Colombia - Second Education Project

RESTRICTED FILE COP y Report No. P-799 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF COLOMBIA FOR THE SECOND EDUCATION PROJECT April 30, 1970  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPENr REBORT AND RECOT.MNDATION OF TIE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROROSED LOAN TO THE REPUBLIC OF COLOMBIA FOR THE SECOND EDUCATION FROJECT 1. I submit the following report and recommendation on a proposed loan in an amount in various currencies equivalent to US$6.5 million to the Republic of Colombia. PART I - HISTORICAL 2. The proposed loan would be the Bank's second loan for education in Colombia. The first loan (552-CO) for US$7.6 million was made in Ju'l 1963 for the construction and equipment of ten comprehensive secondary schools representing the first phase of the Colombian Government's progr,-, for the reorganization and improvement of secondary education. The Bank has now been asked to help finance the second phase of the program, consis- ting of the construction and equipment of nine additional comprehensive secondary schools. 3. A Bank mission to Colombia appraised the proposed loan during May-June 1969, and negotiations were held in W4ashington during February 2-h, 1970. The Colombian Government was represented by Dr. Octavio Arizrieniodi, Minister of Education, who was assisted by several officials of the Itnistry and the Instituto Colombiano de Construcciones Escolares (ICCE) and by an outside advisor. 4. The proposed loan, which would be the fortieth made to Colombia, would increase the total amount of Bank loans to Colombia to US$624.8 million (net of cancellations). IDA has made one credit of US$19.5 million for highways in Colombia. The following is a summary statement of Bank loans and IDA credits to Colombia as of March 31, 1970:  2- Loan or Amounts (US$ Million) Credit Undis- No. Year Borrower Furpose Bank IDA bursed Fully disbursed loans and credits 313.7 19.5 345 1963 Acerias Paz del Rio, S.A. Steel 30.0 1.0 369 1964 Empresas Publicas de Medellin Fbwer 42 0 12.4 Lh8 1966 Government Agriculture 16.7 6.L 451 1966 Banco de la 3epublica Industry 25.0 2.1 499 1967 Empresa Nacional de Communi- Telecommunicaciones cations 16.0 9.7 502 1967 Instituto Colombiano de Irrigation 9.0 8.5 la Reforma Agraria 534 196S3 Banco de la Republica Industry 12.5 6.1 536 1968s Empresa de Acueducto y Alcantarillado de IWater Bogota Supply 14.0 8.6 537 1968 Empresa de Energia Electrica de Bogota Pbwer 18.0 1l.0 550 1968 Government Roads 17.2 11.-i 551 1968 Ferrocarriles Nlacionales Railways 18.3 16., 552 196e Government Education 7.6 6o . 575 1968 Interconexion Electrica,S.A. Power 18.0 13.5 624 1969 Government Agriculture 17.0 17.0 625 1969 Banco de la Republica Industry 25.0 24.9 ,651 1)69 Government Agriculture 18.3- ___ Total (less cancellations) 618.3 19.5 17'2.9 of which has been repaid to Bank and others 128.5 Total now outstanding 489.8 Amount sold: 17.5 of which has been repaid 15.3 2.2 Total now held by Bank and and IDA 487.6 19.5 17 2.9 * Loan not yet effective.  -3- 5. Twenty-three loans have ';een completely disbursed. The Executi-ve Directors were previously informed that the Closing Date on Loan 385-CO had been postponed to June 30, 1971, to permit the undisbursed balance to be used largely to pay for equi-pmernt which was delivered late for reasons beyond the control of the borrower (R69-2l5). In 1967, the Executive Directors approved an amendment to the Loan Agreement for Loan 369-co, split- ing the loan into two tranches and postponing the Closing Date by two years to December 31, 1970 (R67-136). Effective December 26, 1963, US$5 million of the undisbursed balance of Loan 369-Co was cancelled, and a further US$4 - 5 million is likely to be cancelled prior to the new Closing Date. Disbursements under Loan 499-oO have proceeded more slowly than originally anticipated primarily as a result of an overly optimistic estimate of the Borrower's administrative capacity, but the project works are now progressirnr, satisfactorily and are expected to be completed by December 31, 1971, one year later than the original Closing Date. Disbursements on Loan 502-CO started more slowly than projected due to an underestimation of the time required to finalize engineering and agricultural plans, but most of the construction works are now underway, and the loan should be fully disbursec: by the original December 31, 1972 Closing Date. On the remaining loans disbursements are continuing at a normal pace. While US$6.4 million of Loan 448-cO remains undisbursed, the purpose of this loan is to finance ranch development plans, through sub-loans to livestock producers, and these plans generally take about three years to carry out. It is ex-pecte6 that disbursement of Loan 446-00 will be completed on schedule. 6. IFC has made 34 investments and underwriting commitments in sevenv- teen enterprises in Colombia totalling US$17.9 million (net of cancellati0);,S. PART II - DESCRIPTION OF THE PROPOSED LOAN 7. Borrower: aepublic of Colombia. PUrpose: Construction and equipment of nine comprehensive secondary schools to provide space on a two-shift basis for 31,000 students. Amount: Equivalent in various currencies of US$6.5 million. Amortization: In 30 years, including a ten-year grace period, through 41 semi-  a al insrtaliments beginning N4ovember 15, 1980 and ending NIovember 15, 2000. Interest rate: 7 percent per annum. Commitment Charge: 3/4 of one percent per annum. PART III - THE FROJECT 8. A detailed description of the Project is given in the attached report entitled "Colombia - Appraisal of a Second Education Project (FE lOc:). 