous or soft varieties but deposits of anthracite are also known to exist and their exploitation is being studied now. Petroleum has been for a number of years the second highest export, oil exploration and exploitation has proceeded actively in recent years and petroleum output has expanded at a high rate.  - 20 - 56. The main limitation on the expansion of manufacturing in- dustries in Colombia is the country's reduced ability to import capital goods, raw materials and semi-processed commodities. But even under unfavorable import conditions the industrial sector should be able to expand output at a rate of 4l% or 5% per year. Such per- formance does not seem inprobable in the light of the country's re- source endowment and the fact that, as transportation facilities im- prove and expand, such endowfment becomes available and national markets for finished goods rapidly develop. II. The Balance of Payments 57. Appendix A presents projections of foreign exchange earnings on current account for the next decade. These projections are not a firm forecast of exchange earnings; they simply show what might be expected under the given set of assumptions underlying them. Among other things the projections ignore the possibility that commodities that are not at present exported may become important foreign exchange earners in the future and supplement the proceeds of traditional exports. However, there is no basis for taking account of this possibility in quantitative terms nor are there at present indications that an active export promotion policy is about to be started. On this basis it appears that over the next ten years Colombia's foreign exchange receipts on current account may expand very little - from their present $596 million to perhaps 564o in the late 1960's. 5g. A total balance of payments projection appears hazardous at best. Yet the slow growth of total current exchange earnings, together with the inevitable increase that should be expected in certain passive items of the balance of payments (e.g. transportation, insurance and other services) would tend to indicate that unless a radical change occurs in the country's foreign exchange earning capacity, Colombia will have to plan its development on the basis of a level of imports not too dissimilar from that of, say, 1958 or 1959. During the next two years service payments on the foreign debt will still be heavy and for this reason the foreign exchange margin available for imports during 1960 and 1961 should be correlatively smaller. In 1962 and thereafter, as the burden of servicing the external debt becomes lighter the situation should improve. Under these conditions the inducement to roll-over existing foreign debt obligations in order to create a margin for addi- tional imports will be strong. Yet, unless the present austerity policy is continued for a few more years the servicing of short-term obligations will affect the country's creditwrorthiness abroad and impair the capa- city to undertake more favorable long term borrowing for economic deve- lopment purposes.  - 21 - III. Foreign Debt, Debt Service and the Debt Service Ratio 59. On June 30, 1959 the total foreign debt of Colombia amounted to qP419 million. Of this total $172 million represented long-term obli- gations; t59 million private bank and suppliers' credits and 188 mil- lion "balance of payments" debts, contracted in order to settle the 1957 comrmiercial arrears. Total amortization payments in 1959 will amount to qplOO million. New loans obtained during the year include $16.6 million from the IBRD and balance of payments loans of $25.0 million from the Eximbank and $25.76 million from a group of US commercial banks. Since drawings on all loans may be estimated at USW7O million, 1959 net repay- ments on the total external debt will amount to about US$30 million. In addition, between December 1958 and December 1959, gold and foreign ex- change reserves increased by USb53.7 million. Therefore the improvement in the country's financial position in 1959 may be estimated at about $84 million. 60. Since a high proportion of Colombia's external obligations are short-term, total service payments (interest anld amortization) on all outstanding debt including major additions to January 1960 I/ drop from ,1ll7 million in 1959 tc, V52 million in 1962. If the policy of reducing the short-term debt is actively continued, Colombia will have from 1963 on a substantial margirn for borrowing on a long-term basis for economic development purposes. This prospect, nearly in sight, should be the more attractive in the light of the efforts and real costs which the unwise pre-1957 policies led to. 1/ lMlajor additions are: a) $25.0 Exdmbank loan (November 1959); b) $25.76 million New York banks loan (November 1959); c) $17.6 IBRD loan (January 20, 1960).  - 22 - CHAPIr 5 CRED ITVIORTHTNESS 61. During the past two and a half years the Colombian Government has followed policies designed to cope with the end of thie post-war coffee boom and the aftermath of the economic mismanagement of the period 1954 - 1957. The efforts to attain internal monetary stabili- ty, to balance the international accounts and to consolidate and reduce the short-term balance of payments indebtedness brought economic hard- ship on many sectors of the country, but have been remarkably success- ful. In an attempt to assess the prospects of the Colombian economy and the creditworthiness of the country for additional long-term loans, the accomplishments of the stabilization and rehabilitation program must be taken into accouat. They include: (i) control of inflationary tendencies as shoirn by the fact that prices during 1959 increased by only 6-7% as against 12% in 1958 and over 2C% in 1957; in the last six months, the cost of living has remained unchanged; (ii) a substantial reduction in the country's foreign obli- gations. The settlement of commercial arrears over the last three years has involved net payments of nearly $250 million. During 1959 net payments amounted to approximately $30 million; (iii) increase in official gold and foreign exchange holdings which from $156 million in December 1957 rose to $170 million in December 1958 and to over $220 million at the end of 1959; (iv) improvement of the fiscal situation, reflected in a small surplus in the budget for 1959, compared with a deficit of 131 million pesos in 1958 and with similar deficits in earlier years; (v) the financing of the coffee surplus by non-inflationary means in a manner which places the burden of carrying the surplus upon the producers themselves; and (vi) an effective exchange and import control system and an exchange policy which gives a realistic value to the Colombian peso. 62. The assessment of Colombia's prospects must also take account of the improvements in Colombia's basic productive facilities through  - 23 - the completion of major investment projects -- a vastly expanded and improved highway system and a greater electric generating capa- city -- which have permitted better economic integration of the various sections of the country and the establishment of new indu- stries catering to national instead of regional markets. The iDiagdalena Valley railroad and the integration of all railroads into one network, to be completed in 1961, will further improve Colombia's transportation system. 