Announcement of Credit Extended to Ecuador by the World Bank, IDA, USAID and IDB on May 26, 1964

INTERNATIONAL BANI{ FOR RECONSTRUCTION AND DEVELOPME-NT INTI~~RNA'rIONAL DEVELOPl\tII~~NT ASSOCIATION 1818 H STREET, NW. WASHINGTON D.C.20433 TELEPHONE. EXEC.UTIVE 3-6360 Bank Press Release No. 64/19 Subject: Ecua.oor borrows from Bank, IDA, IDA Press Release No. e+/6 U .s. AID and IDB May 26, 1964 The World Bank and its affiliate, the International Development Association (IDA), have joined with the United States Agency for International Development (AID) and the Inter-American Development Bank (IDB) to provide the equivalent of $39 mil- lion to the Government of Ecuador for a $62.2 million five-year national highway program. The four organizations today signed document$ providing for a World Bank loan of $9 million; an IDA credit of $8 million; an AID loan of $13.3 million; and· an IDB loan of $6 million. AID ma.d.e a loan of $2. 7 million for the pro~am in· • September 1963; the remaining costs of $23.2 million are being covered by the Government of Ecuador. Progress in Ecuador. The program will :further the goals of the Af.liance for Ecuador's highway system, although still in a relatively early stage of de- velopment, constitutes the countryvs principal mode of transportation. The network comprises some 9,375 miles of roads and tracks, of which about half are all-weathe= and open to traf'fic throughout the year. F.a.rl!er loans from the World Bank and from AID and its predecessor agency, the Development Loan Fund (DLF}, assisted the construction or improvement of certain key roads throughout the country. These roads are already having a beneficial effect on the economy and a.re contributing to the prosperity of the areas they traverse. Transport costs have been reduced and agricultural production increased. This is particularly significant in the • coastal area; the bananas and cacao grown there now account for abaut three- quarters of the country's foreign trade earnings.  .. 2 - The fi've-year program bo.ing assisted by the f'our lending organizations will • be carried out in two separate but overlapping stages. Work under the second stage would be started after satisfactory progress has been achieved in the first stage. In the first stage, roads partly financed by earlier Bank and AID loans and certain other related road sections will be substantially compl~ted; main- tenance operations will be improved; and engineering plans prepared for an addi- tional 314 miles of roads to be built or improved in the second stage. All but one of the roads in the earlier Bank/AID-financed project are already open to traffic and need only minor work and some paving for their completion. The other road, which extends about 100 miles from Santo Domingo to Chone, is about two-thirds complete and requires additional earthworks, pavins: and bridges. Adequate maintenance is essential to protect the substantial capital inves~- • ments already made and to be made in highways. Some start was made in this direc- tion with the assistance of a.nearlier World Bank loan. ·The current maintenance program is directed at providing for the adequate maintenance of about 3,125 miles of surfaced highway by 19€,8. It includes strengthening the national maintenance organization, completion of workshops, warehouses and other facilities, the acqui- sition and operation of equipment, a training program for maintenance personnel, and the provision of labor, materials a.nd supervision necessary for its execution. The four new roads to be built or improved under the program are as follows: (a) ~e Santo Domingo-Quininde-Esmeraldas highway which passes through a pctentially rich and developing agricultural area. It links Santo Domingo, the center of a prosperous farming district With Esmerald~s, the country's third largest banana. shipment port. Colonization s~hemes a.i.~e in progress in the area with the assistance of Inter-Americ~n Development Bank financing. (b) The ~tl~"fedo-Baba.hoyo-Du,;•an highway which will constitute part of the future trunk network. This also passes through good farm.land and will !J?OVide considerably improved facilities for the internal distribution of local products now transported over trails and by water. •  - 3 - • (c) The CajabaiDba•Bucay-ChilcsJ.es high~ which Will form the mst iraport,a.ut southerc connection rietween the coa.sta.J. highway. system and the Pa.n Americe.n H1gl!wa.:, it th~ Sierra. Er-sting routes are often closed to traffic by bad weat;her a.nd landslides. The new road will facilitate the flow of goods and agricultural products between the rich mountain plateau and thte large consuming area around Guayaquil. ( d) The M. J. Calle-Ma.c·hala. highway wich forms pa.rt of the coastal trunk road connecting the provinqes of Gua.yas and El Oro. This road will open up a poten~ially rich agricultural region and connect it with other parts of the country. It will improve ·the distribution of foodstuff's in the country and at the same time en- large the market for products of Ecuadorian industry. The high priority of the maintenance and construction program is confirmed by the conclusions of a General Transportation Study recently undertaken by con- sultants provided by the Wqrld Ba.11k. The roads will make new and productive lands in the coastal region accessible to efficient transportation, will establish re- H&ble communications between important urban centers, and will considerably re- 6uce vehicle operating costs. Past experien~e in Ecuador has demon~trated that • when regions have been opened ~P by roads, agricultural production increases sub- stantially almost immediately and contin~1es to increase .for some time thereafter. The Min~stry of Public Works will carry . .1t the program. All phases are to be supervised and executed with the assistance of consulting engineers who have been retained by the Government. Construction contracts and ma. jor equipment pur- chases have been or will be awarded on the basis of i.n.ternational competitive bidding. The Government of Ecuador has taken important fiscal measures to provide ·in- creased reven\l.es for the program and for other highway expenditures, including de·ot service, local and penetration roads and other priority trunk roads. A uni- fied tax was for the f;.:rst time applied to a.ll banana e~orts. A National Highway Fund was established in the Central Bank to receive the revenues of several exist- • 1:ig taxes devoted to highways, ·part of the proceeds of the banana export tax, and other new revenues. From these sources, the Government will contribute about two- thirds of all the funds needed fo:r highway expenditures over the next five years.  - 4 - The World Bank initially reviewed the project for which the joint fina~cing was announced today •. The four lending organizations will cooperate closely on metters affecting the administration of the program. A Transportation Coordinating Committee, composed of representatives of the Government and of the four lending • agencies, will consult periodically regarding the program and transportation in- vestment in general. World Bank Loan The World Bank loan is for a term of 25 years, including a 5-year grace period, and bears interest at the rate of~% per annum including the 1% com- mission which is allocated to the Bank's Special Reserve. Bank of America National Trust and Savings Association and Grace National Bank of New York are participating in the loan, without the World Bank's guarantee, for a total of $120,000 repre- senting the first maturity which falls due August 1, 1969. • IDA Credit The IDA credit is for a term of 50 years. Repayment of principal will begin August 1, 1974, after a. 10-year period of grace. One percent of the principal will be repayable annually for 10 yea.rs a.nd 3% will be repayable annually for the final 30 yea.rs. The credit is free of interest, but a service charge of 3/4 of 1% per annum on the amount withdrawn and outstanding will be made to meet IDA's admini- strative costs. AID Loan The AID loan is for a term of 40 years, including a 10-yoar grace period, with interest at 3/4 of 1% for the first 10 years and r;4a thereafter. IDB Loan The IDB loan, made from its ordinary resources, is for a a term of 25 years, including a 4-1/2-year grace period, with interest at 5-3/4%, including the 1% commission allocated to the Bank's Special Reserve. Up to $5,400,000 of this • loa.n will be disbursed in u. s. dollars and the equivalent of $6oo,ooo in sucres. Irving Trust Company of New York has a.greed to part'icipate in early maturities of' the loan, without the guarantee of the Bank, for a total 0f $257,000.