World Bank Document

R RNbF[UTO1'- 1 11; t\}COPY RESTRICTED REPORTS DES Annexes II to VII to Report No. WH-119b I WITHINI Public Disclosure Authorized 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 The report may not be published nor may it be quoted as representing their views.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 INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized

ANNEXES

AN APPRAISAL OF

THE DEVELOPMENT PROGRAM Public Disclosure Authorized OF COLOMBIA

August 3, 1962 Public Disclosure Authorized

Department of Operations Western Hemisphere TABLE OF CONTENTS

AIXNEX

I Balance of Payments (attached to main report)

Annex Tables (attached to main report)

II Domestic Financing of Public Investment

III Agricultural Production Targets

IV Immediate Agricultural Production Support Measures

V Production and Investment Targets in Manufacturing

VI Petroleum, Coal, and Other Extractive Industries

VII Public Investment, by Sectors:

Section A. Public Investment in Transportation

" B. Public Investment in Electric Power

" C. Public Investment in Telecommunications

" D. Public Investment in Land and 1:.Tater Development

" E. Public Investment in Agrarian Re,form and Low-Income Problem in Agriculture

" F. Public Investment in Education

" G. Public Investment in Housing

" H. Public Investment in Water and Sewerage ANNEX II

DOMESTIC FINANCINGFOF PUBLIC IWJB7TINThiT

Recent Trends

1. Tn the past, financing of nublic inrestment has relied greatly on public savings, i.e. the surplus of current government revenue over current government exDenditures, as indicated in Table 1:

Table 1: FINANCING OF IflS3TM1NUT OF PUBLIC SECTOR J (in millions of pesos at current prices) 1950 1955 1957 1958 19$9 Taxes 724 1,605 1,80k 2,268 2,596

Other Current Revenue 1_8 319 4B5 610 649

Total Current Revenue 872 1,924 2,332 2,878 3,245

Current Expenditures 731 13324 1,608 2,069 2,227

Government Savings 141 6oo 724 809 1,018

Investment Expenditures 251 8L5 867 959 1,161

Government Davings as percent of Investment Expenditures 56 71 84 84 88 j The term"oublic sector!used in this table comprises the national government, the departments, the municipalities, the decentralized institutions and public enterprises (e.g. rower and transport enterprises).

Source: Development Plan

Although comprehensive data are not available for 1961 and 1962, it is clear that government savings have declined and that substantial reliance has been placed on domestic borrowing for financing public investment. - 2 - ANIEX II DOMESTIC FINANCING

CURRENT REVENUE

Main Sources of Revenue

2. Structure of Current Revenue. About three-quarters of current revenue is provided by taxes, and the rest by oil royalties, departmental monopolies, fees and fines. Of the tax revenue, some 40 percent is attributable to the national income tax. The legislation on income taxcs was substantially changed by enactment of Law 81 of 1960. Under this reform tax rates for taxable incomes of up to 36,000 pesos ($4,500 equivalent) remained unchanged, tax rates on incomes of 36,000-70,000 pesos (C4,500-10,000equivalent) were lcwered, and rates on income higher than 70,000 pesos were increased. Other changes included a more equitable taxation of the different legal forms of enterprises, tax exemptions for basic industries and tax incentives for private savings. A further 20-25 percent of tax revenue is provided by import duties which also accrue entirely to the national government. Present import duties are based on the Tariff Reform Law of 1959, under which duty rates were increased. The remaining 35-40 percent of tax revenue is provided by taxes on the consumption of liquor, beer, tobacco and gasoline, by taxes on business establishments, real estate property and automotive vehicles, and by a great number of other minor taxes. The majority of these taxes accrues to the municipalities and the departments. The following paragraphs describe income tax and import duties, the main source of revenue. In summary, Colombia has a relatively advanced tax system in comparison with other Latin American countries. 3. Taxes on Income of Natural Persons. The income tax on natural persons consists of a combination of taxes on income, property and excess profits. There is also a special tax, based on a modified taxable income, for financing steel and electric power development. This tax obligation can be discharged in part by subscribing to shares of the Paz del Rio steel company until the capitalization of the company has been comoleted. Livestock owners nay an additional special tax for financing livestock development. Taxation starts theoretically on income above 2,500 pesos a year ($MOO equivalent), but because of deductions for family members most income below 8,000 pesos ($1,200 equivalent) will not be taxable, This explains why the number of taxpayers in Colombia is relatively small. In 1961 some 47o,ooo persons paid income tax, compared to an economically active population of 2.3 million in urban areas. Nevertheless, rising incomes and better tax enforcement have brought about a rapid increase in the number of taxpayers over the last ten years, as shown in the following table: Number of Taxpayers

1952 106,000 1955 138,000 1958 293,000 1961 h68,000 1962 (estimate) 508,000 Source: Ministry of Finance, Division of National Revenue. - 3 - ANNEX II DOMESTIC FINUICING

4. Income Groups and Tax Rates. According to 1959 statistics, about 80 percent of all taxpayers have a taxable income of 12,000 pesos or less. If deductions for family members are taken into account, a taxable income of 12,000 pesos would correspond to a gross income of some 20,000 pesos ($3,000 equivalent), This income group comprises industrial workers and the majority of salaried employees. Total taxes on an income of 12,000 pesos (including the special tax for steel and electric power development) are approximately 4.5 percent, provided that there is no substantial property, Tax rates remain fairly modest for the middle- income groups. A higher-salaried employee, having a taxable income of 22,000 pesos (corresponding to a gross income of about 30,000 pesos or $4,500 equivalent) and a property of 100,000 pesos would pay an aggregate rate of 9 percent on his income. However, tax rates on higher earnings go up rapidly, particularly by the addition of the excess profits tax on certain forms of income. A person having a taxable income of 100,000 pesos ($15,000 equivalent) and a property of 300,000 pesos ($hS5,000 equivalent) would pay an aggregate rate of 26-43 percent, according to the type of his income (the lower rate would apply if his income were derived exclusively from his salary). A person with a taxable income of 250,000 pesos ($37,000 eauivalent) and a property of 1 million pesos ($150,000 eciivalent) would be subject to a maximum aggregate rate of 49 percent. In 1959, only 336 persons wiere reported to have taxable incomes of 250,000 pesos or more. As the above examples show, the rates on higher incomes are fairly substantial even if compared to rates in industrialized countries. The result is that most of the income tax burden is carried by persons in the upper-income brackets. In fact, the 21,000 taxpayers who in 1959 earned 22,000 pesos or more provided more than 80 percent of the income tax revenue (see Table 2 below).

Table 2: TAXATION OF N.6TURAL PERSONS 1959

Income Group Number of taxpayers Tax payments in Pesos persons in % of total in. 000 Pesos in %.of total up to 12,000 231,000 82 26,300 8 12 - 22,000 26,000 10 24,000 8 22,000 & more 21,000 8 261,900 84

260,000 E/ 100 312,200 100 a/ This total has been adjusted later to 343,000; however, no breakdown into income groups is available for the adjusted total.

Source: Ministry of Finance, Division of National Revenue. - 4 - ANNEX II DflMPSTIC F1JTANTCING

5. Income Tax Enforcement0 The tax on urban incomes is generally well enforced. Every person who wishes to nerform any legal act (e.g., purchase or sale of oroperty) or to deal with govermnent authorities (e.g., seeking employ?nent, requesting passports, etc.) whether his income is taxable or not, has to submit a certificate which states that he has complied with the income tax regulations. Enforcement of the tax on rural incomes, however, has been difficult. Special provisions for the valuation of cattle readily permit the establishment of tax losses which can be, and in fact are, offset against income from other activities. There are also provisions under which property which does not produce taxable income can be exempt from the property tax, whith is -- as explained above -- a part of the general income tax. Finally, the valuation of land as such is lagging, and more than half of cadastral land values (except in the Department of Antioquia and in the city of Bogota) are likely to be below actual commercial values. In a great number of recent revaluation cases the new value has been more than double the previous cadastral value.

6. Taxation of Business Profits. Corporations are subject to a graduated corporate tax levied at the rate of 12 percent on the first 100,000 rnesos, 24 percent on the excess of 100,000 pesos up to total profits of 1 million pesos, and 36 percent on larger amounts. They are also subject to special taxes for tlhe development of steel, electric power and housing. Though the graduation of the corporate tax penalizes corporate growth at a certain level, the low initial rate in general does not discourage small business establishments with growth prospects, from availing themselves of the many advantages of tha corporate form. A company with a net worth of 800,000 pesos ($120,000 equivalent) earning 200,000 pesos or 25 percent of its net worth, is subject to an aggregate tax rate of 36 percent. A company with a net worth ten times this amount ($ 1.2 million equivalent) ancl also writh Orofits equivalent to 25 percent of its net worth is subject to an aggregate rate of 47 nercent. Such a rate is fairly high even compared to corporate tax rates in industrialized countries. Nevertheless, the form of shareholding comnany has proved quite attractive, particularly since the tax reform of 1960, which narrowed greatly the difference between the tax treatment of companies with limited liability and that of corporations. In 1961, 137 new corporations were formed, compared to 97 in 1960 and 26 in 1959. Limited liability companies are subject to a graduated tax of 4, 8 and 12 percent according to the size of their earnings. The difference between these rates and the rates applicable to shareholding corporations is in part offset by taxation of the partners; moreover, if a majority of the shares of a limited liability company are owned by a corporation, the company is treated for taxation as a corporation.

7. Tax Exemptions and.. Reductions. Tax exemptions or reductions can be granted to "basic" industries and to industries wfhich are "complementary to the production of iron." Among the former are a-wide number of industries producing chemicals, basic non-ferrous metals, - 5 - ANNEX II DOMESTIC FINANCING machinery, equipment and tools. Among the latter are industries which use, to the extent of more than 50 percent of their input, products the steel plant Paz del Rio or imported products bartered against Paz del Rio steel. Within this group of industries, tax exemptions can be granted to all enterprises (old or new) which are established until December 31, 1965. The tax holiday extends over the business years 1960-69, i.e., over taxes payable in 1961-70. Shareholders of exempt enterprises are likemise exempt from taxes on dividends and property if the enterprises are "new," i.e., if they have been established since the 1960 tax reform. A special tax exemption has been granted to the automobile assembly industry (Decree 0177 of February 1, 1956). This exemption, which does not apply to shareholders, terminates either at a predetermined date or when total profits reach 150 percent of paid-in capital. Enterprises in other activities can form during 1960-69 a "reserve for economic development" up to 5 percent of their annual profits, provided that the counterpart of this reserve is used for the production of raw materials and other goods substituting for imports (according to a list of goods to be prepared by the Planning Council). Since the provisions on tax exemptions and reductions are fairly new it is not possible yet to assess their effect on present and future tax revenue. Until February 1962, only 15 companies had applied for exemption from income tax on their 1960 profits, and the final decision of the Government upon these was still pending. Judging from the wide possibilities of tax exemptions and reductions offered by the law, the loss in revenue could become substantial. (Additional tax exemptions designed to stimulate exports are summarized in Annex I, p.6.)

8. Import Duties. The Colombian tariff consists of a combination of' specific and ad valorem duties based on the c.i.f. value of the imported product. Up to May 1961, the first ten percentage points of the ad valorem part of the duty were payable in U.S. dollars to be purchased in the free exchange market. As from June 1961, the whole import duty is payable in pesos which has slightly reduced the tariff burden since the U.S. dollars had to be obtained at an agio price. The revenue from import duties in 1960 and 1961 has not increased to the extent which could have been expected from the increase in rates in 1959 and from the increase in imports. The lag in revenue is explained by the growing volume of tariff exemptions afforded to all entities in the public sector and to a great number of private enterprises. Private imports exempt from duties presently comprise taxis; automobile chassis to be used for public transport; machinery and equipment for enterprises in the fields of petroleum, steel making, metal manufacture, automobile assembly, fertilizer and rubber; and raw materials and semi- finished products used in the assembly of automotive vehicles and rubber tires. The extent of revenue loss is shown in Table 3. - 6 - A2NaEX II DOMESTIC FINANICING

Table 3: IMPORT D1UTIES (in millions of pesos)

Calculated Not paid as a re- 3 as % Total Paid sult of exemption of 1

1957 239 184 55 23 1950 279 193 86 31 1959 492 361 131 27 1960 802 568 234 29 1961 (first half) 4h 284 160 36

Appraisal of Plan Targets

9. Overall Targets, The Colombian Planning Office projects an increase in total current revenue from 3 billion pesos in 1959 to about 6 billion pesos in 1965 (in 1961 prices) and to 8.9 billion pesos (in 1961 prices) in 1970. Most of the increase would be provided by the growth in tax revenue based on existing tax legislation. Beginning in 1963, additional revenue is projected from the levy of new taxes but the amounts do not become substantial until 1965 (see Table 4 below).

Table 4: PLAN TARGrSTS FOR CURIREIIT GOVMEVNTM REVENUE aJ (in millions of 1961 pesos) b

1959.2I 1961 1962 1963 196)4 1965 1970

Current Revenue

Existing Taxes 2,172 3,413 3,778 4,063 4,346 4,534 6,187 New Taxes - - - 103 267 1472 1,306 Other Current Revenue 820 702 732 809 856 958 1,409

Total 2,992 4,115 14,510 14,975 5,469 5,964 8,902 aJ The term "current government revenue" comprises the current revenue of the national government, the departments, the municipalities and the gross income (other than government transfers) of decentralized institutions.

J Except data for 1959 which are in 1959 pesos.

#/ Source: Budget Office, Presentation of 1962 Budget Proposal.. - 7 - AMNNTY II DOIMSTIC FITAiTING

10. General Observations on Plan Targets. The mission found it extremely difficult to appraise the Plan targets in any detail. The historical series of revenue on which the targets are based do not, in many instances, agree with the series published by the Budget Office. In some cases the differences between Plan figures and Budget Office figures are substantial. The mission has tried -- in cooperation with the CEPAL assistance group -_ to find the causes of the differences, in order to reconcile the data. This attempt has succeeded only to a limited extent, and the mission has doubts about the reliability of the basic data used in the Plan. The main reasons for disagreement appear to lie in differences or inconsistencies in the:

a. classification of direct and indirect taxes and of tax and non-tax revenue;

b. coverage of decentralized institutions (some were not included in the Plan);

c. treatment of income of decentralized institutions;

d. coverage of social security contributions (the Plan figures are higher than the Budget figures);

e. estimates of municipal revenue (not all municipalities report their revenue to the national government);

f. price deflators used in the conversion to 1958 prices of 1959 and 1960 data expressed in current prices.

11. Further difficulties exist in the appraisal of the targets. The grouping of revenue types chosen in the Plan does not permit exact comnarisons with performance (except in the grand total) unless the Budget statistics are revised. The mission has brought the p?roblem to the attention of the Planning Office and has stressed the need for recon- ciliation of Plan targets w.ith Budget data for observing Plan performance.

12. Projection of Income Tax Revenue. Preliminary results for 1961 indicate that, despite a growing number of taxpayers and higher incomes, income tax revenue increased verv little. This development had been partially foreseen in the Plan 1/. The reason for the slow growth lies in tax exemptions, reduced tax rates for middle incomes and other tax relief provisions enacted b-Y -the 1960 tax reform. Hloreover, the changes in the legislation inevitably created uncertainties and delays in filing and nrocessing tax declarations, resulting possibly in some understate- ment of tax liabilities. In the future, income tax revenue can be

1/ In addition to the regular income tax and special taxes on income, the Plan target for income tax includes lottery and absentee taxes. These, however, are minor taxes. - 8 - ANNEX II DOECSTIC FINANCING expected to resume its growth, particularly after the administrative mechanism has adjusted fully to the new legislation. In fact, a higher than normal increase can be expected for 1962 because of retroactive adjustments. The mission estimates that from 1963 onward income tax revenue will increase by some 10 percent a year on average, while Gross Domestic Product (GDP) grows by 5.6 percent a year. Thus the ratio between growth in GDP and growth in income tax revenue is assumed to be 1:1.8. Such a ratio, though slightly higher than assumed in the Plan (1:1.5), appears justified by the progressive nature of tax rates and the prospects for further rapid growth in the number of taxpayers. The realization of the targets would, however, require that tax exemptions for basic and other important industries be held to a minimum, and that the main possibilities for tax evasion, tax losses on cattle operations and exemption from the wealth tax of land yielding no taxable incomes, are removed by changes in the law.

13. Projection of Import Duty Revenue. Although the volume of impor-ts increasedi in 1961 as anticipated, revenue from import duties fell some 100 million pesos short of the budget estimate, exceeding the 1960 result by only DOmillion pesos. The main explanation for the shortfall lies in the gEowing extent of exemptions, the effects of which on revenue had obvio-asly not been foreseen. For the same reason the budget estimate for 1962 is probably too high by some 100 million pesos.. No comparable Plan projections exist for later years, The Plan targets for import duties include special consumption taxes and consular fees, the development of which is difficult to assess without detailed knowledge of their enforcement; the mission was assured, however, that the budget estimates for 1961 and 1962 are consistent with the Plan targets. The mission estimates that without changes in tariff rates, import duty revenue will increase from present levels at about the same rate as imports.

14. Projection of Other National Revenue, The mission has not attempted to appraise individually the great number of other current revenue items. It noted, however, that in 1961 the receipts of the national government from the central bank in connection with the coffee tax (which was payable directly to the central bank) had fallen some 40 million pesos behind estimates. Since the coffee tax was abolished effective January 1, 1962, the central bank has ceased to make payments to the national government, and the budget estimate of 75 million pesos of revenue in 1962 will, therefore, not be realized. The mission has the impression that this effect of the elimination of the coffee tax had not been foreseen by the Budget Office because of the very complex relationship between coffee tax, amortization of commercial debt and government revenue. The mission also noted that 26 million pesos in oil royalties payable in 1961 by the Government-owned petroleum company (Ecopetrol) to the national government had not been paid. The corresponding revenue estimate for 1962 -- also 26 million pesos -- therefore appears questionable. The aggregate total of "other national revenue," which declined in 1960 and 1961 because of lower receipts from the central bank linked to the coffee tax, will thus - 9 - ANTJFA II DOA,1E3TIG F-C,I11|4OCINOJ probably decline again in 1962 because of the termination of these payments. The mission estimates that from 1963 onw;ard revenue will grow by some 5 percent a year. The cormparison of Plan projections and rnission estimates is shown in Table 5 below.

Table 5: FROJECTI13H1 OF C0JRHIRT RPEflTiUE CF N'LATIONZ,L C-0',T;7 ( in mifliors of pesos)

Income Tax Import Duties Others Total Plan BERD Plan ITRD Plan IBRD Plan IBRD

1959 874 361 681 1,916 1960 1,028 568 536 2,132 1961 1,09g 1,053a/ 69 6V 592/ 704 528±a 2,499 2,173i/ 1962 1,290 1,180 819Ž! 640 613 510 2,722 2,330 1963 1,367 1,300 n,a, 68o n.a. 54o 2,921 2,520 1964 1,479 1,430 n.a. 730 n0a0 56o 3,113 2,720

1965 1,600 1,580 n.a. 740 n.a 0 590 3,202 2,910

3/ Provisional actual.

BJ Budget estimate,

15. Projection of Departmental Revenue. Most of the current revenue of the departments will continue to come from taxes on tobacco and beer and from royalties from departmental liquor monopolies. The mission has compared the Plar. projections w-ith actual revenue performance and revenue expectations of the Departments of Cundinanarca, Antioouia and Bolivar. It concluded that the projected increase in currert revenue of 5.7 percent a year during 1961-65 is very conservative.

16. Projection of Municipal Revenue. Unlike departmental revenue, which follow.s a fairly uniform pattern, the composition of municipal revenue varies widely from city to city. However, taxes on real estate and business establishmients appear to provide in most cases the bulk of the revenue. The mission has compared -the Plan projections with actual revenue Terformance and revenue outlook of the cities of Bogota, Medellin and Cartagena. It concludes that the projected increase of revenue of 9.8 percent a year appears reasonable though its realization jr.fly necessitate an increase in tax rates on real estate and business establishments. - 10 - A _ II D0JIIT1TIC FINAITChITG

17. Projection of Revenue from New Taxes. Because of the likely shortfall of national revenue and -_ as will be explained later -- the likely increase in current exoenditures, the need for new taxes will be greater than projected under the Plan. There are various alternative ways in which the required amount of new revenues might be raised. An increase in import duties could provide the bulk of the needed revenue. Other major revenue potentials would be an increase in the tax on gasoline or -- alternatively -- the imposition of special vehicle license fees. Additional revenues could be provided from taxation of domestically assembled automobiles and other semi-luxury and luxury items, from taxation of domestic air travel, movie tickets and telephones, and from an acceleration of land valuation. Table 6 below indicates the approximate revenue potential of the sources mentioned above. The table is not meant to be exhaustive, and the estimate does not express the maximum revenue obtainable.

Table 6: POTENTIAL RWV7NUE FROI'I ADDITION!AL TAXATION, COMPARED WITH R-N1UE REQUfIR5IMTS (in millions of 1961 pesos)

1962 1963 1964 1965

Poten-tial Revenue

Import Duties: a) increase Alternative A 1 3 0 a, 3h0 360 370 b) additional increase Alt. B. 130 340 360 370 Gasoline or Vehicle Licenses 40_/ 160 170 180 Domestic Air Travel 5b/ 20 20 20 Purchase of: Assembled Cars 25 50 50 Other Goods 5 10 10 Deficient Capitalization - 5 5 Patrimony: a) acceleration of revaluation _ - 30 30 b) increase of land values resulting from new highways - 20 20 20 Mlovie Tickets 10 25 25 30 Telephones 5 25 30 35 Total 320 960 1,080 l;120

Revenue ReQuirements 320 580 810 989

J Six months with gradual implementation over three months.

Ž7 Three months, - 11 - ANNTX II DOII0STIC F1l*P\ITC\G

18. Projection of Total Current Revenue. Table 7 shows the adjusted estimates of current revenue compared to Plan targets. The iten "new taxes" is a target rather than an estimate, and its realization depends on new legislation to be enacted br the Colomnbian Government e The entries in this item are substantially above Plan targets, thus compen- sating for the likely shortfall of national revenue derived under existing legislation. In 1963-65 total current revenue would be larger than projected in the Plan, in order to finance the higher level of current expenditures foreseen by the mission.

Table 7: PROJECTION OF CURRENT GOVERHMtEIT REVNEUE (in millions of 1961 pesos)

1961 1962 1963 1964 1965

National Entities

National Government (existing legislation) 2,173 2,330 2,520 2,720 2,910 National Government (new taxes) - 300 600 800 1,000 Decentralized Institutions 190 251 293 320 351 Social Security 150 167 184 202 222 Subtotal 2,513 3,o48 3,597 4,o042 4,483

Departments 624 659 696 736 778

Municipalities 647 712 777 831 939

Total 3,784 4 ,419 5,070 5,609 6,2O

Plan Targets 4,115 4,510 4,975 5,469 5,9 6 4

Difference (shortfall -) - 331 - 91 + 95 + JLo + 236

CURRENIT M'?EDITURM

Projection in General Plan

19. Total Increase. The volume of current expenditures, including transfer payments, as projected in the General Plan, would increase very substantially during 1962-65, as indicated in Table 8. - 12 - ANNEX- TI BC;}MSSTIC FIT.JCIUG'

Table 8: CURRENT EXPENDITURIS AS POJECTE IN GENEL PLAN (in millions of 1961 pesos)

1961 71962 1963 1964 1965

Total J 2462 2,822 3,063 3,308 3,545

including: Remuneration 1,510 1,756 1,885 2,016 2,150 Purchase of goods and services 8 468 505 544 5P5 Transfers _ b94 598 673 746 810

Percentage increase in total over previous year - 15.1 8.5 8.0 7.1

Jy'Total and Transf2ers component include interest but not debt amortization on external and internal debt.

20. The planned exnansion in education and health nrograms is the major factor calling for the projected increases in remuneration and purchases of goods and services in the Plan0 Increasing payments of interest on the internal and external debt account for most of the nrojectec?. increase in transfer exmenditures.

21. Breakdown by level of Government 0 The following expenditures by level of government indicates the predominance of the national governm.ent in the expansion of current exDenditures and transfer payments;

Table 9: CURRENT EXPE1DITURTS BY LEVEL OF GOVMEURENT AS P-ROJECTED IN GEMERAL PLANT

1961 1962 1963 1964 1965

Rational go-vernment 1,512 1,835 2,021 2,214 2,394 States 607 633 66o 689 719 1Municipalities 333 354 382 4o5 h32 1 - 13 - ANN7,X II DOh1ESTIC FI TATsCING

22, The largest component of the national government categony is national security, wh.lich includes both military and civilian police. This program constituted 30 percent of the national budget in 1961 and vould account for the same nercentage in 1965 under the General Plan. In contrast, education and interest would increase and general administration would decline in relative importance, as indicated in Table 10.

Table 10: COIPOSITION OF CUR!i2\TT V:aDITURE3 BY AXWOR C.RT3GORY (estimates of expenditures in millions of pesos)

Percent of National Budget Category 1961 1965

National Security 30 30 Education 16 20 Other Developmental Programs 28 24 Interest 6 11 General Administration 20 15

VWhile not growing relatively, the budget for Security would rise by about 250 million nesos between 1961 and 1965 under the General Plan, a larger increase than projected for any of the other categories. Most of this increase has already been reflected in the 1962 budget to cover the costs of an effort to assure internal security, including completely overcoming the nroblem of violence. Other major increases include 225 million pesos for education -rograms, 150 million for other development programs, and 160 million for interest payments.

Appraisal of Projections

23, In general, the projected increases in current expenditures appear reasonable, taking into account Colombia's rapidly growing population and expanding needs for government services. The mission has, however, projected a 72 million peso smaller increase in 1962 in view of the large shortfall which has occured in current revenue and of the time required to initiate tax legislation and collect the additional revenue.

24. The mission's limited review indicated two major areas calling for action in future years. One relates to the current problem of retaining key administrative and tecinical staff in government deDart- ments and onerating agencies in the face of much higher salaries in private emplo-ment. Autonomous agencies have been in a position to increase salaries in an effort to retain nersonnel but regular departments and agencies operating under rigid governmental nay scales have been unable to do so. As a result, a steady outflowa has occurred of people needed to carry forward exnanding public investment and operational programs. While recognizing the need for a revision in the pay _ 1L - AK1EEX II DOTiESTIC Ffl1AIJiTT'G scales for administrators and technicians, the mission has not included funds for this purnose on the assumDtion that they can be covered by adjustments within the projected levels of current exnenditures.

25. The other problem concerns the greatly increasing volume of current outlay,s connected with the expansion of development programs, particularly in the field of education. Although the General Plan projected a substantial increase in educational operating expenditures, the missiont s analysis (eee Annex F. on Public Investment in Education) suggests that an even greater increase is needed. A comparison of these outlays in the General Plan and mission recommendation follows:

Table 11: CURRENT EXPThDITURSS FOR EDUCATION

1961 1962 1963 1964 1965

General Plan 249 a 341 ho4 464 474 Niission recommendation 249 - 365 a- h76 616 686 Increase - 24 72 152 212 aJ Budget of hiinistry of Education as approved.

264 The mission's projection of current expenditures summarized in Chapter 8 (paragraph 3) would cover the additional amounts needed for education, and would also cover some additional requirements called for by the agricultural programs recommended in Chapter 5.

DOMFSTIC BORROWING

27. Recent Trends in Government Indebtedness. In the past, domestic borrowing provided a relatively small part of total government income. In 1958-60, for example, only 5 percent of the total income of the national government was derived from borrowing from the public and the banking system. The exact contribution of domestic credit to the total income of departments and municipalities is not known but it is also likely to be minor, However, in 1961 the national government began to borrow heavily from the banking system, and to a lesser extent from the public, to offset the unexpected shortfall in current revenue and the increase in current expenditures. Table 12 shows the increase in net government borrowing from the banking system during 1961. _15 - AMNE1XrFI DO>iESTIC FIN.ANC!ING

Table 12: BANKING SYSTai LOCAN.S OUTSTNDITNG TO GOVEWNENT, AND INV=13T,11ENTS IN GOV3RNiFMENT 5ECURITIS (in millions of resos)

End of End of Change 1960 1961 (increase +)

Central Bank National Government 190 5o6 + 316

Other Banks National Government 173 180 + 7 Departments 37 46 + 9 14unicinalities 37 54 + 17

Total 437 786 + 349

Source: Central Bank

28, In addition to government borrowJing from the banking system, borrowring from the public and insurance companies increased substantially; however, no exact figures for the year 1961 are available. Of the economic development bonds issued in 1960 and 1961 (200 million pesos) some 100 million are estimated to have been aborbed by the rublic and some 20 million pesos by insurance companies . 1

29. Plan Targets. The Plan calls for a sizable increase in government indebtedness. During 1962-65 total internal debt outstanding of th-ie national government would increase from 870 million pesos to 1,610 million pesos, or by 185 million pesos a year on average. Most of the new debt to be incurred wzould be in the form of economic development bonds which have been sold successfully in the market since 1960. However, due to the limited absorptive capacity of the market some borrowing is expected to take the form of "pagares," i.e.,unsecured notes, which in the past have been taken up entirely 1b the central bank, The net amount to be raised bv the iss'.te of "pagares" would decline from 157 million pesos in 1962 to 4 million nesos in 1965. Internal borrowing of departments and municipalities w,ould total 37 million pesos net on avera-e during 1962-65. The Plan projections are summarized in Table 13,

1/ Of the remaining 80 million pesos, 15 million pesos are held by commercial banks (included in national government debt stated in Table 12), the rest by decentralized government institutions and other public entities. - 16 - ATNNEX II DOIMiPBTIC FEiTANCIN7G

Table 13: PLAN PROJECTION QF INT 71.T\L BORROWING (NrT) (in millions of 1961 pesos)

1961 1962 1963 19614 1965

National Government 62 193 198 222 129 Departments and Municipalities 55 44 36 27 43

Total 117 237 234 2h9 172

30. Appraisal of Plan Targets. The mission believes that the Plan targets greatly overstate the absorptive capacity of the capital market. Following the successful floating of 200 million pesos of development bonds in 1960 and 1961 the capital market aTnnears to be fairly well saturated with government bonds. Nevertheless, a modest amount -- perhaps some 60-70 million pesos (net) a year -- could be issued in 1962-65 without unduly curtailing the market for private bond and share issues. Departnents and municipalities orobably need to borrow some 3040 million pesos (net) annually on average, most of which will be in medium-term loans from the banking system. The mission recommends that the national government abstain from issuing "pagares" since the only likely purchaser would be the central bank. Thus the total of internal borrowing consistent with monetarv stability and borrowing requirements of the urivate sector would be about 100 million pesos (net) a year. A N N E X III

THE AGRICULTURAL PRODUCTIONI TARGETS

lo This annex looks at the projected 1962-70 performance of agriculture in terms of recent output trends, the resource base, and the nature and magnitude of the required public effort in the agricultural field.

Agriculture and the Plan

2. The General Plan depends heavily upon agriculture. One-fourth of the total increase in output is to originate in agriculture. Agricul- tural exports are scheduled to increase from $389 rillion in 1960 to - $575 million in 1970, an increase of 48 percent. 1/ Excluding coffeej the projection calls for agricultural exports of $163 million in 1970, an increasj of 256 percent in relation to the 1960 figure of $h6 million. i/ The comparable rate of insrease scheduled for non- agricultural exports is 110 percent, 17 The significance of possible shortfalls in agricultural production is clear if it is realized that total exports are projected at $843 million in 1970; if agricultural exports other than coffee were to reach only one-half of the 1970 target, the total exchange earnings of the nation would fall short of the objective by 10 percent.

3. The picture is similar on the import substitution side. Imports of agricultural products were valued at $57 million in 1959; J/ they are projected at $42 million for 1970, a decline of 27 percent in relation to 1959.

4.e In addition to meeting this export expansion and import substitution challenge, agriculture faces a rapidly growing internal demand. This is inevitable, given the growth of population, the current level of

1/ Departamento Administrativo de Planeacion y Servicios Tecnicos, Plan General de Desarrollo Economico y Social, Primero Parte, 1961, p. 605. This document is hereafter cited as "Plan General." These export targets are reviewed in Annex I, pp. 5-9 of this report.

j Departamento Administrativo de Planeacion y Servicios Tecnicos, Plan Cuatrienal de Inversiones Publicos Nacionales, 1961-6h, p. 58. This document is hereafter referred to as "Plan Cuatrienal." - 2 _ III. AGRICULTURAL TARGETS disposable per capita income (1,118 pesos in 1959), the present food l/ intake per capita (around 2,225 calories) and its composition (Table 1)- and the effect on the demand for foodstuffs of the expected increase in per capita incomes.

Table 1: PROBABLE FOOD CONSUMPTION PER CAPITA, 1958

Consumption Item (kilograms)

Grain Products 75 Sugar 44 Tubers 76 Pulses 6 Vegetables 35 Fruit and Nuts 159 Meat 32 Fats and Oils 6 lumole Milk 57 Eggs 2

Calories per day 2,225

Source: Economic Research Service, U.S. Department of Agriculture, Notes on the Agricultural Economies of the 20 Latin American Republics, July 1961.

The Resource Base

5. The total area of Colombia is around 113.8 million hectares. Estimates of the area under agricultural exploitation vary sharply but the proportion is agreed to be somewhat less than one-third, or between 30 million and 36 million hectares. Of this, crop production on some- thing in the order of 3.5 million hectares is probably undertaken more or less regularly on a commodity pattern weighted heavily by cereals and coffee (Table 2). The remainder of the 30-36 million hectares is used for pasture.

1/ More detailed information on prevailing nutritional levels is available in a summary of a study conducted by a joint Colombia-United States teamn in the period May-August of 1960. See Department of Defense, Office of the Assistant Secretary of Defense, International Committee on Nutrition for National Defense, Colombia Nutrition Survey, May-August, 1960, published in December, 1961. - 3 - III. AGRICULTUPAL TARGETS

Table 2: THE DISTRIBUTION OF CROPPED IAND BY COMMODITY GROUP

Acreage Crop (Thousand Hectares)

Cereals 1,500 Coffee 775 Fruits and Vegetables 375 Sugar Cane 310 Potatoes and Yuca 225 Fiber and Oil Crops 170 Pulses 100 Tobacco and Cocoa 50

Source: Mission estimate, based on unpublished sources.

6. A wide variety of rainfall, temperature and soil conditions are found in Colombia. As shown on the followjing map, the Andes NIountains break into three branches in the south creating what may be called the Pacific coastal region; the Magdalena River Valley (between the two westerly ranges); the Cauca River Valley (betwieen the two eastern ranges); and the eastern region, comprising some 66 million hectares, of which roughly half is jungle and drains into the Amazon, with the other half draining into the Orinoco and including about 15 million hectares of natural grassland called the "llanos orientales" or eastern plains. Finally, the two westerly ranges fade out in the north, creating the Atlantic (or Caribbean) plains region.

7. Annual rainfall varies sharply among regions; for examnle, in the Guajira peninsula in the northeast it is negligible while as much as 15,000 millimeters (590 inches) is common in the Department of Choco on the Pacific Coast. Moreover, there are areas subject to severe vear-to- year variations; Palmira in Valle recorded 1,536 millimeters of rainfall in 1938 but only 644 millimeters in 19h1. With the exception of the Amazon region and the Pacific Coast, where rainfall occurs almost daily throughout the year, all parts of the country show a marked seasonal distribution of precipitation. Generally speaking, the rainy seasons occur in the periods April through June and September through November, with the latter being the time of floods. However, rainfall in the areas of higher altitude tends to be concentrated in April-May and September-December. The northern coastal region receives the bulk of its rainfall from May through October. January and February are severe drought months in the llanos. - h - III. AGRICULTURAL TARGETS

MILES~ toiC§f" ~ ~~~~~~~~~~~~~~~~~~~LBk

.. - h,W.

C ~ ~ ~ ~ ~ A) R. Ife,* 0 EC_ . dr."n _ e- - 5 - III. AGRICULTURAL TARGETS

8. More than 8o percent of the country's area, or some 95 million hectares, has an altitude of less than 1,000 meters (3,281 feet) and some 95 million hectares show mean annual temperatures of over 240 Centigrade (75 Fahrenheit). The nine million hectares with an altitude between 1,000 and 2,000 meters record a mean annual temperature of fram 170 to 240 Centigrade. Some seven million hectares fall within the 2,000 meter to 3,000 meter range, with temperatures of 120 to 170 Centigrade. Annual average temperatures of less than 120 Centigrade are recorded for the remaining areas, totaling about three million hectares, which are above 3,000 meters in altitude.

9. Although information on Colombian soils is scarce, some general observations can be made. Rich soils are found in the Cordilleras in some of the coffee regions; in the upper Cauca Valley; and in the cotton area of Tolima. A recent study by aerial photo interpretation of some 11.7 million hectares in the Atlantic Coast Departments, the Guajira, and parts of the Departments of Boyaca, Caldas, Antioquia and Santander suggested the following evaluation. 2

400,000 hectares - well-drained alluvial soils suitable for agriculture, although some are deficient in rainfall 2,000,000 " - poorly-drained alluvials 1,300,000 _- subject to serious flooding 1,500,000 _- natural grasslands of low fertility 6,500,000 " - rough terrain, and of which somewhat more than one million is in varying stages of erosion

10. In the llanos, much of the area north of the Meta River is subject to sediment-carrying floods which have formed a soil able to support extensive cattle ranching. Much of the area south and west of the Meta is flood-free and the soils are poorer. Little is known of the soils south of the Vichada River and in the Amazon basin, but it is believed that two or three crops are sufficient to exhaust their natural fertility.

11. The available evidence indicates that most of the soils of Colombia are deficient in varying degree in phosphorus, calcium, and nitrogen (the latter is particularly short in hot areas), and that to sustain crop yields requires a fairly high level of soil management skill.

2/ Ministry of Public Works, National Railways, Empresa Colombiana de Petroleos, Program of Economic Development of the Magdalena Valley and North of Colombia, November 1959. - 6 - III. AGRICULTURAL TARGETS

12. Population is concentrated in the higher regions: the highlands are said to contain around 78 percent cf the total population; the Caribbean plain 17 percent; the Pacific Coast 3 percent; and the ilanos the remaining 2 percent. If towns of less than 1,500 inl-abitants are classified as rural, the urban-rural distribution of the population (estimated at 15.2 million in 1961) is 49 percent urban and 51 percent rural. As described elsewhere in this report, the literacy level in rural areas is low and a rural primary education program is only now beginning to be established.

13. The number of management units (farms) in agriculture was put at slightly over 1,19h,000 by the 1960 census. It is believed that around 89 percent of the farms are less than 20 hectares in area, and that this size grouping includes about 15 percent of the total area under crops. About 87 percent of the land under crop cultivation is estimated to be worked by its owners (Table 3).

Farm Output in Recent Years

14. Crops account for around two-thirds of farm output, and livestock products the remainder. Coffee alone accounts for somewhat more than a quarter of the value of farm production. If coffee is excluded, livestock products and crops each account for about half the remainder. Rice, sugar cane and in recent years, cotton, are among the more important crops. Corn, potatoes, and plantain (platano) rank close behind (Table 4).

150 As computed from data published by the National Planning Department, total agricultural output increased at an annual rate of 3.8 percent in the period 1954-59; livestock products increased at a rather higher rate than crops if coffee is excluded from the latter (Table 5). Very sharp increases in cotton production were recorded in this period. Among other important crops showing significant growth rates were barley, rice, sugar cane and tobacco (Table 6).

16. These observations are drawn from data which are certainly open to question. Production estimates for subsistence crops have to be treated with a good deal of reserve, both as to level and interyear movement. Data for industrial crops under close surveillance by a sponsoring institute are more likely to be meaningful. But it is clearly necessary to supplement the statistical indications as to production tendencies by drawing upon such bits of additional evidence as can be assembled.

17. General observation and the views of people close to agricultural developments are relevant in this connection. Each supports the belief that agriculture is "in motion", that the tendency is to upgrade land use and that overall output is in an uptrend, although the pattern in terms of individual commodities is mixed in direction and intensity. In Table 3: SUGGESTIVE INDICATIONS OF THE SIZE AND TENURE CHARACTERISTICS OF COLOMBIAN FARM'IS

Proportion of the Total Percentage of the Total Area in Crops and Proportion of the Total Number of Farms Falling Pasture Accounted for by Area in Crops and Size of Farm Within the Indicated Farms in the Indicated Pasture Accounted for by (hectares) Size Group Size Group Farms Operated by Owners Absolute Cumulative Absolute Cumulative

Less than 5 48 4 - )

6 - 20 41 89 11 15 } 80 21 - 50 7 96 ) ) ) 21 36 51 - 100 3 99 ) 3 100 - 150 1 100 33 69 ) 90 Over 500 0.1 100 31 100 )

Source: Estimate by mission based mainly on unpublished sources.

0 - 8 _ III, AGRICULTURAL TARGETS

Table 4: PERCENTAGE DISTRIBUTION OF FARM OUTPUT BY ITEM, 1958

Percent of Total Value of Output Excluding Excluding Excluding All Crops Livestock Livestock Coffee and Item and Coffee Livestock

Cotton 8.8 5.1 4.7 3.4 Oilseeds 0.9 0.5 0.5 o.4 Cereals: Rice 11,2 6.5 6.O 4.3 Barley 2.4 1.4 1.3 0.9 Corn 8.7 5.0 4.6 3.3 Wheat 4.7 2.7 2.5 1o8 Total (27.1) (15.7) (14e4) (l0.h) Potatoes 9.6 5.6 5.1 3.7 Yuca 5.9 3.4 3.1 2.3 Coffee - 42.1 - 27.9 Cacao 1.6 0.9 0.9 o.6 Bananas (for export) 3.9 2.2 20O 1.5 Platanos 9.9 5.7 5.3 3.8 Frijol 5.8 3.4 3.1 2.2 Cana 12.6 7.3 6.7 4.8 Tobacco 2.7 1.6 1.4 1.0 Other Crops 11.1 6.4 5.9 4.3 All Crops _- - 66.2 Livestock - 46.8 33,8

IlMani, copra, sesame, soybeans.

Source: Plan General, p. h4; and unnublished notes by Departamento de Planeacion Central. Table 5:. ESTIMATED FARM OUTPUT BY YEARS, 1947-59 AND RATE OF GROWTH IN OUTPUT, 1954-59

Livestock Total Total Other All and Including Excluding Item Coffee Crops Crops Poultry Coffee Coffee

Output (in millions of 1958 pesos) 1/

1947-49 1,582 1,999 3,581 2,097 5,678 4,096 1951-53 1,708 2,364 4,072 1,929 6,001 4,293 1956-58 1,945 2,661 4,606 2,418 7,024 5,079 1954 1,744 2,523 4b,267 1,966 6,233 4L,489 1955 1,589 2,625 4b,214 2,201 6,415 4L,826 1956 1,726 2,599 4,325 2,329 6,654 )4928 1957 2,045 2,585 4,630 2,444 7,074 5,029 1958 2,064 2,800 4,864 2,480 7,344 5,280 1959 2,170 2,965 5,135 2,539 7,67h 5,504

Growth Rate Percent

1954-59 6.0 2.9 4.2 4.8 4.4 3.8 H

1 Plan General, Primera Parte, p. 44.

j/ The analysis presented in the Plan General, and hence in the main text of this report, is based upon the period 1956-59. The growth rates for this period, as reported in the Plan, are: coffee, 8.2; other crops, 3.2; all crops and livestock, 4.1. ~t,.

cIn - 10 - III. AGRICULTURAL TARGETS

Table 6: RECENT OUTPUT TENDENCIES FOR MAJOR AGRICULTURAL COM1O,TDITIES

Production (1,000 tons) Percent 1956A58 Annual Growth kverage g 1959 g 1960 g Rate 1951-60

Livestock Products _- _ 4.8 i

Coffee - - - 60o

Cereals: Barley 70 115 125 8.3 Wheat 132 144 145 o.4 Rice 386 h56 431 5.7 Corn 800 650 866 Insignificant

Seed Cotton 43 157 194 22.5

Pulses: Beans 6o0 6o ho 0.3

Sugar Cane 11,387 11,835 n.a. 5.2

Oilseeds: Sesame 16 10 20 13.5 Soybeans 9 n.a. n,a, n.a.

Bananas (for export) 191 211 231 3.1 Potatoes 595 685 653 1.5 Tobacco 38 39 32 7.0 Cocoa 12 12 14 3.8 Other Crops: Plantain and Bananas 1,393 n.a. n.a. 3.1 7/ Yuca 944 720 n.a. Insignificant Coconuts and Various Fruits 452 n.a, n.a. n.a.

Unless othernise indicated, data are from Plan General, Prinera Parte, p. 254. j Unpublished data. Figures are those selected by the Departamento de Planeacion as the most acceotable estinate. As computed from the agricultural nroduction estimates used by the Departamento de Planeacion. V/As drawn from Table 5 for neriod 1954-59. Data from Ministry of NAriculture, unpublished. 1951-59, 1/ Based on a series of unpublished data for plantain by the Ministry of Agriculture. Bananas for national consumption, - 11 - III. AGRICULTURAL TARGETS support of this position, the following data for the Bogota Sw.vannah are indicative of recent tendencies in the more advanced parts of the country:

Cultivable area 100,000 hectares Area in barley 1951 5,000 " 1961 20,000 " 1/ Area in wheat 1951 10,000 " 1961 20,000 Area in potatoes 1951 10,000 1961 15,000 "

l About a quarter of this is sown twice annually, bringing current annual acreage up to 25,000 hectares.

If these figures are even close to the actual facts, a substantial dynamism is operative in agriculture; this is even more striking when one realizes the sharp advantages which the Sabana de Bogota offers to dairy farming.

18. Another source offers data from wnhich one can extract interesting clues to the way in which farmers are responding to technical and market forces. National data for wheat and barley illustrate the case (Table 7):

Table 7: WHEAT AND BARLEY PRODUCTIOM AND YIELDS PER HTECTARE, 1955-59

Item 1955 1957 1958 1959

Area Sown (Thous. EIectares) Wheat 211 108 122 116 Barley 53 48 43 60 Total 26T 1-36 6 1-76 Production (Thous. tons) Wheat 166 158 129 130 Barley 65 60 75 115 Total 31 2 -20 7 Yield per Hectare (kilos) Wheat 787 1,463 1,057 1,121 Barley 1,226 1,250 1,744 1,917

Source: INA, Margenes de Comercializacion y Algunos Aspectos del Mercades de Arroz, Maize, Frijol, Trijo, and Papa, June 1961, p. 52. - 12 - III. AGRICULTURAL TARGETS

Under the stimulus of a privately sponsored campaign, barley acreage increased 13 percent and production increased 77 percent, from 1955 to 1959. Meanwhile, wheat acreage fell 45 rnercent and production fell 22 percent. This suggests that land was going out of wheat but not into barley (less than 9 percent of the wheat acreage decline can be accounted for by the barley,r acreage increase), and yields of both crops were increasing notably. In total, 88,000 hectares were released from wheat and barley, wihile combined production was increasing by 14,000 tons.

19. A second category of indirect evidence on what is happening in agriculture concerns the profitability of farming. Information available for the Cauca Valley (where the cropped area and private irrigation are in an uptrend, and where cotton is tending to displace food and feed crops) suggests that a satisfactory return to capital may be available to investors who have access to good land and management and who are able to onerate on a substantial scale. One well-based estirate puts the return at around 356,000 pesos on an investment of 1,174,9OO pesos, or approximately 30 percent as against a market price for capital of 10 percent or less (Table 8). It would not be surprising if sustainable returns of this order of magnitude were sufficient to draw capital into agriculture in more than token volure, and if this has been happening in recent years.

20. Relative price histories may also contain useful clues to the recent performance of agriculture. An unchanging or lower farm output in a neriod of a declining trend in food imports and in the face of a growing population and higher incomes would presumably lead to a tendency for food prices to rise against the prices of other comrodities. There is no evidence that this has in fact occurred; if anything, the opposite has been the case. The annual growth rate in the food price level in the 1949-61 period was 8.3 percent at retail and 8.6 percent at wholesale, as against a comparable figure of 9.4 percent for non-food products (Table 9). Of course the yearly movements in the several indices have not always shoim the same pattern of change; in 1950, food prices showed a much greater movement against 1949 than did non-food prices, whereas in 1958 the opposite was reported (Table 10).

21. In this same connection, it may be noted that since 1958 (the initial date for which data are readily available) there has been no significant change in the ratio of "farm wages, excluding food" to "farm wages, including food." Quarterly figures have ranged from a low of 1.66 to a high of 1.81 in hot climate areas, with no consistent pattern over time.

22. While the information is not complete, the general tenor of the available evidence suggests to the mission that there has been a promising upward movement in agriculture production in recent years. - 13 - III. AGRICULTURAL TARGETS

Table 8: APPARENT EARNING POWER OF A 400-PLAZA FARM IN THE CAUCA VALLEY 1/

Item Amount (in thousands of pesos)

Investment Farm Machinery 305.5 Transport Equipment 54.0 Tools 5.0 Sheds 47 2 Irrigation Facilities 722:1 J Office Equipment 8.6 Miscellaneous 32.5 Total 1,174.9 Annual Income Cotton 1,088.0 Ž Soybeans 336.0o Total 1,424.0

Annual Charges Land Rent 168.0 ' Fixed Facility Maintenance 8.0 Administration 171.22 Operating Costs: Cotton 45o.1 Soybeans 65.1 Interest (on preceding items) 36.6 8/ Depreciation (on 1,174.9) 117.5 2/ Contingency Allowance 51.5 Total 1,068.0 Income less Charges (or return to investment Capital and Management) 356. o1/

A plaza is 80 x 80 meters, or o.61h hectares, or 1.58 acres. v/ Includes wells (150,000 pesos). 1.6 tons per plaza @ 1,700 pesos per ton. J 1.0 tons per plaza © 840 pesos per ton. / 35 pesos per plaza a month. / Appears low; if so, is compensated by the heavy- charge for depreciation. 2 Includes prestocines sociales, seguros sociales, subsi dio familiar, SENA, and insurance. On one-half of the preceding "annual charge" item @ 8.5 percent a year. .2/ Straight-line in ten years against total investment figure at left. 1 At 10 percent, on operating costs only. 2/ ,1424minus 1,068.0. Source: Private communication. Data drawn from actual operating experience. -14 - III. AGRICULTURAL TARGETS

Table 9: COMPARATIVE MOVETENTS IN PRICES OF AGRICULTURAL AND NM-NAGRICULTURAL PRICES, 1949-61

Annual Growth Rate Item (Percent)

Food Product Prices At Retail 8.3

Non-Food Product Prices At Vmholesale: 9.4

Food Products Prices At WJholesale All 8.6 Live Animals 10.5 Meats 100 Dairy Products and Eggs 8.8 Fish 12.0 Cereals 8.2 Fruits and Vegetables 8.0 Sugar 8.4 Coffee and Cocoa 8.2 Miscellaneous 5.7

Source: Computed from price series presented in Revista del Banco de la Republica, November 1961, pp. 1h84 and 1521. - 15 - III. AGRICULTURAL TARGETS

Table 10: YEAR-TO-YEAR CHAIIGES IN PRICE INDICES FOR FOOD AND NON-FOOD PRODUCTS, 1949-61 1/

Food Product Food Product Non-Food Product Year Prices Prices Prices At Retail At Wholesale At Wholesale

1950 27.8 20.5 3.3 1951 8.9 9.0 6.h

1952 - 6.2 - 1.9 0.2

1953 9.8 9.8 0.3

1954 11.0 10.6 2.0

1955 - 4.3 - 2.8 6.4

1956 9.8 6.1 11.9

1957 25.6 23.1 25.7

1958 9.9 13.4 22.7

1959 h.7 9,6 965

1960 5.3 4°° 415

1961 9.0 7.6 5.8 lJ Plus unless otherwise indicated.

Source: Computed from price serie8 nresented in Revista del Banco de la Republica, November 1961, pp. 1484 and 1521. _ 16 _ III. AGRICULTURAL TARGETS

The Production Targets for 196.

23. As noted in the main text, the Government is now working on-the agricultural development plan. At the time of the mission's visit, the anly available specific targets were for the year 196h. For agriculture, this is clearly too short a planning horizon. It should also be noted that neither the output data of 1960 nor those of 1961 had been incorporated into the historic growth rate for purposes of formulating the targets.

24. The 1964 target requires that 1960-64 agricultural production, excluding coffee, grow at an annual rate of 5.6 percent as against a comparable figure of 2.9 percent achieved in the 195h-59 period (Table 11). The rates for the same time periods are, for livestock: achieved, 4.8 percent; required, 5.3 percent; for crops other than coffee: achieved, 2.9 percent; required, 5.6 percent.

Table 11: TARGETED VERSU3D ACHIEVED ANNUAL GROWvTH IN AGRICULTURAL OUTPUT, 1960-64 : 1954-59

Target Rate Achieved Item (1960-6h period) (1954-59 period)

All Crops and Livestock 4.5 4.4

All Crops and Livestock (Excluding Coffee) 5.5 3.8

Coffee 1.9 6.0

Crops Other Than Coffee 5.6 2.9

All Crops 4.1 h.2 Livestock 5.3 4.8

Source: Table 5, and computations from Plan General data, p. 258.

25. The specific commodity targets for 1964 are shown in Table 12 for all Droducts for which the mission has been able to assemble comparative data, viz., the 1°60 estimated production and the output which would be attained in 1964 if the 1951-60 growth rate were to hold in the period 1961-64. It will be noted in the table that the production target of barley and sesame would be attained if the recent growth - 17 - III. AGRICULTURAL TARGETS rate were to continue, that rice would be in substantial excess, and that cotton output is already higher than the goal set for 1964. On the other hand, significant shortfalls would appear in wheat, pulses, bananas, potatoes, and particularly corn.

Table 12: PRODUCTION TtRG5TS FOR SPECIFIM.D COMMODITI'S FOR 1964 IN RELATION TO RECENT OUTPUT LEVELS (thousand tons)

Output in 1964 Target Product ion Given Continua- Item for 1964 V in 1960 2 tion of 1951- 0 Growth Rate 2!

Cereals: Barley 142 125 147 Wheat 173 145 144 Rice (Paddy) 507 431 565 Corn 1,037 866 866 Seed Cotton 190 194 367 Pulses 137 104 105 L Bananas (for export) 330 231 252 Potatoes 763 653 703 Sesame 32 20 31 Coffee 2,390 2,o48 2,912 Livestock products 3,289 2,539 / 3,210 .