63. Lastly, great progress has been made in eliminating internal political strife and in restoring social peace throughout the country. This had led to increased optimism of the business comnmunity, includ- ing foreign companies doing business in the country, and an increased readiness to expand private investment. 64. The accomplishments of the last three years are the more re- markable since they have been brought about at a time when coffee prices fell and the foreign exchange income of the country was greatly reduced. The combination of low exchange earnings that must be expected in view of the continued poor ccffee outlook, and the concentration of foreign debt in short maturities makes the burden of servicing the external debt very heavy for the next tvwo years. From 1962 on, however, the ratio of service obligations on existing debt to prospective current exchange receipts (estimated on the basis of the products currently being export- ed) remains at a level that need not be considered excessive. 65. On balance, the accomplishments of recent years and the prospects for continuing effective management of the country's economic affairs, weighed against; the distinct possibility that export earnings may for some time grow at only a modest rate, lead to the conclusion that Colombia can incur a reasonable amount of additional long-term debt, provided that the proceeds of new loans are used to finance only high priority projects essential for the country's continued economic advancement.  APPENDIX A FOREIGN EXCHANGE EARNINGS, 1954-1959 AND PROJECTIONS, 1960-1970 (In millions of US dollars) Projections 1954 1955 1956 1957 1958 1959 1960 1965 1970 (Estimate) Exports 670 597 669 601 516 516 511 930 Coffee (million 60 kg bags) 5.8 5.9 5.1 4.8 5.5 6 6 6.6 7.3 Price (Manizales, cents per lb cif 79.9 64.4 74 63.9 52.3 45.7 44 39 36 Value 1/ New York) 550 484 529 409 366 338 330 317 321 Other Products 120 113 140 192 178 178 186 194 209 Petroleum 76 62 70 76 67 70 75 87 100 Fuel Oil 1 2 3 5 10 12 12 14 16 Bananas 13 17 28 22 15 13 16 20 25 Gold 13 13 15 11 12 13 13 13 13 Other 17 19 24 18 14 15 15 20 25 Unrecorded Trade -- -- -- 60 60 55 55 40 30 Transport, Travel, Insurance and Other Exchange Income 29 42 58 81 79 80 82 2a 110 TOTAL CURRENT EXCHANGE EARNINGS 790 710 809 682 623 596 598 6o6 640 1/ F.o.b. value differs from the c.i.f. New York value by approximately $3.o0 per 6C kg. bag.  Appendix A NOTES ON PROJECTIONS Page 2 Coffee: Although the International Coffee Agreemlent of October 1959 offers reasonable assurance of price stability for the current coffee crop year, the world coffee situation remains difficult in view of the large surplus and the lack of effective plans to reduce overall production. Even if the agreement is periodically renewed, prices are likely to reciede somewhat from their present level. It has been estimated that prices for the Colombian Manizales variety in the late 60's will be at a level of US$ 0.36 c.i.f. New