Announcement of Loans to Ecuador on May 26, 1964

FOR :IMMEDIATE RELEASE • INTERNATIONAL DEVELOPMENT ASSOCWION Joint Press Release UNITED ST.ATES AGENCY FOR INTERNATIONAL IN.I'ER-AMERICAN DEVELOPMENT BANK DEVELO~ May 26, 1964 Suo.,iect: Loans to Ecuador The World Bank a.nd its affiliate, the International Development Association (IDA), have joined with the United States Agency fo;r International Development (AID) and the Int~r-American Development Bank (IDB) to provide the equivalent of $39 mil- lion to the Government of Ecu~d.or for a $62.2 million five-year national highway program. The f?ur organizatiot1s today signed documents providing f'or a World Bank loa_n of $9 miilion; an IDA credit of $8 million; an AID loan of $13.3 million; and an !DB loan of $6 million. AID made a loan of }2.7 million for the program in September 1963; the remaining costs of $23.2 million are being covered by the • Government of Ecuador. The program will. further the goals of the .Alliance for Progress in Ecuador. Ecuador's highway system, although still in a relatively early stage of de-· velopment, constitutes the country's principal mode of transportation. The network comprises some 9,375 miles of roads and. tracks, of which about half are all-weather and open to traffic throughout the yea:r. Earlier loans from the World Bank a.nd 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 are contributing to the prosperi't'Y 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 about three- • quarters of the country's :foreign trade earnings •  - 2 - • The five-year program being assisted by the four 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 complete'd; 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 o~en to traffic and need only ul!.~Jr work and some paving for their completionu The other road, which extends about 100 miles from Santo Domingo to Chane,. is about two-thi!ds complete and requires additional e;:u-thworks, paving, and bridges. Adequate maintenance is essential to protect the substantial capital invest- ments already made and to be made in highways. Some start was made in this direc- • tion with the assistance of an earlier World Bank loan. The current maintenance program is directed at providing for the adequate maintenance of about 3,125 miles of surfaced h:tghway by 1968. It includes strengthening the national maintenance o~ga.nization, 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 and. supervision necessary for its execution. The four new roads to be built or improved under the program are as follows: (a) The Santo Domingo-Quininde-Esmeraldas highway which passes through a potentially rich and developing agricultural area. It links Santo Domingo, the center of a. prosperous farming district with Esmeraldas, the country's third largest banana shipment port. Colonizatiqri schemes are in. progress in the area with the assistance of Inter-American Development Bank financing. (b) The Quevedo-Babahoyo-Duran highway which will constitute part of the future trunk network. This also passes through good farmland and will provide considerably improved facilities for the • internal distribution of local products now transported. over trails and. by water.  - 3 - • ( c) The Cajabamba-Bucay-Chi.lcales highway which will form the most important southern connection between the coast.al highway system and the Pan .American Highway in the Sierra.. Existing routes are often closed to traffic by bad weather and landslides. The new road will facilitate the flow of goods and agricultural products between the rich mountain plateau and the large consuming area a.round Guayaquil. (d) The M. J. Calle-Machala highway which forms part of the coastal trunk road connecting the provinces of Guayas and El Oro. This road will open up a potentially rich agricultural region and connect it with other parts of the country. It. will improve the distribution of foodstuffs 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 World Bank. The roads will make new and productive lands in the coastal region accessible to efficient transportation, will establish re- liable communications between important urban centers, and will considerably re- i. duce vehicle operating costs. Past experience in Ecuador has demonstrated that when regions have been opened up by roads, agricultural production increases sub- stantially almost immediately and continues to increase for some time thereafter. The Ministry of Public Works will carry out 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 major equipment pur- chases have been or will be awarded on the basis of international competitive bidding. The Government of Ecuador has taken important fiscal measures to provide in- creased revenues for the program and for other highway exp~nuitu.res, including debt service, local and penetration roads and other priority trunk roads. A uni- fied tax was for the first time applied to all banana exports. A National Highway Fund was establish~rl in the Central Bank to receive the revenues of several eit.:ist- • ing taxes devoted iJo highways, part of the proceeds of the banana export tax, and. other new revenues\,, From these sources, tne Government will contribute about two- thirds of all the f~l}';Jd.s needed for highway expenditures over the next five years.  - 4- The World Bank initially reviewed the project for which the joint financing • was announced today. The four lending organizations will cooperate closely on matters 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 ere di t is for a term of 50 years • August l, 1974, a.f'ter a 10-year period of grace. Repayment of p'rincipal will begin One percent of -the principal will be repayable annually for 10 years and 3% will be repayable annually for the final 30 years. 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 c0c;ts. AID Loan The AID loan is for a term of 40 yea.rs, including a 10-year grace period, with interest at 3/4 of 1% for the first 10 years and 'c!/a thereafter. IDB Loan The IDB loan, made from its ordinary resources, is for a a term of 25 years, including a 4-l/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 loan will be disbursed in U.S. dollars and the equivalent of $6oo,ooo in sucres. Irving Trust Company of New York has agreed to participate in early maturities of' the loan, without the guarantee of the Bank, for a total of $257,000.