V Plan General, p. 254 and p. 258. From unpublished estimates by the agricultural section of the Central Planning Office. S/ Using the historic growth rates shown in Tables 5 and 6. y/Applies to the 1956-58 output of pulses (104) the historic growth for beans (frijoles) as shown in Table 6. No rroduction series is available on pulses in total. / Unpublished estimate by Ministry of Agriculture. P/' Data are in millions of 1958 pesos. In thousand tons, production in 1959 was estimated by Departamento de Planeacion at 547 (unpublished data). The 1964 target in thousand tons is 683 (Plan General, p. 254). ./ Using 1954-59 growth rate as base. Data are in millions of 1958 pesos. 2/ Data refer to 1959. - 18 - III. AGRICULTURAL TARGETS

26. Turning now to the other cross for wihich less information is available, the 1951-60 rate of growth in sugar cane output was 5.2 percent (Table 6). The targeted output of sugar in 1964 is 367,000 tons, as against a 1956-58 output of 233,000 tons -- the equivalent of an annual growsth rate of 5.8 percent. Comparable figures for panela (noP- centrifugal, unrefined brown sugar) are 633,000 and 523,000 to.ns, reauiring an annual growth rate of 2.8 percent.

27. The 1964 goal for yuca and like crops is 1,152,000 tons. The 1956-58 average production is put at 944,000 tons The required growth rate is 2.9 percent. The annual growth rate shown by yuca (no data are available for related crops) in the period 1951_59 was close to zero (Table 6). Output of bananas (for domestic use) and plantain is scheduled at 1,764,C00 tons in 1964, and estimated at 1,393,000 tons as an annual average in the period 1956-58; the scheduled growth rate is 3.4 percent. The rate of growth of output of plantain in the period 1951-59 was 3.1 percent if unpublished production estimates made available by the Ministry of Agriculture are accepted.

28. The Plan also establishes goals for "coconuts and various fruits." The output target for 1964 is 630,000 tons as against a 1956-58 average production of 452,000 tons.

29. Although public policy on vegetable oils stresses tree crops, the time required to bring plantations into production has led to interim plans which call for sharp increases in production of sesame, soybeans, and peanuts. As noted above, sesame output is scheduled to double to 32,000 tons in 1964 as against 16,000 tons as the average in 1956-58; this goal can be approximated if recent growth rates persist. Peanuts are targeted at 46,000 tons in 1964 in comuarison with a negligible current ouitput; there is little likelihood of meeting this objective. The production target for soybeans is 15,C00 tons in 1964k the average production in 1956-58 is estimated at 9,000 tons; current production estimates are not available.

30. The 1964 targets are now being revised. Available evidence suggests that additional efforts will be required to achieve short- term production objectives, even though in some important cases 1964 unrevised targets have already been exceeded.

Production Goals for 1970

31. The overall rate of growth of agricultural output is scheduled at 4.3 percent a year for the period 1960-70 (it will be recalled from Table 5 that the comparable figure for 1960-64 was 4.5 percent). The per capita income elasticity of demand for agricultural products implicit in this target, taking into account the projected growth of exports and imports, is in the neighborhood of 0.7, a figure -which seems on the low - 19 - III; AGRICULTURAL TARGETS side when compared uith the experience of other countries at a similar level of development.

32. Specific commodity production targets for 1970 are tot available. However, the general nature of the implied targets for some important products can be drawn from available export targets if assITptigns are introduced as to income, population, and demand elasticitie3. :I

33. The annual rate of growth of output of livestock and livestock products implicit in the Plan is in the neighborhood of 8 nercent for the 1960-70 period as against a figure of 4,8 nercent estimated as having been attained in the years 1954 through 1959. The high level of the rate attained in the past along with the time and effort required to expand the feed supply and to improve the level of management has led the mission to question the feasibility of the projected growth rate. It is believed that a more realistic target rate would be in the order of 7 percent. If attained, this rate would enable the growing domestic market to be supplied at current relative prices; in addition, it would enable a supply of cattle and beef for export through legal channels of around 015 million in 1970 if quality and sanitation standards were upgraded in the interim. This lower rate of 7 percent has been used in the mission's projections.

3h. Banana exports are scheduled to increase from about 200,000 tons in 1960 to 400,000 tons in 1964 and 500,000 tons in 1970. Production is now centered around Santa Marta (liagdalena). Even on the assumption that the current production level (around 200,000 tons) will be sustained in that area, the new region (Uraba in the northwest) in which planting is now starting will have to be brought into production at an extremely rapid rate if supplies are to be available for exuort in the mid-sixties at the projected level; as for 1970, the supply outlook depends primarily on how the potential investor interprets the experience which will emerge in the next few years from the conmercial production only now being initiated in the Uraba area, and on the availability of credit.

So far as is known to the mission, no acceptable emnirical basis now exists in Colombia for estimating income-demand relationships for farm products. However, field work has now been completed by the Centro de Estudios Sobre Desarrollo Economico of the Universidad de Los Andes (under contract with the United States Department of Agriculture) on a 2,600-family income-expenditure study wJhich will fill some of the gap.

kAssuming population and income movements as cited elsewhere in this report, an income elasticity of demand for animal protein foods of 1.2, and an export of cattle and beef of $70 million in 1970. - 20 - III. AGRICULTUPQL T.ARG7,TS

35. Sugar is another crop for which the Plan projects exports through 1970. This figure is put at 80,000 tons (at U.S. prices), or double the 1961 figure. Sugar cane production is estimated to have increased at a 5.2 percent annual rate in the 1951-60 period (Table 6). Given the same income and population trends as used in the calculations above, and assuming an income-demand elasticity coefficient of 0.75 (the figure will be rather more for refined sugar, rather less for panela), it becomes evident that an annual output growth rate of 4.5 percent in sugar cane, which should not be difficult to achieve, will probably be sufficient to supply the estimated demand at stable relative prices.

36. Cotton exports are put at $39 million in 1970 by the Plan, or around 87,000 tons of cotton fiber. If domestic demand on a fiber basis is assumed to increase at 6 percent a year in the period 1962-70, the domestic market in the latter year will absorb around 442,000 tons of seed cotton. Adding in the export projection produces a total requirement of around 671,000 tons of seed cotton, or a rate of growth in the 1961-70 period of 13.2 percent. This is a sizable growth rate, though substantially below the growth rate in the 1951-60 period, and should be achievable.

37. Tobacco exports are projected at $5.3 million in 1970. They are officially renorted at th.1 million in 1961 (8,561 tons of leaf). A continuation of the 1951-60 growth rate of 7 percent through 1970 would result in a production of 80,000 tons, a quantity sufficient to meet the export target and the probable growth in domestic demand. (Although requiring a product of a different type, the export market competes with the national market for tobacco production resources.)

38. The Plan calls for coffee exports of 4ho5 million in 1970, implying a growth rate in production of around 2.7 percent as against the 195h-59 rate of 6 percent if the internal income-demand elasticity is assumed to be 0.2 and no adjustment is made for stock accumulations through 1959. Production is clearly not the limiting factor in achieving the coffee export targets.

39. The planned substitution of agricultural imDorts also carries an implicit production target for agriculture. The cormodities whose production is to be expanded to achieve a substitution of imports by 1970 of the order of $15 million are not specified in the Plan. The best opportunity appears to be in vegetable oils, the imports f which wTere around $11.5 million in 1959. Very substantial investrnents will have to continue to be made in African palm oil plantations if domestic production of vegetable oils is to meet demand by 1970. There are indications that these investments will be forthcoming if adequate credit is provided. However, it is suggested that steps be taken at once to carefully estimate the credit resources required for the next several years. To this end, information on the recent rate of planting of African palm needs to be clarified, and the rate of growth of demand for vegetable oils should be estimated as precisely as nossible. - 21 - III. AGRICULTURAL TARGETS

Conclusions

40o While the achievement of the 1964 production targets should not be expected for all crops, overall growth rates implic-t in the longer- run horizon embraced by the Plan can probably be attained if the policy and program measures outlined in this report are effectively undertaken on the proposed scale. The important exception to this judgment is livestock and livestock products. A N N E X IV

DTEDIATE AGRICULTURAL PRODUCTION SUPPORT MEASURES

1l It was pointed out in the preceding agricultural annex that very substantial gains in production have to be forthcoming if the output targets for the years just ahead are to be met. The existing commercial agriculture will have to produce the bulk of this planned increment in output, as no significant production effect can be expected for some years to come as a result of agrarian reform and land and water development. The priority task of the moment is thus one of establishing an economic environment for farmers which is appealing enough to induce a more rapid upgrading of land use and a faster rate of adoption of improved techniques and superior inputs. The mission believes that farmers have amply demonstrated a sensitivity to prices and costs which augurs well for the success of an effort of this type. The annex discusses the more important measures regarded as urgently necessary. The discussion first covers the measures most likely to produce an immediate effect on production. This is followed by a discussion of measures where the impact can be expected to be slower, although no less important in the long run. The analysis excludes coffee since its major problem is not production but rather marketing and inventory accumulation.

Price Stabilization 2. A top priority measure concerns rket stabilization for staple crops, particularly cereals and pulses._/ The Government has been active in the purchase and sale of farm products since the mid-1940's, most recently through the Instituto Nacional de Abastecimientos (INA), an autonomous agency with a broad range of functions relating to the production, storage, trade and distribution of farm products. But the typical scale of the INA purchase and storage activity has been small in relation to production. For example, in 1960 INA purchased 10,000 tons of corn, or scarcely more than 1 percent of the crop (Table 1). In addition to the items noted in Table 1, the INA has purchased other pulses, fique, vegetable oils, soybean meal, salt, wheat flour, soybeans, sugar, butter and panela. Outlays for these purchases in the years 1957 through 1960 approximated 34 million pesos, as against an outlay of 132 million pesos in the same period for the items listed in Table 1. The INA has also invested 1,350,000 pesos in power and in primary processing industry, and continues to take part in the administration of the PL 480 program, 3. These data suggest that INA has not seen its primary objective as one of stabilizing staple crop prices. Figures on seasonal move-

The problem centers around seasonal fluctuations, with prices depressed at the time of harvests and resulting impacts on farm incomes and production incentives. - 2 - ANNEX IV PFODUCTION SUPPORT ments in prices received by farmers are not available for purposes of verification, but it is generally recognized by farmers and public officials that the stabilization effort through INA has failed by a wide margin to level prices to the economic degree either in terms of time or place. No contrary evidence seems to have been produced by INA or any other source.

4. It is believed to be a matter of paramount importance that corrective action be taken at once. This will have to be on public account. Except for such crops as barley (where no resale is involved), it is unlikely that adequate amounts of private capital will see fit to enter the storage field. Such activity in underdeveloped economies inevitably produces charges of speculative gain at the expense of the poor, and a consequent threat of government intervention. Storage is seldom seen as an economic and productive function by the public in these situations. If storage is to be used as a device to induce more production through the medium of stable prices, it is virtually certain that the Government will have to undertake the task.j

5. A principal deterrent to the public stabilization effort is said to have been the limited storage capacity. Publicly owned facilities provide storage for 68,000 tons (Table 2). Presumably it has not been found feasible to use rented space. A five-step program of expansion is now under way to bring storage capacity up to 186,000 tons, at a cost of 74 million pesos. Target completion dates have not been announced.

6, The mission suspects that the cited storage capacity target should be considered as a tentative one. It may turn out to be conservative when the cereal production goals and their storage implications are looked at in connection with the current effort to refine the agricultural plan. Questions should also be raised in connection with

1/ Some measure of support to farm product prices has been given by the Almacenes Generales de Deposito. These are private warehouse facilities functioning under Law 20 of 19219 generally sponsored by a bank, and hence under the indirect jurisdiction of the Super- intendent of Banks. The warehouse receipts generated by the Almacenes are negotiable, and are accepted within specified limits for re-discounting by the Banco de la Republica. The commercial banks held about 82 million pesos of bonos de almacenes de deposito as of end July 1959, rather more than double the year-end figure for 1958. As only readily storable products are eligible, as no processing facilities are offered, and because the farmer can procure warehouse receipts only on the basis of conservative valuations, the Almacenes cannot be considered a substitute for modern bulk-handling and processing installations. - 3 - ANNEX 1V PRODUCTION SUPPORT

Table 1: PURCHASES OF HiAIN CROPS BY THE INSTITUTO NACIONAL DE ABASTEC0=IENTOS AS A PERCENT OF ESTT'ATED NATIONAL FRODUCTION, 1953-60

Year Rice Maize Wheat Potatoes Beans Sesame

1953 0.5 - n.a. * n.a, 1954 0.7 * 1.7 0.3 n.a. - 1955 0.8 1.3 3.0 0.2 2.0 - 1956 1.0 - 1.4 1.0 2e0 1957 1.9 1.7 h.8 0.3 5.0 7 1958 3.8 3.0 5.0 * h.5 34 1959 2.7 o06 10.5 1.9 h64 1960 o.6 1.2 23.7 o.h n.a. 0.5

* Insignificant.

Source: Computed from purchase data published in Instituto Nacional de Abastecimientos, Informe al Gerente, 1961; and production estimates used by Departamento Administrativo de Planeacion y Servicios Tecnicos. the geographical distribution, type, and size of storage units now being planned. For example, it is not clear why more than twice as much new capacity of warehouse type as of silo type is scheduled (Table 2). And recent improvements in transport may have made more feasible the use of relatively large storage installations. The possibilities of mobile collection and processing facilities for corn also need investigation.-/ In short, there appears to be sufficient reason for a thorough review of the planned storage investment program, while construction of the obviously economic units set forth in the current expansion plan proceeds.

7. Above all, it is imperative that the INA accept without reservation its responsibility to stabilize farm prices of non-perishable crops and take the appropriate emergency steps required to do the job. These include the rejection of its current profit-making orientation in favor of a "no profit-no loss" approach; an emphasis upon stabilizing

1/ These would be designed to service concentrations of small farmers in the remote areas. A mobile unit would be composed of a tractor and of shelling and drying and bulk storage-movement equipment mounted on wheels. - 4 - ANEX IV PRI.ODUCTION SUPPORT

Table 2: EXISTING AND PLANNED INA STORAGE CAPACITY AS CF EARLY 1962 (EXCLUDES POTATO STORAGE FACILITIES)

Capacity (tons)-a/ Costg/ Item Silos Warehouses Total mil.pesos

Existing 33,190 34,542 67,732

Planned2/ Step One 2,438 109720 13,158 6 Step Two 11,700 3,920 15,620 16 Step Three 2,951 17,540 20,491 16 Step Four 11,700 11,500 23,200 18 Additional 8,125 37,640 45,765 18_ Total 36,914 81,320 118,234 74

Total 70,O104 115L862 185,966 74 i/ The space-capacity conversion rates in this table are: One square meter of warehouse space provides one ton of storage capacity; one cubic meter of silo space provides o.650 tons of storage capacity. g/ Includes outlays for improvement of existing facilities. i/ Some of this work (an known amount) is now under construction.

Source: Instituto Nacional de Abastecimientos, Informe presentado al Sr. Presidente de la Republica, 1961. domestic farm prices rather than a primary concern with internal distribution and with negotiating and managing foreign supplies; a recognition that its task is not one of retailing foods; and an aggresive purchasing policy executed so as to assure that staple crop support prices announced prior to planting time are actually effective in the market in the farthest reaches of the nation. In short, the task requires a total re-vamping of managerial philosophy and operational procedures. 8. It also requires a studied attention to the outlook for supply and demand to assure that support prices are established at a sustainable level. The proper intent is to stabilize prices at the economic level, not to raise them. Arny effort to raise the level of prices is bound to lead to distorted resource use, regressive subsidies to farmers, higher consumer prices and the ultimate collapse of the INA. In contrast, a - 5 - ANNEX IV PRODUCTION SUPPORT skillfully executed stabilization effort continuously adjusted to market tendencies on the basis of purchase-sales and balance sheet experience can produce an effective stimulus to output.

9. Several other implications of the policies proposed for the INA need emphasis. First, it will be necessary for the INA to try to rent storage space and to develop measures which will induce farmers to store, where feasible, on their own farms, pending the enlargement of the INA storage facilities. Second, INA will have to put buyers into the field as harvest time approaches. Third, processing equipment and storage facilities must be operated on a 24-hour-per-day and 7-day-a-week basis during harvest periods. Fourth, provision will have to be made to finance the Department of Agricultural Development of the Caja Agrario from Treasury allocations rather than from earnings of the INA, as the latter will show no net earnings after provision for maintenance of capital plant is made. Finally, in the case of potatoes, the difficulty of using public storage as a market stabilization device (a':ply demonstrated by the INA experience) suggests the wisdom of ., INk withdrawal from the task. It is preferable to let economic fcrces disperse production area-and-time-wise to bring the flow of supplies into line with demand and the availability of potato substitutes. Current' exploration of the potential in dehydration may lead to outlets for relatively small quantities.

10, If experience in the next few months reveals that it is impossibTh to quickly rejuvenate and equip the INA so that it can fully sta'; lizeJ prices, it is recommended that serious consideration be given to turn'rng the task over to the specialized commodity agencies, inclliding the Rice Federation and the newly-formed Instituto Colombiano de Cerealese

upoVy of Improved Inputs

llo The available data on the adoption of improved agricultural inputs suggests that an urgent public effort is needed to speed up the rate of adoption. Fertilizer, improved plant stock, and machinery services are among the important items.

12. Fertilizer. Substantial percentage increases in fertilizer use probably took place in 1960 and 1961 relative .o 1959; but the total used, as indicated by imports, still approximates that of the 1957-58 period (Table 3). - 6 - ANNEX IV PRCDUCTION SUPPORT

Table 3: DIPORTS CF CHEMICAL FERTILIZERS

Year Tons Value CIF (Thous. U.S.$)

1954 76,741 6, 82 5a/ 1955 105,00h 9,674a/ 1956 97,281 9,218 1957 130,516 11,980 1958 123,816 11,254 1959 81,4ol 7,086 1960 117,516 9,193 1961Y/ 128,173 10,321

Available data are in pesos. Conversion was made at a rate of 2.51 pesos per dollar.

/ Through October. Source: For years 1954 through 1960, DANE, Anuarios de Comercio Exterior; for 1961, DANE, Boletin Mensual de Estadistica, Febrero 1962, p.52.

13. In terms of effective elements, the Ministry of Agriculture estimates that imports in recent years were as follows (tons): Element 1958 1959 1960 N 2,v633 999 2,555 P205 18,32h 12,093 16,156 K20 16,393 8,332 9,603

These data exclude imports of mixed fertilizers, for none of which does the available data specify content. Imports in this category totaled 42,675 tons in 1960; 30,937 tons in 1959; and 36,897 tons in 1958; that is, a significant portion of total imports as shown in Table 3.

14. Aside from output by the government steel plant (Acerias Paz del Rio S.A.), domestic production of fertilizers is negligible. The output of the steel plant is estimated by the Central Planning Office (Departamento Administrativo de Planeacion y Servicios Tecnicos) as follows (tons): - 7 - ANNEX IV PRO)UCTION SUPPORT

Basic Slag Ammonium Sulphate Year Gross P2 05 Gross 1955 15,h5o 2,472 1,316 1957 20,394 3,263 2,877 60.4 1958 22,509 3,601 2,888 606' 1959 18,144 2,903 2,731 574.

15. Taking the above-cited and other information into account, unpublished estimates by the Central Planning Office suggest that in 1957 (apparently the peak year to date) some 20.7 thousand tons of N was available to farmers; 33.8 thousand of P205; and 10.2 thousand of K20. The data for selected years (in thousand tons) and the growth rates implicit in the series (in percent) are:

Year N P205 K20

1947 2.0 2.5 1.1 1950 3.4 1.8 0.9 1953 6.4 6.9 4.0 1956 14.7 15.6 10.2 1957 20.7 33.8 10.2 1958 17.7 24.9 20.2 Growth Rate, 1947-58 24.0 30.0 27.5

16. If sustained through 1970, the indicated growth rate would produce a supply of 293 thousand tons of N, 776 thousand tons of P205, and 367 thousand tons of K20. However, the growth rate in the post- 1958 period has fallen sharply, even though it is probable that the supply in 1961 recovered to a level not far below the previous peak. In any event, neither this recovery nor the growth rates shown above should be allowed to obscure the insignificance of the role that fertilizer has so far played in agricultural production. If 3.0 million hectares is taken as the cultivated area, the use rate in Colombia is seen to be at a level significantly below that of even such countries as Spain and Portugal where deterrents to fertilizer use include rainfall conditions which make farmers reluctant to risk heavy application rates (Table 4).

17. National comparisons can obviously be misleading, as economic use rates will vary with relative factor supplies and with the physical and market setting of the agriculture. Nonetheless, the productivity of fertilizer in Colombia appears to be such that a vastly greater effort to expand its use is in order. In general, exceedingly sharp responses to nitrogen and phosphorus are obtained; the response to potassium is limited. Striking results have appeared in the case of some of the minor elements. Magnesium has been shown to be a limiting - 8 - ANNEX IV PRODUCTION SUPPORT

Table 4: CO1,2iERCIAL FERTILIZER CONSUTPTION IN SELECTED COUNTRIES (kilograms of effective element per hectare of agricultural area)

Country and Year N P205 K20

Colombia,/ 1958 5.9 8.3 6.7 1959 3.7 5.0 3.8

Spain Ž 10.7 12.6 3.5

Italy 21.1 22.8 6.6

Greece 19.2 14.5 2.0

Portugal 16.1 16.0 2.2

Denmark 39.9 37.9 57.1

Low Countries 91.8 48.9 66.1

Ireland 4.4 17.6 11.9 a/ Indication based on the assumption of an agricultural area (super- ficie agricola) of 3 million hectares and in terms of consumption occurring in the year in which the importation or national production took place. b/ Data for Spain and following countries are for 1959-60, as reported in OEEC, Fertilizers in Europe, 10th Study, May 1961. factor for corn in the Popoyan area, and alfalfa in some soils in the Cauca Valley responds sharply to boron. Very marked responses to lime have been obtained in the Savannah of Bogota. Indeed, the addition of lime and phosphorus in certain parts of the Savannah has been found to mean the difference between a good stand of legumes and no stand at all. The potential economic significance of this fi 4ing is clear, when it is realized that the Savannah is a dairy area.J

j/ Relatively small amounts of agricultural limes are being used today. National production has been estimated as follows (tons): 19h8 - 9,000; 1952 - 103500; 1956 - 11,000; 1958 - 18,682; 1959 - 21,296. - 9 - ANNEX If RODUCTION SUPPORT 18. Illustrative data on the response to nitrogen, phosphorus, pottasium, lime and boron are shown in Table 5. There can be little doubt that enough is now known to warrant a campaign to stimulate the demand for fertilizers.l2 19. This should be relatively easy to manage. Through its Departa- mento de Provision Agricola, the Caja Agrario (Agricultural Bank) accounts for the bulk of fertilizer imports, as well as maintaining some 338 retail outlets in the agricultural areas of the country. This centrally controlled chain can be readily mobilized to get into the hands of all commercial farmers information on the economic returns to fertilizer, desirable (even if not optimum) use rates, and appropriate handling methods. Attractive credit arrangements should be an integral part of the campaign. These can be set up through the Caja, and by drawing upon the expanded credit supply which it is recommended be made available to the private sector through the banking system as outlined in the main text of this report. Modern merchandising methods should also be fully exploited, such as tie-in sales with pesticides and improved seeds, the provision of fertilizer drills on a rental basis, quantity discounts, and the like. In short, an imaginative promotion effort, forcefully executed, is called for.

20. Both the commodity institutes (such as the Instituto Colombiano de Cereales) and private fertilizer distribution agencies should like- wise be drawn into the fertilizer campaign. The key step in so enlarging the effort is to enable distribution agents to offer acceptable credit terms with a minimum of delay and red tape. It should be noted in this connection that private enterprise has not entered the fertilizer distribution field on an important scale so far, although at least one company is offering technical assistance to interested farmers as well as sponsoring demonstration plots and field days to expand fertilizer use. 21. It is also essential to assure that fertilizer prices do not move upward relative to farm product prices. It is reported that the Caja Agrario has been progressively narrowing its margins on fertilizer in recent years. Larger turnover and the activation of private distribution facilities should stimulate this tendency in the future. However, the opening up of domestic sources of supply may complicate the task of assuring relative price stability and the ready availability of appropriate formulae in convenient form. 22. One plant scheduled to begin production in 1962 is designed to produce 14,400 tons of N a year. The second and larger plant is scheduled to produce 63,400 tons of N for the domestic market in 1965. Given the historic growth rate in domestic outlets, it is not difficult to foresee the possibility of an excess domestic supply if costs and/or

The 1960-61 Annual Report of the Rockefeller Foundation, Program in the Agricultural Sciences, (p.147) reports that, "At the present time, as noted above, it is possible to make general fertilizer recommendations for corn, small grains, and potatoes in most of the important zones in which these crops are grown. There is a need now for some specific information in which fertilizer requirements are more clearly defined and are related more closely to soil types and chemical properties." - 10 - ANNNEX IV PRODUCTION SUPPORT

Table 5: EXPERIMENTAL RETURN TO FERTILIZERS ON SEIECTED CROPS, 1961

Treatmenta Yield Percent Incr ase Crop (Kg per ha.) (Kg per ha.) in YieldM

Alfalfa 20-80-40 and B-/ 2,275d 177

Alfalfa B2/ 2,220o/ 327

Alfalfa 20-80-40 and B2/ 1,790d/ 214

Alfalfa BY 2,5h02/ 176

Alfalfa i 3,4302/ 24

Potatoes 40-80-80 18,600 72

Potatoes 450 P205 2-7,100 746 Potatoes 40-80-4o 411,100 40

Wheat 40-120-80 3,280 70

Wheat 3,300 41/4

Wheat v/ 1,562 131

Bahiagrass Y 2,4502/ 880

Elephant Grass - 146 Para Grass EJ 282

i/ From left to right, figures apply to N, P205, and K20. Ži Over non-treated. i/ Borax applied at rate of 30 kilograms per hectare. i/ Dry matter per cutting. i/ Hay per cutting. f/ Borax applied at rate of 60 kilograms per hectare. g/ 160 kilograms of P205 and 4 tons of limes. i/ 16 tons of agricultural limes. j Topdressing of 4 tons of limestone, 50 kilograms of N, and 300 kilograms of P205. 100 kilograms of N; without irrigation. 100 kilograms of N; with irrigation. Source: Technical bulletins published by the Ministerio de Agricultura de Colombia, Departamento de Investigacion Agropecuario. - 11 - A\NEX IV PRODUCTION SUPPORT merchandising problems make it difficult to penetrate foreign markets more strongly than planned. IrTere such a contingency to arise, as is not unheard of in circumstances of this sort, it could be met by under- utilization of installed capacity, by subsidizing exports, or by allowing the domestic price to fall to a point which would induce the domestic market to take the full output and calling upon the national economy to subsidize the national industry, The point to be made is that this last procedure is likely to be preferable to the alternatives under any circumstances, and particularly during the next few years when al all- out effort is required to induce more farmers to use more fertilizers.

23. Seed. Improved seed is another underexploited input of great importance. The task of improving plant stock is the responsibility of the Division de Investigaciones Agricolas (DIA) of the Ilinistry of Agriculture. The DIA has been active for some years in the development of improved plant stock in such crops as corn, wheat, barley, oats, potatoes, rice, beans, peas, pasture crops, vegetables, fruits, sugar cane, oilseeds, and bananas. IIultiplication and distribution is undertaken by the semi-official commodity institutes -- such as the Rice Federation for rice; and the Caja Agrario (Departamento de Fomento Agricola) for wheat, corn, beans, and potatoes.

24. The multiplication and distribution of improved stock has not kept pace with the output of the DIA. For example, although improved seed will reportedly increase yields up to 50 percent (hybrids sharply more), only about 3,330 tons of wheat seed were distributed in 1961 and about a third of that quantity in the case of corn (Table 6). Over half of the wheat acreage is under unimproved varieties or unselected seed. A much greater proportion of the corn acreage suffers this fate. And as will be seen in Table 7, less than 4 million pesos went into current expenditures in support of corn seed improvement on the non- research side in 1961.

25. An important increase in production could be obtained by bringing the capacity to multiply and distribute improved seed up to tlhe demonstrated research and development capacity of DIA. Two types of measures are urgently necessary. One is the provision of adequate finance to seed multiplication and distribution agencies. The second involves the activation of private enterprise in the seed field.

26. The very limited information available to the mission would suggest that in order to ensure that the efforts of the Caja and other bodies to expand the distribution of seed are not hampered by a shortage of finance funds in the order of 15-20 million pesos should be made available at once. This figure should be adjusted in each subsequent year in an amount to be dictated by experience. In addition to offsetting the withdrawal of INA support (per paragraph 9 above),.!/ j The Department of Agricultural Development of the Caja Agrario was supported by INA to the extent of around 4.8 million pesos in the period 1959 through 1961. - 12 - ANNEX IV PRODUCTION SUPPORT

Table 6: QUANTITY OF IMPROVED SEED DISTRIBUTED BY THE CAJA AGRARIO, 1953-61 (tons)

Year Wheat Corn Beans Potatoes (Frijoles)

1953 147 65 - 1954 1,039 160 -- 1955 113 370 - - 1956 639 594h - 1957 599 744 - 11 1958 1,610 531 _ 164 1959 3,050 437 29 1,003 1960 2,149 764 27 163 1961 3,330 1,172 48 84

NOTE: Sales of improved barley seed by the Barley Institute (FROCEBADA) approximate 4,000 tons a year; about 95 percent of the barley area is now under improved seed, as against 20 percent in 1956.

Source: Caja Agrario, Departamento de Fomento Agricola. this sum would enable the Caja to expand its seed work, to support (if and as necessary) the work of the comnodity institutes in this field, and to manage the seed market in a way which would draw farmers into the production of certified stock. The entire task has to be carefully stu.ied3 with the budget for the longer-run keyed to the mavin3im feas-:ble rate of adoption of improved plant stock and to a ta,;-et date for 100 percent acceptance of such stock by farmers. Given effective man3cement of the seed program, it is unlikely that the nation can over- spend for this activity. The economic return to improved seed is clearly high, and, as noted above, the amount of work to be done to even catch up with the output of DIA is great. The immediate objective should be to bring into general use the improved varieties alrea(dy available, thereby capitalizing upon past expenditures in support of DIA. The longe- -term objective should be to establish a system which will ensure that there is no lag between the development of improved seed and its widespread use. It should also be anticipated that this task will become progressively larger. This is because the DIA training programns are providing a mpidly increasing supply of qualified seed research and development personnel, and because the demonstrated productivity of technical research in agriculture is such as to justify a substantially larger volume of public funds for this activity in the - 13 - ANNEX IV -?RODUCTION SUPPORT

Table 7: OUTLAYS IN SUPPORT OF NULTIPLICATION AND DISTRIBUTION OF UHEAT, CORN, BEANS AND POTATO SEED, 1959 AN4D 1961 (thousands of pesos)

Corn and Year and Item Wheat Beans Potatoes

1959

Value of Capital Plant 693 393 -

Expenditures: Seed Purchases 8,606 1,215 668 Operating Costs 1,376 1,073 401

Total 9,982 2,288 1,069

Receipts: Seed Sales 8,978 2,253 834 Contribution by Caja Agrario - 35 235 Contribution by INA 1,004 - -

Total 9,982 2,288 1,069 1961

Value of Capital Plant 1,647 2,636 270

Expenditures: Seed Purchases 8,809 1,895 46o Operating Costs 2,481 2,055 236 Equipment 1,385 1,691 _ Total 12,675 5,641 969

Receipts: Seed Sales 9,681 3,848 503 Contribution by Caja Agrario - - Contribution by INA 2,993 1,793 193

Total 12,674 5,641 696

Source: Caja Agrario - 14 - ANNEX IV PRODUCTION SUPPORT years just ahead. The result will be a larger flow of improved varieties, and the consequent need for a greater effort to bring them promptly into widespread use.

27. Two steps must be taken to encourage farmers and businessmen to enter the seed business. First, appropriate legislation governing production and trade in certified seed must be passed and provision made for its implementation. Second, an ample price incentive must be maintained. Pending the development of a firm and expanding demand for improved seed, it will be necessary for public agencies to contract with farmers so that the latter are assured of outlets and acceptable premiums. To move the supply of improved seed into use may require that subsidies be paid until such time as the productivity of the input is firmly and widely recognized by farmers.

28. Farm Machinery. The intensity of use of land now under cultivation and the rate at which unused land is brought into cultivation depend to a significant extent on the supply of farm machinery. Sharp cutbacks in the imports of farm machinery were recorded in the 1957-59 period when balance of payments difficulties became severe. However, in 1960 some 2,428 farm tractors were imported, a figure almost three times that in 1957 and very close to the previous peak (Table 8). The available data suggest that this level was not reached in 1961, although on a value basis the total importation of farm machinery was probably roughly the same as in 1960.

29. In spite of the recent upturn in imports, the growth in the total number of tractors in the period 1956-61 was only about 3.3 percent in terms of the number in operation, and quite insignificant in terms of the stock of tractor years in hand, assuming a ten-year life (Table 9), A doubling of the average growth in tractor numbers in the period 1962-70 as against 1956-61 would only increase the number of tractors in operation in 1970 to a total of a bit over 38,000. A continuation of the 1956-61 rate of expansion through 1970 would increase the total to about 24,500, a figure 32 percent above the 1961 level.

30. Howiever, it should be noted that a series in terms of numbers of tractors understates the extent of the build-up in horsepower and output capacity; this is because qf the engineering and performance improvements which occur through time.j/

1/ Technological and associated change is said to have resulted in a decline of 59 percent in the real cost of tractors (in terms of maximum drawbar horsepower) in the U.S. in the period 1935-61. - 15 ANNEX IV FRODUCTION SUPPORT

Table 8: DMPORTS OF AGRICULTUTRAL MACHINERY, 19h7-61

Tractors All (including tractors) Value CIF Value ClIF Year Number (U.S.$ thousand) (U.S^$ thousand)

1947 920 2,405 8,243 1948 776 2,340 8,215 1949 1,572 3,817 12,658 1950 1,590 3,515 13,381 1951 1,615 4,517 123181 1952 979 3,5o4 l1,243 1953 1,369 6,657 13,558 1954 2,374 10,612 21,997 1955 2,493 12,179 24,445 1956 2,239 14,116 22,890 1957 852 3,564 9,446 1958 1,565 4.,63lbi 11,056 1959 1,8Jb/ 6351 1100a/ 1960 2,428/ 8,696 / 23 ,269c/ 1961 1,557i/ 6,662_/ 19,675W/ a/ Represents total of individual items and groups, as reported in Anuario de Comercio Exterior, 1959. Is subject to adjustment, probably slightly upward. b/ DANE, Anuario de Comercio Exterior, 1960. c/ DANE, Boletin Mensual de Estadistica, Enero 1962, p.33. g/ Through October. DANE, Boletin ilensual de Estadistica, Febrero 1962, p.60, and Enero 1962, p.33.

Source: Except as indicated in the footnotes, Ninisterio de Agricultura, Oficina de Planeacion, unpublished tabulation.

31. The implications for farm credit and for the demand for foreign exchange of several alternative rates of increase in powered farm equipment are suggested in Table 10. To double the growth rate in tractor population in the period 1962-70 relative to that attained in 1956-61 would require gross additions averaging close to 14,000 tractors annually through 1970. Even to sustain the historic growth rate, which happens to be very close to the growth rate recorded for farm crop output (excluding coffee) in the same period, would put a severe burden on the - 16 - ANEX IV PRCDUCTION SUPPORT farm credit supply during the years ahead if it is recalled (Table 8) that tractors typically account for from a third to a half of investment in machinerv at CIF prices.

32. The mechanization rate will be determined by farmers' demand and the availability of equipment. The Government has a key role in its policies for granting licenses for imports of equipment and encouraging local production, as well as by ensuring that the life of machinery is not reduced by shortcomings in the supply and pricing of spare parts; by forestalling increases in machinery prices relative to agricultural product prices; by making available a supply of credit sufficient to meet demand at non-subsidized interest rates; and, to the extent practicable, by supporting efforts to make machine services available on a custom basis.

Table 9: TH1E TRACTOR POPULATION AND STOCK UNDER ALTER.IATIVE ASSUI'PTIONS AS TO GROWTH RATES THROUGH 1970

Tractors in Operation Tractor Stock (Thousands Item (Number)2/ of Tractor Years)-/

1956 15,927 101 1957 15,859 94 1958 167648 94 1959 16,902 95 1960 17,715 102 1961)/ 18,604 103

Growth Rate (1956-61) 3.3 percent

1970: Assumption 1/ 24,561 347 Assumption 2_/ 38,159 868 Assumption 3i/ 58,462 1,597

2/ Assumes a 10-year life; that no tractors are in the domestic distribution pipeline; and charges a tractor with a full year of operation during the year in which it is imported. Base is the preceding table. b/ For 1961, import data were available only through October. This figure was adjusted to a yearly basis on assumption that January-October rate continued throughout year.

2/ Given continuation of 1956-61 rate, or 3.3 percent.

Given doubling of 1956-61 rate, or 6.6 percent. e/ Given tripling of 1956-61 rate, or 9.9 percent. - 17 - AENEX ITJ PRO3UCTION SUPPORT

Table 10: GROSS ANNUAL ADDITIONS TO TRACTCR POPULATION (NUMBER OF TRACTORS) REQUIRED TO ACHIEVE ILLUSTRATIVE FARM' POIER TARGETS IN 1970

1970 Target (No. of Tractors in Operation) Year or Item 24,56 & 3 8,159b 58,4622/

1962 1,916 5,850 1o,443 1963 2,931 7,750 13,553 1964 4,h92 10,365 17,548 1965 5,368 12,200 20,952 1966 5,803 13,776 24,308 1967 5,328 14,539 27,089 1968 6,777 17,331 32,163 1969 7,816 19,826 37,235 1970 9,178 22,776 43,079

Average Annual Gross Addition 5,512 13,824 25,152 a/ The outcome of a 3.3 percent growth rate, as shown in preceding table. b/ The outcome of a 6.6 percent growth rate. i/ The outcome of a 9.9 percent growth rate.

Source: Based on preceding table.

33. The development of a service of this latter sort is being sponsored by the Caja Agrario on a token scale. Credit is offered to carefully selected and trained individuals in strategic areas for the purchase of farm machinery. The buyer provides custom services to farmers under terms agreed upon with the Caja, with whom he is in continuing contact on technical, management, and repayment matters. The PROCEBADA (Barley Institute), a private agency, has used a similar device, on its own account, to spur the upgrading of land use and more timely and effective field operations.

34. It is clear that this type of activity is not adaptable to all circumstances. But in view of the double cropping potential in many areas, the low machine density, the significance of timely operations under many of the prevailing climatic conditions, the technical inadequacy of animal power, and the willingness of private enterprise - 18 - ANNEX IV PRODUCTION SUPPORT

to assume risks in a joint public-private effort in this field -- it seems likely that this route to expanded production can economically absorb a good deal more public effort than it has so far received.

Agricultural Extension

35. A more rapid rate of adoption of improved inputs and the associated superior techniques implies that the nation can make farmers aware of the technical and economic aspects of these practices and that the associated demand for more finance can be met. Insofar as practicable, extension and credit programs must reflect these requirements.

36. The outlook on the side of extension is clouded by personnel problems. The supply of personnel with both the experience and formal training required to deal effectively with farmers who operate on a large or medium-scale is quite limited. Only about 80 agronomists (ingeniero agroncmos) were graduated in 1961, This figure will increase in the years just ahead, but not to a level whlich is likely to quickly alter the potential impact of extension on commercial agriculture if an effective distribution of new personnel among activities occurs, and given the fact that exyjrience is a vital ingredient in dealing wzith knowledgeable farmers .:

37. Seven agricultural extension agencies are now identifiable: SEMA (Servicio de Extension of the Ministry of Agriculture); SEDECAFE (of the Coffee Federation); SEDINTABACO (of the Tobacco Institu-te); SEIFA (of the Cotton Institute); SEVALLE (of the Cauca Valley); SEBOYCA (of the Department of Boyaca; until recently sponsored by STACAJ/); and the SEANTIOQUIA (of the Department of Antioquia).

The 1960 Annual Report of the Ministry of Agriculture to the Congress (page 94) showed professional personnel in public agricultural agencies in 1959 as follows: Aging Agronomists* Veterinarians** Other Professionals INlinistry of Agriculture 191 117 54 Caja Agrario 26 1 42 Cotton Institute 70 - 5 Storage Institute (INA) 2 6 Tobacco Institute 23 _ 3 Coffee Federation 60 2 5 Rice Federation 6 _ 2 STACA 8s** 12 2 23 Total 390 122 170 Departmental Gov'ts 146 90 92 Total §36 21 723 - Ingeniero agronomos. W-* Medicos veterinarios. .-',* Servicio Tecnico Agricola Colombiano Americano. 2 The experience through 1960 in Boyaca is summarized in Jose Osorio Callego, "Progreso Rural en Boyaca," November 1961. 97 pages. - 19 - ANNEX IV PRODUCTION SUPPORT

The existing number of field staff as compared with the numbers required if each of the nation's 876 municipalities were provided wxith a home economist and a rural youth worker, plus an agronomist for each three municipalities is approximately as follows:

Type of Personnel Existing Required Deficit

Agronomist 1h4 262 118 Home Economist 215 876 661 Rural Youth Worker 62 876 814

Such an expansion would require that the current overhead staff of 57 also be substantially enlarged, probably in the order of 25 additional supervisors, along with an upgrading of those already engaged in supervisory work. In view of limited personnel in prospect in relation to projected needs careful planning is needed in selecting the areas to be covered.

380 Although problems of personnel, organization, and extension methodology are of much greater current importance than financial limitations, it should be noted that to maintain an extension unit of one agronomist, one home economist, and several helpers, along with a secretary and transport facilities costs around 120,000 pesos a year as a minimum today. National coverage of the sort outlined above would thus involve annual expenditures of rather more than 100 million pesos, excluding the supervisory overhead.

39. Despite its limitations, the existing extension service can be mobilized to help bring to the attention of commercial farmers the economic opportunities in shifting to modern production methods. This effort should be supplemented by the utilization of mass communications media to make known to ccmmercial farmers the findings of DIA as they occur. This requires that DIA equip itself to issue non-technical resumes and economic interpretations of caopleted and in-process work. These resumes should be adaptable to all appropriate media, and should go to all agricultural agencies, local and national, and directly to 100 of the most progressive farmers in each department. The initial aim is to ensure that all who control or are in contact with substantial agricultural resources know what DIA already knows; the follow-up is to let these same people know what DIA strongly suspects.

140. A procedure of this type is a mere reflection of the fact that there exists a significantly large body of alertly-managed capital in agriculture, that the typical extension process for the foreseeable future will not reach this body, and that in any event the normal type of extension activity is somewhat superfluous when the target is one of the sort indicated. The proposal also recognizes the fact that the DIA is an exceedingly valuable resource and one that is rarely found in lesser-developed economies. It is vitally necessary that its output be fully and quickly translated into increased production, and that any and all efforts to do so should be interpreted in terms of this objective rather than on the basis of a theoretically desirable distribution of functions axiong agencies. - 20 - ANMNEX IV PRODUCTION SUPPORT

Farm Credit

41. The problem of extension spills over into farm credit in two very direct ways. First, a successful extension effort is bound to increase the demand for credit. Second, the farm credit program itself can be a highly effective agent in promoting the adoption of improved techniques by farmers. It is probable that very litt'e farming activity on any significant scale is carried on without contacts with the Caja Agrario or the commercial banks. W4hile the traditional ways of guaranteeing loans must continue to be used, the checking of loan applications by a skilled farm management adviser could lead to rapid improvements in the efficiency of farm resource organization and use.

42. A service of this sort would require sharp departures from current Caja and bank practice. The typical procedure today is to assess the creditworthiness of the applicant in terms of assets which can be pledged against the proposed loan, then to calculate the credit require- ni,ent by applying "cost of production" figures to intended acreages of specified crops, and then to lend some portion of the requirement if the credit rating will support it. The operation does not take into account either the possibility that more ;productive outlets for credit may exist on the particular farm, or the way in iwhich the credit in question contributes to the longer-run development of the farm. An effective advisory service would treat the farm as a whole, set up an income- expenditure projection over a suitable time period in terms of optimum resource use, and from this derive a credit and investment pattern through time which would become the basis of the credit agency's lending activity and the farmer's management decisions. Both the Caja and the commercial banks are perfectly able to develop and offer such a service, and it would be in their economic interest to do so. Finding and training a staff is the first task in any such effort, but it should be realized that once the resource inventory is taken and the basic plan is outlined, the man-hour requirements to keep the analysis and projections current are not great.

43. The setting up of the agricultural development problem today makes it imperative that the "whole farm -- long term" approach be introduced at this time. Firstly, a tendency to upgrade land use is under way. Second, the volume of technology awaiting adoption is large. Third, social pressures toward higher wages iwill grow. Fourth, the public effort in agriculture is organized primarily on the basis of largely independent agencies charged with responsibility for a specific commodity or commodity group. The first three conditions suggest the increasing severity of the farm management problem and the fourth suggests an orientation in public organization which is not conducive to improving farm resource management. The incorporation of the technical service concept into the operations of the major lending agencies is therefore particularly appropriate at this time. - 21 - ANNEX IV PRODUCTION SUPPORT

44. The volume of credit going into agriculture has been consistently expanding in recent years. The increase in loans outstanding to agriculture was particularly sharp in 1959 and 1961, with the Caja Agrario and commercial banks together holding a portfolio of around 1,965 million pesos at the end of 1961, as shown in Table 11. (In addition, some 163 million pesos of agrarian bonds were held. These bonds serve as reserves against deposits, and also qualify for inclusion in the agricultural loan portfolio. Since 1957, commercial banks have been required by law to hold this portfolio at not less than a specified percentage of sight and time deposits. The situation today is not entirely clear, but the required figure appears to be 15 percent.) This figure of 1,965 million pesos does not include commercial bank loans rediscounted with the central bank, roughly 250 million pesos in amount, nor Caja rediscounts of about 370 million pesos.

Table 11: AGRICULTURAL LOANS OUTSTANDING FROM THE MAJOR CREDIT SOURCES, 1956-61

Agricultural Ban1 and Livestock Bank2/ Commercial Banks Combined As of End millib % million % million % of Year pesos/ Increase]/ pesossJ Increasei pesosL/ Increase./

1956 529 - 372 - 901 - 1957 559 5.7 377 1.3 936 3.9 1958 674 20.6 423 12.2 1,097 17.2 1959 837 24.2 553 30.7 1,390 26.7 1960 960 14.7 619 11.9 1,579 13.6 1961 1,205 25.5 760 22.8 1,965 24h4 a/ Caja Agrario and Banco Ganadero. b/ Del ano.

21 Over preceding year.

Source: Banco de la Republica.

45. It will be noted from the table that commercial banks occupy an important position in the farm credit picture, typically accounting for from 38 to 41 percent of loans outstanding in agriculture. Livestock

1/ Total credit outstanding in the economy as of a comparable date was around 4,000 million pesos. This figure does not include rediscounted paper. - 22 - ANNEX IV PRODUCTION SUPPORT accounts for more than half of he agricultural loan volume of both the commercial banks and the Ckaja. Although a number of additional credit sources are available to farmers, as will be discussed below, the Caja and the commercial banks account for the vast bulk of the farm credit supply.

46. The Caja offers short-term credit (up to one year) at a 6 percent interest rate; the regulations do not specify that real property need be pledged as guarantee; maximum loans range from 10,000 pesos to 70,000 pesos, depending on the use to which the loan funds are to be put. Fourteen classes of medium-term loans (1-5 years) have been established, each carrying an 8 percent interest rate, each requiring real property as a guarantee, and with loan maximums ranging up to 200,000 pesos (for farm machinery, the limit is 120,000 pesos). Long-term credit is extended up to 15 years; the maximum loan is 200,000 pesos; the interest rate is 9 percent (except for worker housing, for which it is 5 percent); and only a real estate mortgage is accepted as security.

47. As of September 1961, these regulations had produced a situation in which 28 percent of loan money outstanding wqas secured by real estate mortgages; 44 percent by chattel mortgages; and 28 percent were signature loans. The average size of loan against a real estate mortgage was 7,075 pesos; against chattel mortgage, 3,075 pesos; and against signature, 2,076 pesos. Owners carried 74 percent of the loans outstanding in terms of number, and 78 percent in terms of money. The corresponding figures for renters were 12 percent and 13 percent. As of the end of 1960, the time distribution of funds on loan was: short- term, 40 percent; intermediate, 50 percent; long-term, 10 percent.

48. During 1960, t'he average size of loan granted by the Caja Agrario for specified purposes was (in pesos): cotton, 4,659; rice, 1,785; sugar cane, 664; tobacco, 619; sesame, 1,094; corn, 496; barley, 2,640; potatoes, 1,340; wheat, 1,260; coffee, 1,113; farm machinery, 13,101; all loans related to livestock, 1,701.

2 The percentage distribution by purpose of loans outstanding in money terms from the commercial banks as of end 1960 and that of the Caja Agrario as of end June 1960 were as follows:

Purpose Commercial Banks Caja Agrario

Crops: Coffee 11 10 Other _31 37 Total 42 47 Livestock 58 53 Total 100 100 - 23 - ANNEX IV PRODUCTION SUPPORT

49. In the years ahead a substantial growth in the demand for credit should be expected if output targets are to be met. For example, for each of the next few years several thousand hectares of bananas will need to be brought into production at a cost of around 5,000 pesos a hectare. Not less than an equivalent expansion of acreage of African palm is called for, at a cost of some 3,000 pesos or more per hectare. The demand for funds with which to finance improved pasture and fencing in connection with an activation of cattle ranching can readily reach figures much larger than those indicated for bananas and African palm. Corn will also require a significant volume of credit.

50. The mission has provided for an annual increment to the farm credit supply of around 175 million pesos through 1965, a sum g9ufficient to produce a growth rate of about 8 percent on the 1961 base.* The comparable figure for the 1956-61 period is estimated to have been in the order of 5 percent, based upon the data of Table 11 and the limited information available on input prices paid by farmers. Higher interest rates and a still larger expansion of tle credit supply should be provided if the demand by commercial farmers develops to a point requiring administrative rationing of available funds. This approach needs to be associated with more farm management counsel on the part of the lending agencies, along with an effort to channel funds to farmers through local credit associations. Through utilizing the judgments of leading local farmers and businessmen, these associations can help maximize the impact on production of any given credit supply.!/

53. The existing credit system should experience no serious difficulty in handling a larger volume of funds with acceptable efficiency. It is nonetheless true that some measure of coordination among the elements in the system is in order. A goodly number of largely independent agencies are now operating in the farm credit field. j The cited increment is in addition to the credit supply which will be made available by the INCORA (Agrarian Reform Institute) in support of the rural reform effort now getting under way.

2/ It should be noted in this connection that the commercial banks as a group now operate an experimental scheme called AGROCREDITO under which small and medium farmers in two areas (Girardot and environs in Tolima; and Buga in Valle) are assured of access to credit to enable intensive double-cropping (cotton followed by corn, sesame, rice or beans) and the utilization of modern production practices. Credit is in the form of a rotating fund, in the order of 16 million pesos, and administered by a local committee. - 24 - ANNEX IV PRODUCTION SUPPORT

54. Set up in 1931 by the Coffee Federation (which through the Fondo Nacional del Cafe continues as a major stockholder) the Caja Agrario accepts deposits, maintains over 400 field offices (the rough equivalent of one for each two municipalities), and on 30 June, 1960, had outstanding in agriculture 124,302 loans totaling 332 million pesos plus 118,000 loans in livestock totaling 383 million pesos. The Banco Cafetero (Coffee Bank), a commercial bank fully owned by the Coffee Federation through the Fondo Nacional del Cafe, operates 56 field offices, and in addition to operating commercially, administers the Fondo Rotatorio de Credito aimed at improving living levels in coffee areas. (This rotating fund is financed by the Fondo Nacional del Cafe, the apparatus charged with managing for the nation the finance and fiscal matters relating to coffee.) The Coffee Bank also recently installed a supervised credit program on a nilot basis in Caldas; this is to function in support of the above- mentioned Coffee Federation's extension service, SEDECAFE.

55. Operating primarily with funds derived from taxes on tobacco products, the Tobacco Institute offers credit in kind to tobacco growers and guarantees credit made available by other sources. This service is designed to back up the Institute ts technical assistance program. A similar kind of activity is sponsored by the Barley Institute (PROCEBADA); upon the recommendation of the Institute's technical staff, a unit of the Caja Agrario will offer seed on credit, and the other credit required for production is likely to be granted by fund sources. Jointly with the Caja Agrario, the Rice Federation has operated a program of advancing improved inputs in kind to its members. The Cotton Institute is also active in assisting farmers to meet credit needs.

56. Still another specialized credit agency is the Banco Ganadero (Livestock Bank). Set up in 1956 and working with public and private capital and through 15 offices, this agency is charged with promoting the production and more efficient processing of all species of livestock. It is authorized to invest in the entire range of relevant outlets on terms up to five years. The distribution of its loans (137 million pesos) as of the end of 1961 showed 68 percent in the livestock production field. The Livestock Bank is also required to support the Fondos Ganaderos.

57. These Fondos operate under Law 26 of 1959, and are seen as a means of mobilizing public and private capital for investment in the livestock industry. Organized on a departmental basis, some 17 are now in operation, and loans outstanding were reported to be 60 million pesos at the end of 1960 and 86 million pesos as of 30 November, 1961. The typical arrangement involves credit in the form of livestock, and a share contract between the Fondo and the farmer under which 35 percent of the gain goes to the Fondo and 65 percent to the farmer (60 percent in cash, with the remaining 5 percent in shares of the Fondo). This arrangement, along wJith a policy of offering technical assistance to the borrower, plus the returns from a small levy on livestock producers, and the sale of shares, has enabled the Fondos to quickly develop an impressive potential. - 25 - ANNEX IV PRODUCTION SUPPORT

58. Other aspects of the credit picture might be mentioned, such as the small supervised credit program being sponsored by the Caja Agrario and the STACA (Servicio Tecnico Agricola Colombiano Americano), and the cooperative credit movement now getting under way, particularly in coffee areas. But it should already be clear that the organizational setting of the credit problem is complex enough to require a careful distribution among competing agencies of successive increments to the farm credit supply, and the installation of permanent coordination and "performance evaluation" machinery to assure that a maximum production impact is created by these funds.