York, equivalent to $44.00 per bag of 132.3 lbs. f.o.b. Colombia ports. As to the volume it has 'been assumed that Colombian exports will rise by 2/% per year as against an estimated increase of world imports of perhaps 3% per year. Petroleum: Crude oil output is increasing rapidly. Average daily production rose from 128,497 barrels in 1958 to 140,957 during the first five months of 1959. The increase was largely due to an expan- sion of output in existing fields (Tables 9 and 10)). Exploration contracts covering nearly 9.0 million hectares are now in effect. The projection assumes a 3% cumulative increase in output. Fuel Oil: At present there are five refineries in operation. Their combined capacity is approximately 65,000 barrels a day, enough to cover Colombia's needs f'or the next few years. A 2% increase in exports has been projected. Bananas: The Compania Bananera de Sevilla (a subsidiary of the United Fruit Co.) is considering expanding from the Santa isiarta area into the Gulf of Uraba near the Atrato River and the Panamanian border. If this project materializes the total volume of banana exports may double in the next few years. For the purpose of the projection it has been assumed that exports will only regain the level of a few years ago when crops did not suffer as badly from windstorms as during 1957 and 1958. Gold: Output similar to that of the past few years. Other Exports: The level of these exports has been projected to show an increase of 5% per annum. Unrecorded Trade: At the present time this trade, variously estimated to amount to between $50 and $60 million a year, consists of purchases of Venezuelans shopping in the Colombian city of Cucuta plus a consi- derable amount of contraband flowing in and out of Venezuela and Ecuador. The nature of the latter trade is inherently unstable and any change in economic conditions in Venezuela anid Ecuador or in the exchange relationship of the Colombian peso vis-a-vis the bolivar and the sucre may have unfavorable effects. As to legitimate border trade the advan- tages of geographical proximity and productive specialization should continue asserting themselves. The projection of unrecorded trade shows, on balance, a decline to a level of $30 million a year by 1970.  STATISTICAL APPENDIX Table i'Jo. Resources and Output 1 Population by Economic Activity, 1925 - 1958 2 Total and Per Capita Gross National Product at Current and Constant Prices, 1945 - 1958 3 National Income, by Industrial Sector of Origin, 1945 - 1957 4 National Income, by Industrial Sector of Origin, 1945 - 1957 5 Gross Domest:ic Investment, 1945 - 1957 6 Indices of Economic Activity, 1948 -- 1959 7 Agricultural Output, 1957 8 Import Registrations, Major Agricultural Products, 1954 - 1958 9 Production of Crude Oil and Refined Products, 1953 - 1958 10 Petroleum Production by Field and Producing Companies, August 1958 and August 1959 11 Production of Mlinerals, 1956 - 1957 12 Employment in ivianufacturing Industries, 1953 - 1959 International Trade and Payments 13 International Trade, 1935 - 1959 14 Trade by Area and Country of Origin and Destination, 1957 - 1958 15 Exports, by iklajor Commodities, 1949 - 1958 and January - July, 1959 16 Imports, by Major Commodity Group, 1955 - 1958 17 Balance of Payments, 1954 - 1958 18 Foreign Exchange Position, 1959 19 Foreign Exchange Rates, 1950 - 1959 Monetary Developments 20 Prices, Wages and Selected Indicators, 1948 - 1959 