9. Current projections of manpower requirements indicate that Colomb;^, needs to restructure its secondary educational system in order to increase the number and improve the training of students in the fields of industry, business, agriculture and social services over the next decade. Some increa3- in the total number of students educated by secondary schools and insti- tutions is necessary to attain these objectives, but more important is an increase in the ratio of pre-vocational to academic students. The Govern- ment's comprehensive secondary school program should make an impcrtant contribution to improving this ratio and to improving the quality of edu- cation received by pre-vocational students. A Bank loan of US$7.6 million made in 1968 is financing the first phase of this program, consisting of the construction and equipment of ten schools which, when completed and operating on a double-shift basis, will provide places for 48,000 student,,. Construction of the ten schools is ahead of schedule, and the first school has recently been inaugurated. The Second Project involves the constructio. and equipment of an additional nine schools which would accomodate, on a double-shift basis, 31,000 students. The physical facilities of the nine- teen schools will permit the implementation of curricula specially prepared for these schools and which are designed to expand opportunities for educa- tion in industry, business, agriculture and social services. The schools will prepare students for employment or further technical training, but a ; offer sufficient academic education to qualify students for higher levels of education. 10. . The total cost of the Second Project is estimated at the equiva- lent of US$13.0 million, including interest during construction, with a foreign exchange component of about US$5.s million. The proposed loan would represent 50 percent of the Project cost and would cover the estimates foreign exchange component plus the equivalent of US$600,000 of local cost~. In view of the key importance of the Project to Colombia's efforts to make the educational system more relevant to its developmental requirements, I consider it appropriate and justified for the Banlc to finance one-half of the Project cost, the same percentage as financed for the first project, with the consequent financing of a small part of the required local expenc- ditures.  11. The proposed loan would finance the cost of construction of the school buildings, procurement of equipmijent and furniture, site development, architectural consulting services, and technical assistance required for the continuing development of programs and methods for teaching industrial and agricultural subjects. The loan would finance in full the foreign exch,-.Ng- costs of equipment and furniture proctired abroad, the costs of technical assistance, and interest and other charges during construction. The loan would also reimburse the Borrower for 30 percent of the costs of civil works, architectural consulting services, locally procured equipment and furniture and project administration. Equipment and furniture would be procured, and construction contracts would be let, under the Bank's normal internatio- nal competitive bidding procedures. At the request of the Government domes- tic manufacturers of equipment and furniture would be granted a margin of preference equal to the existing general rate of customs duties for the goods involved or 15 percent of the c.i.f. price of the goods, whichever is lower. 12. The Instituto Colombiano de Construcciones Escolares (ICCE) is the agency attached to the Hinistry of Education which is responsible for plan- ning and coordinating school construction programs. The first project is being implemented by the Project Unit established for this purpose withifu ICCE, and this Unit would be responsible also for the administration of the Second Project. The Director of the Project Unit as well as the Project architect and educator would be subject to Bank approval. Experience under the first loan, where the Project Unit designed and supervised construction of one of the project schools, shows that it is capable of undertalcing an increased architectural and engineering responsibility and it would, there- fore, be permitted to design and supervise construction of a maximum of four schools in the Second Project. Consultants would be employed to design and supervise construction of the remaining schools. The Project Unit would continue to be responsible for curriculum development and the coordination of teacher training in preparation for the new syllabi. PART IV - LEGAL INSTTRIUNTS AND ATTHORITY 13. The draft Loan Agreement between the Republic of Colombia and the Bank, the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement, and the txt of the Resolution approving the proposed loan, are being distributed to the Executive Directors separE.