Other Measures

58. The generalized production support measures outlined above are designed to make it easier for more farmers to farm better. In essence, they represent neither more nor less than a broadened application of the measures which were responsible for the very rapid rate of growth of output of barley and cotton in recent years. It is highly important that they be adopted; the entire Colombian economic development plan can collapse if farm output fails to increase in 1963-64-65 at a rate sufficient to hold food prices at close to the current relationship to non-food items, and to earn (save) foreign exchange at close to the projected rate. The crucial issue of tthe moment is to ensure that the cited quick-yielding measures are energetically undertaken; it is upon these that the nation must depend to draw forth the necessary output until such time as a more ample production capacity is created through long- gestation investments such as the upgrading of managerial skills, land and water development, the improvement of public organizational and administrative capacity in agriculture, and the mobilization of the productive power inherent in low-income rural economies.

59. Still another set of measures needs to be set in motion now in order to strengthen the agricultural economy in a way which will sustain rising output trends for the longer-run. These measures are in the nature of fundamental complements to the quick-yielding actions outlined above. They are based on the fact that the production and investment decisions of farmers today are made with a view to the cost and price conditions of tomorrow.

60. In pursuing its objectives of self-sufficiency in farm products and an expansion and diversification of agricultural exports, the Govern- ment has invoked a wide range of measures which directly or indirectly influence the supply and demand situation for agricultural commodities and inputs, and hence the prices and costs faced by farmers and their capacity and willingness to invest. In thus affecting the economic environment which farmers foresee as likely to prevail for the longer-run, these measures become very pertinent to the production problems of today. - 26 - APNNEX IV PRODUCTION SUPPORT

61. Land Revaluation. One such measure is land revaluation for tax purposes. Through its effect on the tax liability of farmers, this can tend over the longer-run to reinforce the current trend toward the upgrading of land use and the adoption of modern production practices. A heavier tax liability may also ease the land market by increasing supply and dampening demand. Higher appraised land values will influence tax liabilities in three ways. First, they create a higher land tax (impuesto predial) obligation. Second, they result in a higher wealth tax (although for a maximum impact it is necessary to remove the current provision exempting land from the wealth tax in cases wqhere it does not produce taxable income). Third, because of the relationship of the wealth tax to the inccme tax, and because any more intensive use of land which may result from heavier land taxes and wealth taxes would tend to expand the income subject to income taxes, land revaluation can increase the income tax liability.

62. These considerations, along with questions of revenue and equity, have led the Government to undertake a land revaluation effort (catastro fiscal). Some 300 municipios have been revalued in the last three years. At this rate of progress, it would require six years to complete the task. Either through a functional reallocation of the current budget of the agency in charge of the task (the Geographic Institute "Agustin Codazzi"), or through the allotment of new funds, it is essential that the revaluation effort be financed and staffed so as to enable completion of the job by early 1964. This may involve rather more than doubling the current staff, and additional funds in the order of 10-15 million pesos. In the interim, a system under which valuations can be kept current needs to be studied and instal-led, along with improvements in property delineation and registration.1!

63. If no alternative means of procuring staff and/or funds is at hand, resources can be temporarily diverted from the technical cadastral work now in progress. Based on detailed soils studies, this type of cadaster is by its nature a very long-term one, and no great importance need be attached to a short interruption.L/ In contrast, the fiscal cadaster is addressed to an urgent problem. The wide range of values for tax purposes now applied to farm and ranch lands of comparable quality can scarcely be considered a stimulus to improved resource organization and use. This is illustrated by the fact that it was

1/ This latter problem is well illustrated by a property boundary description wqhich reads as follows, "Hasta puede ver el ojo del hombre en dia claro."

2 This cadaster has fiscal implications only insofar as valuations are based on the natural productivity potential inherent in the property. It is not to be expected that this concept can be formally applied in the foreseeable future. - 27 - ANNEX IV PRODUCTION SUPPORT

recently found possible to increase the appraised value of rural property in one municipality by more than five times, and doubling is common- place (Table 12).

Table 12: PERCENTAGE CHANTGE IN NUMBER AND VALUE OF RURAL PROPERTIES IN SELECTED NUNICIPALITIES AS RESULT OF RECENT REAPPRAISAL FOR FISCAL PURPOSES

Percentage Change State and Municipality No. of Prop. Value of Prop. Huila: Saladoblanco 2 277 Yaguara -9 130 Magdalena: Cienaga 34 85 Chimichagua 124 215 Chiriguana 137 414 Gonzales -2 121 Remolino 86 115 Salamina 57 97 Narino: Colon 10 111 Consaca -9 101 Funes 5 1 Norte de Santander: Arboledas -15 101 Bochalema 3 23 Durania -34 28 Herran -21 104 Labateca -16 65 Tolima: Ambalema 6 20 Armero -33 1 Coello 6 85 Espinal -1 38 Lerida -27 13 Piedras -10 48 Valle: Vijes 1 21 Yotoco -13 50 All Above 11 71

Source: Computed from unpublished data made available by Instituto Geografico, "Agustin Codazzi," March 1962. - 28 - ANNEX IV PRODUCTION SUPPORT

64. It should be recognized that use of higher land values for tax purposes and the above-mentioned action in respect to land and the wealth tax will not fully solve the agricultural taxation problem. Even if faced with a levy higher than today on a valuation several times the current one, it is quite conceivable that administrative deficiencies in the tax system and the privilege of carrying over farming losses into taxable income and wealth (each progressively taxed) from other sources can make it profitable to under-utilize agricultural and ranch land. As no capital gains tax exists, such holding of land will be particularly attractive if inflationary circumstances are seen as likely to persist. And although the proposed wealth tax revision would increase the tax burden upon the livestock producer, it would still leave him free of income tax for all practical purposes. It needs to be remembered in this connection that livestock accounts for close to half of the value of farm output if coffee is excluded.

65. Price and Trade Policy. The farm product price level along with price relationships among farm commodities is another important deter- minant of the way farm resources will be used over the longer-run. It appears to the mission that this area needs more careful study by the Government, particularly in respect of the relationship between export commodity prices and those for farm products which do not enter foreign trade.

66. A formidable array of price-influencing devices has been utilized in recent years in an effort to achieve the objectives of agricultural policy: self-sufficiency in farm products and a more diversified export capacity. Included in the list of devices are support prices; obligatory purchase quotas for domestic industry; higher and more effective tariffs; import licensing; prior deposit requirements; the classification of import items into permissible and prohibited categories; cuotas de fomento, a type of import tax; administrative prohibitions of exports; export licences; the imposition of an official price for exports (the reintegro system); a multiple exchange and export tax system under which the exportability of an item is heavily influenced by administrative decree; export taxes in cash and kind; various arrangements for trade outside of "normal" channels, for "soft" currencies and on barter terms; P.L.480 operations, under which around U.S.$'75 million of farm products have been imported to date; formal currency devaluation, and the persistent downward tendency in the exchange value of the peso; food gifts from abroad; and the imposition of maximum retail price controls (as on fats, chocolate, flour, sugar, milk, beans, corn, wheat, and beef).

67. The relative emphasis placed upon these measures has varied from time to time, as policy has varied with the availability of foreign exchange and with beliefs as to the significance of food prices to the low-income groups and of farm product prices to the small farmer. In general, the result has been the development of a price structure for - 29 - ANNEX IV PRODUCTION SUPPORT

agriculture which for many products (notably wheat, and to a lesser extent other cereals and pulses) appears to be sufficiently above the prices at which products move in world trade to create incentives for non-specialized farm resources to move into non-export uses. The ramifi- cations of an agricultural price structure increasingly oriented in this direction are complex, but over the longer-term such a structure is inconsistent with the objective of increasing farm exports and with a total mobilization of agriculture in support of overall economic growth. It is in this context that the problem needs re-examination.

68. Processing and Distribution. The Government is about to equip itself to attack the problem of modernizing food processing and distribution, in part through the medium of a training and research institute in marketing to be set up with U.N. Special Fund support. This is a complex problem, clouded with misinformation, emotion, biases, and deeply entrenched intermediary groups. The concepts and techniques which continue to improve food distribution and management in the more advanced economies are not readily adaptable to less-developed situations. Yet it is in this direction that changes must be made. The first step is the improvement of wholesale markets servicing urban centers to enable lower transport and handling costs and the price-setting job to be done competitively and in relation to the qualify of produce. These markets in most cases will have to be designed, installed, and financed by public funds, with space leased to individual traders under terms which will enable the operation to be self-financing. The second step is to support the development of multiple-commnodity, single-management retail distribution centers located in such a way as to increasingly achieve economies of scale, and simultaneously to ease away from the subsidization of central, massive, and inefficient retailing centers. On the side of processing, municipalities are serving themselves and the nation poorly in being associated in any way with this task. This will become increasingly true as more and more improvements in transport appear.

69. Although vast economies in food processing and distribution are possible for the long-run, the mission believes that public action in this field should follow the initial findings of the above-mentioned institute, and even then investment should be only on a carefully controlled experimental scale.

70. Livestock and Cereal Programs. The development plan of the Government envisions a substantial expansion in the output of livestock products in the current decade. While neither the scale nor the nature of the program to be undertaken in support of this objective has been announced, there is no doubt that the livestock industxy can productively absorb a large volume of resources. On the one hand, graz-Lng is the highest value use to which vast areas of Colombia can e put, On the other, the growth in the domestic market will of itseFL be sufficient to assure good prices for livestock products. The preview of things to - 30 - AN-NEX IV PRODUCTION SUPPORT

come is written clearly in recent price history. IMieat prices showed a stronger upward price tendency during the period 1949-61 than did any other component of the wholesale price index, with the exception of fish; and since 1958 live cattle prices have tended to go up still more sharply relative to the index as a whole. A fat steer of good quality will now bring around 2.50 pesos ner kilo live weight at major market centers. Beef prices at retail rose around 175 percent between January of 1958 and July of 1961, as against an increase in the overall consumer price index of around 35 percent.

71. Although estimates vary widely, it is probable that the cattle population (largely native-indian crosses) has been going up recently, perhaps moving from around 13,300,000 head in 1954 to 15,400,000 in 1960. During this same period, the hog population probably fell from around 1,850,000 head to as low as 1,750,000 and may now be once again at about the 1954 starting point. The sheep population appears to have been in almost continuous decline, with estimates of current numbers running somewhat below 1,300,000.

72. No integrated program in support of livestock development has yet been mounted. The DIA of the IMinistry of Agriculture began research in breed improvement, and feeding and management practices in 1955, but it is only now about to begin a full-scale effort. The Livestock Division of the Ministry is sponsoring pest and disease control campaigns through 17 zone offices, and the Instituto Zooprofilactico, set up in 1957, is producing foot-and-mouth disease vaccines and establishing

diagnostic centers in major livestock areas. I A pasture improvement campaign has been under wlray by the Mlinistry of Agriculture since 1959. This centers on the production of plant stock, and is ultimately aimed at realizing what authoritative sources hold to be readily possible with known technology, viz., the tripling of the cattle carrying capacity of areas currently under grazing. This capacity is now in the neighborhood of one-half hiead per hectare on the average.

73. Slaughter is generally done on a custom basis in municipally owned and operated facilities close to points of consumption, with the meat moving at once into consumption channels without refrigeration; several major efforts to shift to a refrigerated product have failed. Retail prices are subject to control by the Government, with the maximums being established without regard to cut or quality.

1/ Annual losses to diseases and pests are typically estimated as equivalent to about one-third of actual marketings. Parasites account for roughly one-half of the estimates losses. - 31 - dJNEX IV FRCDUCTION SUPPORT

74. Although the prohibition on exports was lifted in November of 1960, no important export volume has developed to date (aside from the contraband movement to Venezuela). Indeed, the very severe obstacles to the development of an export trade are fully recognized by the Confederacion Colombiana de Ganaderos -- quality, foot-and-mouth disease, the lack of processing facilities, and prices are stressed by the Confederation.

75. The question of price raises the question of the feasibility of programs aimed at diverting domestic demand to other meats, particularly poultry. This is almost entirely a matter of feed prices, as the specialized poultry and related industries are already highly advanced technically. Poultry meat was estimated to account for between 5 and 6 percent of meat consumption in the 1956-58 period, or rather more than 26,000 tons annually.

76. If feed prices are to fall, a maximum effort on corn will be essential. It is pointed out elsewhere in this report that there has been little or no change in corn output during recent years, that neither improved nor hybrid seed has been exploited, that seasonal price stabilization has not been undertaken, and that corn is a crop well- adapted to much the greater part of Colombia.

77. Another highly important factor in the cereal outlook is the recently organized Instituto Colombiano de Cereales (ICE). This is a privately sponsored non-profit cereal production promotion agency; it is essentially an enlargement of the barley development agency &ROCEBADA). The success of the effort on barley, along with the above-cited elements in the cereal problem, leads the mission to believe that the ICE should be advised now that public funds will be made available to it in support of a cereal development plan to be worked out jointly with the appropriate agencies of the Government. The exact amount of funds which can be productively used in this way cannot be determined at this time, but provision for support of this kind has been made in the budget recommendations of the mission. The real burden on public resources generated by the ICE will be indirect, of course. tr assisting farmers to develop a technically acceptable production plan, the ICE will greatly increase the demand for such items as machine services, fertilizer, improved seed, storage space, and credit.

78. In comparison with cereals, there is less experience which can be drawn upon in developing a livestock production program. Moreover, the processing and marketing side is much more complex and the intention to enter foreign markets brings to the fore formidable questions of disease control, product quality, and merchandizing policy.

79. The first step regarded as essential by the mission is the elimination of price controls on meat so that the market can openly pay - 32 - ANNEX IV FRODUCTION SUPPORT

premiums for quality. The control is set up in terms of a maximum price for "meat", without reference to quality. The extent of violations is not known. But if the control has any impact at all, it is likely to be one of raising the price of the lower-value cuts relative to the better cuts, In so doinF, it defeats the very purpose for which it was set up, viz., the protection of low-income groups. And as long as the livestock market is controlled, the improvement of product quality on the farm and through better handling is unlikely to be rapid. Yet the product clearly must be upgraded before substantial exports can be expected.

80. The second step is to assure private capital that the Government takes seriously its announced intention to export, and that the authority to export will not suddenly be withdrawn. A substantial amount of export-oriented investment will have to occur if an export industry is to be developed. Private capital will be reluctant to undertake this investment unless it is absolutely certain that the export market will remain open to it for an extended period of time.

81. The third step is to organize and finance an integrated production program. The mission believes that the above-mentioned Fondos Ganaderos are the agencies best equipped to execute this program for all species of livestock (including sheep, an enterprise in support of which the first step, that of the procurement and multiplication of acceptable foundation stock, has yet to be taken on a significant scale). Organized on the basis of departments, the Fondos are in a position to know local conditions, to select the most progressive nuclei in which to work, and to coordinate the several sides of the attack. It will be necessary to strengthen the technical staffs of the Fondos, and at least one additional skilled animal husbandry expert and one pasture specialist should be assigned to each Fondo. This will require that foreign personnel be drawn upon. On the disease side, the resources available to the Instituto Zooprofilatico will have to be exDanded, and the experience of the Pan American Health Organization should be drawn upon in setting up the foot-and-mouth disease control campaign.

82. The major demand for public resources will come through the pasture improvement effort. The determination of the practicable target rate for pasture improvement cannot be made until evidence can be drawn from the integrated development programs of the Fondos. In the interim, the mission has recommended a rate of build-up in the farm credit supply (discussed above) which is believed sufficient to finance a reasonably sound rate of pasture installation. The necessary credit fund will need to be adjusted as new evidence is developed. Nonetheless, it is not too early to recognize the overall magnitude of the livestock development program which will be necessary if livestock is to become a substantial producer of foreign exchange. The most authoritative clue in hand is an estimate keyed to the attainment of a cattle supply enabling exportation of some 600,000 head in - 33 - ANNEX IV PRODUCTION SUPPORT

1970, the rough equivalent of the Plan objective. This source sees the required on-farm investment in the interim (excluding outlays for cattle) as approximating 9,000 million pesos. Scaling down the export objective, as proposed by the mission, will reduce the investment requirement, of course, but it must still be projected as a formidable amount.

83. The farm management and technical assistance capacity required to move the livestock industry forward at the projected rate have not yet been estimated. Some 400 veterinarians are now available. Interest in developing an animal husbandry specialtW in the agricultural universities is only now beginning to gain momentum.Y

84. The Coordination of Public Effort. The organization and financing of public services to agriculture in Colombia is exceedingly complex. Many commodities are covered by sponsoring agencies which assume the entire range of functional responsibilities. Agencies carrying responsibility for a major function have often assumed tasks quite unrelated to their initial assignment. Regional agencies are under- standably quite interested in commodity and functional problems. And recent months have brought a new agency with formidable powers on to the scene, the Agrarian Reform Institute. Like most other agencies, it

*2/ The calculation puts current slaughter at 1,600,000 head; 1970 domestic requirements at 1,900,000; the export goal for 1970 at 600,000 head; and the extraction rate, or annual yield, at 10 percent of the inventory. This adds up to a 1970 cattle population requirement of 25 million head, a figure which leads to the cited 9,000 million pesos outlay for production facilities. See the speech of NMr. Oliverio Lara Borrero as incoming President of the Sociedad de Agricultores de Colombia, 16 January, 1962.

2 There is a widespread feeling that fisheries could contribute much more significantly to the animal protein food supply (and to exchange earnings) than is now the case. It is probable that the potential in the industry may be more fully explored in the near future: the Asociacion Colombiana de Pescadores e Industriales de la Pesca was formed in MIarch 1962 as a successor body to the Comite Nacional Organizador de la Pesca; the industry is actively seeking an official declaration of "basic industry" status; and upon request the Food and Agriculture Organization stands ready to make available 14 man-months of expert technical services to the Central Planning Office in 1962 in connection with the current ten-year plan. On the river fisheries side, the regional development agency CVM has begun research work. - 34 - ANNEX IV PRMUCTION SUPPORT carries a built-in financing mechanism. While the test of this organizational complex must turn on its actual performance, it is obvious that some measure of coordination must be imposed on both the execution and planning side if optimum results are to be achieved.

85. The planning (and budgeting) job is in the hands of the Central Planning Office. Only recently staffed to cover agriculture, a basic problem has been one of data. It is essential that ways be found to improve the flow of information from operating agencies. There also seems to be no valid reason why the production, evaluation, and publication of agricultural data should not be made in practice as well as in theory the exclusive province of the Departamento Admini- strativo Nacional de Estadistica (DANE), including the task of estimating production. The recent DANE agricultural census provides a base which can be drawn upon to produce current data if the necessary financial support is provided and foreign technical assistance is once again made available.

86. The coordination of action programs is in the hands of the MLinistry of Agriculture. The mission recommends that salary adjustments be made to enable the Ministry to draw and hold able personnel with a view to improving interagency coordination, and that the several campaigns under the sponsorship of the Plinistry be discontinued or transferred to agencies already equipped for this type of effort. Further, improved arrangements to ensure that coordination is continuous and based upon technical knowledge should be made, perhaps through a formal network of committees whose members are professional agriculturalists. A N N E X V

PRODUCTION AND INVESTMENT TARGETS IN MANUFACTUPING

Recent Trends and Present Structure of Colombian Manufacturing

1. The growth of modern industry as an important factor in Colombia's economic development dates from the early 1930's. Between 1930 and 1950, manufacturing output grew quite consistently about twice as fast, on the average, as the Gross National Product. Between 1950 and 1960, there was some slowing down in the rate of manufacturing growth, but nevertheless it averaged 6.8 percent cumulative for the decade, as compared with 4.5 percent for the economy as a whole. WJithin the manufacturing sector, the output of factory establishments grew by 7.7 percent a year while the output of small-scale industries and crafts is estimated to have grown less than half as rapidly.

2. As a result, the share of manufacturing industries in the Gross National Product has been increasing steadily during the past decade, from barely 15 percent in 1950 to a little more than 17 percent in 1960. The "factory" sector (in general, establishments with five or more persons employed) now accounts for about 80 percent of total manufacturing output, though it only employs about one-third of the 750,000 people estimated to obtain their main livelihood from manufacturing and small-scale industries. Reflecting the rapid growth of productivity, employment in manufacturing grew by only about 30 percent between 1953 and 1960 as compared with a 60 percent growth in output.

3. In the course of the 1950's, the structure of Colombian industry changed significantly. Several important new industrial establishments were created, including the Paz del Rio steel mill, a second oil refinery at Cartagena, a large mill producing paper from bagasse, and several new plants in the chemicals and engineering fields. As a result, the share of industries typically associated with a more advanced stage of industry rose from 16.5 percent of the total value added by manufacture in 1950 to 26.5 percent of the total value added in 1959. This trend continues; two new fertilizer plants are under construction, and Colombia's first plant for the manufacture of trucks and jeeps has just been opened (within four years, all but a small portion of the narts for these vehicles are to be made in Colombia). There are also plans to initiate shipbuilding.

4. Notwithstanding this continuing industrialization, imports of manufactured products, which totaled $Sh63million equivalent, c.i.f. in - 2 - V. .MMNUFACTURING TARGETS

1960, weigh heavily in the balance of payments, particularly imports of machinery, chemicals, basic metals, and pulp and paper. In contrast, registered industrial exports totaled only $17 million equivalent, of which nearly $8 million were fuel oil and other petroleum derivatives. Unregistered exports, mainly textiles shipped to Venezuela and Ecuador, are estimated to have fallen sharply, from about $40 million equivalent in 1959 to about $20 million equivalent in 1960. The depreciation in the value of the bolivar as well as efforts by the Venezuelan authorities to curb the frontier trade have dimmed export prospects in this area.

5. Traditionally, there is a healthy regional diversification of Colombian industry, with four major industrial centers- Bogota, Medellin, Cali, and Barranquilla. Two minor centers, Bucaramanga and Pereira, are showing promising industrial growth,

6. For a new industrial nation, Colombia has an unusual number of capable industrialists A.nd well-run factories. Efficiency in some old-line industries ktextiles, clothing, printing) is high, although in many of the newer industries it is quite naturally still below international standards. Colombian labor, while often lacking in basic education and special training, has shown great canacity for learning new trades. Labor-management relations up to now have been good; in many large Plants there is also a noticeable attention to the welfare of the workers . Given these capabilities and attitudes, and with loW wages (the average annual industrial wage in 1959, including social benefits, was only about $700 equivalent at the then current exchange rate), many of the established Colombian industries are competitive internationally. One major problem impeding expansion, e.g.,in the chemicals and mAchinery industries, is thle lack of engineers and foremen. To overcome it, leading firms send many young engineers abroad for training. The shortage of foremen has sometimes been alleviated, though by no means solved, through the employment of foreigners (e.g.,in coal, steel, machinery),

7. The rapid development of Colombian industry was favored by relatively moderate protection in the 19301s, limited availability of foreign products during World War II, and further upward revisions of the tariff duties in the early 1950 s, accomlpanied by complete prohibition of the import of certain goods. The prohibited list was substantially expanded in the 1956/57 balance-of-payments crisis, About that time, the system of prior deposits was also instituted' rai,.ng the cost of imports through heavy financial charges. Finally in 1)'59, customs duties were again increased substantially.

Development Targets of General Plan

8. Great efforts have been put into programing the industrial sector of the General Plan. The present structure of industrial production and trade in manufactures has been analyzed in detail0 An inventory has been made of major industrial orojects under way or in the -3- V. MNUF.CTURING TARGETS planning stage. Preliminary feasibility studies have been undertaken for a certain number of nrojects in the chemicals sector. This careful work has provided a substantial basis for the Plan projections,

9. Under the Plan, production by industries producing capital goods and intermediate products would grow at nearly twice the rate of typical consumers' goods industries (11.8 percent compared with 6.2 percent). The share of the former industries in the total industrial output would rise from about 37 percent in 1960 to about 49 percent in 1970. The industries with the highest growth rates, in the order of 13-14.5 percent, would be the chemical and mechanical industries (which would provide most of the dynamic industrial grow^fth) as well as basic metals and forest products.

10. The domestic market would continue to absorb almost the entire volume of production of consumer goods. In the case of capital and intermediate goods, on the other hand, the effects of import substitution and new exports would be very important, as the following estimates show (in million dollar equivalent):

1964 1970

Import substitution 136 316

Increase in registered exports 33 66

11. The major savings in imports as of 1970 would be in chemicals and fertilizers ($87 million), metal manufactures and machinery ($75 million), pulp and paper ($43 million) and basic metals, i.e. primarily rolled steel ($41 million). Together, these industries would account for nearly 80 percent of t'he total import savings by 1970 and about 90 percent of the savings projected for 1964. The main increases in export6 would be in nylon, ammonia, sugar, canned goods, lumber, rolled steel, and cement. Most of these increases are planned for 1966-70; only ammonia would be an important export item as early as 196h. 12, The employment impact of the proposed expansion in factory industries was estimated by the planning authorities on the assumption that the increase in output per worker would be slightly less in the next decade than in 1951-60, the projected average increase being on the order of 1.6 percent a year. Employment in the factory sector would increase by about 24,000 a year as compared with about 8,000 a year during the preceding decade. Altogether, the manufacturing sector, now responsible for rather less than 10 percent of total employment, would absorb about 12 percent of the persons entering the labor force0

13. The productivity and employment assumptions are tentative and illustrative, and the basic studies which would give some substance to the numbers chosen remain to be undertaken. One aspect is wJorth noting. It is assumed that the relative share of factory industries in the total - h - V. 1AN UFACTURING TARGETS manufacturing output would grow at the expense of cottage and other small-scale industries (mainly in shoes and clothing, furniture, and small mechanical workshops). Though there would be some growth even in these latter activities (by about 3.3 percent a year), the productivity assumptions are not specifically stated. WFithin the factory sector itself, establishments employing less than 100 persons account for about one-half of the total employment (though only about one-third of the net output). Cognizant of the desirability of mobilizing the full production and employment potential of medium-sized establishments,several Colombian organizations under the leadership of the Banco Popular are making a special study of the problems and prospects of medium-sized industry.

Evaluation of Targets

14. It is convenient to discuss tho production targets under three headings: the growth in domestic demand for manufactured goods, the potential for import substitution, and the export targets.

15. Growth of Domestic Demand. About 80 percent of the increase in industrial production is projected to meet increases in domestic demand. The demand for consumer goods (e.g.,food products and textiles) was calculated on the basis of the estimated correlation with ass-umed increases in population and per capita incomes. Such estimates of the "income elasticity" of the demand for varioius tyres of products raise many theoretical and practical difficulties, and are necessarily subject to a wide margin of error. Nevertheless, an independent check on these estimates using a different approach suggests that, for most industries, they are of the right order of magnitude. In some important areas, however, notably newsprint and passenger automobiles, demand appears to have been underestimated, or restrictions assumed which are not spelled out in the Plan.

16. Potential for Import Substitution. The decisive part of the projections deals with import substitutions and increased exports. The Colombian planners were fortunate in having an inventory of major industrial projects, on which they could base their projections fot 1964. In fact, the import substitutions for steel, pulp and paper, chemicals, and metal products planned for 1964 are covered, to a-very large extent, by investments already under way or firmly planned. Data on the 1960 inventory, covering investments which would be made mainly in 1961-64, are presented in Table 1. - 5 - V. MAYNUFACTURING TARGETS

Table 1: SUTYiTARY OF 1960 IVESTORY OF IAJOR IMDUSTRIAL PROJECTS

Fixed Investment Industrial Group No. of Projects (millions of pesos)

Food 7 h4.9 Beverages 3 29.1 Textiles, clothing 17 89.7 Rubber 2 2.2 Lumber 2 5.2 Pulp and Paper 5 1-6.o Cement and other construction materials 6 58.4 Chemicals, pharmaceuticals, fertilizers 26 565.9 Base metals 7 50.3 Metal products 16 28.9 Electrical machinery and appliances 12 79.5 Transport equipment h 12.5

Total 107 1,112.6

17. In contrast, planning for the longer run was handicapped by lack of feasibility studies, the absence of economic criteria by which to judge the proposed investments, and by uncertainties regarding the effects of the Latin American Free Trade Area. The dilemma faced by Colombia (in common with her sister republics) ig that, although international specialization and division of labor are at the very heart of LAFTA, the practical arrangements by which the various c'untries can agree on a suitable division of tasks have not been implemented. Keep- ing these general reservations in mind, the following comments may be made on the plans for individual industries:

a. The targets for import substitution in steel and pulp and paper are both feasible and justified economically. These are very capital-intensive industries, however, and expansion must be very carefully planned, timed, and coordinated with a view to avoiding excessive investment and production costs. One consequence is that the Colombian Government is seeking foreign advice in planning the next stage of steel expansion.

b. In metal products and machinery the import substitution projected for 1965 is already largely ensured, assuming the _ 6 - V. MANUF.. rITJR.ING TARGETS

new plants already built or under construction attain the scheduled rates of production. Most of thle pro;ects represent a natural line of expansion for the Colombian e':onomy (wire and sheet metal products, tools and agricultural implements, semi-manufactures of copper and aluminum, elect-ic light bulbs, refrigerators, small transformers, etc.). The outlook beyond 1965 is much more uncertain, and will de-end largely upon the policies adopted for industrial growth; a auestion which is discussed more fully below.

c. Close to two-thirds of the import substitution projected for chemicals for 1964 is covered by projects already in operation or under construction. The major items are nitrogenous fertilizers, soda ash and caustic soda, fatty acids, thermo- setting resins, cellophane, surgical dressings, and insecti- cides. For most of these projects, there would seen to be substantial economic justification, in terms of import savings and fairly competitive prices. The net import savings for the existing chemical nrojects are high in relation to the value of the imports substituted, in the order of two-thirds of the value. The longer-run prospects for the expansion of chemicals production are more uncertain, however. Thus, the economics of manufacturing many of the chemical items suggested in Colombia are rather doubtful (e.g.,polyethylene and other ethylene derivatives, polyvinyl chloride, synthetic rubber, carbon-black, etc,) because of the paucity of suitable raw materials, the smallness of the local market and the fact that some other Latin American countries, e.g.,Brazil and Argentina, are shooting ahead of Colombia through the construction of giant petro-chemical complexes. Hence, very great efforts will be required to reach the targets set for 1965, and there must be considerable doubt about the possibility of attaining the 1970 target.

18. Summarizing the above discussion it might be said thiat tlhe plans for import substitution are excellent in terms of their general objectives and that they can be implemented, or very nearly so, given proper policies. On the other hand, the mission believes that some of the specific projects suggested are not suitable for Colombia at its present stage of economic development. Finally, a conservative estimate of likely import substitutions would yield somewhat lower figures than the Plan figures, particularly for chemicals. This has been taken into account in the missionts balance-of-payments estimate,

19. Export Targets. The projected exports of manufactured products, according to the program, are summarized in Table 20 The mission estimates used for purposes of balance-of-payments projections are also shown. - 7 - V . MANUFACTURING TARGETS

Table 2: PROJECTION OF 7XPORTS OF MANUFACTURED PRODUCTS, 1964 AND 1970 (in millions of U.S. $ equivalents)

3.960 1964 1970 (Actual) Plan Mission Plan Mission

Ammonia _ 14.8 ) 7.4 ) Nylon - - ) 10 15.8) 15 Other chemicals 1.4 4.8 ) 11.9 ) Sugar - 4.4 5 8.8 5 (10) / Cement 1.0 2.6 3 4.2 6 Fuel oil 7.5 0.8 1 3.14 3 Lumber products 2.8 3.0 3 6.o 6 Steel - 3.6 - 7.8 3 Platinum 1.1 1.5 1 1.9 2 Other 3.6 5.1 7 13.6 25 (20)

Total 17.14 40.6 30 80.8 65

The Cauca Valley is one of the advantageous sites in the world for the production of cane sugar. The closing of Cuba from the United States market created a unique opportunity for Colombia and other countries to enter the export field. Because of the intensity of competition from other countries and uncertainty regarding U.S. sugar policies, however, the mission made only a small allowance for increased sugar exports.

20. With respect to 1964, the mission has placed primarV reliance on exiorts which could be handled through capacity already in sight. According to the mission's estimates, at least one-half of the 1964 exports of manufactured products would be supported by clear natural advantages (sugar, ltmber, fuel oil, platinum; limestone, cheap fuel, ocean-side location for cement; refining gases and ocean-side location for ammonia). When the focus moves tow-ard 1970, an increasing proportion of manufactured exports would come from products for which Colombia would have no special advantage; these exports would come about mainly as a result of an initial division of labor within the Latin American Free Trade Area. The mission is cognizant of the fact that its 1970 projections may be conservative, particularly in the event of the LPFTA-area including the whole Caribbean basin. The aim of the mission projections, however, is to make a reaso.uau±y couLservative appra-Zal of what the actual exports might be by 1970. - 8 - V. MANUFACTURING TARGETS

21. Most of the projections of snecified new exports are not supported by feasibility studies. The mission doubts the feasibility of the manufacture of caprolactam (for nylon) in Colombia and of several projected minor exports (rolled steel, polyethylene, polyvinyl chloride), since Colombia would appear to have no special advantages as compared with established, very efficient manufacturers-exportersin these fields. In plastics, Colombia would have to compete with new,very large petro- chemical complexes in Argentina and Brazil. The situation in ammonia is different. The new fertilizer complex at Cartagena will be a very efficient unit with cheap raw material costs and one of the largest single-train ammonia plants in ti-he world. Contracts are reported to exist to supnly ammonia to new fertilizer plants in Costa Rica and El Salvador. Nevertheless, the Plan estimates are well above the reasonably foreseeable exports. The probability that some of the planned exports will not materialize does not mean, however, that the manufacturing export targets wJould have to be cut in proportion. The mission is strongly of the impression that there are substantial export opportunities within the more traditional industries (e.g.,textiles, certain building materials, and lumber).

Volume of Investment

22. A summary of fixed investment in manufacturing by major industrial groupsas projected in the General Plan is presented in Table 3.

Table 3: PROJECTION OF GROSS FIXED INVESTiU=T IN MANUFACTURING, 1962-65 IN GENERAL PLAN (in millions of 1958 pesos)

Industrial Group Replacements New Investment Total

Food, beverages, tobacco 366 370 736 Textiles, clothing 403 410 813 Leather, rubber, printing, sundry 136 211 347 Lumber, cement, pulp and paper 198 423 621 Chemicals 119 599 718 Coal and petroleum derivatives 67 271 338 Basic metals 69 375 444 Metal products and machinery 142 359 501

Total 1,500 3,018 4,518 - 9 - V. I'LANUFACTURINIG TARGETS

23. It follows from the analysis in the previous section that the mission is generally well satisfied with the industrial program both in terms of projected overall growth rates and composition of output. Differences in detail would not, by themselvesp cause any major difference between the mission's estimate of investment costs and those in the General Plan, The latter are based mainly on certain econometric calculations, as explained below, taking advantage at the same time of specific investment cost estimates for individual projects available from the project inventory. This is an excellent approach, though estimates could be improved by discussions with the enterprises concerned, to a greater extent than was actually done.

24. The missionts appraisal was concerned mainly with the assumptions behind the econometric calculations cf investment requirements by the planning authorities. These calculations were based unon the following assumptions:

a. There would be a gradual improvement in the ratio of investment to output (the "capital-output" ratio) from about 2,9 in 1958 to about 2.5 in 1961h. This wzould result mainly from better capacitv utilization.

b. Requirements for replacements would be equal to depreciation allowances calculated on a useful life for buildings of 50 years and for machinery of generally 20 years. As far as existing installations are concerned, these percentages were applied to depreciated replacement values.

c. P.equirements for additional inventories w-ould rise in proportion to the increase in output.

25. There would seem to be some weaknesses in this methodology. Both in computing the "capital-outnut" ratios and in estimating depreciation allowances, the planning authorities used the denreciated reDlacement value of the plant ratlher than the actual replacement value. The Plan authorities recognized that this was conceptually wrong but in the back of their minds was the thought that changes in technology and improved capacity utilization would lead to lesser capital-intensity. In the mission's view, it is difficult to state whether future technological and structural changes would lead to higher or lower capital-intensity. There is little evidence of excess capacityr in the established Colombian industries, and no magic formula for working at full capacity. A further underestimation of investments arises from the assumed useful lives of machinery and buildings. WOhile one would expect a longer economic life of capital equipment in developing countries, and while balance-of-payments considerations will no doubt imnose some restraints upon equipment imports for replacement and modernization, the assumed lives are too far above empirical values to be accepted as realistic. - 10 - V. IHANUFACTURING TARGETS

26. Based on the above observations, there appears to be a tendency to a systematic undervaluation of the investment requirements for fixed capital in the industrial field, perhaps by as much as 20 percent. To check on the econometric approach, brief reviews wTere made of some of the sectors in which major investments are planned. Most of these reviews indicated figures very close to the Plan estimates (steel, nitrogenous fertilizers) or only slightly higher (soda ash). In the case of cement, however, the Plan estimates are considerably below the mission figures5 and upward revisions also appear warranted in several smaller projects. On balance, howjever, the reviews for individual fields did not suggest the same underestimation of investment requirements as indicated by the global appraisal.

27. Since it is important to arrive at a reasonably correct viewi of the need for industrial investments (particularly from the noint of vievi of the balance-of-payments outlook and the need for industrial finance), the mission recommends that a critical review be made of the basic assumptions underlying the investment cost estimates but, more important, that an attempt be made to engage the cooperation of industrial associations and major firms in revising estimates, so that rmore weight could be given in these estimates to the peculiar circumstances currently facing each industry and relatively less weight to purely econometric calculations.

Financing of Investment

28. Background. In view of the high rates of expansion of Colombian industries during the past decade, it was to be expected that industrial expansion would have been seriously hampered by lacl of finance. This probability was increased because depreciation allowances have been relatively low and many leading industrial concerns have distributed about two-thirds of their profits in the form of dividends -_ a practice they deemed necessary to maintain the competitive ranking and price of their shares. 29. In part, the explanation for the absence of a critical financial problem throughout the decade is that, until recently, most of the development has been in light industries, that shift w^.ork is common, and that capacity utilization has improved substantially in recent years. Another factor is that a major portion of industrial shares are held by wealthy people wzho have been quite wxilling to reinvest their dividends in additional shares when new funds were needed. Moreover, investment in shares provided a hedge against inflation. Statistics suggest that self-financing (i.e., reinvested profits and depreciation allowances) has provided one-half of the funds needed for industrial investments in recent years, another quarter has come from new capital subscriptions, and about one-quarter has been financed through credit, mainly bank credit . 30. In recent years, howaTver, the financing problem has become more acute. Judging from repeated statemients by bankers and industrialists, the manufacturing sector, in particular, has been short of working capital. Taking the wThole group of Colombian corporations (i.e., inc'l-ding - 11 - V. MANUFACTURING TARGETS non-manufacturing corporations), the requirements for the financing of inventories and receivables in the last five years have consistently exceeded the requirements for new fixed assets. One contributing factor has been the need for large prior deposits in connection with imports of machinery and industrial raw materials. A sign of financial stringency has been a consistent trend for corporations to withhold a higher proportion of their total earnings within the company and a (perhaps not unrelated) substantial fall in share market quotations.

31. There has been some success in issuing first-rate industrial bonds carrying 12 percent interest; these are bearer bonds, and probably in many cases the tax on the income from the bonds is evaded. The share of these bonds in total industrial financing is, however, very modest. Medium-term industrial loans (1 to 5 years) are available from commercial banks and from the finance corporations ("financieras"), both of which have access to rediscount facilities ith the central bank. These loans have been used mainly to provide funds for medium-scale industrial enterprises. Nevertheless, there is much complaint from small and medium- scale firms regarding their lack of funds.

32. In absolute terms, foreign industrial investment has not been a major factor in Colombian industrial development, except in oil refining. Qualitatively, its contribution has been more important in opening up new industries, particularly in the chemicals sector, and more recently in pulp and paper, fertilizers, copper manufacture, automobile assembly, etc. There is a positive attitude toward foreign investors in Colombia, though the complaint is sometimes heard that foreign investors finance their ventures mostly with money borrowed in Colombia and only a shoe- string of imported equity.

33. Financing of Future Investment. The problem of forecasting the financial needs of the industrial sector is very complex, and has been tackled only in a very preliminary manner in the Plan. The outstanding characteristics of the problem seem to be twofold. On the one hand, a very substantial portion of the net investments will be in new capital- intensive activities. On the other hand, since Colombian industrial finance is based so heavily upon equity financing, most of the returns on industrial capital remain within the firms, and a relatively small portion reverts to the financial circuit in the form of interest and amortization of loans. This is only partly offset by the practice of paying relatively high dividends and by the interest shown by some large established manufacturers in branching out into new activities. In sum, as against heavy prospective capital requirements there is a rather narrow capital market.

34. The sources of financing private investment in 1962-64 under the General Plan and under the mission projections are presented in Table 2. - 12 - V0 MANUFACTURING TARGETS

Table 2: PROJECTION OF FINANCING OF PRIVATE INV-STNt!NT IN M1ANUFACTURING, 1962-64 (in millions of 1958 pesos)

1957-59 1962-64 Average Category Average General Plan Mission Projections

Total Investment 1,092 1,681 1,800-1,900 2 Source of Financing: Retained Earnings 492 710 900-950 Capital Increases 382 555 630-665 Foreign Loans ) 218 416 95 Banking System ) 175_190

/ Assuming fixed investment will be 10 percent to 20 percent higher than projected in General Plan.

35. Retained Earnings. The General Plan projected that retained earnings would finance about 42 percent of investment, while the mission projected 50 percent from this source. The higher Dercentage is supported not only by data for 1960 but also by the experience of other recent years and by a mission nrojection of the nrospective growth of equity investments and rising total nrofits.

36. Capital Increases. This category includes increased capital contributions in non-incorporated enterprise as wel-l as new share issues and foreign equity investments. The mission projects a lightly higher fraction of investment from capital increases than does the Plan (35 percent vs. 33 percent). An important source of financing of new share issues appears to be the reinvestment of dividends. Although the mission has assumed an increase in the proportion of earnings retained, there would still, under the mission projections, be a fairly important increase in dividends as the result of higher profits. The mission has projected a greatly increased annual volume of net private foreign investment Tith the development program gaining momentum and internal political and financial stability maintained, Under these conditions, and given Colombia's favorable industrial climate, foreign industrialists are likely to look with increasing favor upon Colombia as a production base in the Latin American Free Trade Area. Moreover, there is already serious foreign interest in the processing of Colombiats mineral resources, and also in her power resources as a basis for aluminum reduction. - 13 - V.*MANUFACTURING TARGETS

37, Foreign Loans. The total nrojected by the mission for foreign loans represents, in the main, disbursements on loans already negotiated, or under negotiation with international and U.S. lending agencies, with some allowance for additional financing. Loans to the "financieras" also fall under this heading. The operations of the financieras are still on a relatively modest scale but their coverage should increase rapidly as new staff is added, and new regional financieras are formed. The International Finance Corporation is alreadv a substantial partner in the Bogota and Medellin financieras. Possibilities exist for further assistance, including direct participation in ventures too large to be financed by the financieras alone. The next decade is going to put the financieras to a very severe challenge in their ability to respond fully to the requirements and opportunities of the growing Colombian economy. The financing of new industries and of the adjustment to the Latin American Free Trade Area will call for the highest level of banking skill and a willingness to take certain risks. It will deserve the full support of the Government.

38. Banking System. The balance of the funds needed to finance manufacturing investment under the mission's projection (175-190 million pesos in 1958 prices) would need to be obtained through the banking system.

Role of Instituto de Fomento Industrial

39, The major instrument for government direct investment and direct financial aid to industry has been the Instituto de Fomento Industrial (IFI), in which the Government holds the overwhelming majority of the shares. Created in 1940, IFI's investment record is not a favorable one. Its investments in steel were liquidated through an arrangement by which taxpayers could purchase Paz del Rio shares from the Banco de la Republica, at their nominal value, in discharge of a corresponding amount of surtax obligations. At the time, however, Paz del Rio shares were quoted at less than 20 percent of their nominal value. Substan- tial losses were also made on investments in a coal washing plant. The present major investments are in this plant, in a new cement plant, in the Barranca fertilizer plant near the oil fields (under construction) and in the Pulpapel plant for making pulp out of tropical hardwoods (in cooperation with foreign manufacturers; financing recently arranged).

4o. IFI in recent years, under its new management, has done valuable work, e.g.,in preparing the inventory of industrial projects, in organ- izing studies of the chemicals and engineering sectors, in initiating feasibility studies of certain new projects (the outstanding example of which is Pulpapel), and in teaming up with foreign and Colombian industrialists for the financing of some of these projects.

41. The Plan foresees relatively modest investments by IFI. New investments would be mainly in a number of relatively small projects, 14 - V. IMANUFACTURING TARGETS some of them with nrivate participation. Recent discussions and actions suggest, however, that a more important role may in fact be planned for IFI. A feasibility study for a superphosphate plant is under preparation. IFI has participated in the discussions regarding a new private steel plant to produce steel in electric furnaces from imported scrap and roll it into flat products, including tin plate. Finally, IFI is negotiating with the Inter-American Development Bank regarding a loafn for the financing of medium-scale enterprise. In the mission's view, IFI should continue to perform an important dual role. In the first place, it will be an institute for the study and promotion of new industries in Colombia, particularly large projects, as well as an advisory body to the Government in the definition of industrial policy. In this role, it could be given primary responsibility for the organization of an export drive, beginning with a series of studies of export markets. These studies should be financed, in part, through the Government budget, and in part, through contributions by interested industries. Feasibility studies should be pushed, under IFI leadership, in sectors where Colombia would appear to have good natural advantages apart from the smallness of the local market. In this manner, Colombia will be able to take greater advantage of opportunities offered by the Latin American Free Trade Area. Secondly, IFI would also be the logical agency to administer government loans to and investments in specific industrial enterprises, in particular shares acquired by IFI either (a) in return for feasibility studies, project studies, or other promo-- tional activity, or (b) in specific ventures with substantial economic justification but where the risks or the size of the investment are too great to attract private capital without IFI participation in the equity, On the other hand, the mission doubts the wisdom of IFI entering into competition with the private banking institutions and the financieras in the general financing of medium-scale enterprise. This should be only a last resort, if these institutions should prove unwilling or unable to respond to reasonable demands in this area, once they are provided with adequate resources as recommended by the mission. The mission doubts that this contingency will materialize. A N N E X VI

PETROLEUM, COAL, AND OTHER EXTRACTIVE INDUSTRIES

General

1. Recent Trends in Production. Petroleum far outranks any other Colombian mineral in economic importance. Petroleum exploration and exploitation are carried on by a small number of large concerns, all but one foreign-controlled. Other mining activities are on a relatively small scale, the most important products being gold, coal, iron ore, and rock salt. In terms of employment, both the coal and the precious metals industries rank fairly close behind the crude oil industry. The latest mining census was held in 1953; the figures in Table 1 below, though out- dated, nevertheless give some idea regarding the relative role of the different mining sectors. They do not include production of iron ore, wjhich was initiated in 1954 and which now ranks closely behind salt in value of output.

Table 1: NUNBER OF FIRMS, EMIPLOIvIENT, VALUE ADDED AND INSTALLED HORSEPOW;ER, BY SECTORS OF MIMING AND QUARRYING, 1953 Installed Number of Value added Employment horsepower firms (million pesos) (thousands) (thousands)

Petroleum and natural gas 7 222.6 7.7 93 Coal 344 13.3 4.9 6 Precious metals (primarily gold) 94 33.7 4.3 47 Rock salt 1 9.7 0.2 1 Other )468 7.8 2.8 3

Total 914 287.1 19.9 150

2. Production of petroleum has grown about 2.5 times since before the war to 50-55 million bbls. annually. Currently, more than half of the total i; exported. Coal oroduction has increased even more rapidly in parcentag, terms as a result of demands arising from growing industrialization. The prcsc-nt annual output is about 2.5 million tons, of - 2 - VI. PETR.OLEUM, COAL which about one-quarter is for the Paz del Rio steel mill, also the major user of the current iron ore output of 700,000 tons annually. In contrast, production of gold has stagnated, reflecting no doubt the continuing decline in its real orice. Gold exports in 1960 were valued at aDproximately Al5 million equivalent. Historical data on production of major minerals are presented in Appendix A.

3. Production Targets. The Plan projects an increase in crude oil output from about 55 million barrels in 1960 to about 78 million barrels in 1964 and 84 million barrels in 1965. Until 1964, a predominant proportion of the increased output w1ould be exported. It is hoped that new refinery additions would be completed by 1965, when Colombia would again be able to cover her domestic requirements of major finished products, and, in addition, would export about six million barrels of fuel oil. Projected changes in the values of exports and imports may be seen from the following table.

Table 2: EXPORTS AND IMPORTS OF PETROLEUIM AND PRODUCTS (in millions of U.S. dollar equivalents)

1960 1964 1965

Exoorts of crude oil 80.0 127.5 119.3 Exports of fuel oil 7.5 0.8 6. Imports of light products -2.8 -18.6 -

Total 84.7 109.7 125.7

4. In the case of coal, production is exp-.cted to increase moderrately, from 2.h4 million tons in 1958 to 2.85 million tons in 1964, mainly to cover increased demands for steel production and thermal power generation. Gold production, it is expected, will become stabilized at the 1959 level of 400,000 troy ounces. Substantial increases are envisaged in salt production, mainly in order to supply the new soda plant. On the other hand, there will be little or no increase in iron ore production. Paz del Rio is installing a sinter plant which will produce a suitable blast furnace feed from vast accumulated stocks of ore fines.

5. The program outside of petroleum is aimed prirkrily at the exploitation of existing, well-known resources. The essential purpose is to cover domestic demands for coal, iron ore and salt, and to maintain traditional gold exports. Colombia has no oth:2r knrwn major mineral resources (except possibly coal) which could form the basis for mineral exports. This may be due, in large part, to the absence of geological surveys. To remedy this, the Plan makes provision for two studies, for - 3 - VI. PETROLEUM, COAL both of which UN assistance has been requested, and wphich should be of considerable long-run value to the Colombian economy. The first consists of geological surveys -- by aerial photography followed by field work in the Andean region and the mountainous northeastern region and by a less intensive aeromagnetic survey of the region bordering Brazil and Guayana. The second is a study of the devi1opment of the coal mining industry, with particular emphasis on improved organization, and an investigation of the export potential. New mineral discoveries could conceivably bring important benefits to the balance of payments in the latter half of the decade.

6. The mission has had neither the time nor the expertise to study the details of existing mining legislation, but such an analysis will be included in the terms of reference of the proposed coal industry study. The new petroleum code and the complementary government decree are apparently not incompatible with the rapid expansion projected for this sector. Given Colombia's generally favorable investment climate, there is some justification for assuming that any problems which might arise in the exploitation of other new mineral resources could be solved in a manner which would reasonably adjust the national interests with those of the investor.

7. Gross fixed investments in the mining field, in 1958 prices, are projected to increase from 262 million pesos in 1959 to an average of about 420 million pesos in 1962-64'. Nearly 90 percent of these investments would be for crude oil exploration and production.

Petroleum

8. Background. Colombia has benefited in the past from rather intensive exploration activity by foreign oil companies,prompted in part by possible geological similarity to nearby Venezuela, but also by favorable oil legislation. According to one source, no less than 4tl billion have been invested by foreign oil companies, but no really major field has been located, and the results up to now have been somewhat disappointing. Nevertheless, all this activity has led to a steady increase in oil production, from about 22 million barrels a year in 1944-48 to about 39 million barrels in 1951-55 and 49 million barrels in 1956-60, wfith a peak output of 56 million barrels in 1960. Four major producers -- Texas, Colpet (oiyned by Socony-Hobil and Texas), Shell, and Ecopetrol (government-owned)!' -- account for practically the whole current output. Two additional producers -- Cities Service and BP/Sinclair - are expected to come into production on a significant scale from newly discovered fields. lJ Ecopetrol was set up about ten years ago to take over certain expired concessions previously held by Standard Oil of New Jersey. - h - VI. PETROLEUM, COAL

9. Most of the crude is currently exported. The rest is processed in two refineries at Barrancabermeja, on the middle course of the lMagdalena River near the major oil fields, and at Cartagena on the coast. Most of the crude oil is transported by pipeline. There are also product pipelines connecting Barrancabermeja with Bogota and Medellin and connecting Cali with the port of Buenaventura. Substantial quantities of natural gas exist, both associated with the oil and also in separate fields. A new gasline connects the Cicuco oil field with Barranquilla and Cartagena. Fertilizer factories now under construction at Cartagena and Barranca- bermeja will use natural gas as their major raw material.

10. The New Oil Legislation. Important changes were made through the new basic law of M-iarch 1961, and the subsequent regulatory decree of May 1961. These primarily affect new ventures; existing concessions are not affected. No licenses have, however, been granted under the new law, mainly because the Government has not yet formulated a policy with respect to such new concessions. Royalties were raised substantially, as were surface rentals, and exploration terms were changed to speed up exploration. Depletion allowances (10 percent of the field price as a basic allowance plus 15 percent as an additional allowance) were modified, with more severe conditions attached to the grant of the additional allowance. In anticipation of the new legislation, the Government suspended issuing new exploration licenses from the end of 1958.

11. Plans initiated by several producers indicate that the new legislation is not incompatible with a relatively vigorous exploration and production effort, but oil companies have filed a suit against the Government, arguing that the benefits of the 15 percent additional depletion should accrue to old concession holders without any necessity for them to adjust their contracts to the new law. This dispute will be settled by the Colombian courts. WAThile observers may differ on the effect of the newJ law upon production incentives and upon the legality of some of the new provisions, there is no indication that, in this area, Colombia has departed from its basic policy of favoring productive foreign investment.

Production Targets and Demand

12. Crude Oil Production Targets. Based mainly upon figures indicated by oil producers, the Plan projects an increase in crude oil output from about 55 million barrels in 1960 and 1961 to about 78 million barrels by 1964, 85 million barrels by 1965 and 120 million barrels by 1970. It is assumed that the combined output of the existing fields would remain virtually unchanged but the followring new sources of supply would become available by 1964 (increase, in million barrels, compared wirth 1960):

Knovm new fields Foreign producers 9.8 Ecopetrol 7.7 (incl. 3.4 from Palloa)

Other new fields 5.0

Total 22.5 - 5 - VI. PETROLEUM, COAL

13. The mission has discussed the production outlook for the next four years with all major oil producers. Producers are optimistic regarding recently discovered deposits at Provincia and Palloa. On the other hand, several new concessions, on which the Plan had based some hope (LUanito, Guavio, Cristalina), have proved rather disappointing. Also, production from existing fields has been declining rather more rapidly than assumed in the Plan and previously indicated by the producers. On balance, although the Plan figure of 85 million barrels by 1965 is well within the realm of Possibilities, the mission has adopted a figure of 80 million barrels as a more reasonable estimate. Details of the mission's projections are shown in Appendix B. Any projection for 1970 would necessarily be highly speculative. The mission's assumption that production would grow at the same percentage rate betwieen 1965 and 1970 as between 1960 and 1965 yields a.figure of 115 million barrels which compares with the Plan figure of 120 million barrels. The figures adopted by the mission are to be regarded as highly tentative -- estimates of crude oil production are necessarily precarious and the actual figures may differ substantially either upward or dowmward.