21 Central Bank Credit, 1950 - 1959  ISTATISTICAL APPENDIX Page 2 Table No. lklonetarny Developments (Cont'd) 22 MIoney Supply and Commercial Bank Credit, 1950 - 1959 23 Commercial Bank Credit by Use, 1954 - 1959 Public Finance 24 National Government Revenue, 1950 - 1958 25 National Government Expenditures, by Type, 1954 - 1958 26 Operations of National Government, 1950 - 1959 27 Central Bank Financing of Government Sector, 1950 - 1959 28 Capital Expenditures of the National Government, 1956 - 1960 29 State and Municipal Finances, 1957 External Debt 30 External Public Debt Outstanding, 1956 - 1970 31 External Government and Government Guaranteed Debt, June 30, 1959 32 Service Payments on External Public Debt, 1956 - 1970  Tablel : POPULATIO)N, BY ECONOMIC ACTIVITY, 1925 - 1958 Selected Years 1925 1945 1951 1958 Total population (million) 6.7 10.2 11.6 13.5 of' which: Percent Active 37.2 35.9 32.7 Inactive 62.8 64.1 67.3 Urban 23.2 34.0 39.0 Rural 76.8 66.0 61.0 Active population (million) 2.6 3.6 3.8 of which engaged in: Percent Agriculture 68.5 59.9 53.8 51.6 7iin-ing 1.6 2.1 1.6 1.4 L-anufacturing and handicraft / 11.3 12.5 12.3 13.6 Construction 1.8 2.7 3.5 3.6 Trade ) 5. 5.4 5.7 Transportation, Communications and Power 16.8) 2.5 3.7 3.8 Services and other not sDecified ) 14.5 19.3 20.3 1/ For manufacturing industries only see Table 12. Source: 1925 and 1945:U.N. Economic Commission for Latin America; 1951: Population Census; 1958: Servicio Nacional de Aprendizaje, January 1959.  Table 2: TOTAL A1ND PER CAPITA GROSS NATIONiAL PRODUCT AT CTT.F.71T AND CONSTANT PRICES, 1945-58 G.N.3. Plopulation ''er capita AnnuEaTHate of Grow.fth Implicit (Current (1945 (million) CNP, 1945 of GNP in real terms Price Index Prices) Prices) Prices 1/2 (In millicn pesos) (Pesos) Total 7er capita 1 2 3 4 5 6 7 1945 2612 2612 10.2 257 100 1946 3190 2869 1 n0 is 276 9.8 7.4 111 1947 3888 3194 10.6 301 11.3 8.9 122 1948 4575 3334 10.8 307 4.4 2.1 137 1949 5452 3719 11.1 335 11.5 9.1 147 1950 6528 3847 11.3 339 3.4 1.2 170 1951 7371 4055 11.6 350 5.4 3.1 l82 1952 8226 4454 11.8 376 9.8 7.4 l5 1953 9231 4686 12.1 387 5.2 2.9 197 1954 10545 4851 12.4 392 3.5 1.3 217 1955 11487 5270 12.7 416 8.6 6.3 218 1956 12697 5661 12.9 437 7.4 5.1 224 1957 14096 5451 13.2 412 - 3.7 - 5.8 258 1958 (Preliminary) 16200 5500 13.5 407 1,0 - 1.2 294  Table 3.:. NATIONAL INCOMTE,BY INDUSTRIAL SECTOR OF ORIGIN, 1945 - 1957 (In millions of pesos, current prices) Industrial Sector 1945 1950 1951 1952 1953 1954 1955 1956 1957 Agriculture 898 2352 2585 2770 3055 3433 3663 3908 4573 Mining 79 126 162 198 209 223 277 299 381 Building Construction 3 08 94 102 121 153 204 255 Manufacturing 285 790 867 960 1255 1393 1535 1744 1975 Trade 193 511 506 581 674 795 753 852 972 Finance, insurance and real estate 44 128 150 l80 213 264 297 375 440 Transportation 128 325 394 433 472 547 635 721 735 Communications and public utilities 33 61 70 76 97 99 109 159 171 Services 180 384 457 490 548 599 725 817 977 Government 153 367 394 476 499 534 634 713 763 Net purchases abroad - 12 - 79 - 98 - 62 - 63 - 42 - 60 - 41 - 95 Rentals 315 709 815 845 853 877 911 972 1051 Inventory adjustment -- -- -- -- -- -- -- -- -144 TOTAL 2334 5761 6394 7048 7932 S875 9627 10722 12054 Source: Banco de la Republica.  