Recent economic developments in Ecuador

 k . J. Noo E 83 1 CONFIDENTIAL 1 This report is restricted to those members of the staff to whose wO~.'k it directly ::elates 0 66991 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT RECENT ECONOMIC DEVELOPMENTS IN ECUADOR February 21, 1950 Economic Department Prepared by: Vittorio Malrama  RECENT ECONOMIC DEVELOPMENTS IN ECUADOR SID.1MARY AND CONCLUSIONS 1. The drastic fall in the value of Ecuadorean principal exports (rice and cocoa) has caused a ~13.6 million deficit in Ecuador's 1949 balance of paYJ''1ents. Net holdings of gold and foreign assets have accordingly decreased by;12 million. 2. A ~:2 million deficit is officially forecast for 1950. This improvement, however, will largely depend upon the success of the government in keeping the pressure on the import market under control. 3. Future prospects for marketing Ecuadorean rice are poor, unless substantial reductioll of domestic costs can be achieved. Prospects for marketing cocoa are, on the contrary, good. In any case, however, material improvements in Ecuador's export trade, if any, can only be anticipated for the years after 19$0. 4. A strong pressure on the import market is, on the other hand, likely in 1950, particularly as a consequence of the reconstruction needs arising from the Ambato earthquake. The recent readjustments in the exchange system do not seem adequate to curb this pressure. $. The burden of the foreign debt is not very heavy, but any further foreign financing must be weighed against the expected tight situation of the balance of payments in the near future. 6. Inflationary pressure was kept under control in 1949 largely as a result of the deflationary impact of the balance of payments deficit. Indications are that in 1950, serious inflationary pressures are likely to develop as a result of internal reconstruction expenJiturea and the inability o£ Ecuado~ to continue financing an import deficit on the 1949 scale.  RECENT ECONOHIC DEVELOPNENTS IN ECUADOR This paper is intended to bring up to date the information contained in the tlReport on the Economy of Ecuador" of September 20, 1948. Balance of Payments Ecuador's balance of payments deteriorated sharply in 1949, chiefly as a result of the reduced value of Ecuadorean principal exports, rice and cocoa. Table I in the Appendix shows the trend in Ecuador's balance of pa~~ents since 1946, plus preliminary estimates of current transactions in 1950. A surn..'11arized version of the table is given below (current transactions only) : (Uillion U.S. Dollars) 1946 1947 ...,..... 1948 1949 1950 Exports (f.o.b.) • It • • • • • • 38.5 44.7 48.3 32.8 36.6 Imports (f .o.b.) ........ -31.0 ..45.9 -44.0 -36.5 -31.6 Trade balance ....... 7.5 - 1.2 4.3 - 3.7 5.0 Invisibles (net) ••••••• - 8.9 -10.,1 -10.1 - 9.9 - 7.0 Current Accounts Balance ......... - 1,,4 -11.3 - 5.8 -13.6 .. 2.0 The relaxation of controls on an extensive list of import items at the end of 1946 led to a sharp rise of imports in 1947 while exports increased only moderately. The resulting deficit on current account of :;)11.3 million was only partially offset by capital inflow so that a large outflow of foreign exchange took pla'.:e (see Table I). ~Jore efficient controls on imports in 1948 achieved under a plan agreed to with the r: 1..4', together VIi th the continued expansion of exports, improved the situation. The deficit on current accounts dropped to ~~5. 8 milIion and was more than offset by capital transactions.  - 2 - The renewed difficulties in 1949 were primarily due to the drastic drop in the export values rather than to unfavcrable developments on the import side. As a matter of fact, L~ports were reduced, but apparently no effective effort was made to reduce them to a level comparable with exports. Only on November 16 the Eouadorean lionetary Board made effective more restrictive rules on imports and later (end of December) a reclassification of imports, involving higher rates of exchange for a larger group of them, took place. Of course these measures came too late to Lmprove the balance of pa~nents of 1949. The deficit on current accounts for that year is now estimated at "13.6 million. From available information it appears that it was met chiefly by short-term loans granted by the Federal Reserve Bank of New York 1Jdth gold as collateral and to a lower extent by a net outflol!'