14. Estimate of Domestic Demand. The projection of the future demand for oil products is as important as it is difficult. It will affect refinery equipment and location, the construction of pipelines, the utilization of natural gas which is now flared, investments in the coal industry, etc.

15. 1:Thile fairly detailed estimates have been made regarding the future requirements for motor fuels,Plan estimates of the demand for other fuels are of a very preliminary nature. A detailed study of future energy requirements, by uses, geographical areas, and most economical types of fuel, must be regarded as ofhigh priority. In the absence of such a study, the mission has made some very tentative adjustments of the global Plan projections, with the main purpose of getting some additional background on the needs for refinery expansion. The two projections are shown in Table 3.

Table 3: DLIIAND FOR OIL PRODUCTS IN COLOMBIA (in million barrels)

1960 1965 1965 Actual Plan Mission

Gasoline 8.4 13.2 12.6 Other light products 5.4 9.2 8.3 Fuel oil 5.0 8.o 7.3

Total 18.8 30.4 28.2

Coal, million tons 2.60 2.85 Natural gas Not considered in the Plan - 6 - VI. PETROLELU, COAL

16. The reasons for the lower mission estimates for motor fuels are detailed in Appendix C. The mission's lower figure for diesel oil reflects its view that diesel oil will play a less important role in power generation than in the recent past, as well as its doubts regarding the assumed high rate of growth in the use of diesel oil for sundry purposes. As for fuel oil, the mission believes that the future demand for fuel oil in competition with coal and natural gas may have been overstated. The Plan assumed that consumption of fuel oil would rise sharply, and that there would also be some exports of fuel oil. Attainment of the projected increase in local consumption would be at the expense of increased production of coal, i4hich can be produced cheaply near the three major population centers, and natural gas, which is presently flared in substantial quantities. This situation highlights the need for a detailed study of future energy demand and the relative desirability of the alternative supply possibilities, including the apparent economies of natural gas summarized below.

17. Natural Gas. The production of natural gas, in connection with drilling operations, is now at an annual rate of about 80 billion cubic feet (equivalent, in terms of heat value, to about two million tons of crude oil), of which about three-quarters are flared. The balance goes mainly into a variety of oil field and oil refining uses. In addition to the gas associated with oil, there are, however, other substantial gas deposits.

18. The first two steps toward a wider utilization of gas resources were taken recently through the construction of a gas turbine power station of 12 IMW (eventually to be increased to 53 NJ) near Cucuta using gas from the Barco oil field, and the construction of a pipeline from the Cicuco oil field to Barranquilla. The capacity of this line is 22 million cubic feet a day (equivalent to about 200,000 tons of oil a year) which can be easily increased, by compression, to 50 million cubic feet. The price of gas to the power station near Cucuta is about 4 U.S. cents per 1,000 cubic feet, an extremely low fuel cost. The gas delivered to industrial users at Barranquilla is priced 25 percent below the equivalent export price for fuel oil. Large additional supplies could be made available for the Atlantic Coast area, and there is also a project to pipe gas to Medellin at a suggested delivered price of 30 centavos per thousand cubic feet which is about 12 pesos per enuivalent ton of fuel oil, or considerably below the price at which fuel oil could be delivered to IMedellin. It is also an object of oil company exploration to locate a gas field close to Bogota.

Investment Requirements

19. The following Table 4 summarizes average annual investment requirements relating to petroleum in 1962-65, according to the Plan and according to the revised projections made by the mission. - 7 - VI. PETRROLE, COAL

Table 4: PROJECTIONS OF INVESTMENTT REQUIREMENTS OF PETROLEUM SECTOR, 1962-65 (in millions of U.S. dollars)

Plan Mission

Large established foreign producers

Exploration 27.0 23.0 Crude production 14.o 12.0

Ecopetrol

Exploration 4.5 4.4 Crude production l.4h 9.0

Other foreign producers 3.9 20.0

Pipelines Crude lines _ 10.0 Product lines 1.0 2.0

Refining 13.0 10.5

Total 67.8 90.9

Total, excl. pipelines and refininga/ 53.8 68.4 a/ The investment in refining is included under the "Manufacturing Sector," and the pipeline investments in the "Transportation Sector."

20. Exploration and Production. The Plan figures for investments in crude oil exploration and production are based largely on projections submitted by the companies for 1961-6h. Based upon conversations with company officials, the mission believes that the exploration expenditures for large established foreign producers may have been overstated by 15-25 percent, and that there is also some overstatement of the probable invest- mentsin crude production. On the other hand, the mission has assumed that production by new foreign producers would grow to 14 million barrels by 1964 and 19 million barrels by 1965. Using a benchmark figure quoted in the Plan, one arrives at a probable investment for exploration and exploitation in the order of $20-25 million a year. Since this total includes some double-counting, corresponding to the Ecopetrol share in these expenditures, - 8 - VI. PETROLEUM, COAL the mission has adopted a figure of X20 million a year. This figure is in rough agreement w¢ith figures tentatively indicated by the oil companies. Latest Ecopetrol estimates supplied to the mission indicate substantially increased investments in crude oil production, occasioned mainly by the company's 50 percent participation in the new Palloa field.

21. Pipelines. The Andean pipeline would be insufficient to carry the expected flow of crude by 1965 or earlier. Barges would be a possible temporary expedient to carry the excess. Nevertheless, the weight of informed opinion (though by no means unanimous) suggests that barging, as a permanent solution, would be 15-20 percent more expensive than transportation by pipeline. Rather than duplicating the existing Andean line, it would apparently be more advantageous to build an entirely new line. Two oil companies estimate the cost of a 95,000 bbls/d line at about 't35-40 million. According to another source, however, the most suitable pipeline to be built would cost on the order of 6175 million. A study of the capacity, cost, timing, and financing of crude pipeline expansion has become a matter of high priority.

22. The Plan indicates that the capacity of present product lines T,will be fully absorbed by 1964 or, in some cases, earlier. In fact, the line with the greatest amount of excess capacity (Porto Berrio-IMedellin) is already being expanded from 8,300 bbls/d to 20,000 bbls/d. There are two rival plans for supplying Manizales, either through Buenaventura-Cali (Esso), or from La Dorada (Ecopetrol). The cost of a 120 km. 6-inch line, according to the latter alternative is estimated at about 02 million. No estimates are available regarding the cost of expanding or replacing existing lines wTth a total length of about 670 km., mainly 6-inch line. It is safe to assume, however, that the total expenditures for pipeline construction 1962-65 will exceed the provisions made in the Plan.

23. Refinery Expansion. Colombia has two manor refineries. The old- est one, at Barrancabermeja, owned and operated by Ecopetrol, has a present throughput capacity of nearly 4O,000 bbls/d which will be increased to 45,000 bbls/d by early 1963. The other one, at Cartagena, compnleted in 1957 and operated by an Esso subsidiary, will have a capacity of about 34,000 bbls/d after presently planned minor exDansion. Three small refineries near the fields together produced about 7,500 bbls/d in 1960. The Cartagena refinery has been supplying mainly the Atlantic Coast area and the Cauca Valley region and Barrancabermeja the central regions.

2h. The present refinery capacity, with the above-mentioned additions wTould compare as follows with the estimated demand for oil products in 1Q65 (th. bbls/d). - 9 - VI. PETROLEUM, COAL

Barrancabermeja 45 Cartagena 34 Other 8

Sub-total 87

Deduct: minor products 6

Capacity, major products 81

Demand, major products 1965 Plan 83 Mission 77

25. Recognizing the unavoidability of some excess of total capacity over total demand, e.g., in the order of 10 percent, and with demand growing at 7 percent a year or more, additional refinery capacity would be needed by 1965, at the latest. This could be provided in several ways. Ecopetrol has been considering two alternatives, one being expansion at the present site, and the other one a new refinery at Honda (further upstream and much closer to Bogota). Ecopetrolls total output of refined products would be 70,000 bbls/d with the Barrancabermeja expansion and 85,000 bbls/d with a new 40,000 bbls/d refinery at Honda, though the output of gasoline would at least initially be the same, and would be sufficient to cover the estimated 1970 demand. The investment cost for Honda is estimated at i51 million equivalent compared to $42 million for the alternative expansion at Barrancabermeja.

26. Recently, foreign oil companies have made an alternative proposal for a 25,000 bbls/d refinery, probably at La Dorada (in the same general area as Honda). The advantages Colombia gains from foreign provision of financing and valuable "know-how" suggests that government investments in refinery capacity should go forward with caution, if at all.

Coal

27. Statistics on coal production are not collected systematically in Colombia, due in part to the great number of small producers. Neverthe- less, a special survey made in 1958 indicated a production in that year of about 2.4 million tons, of which about 0.75 million tons came from the province of Boyaca (including about 0.65 million tons for the Paz del Rio steel mill), about 1 million tons from the area surrounding Bogota, 0.4 million tons from the Medellin area, and over 0.2 million tons from the Cauca Valley. Production has been rising rapidly, doubling between 1939 and 1948, and doubling again between 1948 and 1965.

28. Apart from steel, the major consumers are the cement industry, the railroads, thermal power stations, and a wide range of industrial establishments. Prices for coal are quite low, ranging from about 30 pesos per ton - 10 - VI. PETROLEUM, COAL charged to cement plants in the Medellin area to about 40 pesos per ton (for coal containing 7 percent ash) charged to railroads in the Cali area and 45 pesos per ton for low-volatile coal delivered to Paz del Rio. The Yumbo washing plant pays about 40 pesos for coal containing 20 percent ash, and sells the washed coal to general consumers in the Cali area at 60-70 pesos per ton, depending upon the size of coal. Trcomparison, fuel oil is selling at 78 pesos per ton coal equivalentJ in Bogota, 85 pesos in Cali and 92 pesos in lviedellin. Hence, if the inevitable tendency toward higher wages can be countered with increased efficiency, the prospects for coal maintaining a prominent position in the energy market w4ould seem good. (A reservation should be made, however, for the possible supply of natural gas to MHedellin; a price as low as 30 centavos per thousand cubic feet, or less than 50 pesos per ton of coal equivalent -- 20 percent ash -- has been indicated.)

29. Nevertheless, the industry is faced both with an economic and a social problem.2 Production in the past has been divided between a great number of small operators working from the outcrops and the sides of the mountains, without power-driven machinery and without any plans for the rational exploitation of the coal deposits. As the surface deposits are worked out, coal which was previously in surplus is becoming increasingly scarce. From now on, coal production will come increasingly from underground mines which means that production will have to be organized on a larger scale preceded bv systematic geological exploration, and requiring substantial capital investments. Hence, large consumers like the railroads, the cement plants and the thermal power stations have become interested in coal mining with a view to ensuring stable supplies. The Government has asked the UN Special Fund for technical assistance to plan the developmc-nt of the coal industry in the Cauca Valley.

30. According to the Plan, the total consumption of coal would increase from 2.5 million tons in 1958 to 2.9 million tons in 1965 and 3.2 million tons in 1970. This, in the mission's view, is a conservative estimate. After allowing for the disappearance of railroad consumption, this increase would be required to cover foreseeable increases in demand by the steel and cemert industries and the thermal power stations alone. With the right type of policies, and given the generally low cost of coal as compared with other forms of energy, it should be possible to increase local consumption above the Plan estimates. Increased coal consumption is also very desirable with a view to stabilizing employment in the coal

1/ Assuming 10,000 kcal/kg for fuel oil and 6,000 kcal/kg for coal with 20 percent ash.

2/ The following summary is based upon conditions in th,e Cali region; it is believed that similar problems may be encountered in sJrplying Bogota and Pi'iedellin. - 11 - VI. PET-ROLEUM, COAL mines which would otherwise fall as a result of improved organization and increased mechanization. It is important that whatever recommendations are made by the UN technical assistance team should be followed up quickly (and extended, as applicable, to other coal mine areas than the Cauca Valley) since substantial time will elapse before exploration work and mine preparation work can be translated into higher production.

31. A preliminary version of the Plan included exports of about 2 million tons for 1965 and 4 million tons for 1970. This was based, in part, upon plans by a foreign company to exploit the Cerrejon deposits and to build a railroad from the deposits to the Atlantic Coast (about 100 km). These plans have now been cancelled and excluded from the final Plan version, apparently as a result of the weakening of the European fuel market. The possibility of a coke-making plant near Cali for the export of metallurgical coke to Mexico has been mentioned, however, and some interest from Japan in importing Colombian coal has been reported. As emphasizedin the Colombian ten-year program, such projects are unlikely to be implemented until geological data have been collected permitting exploitation on a fairly substantial scale and with some guarantees of consistency in quality. On the other hand, there is a shortage of well- located coal deposits in Latin America, and the possibility of Colombian coal exports should not be ruled out. The terms of reference of the proposed UN coal mission therefore include a study of the export possibilities for Colombian coal.

32. No separate estimate has been made in the Plan for the necessary investments in coal, and given the uncertainties as to future modes of development, it is difficult to provide a reasoned estimate. Purely as an illustration, the investments for developing mines capable of producing 1,500 tons/day (say about 0.5 million tons a year) in the Cali region have been estimated at $2.0 million to $2.5 million equivalent. Since the total increase envisaged in coal production is only on the order of 0.75 million tons, the total investment for this sector would be relatively moderate. Resuscitation of the r)lan to export coal would, however, call for investments of an altogether different order of magnitude. Thus, an investment of A20 million had been mentioned for the exploitation of the Cerrejon deposits, including railroad construction. Large expenditures would also be involved in exports from the Cauca Valley, since there is very little surplus transport capacity on the Cali-Buenaventura railroad.

Summary

33. In conclusion, the overall rate of growth in mining may be slightly below the amount projected in the General Plan because of a shortfall in the major component, petroleum. The estimates for other minerals, e.g. coal, are considered by the mission to be conservative and may wvell be exceeded, particularly in the latter part of the decade, as an outgrowth of pending geological survey and with intensified action to expand production. - 12 - VI. PLrROLEUM, COAL

34. A somewhat larger volume of investment appears to be in prospect than projected in the General Plan, particularly for petroleum production and pipelines, and possibly for coal production and related transportation facilities. The higher volume of petroleum investment is expected to be financed largely through greater use of oil ccmpany earnings. The resulting reduction in remittances abroad has been reflected in the mission's balance of payments projections (Annex I, p. 12). PRODUCTION OF MAJOR MINERALS IN COLOMBIA, 1938 AND 1948-1961

Crude Oil Gold Coal Iron Ore Salt (th. tons) (million barrels) (th. fine ounces) (1iillion tons) (th. tons) Rock Salt Sea Salt

1938 21.6 520 0.42 i 23

1948 23.8 335 0.90 100 25 1949 29.7 359 1.02 102 24 1950 34.1 379 1.10 107 35 1951 38.4 446 1.15 110 38 1952 38.7 422 1.20 167 39 0 1953 39.4 437 1.23 148 48 1954 40.0 377 1.50 84 172 36 E 1955 39.7 381 1.85 349 175 34 1956 44.1 438 2.00 394 194 37 1957 45.7 325 2.00 593 207 95 1958 46.9 371 2.44 562 220 71 1959 53.6 398 2.48 405 213 57 1960 55.8 434 2.62 655 235 67 1961 53.2 401 a/ a 267 69 a/ Figures not available.

C-) ESTIMATES OF CRUDE OIL PRODUCTIONI, 1965 (million barrels)

Estimates Actual 196h 196h 1965 1960 1961 Plan Mission Mission

Foreign cormanies, existing fields Colpet (Socony Mobil -Texas) b/ 16.7 16.6 18.5 21.0 19.0 Texas c/ 14.7 13.0 13.0 16.o 16.0 Shell i4.0 13.4 1.: 11.0 11.0 Intercol and others 0.1 0.1 0.2 0.2 0.2 Non-specified increases existing fields - - 2.2 2.2 2.2

Sub-total L5.5 43.1 45.4 5o.h 48.4

Ecopetrol (including new Llanito field) 10.1 10.2 14.h4~ 1 2 .81 e 11.

_ther Nf.r Fields Provincia (Intercol-Sinclair/BP) - - ) 5.° 6.o Palloa (Cities Service-Ecopetrol) j - - ) 13.2 9.0 10.0 Cristalina (Shell) - -) - - 4 Other gl -. 0

Sub-total _ - 18.2 14.0 20.0 Grand Total 55.6 53.3 78.Oh/ 77.2 79.9

a The Plan estimates are as of June 1961. Latest estimates by company; include 3.6 for Boquete. c/ Conpany originally estimated 21.9 for 196L based pipeline from Guavio which probably will not be feasible. d/! Including participation in Palloa the 196L, total for Ecopetrol in General Plan is 17.8 and in mission estimate it is 17.3. i/ Mission figures are based upon latest estimates submitted by Ecopetrol. These figures include production from the newT 1lanito field, estimated in 'lan at 4.3 million bbls in 1964. I/ Mr. Prados, Ministry of Nines says Palloa could produce close to 15 million barrels, but may have to restrict output for conservation reasons. Success for Richmond might up the figure substantiallyv h/ Mr. Prados, Ministry of Mines, thinks figure for 1964 will be 80-85 million barrels. APPENDIX C VI. PETROLEUM, COAL

DEMAND ESTIMATES FOR PETROLEUM PRODUCTS

1965 1970 1960IJ Plan Mission, / Plan Missionb/

A. Summary (million barrels) Motor gasoline 8.44 13.2 12.6 18.9 15.7 Aviation gasoline o.68 0.95 0.9 1.3 1.2 Kerosene and tractor fuel 1.60 2.1 2.1 2.8 2.8 Diesel oil 3.13 6.1 5.3 9.8 9.0 Total, light products 22.42L.85 20.9 32.8 28.7

Fuel oil 4.97 8.0 7.3 15.2 9.7 Total, major products 18.82 30.4 28.2 48.0 38.4

B. Calculation of Demand for Motor Gasoline

Number of vehicles, in thousands Passenger vehicles, incl. jeeps, taxis 92.2 (112) 110 139.0 135 Buses 15.0 2/ 20 31.0 26 Panels and pick-ups 30.6 c 42 25.8 52 Trucks 144.1 LI 46 62.3 47

Ave. annual distance per vehicle, th. km. Passenger vehicles, incl. jeeps, taxis 15 i 20 (22) 20 Buses 36 i 38 (37) 38 Panels and pick-ups 24 | 26 (22) 24 Trucks 27 g 30 (25) 30

Total vehicle-km., in millions Passenger vehicles, incl. jeeps, taxis 1383 2280 2200 3040 2700 Buses 541 825 760 1150 988 Panels and pick-ups 735 522 1092 560 1250 Trucks 1190 1225 1380 1580 1410

Gasoline consumption. km. per gallon Passenger vehicles, incl, jeeps, taxis 20 21 20 18 20 Buses 7 5 6 5 6 Panels and pick-ups 18 15 18 15 18 Trucks 7 5.85 7 5.2 6

Gasoline consumption, million gallons Passenger vehicles, incl. jeeps, taxis 69 108 110 167 135 Buses 77 164 127 230 164 Panels and pick-ups 41 35 61 37 70 Trucks 170 210 197 30i4 235 Total, motor transport 357 517 595 739 604 Other uses 17 34 34 55 55

Grand Total 374e/ 541f/ 529 794 659

a/ For 1960, number of vehicles, by types, and aggregate gasoline consumption were known. Other data were estimated to conform. For 1965 and 1970, the starting points for the estimates were as follows: (a) Trucks. Estimated ton-km. of freight movement. (b) Buses. Estimated passenger movement. (c) Panels and pick-ups. Estimated increase in Gross National Product and number of entrepreneurial units. It was further assumed that the participation of panels and pick-ups in intercity traffic would be negligible. (d) Passenger vehicles. Based upon population and income changes, assuming severe restrictions and7or heavy taxation of private auto ownership. 2/ Figures not available. | As a result partly of the planned substantial improvement in highways, an increase in average payload from 4 tons in 1960 to 4.7 tons in 1965 and 5.5 tons in 1970 was projected. Although no increases were allowed in the average distance traveled per truck, this is a distinct possibility. This wDuld have only a minor effect upon gasoline consumption but would reduce the import requirements for vehicles. e/ This total works out at slightly less than the actual consumption figure shown in part "A" of the table. LI This total which is based upon interpolation between 1964 and 1970 figures is slightly higher than the figure shown in part "A" of the same table (also interpolated). The difference may be due to rounding. ANNEX VII, SECTION A

PUBLIC INVESTI4ENT IN TRANSPORTATION

Transportation in the Colombian Economy

1. Extension and improvement of transportation facilities have been among the principal objects of investment in Colombia in the past decade. It has been estimated, roughly, that more than 10 billion pesos, in terms of 1961 prices, were devoted to this purpose during the fifties, or perhaps almost one-fourth of all investment, public and private. Approxi- mately half this total was government investment in highways, railroads, ports, airfields, and petroleum product pipelines, with highways obtaining the largest share. The balance was private investment in highway vehicles, ocean and river vessels, aircraft and petroleum pipelines. In 1959, a typical recent year, transportation absorbed more of the investment resources of public agencies than all other sectors of economic and social activity together; specifically, 51 percent of all public investment and 64 percent of investment by the national government was in transportation.

2. This investment has yielded results in the form of a network of some 35,000 kilometers of roads of all types and condition which reach into and connect municipios containing more than 90 percent of the population of the country. Some 4,000 kilometers of this network constitutes a system of main trunk and transversal roads which interconnects the principal cities, agricultural production areas and ocean and river ports. Probably not more than two-thirds of the total road network can be traversed in all weather, and all except a few thousand kilometers are built to such standards or are in such condition that they can be traversed only at low speed and with considerable vehicle wear. In relation to present and immediately prospective traffic the greatest deficiencies are in the system of main trunk and transversal routes. Nevertheless, the road network does permit the movement of the traffic offered today, the absolute physical barriers to movement between major points and regions no longer exist, and the costs of road transport between these points, although reducible, are not forbiddingly high. The available evidence suggests that within recent years both the time and cost of freight and passenger movements over many highway routes have been appreciably reduced.

3. The investment of the past decade has also, through construction of the Atlantico Railway, provided an integrated rail network which now permits rail movement between the major inland cities and both the Atlantic and the Pacific coasts. It still does not reach the two major - 2 - A. TRANSPORTATION cities of the Atlantic coast and provides no all-rail connection between the Cauca and Pfagdalena valleys south of Medellin. Furthermore, most of the older lines of the system are in critically poor condition, a major part of the railway's equipment is overage, and the railways are unable to handle the traffic offered.

4. In addition there now exist a large number of serviceable airports throughout the country, a number of pipelines for the movement of oetroleum products, as well as crude oil, and four major ocean ports. The numbers of automotive vehicles, river and coastal vessels and aircraft have increased sharply during the past ten years -- automotive vehicles, for example, from 61,000 in 1950 to 192,000 in 1961, with trucks and buses more than half the total. No shortage of highway truck transport is apparent.

5. The expansion and improvement in transport facilities in the decade has served to accommodate the striking increase in the volume of freight and passenger movement which accompanied the growth of national output in the period. Estimates indicate that in the period 1950 to 1959 the total volume of freight traffic, measured in ton-kilometers and excluding crude petroleum, increased by almost 75 percent while the national product increased by approximately 50 percent. The increase in intercity passenger movement is estimated to have been even greater. Freight traffic increased particularly on the highways, by an estimated 100 percent, but also on the railways, by 39 percent. Passenger traffic increased particularly by highway and by air and declined on the railways.

6. The Colombian development plan recognizes the probability that transportation demands will continue to grow more rapidly than total national output. It accordingly projects a program of investment in transport facilities designed to be consistent with and to accommodate the projected growth of commodity output, population and income, and, so far as they can be. foreseen, the resultant volume and pattern of traffic movement. At the most general level, the plan is based on (1) the anticipation that total freight and passenger traffic can be expected to grow by approximately one-third between 1961 and 1965; (2) the recognition that substantial investment will be required simply to maintain the existing capacity of rail, highway and other transport facilities; (3) the anticipation that total freight and passenger traffic demand can be expected to grow by approximately one-third between 1961 and 1965 and to double by 1970, and that selective improvements in highways, rail lines, ports and airports, and general expansion of the fleets of rail and highway mobile equipment will accordingly be required; (L) the conviction that improvement of the existing transport facilities will reduce transport costs and time and increase transDort reliability to the benefit of both the direct users of the facilities and the economy as a whole. - 3 - A. TRANSPORTATION

The Plan of Investment Projected by the Government of Colombia

7. Total Projected Investment in Transport. The general plan of investment by the Government of Colombia for the period 1962-65 projects an investment of almost 8.5 billion pesos, or approximately one-fourth of all investment in fixed assets, in the expansion and improvement of transportation facilities. This is substantially more than is to be invested in any other single sector. Slightly more than 140 percent of the total projected investment in transport is planned as public investment and almost 60 percent is estimated private investment. Approximately three- fourths of the total projected investment is to be in automotive transport facilities. These general relationships, of transport to other investment, of Government to private transport investment, and of automotive to other transport investment, are not strikingly different from those characteristic of recent years. Table 1 summarizes the investments projected.

Table 1: TRANSPORATION INVESTiE4NT 1ROJECTED ITT, GENTRAL PLAN (in millions of 1961 pesos)

1962-65 Annual Percent of Total Average Total

Total Investment in Transport 8,14146 2,112 100.0 Public Investment 3,5146 887 142.0 Highways 2,831 m70 Railroads 361 90 4.3 Ports and waterways 201 50 2.4 Airports 132 34 1.7 Urban buses 21 5 0.2 Private Investmenta/ g900 1,225 58.0 Automotive vehicles 3,5300 950 45.0 Other (principally ships and planes) 1,100 275 13.0

a/ Estimated from data in 1958 prices for period 1961-614.

8. Private Investment in Transport. Projected private investment in transport consists principally of the acquisition of automotive vehicles. Translating data presented in terms of 1958 prices into 1961 prices and adjusting from 1961-614 to 1962-65, it appears that an investment averaging approximately 950 million pesos per year is projected in the 1962-65 period for the acquisition of trucks, buses, and other automotive vehicles, excluding passenger cars for personal use. - 4 - A. TmRAWSPORTATION

9. This estimate is based, in the case of freight vehicles, on a calculation of the numbers of various types and sizes of vehicles which may be required to move the traffic anticipated, and the new acquisitions which will be required for the purpose. It takes into account the age and composition of the existing vehicle fleet, replacement requirements, and anticipated upward shifts in vehicle capacities, in their annual utilization, and in their load factors. A similar calculation is the basis for the projected investment in passenger vehicles.

10. The remaining projected private investment in transportation is principally in the acquisition of ships and planes and also in the construction of petroleum pipelines. Translated into 1961 prices this projected investment may be estimated at an average of approximately 275 million pesos a year in the period 1962-65.

11. In the judgment of the mission there are a number of particulars in which these estimates of private investment appear to be faulty. They appear, for example, to underestimate the import costs of trucks and buses and may underestimate the numbers of general purpose small trucks, panels and pick-ups, which may be required. On the other hand, they may over- estimate required investment in non-automotive transport equipment and in the import component of such investment. Nevertheless, on balance, the total investment required appears to be about right and so also does its import component. In short, the total amount of investment projected, averaging approximately 1,225 million pesos and including an average of approximately ',80 million a year in the 1962-65 period, appears to be a reasonable estimate and is judged to be adequate to provide the physical equipment likely to be required.

12. Public Investment in Transport. The Plan projects more public investment in transport than in any other single sector in the period 1962-65, and also in the period 1966-70, although the proportion so devoted is scheduled to decline steadily during the decade. This decline represents some modification of the investment allocation policy followed in recent years. Whereas in 1959 investment in transport was 51 percent of total public investment in fixed assets, it is projected at approximately 30 percent in the period 1962-65, at 28 percent in 1964 and 26 percent in 1970. In absolute terms, nevertheless, planned transport investment wrill be substantially larger than in the past and will remain the largest single consumer of public investment resources. As indicated by Table 2, projected public investment in transport will total more than 3,500 million pesos in 1962-65, rising from 854 million pesos in 1962 to 919 million pesos in 1965, and is estimated at more than 1,200 million pesos in the year 1970. - 5 - A. TRANSPORTATION

Table 2: PLANNED PUBLIC INVESTIIENT NT TRANSPORTATION (in millions of 1961 pesos)

1962-65 1962 1963 1964 1965 Total 1970

Total 854 885 888 919 3,5[6 1,218

Highways* 663 692 715 760 2,830 1,015 Railroads 104 109 84 64 361 80 Ports and waterways 51 50 50 50 201 68 Airports 32 30 32 38 132 h8 Urban buses 4 5 6 7 22 8 *>Including maintenancc. 13. Eighty percent of total planned public investment in transport in 1962-65 is to be by agencies of the national government, and most of the balance by the departmental governments. Agencies of the national government will be responsible for the entire investment in railroads and in ports and waterwzays, and for nearly all the projected investment in airports, and for more than 80 percent of the highway program. Municipal governments will be responsible for the acquisition of urban buses, the departmental governments for a fraction of the airport program and for part of the highway investment. The projected departmental investment in highways, although only 17 percent of total planned highway investment, will absorb more than half of total projected investment by the departmental governments. lh. In general the Plan provides for a concentration of investment in the highway system; approximately 80 percent of total public investment in transport is allocated to the highways. (This proportion, indicated by the Plan figures, somewhat exaggerates the reality, since "investment" in the case of the highways includes maintenance expenditure, while it does not in the case of other types of transport. Estimates indicate, however, that even if maintenance were included in the case of all types, projected expenditures on highways would exceed 70 percent of the aggregate expenditure for construction and maintenance.) Approximately 10 percent of projected public investment in transport in 1962-65 is to be in the railroads and the balance in other facilities.

15. Despite the heavy concentration of projected investment in the highways, the Plan provides for little extension of the existing road network. It is basically a program for maintenance of the entire existing network and for improvement of its most important sections, involving substantial reconstruction and often relocation. It provides, through the Caminos Vecinales program, for construction of a limited number of new low-standard roads where none now exist, connecting communities with the existing network, but this accounts for a minor part of the total projected expenditure. To a very considerable degree, also, the program involves the completion of projects already under way. - 6 - A. TRAITSPORTATION

16. In the case of the railways the Plan projects no new lines, concentrating on extensive rehabilitation and re-equipment of the existing lines. Nio new ports are to be built, although the number of berths and warehouse and cargo handling facilities at the four major ports (Buenaven- tura, Barranquilla, Cartagena, Santa Marta) are to be increased. Two major airports, at Cali and at Barranquilla, are to be reconstructed and a number of lesser ones are to be improved, as also are air navigation facilities. lMinor improvements are to be made in existing inland waterways.

17. The Highway Program. The major part of the highway program is to be executed directly by the national government through the Ministry of Public Works. This part of the program involves an estimated expenditure of 2,206 million pesos and includes the following major elements:

a. Continuing improvement of the existing system of main trunk and transversal highways connecting the principal cities with each other, with major areas of agricultural production and with the ocean ports and the principal points of crossing into Ecuador and Venezuela. This system includes: (1) the Troncal Occidental running from the Ecuadoran border south of Pasto through Popayan, Cali, and M2edellin to Cartagena; (2) the Troncal Oriental running from Neiva north through Bogota and Bucaramanga to Santa Marta; (3) the transversals running from Cartagena to Barranquilla and Santa Marta; from Buenaventura to Cali and via Buga, Armenia, Ibague and Girardot to Bogota; and from Medellin to Bogota and Villavicencio.

This system includes approximately 4,ooo kilometers of road. Although substantial improvement has been effected in the past ten years, and all of it can be traversed by motor vehicles, much of it is inadequate to present and iTmiediately prospective traffic. Iany sections are rough and unpaved, and have poorly constructed bases, excessive curves and grades, inadequate width, no shoulders, inadequate drainage, and unstable side-slopes. Traffic, which ranges from a few hundred vehicles a day in certain sections to more than 1,000 a day in others and up to 5,000 or more a day at the approaches to the major cities, moves at low average rates of speed and at excessive vehicle operating cost.

The improvements under way and planned in 1962-65 involve substantial reconstruction and relocation as well as paving of most sections. They are designed to permit, in most sections, traffic in excess of 1,200 vehicles a day moving at average speeds of 100, 80 and 60 kilometers an hour in flat, rolling, and mountainous country respectively. - 7- A. TR;'\SPORTATION

Improvement of much but not all of this system of highways is now under way, partly financed by IB` D loans.

b. Completion of the improvement of a limited number of roads supplementing and connecting with this main system. This work is on the basis of similar or slightly lower design standards. These projects are currently in an advanced state of construction and under contract for continuing work.

c. The organization and conduct of an adequate program of maintenance on the entire existing network of approximately 15,000 kilometers of national highways. The expenditure on maintenance is estimated to be some h0 percent of the total projected highway investment expenditure.

18. The outstanding features of the Plan are that it contemplates larger and more effective maintenance expenditure and calls for a considerably greater concentration of construction effort than in past years on the major system of trunk and transversal highways. It provides for virtually no construction expenditure on others except for a limited number where construction and contracting is far advanced. It would require the cessation of work on a considerable number of roads where construction has been under way on limited sections and at a slow pace. It would exclude new construction starts on all except a few major road sections included in the system of main trunk and transversal highways.

19. The 1962 budget enacted by the Congress, it should be noted, was not in accord with this Plan; it provided for a considerab'le dispersion of investment by allocating substantial funds for the construction of roads of secondary and local significance. Comment on this matter will be made below.

20. The Plan also provides for national government investment in the Caminos Vecinales program to the extent of 1h0 million pesos (not included in the 2,206 million peso highway investment expenditure to be made by the Ministry of Public Works). These funds are to be used along with matching contributions of funds or labor by local communities and departmental governments for the construction of low-standard roads to connect local communities with the network of departmental and .national highways.

21. A smaller part of the highway plan is to be executed by the departmental governments. This part of the plan involves an estimated expenditure in 1962-65 of 624 million pesos. Some part of this total is to be used for maintenance of the existing 15,000 kilometers of departmental roads and part for improvement and reconstruction. These roads in most departments are feeders to and connectors with the national highway system, carry smaller volumes of traffic and are built to lower standards. In a few departments, however, certain of the departmental roads are paved, well-constructed and are important traffic carriers. - 8 - A. TRANSPORTATION

22. The Railway Program. Plans for the improvement of railway transportation in 1962-65 center on the rehabilitation and re-equipment of the existing railway system. No extension of the existing railway lines is to be undertaken in this period and several existing minor services are to be abandoned. Apart from the newly completed Atlantico line, most of the lines are in poor condition, but despite the poor equipment and unsatisfactory service, rail freight traffic increased during the fifties. This was in the face of competition from continuously improving highway trucking service. 'Withthe integration of the entire system by the completion of the Atlantico line, the railway now interconnects the ports of Buenaventura on the Pacific and Santa Marta on the Atlantic,as well as Cali, Medellin, Bogota and a number of lesser cities. The Plan is based on the belief that with improved facilities and service the railroad could serve effectively for the movement of bulk ccmodities, especially over the longer distances. Although in most instances the railway lines are paralleled by highways which are also being improved, the Plan contends that continued and improved operation of rail services is both necessary and economic, and that a division of commodities and hauls between the railroads and the highways would be practicable. On this basis the Plan calls for an expenditure of 361 million pesos in 1962-65 (excluding current maintenance), and includes the following major elerents:

a. Expenditures by the Colombian National Railroads to improve the Antioquia Railroad following its merger into the national system, thus bringing the entire rail network in Colombia under single management and operation. (The Plan does not include the costs involved in its acquisition.) b. Restoration of rail service between Pereira and Manizales.

c. Extensive rehabilitation of the railway lines including overdue replacement of ties, ballast and rail, rehabilitation of bridges and other structures, and slope stabilization.

d. Rehabilitation of shops, shop equipment, and diesel- driven passenger cars (autoferros) and communications facilities.

e. Acquisition of a substantial number of diesel locomotives and of freight cars to permit retirement of all steam locomotives and of overage freight cars, and to expand freight capacity.

f. Studies of possible extension of the Atlantico Railway to Barranquilla and Cartagena, including technical aspects and economic feasibility. - 9 - A. TRANSPORTATION

g. Abandonment of the rail line from Pasto to Tumaco.

h. Abandonment of the aerial cableway between Manizales and i[ariquita in the M-iagdalena Valley.

23. The Port and Inland Waterway Program. The Plan for investment in port and inland waterway facilities in 1962-65 is designed principally to increase the cargo handling capacity of the four major ports in view of the increased tonnage expected to move through the ports in the immediate future. It is also designed to improve efficiency and reduce the cost of cargo handling. Specifically, the Plan involves the construction of two new berths at Santa Marta, two new berths at Buenaventura, one new berth at Cartagena, the equipment of the two recently built berths at Santa IMarta and rehabilitation and some replacement of and additions to existing equipment, warehouse and other facilities in the ports of Barranquilla, Buenaventura, Santa Marta and Cartagena. In addition, the Plan involves some improvements at the Port of Tumaco, the completion of the work at the Bocas de Cenizas designed to assure a deep water entrance to the port of Barranquilla, the acquisition of new dredging equipment for use at the Bocas, on the iIagdalena River, the Cienaga Canal, and the Canal del Dique, minor improvements at a few of the river ports, and community facilities at Buenaventura.

2h. The Airport Program. The Plan for investment in airports and air navigation facilities in 1962-65 involves a total expenditure estimated at 132 million pesos. More than half of this total is required for the reconstruction of the Barranquilla and Cali airports. These are to be made suitable for the use of jet aircraft so that they may be points of origin and destination for international traffic on a regular schedule basis as well as alternates, in case of necessity, to the Bogota airport. In addition, lesser improvements are to be made at a number of airports in other cities, including paving and extension of runways and improvement of buildings. Finally, additional air navigation facilities are to be installed at or near a number of existing airports, for the safe and efficient handling of existing air traffic.

Evaluation of the Investment Program

25. General Evaluation. In its essential features, the Colombian Plan for public investment in transportation appears to be reasonable, necessary, and feasible. The planned concentration of investment in inland freight transport facilities seems wise in view of the projected 8 percent annual increase in inland freight traffic. The decision to concentrate on the improvement of the rail and highway lines which interconnect the major cities, the ports and the major crop-producing areas, rather than on the improvement of secondary roads or the extension of the exisiting rail-and-road network also seems sound, in view of the existing pattern of traffic movement and the prospect that the growth of production and population wTill be concentrated in the existing major urban - 10 - A. TRANSPORTATION centers and crop-producing areas. Thie decision to make the investments to rehabilitate and re-equip the railways seems wise, in view of' the facts that (a) well-equipped railroads have traffic functions to perform which would otherwise be carried out at higher cost by cther means of transport and (b) the projected railway investment is marginal, financially and physically, to the recent larger investment in the construction of the Atlantico Railway. Finally, the recognition that a very substantial part of total investment in transport must be devoted to maintenance of the existing highway network promises the avoidance of the extreme dissipation of capital involved in neglect.

26. In short, and taking the narrow view only of transportation, the mission believes that the major choices on the charactoer or composition of the transport investment program are sound. They are consistent with the transport needs which the projected economic growth will impose, and look touard rational means of meeting those needs.

27. On the broader view of the needs of the Colombian economy as a whole, however, the mission doubts that a transport program of quite the magnitude Drojected is necessary. This doubt relates solely to the highway portion of the program. The capacity of a highway network to move traffic is not a matter which can be determined writh precision. Furthermore, calculations of the benefits frorrm highway improvement by way of reduced transport and other costs in the economy and induced or facilitated production developments are, at best, rough approximations of the reality. It is the mission's judgment that the full investment in highway improvement projected in the Colombian Government PLan is too high in relation to the investment needs of other sectors, and that even with a significantly smaller investment, transportation will not be a bottleneck in the projected growth of the Colombian economy.

28. The mission is acutely conscious in this judgment that transportation facilities, in terms of both the initial investments and the maintenance they require, are voracious consumers of canital. It believes consequently that judgments in regard to transport investments should be weighted on the dowin side. Errors, if errors result, are quite likely to be compensated by the high degree of flexibility inherent in any transport system. This is particularly the case where improvements in roadways are in ouestion since the capacity of given roadways, although not unlimited either physically or economically, will vary widely in accordance with the number of vehicles employed and these numbers can be altered quickly and in relatively small increments of costs.

29. Essential to the mission's conclusion is also the judgment that there are investment needs in other sectors which will yield larger returns, even though not fully measurable, than some of the projected investment in highway improvement. - 11 - A. TRANSPORTATION

30. There are also doubts with regard to the practicability of the transport investment projected. These doubts are of two types. One is on the administrative and technical capacity, and to a lesser degree the financial capacity, of the responsible agencies effectively to conduct the projected highway and railway investment programs. The other is on whether there is in fact a consensus within the Colombian Government, including the Congress, on the composition of the projected highway program.

31. On the first score, it is the judgment of the mission, based in part on the observations and conclusions of the special transport mission which recently studied the matter and also in part on the current experience of the IBRlD, of contractors and of others, that the Ministry of Public 1^forks as now organized and functioning on highway work is not able to execute a program either of the magnitude projected or even smaller. For even a reduced program to be executed on the schedule projected and for it to be executed at reasonable cost and to desired standards, a substantial improvement in the existing organization and procedures will be required.

32. The report of the transport mission detailed the deficiencies in the organization and procedures presently employed in the management of the highway program, as one instance. Although the Ministry is now utilizing the services of one engineering firm in the effort to develop plans, specifications and cost estimates prior to contracting for construction and as a basis for the supervision of construction, the major part of highway construction work is still done without benefit of such services either by 1Einistry or by contract engineering personnel.

33. The transport mission recommeded the establishment of an autonomous Highway Authority which would be directed by a strong, long-tenure Board and Executive, which would be free to establish new and effective planning and contracting procedures and able to employ and pay personnel of greater experience both on its staff and by contract with private engineering and construction firms, domestic and foreign. Whether or not this particular solution is adopted, it seems clear that a strengthening and reorganization is necessary. The Government of Colombia recognizes this need and has indicated that it is prepared to deal with it. The mission concurs in the judgment expressed in the transport mission report and by the Government of Colombia that with the taking of the necessary steps, a program of highway investment approaching but smaller than that projected in the Colombian Government Plan can be effectively carried out. It believes also that the national government agency responsible for management of the highways will need to give assistance and to exercise certain types of supervision over the departmental government and Caminos Vecinales Fund highway operations if the portion of the program under their management is to be effectively conducted.

34. On the second score, the degree of consensus within the Colombian Government wFith regard to the composition of the highway investment program, the mission notes the already mentioned departure from the Plan of the 1962 - 12 - A. TRANSPORTATION

Budget enacted by the Congress. The divergence is not one of detail but of fundamentals. It reflects, at least in part, a genuine, responsible and deep conflict of views on the economic and social roles of various categories of highways and on the proper allocation of highway investment resources. The one view expressed in the Plan is that the greatest economic and social benefit will be obtained by a concentration of resources on the completion of a relatively high standard, integrated system of main trunk and transversal highwTays, interconnecting major cities, ports and crop-producing areas, and capable of carrying realtively high volumes of traffic at reasonable speed. The other view, expressed in the 1962 Budget and also in the actual expenditure pattern of recent years, is that higher or at least equal priority should be given to the construction and improvement of secondary, tertiary, feeder and penetra- tion roads in all parts of the country, including not only settled areas but also many which today have little or no population, production activity or communication facilities but which may possibly have useful physical resources. This view plus the desire to provide employment in low-income rural areas is believed to have been responsible for the considerable dispersion of highway investment directed by the 1962 Budget.

35. The mission concurs in the judgment of the Colombian Government planning authorities and the Ministry of Public Works that a much heavier concentration of resources on the main system of highways is necessary and desirable. It believes that unless highway investment resources are so allocated, the investments made will yield little and long-deferred return.

36. The Highway Program. Comment has already been made on the general aspects of the highway program. More specifically, review of the projected program, with the benefit of the transport mission's findings and cost estimates, suggests a reduction of somewhat more than 20 percent in the projected highway investment in 1962-65. This involves elimination of a few specific road projects, change in the design standards proposed for certain projects, some modification of construction cost estimates, and substantial reduction in the estimated cost of the required maintenance work on the national highway system. The latter reduction reflects first, the conviction that the physicalvurk required can be more effectively organized and more efficiently and cheaply conducted (with less equipment than planned); second, the belief that there should be a halt to the practice of shifting responsibility for the maintenance of local roads from the departmental governments to the national government.

37. The Railroad Program. Several comments may be added to those already made on the railway program. First, as in the case of the highway program, the work itself is not likely to be carried out effectively and the desired results are not likely to be achieved, without substantial strengthening of the management of the railways, changes in management and operating procedures, and a significant increase in the efficiency of all operations. For this purpose, a well-planned and well-selected mechanism from abroad for advice and assistance to the railways would be helpful. - 13 - A. TRANSPORTATION

38. Second, the railroad program as projected, though adequate, seems minimal. The line rehabilitation projected is essentially a program of deferred maintenance and is critically necessary if the rai:ways are to continue to operate. A large part of the projected equipme,t is required simply to replace overage, obsolete and high-cost equipment now in use. Another part is to enlarge the railway's carrying capacity md seems likely to be required in view of the prospect that railway '.raffic will increase more rapidly in the immediate future than in the recent past as a result of completion of the Atlantico Railway, the integration of the system it provides, and the probable diversion of some traffic from the Magdalena River. It should be noted that the physical interconnection of all the railway lines makes possible the allocation of equipment to those lines where it may most be needed.

39. Third, the plan to defer action on the possible extension of the railway line to connect Barranquilla and perhaps Cartagena with the Atlantico Railway and to undertake early studies on this question seems wise, as does the recognition that no decision on such extension should be made prior to the completion of such studies, and until there has been experience in the operation of the Atlantico Railway, and of the works, soon to be completed, designed to keep open a deep water channel into the port of Barranquilla.

40. Other Transport Facilities, The program projected for expansion of the capacity of the four major ocean ports is modest and essential. It is consistent with the anticipated development of foreign trade projected in the development Plan, and as modified by the mission's judgments. It is based upon an analysis, made by the transport mission, of the probable and the desirable division of traffic among the ports, and of the improvements essential to permit handling of the increased tonnage forecast.

1. The program projected for the improvement of the inland watenrays involves only insignificant investment, much of it for the acquisition of new dredges for continuing maintenance of channels to depths adequate for existing movements on the 1lagdalena River and two tributary canals, the Canal del Dique and the Cienaga Canal.

42. The program for airports is also comparatively modest and involves principally improvements which are essential for the safe and effective handling of existing traffic. These improvements will also permit handling of the considerably larger volumes of traffic which are anticipated.

43. In the case of the port and airport programs, the agencies responsible are not themselves staffed to do all the engineering or construction required. There should be no difficulty in either case, however, in arranging, via contracts, with private firms for these services. Steps in this direction have already been taken by both agencies. - 14 - A. TRANSPORTATIO'N

44. Internal Financing of Transport Investment. Although all the agencies operating various transportation facilities and services impose charges on the users, none of them, except the Port Authority, are at this time imposing charges which cover the cost of the facilities and services which they provide. All except the Port Authority are incurring operating deficits. They are not adeouately maintaining the facilities for which they are responsible and they are entirely dependent on appropriations from the national budget for funds to meet their operating deficits and to finance new construction activities. This situation could be remedied if charges which would cover the cost of the facilities and services provided were imposed on the users. It does not appear that the imposition of such charges would have adverse effects upon Colombia's economic development. Furthermore, the imposition of such charges would have the positive effect of eliminating distortions in the pattern of use of competing transportation facilities.

45. The Colombian Government Plan does not explicitly provide for and may not have originally contemplated such charges. The Government has indicated, however, a disposition to agree in principle with the concept that such charges should be made (as the transport mission also recommended) and is apparently prepared to consider the specific alternatives which have been proposed.

46. In the case of the national railways a proposal is now before the Colombian authorities which would increase average railway tariffs by an average of approximately 25 percent. It is estimated that this would fully cover the operating deficit in prospect, would provide the funds required for adequate current maintenance and might make some contribution to the construction costs involved in the projected railway investment Program.

47. In the case of the highways, an increase, payable to the national governrment, of 50, per gallon in the gasoline tax would yield an estimated 225 million pesos in the current year, or, writh the exemption of urban buses, approximately 190 million pesos. Although this would represent a 12- fold increase in the tax now paid by retail purchasers, it is estimated that it would increase average truck operating costs by only 8-9 percent. This increase, on the other hand, is likely to be more than offset by the reduction in vehicle operating costs anticipated as the result of major highway improvements.

48. An alternative to an increase in the gasoline tax would be the imposition by the national. government of special vehicle registration fees. Schedules of fees which would yield amounts approximately equal to those obtainable from the proposed gasoline tax could readily be developed.!/ In the mission's judgment the imposition of such charges

1/ The Attachment summarizes in capsule form the data with respect to present and possible user charges on several modes of transport. - 15 - A. TRANSPORTATION would increase effectiveness of the management of the several types of transport facilities and would enhance the possibility of rational development of the transport system. In addition, of course, they would remove wholly unnecessary subsidies to transport users, and help to provide the increased government revenues reauired for execution of the projected public investment program.

Recommended Program h9. In the light of the preceding discussion, the following program of public investment in transportation is recommended:

Table 3: RECOMItENDED PUBLIC INVESTMENiT IN TRANSPORTATION (in millions of 1961 pesos)

1962-65 Total 1962 1963 1964 1965 Amount Percent

Highway construction (national government) 200 235 280 310 1,025 35 Highway maintenance (national government) 161 161 152 163 637 22 Highw-jay construction and maintenance (departmental governmentsa/) 120 128 136 lLh 528 18

Highways, Total 481 52h 568 617 2,190 75 Railways_/ 90 106 106 96 398 13 Portsb] 27 58 58 33 176 6 Inland watenrways] 4 10 6 2 22 e/ Airportsc/ 23 48 40 31 1h2 5 .lIunicipal busesW 4 5 6 7 22 e/

Total 629 751 78h 786 2,950 100

a/ Including Caminos Vecinales program. b/ Entirely national government program. c/ Principally national government program, small departmental participation. d/ Municipal government program, included in highways category in Table 11 of mission report. e/ Less than 1 percent. - 16 - A. TRANSPORTATION

50. This recommended program is in very close accord with but is not identical with the program recommended by the transport mission. It differs from the Government General Plan as indicated in summary fashion in Table 4.

Table 4: GOVERNMiENT GENEIRAL PLAN ADTD IVIISSION REC01I,IENDATIONS FOR PUBLIC INVESThENT IN TRANSPORTATION (in millions of 1961 Desos)

General Plan Mission Recommendation Total Annual Total Annual 1962-65 Average 1962-65 Average

Highways-/ 2,852 713 2,212 553 Railways 361 90 398 99 Ports and waterways 201 50 198 50 Airports 132 34 142 36

Total 3,546 887 2,950 738 a/ Including urban buses.

51. The estimated division of the cost of the recommended program between direct foreign exchange and local costs is summarized in Table 5. As indicated, the foreign exchange component in the total program is estimated at 30 nercent. The foreign exchange component of the national government portion of the program is estimated at )40 percent.

52. Recommended External Financing. It is recommended that external financing generally be arranged to equal the estiiiated foreign exchange component of the national government portion of the recommended 1962-65 transport investment program. It is believed that practicable arrangements can be effected for the external financing of this program and agreements can be made designed to ensure its satisfactory execution.

53. Specifically, it is recommended that 'W1h9 million of external financing (in terms of disbursements) be made available for use in this program in the years 1962-65. Part of this financing is available from existing commitments. Table 6 indicates the disbursements and commitments estimated to be required on a year-by-year basis to effect this recommendation. The commitment figures represent only those under which disbursements will be required in the period 1962-65. Obviously additional commitments will be required in 1965 to permit disbursements after 1965 for continuation of the program. - 17 - A. TRANSPORTATION

Table 5? ESTIhATED FOREIGN EXCHANGE AND LOCAL COSTS IN RECOIT9ENDED TRANSPORT INVEST-TY7T PROGRAM, 1962-65 Total U.S. Expressed Dollars Pesos in Pesos (millions) (millions) (millions)

National Government Highway construction t 57.o 643 1,025 Highway maintenance 3o.5 1X32 637 Railways 414 121 398 Airports 8.2 87 1h2 Seaports 10.0 110 176 Inland waterways 2.2 7 22

Total 1h9.3 1,h00 2,h00

Departments (including Caminos Vecinales)

Caminos Vecinales construction and maintenance h.5 90 120 Departmental road construction and maintenance 18.2 286 h08

Total 22.7 376 528

Municipalities

Urban buses 2.0 9 22

Grand Total fA174.0 1,785 2,95o - 18 - A. TRANSPORTATION

Table 6: RECOPMTENDED EXTERNAL FINANCING CF PUBLIC INVESTIENT IN TRP.S IORT (in millions of U.S. dollars)

Total 1962 1963 1964 1965 1962-65

Foreign Loan Disbursements, Total 32 39 39 38 148

Under existing commitments 22 11 7 - 40

Highway construction 14 11 7 - 32 High-:ay maintenance 7 - - - 7 Railways 1 - - - 1

Under new commitments 10 28 32 38 108

Highway construction - - 8 17 25 Highway maintenance - 7 8 8 23 Railways 8 14 10 9 41 Ports 1 3 4 2 10 Airports 1 3 2 2 8

New Foreign Loan Commitments, Total 15 57 36 - 108

Highway construction - 15 10 - 25 Highway maintenance - 10 13 - 23 Railways 9 20 12 - 41 Ports 2 8 - - 10 Airports 4 4 - - 8

Note: Items may not add to totals due to rounding. - 19 - A. TRANSPORTATION

54. Other Recommendations. It is recommended that the foreign financing proposed be provided on the basis of the following undertakings by the Government of Colombia:

a. that it will effect the necessary reorganization and strengthening of the management of the highway program, and will institute new procedures for accomplishing the necessary engineering and for the letting and administration of construction contracts;

b. that it will effect a similar strengthening and reorganization of the management of the national railways;

c. that it will execute the recommended highway construction and maintenance program and will not divert and disperse resources for construction of roads not in the program and of secondary importance.