Table 4: NATIONAL INCOME BY INDUSTRIAL SECTOR OF ORIGIN, 1945 - 1957 (Percentage distribution) Industrial Sector 1945 1950 1951 1952 1953 1954 1955 1956 1957 Agriculture 38.4 40.8 40.4 39.3 38.5 38.7 38.0 36.4 37.9 Mining 3.4 2.2 2.5 2.8 2.6 2.5 2.9 2.8 3.2 Building construction 1.6 1.5 1.5 1.4 1.5 1.7 1.6 1.9 2.1 Manufacturing 12.2 13.7 13.6 13.6 15.8 15.7 15.9 16.3 16.4 Trade 8.3 8.9 7.9 8.2 8.5 9.0 7.8 7.9 8.1 Finance, insurance and real estate 2.0 2.2 2.3 2.6 2.7 3.0 3.1 3.5 3.7 Transportation 5.4 5.6 6.2 6.1 6.0 6.2 6.6 6.7 6.1 Communications and public utilities 1.4 1.1 1.1 1.1 1.2 1.1 1.1 1.5 1.4 Services 7.7 6.7 7.1 7.0 6.9 6.7 7.5 7.6 8.1 Government 6.5 6.3 6.2 6.8 6.3 6.0 6.5 6.7 6.3 Net purchases abroad -0.4 -1.3 -1.5 -0.9 -0.8 -0.5 -0.6 -0.4 -o.8 Rentals 13.5 12.3 12.7 12.0 10.8 9.9 9.5 9.1 8.7 Inventory adjustment -- -1.2 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Banco de la Republica.  Table 5: 20OSS DOIMESTIC INVESTMENT, 1945-1957 (In millions of pesos, current prices) Imports New building Domestic Increase Gross In- TOTAL of Capita:l construction Production in vestments goods of capital Inven- as % of goods tories GNP 1945 213 82 100 6 25 8.2 1950 650 300 232 15 102 10.0 1951 916 453 252 21 190 1204 1952 880 545 268 21 46 10.7 1953 1,190 796 335 36 22 12.9 1954 1,365 889 416 33 27 12.9 1955 1,413 919 390 35 69 12.3 1956 1,679 947 530 55 148 12.4 1957 1,733 823 571 102 237 12.3 Source: Banco de la Republica.  Table 6: INDICES OF ECONOMIC ACTIVITY, 1948 - 1959 (1952 = 100) R. R. Traffic Air Building Cement Electri- Electric Sugar Petrole- Gasoline Coffee Gold Pro- Freight Magdale- Freight Construc- Produc- city for Energy Produc- um Pro- Produc- Produc- duction na River carried tion tion industri- for all tion duction tion tion al use uses 1940 62.9 63.9 4.5 _ 26.7 28.5 29.4 34.8 66.1 46.0 88.3 149.7 1945 96.8 75.5 14.4 -- 430 46.6 45.0 57.0 59.0 50.5 102.3 120.0 1948 98.2 69.5 57.1 _ 51.6 64.1 67.6 76.5 61.5 63.2 111.0 79.4 1949 104.7 80.3 69.8 -- 67.5 74.2 778.1 97.5 76.8 85.0 107.5 85.1 1950 101.8 99.4 110.1 -- 82.3 84.2 88.0 103.1 88.0 89.8 89.1 89.9 1951 100.5 105.9 112,5 _ 91.9 88.6 92.9 111.7 99.3 92.1 95.4 102.0 1952 100.0 100.0 100.0 _- 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1953 101.8 104.8 99.9 100.0 123.9 119.5 113.2 122.9 101.9 97.7 131.8 103.6 1954 103.1 110.8 107.4 123.0 136.6 135.0 126.7 155.9 103.4 124.8 114.3 89.4 1955 102.1 125.0 100.1 111.0 148.4 151.0 142.8 164.1 102.7 219.1 116.6 90.2 1956 104.2 129.2 101.6 147.0 173.2 169.0 159.3 169.3 114.1 240.0 100.7 103.8 1957 112.8 125.8 91.9 137.0 174.5 139.6 176.0 151.5 118.0 264.7 95.9 77.0 1958 127.9 120.8 92.2 172.7 194.0 193.8 170.8 121.2 347.4 117.0 88.0 1959(October) -- -- -- 207.2 243.4* 238.2* __ 146.0 379.7 _ Absolute Fi- Tons Tons Tons Area in sq Metric Million K04H Metric Barrels Barrels Bags Troy oz. gure, 1958 (000) (000) (000) reters(000) Tons Tons (000) (000) 60 kg (000) (000) (000) Quantity: 6,345 1,936 115 2,707 1,217 504 1733 242,523 46,878 7,817 7,000 371,645 * September ** Index discontinued. Source: Departamento Administrativo Nacional de Estadistica and ,XXV Annual Report of the Banco de la Republica.  