- tely. 14. The draft Loan Agreement contains provisions customary for educato:;- projects. The Borrower would undertake to staff the Project schools with a majority of full-time teachers, to cause committees of community represen- tatives to be formed for each Project school to cooperate with the school  - 6 - in keeping vocational course curric0la up to date and in assisting graduates to find employment, to cause all Project schools to be operated in accordance with the new, diversified curricula and on a double-shift basis by January 1, 1978, and to cooperate with other educational insti-- tutions offering agricultural courses in Colombia in up-dating and com- plementing their agric!Altural courses. PART V - THE ECONOMY 15. The latest economic report of February 10, 1970 (ItH 197a) noted a continuing improvement in Colombia's economic situation. In recent years the gro-wth rate of the economy has accelerated, fiscal revenue of the Government has shown rapid increases, exports of non-traditional products have expanded at a rapid rate, there has occurred a major increase in exchange reserves, and domestic price increases have remained moderate. In addition, favorable developments in the world coffee market, on which Colombia still depends for the major share of its exchange receipts, are now expected to lead to a further acceleration of growth of income and exports. Official planning is now based on a GDP growth rate of the order of 7 percent per year, compared to actual growth rates of 6.5 percent in 1969, 5.8 percent in 1963 and below 5 percent in the preceding years. 16. While recent improvements have been gratifying, sustained efforts on a large scale will be needed for the solution of Colombia's basic deve- lopment problems. Among these are urgent needs to reduce underemployment in the rural areas and to raise income of the rural population, which accounts for half the total population; to reduce open unemployment in the urban centers and to make possible absorption into productive urban employ- ment of the continuing influ: of the labor force from the rural hinterland'. which occurs at the rate of 5.5 percent per annum; to step up substantially educational opportunities, particularly for the largely illiterate rural population; and to continue with rapid diversification of the export stfuc- ture, in order to reduce excessive dependence on coffee and to expand the basis for progressive and lasting alleviation of the foreign exchange cons- traint. .17. Development strategy in recent years has concentrated on the esta- blishinent of infrastructure, particularly in transportation, badly needed in a country of Colombia's size and topography. During this period great attention has also been paid to agriculture, and as a result the rate of agricultural growth at present is about 5 percent p.a. compared to the postwar trend rate of 3-3.5 percent. The rate of industrial growth was relatively moderate in the past, about 6 percent p.a. It is now expected to accelerate in response to higher rates of income growth and improvemeni in the supply of imported materials and equipment. Sustained acceleration, however, will also call for more ample domestic credit.  - 7 - 18. The increased level of investment needed to achieve a higher rate of growth will require a large dom:estic saving effort and external financial support. Recent efforts to mobilize domesticre6ources are reflected in the rapid growth in central government revenues and savings. 19. The present e,:ternal public and publicly-guaranteed debt of Colomb -, including undisbursed amounts, is about USl.L4 billion. Its debt service ratio is now 12.5 percent. The terms on which the debt has been contracteo are favorable, and Colombia does not have a serious problem of short-term indebtedness. Both debt outstanding and debt service are expected to increase during the 1970's, which will tend to accentuate Colombia's vul- nerability to fluctuations in its foreign exchange earnings during this period. However, if export diversification continues to be successful, it will reduce the impact of the coffee cycle, which is the main cause of trade fluctuations. ES.ports other than coffee and petroleum have grown from US$73 million in 1964 to US$117 million in 1967, US$178 million in 1968 and US$200 million in 1969. The Government has resolved to talce all measures needed to sustain a vigorous growth rate of these non-traditional exports. 20. Assuming continued favorable action in the fulfillment of the fiscal and export targets (as outlined in Report WH 197a) needed to sustai. Colombia's investment and external borrowing intentions, the Government's external financing plans seem reasonable even though they imply an increase in external public debt from US$1.4 billion at the end of 1969 to US$2.3 billion by 1973. If exports and domestic savings develop as expected, the debt service ratio will increase from 12.7 percent in 1968 to between 16 and 17 percent in 1973 and tend to level off thereafter. Wlith the continua- tion of present policies Colombia should therefore, be judged creditworth_ for additional external borrowing. PART VI - COMPLIANCE WITH THE ARTICLES OF AGREEMENT 21. I am satisfied that the proposed loan would comply with the ArticJ' of Agreement of the Bank. PAIRT VII - RECOMNIENDATION 22. I recommend that the Executive Directors approve the proposed lo_n.. Robert S. McNamara President Attachments Washington, D.C. April 30, 1970