55. Specific projects. The program recommended for financing consists of a series of specific projects. These have been listed in detail in the report of the transport mission and are briefly summarized here.

56. Highways. The recommended 1962-65 highway construction program includes three major groups of projects as follows:

Estimated Cost (in millions of pesos) Projects (14) under construction, financed under existing IBRD and IDA loan commitments and to be completed in 1962-65 587

Projects (16) under construction, with construction or contracting well advanced, and to be completed in 1962-65 187

New projects (7) on which construction is to be started but not completed in 1962-65 355

Total 1,129

57. Table 7, taken from the report of the transport mission, lists the specific projects in these three groups. Table 8 explains the classes of construction or design standards recommended for each of these road sections. The major new projects to be started in the period are the - 20 - A. TRANSPORTATION

Table 7: RECOMMENDED HIGHWAY INVESTMENT PROGRAM

Class of Est. Cost Construc- (millions Type of Improvement tion of pesos)*

Under Construction or Contract

IBRD Loan Projects 21 El Hatillo-Sincelejo 2 213.0 Reconstruction, base, paving 76 Buenaventura-Loboguerrero 2 85.5 New construction, base, paving 76 Loboguerrero-Saladito 2 17.1 Reconstruction, base, paving 21 Supia-La Pintada 2 29.7 New construction, base, paving 61 Villapinzon-Tunja and Moniquira-Barbosa 2 26.2 Reconstruction 2 Barranquilla-Cienaga 2 15.1 New construction, base, paving, bridge 74 Loboguerrero-Buga 2 27.8 Reconstruction, base, paving 21 Buga-Tulua 2 17.8 Reconstruction, base, paving 61 Rio Negro-Malpaso 2 17.5 Reconstruction, base, paving 61 Chusaca-Fusagasuga 2 6.3 New location, gravel 25 La Espanola-Pereira 2 21.6 Reconstruction, base, paving 21 Jamundi-Popayan 2 61.3 Reconstruction, base, paving 90 Tumaco-Bucheli L 2.6 New construction, gravel 61 Espinal-Neiva 2 45.7 Reconstruction, paving

Other Projects 61 Fusagasuga-Melgar 2 8.9 Repaving 21 Pedregal-San Juan 3 4.0 New construction, no paving 40 Bucaramanga-Barrancabermeja 3 47.4 New construction, paving 21 Barranquilla-Carreto 3 19.1 New construction, paving 61 La.s Pavas-San Roque 3 11.6 New construction, no paving 61 La Mata-Totumal 3 3.1 New construction, no paving 15 Lorica-Monteria 3 5.6 Paving 68 Manizales-Padua 2 9.9 Reconstruction, paving 15 Monteria-Planeta Rica 3 6.0 Reconstruction, paving 81 Duitama-Tunja 2 19.3 Reconstruction, paving 61 Barbosa-Tunja 3 20.9 Reconstruction, paving 90 Bucheli-Ricaurte 4 8.8 Reconstruction, no paving 11 Honda-La Dorada 2 7.0 Reconstruction, paving 24 Sincelejo-Tolu 3 9.6 Reconstruction, paving 71 Carraipia-Maicao 4 0.8 Reconstruction, no paving 28 Cerete-La Ye 3 5.1 Reconstruction, paving New Projects

61 Chusaca-Fusagasuga 2 28.L Reconstruction, paving 2 Cienaga-Santa Marta 2 13.3 Reconstruction, paving 11 La Dorada-Medellin 2 143.4 Reconstruction, paving 11 Bogota-Villavicencio 3 65.6 Reconstruction, paving 21 Popayan-Pasto 3 78.0 New construction, no paving 2 Cartagena-Barranquilla 3 17.8 Additional pavement 21 La Viga-P. Tejada-V/rica 3 8.3 Reconstruction, base, paving

Total 1,129.1

*Includes contingencies and engineering. Table 8: RECOM4ENDiD G5014ETRIC DESIGN STANDARDS

Class 1 Class 2 Class 3 Class 4 Mountainous Moun- Roll- Stand_ Spec- Roll- Moun- Roll- Moun- Terrain Flat Rolling tainous Flat ing ard ial Flat ing tainous Flat inR tainous

Design speed (kms/hr) 100 80 60 100 80 60 45 80 65 50* 60 50 40* Width of paving (meters) 2 x 7.3 2 x 7.3 2 x 7.3 7.3 7.3 7.3 6.7 6.1 6.1 6.1 None None None

Out to out of shoulders (meters) 2 x 11.3 2 x 11.3 2 x 10.8 11.3 11.3 11.3 9.7 10.7 9.7 8.7 9.5 8.5 7.5

Minimum radius (meters) 450 350 200 327 229 127 72 200 125 60* 150 75 45*

Maximum grade (percent) 4% 5% 6% 3-6% 3-6% 8% 10% 6% 6% 8%* 6% 8% 10%

Passing sight distance (meters) - - - 610 500 400 240 500 350 200* 300 200 150*

Width of shoulders (meters) l.OOL 1.OOL 1.OOL 2.0 2.0 2.0 1.5 2.3 1.80 1.30 2.0 1.5 1.0 (Right or Left) 3.OOR 3,OOR 2.50R

Right-of-way width (meters) 60 60 60 50 50 50 50 30 30 30 30 30 30

* May be modified for special conditions. 3 Note: Classification Estimated 1970 Traffic (vehicles per day)

Class 1 over 5,000 Class 2 between 1,200 and 5,000 Class 3 between 400 and 1,200 Class 4 less than 400 - 22 - A. TRANSPORTATION

La Dorada-Medellin, the Popayan-Pasto, and the Bogota-Villavicencio highways. In all three instances the existing roads between the points are so poor as seriously to discourage their use and to make the cost of their use excessive.

58. The construction of a new high-standard Dorada-Medellin highway or reconstruction of the existing road via Sonson to this standard would provide for the first time a good direct highway or railway route between Bogota and Medellin, the two largest cities and industrial centers. The existing highway from Bogota to the Magdalena River at Honda is a satisfactory paved route. The Honda-La Dorada section in the valley is under contract for reconstruction and paving, and is in the second group of recommended projects above. The proposed new Dorada-Medellin section would be the last link in a good Bogota-Medellin highway connection. Travel over the existing 272-kilometer road between Dorada and MVledellin requires a minimum of ten hours when the road is not blocked by slides; it is rough and involves steep grades and sharp curves. Most of the traffic avoids this road and moves instead from Honda via Manizales over a route which is 113 kilometers longer than the route through Dorada and Sonson. Improvement of the Sonson route would both reduce the travel distance by this amount and significantly reduce vehicle operating cost for those vehicles traveling the existing Sonson route. An alternative Dorada-Medellin route has been surveyed and would reduce the 272 kilometer distance by 50 kilometers. This would involve entirely new construction. Detailed study will be required to determine the appropriate choice between reconstruction of the existing road and construction of an entirely new road.

59. Preliminary estimates by the transport mission place the cost of reconstruction of the existing road at approximately 143 million pesos. All available evidence suggests that anticipated traffic over the road by the time of completion would be not less than 1,000 vehicles a day. Calcula- tions of savings in the cost of vehicle operation indicate that they alone would provide a return in the first year of from 10-20 percent on the investment required.

60. The existing Bogota-Villavicencio road is so poor as to be a serious deterrent to travel or transport between the two points. At the same time, a considerable development of crop production is already under way on the basis of private initiative in the area centering on Villavicencio. The area is believed, in terms of soil, rainfall and topography,to have a considerable potential for development as a major source of supply of non- temperate zone agricultural products for the rapidly growing Bogota market. Villavicencio is also an important livestock collection point. Since the distance to the Bogota market is little more than 100 kilometers, provision of a satisfactory highway would make possible a considerable volume of shipment now restricted by the physical difficulties and the high cost of road transport. Construction, even to Class 3 standards, as well as maintenance will be expensive, due to the terrain; construction cost is estimated - 23 - A. TRANSPORTATION

at 66 million pesos or an average of approximately 550,000 peroe per kilometer. Nevertheless, with the foreseeable traffic of 500 to 1,000 vehicles a day the return on investment, measured by first yecxr savings in vehicle operating costs alone, should be between 5 percent arLd 10 percent. Particularly in this instance, however, hypothetical savings in vehicle operating costs are an inadequate measure of the total economic return.

61. The Popayan-Pasto road would be new construction in a new location. It is estimated that this route would be approximately 60 kilometers shorter than the existing poor road. Traffic at present is relatively light -- less than 500 vehicles a day according to the most recenttraffic counts -- but the section constitutes part of the main western trunk highway, provides a route to the Ecuadoran border, and would improve the connections between the heavily populated Pasto area and the balance of the country.

62. Most of the 16 projects included in the second group above are road sections which constitute portions of the main trunk and transversal system or important secondary connections with it. They are in an advanced state of construction or contracting and the construction expenditures whvich remain to be made are in most instances marginal to those already made. The completion of these projects would, it is believed, provide substantial benefits in relation to the expenditure which remainsto be made.

63. Railroads. The railroad program in 1962-65 includes several relatively distinct parts as follows:

Total U.S. Expressed Dollars Pesos in Pesos (millions) (millions) (millions)

Emergency program for equipment rehabilitation and acquisition S 8.8 5.1 64.1

National railroads - rehabilitation and re-enuipment 25.3 96.3 265.8

Antioquia Railroad - rehabilitation and re-equipment 6.6 12.6 57.1

Barranquilla-Cartagena extension studies o.6 6.6 10.6

Total $41.3 120.6 397.6 - 24 - A. TRANSPORTATION

64. The emergency program includes the purchase of 16 diesel locomotives, 385 freight cars, parts for the rehabilitation of 200 freight cars, and other equipment. The longer-term 1962-65 programs for the national and Antioquia railways include the purchase of 53 additional diesel locomotives, some 2,000 freight cars, and other equipment and materials required principally for rehabilitation of equiDment, shops, and lines. The railway extension studies have been discussed above.

65. Ports. The 1962-65 port program involves principally the improvement of cargo-handling equipment and other facilities at the ports of Buenaventura, Cartagena, Santa Marta and Barranquilla, the construction of two new berths at Santa Marta and one at Cartagena, and other improvements. Engineering and other studies are now being conducted at all four ports by experienced firms and are expected to be completed by approximately the end of 1962. Certain immediate purchases of equipment, in the amount of perhaps ?2 million are required and could be separately financed.

66. Inland Waterways. The inland waterway program involves principally the purchase of two 12-inch pipeline dredges for channel improvement and maintenance, the dredging of the Cienaga canal to a depth of six feet and improvements at a number of Plagdalena River ports.

67. Airports. The airport program involves a number of distinct projects. The two largest, each involving costs of approximately 40 million pesos, are the reconstruction of the Barranquilla and Cali airports. Substantial engineering planning has been done, along with some of the necessary earth movement at Barranquilla, but not at Cali. The program also includes the purchase and installation of air navigation equipment near a number of main airports and the improvement or reconstruction of a number of secondary airports at M'iontena, Pereira, Cucuta, Cartegena, Neiva, and other points. No new airport is recommended for Medellin.

68. As stated above, the report of the transport mission lists the various specific projects and their estimated costs. Complete detail is therefore not repeated here. On many projects further planning will be required prior to actual construction or procurement. On a substantial number, however, both procurement and detailed design and construction could begin immediately, so that the projected schedule of expenditure is a practicable one, provided that financing commitments are made promptly. ATTACHMENT

USER CHARGES IN TRANSPORT SECTOR

A. HIGHWAY USERS

1. Present Charges

a. Vehicle registration, license, transfer and inspection fees:

i. Collected by and accrue entirely to departments and municipios.

ii. Annual amount unknown. Estimated, on basis of Bogota schedule, to total 37 million pesos in entire country in 1960. (This estimate possibly 50 percent to 100 percent too high since Bogota schedule substantially higher than elsewhere.)

b. Highway toll charges

i. Collected on certain important national highways only, by local Juntas. Funds used principally for maintenance and for administration of toll collection system.

ii. Annual amount collected currently less than 10 million pesos. Toll rates very low. Vary from 60o to Ul.40 per auto and %1.20 to ¢2.80 per truck for round trips of varying distances. Appear to be in the neighborhood of 2¢ per kilometer or less, which would represent approximately one-tenth of the estimated reduction in truck operating costs per kilometer as result of highway improvement.

c. Gasoline tax

i. Four cents per gallon tax on retail purchases - collected by and accrues to departments - in 1962 budgets estimated at 15.8 million pesos, but will probably be closer to 17 million pesos. - 2 - ATTACIEENT - TRANS.

ii. Six cents per gallon paid by Ecopetrol to national government (on all gasoline sold in country) and granted by national government to departments and federal district. Estimated in 1962 budget at 23.7 million pesos, but more likely to be at least 25 million pesos.

d. Import duties

i. Vary from 10-80 percent on trucks, 5-20 percent on jeeps and taxis, and 150-200 percent on passenger autos.

ii. These are not especially different from other import duties and cannot be regarded as "user charges."

2. Proposed Charges

a. Gasoline tax

i. Amount: Ultimate 1 peso Per gallon (addJitional to present tax) Immediate - 50¢ per gallon

ii. Qualifications: Possible exemption of urban buses (on grounds of equity, since national funds are not used for urban street improvement). No exemption of taxis, since many operate in inter-urban service, and in any case, are or should be, a luxury item.

iii. Yield: Sale of motor gasoline estimated at 418 million gallons in 1961, probably close to 450 million gallons in 1962.

at 50W per gallon yield in 1962 225 million pesos at 1 peso per gallon yield in 1963 475 million pesos

Exemption of urban buses would reduce yield by an estimated 15 percent.

iv. Effect: An increase of 1 peso per gallon in the tax would double the price of gasoline.

Since gasoline cost apparently represents approximately 16-17 percent of the total cost of truck operation, operating costs - 3 - ATTACHMENT - TRAIS.

would increase by this amount. However further improvement of roads and better maintenance would reduce operating costs by from 5-20 percent (depending on degree of further improvement), and net effect on truck operators would be small.

Similarly bus operating costs would be increased (by doubling of gasoline prices) by some 13-14 percent. This would be equivalent to an increase of from one- fourth to three-eights of a centavo per passenger-kilometer. On the average urban bus ride this would increase costs by about 1¢ (as compared writh the present standard Bogota fare of 15).

v. Alternatives:

(a) Snecial vehicle registration fees (to accrue to national government)

For example:

600 pesos a year per passenger auto (50 pesos a month) would in 1962 yield approximately 100 million pesos.

1,000 pesos a year on pick-ups, panel trucks and other small commercial vehicles would yield 30 million pesos.

2,000 Desos a year on heavy trucks and buses would yield approximately 120 million pesos.

(b) Increased tolls

These would need to be substantially extended and increased if they were to yield significant amounts. Are probably most eauitable means of allocating cost, but involve large administrative apparatus and expense.

B. RAILWIIAY USERS

1. Increase of some 25 percent in average freight tariffs required to eliminate operating deficit.

2. Yield in 1962 would be approximately 25 million pesos. - 4 - ATTACHIENT - '2RANS.

C. AIRPORT AND AIRLANE USERS

1. A tax of 10 percent on all domestic passenger fares would yield approximately 20 million pesos in 1962. (Operating deficit estimated at 5 million pesos or more a year in immediate future.)

2. A tax of 15 pesos on all international passengers departing from Colombian airports would yield approximately 1.5 million pesos in 1962. ANNEX VII, SECTION B

PUBLIC ITVESTMENT IN ELECTRIC POWER

The Electric Supply Industry

1. By the end of 1960, there were some 800 generatinig stations in operation in Colombia, ranging from an installed capacity of a few kilowatts to over 50 MW. The total installed capacity in the country amounted to about 930 MW, of which about 670 MW; is installed in power stations directly serving the public and about 260 MW in various industrial plants. About 70 percent of the total capacity is hydroelectric.

2. Although supplies of electricity are available throughout the country, about 65 percent of the total capacity is concentrated in areas served by the municipal companies of Bogota and Medellin; the Corporacion Autonoma Regional del Cauca, which through its affiliate, the Anchicaya Power Company, supplies the city of Cali and the Cauca Valley; and the Caldas Hydroelectric Corporation which supplies the city of Manizales and the Caldas Valley.

3. The remaining 35 percent of capacity is provived by numerous utilities mainly operated by the Compagnia Colombiana Electricidad (CCE) or affiliates of the National Institute for Improvement of Water and Power (Electraguas). The CCE, an independent foreign company with a capacity of 85 111 installed in 13 power stations, will cease to operate in 1962 and its generating plants and distribution facilities will be incorporated into the systems of the government-owned utilities in the area. The National Institute, Electraguas. was formed in 1946 to study areas where electrification can be undertaken, the financing of electrical development either directly or by participation in mixed corporations, and the construction of electrical projects.

Planning for Expansion and Demand Forecasts

4. As a result of the increasing demand for electric power throughout the country the Government recognized the need for planned development of power resources and in 1954 appointed two overseas firms of consulting engineers to prepare a National Electrification Plan. Their report recommended that from a base of 338 MWWtotal capacity installed in 1954 a capacity of 1,058 IMW should be in operation by 1960. This target was achieved early in 1961. Demand has increased vnrry rapidly, about 15 pcrcont a osar in t'ne lain arcas of Bo3:ot, I li and ,edellin. Denaand no'f cxceeds thL2 a%vailable capacity and it i3 n-c,s ary to onforce strict rationing of - 2 - B. ELECTRIC ?g0W5 supplies in all important areas. The managements of the various utilities appreciated the need for an accelerated expansion of plant capacity but unfortunately, largely due to the unstable political situation and unsatisfactory rate policies, it was not possible adequalely to finance the needed expansion until 1958. New capacity financed in the 1958/59 period will be brought into operation in the period 1962 to 1964 and will reduce, but not entirely eliminate, power shortages. 5. The projections in the General Plan are reflected by the planning of new capacity by each utility for its area of supply. This planning takes into account not only the historical increase of demand but also the way in which new developments, including new industrial enterprises, population growth and general economic growth may modify historical trends. In planning increases of generating capacity the utilities are assuming that in future the public service will be of sufficient reliability to induce the existing private owners to change to public supply as their own generating plants become obsolete, and that new private industrial power capacity will only be installed in cases where the production of electricity is an incidental part of the overall operation of a process. 6. Forecasts of load growth have been projected from a detailed investigation of some 70 centers in the country. The forecast shows that the annual consumption of energy would increase from 3,6 billion kwh national 19 7 0 at the end of 1960 to 7.1 billion kwh in 1965 and 12 billion kwh by k and that consumption per capita would increase from 280 kwh in 1960 to 463 kwh in 1965 and 660 kwh in 1970. The higher growth rate of consumption in the first half of the decade (1h45 percent) than in the second half (11 percent) involves mainly the reduction in power shortages in the first period. During this period the population is expected to increase from about 13 million in 1960 to about 18 million by 1970, when it is proposed that all towns writh a population above 1,500 and about 20 percent of the rural population would be served by electricity. A summary forecast of regional load increases is set out on page 3 of this Annex,

7. The forecasts of system demand--equivalent to an average increase of 12 percent a year--were built up by analysing separately the demands for the main categories of public services and industry. The public service demand includes public lighting, domestic supplies, commercial and official consumers. The industrial demand includes the mining and oil companies. 8. In the preparation of the study the populated areas of the country were divided into zones, regions and districts, which were further sub- divided into the capital or main city, cities with a population over 20,000, towns and villages with populations between 1,500 and 20,000, minor villages and rural areas. 9. In the main cities and towns statistics were readily available. In other cases a comparison was made with a similar area for which statistics were available and with similar characteristics such as location, industrial and agricultural production and possibilities for development. 10. For the period 1961-1970 demands from industries being expanded constructed or projected for construction in the near future, were included - 3 - B. ELECTRIC POWER

SUMiARY FORECAST OF ESTIMATED ELECTRICITY CONSUMPTION AND MAXIMUM DEMAND BY REGIONS

Region 1960 1965 1 70 Central Population, millions 4.16 4.87 5.78 (inc. Bogota) Consumption, kwh x 106 1,028 2,054 3,632 Consumption per capita, kwh 247 422 627 Maximum demand, M>! 208 455 810

South PoDulation, million6 2.4 2.9 3.4 (inc. Cali) Consumption. kwh 100 609 1,213 2,218 Consumption per capita, kwh 254 413 634 M4aximum demand, MVJ 123 257 474

West Population, millions 3.13 3.73 4.5 (inc. Miedellin) Consumption, kwh x 106 1,289 2,439 4,020 Consumption per capita, kwh 412 653 892 M4aximum demand, '14W 251 488 813

Northern Population, millions 1.92 2.22 2.59 (inc. Barranquilla Consumption, kwh x 10 509 916 1,569 and Cartagena) Consumption per capita, kwh 265 433 604 Maximum demand, MH 97 184 296

Northeast Population, millions 1.4 1.6 1.8 (inc. Tibu/Cucuta) Consumption, kwh x 106 222 502 768 Consumption per capita, kwh 158 310 405 Maximum demand, lTJ 39 88 142 Total for All Population, millions 6 13.02 15.39 18.27 Regions Consumption: kwh x 10 3,659 7,125 12,209 Consumption per capita, kwh 281 463 668 Mibcmum demand, MW4 718 1,472 2,535

Maximum demand at power stations inc. losses, MW 860 1,780 3,000 in the load projection. It was recognized when preparing the forecast that industries would be constructed with a more intensive use of power than in the past.

11. Population trends, the development of use per capita and the effect of change in gross domestic production as estimated by the planning department, were also utilized as a verification of the forecast increase of demand. - 4 - B. EIL!,TRIC POWIER

12. Suitable allowances for transmission and distribution losses were made to obtain the final requirements of generating capacity to be added to the system.

13. Although the load survey now being prepared shows that the country- wide average rate of increase in the period 1961-1970 will be about 12 percent, the forecast increases in the most densely populated and industrialized areas are considerably higher. From detailed analysis of the Bogota area, sales have increased at an average rate of 13 percent a year in the period 1951-1960 even though strict rationing of power has been in force through the period. With new generating capacity now being brought into commission and under construction, sales are forecast to increase 28 percent in 1963, 24 percent in 1964 and about 14 percent in 1965. After 1965 the forecast rate of growth is expected to diminish, resulting in an average annual increase of about 13 percent over the period 1960-1970.

14. Although subject to the effects of rationing, the relative distribution of sales in the Bogota area is 26 percent residential,25 percent commercial and 32 percent industrial, the remainder being made up of street lighting, traction and other government uses and bulk sales. The seriousness of the shortage of power is evident from the fact that, with a present installed capacity of about 150 M1W, the additional immediate deferred demand from applications already made for service amount to:

PM1S Residential (Bogota) 33 Rural 18.3 Industrial 44 Commercial 7.7 Others 8.0 Total 111.0

15. This deferred demand represents an increase of about 70 percent over existing capacity and will not be met until the Salto and Zipaquira plants are in full operation by 1963 and even then no spare capacity will be available until the Colegio plant scheduled for 1964 is brought into operation.

16. A similar position is evident in the Medellin area and rationing will not be relieved until the Guadalupe plant is brought into operation in the latter part of 1962. The demand in this area has grown at an average rate of about 14 percent a year and the present demand of 146 MWI is limited by the peak capacity of the generating plant. An additional capacity of 50 MW, an increase of about 30 percent of existing capacity, could be immediately absorbed.

17. Demand in the Cali area has increased at an average rate of about 16 percent in the period 1955-1961 and rationing is imposed during low water periods at the existing Anchicaya hydroelectric power station. The - 5 - B. ELECTRIC PO ER position will not be alleviated until the Calima power station with its adequate reservoir capacity is completed in 1964.

18. The above three areas are the most highly industrialized parts of the country and represent about 65 percent of the total power demand. The remainder of the country. served by Electraguas and some 70 affiliated companies, is generally in a similar power situation to Bogota, M4edellin and Cali. In all main towns there is a shortage of capacity to meet demand, except in the Tibu - Cucuta areas where there is a recently commissioned gas turbine plant. In the main seaports of Cartagena and Barranquilla additional generating capacity is urgently required, not only to meet the growing demand of the ports,but also to enable supplies to be given to the rural areas in the vicinity. The output of the Esmeralda hydroelectric project will be immediately absorbed by the Manizales systern, which is the center of one of the most important coffee-growing areas, and arrangements will have to be made for additional supplies from the CVC system through the existing interconnection at Cartago or by the construction of an additional interconnection with the Medellin system. No spare capacity is available in the cities of Popayan or Pasto, centers of important and developing agricultural areas, to be served by the proposed Rio Mayo project which would ultimately be integrated into a transmission system interconnected with the CVC system. The proposed Rio Prado hydroelectric and irrigation project would enable supplies to be augmented in the towns of Ibague and Giradot and the surrounding rural areas. These are some of the most important projects to be undertaken by Electraguas to relieve the shortage of power in the areas served by its affiliates. The construction of more efficient central generating stations and local transmission net- works will enable Electraguas to shut down small and inefficient local plants, provide better supplies to rural communities and reduce the number of small independent companies supplying individual towns by integrating their operations,

Program of Construction

19. On the basis of current forecasts of load growth each major system has planned its program of construction. These programs are summarized in Table 1. This program of construction would provide total installed capacity of about l,SOO *MW by 1965 and looks forward to a capacity of about 3,000 NW by 1970. Of the above capacity, about 65 percent would be installed in seven power stations operated by Bogota, Medellin and CVC; the remaining 35 percent would be installed in 24 power stations operated by Electraguas and its affiliated companies in various districts of the country.

20. Projects listed in Table 1 have been selected by consulting engineers after detailed surveys of alternative hydroelectric sites and comparisons with alternative thermal power stations. In some cases, notably the thermal plants at Zipiquira and Yumbo for Bogota and Cali respectively, it was necessary to install plant as rapidly as possible to alleviate the - 6 - B. ELECTRIC POWER shortage of calacity. These plants, however, achieve the additional useful purpose of prcviding firm power when the hydroelectric systems to which they are connected have their capacity reduced in dry weather periods.

Table 1: CAPACITY MI CONSTRUCTION OR PLANINED

dKisting Type of Utility Capacity Plant Project 1962 1963 1964 1965 Total (Megawatts)

Bogota 154 Hydro: Salto II 66 66 El Colegio 150 150 Thermal: Zipaquira 33 33 66

Miledellin 136 Hydro: Guadalupe III 80 40 40 160 Troneras 36 36

Corporacion 116 Hydro: Calirma I 120 120 Regional del Thermal: Yumbo 33 33 Cauca (CVC)

Electrguas 264 Hydro: Esmeralda 27 27 and Lebrija 9 9 Affiliates Rio Recio 4 4 Rio Negro 10 10 Iquira 7.3 7.3 Rio Bobo 4.5 4.5 Sonson 15 15 Prado 50 50 Rio Mayo 21 21 Thermal: Steam Paipa 33 33 Cospique 25 25 Barranquilla 50 50 Barrancabermeja 25 25 Gas Turbine Tibu 12 12 Diesel iangangue 1 1 Pondera 1.5 1.5 Monteria 1.5 1.5 Total Cerete 125 _ 2 - 1.5 Total 670 279.8 95.5 218 336 929.3

21. With the wide choice of high head sites, it has been possible to construct hydroelectric power stations at very competitive costs per kilowatt installed. To illustrate the cost of the Colegio hydro plant, with an initial capacity of 150 MW, would be the equivalent of '270 per kw. This cost will be reduced to `190 per kw when the final capacity of 300 MW is installed. - 7 - B. ELECTRIC POVER

22. The existing hydroelectric development in the Medellin area has been constructed at under $200 per kw and the Guadalupe and Troneras schemes now under construction are estimated to cost about $200 per kw installed.

23. The unit cost of the 33 MW extension of the existing Yumbo power station at Cali will cost about $170 per kw, excluding the cost of coal handling, circulating water and ash handling facilities already existing. Including a large dam and reservoir the Calima underground project now being constructed is estimated to cost $200 per kw and the estimated cost of the Calima II power station with an initial installation of 90 1MW would be about $165 per kw.

24. Owing to the wide variety of physical conditions governing the construction of hydroelectric projects, it is not easy to generalize on comparative costs. Costs per kw installed of hydroelectric plant are, however, very favorable compared with the cost of thermal facilities in the same area. Owing to the favorable topographical conditions in Colombia, hydroelectric projects can be constructed at costs generally below $200 per kw, which compares favorably with other low cost schemes in the world.

Future Integrations

25. In the past electric power utilities serving the main industrial centers have been fortunate in being able to develop hydroelectric power close to their service area at reasonable cost and, exceptirg in the Atlantic coast areas, thermal power has not been developed to any significant extent.

26. With the power demand now beginning to reach a substantially higher level, it is feasible to give serious consideration to the use of larger and more efficient hydroelectric and therraal power stations.

27. Wkithin relatively short distances of the industrial centers, large hydroelectric sites are available, but their development to full capacity and maximum utilization of their reservoirs, in complementary watersheds, requires that the local generating systems should be interconnected by a high voltage transmission network. The routes to be followed by high voltage transmission lines interconnecting the main systems would take them close to oil and coal resources in the Cauca Valley, the Magdalena Valley and the Atlantic coast, and it would then be possible to construct large and efficient thermal power stations, adjacent to the fuel sources, to feed into the transmission system.

28. The integration of hydroelectric and thermal power resources would enable the output of the hydroelectric capacity to be supported by the thermal capacity in times of drought, and also facilitate the most economical plant installation program to meet the system demand. - - B. ELECTRIC POWER

29. Planning of this nature is outside the scope of operations of the local utilities and in 1961 Electraguas commissioned Electricite de France to prepare a national plan for the most economical development of hydroelectric and thermal power resources and transmission facilities. The investigations for this plan have covered load forecasts, existing hydroelectric and thermal power stations, new stations being constructed, future hydroelectric and thermal power sources and transmission lines. The consultants have found that the large volume of statistical data prepared from this detailed investigation will require evaluation by a computer analysis to determine the most economical construction plan for future development. Recommendations arising from this analysis will not be available until later in 1962, but in the meantime sufficient data is available to show that the programs up to 1965, as described above, are reasonable and their implementation is urgently required. During this period numerous small utilities would be interconnected through new transmission facilities supplied from new central power stations; small obsolete power plants would be shut down. Between 1965 and 1970 a start would be made on the construction of a high voltage transmission grid interconnecting the larger generating systems.

Disbursement Schedule and Needs for Foreign Resources

30. Generating capacity, planned to be brought into operation in the period 1962-65 (as shown in Table 2), is now either under construction or in the final stage of planning, with construction to begin as soon as financing is arranged. To meet the estimated costs of this capacity, together with the necessary distribution and transmission facilities, the following disbursements would be required: 1962 1963 1964 1965 (million pesos) Local Expenditure 257 239 256 309

Foreign Disbursements: From loans already arranged 154 65 40 27 Additional requirements 95 216 338 231 Total 506 520 634 567

31. The disbursements shown above are substantially in agreement with expenditures forecast in the General Plan. The costs of projects included in the program have been estimated from contract rates of work now under construction and engineers' estimates for new projects. Before expenditure is sanctioned on any new project it should be subjected to an appraisal to ensure that the engineering is satisfactory and that the financial investment is justified.

32. The above estimate shows disbursements from funds already committed and additional foreign exchange disbursements which must be made to achieve the construction of capacity required by 1965. On the assumption that - 9 - B. ELECTRIC POWER foreign loans would finance all of the foreign exchange expenditures, Table 2 showjs the mission's recommended program of external financing for the power sector.

Table 2: RECOMMENDED PROGRAM OF EXTERN'AL FINANCING (CO1fMITMENTS) OF POWER SECTOR., 1962-65

1962 1963 1964 1965 Utility Project (millions of US$)

Bogota Zipaquira El Colegio 1st Stage Tomine Dam 1I.una Total 50 El Colegio 2nd Stage Canoas Total 17

Medellin Rio Nare (Guatape) 25

CVC Calima I (Units 3 and 4) Transmission and distribution Engineering and design - Timba Coal mining equipment Total 5.6 Timba (power allocation) Calima II Tunnel Rio Frio/Calima Transmission Total 41 Salvajina Tunnel Maguido/Calima Total 17

Electraguas Rio M,layo Tibu Cospique 2.5 Transmission Total 16 Barranquilla Barrancabermeja Rio Prado Transmission Total 19

New Program 1965-70 Approximately 500 Mt4 Thermal (not yet allocated) and 1,500 MW Hydro with Trans- mission Facilities 50 Grand Total 71.6 60 25 86.5 - 10 - B. ELECTRIC PaVER

33. The program of external financing through 1964 is based on considerablle project detail, which is briefly summarized in Attachment 1. The total for 1965 includes, however, $50 million for capacity to be constructed after 1965 for which it is not yet possible to identify concrete projects. Pro- ject planning in a detailed way for this capacity would begin about 1963,

Financing and Execution of Program

34. The 1962-65 program of expansion represents at least a doubling of present capacity for almost all of the utilities. Very heavy local currency expenditures will be made, as noted above. In most cases the power enterprises concerned are generating substantial peso resources in the form of depreciation allowances and retained earnings. In other cases such internal funds can be supplemented by budgetary allocations. In some cases, li':e CVC, where the expansion is very large relative to present capacity and where it has not been customary to get budgetary support, a financing problem may arise. If rates charged for power are adequate in such instances, some external financing of local currency expenditures might be justified.

35. In the past rates charged for power have often been too low. There is, howrever, full realization now of the necessity to maintain rates at levels which will produce revenues sufficient to permit substantial self- financing of power expansion. In the main, utilities rates are now satisfactory. In some instances, particularly in connection with the Electraguas sponsored programs, some further increases in rates will be necessary.

3f,. The program of expansion now being undertaken is beyond the capacity of local resources of technical manpower and engineering construction organizations. This position is well appreciated, however, and the present practice of employing foreign firms of consulting engineers to assist in the preparation of detailed project designs and of foreign contractors to carry out the actual project construction must be continued, in addition to making full use of local resources. If foreign assistance is continued there should be no difficulty in carrying out the scheduled program.

37. Electraguas poses a special administrative problem. Generally Electraguas has operated in those areas not served by the large municipal utilities or regional corporations and has, by the provision of technical and management services, assisted in the development of electricity in the smaller towns and country districts. The scope of activities and the widespread operations of Electraguas impose a heavy burden on its staff and all departments should be expanded to enable it to provide an essential centralized information service of statistical, hydrological, geological, load study and general planning data for the use of the electric power industry. As the utilities controlled by Electraguas are increasing in size and importance, the necessity for competent management and financial control is becoming an urgent problem and it is essential that Electraguas - 11 - B. TIECTRIC POIWI take steps to train staff as rapidly as possible to carry out these functions,

38. Althoug'- at present the larger utilities are generll1y adeouately staffed, the r_Iatively large increases of generating cap-.city and transmission facilities being added to their systems reou.ire tlat all sections of the management and operational staff be strengthened. Owing to the shortage of ex-erienced manpower in Colombia, it is essential that the utilities give immediate consideration to this nroblem so as to ensure that sufficiett staff will be available wjhen recuired.

39. The general electrification plan now being preparec for Electraguas will contain proposals for the construction of a high voltage transmission network interconnecting the larger utilities and ultimate&y the whole country. The planning of this network, and thae power gen rating facilities to be connected to it, will reouire very close cooperatiorn between the main utilities. As soon as possible the Goverrnment shoulc. set up a committee representative of the utilities to advise it on the coordination of regional systems, legislation necessary for the construiction and operation of the network, planning and operating procedures, slandardization of transmission voltages, the selection of pover projects to supply the network, rates for the purchase and sale of power between regional systems and general procedures for financing construction of the network, ATTACHMENT I

PUBLIC INVESTIvENT IN ELECTMIC POWER

1. The following is a brief description of projects for which external financing is recommended in Table 2.

Bogota

Zipaquira. A second 33 MV unit to be in operation in 1964. This unit would form an extension of the 33 MWV coal-fired thermal power station now being constructed for commissioning in 1962. Engineering of this extension is in an advanced stage and bids will shortly be called for the equipment.

El Colegio. The initial installation of 150 MIW of capacity in a new hydroelectric power station to operate under a head of 975 meters. The work would comprise an intake on the Bogota River, a main tunnel approximately 8.2 km long, pressure penstocks, and a power station with an initial installation of 3 x 50 IS hydroelectric units. The first stage is programed for comrissioning in 1965 and the second stage with an additional 150 MW1 during 1968/69. Engineering for this project is being completed and bids have been called for the first stages of the civil works.

Muna. A second pumping station at the Muna pumped storage reservoir. The installation would consist of a pump house with an 8 cu.m/sec electrically driven pump, an intake on the Bogota River, a steel penstock and discharge structure at the 114una reservoir. Design work for this project is now being completed.

Tomine Dam. Increasing the height of the Tomine dam by 11 meters to its designed maximum of 38 meters. This work would enable the usable volume of the reservoir to be increased by 400 million cubic meters, to 785 cubic meters. The reservoir would provide about 12 months' storage for the Bogota power system. This project is now under construction to the initial level and work will now be continued up to the final level.

Canoas. The construction of a small dam and power station with an installed capacity of 42 M4W to be in commission in 1967. This station would be on the Bogota River and utilize a head of about 160 meters below the outlet of the PMuna reservoir. Preliminary details have been studied and adequate time is available to complete the designs for the project to be in operation by 1967. ATTACHMEINET I - 2 - B. ELECTRIC POWER

Transmission. As part of the above projects, transmission lines would be constructed from the power stations to Bogota and extensions and improvements made to the Bogota distribution system.

Medellin

Nare (Guatape I). The first stage, consisting of the construction of a small diversion dam on the River Nare, a main supply tunnel about 5 km long, an underground power house in which would be installed 4 x 66 M4W units and a tailrace tunnel. This stage of the project would be commissioned in 1968. Preliminary projects reports have been prepared and final designs are now being prepared.

Transmission. Transmission lines to interconnect the Guatape I power station with the Medellin power system.

Corporacion Regional del Cauca (CVC)

Calima I. Two units of 30 NW each to be installed in the Calima I hydroelectric project, now being constructed, to complete the power station to its full- capacity of 120 MW;. The completed project would comprise an earth and rock-filled dam, approximately 100 meters high on the Calima River, an intake tunnel, underground penstocks and an underground power station. All designs have been completed and preliminary orders placed for the mechanical and electrical plant. The small amount of civil engineering work would form an extension of existing contracts.

Timba. Completion of design studies and preparation of bidding documents for the Timba flood control, irrigation and power project. This project is programed to come into operation in 1967 with an installed capacity of about 60 MW and would consist of an earth-fill dam about 50 meters high on the Cauca River, discharge works in the dam to supply irrigation canals, and a power station. This project would be the first main flood control and irrigation reservoir for the protection of about 200 km of the Cauca Valley and would provide irrigation supplies to about 170,000 hectares of agricultural land at present subjected to seasonal flooding or drought.

CVO

Coal Mining. The purchase of coal mining eQuipment to operate two mines. The output of these mines is necessary to ensure adequate supplies of coal, at reasonable cost, for the 58 MS Yumbo thermal power station. Reports covering the rehabilitation of these mines have been prepared by mining consultants. They are now being operated by specialist staff provided by the engineers. ATTACI1Y-T I - 3 - Be ELECTRIC POWER

Calima II. The construction of a srmall diversion intake on the Calima River and adjacent to the discharge of Calina I, a main sup-ly tunnel, underground penstocks and an underground power station in which would be installed 4 x 45 14w units, programmed to be in operation in 1968.

This Droject would form the second stage of the Calima development works and reuse water from the Calima reservoir after discharge from the Calima I power station. All engineering data necessary for the final design of this project are now available and details will be completed as necessary to meet the completion date for the project.

Tunnels. To increase the flow of water into the Calima reservoir and enable additional kilowatt hours to be generated in the Calima I and II power stations it is proposed to divert the Rio Frio and Maguido rivers, which are in a different watershed to the Calima River, through tunnels to the Calima reservoir. The Rio Frio tunnel is expected to be in operation by the end of 1966 and the Maguido tunnel at the end of 1967. Surveys and designs are now being prepared in readiness for the calling of bids.

Salvajina. The second stage of main flood control works on the Cauca River. Only preliminary details are now available; final studies are not expected to start until 1965 and the nroject to be completed after 1970.

ElectraRuas

Rio M4ayo. The construction of a small dam about 21 meters high on the Rio lNayo, a supply tunnel about 1.5 km long, a pressure nenstock and a hydroelectric power stati:on in which would be installed 2 x 10.5 MWJ units. This project should be in operation during 1965 to supply the cities of Popayan and Pasto in the Departments of Cauca and Narino.

Rio Prado, The construction of a dam, irrigation discharge wvorks and a hydroelectric power station with an output of about 50 1JW.

This project is at present only in the design stage. It would be of the dual purpose, power and irrigation, type and besides providing electric supplies to the cities of Ibague, Nieva and Giradot, would provide irrigation for an estimated 7,500 hectares of agricultural land in the Magdalena Valley. The project is scheduled to be in operation by 1965.

Tibu. The installation of two additional 6 14W gas turbine units in the Tibu thermal power station.

This power station is adjacent to the oil field at Tibu in North Santander and supplies the town of Tibu, the city of Cucuta about 90 Im ATTACTHVIRNT I - 4 - B. ZLECTRIC POIWR distant, and the local districts. The power station is supplied with gas fuel from an adjacent oil field where at present gas sufficient for at least 30 IMJ of capacity is beingr burned off to waste. Details and specifications of the extension units are available and ready to call bids.

Barranquilla. The construction of a new thermal power station with an installed capacity of 50 MW. This station should be in operation by 1965. Fuel supplies, in the form of bunker oil and gas, will be received from the adjacent oil field.

This nroject would initially supply the city of Barranouilla and later be interconnected with the systems of Santa Marta, Cartagena and surrounding districts.

Cospioue. The construction of a thermal power station with an installed capacity of 25 k*l in twzo 12.5 vW units, to be in operation by the end of 1964. This station would supply the city of Cartagena and surrounding districts.

Transmission. Numerous transmission projects associated with the above powjer installations, to provide additional supplies to the cities of Popayan and Pasto in the Departments of Cauca and Norino, Ibague, Nieva and Giradot in the Departments of Tolima and Huila, and Cucuta and Bucaramanga in the Departments of Santander. By 1965 the cities of Barranquilla and Santa Marta in the Department of Atlantico would be interconnected.

The five year program of the Instituto Electraguas would embrace the construction of some 800 Ikn of 115 kv transmission lines, 2,000 kon of 33 kv distribution feeders and imorovements and new distribution systems in about 2,000 towrns and villages not supplied by the main systems of Bogota, Medellin, and CVC. ATTACHMENT II

PUBLIC INVESTMjENT IN EIECTRIC POWRM

The Bata, Nare and Timba Projects

1. Three projects of national importance which are planned for construction in the 1962-70 period would be the Bata near Bogota, the Nare near Medellin and the Timba project near Cali.

2. WIith the exception of the 66 4WIZipaquira thermal plant, all the power stations supplying the Bogota power system are located on a 25 km stretch of the Bogota River. In this stretch a head of 1,840 meters is being utilized in four power stations with a combined peak capacity of 540 lAI. The El Colegio plant, on which preliminary construction has now started, will be the fourth station of the chain and utilize the last 970 meters of the available head.

3. The rapid growth of demand in the Bogota area requires that additional hydroelectric sites should be considered and surveys have indicated that a very promising site is available on the Bata River.

4. The Bogota River watershed is limited to the east by the main ridge of the Cordillera Oriental section in the Andes mountain range which averages between 3,000 and 4,000 meters above sea level. The Bogota River is to the west of this ridge with the Bata River on the eastern slopes and, therefore, in a different wratershed. For the first 17 km below the confluence of the Somondoco and Garagoa Rivers the Bata flows through an open mountain valley and then falls steeply through a narrow canyon. At this point the Lengupta River flows roughly parallel to the Bata at 350 meters lower level and separated from it by about 4 km.

5. The large valley and narrow canyon would provide sites for a reservoir and dam, and by the provision of a tunnel and penstocks the 350 meters difference in level between the Bata and Lengupta Rivers could be developed for an initial installation of 600 lAW of hydroelectric capacity.

6. In its initial stage the Bata development could be operated as a base load project to firm up the output of the stations on the Bogota River system, during periods of low flow on the Bogota River.

7. The regulating capacity of the Bata project is likely to be reached when the system demand reaches 800 N1W, at which stage additional regulating capacity would be required. ATTACHMENT II - 2 - B. ELECTRIC POWER

8. Because of the rainfall season in the Bata watershed surplus power will be available in the June to September period.

9. Generating capacity now being developed by the Medellin power company is forecast to carry the growing system demand until 1968, at which time additional capacity must be in operation. Surveys have shown that the most attractive new site for development would be near the headwaters of the Nare River about 120 km to the east of Pledellin.

10. The headwaters of the Mare River and its principal tributary, the Rio Negro, meander through the high mountain valley of Penol to the east of Medellin. At the outlet of the valley, the river enters a series of rapids and in the next 100 km drops 1,600 meters to its confluence with the i4agdalena River.

11. A dam at the outlet of the Penol Valley could impound over a billion cubic meters in a reservoir from which, by a tunnel diversion to an adjoining drainage area, a head of 800 meters could be developed.

12. The development plan for the Nare projects proposes that by 1968 a small diversion dam should be constructed a short distance upstream of the site of the future main dam. Run of river flow would then be diverted, through a tunnel, to the adjacent Guatape River, to develop the head of about 800 meters.

13. The initial tunnel would divert only a part of the river flow into an underground power station in which would be ultimately installed 264 TTY of capacity. This power station would add 138 MWIof firm capacity to the system and enable the system to meet the forecast load demand until 1972. At this time the main dam. a second tunnel and power house would be constructed and a further 300 11TV of capacity installed. At a still later stage an additional plant with a capacity of 100 IU would be constructed at Bizcochito, using water diverted from the lower Nare River.

14. An interesting feature of the Bata and the Nare projects is that they would be in complementary watersheds. The Bata project would have surplus power during the June to September wet period which coincides with the dry period in the watershed of the Nare project. W4ith the reservoirs in operation and high voltage interconnection between the systems, the surplus power from Bogota, during the wet season, could be trans- mitted to Medellin to reduce drawdown of the Nare reservoir and in the reverse direction during the wet season in the IMedellin area when surplus power would be available from Nare. The combined operation of the reservoirs would enable greatly increased peaking capacity to be added to each power station at relatively low cost. It would also assist the operation of the CVC and CHEC systems, after a high voltage transmission connection is constructed, since river flow in their areas is normally lowest during the period of surplus in the Bogota area. ATTACmEENT II - 3 - B. 1ELECTRIC POWER

15. The CVC power system serves the city of Cali and other towns and villages through 150 km of the valley and is interconnected with the CHEC system at Cartago. The area served by CVC covers one of the most fertile valleys in the country but at present almost a third of the usable land is regularly flooded by the Cauca River and cannot be developed for agriculture.

16. After the completion of the Calima I power station to its full capacity in 1964, the forecast load growth of the system shows that additional capacity should be added by 1967. CVC is, therefore, investigating the construction of the Timba project about 50 km upstream from Cali.

17. With a generating capacity of 60 HMW, the Timba project would be of the multipurpose flood control and irrigation type. Regulation of the Cauca River at Timba would prevent flooding and directly benefit about 170,000 hectares of the valley and indirectly increase production from the remaining 230,000 hectares by assisting drainage and prevention of high groundwater levels.

18. The Timba project would have other important aspects apart from direct power generation and flood control. At a point downstream of Cali, it would be possible to divert a proportion of the regulated Cauca River flow through a tunnel to the Pacific side of the mountains and develop a head of 850 meters. This diversion would make possible the installation of 1,300 MW5of hydroelectric capacity in two stages.

19. Although developments of this magnitude would not be required for some years to serve the CVC-CHEC area, the power station sites are within 50 km of the seaport of Buen<,ventura and, therefore, would be conveniently located bulk power sources for use in electro-metallurgical processes requiring a large import or export of materials.

20. Another direct benefit from the regulated flow through the Timba will be realized when the lower Cauca Valley hydroelectric projects are constructed. Preliminary surveys indicate that in the stretch of valley between La Virginia and Pto.Valdivia about 4,000 I-IN of capacity could be developed in stages. The Timba reservoir would in effect be the first stage of regulation for these schemes which would be constructed after the transmission interconnection between the Bogota, Medellin and CVC areas and the full utilization of the Bata, Nare and Calima projects. ANNEX VII, SECTION C PUBLIC INVESTMENT IN TELECONYII\UNCATIONS

Present System

1. Telecommunications facilities are provided by a national company which operates trunk lines between cities and the overseas services, and by local utilities covering the urban areas. As a result of vigorous expansion in the past few years communications services are well developed and provide a reasonably satisfactory, though limited, service to the public.

2. National Company. The national telephone company was first formed in 1947 and reorganized in 1950 to take over and operate the facilities of foreign-owned overseas cable and wireless services. It is a government company operated as an autonomous enterprise with complete freedom of operation and is responsible for the cablegram, telegram and teleprinter services,and the development of telephone services.

3. The national telephone company at present operates some 650 both-way channels between 35 main cities, a teleprinter service to over 800 subscribers and the usual telegraph services. These facilities are mainly operated over VHF radio channels which are now utilized to their full capacity.

4. Valuable experience is being gained of the advantages of long- distance subscriber dialing between four cities, and in one city, as an experiment, selected subscribers have been provided with long-distance dialing facilities to all automatic exchanges in the country. Proposals are now being considered to extend this service as the necessary terminal equipment is made available in the main telephone exchanges. 5. At present overseas telephone services are operated over radio channels but studies are being made for a telephone cable to provide a high-grade international telephone service with the U.S.A.

6. Municipal Companies. Local telephone companies, mainly owned by the municipalities, are now serving about 250,000 subscribers from some 300 exchanges. There is a strong demand for telephone service in the principal cities and at present there is an unsatisfied demand for about 73,000 connections. - 2 - . TELECOMMUNICATIONS

7. All main exchanges are automatic and, as it has been The practice of the local companies to finance extensions by the use of sMppliers t credits, the design, engineering, installation and in some cases routine maintenance of the equipment, has usually been provided by the manufacturers.

Plans for Expansion

8. Coverage of the telecommunications field in the General Plan is limited to the expansion program of the national company, whose investment expenditures are projected in the Plan as follows (in millions of pesos):

1962 61.6 1963 67.4 1964 73.3 1965 79.3

Total 281.6

9. Since the General Plan was prepared, the national company has received preliminary reports from a firm of consulting engineers which has been preparing a long-term development plan. Provisional estimates of the cost of implementing the program of expansion recommended by the consultants for the national company are embodied in Table 1, which also shows the cost of the expansion program contemplated by the municipal companies, as communicated to the mission.

Table 1: INVESTMENT IN TELECOHMUNICATIONS, AS PROJECTED IN GENERAL PLAN AND AS PROJECTED BY COMPANIES (in millions of pesos)

1962 1963 1964 1965 Total

General Plan Estimate National services including new local exchanges 61.6 67.4 73.3 79.3 281.6

Revised Estimate National services including new urban exchanges 51.5 12h.0 78.0 77.0 330.5 Existing urban services 93.5 77.5 91.0 78.0 3h0.0

10. The expansion program of the national company is being planned in detail on a centralized basis. The program would involve extension of trunk line services, extension of teleprinter service, and the provision of telephone facilities for about 60 towns at present without connections. To assist in its program the national company is sponsoring a limited program of "on the job" and university training. - 3 - C. TELECOb,7UNICATIONS

11. To utilize fully terminal switching equipment now being provided, it is planned to install additional radio systems, antennae, carrier and switching equipment on the long-distance network. This equipment would provide about 200 additional channels and allow the connection on a no-delay basis of a large proportion of long-distance traffic on the main routes and also the introduction of subscriber dialing on some of the most important routes. The plan would include the purchase of equipment for the long-distance and urban exchanges of Bogota and Medellin to improve the facilities for the distribution of incoming long-distance traffic and subscriber dialing of long-distance outgoing traffic.

12. The proposed plan also includes for the improvement of services between Bogota and Cali, the capital of the important and rapidly developing Department of Valle, and improvements of the services in twelve main towns in the Valle, to eight of which long-distance subscriber dialing would be introduced.

13. New automatic exchanges, with a total capacity of about 3,000 lines and with connections to the trunk line service, would be installed in twelve cities. In addition it is planned to install about 20,000 new lines in some 60 towns at present without any service.

1. The VHF radio system, which now carries long-distance traffic, is now fully utilized, and it is proposed to supplement this by the introduction of UHF services between Bogota and Cali and about 20 other cities, including a connection to the Ecuador long-distance network. A detailed study of the UIF system is now being made, but in the period 1962-65 it may only be possible to introduce this service between Bogota and Cali, including four cities on the route. Traffic requirements to the remaining cities covered in the UHF study would, in the meantime, be met by some rearrangement of existing equipment.

15. The rearrangement of existing equipment and the introduction of the UTF service between Bogota and Cali would make possible the provision of some 600 telephone circuits without additional large expenditures on radio equipment. This rearrangement, with the introduction of additional switching equipment, would also enable subscriber dialing of long-distance calls to be operated in about twelve cities.

16. It will be noted from the above that emphasis is being placed on the introduction of long-distance subscriber dialing. ','hen operators establish connections more time is absorbed between the initiation and establishment of the call; this occupies expensive equipment on non- revenue earning traffic. The provision of on-demand subscriber dialing facilities not only avoids this procedure but also enables a greater number of calls to be handled by the equipment.

17. A reliable international telephone service, particularly to the U.S.A., is becoming increasingly important to the commercial sector in Colombia. As part of its expansion proposals the telephone company is - 4 - C. TELECOMbSUNICATIONS planning the installation of a telephone cable between Colombia and the U.S.A. Discussions are now being held between the interested parties and it would appear that a high-quality international cable facility may be provided in the next four years.

18. At present 15 cities are provided with a telex service. It is proposed to expand this service to 15 additional cities with a total of 1,800 subscribers. There is also a direct telex connection with New York and Hamburg.

19. The expansion programs of the municipal companies would provide about 150,000 new lines during the period 1962-65 and would thereby reduce the present waiting list and meet part of the demand for new connections. These programs are briefly summarized in Table 2.