! of foreign exchange and by grants given to Ecuador by various oountries of Latin Amerioa and by Ethiopia after the earth- quake (see Table I). The impact of the first two methods of compensatory financing upon the international liquidity position of Ecuador is shown by the following table in which groEiS and net gold and foreign exchange holdings of Ecuador as of 1/ December 31, 1947, 1948 and 1949 are indicated;- (Hillion U.S. Dollars) 1947 1948 1949 .................................... 20 .. 4 20.6 20.6 Gold Foreign Exchange ......... ........... ., 6 .. 2 7.3 5.9 Total Gross ......... ., ........ 26.6 27.9 26.5 Short,·-I::,erm Foreign Liabilities ....... - 2,,3 - 2.,2 .,.12.8 Total Net ................... 24.3 25.7 13.7 " (Figures originally in sucres have been converted at the rate of 13.50 suores per ~). 11 Source: IFS and Banco Central del Ecuador.  - 3 - For 1950 Ecuadorean authorities expect an improvement in the balance of payments, the deficit on current accounts being estimated at only (:2 million. How this marked improvement will be brought about is a matter of discussion. According to the Ecuadoreans (foreign exchange budget) it \vill come primarily from a drastic cut in imports, but also from an expansion of exports. These equilibrating movements should be induced by the readjustments of Ecuador's multiple exohange structure introduced last December (see later). Foreign Trade Ecuador's foreign trade is largely channelled into dollar markets. J:.pproxi- mately 80~~ of her exports and imports are shipped to or come from countries of the dollar area. Thus there doee not exist in Ecuador, a convertibility problem. like in other South P~erican countries (e.g. Brazil, Peru, Uruguay). Ecuador's principal exports are rice and cocoa; they represented about two-thirds of total proceeds from expo~ts in recent years. In 1949 the values of these e:xports fell sharply: the rice exports dropped from· 13.7 million in 1948 to .4.7 million in 1949, cocoa exports dropped from.'14 to)S.6 million (see Table II in the Appendix). Hence the hardships experienced by Ecuador1s balance of payments during last year. The fall in the proceeds from rice exports was almost entirely due to an unprecedented reduction in export volumes: in 1949 exports of rice amounted to 68 million pounds as compared to 139 million in 1948. Such a reduction is explained by the improved world rice production which has narrowed important outlets for Ecuadorean rice. On the other hand, the Ecuadoreans are not in a position, because of their high costs of production, to makret their rice at substantially reduced prices. In 1949 they obtained average prices of 8.7¢ per pOlli~d (f.o.b. Ouayquil) in the first semester and 6.9¢ in the second semester which "Tere presu.rnably l'emunerative, but curbed the volui'ue of exports. By the end of 1949 Ecuador was confronted with an accumulation of stocks of rice estimated at 150 million pounds. At the same t~ne, the best quotations for rice were around 5.6¢ per pound. In order to meet the emergency, the  - 4- government stepped into the picture .vith a decree dated December 2, establish- ing a rate of exchange for rice exports of 17 sucres per dollar (as compared to 13.13 sucres before). This rate is temporary and should be abolished as soon as the residual exportable surplus of rice of the last crop (120 million pounds) is marketed, but, in any case, prior to April 30, 1950. There are doubts, however, whether the new rate will be sufficient to move all or even a substantial amount of the surplus rice. Short-term prospects on rice exports are unfavorable. Ecuador's exchange budget forecasts for 1950 shipments abroad of some 108 million pounds at an average price of 5.5 cents per pound. Should this forecast materialize, Ecuador I S exchange proceeds from rice eA'})orts would amount to : ,5.9 million; this figure is slightly above the 1949 level, but appreciably below the level of 1948 (see Table II). 'l'he actual and expected movements of Ecuadorean rice in 1949 and 1950 are shovvu in the following table (million pounds): Opening stocks Opening stocks Janua~J 1, 1949 •••••••••••••• 55 January 1, 1950 ••••••••••••• 147 Production, 1949 •••••••••••••••. 