Table 7: AGRICULTURAL OUTPUT, 1957 Acreage Production Value (Hectares) (tons) (million pesoe) Coffee 9209000 365,100 1,846 Rice 190,000 350,000 247 Sugar cane 240,000 11,000,000 - Sugar (refined) 225,171 132 Suigar (broTwn) 550,000 W4 Bananas 194,000 1,359,000 405 Other fruits 83,000 149,000 248 Beans and other legumes 148,000 86,oo0 34 Garlic and onions 18,000 26,300 54 Tomatoes 3,000 36,000 10 Other vegetables 5,000 15,000 9 Corn 810,000 710,000 315 Potatoes 100,000 540,000 221 Barley 48,ooo 60,000 54 Wheat 150,000 110,000 94 Yuca 140,000 700,000 169 Cotton 63,000 57,700 69 Cocoa 35,000 15,000 49 Tobacco 22,052 37,600 72 Sesame seed 38A,000 25,000 23 Anise 3,000 1,500 2 Rubber 385 400 1 Figue (sisal) 20,000 12,000 4 TOTAL 3,230,437 - 4,462 Cattle, pork, sheep (slaughter) 666,593 1,247 Poultry 27 156 Fishing 30,102 25 Milk (000 liters) 2,427 1S238 Eggs (millions) 1,199 379 Other products 45 Acreage in pastures (ha.) 30,000,000 - TOTAL 3,090 N.B. Agricultural statistics in Colombia are considered unreliable. The data shown here were compiled by the Department of Agriculture through a critical aralysis of data published by a large number of official, semi-official and private organizations. Source: Ministry of Agriculture. Annual Report 1957-1958.  Table 8: IM,PORT REGISTRATIONS Major Agricultural Products, 1954- 1958 (In. millions of US t) 1954 1955 1956 1957 1958 Wheat 4.8 2.2 3.8 7.2 4.8 Barley (malt) 4.2 4.2 3.6 4.7 3.5 Copra 7.8 15.0 12.3 13.5 6.9 Fats and oils 5.6 1.6 0.5 4.2 0.2 Cocoa 8.5 8.5 5.7 8.1 5.0 Celulose 5.0 6.4 4.5 6.7 3.8 Paper 12.2 13.1 14.8 13.2 9.2 l,ool and wool tops 14,7 13.4 12.1 10.6 6.8 Cotton 4.4 1.7 3.2 9.2 4.8 Rubber 2.4 5.9 5.7 5.7 5,0 Oats 0.3 0.5 0.6 0.7 0.5 Source: Asociacion Nacional de Industriales. "La Sustitucion de Imortaciones de lvlaterias Primas".  Table 9: PRODUCTION OF CRUDE OIL AND REFINED PRODUCTS, 1953 - 1958 (In thousands of barrelsof 42 gallons) Refinery Products Crude Total Fuel Gasoline Diesel Kerosene Other Oil Oil Oil 1940 25559 3460 1695 1035 133 129 468 1945 22825 4884 3094 1142 200 183 265 1950 34059 9509 6131 2060 553 338 427 1951 38398 9907 6391 2201 584 362 369 1952 38683 11489 7596 2272 648 400 573 1953 39430 11920 7880 2193 769 435 643 1954 3998l 11401 6269 2752 991 417 972 1955 39711 14145 5522 4727 1456 974 1466 1956 44131 15293 5427 5089 1995 1139 1643 1957 45744 18378 7206 5623 2522 1247 1780 1958 46901 24222 9530 7368 2777 1473 3074 1958 (Jan-Oct) 38608 19170 1959 (Jan-Oct) 44402 23270 Source: 1Hinistry- of l4ining and Petroleum  Table 10: PETROLEUThI PRODUCTION BY FIELD AND PRODUCING COMPANIES August 1958 and August 1959 Date Output Field Producing Company Started August '58 August '59 (1000 of 42 gal. bls.) Barco Colombian Petroleum Co. June 31 808.7 786.9 Cicuco Colombian Petroleum Co. Jan. 58 279.6 785.2 Yondo Shell-Condor S.A. June 45 762.4 696.0 Cantagallo Shell-Condor S.A. Dec. 47 71.6 85.8 El Dif'icil Shell-Condor S.A. Aug. 48 30.3 28.3 San Pablo Shell-Condor S.A. Nov. 55 206.9 357.0 Tetuan Texas Petroleum Co. Aug. 53 37.8 32.2 Palagua Texas Petroleum Co. Nov. 56 226.4 326.1 ErmLitano Texas Petroleum Co. Jul. 57 18.1 12.3 Sogamoso Texas Petroleum Co. Feb. 58 6.1 4.8 P.P. Guaguaqui-Teran Texas Petroleum Co. Jan. 49 689.6 878.6 Totumal International Petroleum (Col.) Ltd. Dec. 55 4.2 3.2 Aquachlica International Petroleum (Col.) Ltd. Dec. 55 2.7 0.7 P.P. Trinidad y International Petroleum Lagunitas (Col.) Ltd. Sep. 57 1.3 -- Lebrija An-Son Petroleum Corp. Jul. 58 -- 7.5 Floresanto Amkirk Petroleum Corp. Jan. 58 -- 0.1 De i4ares Empresa Colombiana de Petroleum 1925 860.9 843.9 TOTAL 4.006.6 4.848.6 Source: Ministry of iLining and Petroleum  Table 11: PRODUCTION OF vI-FMALS, 1956-1957 UJnit 1956 1957 Barite Tons 7,600 6,314 Calcite " 100 350 Kaolin 2,275 6,709 Coal 2,000,000 2,580,000 Limestone 1,830,600 1,737,000 Cement 1,220,426 1,326,000 Sulphur 5