Table 2: EXPANSTON PLANS OF NUNICIPAL COMPANIES (in thousands) Number of City Telephones Unsatisfied Program of Expansion in Service Applications 1962 1963 1964 1965

Armenia h.5 1 1.5 0.5 0.5 0.5 Armero 0.47 1.0 - - - - Bucaramanga 6.o 3.0 2.7 2.7 2.0 2.0 Bogota 110.0 25.0 13.2 13.2 13.0 13.0 Cartagena 5.0 2.5 1.5 1.0 1.0 1.0 Cali 26.0 8.o 7.3 4.0 4.0 4.0 Cucuta 5.0 2.8 1.8 1.0 1.0 1.0 Giradot 2.0 0,3 o.6 - 0,2 0.2 Honda 0.5 1.0 0.2 - - - lbague 1.5 8.o 5.0 1.5 1.5 1.0 Libano 0.27 o.6 - - - Mvianizales, inc. Neira, Villamana, Chinchina, and Palestina 8.0 6.4 2.8 2.8 2.4 2.h Medellin 66.o - 6.o 6.o 6.o 6.0 Pasto 1.0 0.6 1.3 - - - Popayan 2.0 0.4 - - - - Pereria 6.o 2.0 1.1 1.1 1.1 1.1 San Gil 0.4 0.6 0.4 - - - Santa Marta 2.0 1.0 1.0 - - 1.0 Sevilla 0.7 0.3 - - - - Tulua 1.4 1.0 1.0 - - - Tunja 1.8 0.6 0.5 0.3 0.3 0.3 Vfillavicencio 0.8 0.1 0.3 0.4 - - - 5 - C. TELECOMMUNICATIONS

20. No comprehensive analysis of these plans has been prepared and it was not possible for the mission to undertake such an analysis.

21. In the main cities about 50 percent of telephone services are utilized by commercial and industrial subscribers who also provide the main traffic on the trunk line services. The mission doubts whether at the present stage of the development of the Colombian economy that full expansion of the communications facilities to meet all of the demands of residential subscribers is justified. The mission has proceeded on the assumption that while full expansion of the national trunk line service was required in the interests of economic integration and expansion, it would be sufficient to permit 60 percent of the proposed expansion of urban services. On this basis investment expenditures on an annual basis would be:

Table 3: RECO11I4MIDED INVESTIENT IN TELECCMThUHlICATIONS (in millions of pesos)

1962 1963 1964 1965 Total

TELECOMi 48 79 33 46 206 Major municipalities 48 45 60 47 200

22. On the assumption that foreign credits should finance the full foreign exchange cost of this program, external financing (on a disbursement basis) of the program would be as follows:

Table 4: RECOMMENDIED EXTERNAL FINANCING

1962 1963 1964 1965 Total

National service, USA millions 5.5 11.0 6.3 5.2 28.0 Urban services, ."5 3.3 3.0 3.2 1h.0

Total 10.0 14.3 9.3 8.14 42.0

Colombian pesos, millions 67 95 63 56 281

23. In general the municipal telephone companies have done little systematic planning and have relied considerably on suppliers of equipment for design, construction, and even for assistance in operation. However, it should be possible in view of the large unsatisfied demand for service to proceed with the high-priority component of these municipal - 6 - C. TELECOMMUNICATIONS programs while more independent nlanning goes forward. In particular the expansion plans of Bogota., Medellin, and Cali should be considered for external financing in 1962 and 1963. Studies in these cities are well advanced.

Telephone Rates

24. It is not known whether the financial position of the municipal companies is strong enough, on the basis of present charges for services, to permit them to make a substantial contribution to the financing of the program. In general these companies have relied on suppliers' credits in the past, with interest rates up to 8 percent and repayment periods of from 5 to 7 years. Other short and medium-term credits are frequently obtained to cover the purchase of underground cables and line equipment. Sereice of supplier and other credit is met from revenue, indicating, in view of the expensive terms of these credits, that telephone rates and other charges are sufficient to yield a fairly substantial return on the investment. The revenues cover both interest and repayment over a relatively short period. This impression was confirmed by e.xamination of the operations in one of the major cities, but financial statements are not available in a form permitting careful analysis. ANNEX VII, SECTION D

PUBLIC INVITMBTENT IN LAND AND WAUPR DEV7JOPM7NT

1. The mission has provided for outlays of 259 million pesos for flood control, irrigation, and drainage in its recommendations for the 1962-65 period. This sum will cover projects which are now under way, or for which the existing evidence is favorable and plans are well advanced. It will also provide a reserve against contingencies or enable a speed-up of construction if practicable. It is believed that the proposed figure will result in a total national outlay for land and water development which is reasonable in relation to projected support for other means of increasing agricultural production and income.

2. Construction of most of the projects for which finance has been provided is likely to carry over into the post-1965 period. These carry-over projects will be priority claimants for resources during the last half of the decade. Judgments on the scale and nature of the aggregate post-1965 effort in this field should be delayed until project development and appraisal have been completed on the considerable number of proposals now being put forward, and until the production effect of intensified commodity programs and general production support measures can be evaluated. Meanwhile, arrangements should be made to assure that data collection and analysis move rapidly ahead.

The Cauca Valley

3. The basic endowment of the Cauca Valley is favorable. It should bulk large in the resource development program of the nation during the decade ahead. The Valley is a level area of highly productive soils, about 200 kilometers (124 miles) long with an average width of 20 kilometers (12 miles) and covering around o00,000 hectares (988,000 acres). Its altitude is 950 meters (3,116 feet) above sea level, average temperature is 2h0 Centigrade (750 Fahrenheit) with little seasonal range, and an average (but ouite variable) annual rainfall of 1,200 millimeters (47 inches). Much of the rainfall is received in the twjo periods April-_ay and October-November. In addition to soils, climate and location, other features add to the areats capacity to exert claims on public investment resources: existing developmental momentum, public affairs and business management capacity, farmer skills, agricultural processing facilities, suitability for high-value crops, and labor absorption capacity. - 2 D., LAND A.D WATER

4. Two projects are under construction in the Cauca Valley. One, the Aguablanca, designed to reclaLm 5,600 hectares (of which 1,900 hectares are set aside for urbanization) and to irrigate 3,700 hectares in the vicinity of Cali, is virtually completed. Construction is well along on the second, the Roldanillo-La Uraion-Toro. This latter project covers 11,500 hectares and may later be extended by 3,000 hectares. Some 19 million pesos have been spent to date by the sponsoring agency (the Cauca Valley Corporation -_ CVC) and an additional 34 million pesos (excluding on-farm costs) are estimated as required to completion if the decision is made to enlarge the initial area by the above-noted 3,000 hectares. Completion of this project merits top priority, and finance should be made available to comnlete it on schedule or earlier. It is a possible site fcr an export-oriented fruit and vegetable industry if current favorable indications are sustained by further investigation. It will pro(ride highly productive land for redistribution under the agrarian reform program now getting under way, and through intensive, continuous cropping will offer outlets for an important volume of labor. V 5. Design and preliminary analysis have been completed on another CVC project, the Bugalagrande-Cartago. Total off-farm cost is estimated at about 107 million pesos. Thirtiy thousand hectares would be irrigated, with about 16,000 hectares of this area to be provided with flood control. It is expected that the definitive appraisal of this project will soon be released. 2/ The preliminary judgment of the CVC is that the project would result in a net increment to agricultural income of 77 million pesos if the area were effectively farmed. It is estimated that this figure could be almost doubled if family-sized farms and more intensive exploitation were installed. Even if these estimates of costs and returns turn out to be ontimistic on more detailed analysis, they - indicate that the scheme will very likely merit favorable consideration,

V It is now contemplated that land holdings will be rearranged to provide a maximum of probably not more than 50 hectares (at most 100) and a minimum of 10 hectares, with the bulk of the land undergoing distribution being used to create farms of from 30 to 50 hectares in size.

Z/ It is presumed that this will enlarge upon matters rather casually treated in the initial draft report, such as the hydraulic data on which the design is based; the design formulae factors; the economics of design- ing to protect against 5-year floods only; the specific nature of the flood protection works as finally decided upon; the provision for secondary and tertiary canals; the assumed seepage rate of 30 percent and the use of unlined canals; the cost of on-farm fixed installations (ditches and land preparation); a discussion of interest charges, amortization, water rates, maintenance charges, and the administration of the project when in operation; provisions for contingencies in the cost estimates; water quality (an important item, as return drainage water is to be used for irrigation); and a product market apnraisal. - 3 - D e L4ND ANfD h'AT'T particularly when appropriate weight is *-c:ven to its contribution to agrarian reform, its labor absorption capacity, and its potential for high-value export crops. The mission's recommendations include funds for both this scheme and the Roldanillo project, including a commitment for $9 million of external financing in late 1962.

6. In addition to these urojects, the long-run agricultural land and water develonment program in the Cauca Valley as sketched out by the CVC involves eleven schemes and a total public outlay of about 774L million pesos (Table l)o (This excludes on-farm costs, farm credit requirements, and the acquisition of land for redistribution, topics which are discussed below in terms of their general implications for planning.) Exclusive of the Timba project (see below), some 150,0O0 hectares are to be brought under irrigation by this long-term program. Of the cited 774 million pesos, about 177 million are budgeted by the CVC for the 1962-65 period to finance starts on nine of the eleven schemes.

7. This program raises the question of the feasibilitv of concentrating funds on the most viable project in the Valley, rather than distri- buting resources among a number of projects on construction schedules which run into the 1970's in some caues. The mnlti-purpose Timba project deserves study in this connection. Construction on the Timba uower scheme is scheduled to start in 1964 and the reservoir is to be completed in 1967 (see Annex on power), This scheme has two agricultural complements. The first is the rectification of the Cauca River. This is estimated to cost 69.2 million pesos. The result would be the freeing from "normal" floods of an area estimated as high as 170,000 hectares. This in itself wsould create a substantial production potential, and it is not improbable that private irrigation would follow, thereby further exoandin!; the production impact. (It should also be noted that the entire remaining area of the Valley, some 230,000 hectares, could be significantly benefited as w3ell if drainage were installed in the area in ouestion.) The second a~-ricultural component of the Timba multipurpose development scheme is the irrication project involving off-farm capital outlays in the neighborhood of 129 million pesos and the irrigation of some 113,000 hectares. Eachl of these components appears to be a priority claimant for resources to be made available in the 1962-65 period for the agricultural development of the Cauca Valley. The mission has included in its recommended program of external financing $7 million for the agricultural nortion of Timba.

8. However, the apparent current intent to construct a considerable number of additional projects simultaneously, and the resulting long average gestation neriod, reouires study. The auestion is whether or not the distribution of outlays time-wise among the projects is optimum. The answer is important not only in terms of drawing the maximum contribution to economic growth from the Valleyts resources. It will also affect the ability of other areas to compete for public investment funds for land and water development. Were investment in each of a mass of - 4 - D. tA1'D AND WATER

Table 1: PROBABLE TOTAIL COST AND 1962-65 OUTLAYS FOR LAND AND l,TATER DEVELOPMENT PROJECTS FOR AGRICULTURE NOW UNfDER STUDY IN THE CAUCA VALLEYJ/ (in millions of pesos)

Total to Project 1962-65 Completion_/

Florida-Pradera-Candelaria 55.5 (2.3)-/ 142.5 (5.9)

Channel rectification (Rio Cauca) 30.0 (2.2) 69.2 (5.1)

Yumbo-San Marcos 11.9 (0.5) 11.9 (0.5)

Principal irrigation canals 16.8 (0.5) 55.2 (1.5)

Timba 34.0 (2A1) 63.8 (3.8)

Guachinte 10.7 (0.4) 34.4 (1.4)

La Balsa-Corinto-Puerto Tejada 9.2 (0h) 152.6 (6.5)

Puerto Tejada-Corinto-Florida 7.8 (0.3) 131.9 (5.5)

Yamundi 44.7h (1.8)

Hormiguero-Melendez - - 28.7 (0.9)

Salvajina 1.1 (0.1) 39.4 (3-5)

Total 177.0 (8.8) 774.3 (36.4)

a/ Excluding Bugalagrande.

b/ Including 1962-65 outlays.

c/ Data in parentheses indicate the dollar component of the outlay, stated in dollars. This component is included in the open figures to the left, using a conversion of 6.70 pesos to USgl.

Source: CVC, unpublished data. - 5 _D LAse AND 'P.)TM

Cauca projects to get very far along, it is probable that this fact alone would make it preferable to complete these projects rather than begin others elsewhere in the post_196 5 years. In fact, it will be seen from Table 1 that the planned construction schedule of CVC would find works uftftr-way at th1t eud uf-1965 uhich ;;ould r.eruire close to 525 million pesos to complete, excluding the Bugalagrande. It is doubtful if the nation will find it economic to devote resources to land and water development in the post-1965 neriod in a volume which would enable completion of aat neT5 de - te; taking into accuurit the probable volume of justifiable 'rojects in this field which may emerge in other regions of thne country.

9. Of the long-run CVC program, the mission has set aside for the 1962-65 period a volume of funds equivalent only to that projected by the CVC for the agricultural components of the Timla scheme; other proposed projects have not been covered. Tnvestigation may reveal that these funds should be assigned to one or another of thle many projects now scheduled to begin in the period, rather than to the Timba. But it is not likely that it will find defensible the number of project starts which present plans call for during thne four years in ouestion.

The Sinu and Magdalena Valleys

10. Aside from the Cauca Valley, provision has also been made for one project in the event that analysis now getting under way indicates that it merits support. This is the San Jorge-Bajo Cauca levee scheme in the Departments of Cordoba and Bolivar (see map on next page, numeral 1). The scheme involves a low0 dike on the Cauca from Margento to Achi, improving the natural canyon draina-e of the area, and possibly diking the Cienaga de Ayapel. It is estimated that these works would crotect from floods some 140,000 hectares of top-grade land, the bulk of wh1ich is now usable for only four or five months a year. On the basis of evidence drawn from experience with Trivately constructed dikes, the poroposed nrotection would sharply increase cattle-carrying capacity. As thin-s stand now, altlhough much of the area is free of surface water for up to six months a year, the six-month flooding prevents the establishment of either high-yielding natural or artificial oastures -- in effect, reducing an area of high-potential soil to an exercise ground for six months and to nothing for the other six.

11. Few hydrometric, topographic and agro-economic data are available on this proposal. Total costs might run up to 200 pesos per hectare, or a total cost of 28 million pesos. The quality of the soils, the relative abundance of livestock management skills and nrivate capital in the area, and the need for productive nuclei in which to concentrate livestock improvement work, make it desirable that this nroject be thoroughly studied at an early date.

1/ Resources already fixed must enter an analysis at zero cost; this tends to make it economic to complete a partially finished project whether or not it was economic to have begun it at all. - 6 - D. LAND AND ITATM

12. It should be noted in this connection that some thought has been given to a combination levee-road from Caucasia to Achi and then on to La Gloria to tie up the eastern and western trunk highways This proposal was not included in the 1961-62 transport study 17 because insufficient evidence was available on its implications for agriculture. However, provisional costing arrived at a firgure of around 23 million pesos. An alternative route to tie up the two trunk highways is from El Banco on the Magdalena northwest to Puerto Hierro (just south of Ovejas) via Magangue; although in need of improvement, the J1 Banco- Magangue leg already exists.

13. These roads, as well as the cost of improving the existing means of access to the oroject area, will need to be considered in the appraisal of the San Jorge-Bajo Cauca project; creating year-around access through existing routes should not involve heavy outlays.

14. This project is within the development area assigned to the CVM (Corporacion Autonoma Regional de Los Valles del Ivlagdalena y del Sinu). Like the CAR (Ccrporacion Autonoma Regional de La Sabana de Bogota y de Los Valles de Ubata y EChiquinquira), this regional development agency is new and it cannot be expected to nroduce defeuisible claims for investment funds in significant volume in the next two or three years.

15. The CVM faces a particularly complex problem. Charged with developing an area comprising 13 million hectares (and embracing the Departmaents of Atlantico, Bolivar, Cordoba, and Maagdalena, and parts of Antioquia, Boyaca, and Santander), a vast amount of data collection and analysis will be renuired before the stage of final project selection and design can be reached. This will become evident if we look briefly at some of the more important schemes which have been put forward for consideration in recent years.

16. An area of major concern to the CVM is the Sinu Valley (numeral 2 on map). Wiith the aid of loan funds obtained from the Inter-American Development Bank, the CVM recently contracted a study of this area., Around 310,000 hectares of generally fertile soil are involved; of this, much- the greater part is subject to neriodic flooding, poor draina,-e, or prolon..ed drought (from December often uninterruptedly into AprIl). In addition, severe problems of forest and fisheries management need consideration, although w-iork on fisheries is far enough along to have already shown promising results.

17. Previous studies have developed several proposals, including a comprehensive development scheme involving a high dam and power generation at Urra, and the eventual irrigation of 310,000 hectares. A more

1/ Parsons, Brinckerhoff, rluade and Douglas, Plan for Improvements in National Transportation, March, 1962. -7 - D. LAND AND WATER

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_ " . . . . t Roads ( Railroads - ~~~~Department Boundary-- 2,.¢O§§o Natcional Bounmdar CVM Area Boundar -- - 8 - De LAND .h'TDWATER modest scheme proposed installations in the Monteria-Cerete area which would enable water control and the irri;:ation of 60,000 to 75,000 hectares if it could be established thlat salinity problems would not arise. A third proposal would utilize levees to protect 265,000 hectares from flooding. Another involved a 77-meter dam which would protect 310,000 hectares from typical floods.

18r Another area to be placed under study with a view to improving natural surface drainage is the Lebrija-San Alberto zone of the Middle Magdalena in the Departments of Mlagdalena and Santander (numeral 3 on map). Some 120,000 hectares of flat land believed suitable fdr farming or ranching are subject to puddling during the rainy season because of poor surface drainage and the high water table. In the hilly land to the south of Lebrija a good deal of spontaneous colonization and associated resource destruction has been taking place recently.

19. To the west of this zone in the Department of Bolivar is the Municipio of Simiti, an area of over 8,0oo square kilometers (see umieral h on map). Farming, fishing- and petroleum provide the income base. Around 80,000 hectares of alluvial soils are subject to flocding. Both forest and fishery resources are being rapidly depleted. In effect, this area presents all of the kinds of problems and nroblem inter- relationships which face the C0IT, and it is hloped that investigation will reveal the key to an integrated attack which will have application elsewhere in the CVM region. For exanple, the fish resource in the Cienaga of Simiti is being depleted by over-fishing. An ichthyological study will investigate practical control measures, as well as seek to discover the life cycle of the "Bocachico"l with the intent of devising wvjays to get the exploitation of this valuable river fish on to sustained yield basis at the maximum level.

20. Another aspect of the Simiti problc-m is the colono settlements in the western mountainous area, the Serrania de San Lucas. Here water and forest resources are being destroyed. The task is to decide upon the feasibility of re-settling the colonos on a flat and mechanizable strip of land along the Magdalena, the eastern border of the municipality.

21. Another area of interest borders the Canal del Dique (numeral 5) in the Departments of Atlantico and Bolivar. Upwards of 80,000 hectares of alluvial soils of probably acceptable quality in this area are now poorly drained and subject to floodin- and drought.

22. A scheme which has drawn considerable support is the Mornpos- Tamalameoue aimed at freeing about 85,000 hectares from floods from the Magdalena and Cesar Rivers (numeral 6). The project involves the re-routing of the latter river, the closing of the Brazo de Mom-os, and levees on the Magdalena and the Cano Cicuco. 23. A 12,000 hectare irri ation project (the Ponedera-Candelaria) on the M4agdalena just below Barranrujilla has been in the newvs for some years (nuneral 7). Quite aside from the cost side, severe reservations have been expressed as to the suitability of the soils for irrigation, and it emphatically remains to be shown that this project can muster a favorable cost-benefit ratio in relation to alternative land and water development nossibilities. The STACA (Servicio Tecnico Agricola Colombiano Americano) is running a semi-experimental farm within the confines of the lDroposed project. On the basis of the investigations made to date there is no justification for going ahead with the project.

24h Thought has also been given to providing a water supply enabling irrigation of the fertile Codazzi area (numeral 8). Storage possibilities are seen to exist near the confluence of the Badillo and Guatapuri Rivers with the Cesar. The construction of a reservoir lower down on the Cesar to provide water for rather more than 100,000 hectares east of the Ariguani River has also been explored, as hlave sites for reservoirs on the Ariguani River itself. A recent study sponsored by the Caja Agrario found some 410,000 hectares as irrigable in the Cesar and Ariguani valleys with an additional 114,000 hectares oualifying for drainage and flood control.

25. Two studies have just been set up in this area by the CGI. One is a hydrometric study of the Cesar and Ariguani, as little data now exists on evaporation, precipitation, and river discharge. The second, sponsored by the Cotton Federation, is a feasibility study of irrigation utilizing deep wells. This grew out of the fact that borings suggested the underlying materials may nct be of a sort which would make nossible a low-cost Cesar reservoir.

Other Project Possibilities

26. Among studies under way by the recently created CAR is the Subachoque proposal. Around 10,000 hectares would be irrigated, with works centering on an earthen dam on the Subachoque River some 60 kilometers northwest of Bogota. The upper valley of the River Suarez, some 125 kilometers northwest of Bogota is also beincg studied with a view to irrigation (and power generation) in the Ubate and Chiquinouira areas. The appraisals of agricultural nrojects in the Sabana will have to reflect the emerging higher-value non-agricultural uses for water in the area, of course.

27. Other proposals on which preliminary evidence is available include two Zulia projects in Santander. Thze first is a four-stage project to irrigate around 20,000 hectares along the Zulia and Pamplonita Rivers. Thle first starve would cover 7,200 hectares and involve intake structures, a main canal of 13.7 kilometers and secondary canals of 43 kilometers, and a cost of around 2,000 pesos per hectare. The second stage would utilize 26.5 kilometers of canals to move water - 10 - D. LAVD AWN D TR along the left bank of the river to irri,,ate 6,100 hectares. The third stage involves taking water through a tunnel from the Zulia Valley to the Pamplonita to irrigate 1,700 hectares; thle estimated cost is 2,500 pesos per hectare. The final step is costedI at 700 pesos per hectare for ai- area of 4,600 hectares between the Pamplonita and Guaramito Rivers. /

28. The second nroject in the same region involves flood control and drainage for four separate areas (of some 2,500 hectares each) at the junction of the Zulia, Pamplonita and Gularamito Rivers. This is a relatively heavy rainfall zone not now under significant exploitation and about which little is known. Cost estimates are in the neighborhood of 1,800 pesos per hectare.

29. Only limited information is available on the soils of the Zulia area in question. Although upwards of 34,000 hectares of alluvial soils may exist, much of the area (aside from the first-stage sector) is underdeveloped and response to irrigated or unirrigated cultivation is unknown. Moreover, the rainfall pattern is highly variable, increasing rapidly from south to north, and in some parts of the project area reaching as high as 3,000 millimeters per year. It is presumed that only supplemental irrigation would be called for in a large part of the region. This is very relevant to the analysis of the proposal, as are thle doubts expressed by some as to the capacity cf the Zulia River to provide the reouired amount of water. Preliminary data show that 13,000 hectares in the area were held by 13 owners; 16,000 hectares were held by 82 owTners; and 5,CO0 by 133.

30. It is clear that this project proposal still re-uires a great deal of time-consuming data development and analysis; and that any effort to short-cut the appraisal on grounds of the urgency of the rural social problem, or on any other basis, is fraught with danger. Much the same can be said of the Venado-Cabrera Troposal in Huila and of the Sur de Tolima analyses. The construiction of projects of negative yield is not the route to a higher national product nor to imnroved living levels for underprivileged rural families.

Farm Credit Reouirements

31. In addition to direct outlays, several maJor deTrands for resources are created by land and water projects. One of these is farm credit. The magnitude of required outlays for this ourrose can be illustrated by look- ing once again at the Cauca Valley. The amount of farm credit required to bring into reasonably efficient production the reclamation area now

/ Alternative lower-cost proposals for the Zulia irrigation project include one which would take advantage of existinr stream beds and a privately constructed canal. While reducing irrigated area, this would also cut costs per hectare sharply. - 11 - D. LA'ND AND 1iATM

under construction and study b1y the CVC has been estimated at 717 million pesos (Table 2), a figure which is not greatly short of being eoual to off-farm installation costs.

32. The mission wishes to emphasize that the sharply expanded farm credit recuirements which are generated by land and water development need to be explicitly provided for in project plans. Underuse of nublic- ly installed capital plant for lack of an adeouate supply of credit to farmers is a common occurrence throughout the world.

Land Redistribution

33. A second indirect burden upon public finance is generated by land redistribution. This needs explicit consideration in project plans. For example, land purchases for distribution in connection with the Roldanillo and Bugalagrande projects (a total irrigable area of 43,200 hectares) will probably total in the neighborhood of 90 million pesos. This is ecuivalent to more than half of the estimated total off-farm installation costs.

Policy Clues from Colombian Exmerience

34. Quite aside from finance, the nroblem of planning and managing an irrigated agriculture i-s not easy. This can be illustrated by drawing upon the Colombian experience. TWo observations are self-evident. First, nrivate enterprise has not seen fit to make extensive use of irrigation. Second, the public effort in this field to date leaves a great deal to be desired.

35. Estimates of the irrigated area of the nation today range up as high as 200,000 hectares. Knowledgeable people put the figure at somewhat less than 150,000. The Rice Federation estimates that rice under irrigation in 1961 approximated 105,000 hectares; others put it as low as 70,000 hectares. The banana zone below Santa Mlarta has around 20,000 hectares under irrigation. In the Cauca Valley, some 50,000 hectares are irrigated. Perhans half of the irrigated area of the nation is in nermanent crops, mainly bananas and sugarcane. Much of the rest is suitable for cropping twice a year, but in fact most of this is said to lie idle for a semester out of each two.

36. The publicly sponsored irrigation projects now in operation are the Coello and Saldana in the Department of Tolima. These were installed in the early fifties by the Caja Agrario (Agricultural Bank). Constructed to irrigate 25,000 hectares, these developments i,ere rather hastily conceived. No soil studies were made, and the saline sub-soil in the Coello took much of this project out of production rather quickly. The projects also included very sandy and loose soils. Maintenance costs have been high, particularly in Coello. In the second half of 1960, some 3,181 hectares vere under irrigated crops in the Saldana project and 3,L466 hectares in Coello. The comparable figures for the first half of 1961 - 12 - D. LAND AND WATER

Table 2: ESTIMATED CREDIT REQUIREMENTS OF FARMERS TO BRING INTO PRODUCTION (AT REASONABLE EFFICIENCY) THE LAND AND WATER DEVELOPMENT PROJECTS NOW UNDER CONSTRUCTION AND UNDER STUDY IN THE CAUCA VALLEY (in millions of pesos) Non-Fixed Capital For fixed e Short Term!J Project install - Intermediat Assump- Assump- tionsa/ Machinery Livestock tion Id/ tion II2/

Under Construction

Aguablanca 3.7 2.3 1.7 5.6 3.5 Roldanillo-La Union-Toro 13.2 8.3 6.o 19.8 12.h

Total 16.9 10.6 7.7 25.4 15.9

Under Study

Bugalagrande-Cartago 30.0 18.8 13.5 h5.0 28.2 Florida-Pradera-Candelaria 41.0 25.6 18.5 61.5 38.5 Guachinte 10.4 6.5 4.7 15.6 9.8 Yamundi 13.2 8.3 6.o 19.8 12.h Hormiguero-Melendez 5.0 3.1 2.3 7.5 4.7 Yumbo-San Marcos 2.0 1.3 0.9 3.0 1.9 La Balsa-Corinto-Pto. Tejada 44.0 27.5 19.8 66.o01.3 Pto. Tejada-Corinto-Florida 38.0 23.8 17.1 57.0 35.7

Total 183.6 114.9 82.8 275.4 172.5

Grand Total 200.5 125.5 90.5 300.8 188.4 a/ Excluding cost of land reclamation, drainage and leveling. Based on an estimate of 2,000 pesos per hectare required for a house, fences, domestic water and other farm buildings. It was assumed that only those farms of 10 hectares or less would require this credit and they would need 100 percent credit. It was estimated that these size farms will occupy about 50 percent of the project areas. b/ Based on the assumption that farms of 100 hectares and over would not need intermediate credit; that 50 percent of the area of 10-100 hectare farms would need credit; and that all farms of 10 hectares or less will require credit. For machinery credit, the estimat was based on one medium size tractor with necessary implements for each 50 hectares, costing 50,000 pesos. For livestock credit, it was assumed that one-quarter of the project areas would remain in pasture carrying an average of two head per hectare. The cost of these animals was estimated at 3,000 pesos per hectare. j Annual production credit. d/ It was assumed that all farms would require annual production credit amounting to 75 percent of total cash production costs. (The weighted average production cost of crops grown in the Cauca Valley was computed as 2,000 pesos per hectare.) e/ It was assumed that none of the 11100 hectares and over" farms would need production credit; that 50 percent of the area in 10-100 hectare farms would require credit; and that all farms 10 hectares and under would need production credit. For those requiring credit, the amount was based on 75 percent of annual average production costs of 2,000 pesos.

Note: The footnotes make clear that "credit requirements" as set forth in this Table are not equivalent to total "on-farm investment and operating funds." The point is important. - 13 - D. LAND AND IrATER were 3,282 hectares and 1,773 hectares. Rice has been the main crop (and wTill probably continue as su2ch if the promising ner herbicides make possible control of the severe weed problem).

37. No land redistribution was undertaken in connection with these projects. Several individual or group holdings are extremely large. This has not contributed to an effective rental market nor to a high level cf farm and soils management. A levy of 800 pesos per hectare was charged against the benefited land to pay the capital costs. This was made nayable in 16 years without interest and at a rate of 40 nesos each six months, beginning in the sixth year. Water charges were raised in 1961 against the severe objections of farmers. This is the first effort to increase charges. The Caja Agrario administers the projects.

38, These observations suggest that extremely careful planning needs to be done before funds are committed to land and water development, and that prior farmer anproval of proposed administrative and amortization procedures and water charges needs to be obtained. The yield on capital-intensive, area-concentrated investment in agriculture must be compared to that likely to be produced by a widely dispersed effort to raise output through improved technology and farm organization. A review of the natural resource base and the apparent production and income potential in a technological upgrading of the agriculture (presented elsewhere in this report) leads the mission to believe that irrigation proposals must be carefully screened to avoid overinvestnent in this .area. The likelihood of reaching this noint in flood control and drainage is much more remote, in part because (unlike the case of irrifation) a newJ method of farming does not have to be taught to take advantage of these measLLres, The ouitcome most to be feared is that land development project starts will be far in excess of the capacity cf the nation to finance at optimum construction and exploitation rates -_ in part because of the existence of largely independent regional corporations and other agricultural agencies, the pressure which departmental govermnents are likely to be able to generate, and the hurried search for sites for the agrarian reform.

39. It will be the task of the planning department to develop and apply criteria which assure that the national effort (and its snecific components) are of a magnitude which will nroduce yields not less than those available through alternative outlets for funds. The planning office is not now eauipped to do this job, thereby creating the danger that the task will go by default to the agrarian reform agency or to some other which by its constitution and orientation is quite unable to put the problem into a proper context for decision,

4o. It should also be stressed that the task of opening up the north of Colombia is a large one. Leaving interregional considerations aside, a sulstantial knowledge of the economic aspects of competitive projects must be at hand before funds can properly be committed in scale to any - 14 - D. 1AD AND L,MTIR

one of them. This suggests that the COVIl must be enabled to finance a vast amount of investigation in thle yrears just ahead. Soils work must be the initial point of investigation in each case, but the entire range of inquiries relevant to project development and appraisal must rapidly follow. WayTs must be found to accelerate the build-up of its staff and its progress in project planning and evaluation. AIM=EX VII, SECTION E PUBLIC INVESTNENT IN AGRARIAN REFORM AND THE LOW-INCOME PROBLE4 IN AGRICULTURE

1. A direct attack upon rural poverty through an agrarian reform program was authorized by legislation of December 1961. The mission's projection of public investment includes 567 million pesos for this program for the 1962-65 period. The program's needs for funds are outlined below after a summary of the rural low-income problem, of actions taken in the past to attack it through colonization efforts, and of the main features of the new agrarian reform legislation.

Rural Poverty

2. A typical estimate of the number of underprivileged rural families with and without access to land is 500,000. While purchasing power varies substantiallLy within this group, the supply of rural labor available for hire suggests that the living level is not generally higher than that of the farm workman whose daily wage when employed off his own farm will most frequently run between 5.75 pesos and 6.74 pesos. This is roughly sufficient to buy a kilo (2.2 pounds) of rice and a kilo of beans in Barranquilla; and in Pasto a pound of meat, a kilo of rice and two kilos of corn. Data on earnings and prices of basic foods are presented in Table 1l

3. The cash wage level prevailing in agriculture is around one-half that in industry. Comparative annual real returns to labor must take into account the seasonality of demand (greater in agriculture than in industry), the relatively greater non-cash income in the form of food and other material needs produced for home use by low-income families in rural areas, and the seeming appeal of industrial work on grounds of an intangible income derived from the associated urban life. The relocation brough about by the interplay of these forces in recent years has been sufficient to sustain a downward tendency in rural population relative to non-rural. But the population in rural areas has been rising in absolute terms and is expected to continue to do so during the two decades ahead. Planning Department projections are summarized in Table 2. - 2 - E. AGRARIAN REFORM

Table 1: THE EAPRNIG PGITER OF DhILY FARB LABOR ANDfl THE PRICE OF FOODS LATE 1961

Item pesos per day or per kilo

Wages LO/ Most Frequent Range

Hot Climates 6.74 2 to 10 or more

Cold Climates 5.75 Less than 2 to 10 or more

Price (Retail) Y In Cali In Barranquilla In Pasto

Rice 2.4o 2.41 1.932/ Corn o.87 3/83 0.81 Beans 2.59W 3053 30.63 Potatoes 0.75 0.91 0.52 Platano 0^53 0.77 O.h0 Yuca 0,69 0.58 o,40 Meat 5G9 li/ 5:765/ 4.58/ Hilk 7/ 0.99 090 0.72 Eggs / 5.40 6,72 4.98

1/ Unless otherwise indicated, for first quality. a Libor.no.o 3/ Rojo ZaragGza. 4/ Cadera. C/ LGcrnC~ S/ Lcno Ancho. 7/ Liter; not pasteurized. M/ Dozen. 9/ Second quality. IO/ With the laborer providing his own food.

Source: Denarturiento kdministrativo Nacional de Estadistica, Boletin Nens~.a c.de Estari.stica) Febrero, 1962. - 3 - E. AGRARIAN REFORIvl

Table 2: THE PROBABLE TEADEMECY IN RUR1AL POPULATION AND THE RURAL LABOR FO-RCE THROUGH 1981

1951 1961 1971 1981

Population: Total (millions) 11.4 15.1 20.2 27.2 Rural (millions)2 7.0 7.8 8.6 9.5 Percent Rural of Total 61.0 51.0 43.0 35.0

Labor Force: Total (millions) 3.8 5.0 6.9 9.6 Rural (millions)!/ 2.3 2.5 3.0 3.3 Percent Rural of Total 60.0 50.0 43.0 35.0

/ Defined as people living in centers of less than 1,500 inhabitants.

Source: Departamento Administrativo de Planeacion y Servicios Tecnicos, Plan General de Desarrollo Economico y Social, Primera Parte, 1961.

4. Some appreciation of the magnitude and nature of the income problem in rural areas can be drawn from a recent sample survey of 254 lo,w- income farmers in seven municipios of the Department of Tolima.S/ it was found that although 65 percent were owners of their land, about 56 percent were farming less than three hectares; that 92 percent were not using fertilizers; that 83 percent had no cattle, 88 percent had no burros, 87 percent no horses, 96 percent no mules, 96 percent no goats, 98 percent no sheep, 30 percent no chickens and 48 percent no hogs; and that 76 percent had no sheds, stables, silos or other farm buildings.

5. The same study reported that 50 percent of the farmers had a labor supply ranging from two to six persons in addition to the man and woman, and 6 percent had a labor supply of ten additional persons; that 21 percent had from 4 to 6 children, and 20 percent from 7 to 9 children; and that 29 percent of the children working with the farmer had received no formal education and 59 percent had received from one to three years. Forty-two percent of the farmers had a one-room house, 65 percent had

1/ Centro de Estudios Sobre Desarrollo 7conomico, Universidad de Los Andes, Problemos del Pegueno Agricultor en Climas Calidos del Tolima, Monografia 9, August 1960. - 4 - E. AGRARIAN REFORM no ready access to a household water supply, 77 percent had earth floors in the house, and 78 percent had roofs of straw. Eighty-eight percent of the farmers did not receive medical attention. With regard to education, 34 percent had had no access whatsoever to formal education; and of those who had attended school, two-thirds completed less than three years. The survey showed that 98 percent of the farmers plan to continue in farming; and that 98 percent were not receiving technical aid, while 85 percent would like to take part in short courses on farming.

Colonization and Parcelation Through 1961

6. Colonization, defined as the publicly assisted settlement of public lands, began some 40 years ago and has proceeded intermittently and without auspicious success since that date. The agricultural bank (Caja de Credito Agrario) assumed responsibility for this task in 1956. Effort now centers on five major areas, in which ratther more than 1,000 families have been settled in the past several years; several times that number of "spontaneous" settlers in these areas had been helped, as indicated in Table 3.

7. One of the major obstacles to effective colonization has been the continuing inaccessibility of the chosen sites. One study group reported in late 1960 that "the colonists must transport their produce over 200 kilometers of trails p&ssable only by mules or horses and across the major streams by dugout canoes."!/ In another case, it wias reported that "settlers, produce must be transported over about 7 kilometers of trail passable only by mules or horses, thence across the Ariari River by dugout canoe. The produce must then be moved some 50 kilometers over 1 roads usually passable only by 4-wheel drive vehicles or tractors."2

8. A lengthy list of additional problems faced by the colonist (credit, technical guidance, shortage of livestock, land clearing facilities, housing, schools, weeds) is offered in a recent study based upon interviews with 24 settlers in the Ariari project..D The investigation led the author to state that "In practically all parts of the world, colonization efforts in underdeveloped agricultural regions have been accompanied by difficulties, frustrations, and sometimes by

1/ Ministerio de Agricultura, Servicio Tecnico Agricola Colombiano Americano, A Colonization and Land Utilization Program for Colombia, Bogota, October 1960.

/ Jaime Pardo Sanchez, Algunas Cbservaciones Sobre La Agricultura Actual y Los Condiciones De Vida en el Projecto de Colonizacion del Ariari, Bogota, January 1962, mimeographed. - 5 - E. AGRARIAN REFOR1MI

Table 3: THE PLANNED SCALE A'i CURREENT DiPACT OF THE DIRECTED COLONIZATION EFFORT UNDER WAY AS OF 1961

Item Lebrija Sumapaz)J Caqueta Sarari Ariari

Department or Santander Cundinamarca Caqueta MMeta Intendencia

Date Initiated July 1960 1960 Oct. 1959 1943 May 1959

Colonizable. Area (thous. ha.) 500 580 700 300 890

Area Exploited - 12 39 15 80

Distance from Bogota (kIn) 475 95 675 670 210

Number of Xamilies Settled&/ - 45o 175 450 (200) (300) (1,000) (100) (1,000) Planned/ 7,900 7,200 7,800 3,400 8,000

Probable Cost2/ (millions of pesos) 198 266 295 105 205

g Figures in parentheses refer to spontaneous settlers who have received public assistance. They are in addition to the indicated figure for directed settlement. 2/ Thlrough 1965. 3/ Boyaca, North Santander, Arauca. 7/ Includes Galilea, El Arroz, and Alto Ariari.

Source: Ministry of Agriculture. complete failures. The reason is generally a severe under-appreciation of the intensity of the planning and the volume of resources which are required. Colombia does not seem to be an exception."l/

1/ Jaime Pardo Sanchez, Algunas Observaciones Sobre La Agricultura Actual y Los Condiciones De Vida en el Projecto de Colonizacion del Ariari, Bogota, January 1962, mimeographed. - 6 - E. AGRARIAN REFORM

9. The interest in colonization is persistent and widespread. It is often held that more resources and greater interagency cooperation would improve results. Some defend the activity by calling attention to the thousands of marginal farmers who are working on steep and eroded land and whose lot is not being improved by the competition of mechanized farms on the better lands. Others see colonization as the most fruitful way to handle the mass migrations of low-income farmers caused by the violencia. Still others see the colonist as making a very important contribution to national economic development.

10. As to parcelation (the redistribution of private lands), activity has not been on a large scale. The Caja Agrario and its predecessors have distributed about 21,000 hectares; negotiations are under way for the purchase of another 100,000 hectares for eventual distribution. The Instituto Nacional de Fomento Tabacalero (Tobacco Institute) also has a program of this type. Through 1960 this agency distributed 1,900 hectares (220 farms) in the Departments of Bolivar and Santander; an additional 148 farms were in varying degrees of readiness at the end of the cited year. (This is part of a scheme under which the Tobacco Institute would eliminate share-cropping in tobacco. It is contemplated that the 39,000 farmers now producing tobacco on shares would be given title to farms of an average size of five hectares at a unit cost of 20,000 pesos (including house and tobacco barn). At prices of several years ago, an annual outlay of 10 million pesos would re-settle 11,000 sharecroppers in 15 years if settler mortgages were retired over a 15- year period and the payments were made available to the program.)

The New Agrarian Reform Legislation

11. Public dissatisfaction with the scale and nature of the attack on the rural low-income problem came to a head last December when a new agrarian reform law was passed after prolonged investigation and Congressional debate. This law is specifically labeled as "social" in character and it follows legi lation of similar orientation which goes back for more than 25 years.V/ It creates an autonomous executive agency for agrarian reform, the INCORA Enstituto Colombiano de Reforma Agraria), authorizes a minimum annual budget of 100 million pesos, and assigns a far-reaching set of powers to the new Institute.

12. The objectives of the law are set forth as follows: "Inspired in the principle of the common good and in the necessity of extending to the ever-increasing sectors of the Colombian rural population the exercise of the natural right to property, harmonizing it, in its

1/ For example, Law 200 of 1936; Law 100 of 1944; Decree 1483 of 1942 Law 97 of 1946; Law 161 of 1948; Law 2 of 1949; Decree 2476 of 195$; Law 2 of 1959. - 7 - E. AGRARIAN REFORM conservation and use, with the social interest, this law has the following objectives:

"First. To reform the social agrarian structure by means of appropriate procedures, to eliminate and prevent the inequitable concentration of rural property or its anti-economic fractionation, to reconstruct adequate exploitation units in the minifundio zones and to grant lands to those who do not have them, with preference to those who conduct directly their own exploitation and incorporate therein their own personal labor.

"Second. To stimulate the adequate economic exploitation of uncultivated or deficiently utilized lands, in accordance with programs that are aimed at their orderly distribution and rational utilization.

"Third. To increase the overall volume of agricultural and livestock production in harmony with development of the other sectors of the economy; increase the productivity of exploitation by application of appropriate technical methods; and assure that the lands are used in a manner best adapted to their location and characteristics.

"Fourth. Create conditions under which small renters and sharecroppers enjoy better guarantees, and under which they as well as salaried farmhands have better access to land ownership.

"Fifth. Raise the standard of living of the rural population as a consequence of the measures already indicated, and also by the coordination and development of services related to technical assistance, agricultural credit, habitation, the organization of markets, social health and security, storing and conservation of products, and the development of cooperatives.

"SiLxth. Assure the conservation, defp2se, improvement and adequate utilization of natural resources."-

13. In seeking to reach these objectives, the Institute is authorized to administer the public domain; to sponsor broad area delineation and resource appraisal studies aimed at establishing a pattern of land use, tenure and investment which will promote economic development; to perfect land ownership data and registration; to promote reforestation, irrigation, forest conservation, access roads, and other forms of land and water development; to execute a program of land consolidation in small

1/ The Colombian Agricultural Reform Law, a translation of Law 135 of December 13, 1961, of the National Congress of Colombia, by the Office of the Agricultural Attache, U.S. Embassy, Bogota, January 1962. - 8 - E. AGRARIAN REFORYI farm areas; to distribute public and private lands; and to provide credit and technical assistance in support of these efforts.

14. In the following review of the legislation, only a general presentation is intended; no effort is made to interpret the specific provisions and qualifications which will often govern the answers to specific questions.

15. The Institute may grant title to public lands to private persons if the latter are able to show that two-thirds of the land for which title is requested is being exploited. The maximum area which can be adjudicated is 450 hectares, except under special natural or institutional circunstances, as in the Eastern Plains (Llanos) where the maximum can be raised to 3,000 hectares.

16. The Institute also holds the power to declare public lands as reserved for purposes of resource conservation and for colonization. Public lands now under the jurisdiction of governmental agencies,for whatever purpose, will hereafter be subject to the control of the Institute. The power directly to undertake colonization (the publicly supported settlement of public lands) is granted the Institute; this power may be delegated to appropriate public agencies, The Institute is specifically directed to study colonization proposals thoroughly before undertaking the actual installations, and to assure ready accessibility to the areas to be brought under settlement. Two types of colonization are recognized -- spontaneous and directed. In the latter case, at least 70 percent of the colonized area must go into "family-farm units", and at least half of ech unit must be put into production within five years by the grantee.J No charge is made for the land for such units; improvements on such land are charged against the settler at cost. Provision is made for cooperative exploitations. Title and rights of transfer remain with the Institute until the latter is satisfied as to the performance of the settler, and after title receipt the settler continues subject to restraints on right of sale. At all times the Institute will stand ready to buy the property at a price to be determined by experts.

17. Upon approval by the Government, the Institute may acquire privately held land by expropriation to enable it to proceed with such work as resettlement, reforestation, irrigation, drainage, erosion control, and transportation improvement. This power is to be exercised

1/ A "family-farm unit" is defined as that area of land which can be operated with the family labor supply except for seasonal requirements, and is sufficient under reasonably efficient exploitation to provide a normal family with the capacity to pay for property development costs and progressively improve its living level. - 9 - E. AGRARIAN REFORM

primarily in cases where the particular circumstances render it clearly preferable to the improvement of the use of public lands, and after efforts to arrange a voluntary exchange have been unsuccessful. The expressed intent is to enable control over land which is particularly desirable for relatively small-scale farm units, or to acquire land which is needed to enable the consolidation and enlargement of snall holdings. The owner has the right to retain a minimum of 100 hectares. In certain cases, the retainable or non-expropriable area reaches a maximum of 200 hectares,i Court procedures are established to govern disputes with respect to price and as to whether the property is legally subject to expropriation.

18. Whether acquired by voluntary purchase or expropriation, the Institute is required to make payment on the following terms:

a, For uncultivated land, Class B Agrarian Bonds;2/

b. For undercultivated lands, 20 percent of the agreed purchase price (but not in excess of 100,000 pesos) in cash at the time of transfer, and the remainder in eight annual installments of equal value beginning one year after the date of transfer. Interest at 4 percent a year is payable on the outstanding balances. The owner is entitled to accept Class A Agrarian Bonds in total or partial payyment if he so desires;

c. For adequately exploited land, 20 percent of the agreed price (but not in excess of 300,000 pesos) in cash at time of transfer, and the remainder in five equal annual installments, beginning one year after date of transfer. This debt carries a 6 percent interest rate, with payments being made each six months. It can be taken in the form of Class A Agrarian Bonds if the landowner so desires.

If within contiguous Departments, all property held by an individual is included in computing this maximum; also included is land corresponding to the individualts portion of ownership of a land-owning company, regardless of location. The same limit applies to groups (companies, family corporations, etc.) as to individuals if these associations were formed after September 1, 1960e

/ The Law authorizes the Government through the Bank of the Republic to issue up to 1,000 million pesos of Class A Agrarian Bonds and up to 200 million pesos of Class B Agrarian Bonds in favor of the Institute. The IlA" bonds bear interest at 7 percent a year, and are arortizable in 15 years, The "B" bonds carry a 2 percent interest rate and an amortization term of 25 years. It is specified that this addition to the assets of the Institute will not affect the minimum annual contribution of the Treasury to the Institute; as noted above, this minimum is 100 million pesos. - 10 - E. AGRARIAN REFORM

19. Grantees (settlers) are required to pay fcr land in cases where payment was made by t'n Institute in acquiring it, including survey costs not in excess of 10 pesos per hectare. The interest rate is 2 percent for the first two years, and h percent thereafter, with interest payments beginning at once and principal payments after two years from date of acceptance of the parcel. Total payment is to be made in a maximum of 15 years.

20. The law provides for extinction of 'dominium" on uncultivated lands in a way additional to and independent of that described above. The law requires persons who owned land in excess of 2,000 hectares as of September 1960 to show evidence of economic exploitation thereof, or of such parts as they may now hold (this requirement can be extended to owners of smaller areas at the discretion of the Institute). Failure to demonstrate an acceptable level of exploitation enables the Institute to declare (upon the approval of the Government) extinction of private "dominium"t without payment, after which the private party has 30 days in which to apply for a review of the case before the Supreme Court of Justice.

21. The Institute is staffed by a manager, appointed by the President, and a board of directors. The board is made up of 15 members draim from public and private agencies most closely concerned with agrarian matters, and chaired by the Minister of Agriculture. A consultant body, the Social Agrarian Council, is set up to advise the Institute on all aspects of the reform effort; this council is made up of 22 representatives of private agricultural agencies and the heads of the farm commodity promotion agencies of the Government.

22. This review of the salient features of the new agrarian reform law suggests that an exceedingly powerful instrument has been drafted, and that an effort has been made to give due regard to the interests of all concerned groups. In recognition of the fact that its task cuts across every aspect of the public services to agriculture, vast powers have been centered in the INCORAn These necessarily overlap the assign- ments with which every other agricultural and regional agency is now charged. It is contemplated that this power will be used to coordinate activities which have a direct bearing on agrarian reform and that the INCORA will delegate authority and offer finance to existing operational agencies where such seems desirable. In cases where such do not exist, the Institute may create appropriate regional or other organizations upon the approval of the Government.

Initial Steps Under The New Law

23. It has been announced that the first land redistribution will take place in the Municipality of Cunday (Department of Tolima); plans call for allotting 15,000 hectares among 750 families in June of 1962. - 11 - E. AGRARIAN REFORI

Additional sites for parcelation are being actively explored and include Villavieja (Huila), Bombona (Narino), Codazzi (Magdalena), Cerete (Cordoba), Lebrija (Santander), and areas in the Departments of Cauca and Tolima. Negotiations are under way with the CVC (Corporacion Autonoma Regional del Valle del Cauca) concerning the redistribution of land in the Roldanillo irrigation project (see Land and Water Develop- ment Annex). The Institute is also hoping to speed up the research on several land development proposals with a view to creating settlement opportunities for low-income rural families; of particular interest here are the Monteria and Zulia projects and the schemes for the Bogota sabana (see Land and Water Development Annex). As far as colonization is concerned, it is widely believed that spontaneous colonization can be effectively exploited if more attention is given to transport and communications facilities; here Caqueta, Galilea and Uraba are often mentioned.

24. The immediate danger is that the fully understandable desire to get the reform under way at the earliest possible date and on a large scale will produce ill-advised projects. (The Cunday project, mentioned above, has already been severely attacked on seemingly technical grounds.) For example, the inherent productivity of the areas chosen for parcelation will have a great deal to do with the ultimate outcome of the reform. Poor land is likely to be over-priced in relation to more productive land; it requires that relatively large farms be established, and it requires a level of management skill that is unlikely to be readily attained. But rating potential sites comparatively requires time. There is really no way to find quick answers to the problems of site selection, planning, financing, and interagency coordination which are inherent in the reform effort. Shortcuts mean failure. This is probably even more true of colonization than of parcelation, since in the former case, less is likely to be known about the resource base.

25. It is clearly evident that resources available for colonization in the years just ahead should be concentrated on projects which are most likely to produce the highest yields. Continuing to disperse limited resources over a large number of colonies and immense areas will produce extremely low returns.

26. Questions of colonization inevitably bring to mind the llanos, sparsely populated as they are by comparison with the heavy concentrations of population in some of the neighboring mountainous regions such as Boyaca. A resource reconnaissance survey of some 16 million hectares of the llanos is now under way with the help of the United Nations Special Fund. The area under investigation extends eastward from the mountains about 250 kilometers, and from the Venezuelan border to the Meta-Caqueta boundary. This survey is in its second year and the evidence relevant - 12 E. AGRARIAN fElORM to decisions as to hcw best exploit this vast area should be available early in 1965. Until then, the mission believes, the Government should not undertake activity for development of the llanos area on any significant scale. V

Mission Projection of Investment Program

27. The mission's projection of public investment relating to agrarian reform, involving an increase from 50 million pesos in 1962 to 237 million pesos in 1965, is based on trying to balance the urgency of the problem against the supply of real resources which can be mobilized to solve it. Activity in 1962 and 1963 has been projected at a level which it is believed will enable a pilot program of significant scale to be undertaken, along with the resource studies and the development of personnel and technique essential to an expanded effort. The rate of progress in the initial two years should then enable a much better judgment than is now possible as to the amount of resources which can be productively absorbed by the program in 1964 and 1965.

28. In the mission's projection considerable weight has been given to the limited supply of agronomists (ingenieros agronomos), which is without a doubt a major restraint on an effective agrarian reform effort, particularly during the early period when sub-professional personnel are being recruited and trained, The assumption was made that 10 percent of the existing stock of (say 650) agronomists are drawn into the agrarian reform program in 1962, and that one-quarter of tne annual increment (of around 100) to supply are added in 1963 and 1964. By late 1964, some 120 agronomists would then be in the program. A further assumption was that one agronomist is required in indirect support (land evaluation and purchase, training, administration, etc.) of each agronomist actually engaged in resettlement activity. Sixty agronomists would then be available for resettlement work. With a field staff ratio of one agronomist to three sub-professional three-person teams and with one such team for each 150 families, then around 27,000 families could be serviced in 1965. Aggregate payments for land for resettling these families were estimated to be 80 million pesos in 1965 (10-hectare farms

The idea of easing population pressures in mountainous areas through creating easier accessibility to the llanos has widespread appeal. However, it seems not to have been worked out in sufficient detail to have entered the 1962.65 investment plan. Although the Villavicencio-Bogota road is provided for, the Sogamoso-Yopal road is not, It should also be noted that providing adequate access to the Caqueta colony could cost as much as 1,000 pesos for each of the families scheduled for settlement there through 1965. - 13 - AGIRAILN tETIOWRq

at 1,800 pesos per hectare and payable over six years2/). In additionl, 70 million pesos would be required for credit, and around 20 million pesos for the field staff working directly with the resettled families. This would leave some 67 million pesos of the 1965 total available to finance other needs, including site selection and development and other outlays to prepare the way for bringing more families into the program in the folloiring years.