240 Production, 1950 •••••••••••••• 150 Total available ••••••••••• 2W Total available •••••••••• 297- Domestic consumption ••••••••••• 80 Domestic consumption •••••••••• 80 Available for exports •••••••••• ~ Available for exnorts ••••••••• 217 Exports, 1949 •••••••••••••••••• 68 Exports, 1950 .: ••••••••.•••••• 108 ClOSing stocks Closing stocks December 31, 1949 •••••••••••. 147 December 31, 1950 ••••••••••• 109 Recent information indicates, however, that the forecast of rice exports in 1950 is probably over-optimistic. The competitive international price for better qualities of rice is expected to run at some 5 cents per pound f.o.b. in the near future. Ecuador exports primarily average qualities of rice: the anticipated price of 5.5 cents in 1950 seems therefore too high. In a recent 1/ study of the Economjc Department- it has been pointed out that Ecuador, in order to meet competition, will have to market its rice at a price of 2.5 cents per pound f.o.b. The Ecuadorean Government is at present striving, with the Y Prospects for the Marketins of Ecuado:r;ean Rice, October 5, 1949.  -5- technical assistance of IBEC~ both to reduce costs and to improve qualities but one may be skeptical about the prospects of such undertakings, at least in the short run. Turning to Ecuador's cocoa exports, the fall in proceeds during 1949 was entirely due to the sharp drop in the international price of this commodity. In volume terms, Ecuadorls shipments abro'ad in 1949 were actually above the 1948 level (38.5 million pounds compared to 36.8 million). Prospects for marketing Ecuadorean cocoa are favorable: prices are expected to increase from an average of 21.3 cents per pound (f.o"b. Guayaquil) in 1949 to an average of 23.6 cents in 1950. However, the volume of exports is expected to drop to 33 million pounds, because of an anticipated reduction in output. Proceeds from cocoa exports in 1950 are therefore projected in the exchange budget at ~7.8 million compared to ~8.6 million in 1949 and $14 million in 1948 (see Table II). Should the present development program of the government be Successful and output increase, it does not seem that Ecuador will find difficulties in marketing its cocoa, thus restoring one of its lnajor sources of foreign exchange. Other Ecuadorean exports include coffee, bananas, panama hats and petroleum. These exports yielded in 1949 satisfactory proceeds and are expected to give steady returns in the near future. Particularly good in 1950 are the prospects for coffee and bananas. It should be noted, moreover, that the proceeds from coffee exports anticipated in the exchange budget are probably too lor! when the recent increase in prices is taken into account. The exchange budget forecasts sales of 30 million pounds at an average price of 23 cents per pound (f.o.b.). Currently Ecuadorean coffee is selling at 40.5 cents per pound in New York. Assuming, conservativelYI an average price of 35 cents per pound (f,o.b. Guayaquil) in 1950, the proceeds will amount to $10.5 million instead of ~;6. 9 million as projected in the exchange budget.  -6- Total exports proceeds in 1950 are anticipated in the exchange budget at $36.6 million as compared to $32~8 million in 1949 (see Table I). If this forecast probably involves an over-estimate in view of the uncertain rice market$ such an error is more than offset by the under-estimated proceeds from coffee exports. On the import side, Ecuador trade is distributed by cormnodity as follO'ws: 55% capital goods and raw materials; 15% foodstuffs; and 30% others. These commodities come to a very large extent from the United states (70-7:?~ of the total value of ~~ports). Including other Western Hemisphere countries, the percentage rises to 80-8?%. The exchange budget for 1950 forecasts a reduction of imports (c.i.f.) from $43.9 million in 1949 to ~38 million in 1950. Consider- ing that the bulk of Ecuadorean imports consists of commodities which are not domestically manufactured and that the need for them has exceptionally increased in recent times as a consequence of the damages caused by the earthquake of last August (estimated at $80 million), it may be suggested that suqh a rigorous control over imports will not prove feasible - or, if successfully brought about, may seriously hamper the reconstruction and development progra~s of the country. A substantial relief will however derive from the $7 million loan recently granted by the Export-Import Bank to the Ecuadorean Government for reconstruction purposes. Ecuador t S exchange bu~t.., not taking into account the Eximbank loan, forecasts a deficit on current accounts in 1950 of ~2 million compared with $13.6 million in 1949. The previous analysis shows that this may turn to be a reasonable expectation. 1/ Foreign Debt- The amount of Ecuador's foreign debt outstanding as of December 31, 1949 totaled some $24.3 million, of which the "old" and "new" portions were some y From Economic Department, The External Debt of Ecuador, October 12, 1949, revised as of December 31, J.949.  - 7- $12.5 million and $11.8 million respectively.. The "oldl! debt arises from the financing of the Guayaquil and Quito Railway in the late 1890 f s and is largely held in Britain. This debt has been in default since 1929. The "new" debt consists of intergovernmental credits extended to Ecuador since the beginning of World lilar II, primarily obligations to the U.S. Eximbank. The total foreign debt will increase to ~a7.5 million as undisbursed Eximbank credits of ra3.2 million are fully utilized. The net external lia- bility, however, should not exceed ~33.5 million since an estimated $4 million of the "old" debt is believed to be owned by the Ecuadorean Government. Finally, and in addition to the above, interest arrears on the lIold" debt have accumulated to nearly $20 million. Although various offers and discussions have taken place between the Ecuadorean Government and the British Council of Foreign Bondholders concern- ing a settlement of the "old" obligations (the last Ecuadorean offer recorded was made in 1945), no agreements have been announced so far. The differences, however, between Ecuadorfs last offer and the counter-proposals of the Council do not appear to have been large, so that it would not seem impossible to arrive at some mutually satisfactory settlement. The status of the "newt! debt a.s of Decelnber 31, 1949 is indicated in the follo1;ting table. For further details on the Eximbank loans see Table III in the Appendix. (Thousand U.S. Dollars) Lender Principal Outstanding Amount Undisbursed Exinlbank ..................... . 10,833 13,202 U. S. Government ••••••••••••• 469 Venezuelan Government 11 ..... 500 1l,B02 13,202 This debt emerges from the financing by the Venezuelan Government of the Ecuadorean participation to the Great Colombian Merchant Marine, a tri- partite shipping company established in 1946 and including Colombia, Venezuela and Ecuador~  - 8- Assuming (a) that terms similar to those agreed upon by Chile in negotiat- ing external debt settlements with foreign bondholders in 1948 were taken as a basis for resuming service of the "old" debt, (b) that one-third of the "01d" debt vras held internally, and (c) that Eximbank credits are drawn down on their closing dates, the annual external servicing charges for both the 1I01d" and "new" debts would total some $2.6 million in 1950" reaching a maximum of ~2.9 million in 1951, and declining gradually thereafter. About five-sixths of the estimated charges pertain to the "new" debt which has been regularly serviced to date. The peak annual service costs (~i2.9 million), if the "old" debt is settled as assumed above, would amount to some 8-9% of estimated 1949 exports. However, when measured against Ecuadorfs exports to the U.S. alone, which may be more relevant since praotically the whole debt is denominated in dollars, the same percentage would be more than doubled. Exchange Rates The above-described remedial changes in exports and imports are e:<:p8cted to be brought about, at least to some extent, by readjustments in the multiple exchange structure of the country introduced December 29, 1949. tlhtle the parity rate of the sucre remains unchanged at 13.50 sucres per dollar, proceeds from exports (except rice exports) will now get an effective rate of 15 sucres per dollar compared with 13.13 sucres before. Rice export- ers, as mentioned earlier, will receive a provisional preferential rate of 17 sucres to be financed with the proceeds deriving from the "5-sucres-per- dollar" surcharge levied on the imports falling under categories Band C. On the imports side, rates are left unchanged, but a reclassification of imports between categories has taken place, according to which import categories now include: Cat. A, 44% of the total value of imports in 1949 as against 62% in the old system; Cat, B, 37% as against 33%; Cat, C, 19% as against 5%.  - 9 - Table IV in the Appendix indicates the new and old exchange rates. In addition, a new system of compensation has been established for pro- ducts (like balsa wood, ivory nuts, et cetera) which are in small demand or have low prices on the international market. Exchange proceeds of these exports will be used by importers of cars, silk and other products previously included in Category C. The readjustments of Ecuador's multiple currency structure (including the reolassification of imports), when roughly weighted by the value of cur- rent transactions that each of them affects, indicate that to date Ecuadorts devaluation averages 12%. The Ecuadorean Government has apparently enacted the new exchange measures without the required approval of the IMF. A Fund mission went to Ecuador early in December; it suggested strong action to correct the fundamental dis- equilibrium in Ecuador's balance of paJ~ents, primarily through the curtail- ment of imports. The mission was substantially in agreement with the Ecuador- ean Eonetary Board plan (see 'l'able V in the Appendix) which would have entailed an average devaluation of more than 20%. However, the Government of Ecuador pointed out that more drastic readjustments could not be introduced for poli- tical reasons. The I~;1F believes that the adopted readjl,lstments will not be enough to cor- rect the disequilibrium of Ecuadorfs balance of payments, and it is now con- sidering its future policy toward that oountry. Public Finance Inflationa~J pressure has been present in Ecuador since the end of the war. The fiscal budget, however, does not seem to have contributed to this pressure, at least in the last three years. The disclosed figures on the ordinary and extraordinary budget and the special accounts show for 1947 and 1948 net surpluses of 10.3 and 16.4 million sucres respectively. Although,  - 10 - as pointed out in the "Report on the Economy of Ecuadorn, this may not be an accurate reflection of the true aggregate position (not all the government operations are included in those disclosed accounts), the sharp decrease from 155 million sucres at the end of 1946 to 52 million at the end of 1948 in the credits of the Central Bank to the government seems to indicate a sound fiscal situation. In 1949 the ordinary budget estimated a deficit of 51 million sucres resulting from expenditures of 436 million sucres and receipts of 385 million. Actually, the consolidate~ budget showed a net deficit of 27.4 million sucres at the end of July. It seems, however, from recent information (Fund mission to Ecuador) that also in 1949 the government has not incurred a cash deficit, due to the practice of reducing expenditures to keep them in line 'with receipts. Central Bank credits to the government increased slightly through July, de- creasing thereafter to a level of 51 million sucres at the end of December (compared to 52 million at the end of December 1948). The 1950 ordinary budget forecast receipts and expenditures at 388 million sucres as detailed in the following table (thousand sucres); Revenues Expenditures National properties ••••••••• 8,850 Education •••••••••••••••••• 76,760 National services •••••••••• 21,190 Labor and defense •••••••••• 75,600 Taxation •••••• , •••••••••••• 349,425 Public Vforks ••••••••••••••• 42,180 Other •••••••••••••••••••••• 8,765 Social insurance ••••••••••• 38,440 Interior •••••••••••••••••• , .36,095 Others ••••••••••••••••••••• 119,155 Total ••••••• ~ •••••••••••••• .388,2.30 Total ••• ~ •••••••••• , ••••••• 388,230 In addition I an extraordinary budget has been announced which is largely devoted to the reconstruction of the areas damaged by the Ambato earthquake. It calls for receipts and expenditures of 138 million sucres as detailed in the following table (million sucres):  - 11 - Revenues Expenditures Eximbank Loan •••••••••••••• 36.7 Ministry of Public Works •••••• 72.3 Central Bank Loan •••••••••• 26.6 Development plan 2/ ••••••••••• 17.5 Institute of Social Insur. National defense - •••••••••••••• 13.0 Loan ••••••••••••••••••••• 12.0 Provincial works •••••••••••••• 11.7 Securities Stabilization other •••••••• , ••••••••••••••••• 23.8 Fund Loan 1/ •••••••••••. 