29. As rapidly as actual operating data become available they should be reflected in planning for the scale and nature of the program for the future. These data will be highly important as a basis for the operating decisions on such matters as colonization versus parcelation; advanced versus relatively retarded areas as points of emphasis; the extent of use of capital-intensive settlement; the scale and management of support programs, such as credit; the distributicn of resettlement effort between widely scattered farms and concentrated areas; and the extent of use of long-gestation investment.

30. As the evidence accumulates it will be possible to gauge the productivity of the program relative to alternative means of attack, and to judge the size of the necessary effort in terms of the overall movemient of the economy. INCORA, as the coordinating and financing agency, will have a key role in assuring that resources going into colonization are of optimum quantity relative to parcelation and other types of outlays addressed to a like end. 1.4henever directed colonization is undertaken, sufficient resources should be injected to assure the creation of farms which enable the colonist to foresee an income which is superior to the likely alternative. If outlays go beyond this point, a prohibitively large drain on public resources will result if a significant number of families are to be helped. If outlays fail to reach this point, they are largely wasted. The problem is to strike the necessary balance. A program which installs entirely modern communities is just as asocial and uneconomic as one which provides the colonist only with inaccessible, uncleared land and a machete.

Other Income Improvement Pleasures

31. In addition to the agrarian reform program, other major measures Twhich will affect employment opportunities and real incomes of low- income farmers include:

1/ This assumes that developed land was purchased for the program. In the case of the settlerent of free public land, the direct budget drain would probably be of the same order. Approximately 1,000 pesos per hectare has been cited by some authorities as a conservative estimate of the on-farm cost of setting up a farm on public land, excluding livestock. The figure of ten hectares per farm used in the projection was for illustrative purposes only and does not imply that this is the most appropriate size farm for resettlement purposes. -14 h , AGi:XRIAN FT7

a. Price Stabilization. Efforts to stabilize farm products, as outlined in Annex IV, would be of importance to low- income farmers. If energetically executed, this program can produce important relative increases in the cash income of small farmers who put a significant part of their non-perishable crop production on the market. However, using public resources to cushion severe price movement, as in the case of coffee, may indirectly have a strong negative effect. This is because the resulting drain on resources is likely to restrict efforts for more direct and basic action to reduce the problem of low incomes.

b. Education. Opportunities for development would be substantially improved with agricultural education at the secondary level, which would be substantially expanded under the mission recommendations (Annex VII F). The general expansion of education in rural areas will also involve a significant volume of employment-creating construction activity.

c. Road Program. The road program can also be helpful in creating jobs, and as a stimulus to mobility, as well as through its effect on transport costs (Annex VII A). It is probable that outlays for labor in connection with the secondary road system in recent years have been sufficient to add each year about 1,000 pesos per farily to the income of some 100,000 rural families. This figure is expected to increase somewhat in the years just ahead.

32. Like the devices central to the agrarian reform effort itself, none of these measures can be expected to reach all low-income families quickly nor to create immediately more than marginal improvements in rural incomes, Their importance lies in the fact that a process of resource improvement and reorganization is being put in motion which ultimately will enable the participants to move more fully into the commercial economy.

Low Incomes and Resource Conservation

33. The problem of low rural incomes is inseparably intertwined with natural resource conservation. Natural resources will continue to be destroyed as long as the rural population is not stabilized in acceptable income-earning situations. An example is the Sierra Nevada de Santa Marta, a region in which the Ariguani and Cesar rivers rise and which is the collection area for the water for the Sevilla banana zone. The terrain and soil of the region are of a sort which will assure the total 15 - P. AGL-RLiN REFOR2

destiruction of the Sierra's economic potential as well as that of its dependent regions if the soil cover is removed. Nonetheless, removal is proceeding at an accelerating pace, partly as a result of trying to exploit the area's coffee potential, and partly because of the difficulty of creating income-earning capacity in other areas.

34. This case illustrates the urgent necessity to demarcate land capability zones and to set up control mechanisms which will guide resource use into acceptable outlets through both positive and punitive means. The legal base for this process exists, and the vital necessity of conserving soil and water has been recognized in the specification of the functions of the Ministry of Agriculture (Division of Natural Resources), the regional corporations, and the INCORA.

35. Some investigations are under way in this field. The Institute Codazzi has completed soil studies of around 4.8 million hectares, mainly of a "general" or "exploratory" type.17 A detailed investigation of a part of the Sierra Nevada de Santa Marta has just been completed by the CV1, and a few months ago the CVM requested the cooperation of the UN Special Fund in a US$ 1.7 million 5-year research and experi- mentation project in forestry and reforestation in the Magdalena and Sinu River valleys. And legislation of 1959 at least recognized the problem, if doing no more, by setting aside some 70 milli o n hectares of land as national forest; of this area, somewhat nore than 5 0 mi 1 li o n hectares are estimated to be under some type of forest if the Amazon and Orinoco basin jungles are so defined.

36. Without implying a judgment of any sort, it can be noted that aid agencies have not ignored this field of resource appraisal and conservation. In addition to supporting basic resource surveys, STACA has reportedly undertaken to organize an indicative multi-purpose survey of the national forests; this would be aimied at developing data for use in forest exploitation and management planning, and would be set up in such a way as to produce maximum information on soils and land capability for broader purposes of land use planning. As long ago as 1952, the FAC produced a detailed document on forestry planning in Colombia. The document reported the discovery of "an alarmingly dangerous forest situation, an understanding of this situation and an eagerness to face the problems, and a striking lack of action." It is not unjust to describe the position of today in the same terms.

1/ As follows: Detailed studies-- Sabana de Bogota, 200,000 hectares; Atlantic Department, 325,000 hectares, Semi-detailed--Cauca Valley, 250,000 hectares (in process). Explorator--Northern Bolivar, 1,335,600 hectares; Villavicencio area in Department of Meta, 150,000 hectares; Ariari area in Department of Meta, 150,000 hectares; Middle Magdalena Valley, 2,365,000 hectares. 16 - 5. ACH_l].DUTI R1h7O0RV

37., One of the primary requirements in tackling the task of resource conservation is to expand the output of foresters and forest peritos. Although the trend of first-year enrollments is upward, the number of students in the final years of the ingeniero forestal course in 1961 is reported to be 14. To strengthen both the level of training and the volume of output, it would be highly desirable to expand working relationships with high-level foreign forestry schools and services, such as those of Spain, India, and Canada. But however attacked, one of the major objectives of the INCORA must be to activate resource conservation by delineating and preventing access to critical areas, and by a sponsored movement out of areas which will not sustain a permanent agriculture. ANNEX VII, SITCTION F

PUBLIC INVEDTIT IN EDUCATION

1. Unlike most of the other sectors, except agriculture, the chapters of the General and Four-Year Plans devoted to education are fragmentary and general. As the mission nursued its work in Colombia, it became clear that, while an agenda of olanning tasks had been made and work was going on in the Ministryts Department of Planning, Coordi- nation, and Evaluation the better nart of the planning still remained to be done. The apology was freciuently made that educational and other social planning had been "caugh-t short" b,y the first Punta del Erte conference. Until that time the prospect for substantial investment in education had been so slight that it seemed unwise to assign many people or much monej to planning. It was now necessary to do in a year what otherwise might have been done over a neriod of several years.

2. The planning task is made more difficult by the -highly decentralized structure of Colombian education and by the consequent lack of information in the possession of the Ministry's Planning Office, More- over, there has been little opportunity to pause for a broad assessment of the overall recuirements, to look very far into the future, or to consider nroblems of strategy and policy. Most of the effort has to be channeled into meeting immediate nroblems, usually belatedly, and with a staff as yet cuite inadequate for the task.

3. Under the circumstances it seemed best for the mission to accept this situation and make the best of it. Simply to have made anrevalua- tion of the published plans or of the programs so far worked out vould have produced rather negative, and not verry useful, results. W2e have studied and evaluated what was ready for examination, but for the most part the report on education has had to be an independent essay, dealing more with objectives, strategy, and policy than wsith specific programs or projects. We have been hampered by the same lack of infor- nation that besets the Ministryts Planning Office and by the fact that the onrush of events freouently establishes policy in the absence of, rather than as the result of, conscious study. Nevertheless, we have felt that this report would be most useful to both the Colombian authorities and to interested external financing af^encies if it came to grips with some of the major nuestions of strategy and policy which have thus far not been resolved. With resnect to investment the recommendations are rough arproximations, but given the wide margins of tolerance which are usually acceptable in educational Planning for underdeveloped countries, we feel that rough approximations within a Table 1: FlOUR YEAR INVESTMENT PLkN IN EDUCATION, 1962-65 (in millions of pesos)

1962 1963 1964 1965 Total Internal External Total Internal External Total Internal External Total Internal External Total

Primary Education Classrooms 31.2 67.0 98.2 28.9 67.6 96.5 48.3 67.6 115.9 48.3 67.6 115.9 426.4 Other 2.4 - 2.4 4.4 - 4.4 5.0 - 5.0 7.3 - 7.3 19.2 Sub-Total 33.6 67.0 100.6 33.3 67.6 100.9 53.3 67.6 120.9 55.6 67.6 123.2 445.6

Normal Education

Normal 6.7 - 6.7 14.3 3.8 18.1 15.0 3.0 18.0 12.1 - 12.1 54.8 Agricultural Normal 1.8 - 1.8 1.6 - 1.6 - - _ 1.8 - 1.8 5.2 Sub-Total 8.5 - 8.5 15.9 3.8 19.7 15.0 3.0 18.0 13.9 - 13.9 60.0 Secondary Education Comnmercial 1.0 - 1.0 1.0 - 1.0 1.0 - 1.0 1.8 - 1.8 4.8 Vocational-Agricultural 3.4 - 3.4 4.8 - 4.8 3.8 1.0 4.8 4.8 2.0 6.8 19.7 Industrial 5.8 - 5.8 4.9 - 4.9 6.7 15.0 21.7 10.0 6.7 16.7 49.1 General (Bachillerato) 7.3 - 7.3 6.4 - 6.4 2.9 9.3 12.2 3.2 4.9 8.1 34.1 Sub-Total 17.5 - 17.5 17.1 - 17.1 14.4 25.3 39.7 18.8. 13.6 32.4 107.7 Higher Education Superior Normal 3.1 - 3.1 3.1 - 3.1 4.0 - 4.o 4.4 - 4.4 14.6 Colegios Mayores .4 - .4 2.4 - 2.4 3.3 - 3.3 3.0 - 3.0 9.0 Universities 3.3 - 3.3 2.0 - 2.0 2.0 - 2.0 2.0 - 2.0 9.3 Sub-Total 6.8 - 6.8 7.5 - 7.5 9.3 - 9.3 9.4 - 9.4 32.9

Various .6 - .6 6.2 - 6.2 8.1 - 8.1 26.4 - 26.4 41.3 Grand Total 67.0 67.0 134.0 80.0 71.4 151.4 100,0 95.9 195.9 125.0 81.2 206.2 687.5 - 3 - F. MIUCAkTION well-conceived framevork of policy are nreferable to carefully worked out projects within a badly conceived framework of policy.

4. The investment schedule as contained in the Four-Year and General Development Plans is summarized in Table 1. We do not wish to pause long for analysis of this schedule, but one or two general comments should be made. First, although the Ministry of Education recognizes in principle the importance of balanced and integral development of the educational system, this investment plan does not reflect these princi- ples. If we include the training of primary school teachers, over 70 percent of the investment planned by the Government during the period 1962-65 is for the expansion of primary education. The consequences of this disproportionate emphasis on one level of education are Pointed out in the report which follows, and we hope and believe that the emphasis can be corrected.

5. In actual fact we believe that tlie disnroportion in tlis investment plani is accidental rather than intentional. When the deadline arrived for publication of the General and Four-Year Plans, the Ministry of Education had ready a fairly well worked out project for the expansion of primary education, a few fragmentary studies for secondary education and almost nothing relating to higher education. It put together what was available under the heading of a plan for education.

6. We make this point not to belabor facts which are wjell understood by the officials of the Ministry of Eiducation, but to uncover, if wie can, some of the deeper-lying obstacles to balanced and integral planning and development of Colombia's educational resources. In many ways this investment schedule reflects the degrees of responsibility which the Colombian Government traditionally has felt it should or could exercise in the various levels of education. For primary education it has accepted full and unoualified responsibility. In secondary education it has worked in partnership wTith private a-encies ___who are themselves highly decentralized -- and its role in recent years has increasingly become that of junior nartner. In hibher education the governments, both local and national, have continued to pay a major share of the cost, but for understandable historical reasons, they have been reluctant to give any policyr direction to the form and grolwth of the nation's universit, system, and as a reasult there is neither form nor system. In a commendable desire to prevent -p-olitical interference with the universities they have substituted a vacuum for leadership, into which even non-political considerations of national interest cannot enter.

7. The tendencies i;hich flow from these conceptions of government responsibilities have been accentuated by the lack of continuity in the higher levels of educational administration. Colombia has probably been more fortunate than many countries in securing ministers of education who took their jobs seriously and attempted to provide leadership and direction to the country's educational development. But by their own testimony they have usually no sooner learned the problems - h - F. TDIJCA-TION involved and outlined a framework of nolicy than the office is given over to another incumbent, who must then go through the same process.

8. Too great a concentration of direction and control in the hands of the central goverrnent or of local governments is not to be desired. But wje do believe that the major undertaking of economic anc. social development on which Colombia is now launched, and in which education will play an important part, wTill reouire a change in the lay the Government's responsibilities for education have traditionally been conceived. In brief, while the partnership of all agencies should be continued, the central government should play a more active and positive role,..and it should have the planning and administrative organization through iclhich the national interest can be given adequate and continuous ex-oression in t^he country's educational development.

PRDIARY EDUCATION

Org-anization and Administration

9. Primary- education in Colombia is of two kinds __ rural, wuhich in principle tour years, and urban, which is for the most part five years. Th.e Government has indicated its intention, however, to increase the primary program of rural schools to five years in 1966 and both urban and rural nrograms to six years in about 1972. Both the rural and urban programs are basically general in character, although in narticulars the material c-,n be oriented toward th-e interests and environment of the student. D; law, primary education is comnulsory and free, but the inadeouacy of classrooms and teachers makes this imDossible to imnlement. Approximately 85 percent of the rural primary schools are limited to two grades, and the "alternate" system, under which boys attend for half the day and, girls for the other, further reduces the amount of education available to the rural population. Fifteen percent of the primary enrolment is in nrivate schools, most of it in the larger cities.

10. Administration of prima-ry education, as lith all levels of education in Colombia, is highly decentralized. Primary programs are under the {-eneral direction of a technical division in the Ministry of Education, which exercises supervision over curricula, specifications, and standards. A good deal of responsibility is delegated, however, to the secretaries of education in the departments and by them to officers in the larv^er municipalities. The Ministry has -.ery little control -- and sometimnes little knowledge -- of the appointment of teachiing personnel, salary le.vels, building programs and maintenance, and other significant aspects of school administration.

I1. Information as to the financial responsibilityT for nrimary education is narticularly scarce. Versr broadly s3,Deaking, up until recently the national government has provided school buildings, the departmental governments have paid teacherst salaries, and municipal ESTRUCTURA DE LA EDUCACION EN COLOMBIA - 1[961-

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OFICINADE PLANEAMIENTO - 6 - F. EDUCATION governments have provided building maintenance and incidental equipment. Under Law 111 of 1960, however, an important change is made in this division of responsibility. The law provides that naymrent of salaries for primary school teachers at the existing levels of December 1960 shall be shifted from departmental budgets to the national budget. This transfer is being made in increments of 25 percent, or appoximately h5 million nesos each year, and the national budget for 1962 reflects a shift thus far of 50 percent, or 90 million pesos. The law does not stipulate that the departmental funds released should be used to meet other urgent educational needs. Although a number of departments have subsequently increased teachers' salaries over the December 1960 levels, there is no assurance that they will continue to do so or that the increases Will not accentuate the already existing differences in salary between departments.

Trends in Primary Education During the Past Decade

12. Since 1950, following a decade of relative stagnancy during the forties, there has been a rapid expansion of enrolment in Colombiats primary schools. In 1940, for example, the total enrolment was 563,000 students. By 1950 this had increased to 758,000 students representing an increase of 35 percent over the ten-year period. By 1960, however, enrolment had increased to 1,690,000 students, representing an increase of 123 percent over the ten-year period.

13. The 1961 enrolment of 1,785,000 students was equal to 85 percent of the estimated primary school-age population between seven and eleven years. Actually not all of these students were aged seven to eleven. Because of thae recent extension of schooling to some areas and the widespread practice of delayed entry into school over 20 percent of those enrolled were aged twelve or over, and only 30 percent of those enrolled in the first grade were actually aged seven years. Nevertheless, this figure represents a very substantial increase over the year 1951, in which only 875,000 children were in primary school, equalling 60 percent of the primary school-age population of that year. Quantitatively and in the aggregate the achievement of the past decade has been significant.

14. Qualitatively, however, the picture is considerably less bright. Although we do not have sufficient comparative data for the years up to 1950 to say that conditions have deteriorated during this decade of expansion, the information we have for 1959 and 1960 shows that the primary school system was operating then at a very low rate of efficiency. In 1959, the most recent year for which attrition rates have been calculated, only 14.1 percent of the first year primary enrolment of 1955 had reached the fifth grade, which means that the number of students graduating from primary school at the end of that year would be only a little over 10 percent of those who entered. - 7- F. EDUCATION

15. The explanations for this great wastage of students are various. The economic and social conditions of families are unquestionably a major factor. In many fanilies tile income -from tne child's labor is considered essential to the maintenance of family life, and in the rural areas particularly, parents place little value on school learning, at least of the kind that is offered. Poor health also undoubtedly keeps niany children from successfully continuing in school.

16. IJe must also recognize that 85 rercent of the rutral (rknary schools offer only tuo grades of instruction, as a conseouencf of which, in 1959 of a total of 600,000 students enrolled,only 1,537 completed the fifth grade. But in the urban schools, cf which a much higher percentage offer all five grades, the number of graduates in 1959 was only 25 percent of the first year enrolment five years earlier. Thus even where five years of schooling are available the completion rate is still far below an acceptable level.

17. Among other factors wl'ich contribute to tlhe low completion rate, the poor quality of the teaching staff must rank high. In 1960 of 45,000 primary teachers only 30 percent-were graduates of either the urban or rural normal schools. Another 6. n'ercent were g;raduates of other secondary schools, and 56 rercent were "witho t diploma." Considerable progress has been made in the output of the normal schools since 19569 but the loss of oualified teachers frem the existing force has been so high that the net increase of cTualified teachers has been less than 50 percent of each yearts graduates (e.g., from 1956 to 1960 with 7,209 graduates the category of oualified teachers increased by 3,521).

18. Sven if deficits in classrooms and the even greater deficiencies of teaching materials and ecuipment are reredied, it seems clear that until the schools are staffed by more cualified teachers, the nation will still be devoting a very si-zable subsidy to the production of school failures.

19, The same may be said with respect to the curricululm and the rigid adherence to fixed standards of nerformance which characterize t.lis and other levels of Colombian education. In 1959 out of 1,688,000 nrimary students 304,000 or 18 nercent were reneating a class previously failed. In the same -ear over 40 percent of the first grade students who took examinations failed them, and an additional 18 percent of first grade enrolment dicd not take examinations, having presumably dropped out during the course of the year. t,fhere tl:e Sap between student motivation, capacities and interests on the one hand and expected nerformance on the other is so treat as is indicated baT these statistics, there i-s obviously need for a thorougih change both in what is g,iven the students and what is expected from them. Such a chance is not easily brought about because it reouires a fundamental reorientation in the mentality and educational philosophy of the teaching staff. Butt it is, nevertheless, a necessary concomitant of expansion in prima-y education, which without it will continue to be wasteful of money and human resources. - 8 - F. EDUCATION

The Four Year Plan for the Exransion of Primarv Lducation

20. The Four-Year Plan for the exoansion of primary education during the period l962-65 calls for the construction of 22,000 classrooms, the pre-service training of 9,540 teachers, thl.e in-service training of 11,000 existing teachners, the training of school directors and supervisors, and the revision and modernization of curricula and teaching techninues. In principle this program wJould eliminate the classroom deficit and provide facilities for five years of primary education for all members of the primary school-are population (7-11 .rears) by 1965. The enrolment anticinated for 1965 is 2,440,000 students, an increase of 650,000 over the estimated enrolment of 1961. Addinc" the 6,ooo classrooms scheduled for construction in 1965 would raise thle 1966 enrolment to 2,680,000 students unless some portion of the new classrooms are intended as replacements for inadeouate or rented facilities.

21. The schedule for classroom construction as outlined in the Plan, together with the latest revision in the yearly total, is as follows in Table 2:

Table 2: PRIDTARY SCHOGL CONSTRUCTION POGRMAI, AS IN PLAII x-:MDAS RTVISM

Units Financed by Units Financed by Revised Total Colombian Government External Aid Total as of Jan. 1962

1962 1,500 3,500 5,000 2,700 1963 1,500 3,500 5,00o 5,000 1964 2,500 3,500 6,000 7,150 1965 2,500 3,500 6,0oo 7,150

Total 8,ooo 14,000 22,000 22,000

22. For the training of primary teachers the Four-Year Plan allocates a total investment of 55 million nesos for the construction of new normal schools or the expansion of existing schools, of which 6.7 million pesos were to be expended during 1962. The actual budget for 1962 has increased this figure to 10.6 million pesos. Unfortunately we do not have data regarding the numrbers of additional normal students that these expenditures are designed to accommodate either for 1962 or for any of the subse- ouent years. T-ue problem is further complicated b-y the fact th&at during this period the old sy-stem of single-cycle normal schools, comprising rural schools of four years and urban schools of six years, wvill give place to a new two-cycle plan of study, under which all prospective primary teachers will go througDh four years of basic secondary - 9 _ F. EDUCATION education followed by two years of snecialized teacher training. Just how Quickly this conversion can be applied to the four-year rural normal schools is not clear, but in any case during the interim we must take into account two streams of graduates -_ those completing their training under the old, single-cycle system and those coming from the new, two-cycle system.

23. A third stream will be provided yr graduates of the six year bachillerato orogram who have had one additional year of teacher training. Finally, during this period of ranid expansion the Ninistry of Education hopes to secure the services of aporoximately 6,000 former, aualified teachers, under 45 years of age, who have indicated their willingness to return to active service. The calculation of the supply and demand of primary teachers is indicated in Table 3:

Table 3: FOUR-YEAR PLAN 7(TEPSION OF FRDIARY EDUCATION FORM"TIOM OF T\CH1RS

1962 1963 1964 1965 Comments

Number of New Classrooms 2,700 5,000 7,150 7,15o Adds 20 Teachers Reouired 3,2h0 6,ooo 8,58o 8,58o percent for replacements Supply of Teachers

Regular Courses 3,300 3,500 3,500 3,500 Four Years Bachillerato Plus Two Years Normal - 0oo 1,200 1,200 Six Years Bachillerato Plus One Year Normal _ - 1,500 2,000 Reserve of Inactive Teachers - 2,100 2,380 1,880

Total Supply of Teachers 3,300 6,oco 8,580 8,580

24. Implementation of the nrimary school program including construction, teacher training, curricular reform, and the provision of new teaching materials is to be carried out under the direction of a joint Colombian- American Cooperative Education Service (SCECA) formed under an agreement of December 1961 between the Governments of Colombia and the United States of America. This cooperative agency has already beguln its work.

25. Colcmbian-U.S.A. Agreement. The Agreement of December 1961 betueen the Governments of Colombia and the United States of Aierica X 10 F. EDUCATION

envisages the possible exTenditure during the four years of 344,772,000 pesos by the Colombian Goverrnent and $h8,689,OOo by the United States Government. A definite commitment was made for 1962 of $'3,770,000, which was less than the amount of external aid contemplated in the Plan and which explains the reduction in the classroom construction for 1962 from 5,000 units to 2,700. Other significant differences between the Agreement and the Plan should be noted. In the Agreement 370 million pesos are contemplated for classroom construction as compared with 426 million pesos in the Plan. On the other hand, the Agreement provides for the expenditure of approximately 101 million pesos for the preparation, production, and purchase of teaching materials and 127 million pesos for the pre-service and in-service training of teachers. Neither of these programs was included in the Plan estimate. If either or both of these items is included as investment, they push the total for primary education beyond the original Plan figure of 426 million pesos.

26. Comment on the Primary Program. In commenting on this program we should atten-t to answer two cuestions. The first is "Can the Colombian Government achieve the target set for 1965?" The second question is "Should the Government attempt to do so?"

27. In response to the first ouestion, there seems no reason to doubt that the Colombian Government could construct somewhere between 18,000 and 20,000 classrooms by the end of 1965, provided that the indicated amounts of external aid are forthcoming. A beginning has been made already in the revision of curricula and the preparation of new teaching materials, but this is a necessarily slowf and continuing process wihich would hardly be complete by 1965 in any case.

28. With respect to the supply of teachers, we are inclined to treat with caution the estimate of supply and derand as given in Table 3. First, the estimate is based upon the ass'-mption that the present rate of withdrawal of qualified teachers can be reduced from 50 percent to 20 percent of each yearts graduating class. Although various induce- ments are conter.nlated to accomplish this end, we believe the expecta- tion is somewhat overoptimistic. Second, we regard the method of calculating teacher turnover as faulty since it takes into account only the qualified teachers, who constitute only 30 percent of the total teaching force. Ine believe that renlacement requirements should be calculated on the basis of the entire teaching force so that provision can be rade to replace all categories of writhdrawing teachers with qualified teachers as soon as possible. If we assume that 5 percent of the total teaching force will withdraw each year (in 1959 the median of years of service was somewhere between 5 and 8), the replacement requirement increases from an averace of 1,100 a year, as contemplated in the estimate, to an average of nearly 2,700 a year. Thus, given the fulfillment of the construction program as originally planned, there is a potential requirement of over 29,000 new teachers for 1966, against which the very optimistic calculation of the Ministry provides only a - 11 - F. EDUCOTION little over 28,000. Moreover tne oroblem becomes even more acute in the years following 1965, when the reserve of retired teachers has been exhausted, when the nrimary enrolment, accelerated during this period, is reaching a peak, but when the necessary expansion of teacher training has not yet had time to take effect. In brief, we believe that given the proposed rate of classroom construction, there will be a shortfall in the supply of teachers before 1965 and an even more serious deficit after 1965.

29. Considering the second ouestion -- whether the Government should attempt so ambitious a program of primary expansion in so brief a period -- we believe that it should not. lie are aware in taking this position of the many powerful arguments which can be made in support of achieving universal primary education at the earliest possible date. It is both the symbol and the substance of participation in twentieth centuriy life by all members of society, and governments have, therefore, an oblivation, both moral and Dolitical, to mrovide the minimum of educational opportunity for all citizens. *With this point cf view we would not choose to quarrel.

30. The ouestion, we think, is not wihether the Colombian Government should provide universal primary education as soon as nossible; it is rathler how soon it is possible to do so within the framework of a balanced program of development wjhich wiill maximize the benefits of all forms of investment over a period of time. Wie should avoid the extremes of purely economic thinking which would channel exDenditures exclusively into those tvyes of education and training which have immediate and direct effects on econcmic productivitv. But we should not swing to the other extreme and disregard the fact that the resources available for a broad attack upon ignorance, now and in the future, will come from increased productivity. Similarly.,we must avoid making a sharp distinc- tion betwgeen primary education as merely "consumption" and secondary and higher education as "investment." Primary education is also to some extent "investment" even though its econicmic effects are more diluted and less immediately realized. Finally, we should recognize that governments must make decisions as to relative priorities not only on the basis of rational criteria, but also taking into account perhaps irrational forces, which in the larger analysis cannot be ignored. There is no doubt that Colombia could approximate a kind of universal primary education during the next four to five years if it elected to do so regardless of the consequences. W!e feel obliged, however, to point out what some of these consequences might be and to suggest alternatives.

31. The alternative we propose is that the primary school e-pansion be phased so as to reach completion in 1970 rather than in 1965 or 1966. In proposing this alternative we take note that the original goal fixed for this protgram vwas 1972 and also that the agreement reached at the first Punta del Este conference fixed 1970 as a goal for the achievement of universal primary education. - l- - F. 7DUCATION

32. The most compelling argument for this recommendation is that the program as originally scheduled would create demands for secondary education beyond anything which the Colombian Government is in a wnosition to meet. Already the increasing number of primary graduates is creating a demand for secondary education far in excess of the ability to satisfy it, and this condition will bet worse -_ whatever may be done __ before it gets better. In 1958, 61,000 students graduated from the fifth grade of nrimarvr school, and over 5L,000 applied for admission to secondary school. Of these over 31,000 or 57 nercent could not be admitted for lack of l1aces. If the number of urimary graduates were to continue increasing at the same rate as between 1956 and 1958, it would be around 135,000 in 1965. But there is a good probability that it will increase more rapidly and that the problem of unsatisfied demand for secondary education will assume critical proportions.

33. The existence of unsatisfied dlemand, either at the primary or the secondary level is unfortunate, but faced with a choice we believe the latter is more to be avoided. The alternative would be a repetition in some degree of the experience of many developing countries __ aroused expectations which have been disaDpointed, a congestion in the cities of primary school leavers, frustrated, discontented, and often unemployed.

34. Secondly, we must take into vccount the fact that during this period important programs of curriculum reorganization, improvement of teaching techniques, provision of teaching materials, and teacher and supervisor training are being undertaken with the aim of improving the nuality of primary education and increaSinc the percentage cf students who actually complete their schoolinr,. We should also noint out that during the period 1962-72 important structural changes twill take place in primary education. In 1966 it is intended to add a fifth year for the rural schools and abouit 1972 to add a sixth year for both urban and rural schools.

35. All of these clhanges seem to us highly desirable, but taking place, as the-r must, during a neriod of ranid expansion there is a high probability that their effects may be nullified, In other words, the Colombian Government is obliged willy-nilly to change horses in mid- stream, and tlhe stream will be rising in any case. Ife recomend that, if possible, the Oovernment keep the stream from reaching flood level during the most crucial period of the changeover.

36. Thirdly, as we have indicated in commenting on the feasibility of the Four-Year program, there is serious doubt that enougclh cualiCied teachers can be orovided durin- this neriod to take care of the nroposed expansion. Presumably, unqualified teachers could be recruited to staff the classroons, but this would undercut most of the oualitative improvements envisaged. To maxinize the overall benefits of the program, expansion of enrolment must be kept to a less strenuous pace and to a level which permits the gradual replacement of unqualified teachers. - 13 _ .F. hrUCATION

37. Finally, wre should consider the financial implications of the proposed Trogram from the point of vie'w of both investment and operating cost. If wre regard the Colombian-U.S.A) Agreement as the most recent version of the primary program, the four-year cost w-jould be approximately 580 million pesos, not including the cost of teacher training or the construction of normal schools, !which should be assigned to secondary education. Ilith respect to operating costs, a study made b-;the Denart- ment of Planning which takes into account the combined effects of increase in the teaching force, the absorption bv the national budget of teachers' salaries as rrovided in Law 111, the higher cualification of teachers, and a very modest (probably too modest) increase in salaries indicates that the cost of teacher salaries in 1965 would be 437 million pesos. If we assume that teachers' salaries reoresent approximately 8o percent of total cost, the onerating budget for that year would be in excess of one-half billion pesos for primary education alone.

38. ;ie are not surprised at rapidly mountin, educational costs since this has been a world-wjide experience for countries undergoing the process of development in which Colombia is now engaged. But at Colombia's present star,e of development this would constitute a wholly disproportionate allocation of resources to one level, and economically not the most important level, of education, particularly in view of existing and prospective shortages of manpower at the level of intermediate and higher technical training. Ecpenditures as nroposed for primary education for both investment and operating costs, wTould make imnossible or improbable the development of secondary and higher education commensurately with the country's needa.

39. The need for trained manpowier, rarticularly technically trained people at the intermediate level wTith a secondarv education or its equivalent, cannot be emphas zed too strongly. Although there is not yet a systematic study of high-level manpower reouirements, every nerson intervievwed stated that this was the most critical manpower shortage. No matter wjhat the field of activity __ argriculture, industry, education, commrerce, health, and all other services -_ the shortage of intermediate personnel -;;ill be felt increasingly unless vigorous measures are taken now. Unlike the primary graduate, whose absorption into the economy at a wace commensurate w`ith his expectations is doubtful, the secondary graduate vtill be in constant demand. In fact, it is difficult to imagine howj the various sectors of the General Plan can meet their targets unless the supply of intermediate rannower is increased.

Recommended Program and Investment for Primary, Education

4o0 In the most recent official statement that we have seen, a report by the Colombian Government to the UNESCO conference on education at Santiago in March 1962, there are some sug-estions, albeit inconclu- sive, that the Ministry of '7.ducation may be reducing its targets in the primary program. There, at least, it is stated th-at the primary - 1 - F. 7DUCATION enrolment is expected to be 2,188,000 students in 1965 and 2,524,000 in 1970. This is, in fact, very similar tG the conclusions we, had reached from the construction of a model for the expansion of primary education from 1960 to 1970. The model, which calculated separately for rural and urban schools, was based upon a steadily rising percentage of students entering the first grade of primary school at age seven. In 1959 this was 62 percent of the urban seven-Xear-old ponulation and 15 percent of the rural seven-year-old ropulation. These nercentages have been increased to 96 percent and 84 nercentrespectively,in 1970. It follows the growth of this sector of the school populations as a result of changes in the nrornotion rate and the nercentage of repeaters. From these changing factors it arrives at a total of students of "proper age" enrolled in both urban and rural schools, taking note of the intention to increase the rural program in 1966 from four grades to five.

41. To the enrolmlent of "proper age" we have added the "backlog" of students which is here defined as all students w-ho enter the first grade after age seven. The backlog students plus proper age students make up the total enrolment, and this figure, taken as a percentage of the estimated school age population, makes up the "enrolment ratio." The final results are indicated in Table 4:

Table 4: PROJECTIONS OF PRDIARY SCBOOL ENB0LMEDNT (1960 to 1970)

Enrolment of Backlog Total Enrolment Ratio Year "proper age" Enrolment Enrolment (percent of school- (000) (000) (000) age population)

1960 333 1,318 1,651 81 1961 613 1,122 1,735 83 1962 855 997 1,852 86 1963 1,071 908 1,979 90 1964 1,205 918 2,123 94 1965 1,320 964 2,284 98 1966 1,54k6 888 2,434 103 1967 1,693 810 2,503 103 1968 1,823 718 2,541 102 1969 1,925 63k 2,559 101 1970 2,016 603 2,619 101

42. Revision of the Four-Year Program. On the basis of these estimates, tailored somewhat in the growth of enrolment from year-to- year in order to provide a more constant rate of expansion over the eight-year period, we propose a revision in the schedule of classroom construction as indicated in Table 5. - 15 _ F. 7T,UC.ATM.CN

Table 5: REC0IOTDT BGDHL)CGR1 CF PRI'VU.RY SCHOOL CONSTRUCTION

New Estimated Construction Cost of Existing Rented Available Total Enrolment Construc- Classrooms Classrooms Following Year Classrooms at 40o1 tion (000) (000) (000) (000) (000) (000)

1962 41.o 6.o 2.7 47.0 1,880 61 1963 43,7 5.o 385 8.7 1,948 67 1964 L7.2 4.o 3.5 51*2 2,048 73 1965 5o.7 3.0 3.5 53.7 2,148 70 1966 54.2 2.0 3.5 56.2 2,248 70 1967 57.7 1.0 3.0 58.7 2,348 6o 1968 60.7 - 3.0 60.7 2,428 60 1969 63.7 - 1.3 63.7 2,548 26 1970 65.o - - 65Q0 2,600 -

U44 It should be noted that the schedule above calls for an annual reduction of 1,000 in the category of rented classrooms through 1967. In fact, howjever, the pace at which this deficit is eliminated can be varied, so as to adjust to minor variations in the actual ouild-up of enrolment.

45. The program nroposed here thus arrives in 1970 at the same goal as is currently envisa :ed b-y the Colombian Government. Its advantage, we believe, lies in its more gradual build-up of potential graduates and its more realistic appraisal of the nrobable teacher supply, To accomplish -this much increase in the enrolment of primary schools and at the same time to achieve the minimum qualitative gains, without which the investment would be of dubious value, will call for a vigorous and sustained effort. But it probably comes w-ithin the administrative and financial capacities of the Government without unduly diminishing the possibilities for development of secondary and higher education.

46. Recomrnended Investment 1962-65. The proposed schedule of investment in primary education for the period 1962-65 is given in Table 6 below. It provides for the construction of 13,200 classrooms during this period at an avera-e cost of 20,000 pesos per classroom. Also in support of our emphasis on nualitative improvement concurrently with oualitative expansion we have recommended expenditure of 90 milliorn pesos for the preparation, production, and distribution of teaching materials. This item was not included in the Four-Year Development plan, but a total of approximately 100 million pesos was cited as a 1962-65 estimate for this purpose in the Colombian-UJ.S.A. Agreement of 1961. - 16 - F. EJDUCATION

IWe have not reduced this figure oroportionately with our reduction in classroom construction since basic preparation costs would remain fairly constant and since funds should also be available for research and development in new educational technology.

Table 6: REOCOT,1Th21TDD INV7E7ITLENT IN PRDThARY EDUCATION (1962-65) (in millions of pesos)

1962 1963 1964 1965 Total

Classrooms 61J5 66.6 7300 70.0 271.1 Teaching Materials 5.0 20.0 35.o 30.0 90.0 Other (as in Four- Year Plan) 2.5 4.4 5.0 7.3 19.2

Total 69.0 91.0 113.0 107.3 38003

SECONMARY EDUCATION

Organization and Administration

47. Secondary education has been divided into twio main categories -_ the general six-year or "bachillerato" course, which is the nirincipal avenue to university admission, and various technical or vocational courses, which vary in length from two to six years. The principal specialties are industrial, agricultural, normal and commercial education, which together with the general course comprise 90 percent of secondary enrolment. In addition there are aLuiliary nursing training, fine arts, and various forms of craft training listed under the heading of complementary education. The major srecialties usually follow upon completion of primary education, but some of the shorter courses, esnecially the complementary, are accessible to students vho have not completed their primary schooling. Tue snecializations can be of varying length and intensity. Thus in industrial education there is a course of three years leading to the title of artisan, a course of five years qualifying the student as an industrial technician, and a course of seven years giving the degree of "bachillerato tecnico.." This degree, like the general bachillerato, entitles the student to apply for university admission. The commercial courses vary in length from six months to six years. In the fine arts there are various types of courses in decoration, drawing, painting, ceramics, music, etc., which cover different segments of the period from the completion of primary up through the early years of post-secondary education. Most of them run from grade 9 through grade 12 or 13. Women's vocational education usually covers twso or three years following primary school. i7117 -- F. Tr,JCATION 48. In the rural areas secondary education is limited largely to the vocational-a:ricultural schools for boys and the schools of home economics for girls. In principle these courses begin uTon completion of the fourth grade of primary school and last for three or four years, Actually most of the students who enter have had only two or three years of primary schooling. There exists also a course of five years called "bachillerato agricola." This program is limited in numbers and draws most of its recruits from the vocational-agricultural schools. The graduate of the bachillerato agricola is also entitled to apply for admission to an agricultural university, but in practice students in faculties of agriculture are almost exclusively graduates of the general bachillerato programs.

49. Normal Education. Up to January 1962, normal education in Colombia has been classified separately from the rest of secondary education, although it is at the same level both in content and the years of study. There have been two forms of primary teaclher training -- the "normalista rural" covering Pour years of study for teachers in the rural primary schools and the "normalista superior," which is a six-year coursefor teachers of urban primary schools. There are also specialized normal schools, usually of four years duration for teachers in the agri_ cultural-vocational, home economics and industrial schools, and for other specialized functions such as kindergarten, family orientation and fundamental education.

50 Reorganization of January 1962. In January 1962, a major change was introduced in the organization of the four major branches of secondary education, namely, the general or bachillerato program, the industrial, commercial, and normal. Hitherto specialization in these branches of education began in tle first year, m.-aking impracticable a shift from one branch to another. Br Decree No. _6 education in these four branches, which comprise 90 percent of all secondary enrolment, was divided into two cycles. The first c-cle will consist of four years of general education more or less common for all students, although some sn',acialization mqay be introduced in the fourth year. The second cycle will be cf two years and will be divided into the four specializations mentioned above. The major objective of this reform is to provide flexibility within the structure of secondary education and to channel students from the bachillerato into the technical and vocational branches who had nreviously been leavin- school after the third or fourth year. Decree No. 45 is being applied during the current year to the first year enrolment of all schools of general, industrial, normal, and commercial education and thus at t;he end of four years will have created a distinct first cycle for these four major categories.

51. Administration. Administration of secondary education is even more decentralized than that of primar.r education. As in primary education, curricula and programs of study have been uniform, although under the new organization of 1962 (Decree No. 15) from six to eight - la - F. ED1UCATION hours of co-curricular activity can be elected from among various possibilities by individual schools. In most other respects, however, including the establishment of new schools or the exnansion of existing facilities, responsibility is divided between the national goverrnent, the departmental goverrments, and private agencies of which religious organizations are the great majority. In 1960 students, teachers and establishments were divided between official and private control as indicated in Table 7 below0 WIe do not have a precise breakdown of official schools as between national and departmental control, but approximately 60 percent of tle enrolment is in departmental schools and 40 percent in national schools. For the substantial number of secondary schools which are under private control, of which rerhaps 80 percent are operated by reli4ious a-encies, there is also very little centralized administration. There exists an Association of Catholic Colleges, but it is not a supervisory agency and to only a limited extent does it collect information. The management of existing schools and decisions, as the founding of new ones,are left entirely to local initiative,

Tablc 7: SECONDARY SCHOOL SYSTEMS BY TYPE

Students (000) Teachers Establishments Public Private Total Public Private Total Public Private Total

General Bachillerato 50.7 89.6 140.3 3,395 9,370 12,765 231 703 934 Industrial 9.8 2.4 12.2 905 189 1,094 65 23 88 Complementary 4.1 1.6 5.7 363 124 487 56 24 83 Rural Home Economics 1.9 - 1.9 266 16 282 35 2 37 Vocational- Agricultural 2.7 0.1 2.8 298 9 307 48 2 50 Commercial 6.0 34.2 40.2 504 3,080 3,584 42 354 396 Nursing 0.3 - 0.3 78 6 84 7 2 9 Arts 5.5 0e9 6.4 398 44 442 23 9 32 Unspecified 0.9 9.6 10.5 30 215 245 3 32 35 Urban Normal 12.8 6.4 19.2 1,126 679 1,805 69 62 131 Rural Normal 5.3 3.5 8.8 651 337 998 59 45 104

Total 100.0 148.3 248.3 8,014 14,069 22,093 638 1,258 1,899 - 19 - F. MUCATION

Trends in Secondary Education Durin,. the Past Decade

52, The growtlh of enrolment in secondary education has been similar to that of primary education. After a relatively static decade in the forties, during wnhich enrolment increased from 66,800 in 1940 to 85,260 in 1950 -- an increase of only 27 percent __ it jumped to 248,500 in 1960, making an increase of 191 percent during this ten-year period.

53. Together with this cuantitative increase there has been a favorable trend in the types of specializations in which students are enrolled. In 1950, for example, 66 percent of the secondary students were enrolled in the classic general course leading to the bachillerato diploma and only 22 percent in the four urincipal categories of vocational and technical education, namely, industrial, normalp commXercial, and agricultaral. By,r 1960 enrolment in the general secondarr course had declined to 54 percent and that of the four vocational and technical courses had increased to 34 percent. The upward trend in vocational enrolment is to be ea-plained largely b. the expansion of public institutions in industrial education, nrivate institutions in commercial instruction, and a combination of uublic and private initiative in normal schools. The increase in agr4cultural secondary enrolment has largely been in official schools, but has been relatively modest.

54. The wastage rates in secondary education are even more impressive than those of primary education, when we consider that there is no special factor such as the absence of upper grades to account for a substantial part of the loss. According to figures supplied by the Ministrv of Education for 1958 the desertion of students between the first and the last grade is as followFs: Desertion from first Course Number of Years to last year (%)

Complementary 2 36 General (Bachillerato) 6 82 Industrial 5 94 Commercial 5 99 Vocational-Agricultural 3 68 Mursing 3 83 Urban Normal 6 81 Rural Normal 4 68 - 2b - F. EDUCATION

55. These data are to some extent misleading since many of the students who did not complete the full-length courses nevertheless received some benefit from the years they did complete. Moreover, we may assume that a substantial number of those enrolled in industrial and commercial courses wjere never enrolled for the full five-year course of study. But when these considerations have been taken into account, the average of students completing the course of study upon which they had embarked is probably not over 20 percent.

56. Teachers and Curricula. With respect to teaching' staff, curriculum, and the rigidity of standards, conditions in the secondary schools are no better than in the nrimarv and possibly worse. In 1960 of 20,363 secondary teachers 25 percent had university or other higher degrees, 58 nercent had secondary degrees and 17 percent had not themselves completed secondary school. Moreover, there is no possibility of improving this situation ouickly, since, unlike the case of nrimary teachers, very little has been done in recent years to expand the facilities for training secondary teachers. A very optimistic estimate of secondary teaching candidates currently enrolled in university faculties of education gives an average of not over 400 new teachers a year through 1965. For this reason we believe that the most critical manpower shortage of any kind in Colombia today is in the supply of secondary teachers.

57. The shortafre of ouLalified secondary teachers is compounded by the low ratio of students to teachers in the Colombian secondary schools. Ivithout distinguishing between full-time and nart-time teachers the student teacher ratio in 1960 was approximately 12 to 1. Reducing the number of teachers into full-time enuivalents the ratio becomes 15 to l, still substantially below the ratios between 20 to 1 and 30 to 1 which prevail in many developed countries today.

58. Several factors help to explain Colombia's low student-teacher ratio. One is the low enrolment in the upper vears resulting from the high rate of attrition in earlier years. A second is the small size of the averarge secondaiy school (68 students). Taken together these factors necessitate the employment of a high number of teachers -- usually the best oualified _ to meet the needs of a relatively few students in the unner years.

590 Another contributing factor is the high number of class hours a week reouired b1y the official curriculum. In a radio address of January 1962, accompanying the publication of Decree No. 45 (establishing the twTo-cycle plan of secondary education) the Minister of Education explained that the reform aimed at the elimination of "an excessive number of subjects tendinr toward encyclonedism, superficiality in the studies, and fraoiientation." Earlier a seminar of university and high school educators had pointed out that "tne Colombian high school graduate arrives at the university or goes out into life with - 2- _ F. EDUCATION insufficient preparation because of a lack of adeouately prepared teachers; because he is loaded down with subjects and time schedules, because memory work is excessive . . . because he is not taught how to study nor is he assisted in the creation of study habits; nor is he taught to think out the correctness and validity of what is learned." These cornents are eminently sound.

6o. But when one examines the orcposed new curriculum, it is difficult to see how it can lead to anything but the evils against which the Idinister and the seminar inveighed. The programs call for 8 to 9 courses taken simultaneously, totaling 25 to 29 class hours a week plus 9 to 12 hours of co-programed activity, which can be either academic or extra-curricular in clharacter. In our judgment this is "loading the student with subjects and time schedules" and creating a condition in which memory work rather tlhan thinking and inde.nendent learning are encouraged.

61. In order to preserve a program of studies 'uhich is in itself bad education,Colombia is paying a very high Price in money and in a category of manpower which is critically short. When the student is not only challenged, but is overwhelmed, by the requirements made upon him, a substantial number of potential graduates is lost, and there is a low return on the educational investment. Fewrer hours and courses, greater selectivity in the content, and greater emphasis upon the formation of learning: habits would not only bring a more economic use of scarce resources. It very probably would result in the students actually learning more.

62. In ary case, if secondary education is to expand during the coming decade, as it must, there must be a measurable change in the student-teacher ratio. Even a "crash" nrogram of secondarv teacher traininEg, such as we will recommend, cannot provide a very large input of new teachers before 1970.

63. The Problcm of Access to Secondary Fducation. Bulletin No. 20 of the 1NIinistry of Education (1961) states:

"The lack of public establishments has encouraged the creation of Private establishments with a correspondingly high cost (to families)0 One of the gravest problems which presents itself today, to the heads of families is to find a place where they can enroll their children in secondary education."

This comment touches, in fact, upon two problems. The first, to which we have already referred, is the need for greatly expanded facilities of all kinds for secondary education. The second is that access to secondary education of any kind is heavily biased toward the upper-income groups. - 22 - F. EDUCATION

64. The trend toward nrivate secondary education referred to by the I4inistry has indeed been marked. In the bachillerato or Leneral schools enrolment in nrivate institutions has risen from 60 nercent in 1950 to 64 nercent in 1960, and estimates for 1962 place it variously between 65 nercent and 75 percent. In the five major categories of secondary education (general, normal, industrial, commercial, and agricultural) nrivate enrolment has increased from 57 -ercent in 1950 to 60 percent in 1960.

65. Since the obj,ectives and curricula of th:e private and nublic schools are the sale, this trend toward private education has not in itself any significance. Its importance sterns from thle fact that the cost of nrivate education to families nI-aces it beyond the means of any but the higher-income groups. Some indication of the problem which exists can be seen in a brief analysis made from data available in the Center for Economic Studies in the University of Los Andes. From questionnaires relating to 2,500 upper-income families 500 were selected, dealing with families in eleven different cities of the country. The analysis showJs that of the families naving children of secondary school age 69 percent wiere Rctually sending one or more to school. The average annual cost of schooling ner student was 983 pesos. The average inccme of these families was 2,818 pesos a month, and the average cost of secondarv schooling was 5.4 percent of family income. Since undoubtedly some of these children were enrolled in public schools, the average cost of private education nlone and the percenta-ge of family inccre devoted tc it would be higher. The significance cf this analysis is not taat families having an average income of 2,818 pesos were spending 5.4 percent of it on secondary schooling. This seems tolerable. The important fact is that families having a monthly income of this amount represent not over t percent of the urban population and not over 2 percent of the total population of Colombia.

66. If these data are indicative, they mean that access to secondary education of all kinds is determined ir large part by inccme. For neTrhapDs 95 nercent of the population who could not, afford nrivate secondar- education,there exist only h0 nercent of the places in the five major categories and less than 36 percent of the opportunities to prepare for admission to the universities. It seems to us, therefore, that a very high prioritv task of the Colombian Government in education is to nrovide access to secondary. education for a substantially greater proportion of its 'opulation.

67. Rural Secondary Education. A second social group fcr wlAhich access to education is severely limited is the rural nopulation. We have already noted the limited opportunities for rural primary education beyond the second grade. These opportunities will be greatly expanded Wy the program for the development of primar-y education. - -B- F. EDUCATIOQW

68. The problem remains, however, in the development of secondary education. At the present time there are approximately 50 schools of vocational agriculture for boys, enrolling 2,800 students, and 37 schools of home economics for girls, enrolling slightly under 2,000 students. These schools, lasting three years and usually admit- ting students after the third grade of primary school, are for all practical purposes all there is of rural secondary education, except for normal schools. For the inmediate future they must be the principal reliance of the Government, apart from "crash" programs, for the development of skilled and semi-skilled manpower in agriculture.

69. In a relatively few years, however, as the expansion of rural primary education produces more graduates, there will be need for a more comprehensive system of rural secondary education, one which aims not only at the pressing needs of the moment, but also at those of 10, 15 or 20 years in the future. To meet the needs of a rural society 15 or 20 years from now, whose life has begun to be tolerable and reasonably self-contained, we must expect a much greater diversification of roles for the rural-bred population than now exists. A ruiral society which is beginning to enjoy higher productivity wTill consist not only of farmers and housewjives. It will contain school teachers, motor mechanics, store and warehouse clerks, credit managers, construction engineers and foremen, nurses, doctors, and a host of other trained people whose occupations are not exclusively rural. To meet the needs of such a rural society, including the need for professional skills and leadership, there must soon be educational channels through which a certain number of rural-bred youth can go all the way through the universities without having severed entirely their connection with the rural environment. It is by no means too early for the Government to give consideration to how it will deal with the increasing volume of rural primary graduates who can be er pected in 1964 and thereafter.

70. The Role of SENA. Although the development of the formal and institutional structure of education is the major task and the focus of this report, it would be a mistake to assume that formal education is the only medium for developing human resources. There are, of course, other important channels such as adult education, apprenticeship, and extension through which knowledge and skills can be disseminated. In some measure these also must be taken into account in planning.

71. At the present time the Servicio Nacional de Aprendizage (S,\1A) has assumed a sufficiently important role as a mediun of training to necessitate a careful exploration of the future relationship between its activities and formal education of a vocational or technical character. STNA appears to be well conceived for a particular role in the development of human resources -_ training in industrial and other vocational skills which are immediately usable in the factory or firm. For this purpose its pattern of apprentice training and its closer - 24 - F. EDUCATION relation to plant operations give -Ita decided advantage over formal education i-n vocational or technical schools. ei

72, But 3%A's ccverage Ls limited by law: to workers in nlanos employing 20 or more wvorkers or having a capitalization of B1)05OCo or more. Such workers conqtitut e only,, 20 percent of the industrial labor force and probably a mnuch smaller percentage of those engaged in cormnerce and arriculture. Moreover, 5T,A offers training and not education. Its apprentices usually enter the SETA system ulpon completion of primary school. They spend from two to three years in apprenticeship (scmetimes less) -_ half of their time on the job and half in the classroom or workshop. Such workers fill a definite need in Coloribian industry at the present time, but in future years, as secondary education develons, they -will compare very unfavorably with the graduates of secondary schools unless they have had the firs; cycle of secondary education.

73. TwJo changes might be considered in the future regarding the activites of SENlA. The first would be that apprentices would be taken in only after the ccmpletion of the first cycle of secondary education, thus assuring that factory employees would be no less well u.rounded in general knowjledge and skills than other members of the urban population. Secondly, in viewvi of thle advantage Sai`A has as a training activity its covera-e night be extended to include all plants emnloying five or mzore wiorkers. This wo0uld embrace nearlr 100 p)ercent of factory personnel and 35-40 p)ercent of the total industrial working force, leaving still a large number of industrial w:orkers and artisans who depended on sorme ot.her form of training.

Implications of the Reform of January 1962.