28.0 Arrears ••••: •••••••••••••• ~ 35.0 Total •••••••••••••• 138.3 Total .............. ., .. 138.3 !J This Fund sterilizes 107; of the "5-sucres-per-do11ar fl surcharge levied on the sales of exchange for imports falling under Categories Band C. Y This plan is carried out by the Corporacion de Fomento Which was established at the beginning of 1949. Assu~ing that the Ecuadorean Government will succeed in keeping both the ordinary and the extraordinary budget in balance, an expansion in the money supply of 55 million sucres (stemming from the loans of the Central Bank and the Securities Stabilization Fund to the government for financing the extra- ordinary budget) will occur in 1950. An inflationary factor is, therefore, already contained in the fiscal operations planned for the current year. Money Supply Y,Thereas, from the fiscal point of view no fresh contribution to the inf1a- tionary pressure has been apparent in the last two years, from a credit point of view the situation has been quite differe~ The following table indicates the total expansion of credits 1I',hich has taken place in 1948 and 1949 (million sucres): Dec. 31, i 1947 Dec. 31, 1948 Dec. 31, 1949 Central Bank 1/ ••••••• 119 127 145 Central Bank credit to Development Banks ••• 7 28 177 Commercial Banks •••••• 379 458 507 Y Total •••••••••••••••• 505 6:U 829 Credits to official entities and business and individuals. It does not include credits to government. As of November 30, 1949.  - 12 - The credit expansion is to be ascribed chiefly to rediscount operations of the Central Bank, primarily with the Provincial Development Banks. 11 These operations amounted to 200 million sucreS in two years (50 million during 1948 and 150 million in 1949). The Central Bank policy was originally motivated by the necessity of offsetting a downward trend in economic activity, but recently it has been mainly due to the implementation of the government support program of the rice crop, which has been carried out through the Provincial Development Banks. No less than 90 - 100 million sucres have been devoted to this program in the second semester of 1949. The credit expansion has inflated the money supply as shown in the fol- lowing table (million sucres): Dec. 31, 1947 Dec. 31, 1948 Dec. 31, 1949 Currency •••••••••••••••••••••• 329 345 352 Deposit money .................. 284 308 357 Total ••••••••••••••••••• 613 653 709 The relatively moderate increase in the money supply in 1948 is due to the fact that the expansion of credits in the private sector was to a large extent offset by the 55 million sucres decrease of Central Bank credits to These banks were created in 1944 in each province of Ecuador. Together Tlith the National Development Bank established in 1948 with coordinating functiore, they form a system, called tlSistema de Credito de F'omento", They operate chiefly with: (1) their own capital, 50% of which derives from the tax and the surcharge levied on the sales of foreign exchange; (2) loans from credit institutions, primarily the Central Bank; (3) deposits of private individuals and institutions and of government agencies. They made different types of loans in the last five years, mainly development loans to ~gricultural and industrial activities. At the beginning of 1949, a Corporacion de Fomento was established. It works in close contact with the "Sistema de Credito de Fomento" and derives its funds chiefly from the "5-sucres-per-dollar ll surcharge levied on the sales of exchanges for imports falling under categories Band C. The proceeds from this surcharge go 81% to the Corporacion, 10% to the Securities Stabilization Fund, and 9% to the Develop- ment Banks. Since December 7, 1949, however, part of funds previously going to the Corpol'acion have been diverted to otheJ' purposes, namely to the financ- ing of the l7~sucres-per-dollar b~ing rate for rice exports, a change which may seriously deplete the Corporacion receipts.  - 13 - the Government (see previous section). In 1949, on the contrary, the moderate increase in the money supply was due to the deflationary impact of the balance of payments deficit, estimated at around 150 - 160 million sucres at the end of November. The index of wholesale prices of home consumed goods has increased from 364 (January/June 1939 =100) in 1947 to 388 in 1948. In 1949 the index has shown an increase up to 442 in Harch, decreasing thereafter to a level of 365 in November. At present it is difficult to predict whether or not the pressure upon the credit market in 1950 will be heavier than in the past two years. Largely it will depend upon the movement of rice exports and the support policy of the government. It seems l however, likely that a rise in prices will occur in 1950 if for no other reasons than because of the inflationary impact of some methods of financing of the extraordinary budget. The danger of inflation will be a fortiori greater the more the government succeeds in its policy of ~urbing imports and thereby reduces the balance of payments defioit.  TABLE I ECUADOR Balance of Paymen~* (million US dollars) 1946 1947 f948 1949 19;0 Goods and Services 1/ Expo'rts (f.o.b.) ••••••.•.••• Imports (f.o.b.) •••••••••••• 38..5 -31.0 44.7 -45.9 48.3 -44.0 328"2/ -36.~ 0 36.6 -31.6 Trade balance ••••••••••••• 7.5 - 1.2 4.3 - 3.73/ 5.0 Non-monetary gold movements. 2.1 2.2 2.6 2.(2 Transportation ••.• ~ ••.••..•• -7..5 -10.3 - 9.3 - 7.44/ - 6.4 Investment income ••••••••..• - 1.2 - 1.1 - 3.0 - 3. Q!:!; other .... ....................... Total ................... - 2.3 - 1.4 - .9 -11.3 - .4 - 5.8 - 2.1 -13.6 - 0.6 - 2.0 other Non~Compensatory Transactions Private and institu- tional remittances •••••••• .4 .4 -- 5/ Direct investments •••••••••• 8.1 6.7 6.2 4.cr Other private capital movements ..••••.••.•...••• .7 -il.O -- 6/ Drawing on loans •••••••••••• .5 .8 2.8 1.S=- Amortization •••••••••••••••• Subscription: D.1F , IBRD ••••• - .4 - 1.1 - .3 - 1.2 - .6 - 1.0 Total ••. , •......•......... 9.2 5.4 8.4 4.8 Errors and Omissions .... 3.1 - 5.2 - 1.6 - 5,1 Surplus or deficit (-) ...... 4.7 -U.l 1.0 -13.9 Compensatory Official Financing Foreign exchange •••••••••••• - 4.4 11.1 - '.8 1.4 Monetary gold ••••••••••••••• Short-term loans •••••••••••• - .3 - .2 10.5 Grants •••.•••••••••••••••••• 71 2.o.!.. Total ••••••••••••••••••••• - 4.1 u.l ;.,. 1.0' 13.9 t. * Data for 1946, 1947 and 1948 are from lFS. Data for 1949 are those of the Ecuadorean exchange budget plus rough estimates as indicated in the footnotes. Data for 1950 are derived from the exchange budget. (continued)  - 2 - NOTES ON TABLE I Exports were estimated at $34.6 million in the 1949 exchange budget. However, as of December 7, 1949, rice exports amounted to $4.5 mil- lion compared with an estimate of $6.4 million. It is expected that in the last part of the year no more than an additional $0.1 million of rice was exported. The total value of exports has been accordingly reduced by $1.8 million. Sf Imports are recorded c.i.f. in the exchange budget. Costs of transpor- tation and insurance have been calculated on the basis of the ratio imports-costs of transportation existing in 1948. 11 .In the Ecuadorean exchange budget exports of non-monetary gold are not recorded. They are roughly estimated at the same level of 1948. ~/ The exchange budget does not indicate the amount of foreign exchange paid as investment income. It has been roughly estimated at the same level of 1948. No data available. It may be noted that at the beginning of the year direct investments were estimated at $8 million. To what extent they have materialized during the year is not known. It is known, hovfever, that foreign direct investments were far below expectations. It is assumed that they amounted to 50% of what expected, that is to $4 million. It refers only to Export-Import Bank Loans. Grants to Ecuador as a consequence of the earthquake were as. follows, as of November 17, 1949: Venezuela, $1,000,000; Uruguay, $337,500; Colombia, $81,380; Peru, $30,000; Chile, $12,500; Ethiopia, $280,000. Total, $1.73 million. This total has been rounded to $2 million in order to take into account possible additional grants up to December 31.  TABLE II ECUADOR Principal Exports of Ecuador in Recent Years * (million us dOllars) ·1947 1948 1949 1950 Cocoa ............................ 14.3 14.0 8.6 7.8 Rice ••••••••••••••••••••••••••••• 15.5 13.7 4.7 5.9 Coffee ••••••••••••••••••••••••• 0. 4.0 1.2 5.6 6.9 Bananas and Fruits •••••••••••••• .1 2.2 4.0 5.5 Panama Hats ••••••••••••••••••••• 3.6 3.8 4.0 4.0 Petroleum .........•..•...... " .. 3.2 2.7 3.0 2.8 others •••••••••••••••••••••••••• 3.4 4.2 2.9 3.6 - Total •••••••••••••••••••••• 44.7 47.8 32.8 36.5 * Excluding non-monetary gold. Source: 1947 and 1948: Data as recorded by Central Bank purchases of foreign exchanges. 1949 and 1950: Exchange budget.  TABU: III EOUADOR Status of U.S. ExPort-Import Bank Loans to Ecuador -- as of DecQmber3i-.-"1949 -----------~--.---.-- Gross Cancel- Net Amount Amaun t Name Number Purpose Authorized lations Authorized Repaid Outstanding Undisbursed 12/31/49 _ 12/31/49 Republic vf (262 Materials, equip. and :'~cuadcr._...... (316 services $ 6,480,000 $ 20.810 $ 6.459;170 $1.844.800 $4,614,370 Ecuador Development Oorporation 5,000,000* Pan-American Highway (Ouenca-Loja) 1.230,000 Agricultural ResearCh and Experiments 50,000 Railway EqUipment 200,000 Municipali ty••• 328 Materials, equip. and 4.000,000 4.000,000 100,255 749,745 ),150,000 of Q,uito service~ - water works (Republic of Ecuador) Municipality of. 328 Materials, equip. and 4,000,000 4,000,000 238 ,841 3,761,159 Guayaquil (Re~ services - water works public of Ecuador) Republic of ••• 343 Pan-American Highway 2,.311,900 2,311,900 272,500 1,707,500 331,900 Ecuador (Guamote-Tambo) Republic vf ••• 432 Q,uevedo-~~nta Highway 2,720,000 2,720,000 2,720,000 Ecuador. (additional credit) Republic of, .-, 471 Highway maintenance and 7.000,000 7,000,000 7,000,000 Ecuador railway eqUipment. $26,511,900 $ 20,830 $26,491,070 $2,456,397 $10,832,773 $13,201,900 (*) Of which $2,500,000 was used on the Q,uevedo-Manta Highway.  TABLE IV ECUADOR ECUADOR'S DEVALUATION (On the basis of Information Available February~ 1950) (sucres per dollar) Pal' Old Present Percent Rates Rates _Change Parity 13.50 1.3050 Buying Adjusted basic rate ~I ....... 13.13 All exports, except A) 15.00 Same~ except 12.4 part of banana pro- 7/ rice. ceeds. B) 17.00- Rice exports. 23.3 Basic rate •••••• 13.40 Registered capital and specified in- visibles surren- dered to Central Bank. 15.00 Same 10.6 Free Market y .. 18.20 Invisibles and banana exports pro- ceeds not surrendered 8/ to Central Bank. 18.20- Same Selling Basic rate • • 4p • • • 13.50 Registered capital and specified author- ized remittances. 9/ ,... Same Adjusted basic rate A 1/ ...... 15.175 Essential imports (Cat. A) and specified in- 10/ visibles. 15.17S Same-- Adjusted basic rate B ~ •••••• 20.175 Semi-essential imports ill (Cat. B). 20.l75-Same 12/ Free Market A V. 24.875 other imports (Cat.e) 24. 87>Same Free Market B £I. 18.39 other invisibles. 18.39 Same - (continued)  - 2 - NOTES ON TABLE IV Basic rate minus 2% tax on exchange transactions. Legal fluctuating rate as of Peeember 11" 1949 in Guayaquil. Banana exports proceeds falling under this rate approximate 50% of total sales abroad. Basic selling rate plus 5% tax on exchange transactions and a one sucre per dollar tax. cat. A imports averaged 62% of the total. ~/ Previous rate plus a 5 sucre surcharge. Cat. B imports averaged 33% of the total. The free market rate plus 5% tax on exchange transactions, a one sucre per dollar tax and a 5 sucre surcharge. Cat. C imports averaged 5% of the total. §/ Legal fluctuating rate as of December 11" 1949. J! This preferential rate \vas introduced December 7" 1949. It is intended as a provisional rate to be abolished as soon as the residual exportable surplus of the rice of the last crop (1.2 million quintals) is marketed, but, in any case, prior to April 30, 1950. The most recent free rate is not known. It is assumed to be at the same level of December 11, 1949. Not available. A reclassification of imports has taken place recently, according to which import categories now include: Cat. A, 44% of the total value of imports, Cat. B, 39% and Cat. C, 17%. 11/ and The free r.ate is assumed to be at the same level of Deoember 11, 1949. ,g/  TABLE V ECUADOR Ecuador's Monetary Board Devaluation Plan (sucres per dollar) Old Rates Proposed Rates Parity ••••••••••••••••••••.•••••••• 0 • • • • 13.50 18.00 Buying Adjusted basic rate ••••••••••••••••••• 13.13 18.00 Y Selling Adjusted basic rate A ••••••••••••••••• 15.175 Al 18.20 2:/ A2 19.20 '3/ Adjusted basic rate B ••••••••••••••••• 20.175 25.20 '4/ Free market rate •••• ~ ••••••••••••• O' • • 24 .. 875 25.30 :!i/ Notes: Y All exports, 31 Affecting 20% of the total value of imports. 11 50% of total imports. ~ 30% of total L~ports.