74. The establishnent of a single and ccnmon first cyrcle for the general, industrial, ccmmercial and normal schools folloowed by specialized second cycles for each poses major Problerns in the allocation of existing facilities and the planning of new. We exuect that buildings and equinment for first-c-cle schools wTill be more or less similar but that the facilities for second-cycle instruction wiill be different from the first cycle and also vary with the type of secondary traznrng provided. Moreover, if the adnvantaaes of "traffic inter- change' which wfere envisioned in this reforTn are actually to be realized, there must be a reallocation of facilities -Jherever possible, as well as a mere change in program.

1/ Apore-ntice trainin_ is one cI three prograpms cerried on by SENA. The Cther tDo nrograns are: (a) night courses for adult workers already employed, and (b) the training of plant nersonnel to organize and operate in-plant traininr services. - 25 - F. 7DUCATION

75. The problem can be illustrated by the example of a large urban normal school whose facilities have hitherto been utilized exclusively for the six years of normal trainino. If this building is to continue exclusively as a normal school, -t will have students only in years five and six, and its capacity will be considerably more than three times its previous enrolment of fifth and sixth-year students. At the same time other facilities will be renuired to accommodate the first to fourth-year students -_ now in an undifferentiated first cvcle -- who under the old system would have been normal students. The same nroblem will arise, in greateror lessrrdegree, in the case of all tymes of schools, and will necessitate the apportioning of existing facilities between first and second-cycle uses as a basis for estimating new requirements.

76. The task will be complicated by the fact that -roprietorship of schools is divided between national and local goverrments and private agencies. Ini the larger cities it should be nossible, and highly advantageous, to designate one school for second-cycle use and several other schools to act as first-cyTcle "feeders" to it, thus bringing about a much needed rationalization of facilities and improvement in the student-teacher ratio. In smaller towns or where existing facilities are limited and scattered the solution will be more difficult. The actual transfer from one use to another wsill have to be gradual and selective, but a plan for this transfer w.ill be needed as a basis for estimating the types, amounts, and location of new facilities required.

77. In following the implications of this secondary reform to their logical conclusion, iwe have arrived at a wholly different basis for estimating secondary requirements from what was nresumably used in arriving at the investment estimates of the Four-Year Plan. Actually we were never able to discover just what were the bases for the four- year investment program in secondarr education. There were, in fact, no reliable data or documentation indicating the number and typ)e of facilities contemplated, the priority of their development, the targets for student enrolment, or the nossible solution of certain major questions of policy. The budget for 1962 contains considerable detail, but it appears to be largely a product of improvisation and bears little relationship to the Plan. The Minister of Education agreed at the conclusion of our search that, for all practical purposes, plans ar.d programs in secondary education were not yet available,

78. Planning in secondary education is under way, and it anpears that the Colombian Government itself recognizes that considerably greater emphasis must be placed upon secondary education than had first been thought. In its report to the UNESCO conference on ed cation at Santiago in March 1962, for exaraple, the Goverrment states: - 26 - F. =DUCATION

"Planning of secondary education is moving forward actively. Notwithstanding this, estimates have been madi of 3107 million of investment in facilities for secondary education over a four year period. This sum is in any case insufficient, and it will be necessary to increase it by at least 100%6 with foreign credits. There is calculated an increase in enrolment of 25% over the current 250,000 students."

79. It is probable, therefore, that the Goverrment will be able to make a more balanced projection of investments and that its program for secondary education will be considerably above that of the Four-Year Plan,

Recommended Program and Investment in Secondary Education

8o. In the absence of specific plans, projects, or forecasts of requirements in secondary education the most that can be done here is to suggest what may be the magnitude of the reqlirements during the next four years and to indicate what are the higher priority tasks over a somewhat longer period. In view of the high importance of secondary training in the country's economic and social development and the urgent need for balanced growth in the overall educational system we have attempted to keep the door open for needed investment by the earmarking of funds for highest priority categories of use. It should be understood, however, that our recommendations are wholly contingent upon the presentation of specific plans and projects bythe Colombian Government.

Recommendations:

81. (1) In the immediate future, as a matter of urgency, attention must be directed to policy formation and planning, Toward this end we believe it would be useful for the Colombian Government to take steps to strengthen the Office of Planning, Coordination, and Evaluation of the Ministry of Education and to invite technical assistance to work with that office. We also observed that there is insufficient coordination between the Ministry's Planning Office and the Department of Planning, in wart because the latter office has not directed its attention sufficiently to problems of education and manpower. We recommend that a Division for Manpower be established in the Department of Planning and placed in charge of a suitably qualified nerson.

82. (2) The Ministry should also take steps immediately to accelerate expansion in the training of secondary school teachers. This recommendation will be discussed more fully under higher education, Meanwhile in order to meet staffing requirements and make nossible any appreciable expansion in secondary enrolment steps must be taken to improve the student-teacher ratio without overburdening the teaching force or otherwise impairing the quality of teaching. Unless the ratio - 27 - F. EDUCATION can be raised to aruproximatoly 20 to 1 by 1965 the essential increase in enrolment will be curtailed by lach of teachers. 'Wie believe this can be done by a reduction in the number of class hours a week and by concentra_ tion of instruction, especially in the second cycle, into fewer and larger establishments. The suppOly of teaching manpower mipht be increased by persuading a number of the Dart-time teachers to shift to full-tiime.

83. (3) Improvement and expansion of facilities for rural secondary education -- namely, the vocational-agricultural schools, the home economics schools, and the agricultural normal schools -- should be initiated at once as outlined in a report of the Agricultural Section of the Ministry of Education and in the budget for 1962. We recommend an expansion in the vocational-agricultural and home economics schools to not less than 6,500 students in the former and 4,000 students in the latter by 1966 and to 10,000 and 6,000, respectively, by 1970. In addition we recommend that planning should begin now for the development of a comprehensive system of rural secondary education which at first would parallel and ultimately absorb the vocational-agricultural and home economics schools. If rural secondary education is to develop commensurately with the economy and society as a whole, we envisage a rural enrolment of 60,000 students to 70,000 students in 1970 and 150,000 students in 1975, based on the estimated output of the rural primary schools.

84. Vie also endorse as a first step the program referred to in the budget for 1962 of increasing the enrolment in agricultural normal schools by 800 students.

85. (4) F:pansion of facilities f'or the conmmon first cycle of secondary education should be initiated so as to provide places in 1966 for the enrolment of 270,000 students in the first four years. Je estimate that this rill amount to an addition of 50,000 places over the enrolment of 1961 in the first four grades of secondary education; general, industrial, commercial, and normal courses. Iie also estimate that by 1966 enrolrment in second-cycle courses will have increased to 54,ooo students, an increase of 26,ooo over our estinate for 1961. Ey 1970 we estimate an enrolment of $50,ooo students in the first cycle and 8s,ooo students in the second cycle.

86. In considering how and by whom these new secondary facilities should be provided we have been influenced by several factors. On the one hand, it is of paramount importance that the present imbalance betwTeen public and private institutions be adjusted as soon as rlossible and that mnany more public and free schools be established. On the other hand, where so much of everything is needed, we should not ignore the administrative and financial resources which private agencies can offer. IJe have therefore suggested that approximately 75 percent of the new facilities be constructed out of poublic funds and 25 percent out of private funds. Of the publicly financed facilities we assume a - 28 - F. TDUCATION

division, as at present, of approximately 60 nercent under local governments and 40 percent under the national government. In addition we believe that, since a preponderant share of theulaces in secondary education are already committed to private control, the Government should budget substantial sums (up to 30 million pesos a year) from current funds to subsidize the education of deserving but needy students in private schools,

87. Our projection of secondary enrolment to 1966 and our recommendations for public investment in secondary education (1962-65) are given in Tables 8 and 9.

HIGHER EDUCATION

Organization and Administration

88, In Colombian nomenclature higher education is classified as "education superior" and is of twlo kinds: the twTo or three-year sub-professional courses for nurses, laboratory and other technicians, accountants, social service workers, etc.; and the professional courses in the university faculties ranging from four to seven years in duration and offering degrees such as "licenciado," doctor, engineer and architect. The shorter courses are offered by both the universities and various "higher schools" and institutes.

89. As of 1961 there were 25 different universities containing 138 degree-giving: faculties, which embraced 41 different professional specialties. Besides the Nlational University, there are 13 departmental universities and 11 private universities. X few post-graduate courses w?ere being, offered by universities, althourh this level of instruction was only beginning. Other courses of hi. ;her education were offered by the militar-, services, and there were also a number of other institutions such as the Higher School of Public Administratio'n in Bogota, the Colombian Insitute of Administration (IUCOLDA), and the School of Business Administration and Finance in Medellin, which are difficult to classify.

90e By an amendment to the Constitution in 1958 all Colombian universities were declared to be autonomous, and while this has not freed thenr entirely from extra-legal influence and political pressures, it has placed them beyond the legislative jurisdiction of the governmental a-encies, especially the national government, by which they are financed. In 1956 there was formed an Association of Colombian Universities which has acted largely as a medium for the exchange of ideas and the definition of standards. The Association has a putative jurisdiction over the accreditation of universities, but hzas not yet been able to exercise effective surveillance over the creation of newz universities and faculties. It also has, by vote of its members, some Jurisdiction over the funds allocated by the national government to the Table 8: PROJECTION OF SECONDARY ENROT2iENT, 1961-66 (000)

Possible Distribution of Enrolment - 1966 Share of Increase

1960 1961 1966 Increase General Indus- Commer- Normal Public Private Actual Estimated 1961-66 40% trial cial 28% (000) (000) 12% 20/

First CyLc le: Years 1-4 General, Industrial, Normal, Commercial 195 220 270 50 108.0 32.4 54.0 75.6 39 11

Second Czcle: Years 5-6 General, Industrial, Nornal, Commercial 25 28 54 26 21.6 6.5 10.8 15.1 16.6 9.4

Rural Education Vocational-Agricultural 2.8 2.8 6.5 3.7 3.7 - Home Economics 1.9 lo9 4.0 2.1 2.1 _ Agricultural Normal .4 04 1.2 8 .8

Other 25.0 25.0 25.0 _- _ -_

250.o 278.0 361.0 83.0 62.2 20.4 H - 30 - F. EDUCATION Table 9: hECOI,'ThiMJT)D PUBLIC I1PJEST EMT IN SMONDARY EDUCATION, 1962-65 2/ (in millions of pesos)

1962 bJ 1963 1964 1965 Total

First Cycle: Years 1-h (General, Industrial, Commercial, Normal) 39,000 Places 30.0 45.0 55.0 65.o 195.0

Second Cycle: Years 5-6 (General, Industrial, Commercial, Normal) 16,600 Places 7.0 20,0 36.0 40.0 103.0

Rural Education: Vocational-Agricultural, 3,700 Places plus irnprovement of existing places 3.0 20.8 2/ 12.0 12.0 47.8 Home Economics, 2,100 Places 2.0 2.0 2.0 2.4 8.h Agricultural Normal, 800 Places 2.0 2.4 2.0 2.0 8,h4

Other Rural Education - as proposed in Four-Year Plan - 1.0 1.0 1.0 3.0 Total 44.0 91.2 108.0 122.4 365.6 Adjusted Total 448.o 65.o 120.0 137.0 366.0 a/ Unit costs are estimated as follows: First Cycle: Buildings and enuinment - per student 5,000 pesos. Second Cycle: Buildings and eauipment including residential facilities where necessary - average per student 6,200 pesos. Home Economics: Buildings and eouipment - per student 4,000 pesos. Vocational-Agricultural and Agricultural Normal: Buildings, equipment, residential facilities, and livestock - per student 10,000 pesos. Ž/ Estimated distribution of 1962 Budget. Includes 10.8 million pesos for improving and eouipping 2,800 existing units as in Ministry proposal of August 1961. Miission recommendation in main report involves smaller volume of investment in 1963 and a larger volume in 1964 and 1965 in view of probable problems in rapidly expanding construction program. - 31 - F. ThUCATION

Fondo Universitario, but since the shares of the Fondo have already been assigned by legal formula as between the National University, the departmental universities and the Drivate universities, this function is very narrowly circumscribed. For all practical purposes, therefore, individual universities may operate with almost complete autonomy.

91 The financing of the universities comes from three sources: the national budpet, local government budgets, and private funds, including tuitions and other fees. The constitutional amendment of 1958 provides that at least 10 percent of the national budget each year shall be allocated to education and that of this sum 27 percent shall be for universities, divided as follows: 15 nercent for the National Univer- sity, 10 percent for the departmental universities, and 2 percent for the private universities. The shares of the departmental and private universities are distributed through the Fondo Universitario and are allocated by agreement among the members of the Association of Colombian Universities. In addition to the amounts fixed by formula, various special appropriations are made each year to assist particular universities or snecial programs in which the Ministry of Education or other agencies may be interested. It is also the practice that funds allocated to departmental universities by the Fondo are matched by departmental appropriations and vice versa.

92. In 1960 a total of 99 million nesos was spent by 24 universities. Of this, 59 million nesos or 60 percent came from the central governmentp 13 million nesos from denartmental governments, 1.4 million pesos from municipal governments and 25 million pesos from private sources including tuition payrments. It is not likely that the share contributed by the central government in 1962 will be any less than in 1960; probably it will increase.

Trends in Higher Education During the Past Decade

93. Higher education has grown as rapidly as primary and secondary education, and,in fact, its growth has been more or less continuous since 19h0. In that year 5,315 students were enrolled. In 1950 there were 10,632 students; in 1960,22,660 students;and in 1962 probably somewhere between 25,000 and 26,000.

94. The wastage rates are high. In the professional courses, ranging from four to six years approximately 10 percent of the entrants become "graduados," i.e., complete all the reouirements for the degree including the wJriting of a thesis. Another 10-15 percent become "egresados," usually completing all the requirements except the thesis.

95. In university enrolments the trend in specializations has been mixed. Faculties of engineering, medicine, and economics, all of which contribute directly to economic and social development, have expanded. On the other hand, faculties of law and architecture, which are of lower - 32 - F. EDUCATION priority, have continued to enjoy a disrroportionate popularity, Faculties of agronomy, veterinary medicine, and forestry have grown far more slowly than was needed, and faculties of the basic sciences such as chemistry, physics, biology, mathematics, psychology, and sociology, upon which the applied sciences depend, are either non-existent or barely represented. It is noteworthy that in 25 universities comorisIng 138 degree-giving, faculties no degree is offered in physics or biology,i and only one faculty offers a degree in mat-hematics or cheristry. It is true that some degree of specialization among, the arts and sciences can be found among the faculties of education, but enrolment in these faculties is the most critically inaderuate of all specialties, and the de-ree of concentration they offer in thl respective fields is scarcely sulfficient 'or the needs of high school teachers, not takfrm into account t.he need in industnfr, agr-c'-u-, governmsnt, and the urzversi- ties for a core of highly trained snecialists in basic fields of knowledge.

96. This situation, to which we shall return, is graphically illuas- trated by the attached chart, which presents schematically the degree of derpendency of one field of study upon another, together with the number of degree-giving faculties in these f-ields as of 1961. There it will be seen in sharp contrast that the number of faculties offering deg,rees is in inverse ratio to the degree of dependency which exists.

97, This presen-us a picture of a sy-stem of hiTher education in which the essential base of pure science, wWhih supports the applied sciences, is absent, and in which the application of knowledre is pursued without regard fcr the accumulation of knowledge.

98. Among the leadiog universities, howevTer, there is a growring awpareness of this situation and a beginningT towiTard its correction. At the Universities of Los Andes and ^el Valle and elsewbzare new curricula are beinc acopted in which the first two yvears Five greater emphasis to the basic studies. Unified departments are being, created in the various arts and sciences replacincr the old s5stem in 'rhich separate faculties hired their own mathematicians, sociologists, or language teachers as they sawr fit. Some progress has been made in offering degree courses in t,hese b-asic fields, although until nowT this has been only a toklen achievement. It is an inportant item of ag,enda for the early future.

99. In 1961 the 25 institutions having the rank of university coiprised 138 faculties offering professional degrees, in which were enrolled anp,roxinately 23,0CO students, and 21 post-secondanry schools offering sub-professional instruction to 1,250 students. There anrpeared to be general a-reement among Colombians concerned w-Tith university education that this was too marry universities and too many faculties. The dispersion of resources -- physical, financial, and human -- which resulted frcn this "balkanization" of hither education had clearly reached the point where none of the 25 institutions, ev-en including the relatively well off National University, could function effectively. -33 - F. EDUCATION

COLOMBIA: COMPARISON OF THE NUMBER OF UNIVERSITY FACULTIES WITH THE INTERDEPENDENCY OF SUBJECT FIELDS

ARTS EXACT AND EDUCATION ~~~~~~~~~~~~~ITIESENGINEERING MEDICINE ARTIEXACTRAF NATURAL SCIENCES SOCIAL SCIENCrES LAW

NUMBEROF DEGREE 6 2!I2 I 0.~1 2 I 0 0 I I I I1I2 2 2 I 0 16 I 1 14 5 3 4 4 5 1 9 2 6 I 6 I 5 1 I I 9 7 4 GIVING FACULTIES (19611 131

0 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~0-

0 23~~~~~~~~~in00

r [T '4 4

ARROWS INDICATE THE 4~~~0 0 0 2I .j(~ DEPENDENCYOF n 4 - .4.in in4~ - 24 ONE SUBjECT 0- j~0 . - .(J - 0 ON ANOTHER4 4 i 0in n~,n 4

2 > ~ - ~ Uc in0 4 0 - ~ i o.-.,n- ~ .4 0(000 ~ ~ (04A a ~~~~~4 2 0 - 4(.2.4~~~~~~~~~~~~~~~~~~~~

440 O~~3r 4 - ~~in2t~ in 402 - --44ORO - 0in~inin 0. E-- 4 0 ~2 4 0 i ~n~~~ ~ ~ . 0 4 .i..Z 2 0 4 ~~~~~~.4 4~~~(0(0 2 4 2 - 2 .2~~~1" - 34 - F. MUCATION

100. Just what this fragmentation of hither education means in terms of the use of resources can be seen more clearly by an examination of university enrolment in 1961. In the 138 faculties covering b1 specialties the enrolment of students in their first year was as follows:

Faculties Students

Enrolment of 100 or more 22 2,960 It from 50-99 46 3,227 it from 20-49 48 i,54 "t under 20 14 206 if in which specialization begins after first year 8 -

Total 138 7,937

101. If we turn to enrolment in the final year of the various courses, the results are as follows:

Faculties Students

Enrolment of 20 or more 43 2,0L7 from 10-19 30 429 of less than 10 24 163 too recently established to have a final class 4ll

Total 138 2,639

102. In the case of first-year enrolment we observe that 68 facultiesp just under 50 percent of the total, enroll 6,187 students or 78 percent of the total. In the case of final-year enrolment, 43 faculties or 31 percent of the total enroll 2,047 students or 78 percent of the total, IrWe wonder, therefore, whether, except for certain s-ecialized tynes of courses, the elimination of approximately half of the university faculties wTould have more than a negligible effect upon the output of professional manpower in Colombia. On the contraryT, by concentrating only a part of the resources these fac.lties consume (together with their students) into those that remained, the output could be improved, both quantitatively and qualitatively, at a substantially lower unit cost.

103. A seconc major weakness in the composition of enrolment in higher education is the relatively small percentage of students in courses at the intermediate level. In 1961 there were only 1,150 students in the sub-professional "higher schools" compared writh 22,981 students in the professional faculties. If we accept that the country's manpower development will call for not less than five sub-professionals for each professional, it can be seen that there is a very important training function which the universities are not now performing. - 35 - F. TDUCATION

i0oi. We cannot say precisely how the training of sub-professional technical nersonnel wil1 be divided betwTeen secondary and post-secondary schools but we think that a substantial part during the next decade will have to come from courses of two to three years provided by the universities. It might be hoped, therefore, that during the next five to eight years, while there is a moderate expansion of admission into professional courses accompanied by a decline in the drop-out rate, enrolment in intermediate courses will increase to a point where it is at least equal to that of the professional faculties.

105. The multiplicity of universities and faculties is in part a response to the need for higher educational facilities located in the major population centers and available at relatively low cost to students of the lower and middle-income groups, many of whom work part-time while attending school. It is also an expression of the strong forces of regional and private initiative which characterize Colombian life as a whole and have given rise to such useful institutions as the Cauca Valley and Magdalena Valley Corporations, the Confed- eration of Coffee Growers, and others. Some of the universities origi- nated as political offshoots from, or protests against,older institutions. And in all cases their growth has been marked by a tendency to improvise and seek short-term solutions to immediately pressing needs.

106. These forces have been encouraged by the lack of any central agency capable of planning or regulating the development of higher education on a rational basis. Since its creation in 1956 the Associa- tion of Colombian Universities has done useful work as a medium for the exchange of ideas and the definition of standards. But it is limited to vhat can be accomplished by discussion and agreement among the members, and its inability to take a strong position is illustrated by the recent withdrawal of the National University over a relatively minor issue.

107. Above all there is lacking a mechanism, throu;:h which resources for higher education can lbe channeled into those universities which will be most nroductive in meetin- high-level manpower needs, and by Thich the continuecd nroliferation of universities and faculties can be restrained from soaking up scarce resources in uneconomic operations. As mentioned earlier, an amendment to the Constitution in 1958 stipulated that not less than 2.7 percent of the national budget should be devoted to the universities, 1.5 percent going to the National University, 1.0 oercent to the various denartmental universities, and 0.2 percent to the private universities, Eccept for the incidental appropriations, the allocation of funds from the national budget is therefore rigid and bears no necessary correspondence to the changing priorities of national development or the willingness and ability of individual institutions to respond to those priorities. - 36 - F. EDUCATION

108. We should not dismiss li.g7htly the forces which have brought the Colombian universities into bein-r since they are substantially the same as have given rise to most of the great universities of the world. Nlore- over, if local finance is to ulay its proper role together with allocations from the national budget in the development of educat+ion, local needs and initiative must be taken into account. Nevertheless, it seems to us that some overall plan an(d some more rational method of allocating resources for university education, especially those which comle from the national buduet, is urgently needed,

109. There are many other characteristics which detract from the quality and productivity cf Colombian higher education as a whole -- outmoded curricula, insufficient laboratory facilities and e'ercises, lack of libraries and especially central libraries, overly decentralized administration, the lack of full-time academically oriented professors and scholars, the paucity of uiniversity-centered research, and the constantly unsettling effect of student strikes or threats of strikes. At the same time there are significant exceptions to this overall characterization which could provide valuable examples to other universities. The Technical University of Santander, the Univ7ersity del Valle, and the University of Los Andes for example, all have a relatively high percentage of full-time faculty, who spend their time at the university in teaching, scholarship, and research. Part-timism is still the dominant Dractice of the National University, but its rector states that amaong the youn;er appointments there is a growing number of full-time academically cualified and oriented urofessors. Moreover, we believe that these problems are secondary compared to the general questions of structure and organization we have already described. Once there is an adequate definition of the role the various universities should play and the means are provided commensurate with those roles, most of these other problems can be solved, even including the problem of student strikes, which are often constructive in aim, if not in method.

Recommendations for Higher Education

110. In view of the situation of the universities previously described the ouestion arises how investment could best be directed toward raising the aoality, efficiency, and nroductivity of Colombian higher education. One alternative is to attempt to expand and strengthen the system of higher education on a broad front within the existing organizational structure. A second choice would be to attempt a wholesale reorganization of the system as a condition of external financing on a broad front. A third alternative would be to select particular projects, faculties, or universities in order to develop the potentials already existing and to stimulate self-examination and reform in those institutions which do not yet qualify for assistance. - 37 F. EDUCATION

111. ~iith respect to the first alternative, despite the efforts of the Association of Colombian Universities, there does not yet exist any suitable mechanism for the selective distribution of funds into the most productive channels. For this reason the first alternative is considered impracticable. The second alternative -- a wholesale reorganization and rationalization of the system of higher education -- is a necessary condition to future growth and productivity in the universities, but as yet there does not appear to be sufficient probability of this being done to make it the basis of a program of external financing. The third alternative -- selecting particular projects and institutions -- offers the best possibilities for the early future, particularly if the projects are selected ^ith a view to high-priority manpower requirements or as basic structural elements in what right become a rationalized and more productive system of higher education. W,Jith these twJo criteria in mind we have sought to identify projects which are ready at this time to benefit from assistance.

112. Before proceeding to specific recommendations, however, it would be useful to define in outline the kind of rationalization toward which the system of universities should move.

113, The Reorganization of the Universities. As a general outline for the future organjzation of the university syTstem of Colombia we recommend the following: 1

114. (1) The establishment in each dep)artment and/or major population center of an institution offering two to three years of higher instruction. Its program would be of two kinds: (a) the first tTo years of university study for those students intending to pursue their studies in the nrofessional faculties, and (b) intermediate and terminal nrograms of study leading to sub-professional degrees for those students wiho do not intend to enter the professional faculties or who have difficulty in keeping pace wjith the pre-professional courses. The majority of these institutions should be created by the conversion of existing universities whose resources are, in fact, more suited to this kind of task than to study at the nrofessional level.

115. (2) The designation of six to eight universities for intensive developmont as centers of nrofessional study. They would include the pre-professional and sub-professional courses mentioned above, but to these would be added courses of two to four years, depending upon the specialty, leading to professional degrees. These universities should be selected so as to provide good geographical distribution and at the

An example of the form of organization suggested here can be seen in the system of colleges and universities of the State of California. Chile has also begun recently the development of regional colleges which will act as feeders to the University of Santiago. - 38 - F. EUCATION same time take advantage of existing strength and potentials. Not every professional specialty should be offered by each university. Faculties should be distributed among them with a view to the need for graduates, the oresent or notential status of the srecializations in the universities, and the need for keeping fragmentation to a minimum.

116. (3) The encouragement within the seven universities mentioned above of programs of graduate study consistent with the development of their professional faculties.

117. Securing unanimous agreement to such a wholesale reorganization of the universities would be difficult, but we believe that a majority of the existing universities might accept a new role, provided they were assured of adequate financial support to do wqell the task that came to them. It should be made clear that such a reorganization should in no way restrict a -rivate institution w--hich wished to preserve its autoncnry and develop in its own way w,,ith resources at its own disposal. The reorganization should aim at better utilization of public funds, rarticularly of the substantial amounts budgeted each year by the national government. It could include orivate institutions or not, depending upon whether they chose to accept the terms of reorganization.

118. Considering for the moment only the official universities and emphasizing that the folloving list is solely for Purposes of illustration, institutions of the first groups might be located in: Ibague, Pereira, Armenia, Neiva, Tunja, Cucuta, Ma-dalena, CartaCena or Barrancuilla, Pasto, and IIonteria olus several in Boe;ota. Institutions of the second group might be located in Bogota, Cali, Manizales, Cartagena or Barrannuilla, Bucaramanga, Popoyan, and lHedellin, Neither the University of Cartagena nor the University of Atlantico provides a stron- institution wyith which to l-egin, but clearly the coastal area should be served by one university of orofessional level. In Medellin the university of this tyre shiould probablyv be a combination of the University of Antioquia and the Faculties of Mines, Architecture, and Agriculture of the National University. W,e would expect that under such a plan of reorganization the distinctions between national and departmental universities which nowl provide obstacles to genuine integration of these institutions would be minimized,

119. ,fe believe the merits of such an organization of the universities would be considerable. First, it should provide for rational use of resources consistent with the needs of social and economic develonment, and eliminate the wasteful dispersion which now impairs the successful operation of all universities. Second, it would orovide suitable - locations for the expansion of courses of interimediate level training, which is one of the countryfs most critical needs. Third, it would provide nearby access to higher education for a substantial portion of the country's population. Most students seeking intermediate training could get it without leaving home. Students hoping to continue into - 39 - F. EDUCATION professional training could prove their ability in their city of residence. They would have the alternative of shifting to intermediate training if necessary. And for those students of proven ability the cost of subsidizing their continuing education away from home would be small compared to the cost of trying to maintain a full-fledged university in every city. Fourth, it would concentrate in fewer universities the limited resources of trained manpower and equipment needed for high-level professional training. It would make possible economies of scale and pave the way for the development of many things Colombian universities now lack -- libraries, laboratories, residential facilities, and above all, well trained, adequately paid, full-time professors who are members of an academic profession.

120. Before passing from this proposal a word should be said about the future development of graduate study and the encouragement of university- centered research programs. For some time to come specialized, advanced training in many fields will have to be secured abroad. For this purpose an expansion of the activities which have been so successfully initiated by ICETEX will be necessary. At the same time, however, there are many kinds of advanced study and research which should be carried on within the local environment and which could be expected to take root once strong professional faculties had developed in the universities. There are already encouraging beginnings in the faculties of medicine and architecture at del Valle, in the faculty of sociology of the National University in Bogota, the faculty of economics at Los Andes and elsewhere. The influence of such graduate and research activities, moreover, is regional and not limited to Colombia alone.

Recommended Investment 1962-65

121. (1) University Facilities for the Training of Secondary Teachers. In our judgment one of Colombia's most critical manpower problems, comparable to that of agriculture, is the supply of secondary school teachers. Given the long lead time for the expansion of the secondary teaching force, teacher supply will continue to be a limiting factor on the necessary expansion of secondary education for some years to come unless extraordinary measures are taken at once.

122. We estimate that the 19,000 teachers reported in 1960 for the general, normal, industrial, and commercial schools, some of whom are part-time, would reduce to approximately 16,500 full-time equivalents. Of these perhaps 4,000 should be expected to retire or withdraw between 1960 and 1965 leaving 12,500 full-time equivalents of the 1960 teaching force available for 1966. If we assume a ration of 22 to 1,1/ the

1/ Allowving an average teaching load of 23 hours a week, 28 class hours a week per student, and an average class size of 27 gives a student- teacher ratio of 22 to 1. (28 x 22 = 1 23 27 It is difficult to see how this ratio could be improved during the next ten years without a reduction in the number of required class hours. Because of light enrolment in second cycle classes it could well be lower. - Lho - F. 1MUCATION

teacher remiairement for 324,ooo first and second cycle students will be approximately 15,000. Optimistically we might expect that of students enrolled in faculties of education during 1961-65 1,800 will have graduated and entered teaching by 1966. This leaves a deficit of approximately 700 teachers which could be made up by graduates of other university faculties or by part-time teachers who transfer to full-time. The problem of teacher supply up to 1966 is therefore solvable provided the student-teacher ratio can be improved sufficiently.

123. The problem becomes acute after 1966. We estimate an enrolment of 535,000 urban students in the first and second cycles in 1970, to which might be added 65,000 students in rural secondary schools, making a total of 600,000o At 22 students per teacher this calls for 27,000 teachers, of which, alloiwing for attrition at 5 percent a year over 15,000 would have to be new.

124o The program suggested in Table 10 falls considerably short of meeting this reouirement although the level of input reached by 1967 should be adeauate for sustained growth.

Table 10: PROGRAM FOR THE EYAISION OF SECONDARY TFACHER TRAINING

New Graduates Cost of hew through 1964 New Construction 40% of first Construction @ 20,000 pesos year; 1965 First Year Total (1962-65) per student and after 50% Enrolment Enrolment Places (in millions of first year of pesos)

1961 1,000 2,000 - - 200 1962 1,300 2,600 - _ 250 1963 1,800 3,600 2,000 ho 300 1964 2,800 5,600 2,500 5o h°o 1965 4,ooo 8,ooo 2,900 58 650 1966 5,000 10,000 - - 900 1967 6,oco 12,000 _ _ 1,4oo 1968 - - 2j000 1969 _ - - 2,500 1970 - - - - 3,000

125. Taking into account the basic decisions that need to be made and the detailed plans that need to be prepared, however, the mission has found it necessary in projectin-, investment expenditures to rephase the above construction program with smaller totals in 1963 and 1964 and a - 41 - F. EDUCATION larger total in 1965 and subsecuently. We recomnend that most of the new facilities in the 1962-65 pro-ram be concentrated in six or seven existing universities, for several reasons. First, in order to have competent staff for the teaching of these teachers it will be necessary to call upon all the surplus time of existing professors in the faculties. Second, it is essential in the training of secondary teachers that they have the benefit of association with other university students and be able to take advantage of all the resources of a university. Finally, only in the established universities can one hope to find the leadership necessary to plan and execute such an ambitious program. Tentatively wre would suggest that facilities be established in the National University in Bogota, the University del Valle in Cali, the University of Antioouia in Medellin, the University of Caldas in Manizales, the Technical University of Santander in Bucaramanga, and the Pontifical University of Javeriana in Bogota. However, to the extent that they can provide physic--l resources and teaching, other universities might enroll students in the first two years of teacher training, thus initiating the scheme for rationalizing university enrolment described above. The inclusion of other universities on th-s basis should certainly be nart of the program after 1965.

126. 4hile this report is not the Tplace to discuss the details of curricula, we also stronv:ly recommend that programs of study place strong emphasis upon the subject matter that is later to be taught. Ideally, students who intend to teach chemistry and biology, for examples should have the same basic courses in those subjects as do students intending to specialize in them, and similarly for other sciences, the humanities, and the social sciences. This may not be practicable at the beginning but it should be the constant goal of the programts development.

127. (2) University Training in Agriculture:

(i) Professional. The renort of the Commission on Higher Agricultural Education in Colombia (1961) estimates the future reouirements for agricultural Drofessionals as indicated in Table 11. We think that this represents a fair balance between the desirable and the possible.

Table 11: ESTDIATE OF REQUIRER ITS FOR PROFESSIOIIAL TRAINDING INJ AGRICULTURT

1960 1965 1970 (Actual)

Number of Graduated Professionals 1,300 2,100 3,4oo Number of Students Needed in Colleges 1,244 1,630 2,54o Number Renuired to be Graduating Annually 95 230 330 - 42 - F. EDUCATION

128. During our mission in Colombia we encountered two proposals for expansion of professional training in agriculture, namely, from the Faculty of Agriculture of the National University in Palmira and from the Faculty of Veterinary Medicine of the National University in Bogota, The Palmira proposal contemplates an increase in enrolment from 291 in 1961 to aoproximately 500 in 1966 and an increase in graduates for the same years from 33 to 75. The estimated cost for fixed capital is 6,032,350 pesos. The Bogota proposal is designed to provide capacity for 70 students a vear in veterinary medicine and 130 students a year in zoology, both courses comprising five years of study. It is also contemplated that durinpg the early years some of the increased capacity in zoolcgy would be used for intermediate training of applicants not admitted or students who fail to keep up with the pace of professional study. The estimated cost for construction and equipment of this project is 10,627,638 pesos plus $1,259,000.

129. In view of the high priority which must be given to high-level manpower in agriculture we recommend the earmarking of funds to cover the projects at Palmira and Bogota and an additional sum of 8,000,000 pesos, continge t upon the presentation of suitable programs by other institutions. _*

(ii) Sub-Professional. As indicated under the heading of secondary education we endorse the program indicated in the budget for 1962 of increasing enrolment in the agricultural normal schools by 800 students. In addition, however, we believe that the universities could contribute substantially to the training of agricultural technicians.

131. Comprehensive information is not available regarding the extent to which universities having professicnal faculties of agriculture, forestry, or veterinary medicine are training technicians at the intermediate level as an adjunct to their rrofessional courses. We believe, however, that these institutions, which already have staff and facilities, however inadequate, are in the best position to contribute in the short-run to the supply of technicians. In line with our general recommendations concerning reorganization of the university system we

Discussion is currently under way concerning a new higher educational institution for agriculture which uould be an outgrowth of the research station sponsored by the Rockefeller Foundation at Tabaitata and would attempt to create a closer relation between teaching and research than exists presently in faculties cf agriculture. Because it is still under discussion and because it could not in any case affect the supply of manpower for several years we have not included it in our discussion. From a manpower point of view it would not be competitive with existing institutions whose expansion we have reconmmended. - 43 - F. EDUCATION would favor twTo or three-year courses of intermediate training in the universities, serving both the students wrho have dropped out of the professional courses and others entering directly.

132. The report of the Commission on Higher Agricultural Education (1961) suggests that it might be possible to raise the output of intermediate technicians to 330 a year by 1970 through expansion of the four schools currently operating at this level and the establishment of new ones. We are in accord with this proposal for the longer term, but in view of the problem of teacher supply we would give higher nriority to university efforts beginning during the period 1962-65. We would suggest earmarking of 9 million pesos for this purpose during the four year neriod contingent upon the presentation of suitable projects by the universities concerned.

133. (3) The University del Valle. In the opinion of many qualified observers this young university is one of the most promising institutions in Latin America. Its medical school is outstanding, and it is now attempting to develop other faculties to a comparable level. It occupies an imnortant position regionally, in the industrial city of Cali, and its national and international importance is growing.

13h. Its greatest handicap is the limitation of space in its nresent site. As a basis for its ten-year development mrogram the university needs to begin work on a new campus which will ultimately accommodate 6,o0o students and it cannot initiate the shift unless a substantial part of the needed funds are assured. The project is in a reasonably good state of readiness. We recommend, therefore, that consideration be given to its application for a loan to assist in the construction of a near campus.

135. (h) The Faculty of Sociology at the National University in Bogota. Although this project ts small, we feel it should be rnentioned because of the excellent beginning which has been made by this faculty and the key role wuhich its graduates vill be playing in the country's social development. This faculty is the only one in the country capable cf producing trained social investigators and administrators and extension wrorkers in a number of fields of critical importance such as the at'rarian reform, community development, industrial and labor relations, education, child welfare, crime, and the "violencia." It has an outstanding Dean, who in only a fewr years has developed a good undergraduate program and will shortly institute graduate study. Already the faculty is doing research and publication of importance. For example, it will shortly publish the first scientific study of the "violencia." Enrolment has expanded steadily and will continue to do so.

136. Physical facilities, however, are limited, and despite additions to the present building will not be adeouate after the current year. In viewr of the ouality and importance of the work it is doing, as well as - 4 - F. MDUCATION the readiness of the project, we believe this pjroposal for a new billding should receive consideratifn,

137. (5) Other Intermediate Training in the Universities, In support of our recommendation for thie build-up of university enrolments in courses of sub-professional level we recommend also that funds be earmarked for this purpose during the period of 1962-65 apart from those we have suggested for agriculture. The objective w;Tould be to meet intermediate manpDower needs in such categories as nursing and public health, engineering, business administration, commuinications, construction, and laboratory technology of all kinds. 'Iedo not recommend, however, the actual expenditure of such funds unless it can be made along lines which contribute to the rationalization of the universities, Tentatively we would suggest an earmarking of 9 million pesos for this purpose with the possibility that substantially larger amounts might be needed if a thorourfhZoin:. plan of university reorganization wiere adopted.

ITNVTIH1ENT ATD OPERATING COSTS

138. Educational investment carries uith it an unusually high commitment to recurring operational cost. It is a labor intensive "industry" in which to date at least there has been no generally applicable technological innovation capable of altering its basic cost structure. It is capable of absorbinr a substantial input of a nation's resources, wihile producing a ver-y lolw or uncertain output, both ouanti- tatively and aualitatively. This has been true of most countries wiThich are in a state of rapid development, and Colombia does not appear to be an exception.

139. Reliable data on total national exnenditures on education are difficult to find, but wre do have the followinra aggregate data on budgeted educational expenditures br the central goverrnent, the departments, and the municipalities in 1959 and in 1962. For 1962 we also have some information on expenditures by semi-autoncmous agencies.

Table 12: BUDGETED EX] DITURM FOR EDUCATION (in millions of pesos)

1959 1962

Na-tional &overnment 159 535 Departmental Governments 177 334 11-unicipal Governments 4o 76 376 945 Semii-Autonomous Agencies - 78 1,023 - 45 - F. EDUCATION

Table 13: RECOJThENDATIONS FOR IiTVE737-E T IN HIGHE EDUCATION, 1962-65 (in millions of pesos)

1 962E/ 1963 1964 1965 Total

1. University Facilities for the Training of Secondary School Teachers a/ - 4o 5o 58 148

2. University Training in Agriculture: a. Faculty of Agriculture - Palmira h4 2 - 6 b. Faculty of Veterinary 1iledicine and Zoology - Bogota _ 6 10 5 21

c. Other Professional Level Training b - - (4) (h) (8)

d. Intermediate Agricultural Training in Universities bJ _ (2) (3) (b) (9)

3. University del Valle _ 20 20 16 56

. Faculty of Sociology.- Naticnal University 1 1 - 2

5, Intermediate University Training _ _- (h) (5) (9)

Total a- 71 83 79 233 a Nission projection in main report involves smaller volume of construction in 1963 and larger volume in 1965 in view of prospective problems in initiating program.

Because of the tentative nature of these programs funds have not been included for them in total for higher education. c/ The 1962 budget (Investment - Program V) provides for 8.5 million pesos expenditure for higher education, but imany of the projects listed are not correctly classified under this heading. - 46 - F. EDUCATION

Table 1h: SU1IJTARY OF RECO01-MEND5 IDVIWTUENT IN EDUCATION, 1962-65 (in millions of pesos)

1962 1963 1964 1965 Total

Primary Education Classrooms 61.5 66.6 73.0 700 271.1 Teaching 1N1aterials 5.o 20.0 35.o 30.0 90.0 Other (as in Four-Year Plan) 2.5 4.4 5.o 7.3 19,2

Sub-Total 69.0 91.0 113.0 107.3 380.3

Secondary Education First Cycle 30.0 a/ 45.o 55.o 65.o 195.0 Second Cycle 7.0 20.0 36.0 4Oxo 103.0 Rural Education 7.0 26.2 17.0 17.4 67.6

Sub-Total L4.O 91.2 108.0 122.4 365.6

Higher Education University Facilities for Secondary Teacher Training - 4o.o 50.0 58.o 148.0 University Training in Agriculture - 10.0 12.0 5x0 27.0 University del Valle - 20.0 20.0 16.0 56.o Faculty of Sociology _ National University - 1.0 1.0 - 2,0 Sub-Total b/ 71.0 83.0 79.0 233.0

Grand Total J 113.0 253.2 30o.0 308.7 978.9

Estimated distribution of 1962 budget.

The 1962 budget (Investment - Program V) provides for 8.5 million pesos exrenditure for higher education, but many of the projects listed are not correctly classified under this heading.

£/ Mission recommendations in main report reflect somewhat different phasing in view of prospective problems of rapidly expanding construction of secondary school facilities and university facilities for training secondary school teachers. - 47 - F. RDUCATION

140. IJe do not know how much wuill be spent on education by private individuals and agencies in 1962, but it is probably not less than 300 million pesos and might be considerably more. Central governmfent expenditures represent 15 percent of the national budget. The total public and arivate expenditures of approximately 1.3 billion pesos will represent over 4 percent of the Gross National Product. This expenditure is probably between two and one-half and three times the expenditure of 1959 and raises, therefore, the question of how much greater the cost of education will become by 1965 in view of the large program of investment which has been planned. 141. The ranid rise of educational costs has been taken into account in the Four-Year Plan, but in our judcgment the actual operating costs charged to the national budget during the period 1962-65 will mount more rapidly than is indicated in the Plan. Our own estimates are admittedly imprecise but they suggest, nevertheless, that a restudv byv the Colombian Government might be useful.

142. In primary education we have e,timated the unit cost for 1962 by dividing the total amount of the national budget for primary education by the estimated enrolment. For 1963 and 1964 we have increased the unit cost by the amount of the primary teachers' salaries to be transferred under Law 11ll We have applied these costs to the estimated enrolment for these years and 1965. The calculation assumes that other increases in cost will be borne by local governments.

143. In secondary education we have divided the amount allocated in the national budget for 1962 by the enrolment in the national schools insofar as u-e could estimate it. We have increased the unit cost by about 10 percent a year, and we have estimated enrolment increases by allocating 75 percent of the increase in enrolment to official schools and assuming further that enrolment in official schools iwould be divided betwieen national and local government schools on the same ratio as now (60 percent national and 40 percent local). Enrolment in national schools thus increases from an estimated 42,ooo in 1962 to an estimated 58,ooo in 1965. We have also increased the grants-in-aid from the national budg,et to local government and other schools I/ in the same proportion as the increase for students enrolled in national schools.

lh4. For the universities we have estimated an increase in enrolment during this neriod from 26,000 to 36,000 students, about half of the increase representing candidates for secondary school teaching. We have assumed that the average contribution of the national budg,et to the education of university students, both public and private, w'Tould continue to be 60 percent as it was in 1960. We have tlhen calculated an increase

j Budget of the 1h1inistrv of National Education; Section II, Chapter 1218, Program V. Not all of these items are for secondary education, - 48 - F. EDUCATION

in the average national contribution from about 4,000 nesos in 1962 to 5,200 pesos in 1965, although some of this increase could be reduced through economies of scale. We have calculated administrative and other costs as approximately 20 percent of the total educational budget.

145. The results of these calculations, together writh those of the Four-Year Plan are given in Table 15:

Table 15: OPERATING COST RSTDIATTIS, 1962-65 (in millions of pesos)

1962 1963 1964 1965

Primary Education 125 176 236 247 Secondary Education 62 77 103 115 University Education 100 128 154 187 Administrative and Other 78 95 123 137

Total 365 -/ 476 616 686

Estimate of Four-Year Plan 342 404 464 475

i Budget for 1962.

146. If these estimated operating costs are combined with the reccmnended investments the combined costs for the national government become:

Table 16: INVESTMIENT AIND OPERATITG COSTS OF CEIJRAL GOVIMNKMT, 1962_65

1962 1963 1964 1965

Operations 365 476 616 686 Investment 106 259 322 322 Total 471 735 938 1,008

147 The total for 1965 of 1 billion pesos would probably represent between 15 percent and 20 percent of the national budget) wrhich is not - 9- F. EDUCATION excessive comnnred to other countries and considering the development that is taking place. It can be compared with the figure of 1.8 billion pesos which is the result of projecting the 1959-62 growth in national expenditure to 1965. By projecting a 50 percent increase in the expenditure of local governments and semi-autonomous agencies and a 25 percent increase in private exnend4tures between 1962 and 1965 (which is a lower rate of increase than betlreerl 1959 and 1962) we arrive at an estimate of total expenditure on education of 2.3 billion pesos for 1965, which would be between 6 percent and 7 percent of the expected Gross National Product. It would place Colombia in the upper half of the rapidly developing countries in this respect, but by no means at the top.

148. The justification for such levels of expenditure on eduication can only be conditional. Properly directed and adrninistered, such expendi.tures on the development of human resources wfould be eminently justified. But it would also be possible, as may have been the case in the growth from 1959 to 1962, for the Goverrnment to increase its expenditures byr a substantial amount without getting an adequate social and economic return on its investment. This possibility points up the argument uhich has run throughout this report: that while increased exnenditures are necessary and unavoidable, wThat is equally needed is planning and reform. ANNEX VII, SECTION G PUBLIC INTESTI1ENT IN HOUSING

1. As presented in the General Plan, public investment in the field of housing was focused on the construction of non-farm housing. This annex, after presenting general background, considers first the problem of non-farm housing, and discusses the various actions, including both public investment and steps involving the private sector, which might be taken to relieve the problem. The annex goes on to consider the farm housing problem, and to outline a possible prograzm for action.

Background

2. Colombia is a country with an unusually high degree both of interest in housing and of desire for home ownership. This is reflected in the legislation and procedures it has adopted to promote both public and private investment. In recent years, Colombia has initiated a series of measures designed to stimulate the total volume of housing construction. In particular:

a. Savings institutions, and savings sections of commercial banks, are required (under Decree 1691, 1960) to invest 22 percent of the increases in their deposits in the housing and savings bonds of the Instituto Credito Territorial (ICT), the public housing agency. These institutions must also invest 25 percent of increases in their deposits in the mortgage bonds or cedulas hipotecarios of the Banco Central Hipotuecario (BCH). This requirement should help to assure a continued expansion of the BCH lending, the traditional source of financing for much of private housing construction in Colombia. The BCH issues its mortgage papers, known as cedulas hipotecarios, on the open market. These tax exempt cedulas, bearing 7 percent interest, are known for their stability and have attracted the confidence of investors. The total cumulative subscriptions for cedulas increased from 107 million pesos in 1957 to 330.5 million pesos in 1960. Current regulations also provide that 15 percent of the increase in savings of the insurance societies, and 45 percent of the increase in savings of the capitalization societies, must be invested in mortgage loans. The estimated total of funds from savings institutions thus becoming available for worker and middle-income housing over a five-year period is substantial, amounting to 732 million pesos. - 2 - G. HOfSING

b. A new surtax of 6 percent has been levied on the net profits of busirness and industrial enterprises. This surtax is destined for worker and middle-income housing, with 2 percent of the proceeds to go directly to the Instituto de Credito Territorial, and the balance permitted to be subscribed half in cedulas of the Banco Central Hipotecario, and half in stocks, bonds, or support of non-profit housing corporations, to be subsequently regulated by the national government (Law 81, 1960, Reforma Tributaria). As long as these corporations do not exist in properly organized form, the balance may all be subscribed in the BCH bonds, but with the condition that these must be held for at least a five-year period. It is estimated that the total proceeds of the levy will be about 75 million pesos a year.

c. Colombian legislation has an interesting provision designed to direct investment toward non-luxury type housing. Housing units whose total cost including land is less than 60,000 pesos are exempt from the complementary tax on property (impuesto complementario de patrimonio). Capital gains from the sale of such units is exempt from tax if it does not exceed 120 percent of total costs. This feature of the law is to be commended, as focusing attention on the needs of providing more middle-income and worker housing, and making investment in this field more attractive.

d. Still another feature of LawJ 81, 1960, Reforma Tributaria, which was put into effect by Bogota in March 1962, permits Bogota, the capitals of departments, and cities of over 100,000 population to levy a tax of 4 percent annually on the assessed value of vacant non-urbanized land within city limits, and 2 percent annually on the value of urbanized or improved land, with an area of over 1,000 square meters. A major feature has been the effect of reducing the cost of land by making it less attractive to hold it for speculative purposes. The income from the tax is to be used for investment in the development or improvement of urban facilities and services. As land prices have been averaging at least 30-40 percent of the total cost of dwelling units in cities such as Bogota, Cali, Manizales and Barranquilla, this permissive aspect of the Law, if applied in the large urban areas, will be an important factor in holding down the overall costs per dwelling unit.

3. These provisions of Colombian legislation indicate the broad scope of the measures Colombia has already taken to augment and channel the flow of resources for housing. As described more fully below, most of the public investment programs directed by the ICT in themselves require a considerable participation by private investors. Such programs include - 3 - G. HRGSNIG the self-help and mutual help systems; the loan system for owners of small lots; and the three-part plan system, u!nder which the ICT basically finances on'ly up to a maximum of one-third of the total cost of dwelling units.

Non-Farm Housing Program

4. Housing Needs. The urban housing problem in Colombia has become acute, with the growth of the country's population and the increasing pace of industrialization and urbanization in the larger cities. The situation is aggravated by the violence in rural areas which has caused mnany additional peasant families to seek safety and employment in the urban centers. The housing deficit is currently estimated by the ICT to be more than 270,000 dwelling units. This estimate is based on information provided in the Census of Dwellings and Buildings in 1951, on statistics of building permits granted by the municipalities, and on studies of population growth in municipalities of more than 10,000 inhabitants. The deficit is computed as -the dif-fernce between the number of families which need housing in December of each year and the number of units available at that time. No account has been taken of the dwelling units destroyed annually for street widening, for deterioration through age, for abandonment, etc. Nor is account taken of much of the generally sub-standard housing constructed since 1951 without benefit of building permits.

5. The housin,g deficit is particularly acute in the low-income sectors of the population, where private enterprise does not find enough incentive to operate, where risks are greater, and where the rates of recovery of capital are too slow compared to that in other sectors. For example, the average monthly income for workers in the manufacturing sector in 1959 was approximately 210 pesos, without counting the family subsidy -- too low to permit acquisition of even the simplest minimum house built by standard methods, which would cost 10,000 pesos. It is estimated that at least 300 pesos a month is the very minimum necessary for subsistence for the average Colombian family, excluding housing. Even a house costing 8,000 pesos would still require a monthly payment of 80 pesos minimum to repay such a loan in 15 years, at the 8 percent standard interest and 1 percent insurance fee charged by the ICT. If no more than 20 percent of annual income should be dedicated to housing, according to the widely quoted formula, without affecting other consumer needs, then minimum housing for urban areas built by any standard method could only be afforded by families with income of at least 400 pesos a month.

6, The signs of the housing deficit are most visible in the areas of rapid urbanization caused by immigration from rural zones. It is estimated that in 1960 approximately 52 percent of the population of Colombia was rural an d 48 percent was urban, i.e.,in localities of more than 1,500 inhabitants. In 1971, estimates indicate, the proportion will be approximately 57 percent urban and 43 percent rural. - 4 - (. IIu1-IG

7. At present there are 71 municipalities with more than 10,000 urban people, and 10 with more than 100,000. Of these, Bogota, Cali, Medellin, Barranquilla and Bucaramanga account for 61 percent of the estimated housing deficit, and the 12 cities of more than 90,000 population cover 75 percent of the total deficit in all municipalities of over 10,000 population. By 1965 present projections indicate that 39 percent of the urban population will be concentrated in the five largest cities, Bogota, Medellin, Cali, Barranquilla, and Bucaramanga.

8. The investment for the housing sector projected in the General Plan has as its major objective to keep the estimated non-farm housing deficit in Colombia from increasing, so that by the end of 1965 the deficit will remain constant at about its present level of 272,700 dwelling units. Roughly half of the 226 million non-farm units projected for construction during the period would be public housing, mainly under the sponsorship of the ICT. As irill be described more fully below, the programs of the ICT are designed to take account of the realities of the Colombian scene at the present time, considering both the low incomes of much of the population in need of housing as well as the need to locate new housing in the areas of large deficit and the areas where urbanization is tending to accelerate.

Current Investment Plans of ICT

9. The General Plan included the following projection of investment expenditures for public housing:

Table 1: PUBLIC INVESTMENT EXPENDITURE FOR HOUSING IN GENERAL PLAN (in inillions of 1961 pesos)

National 19unicipalities Total (ICT)

1961 229 19 248 1962 194 25 219 1963 201 29 230 1964 236 32 268 1965 273 35 308

10. Following the preparation of the General Plan, ICT revised its estimates in the light of recent experience. The summary of its revised construction plan follows in Table 2. -5 G. HOU3L\'J

Table 2: RVISION OF IJATIONAL (ICT) I!jVES EME\T PLAN

Aggregate Value of Dwellings Average Cost Nurmber of (in millions) Per Unit Units 1961 112 5,966.oo 18,793 1962 252 8,o85.00 31,200 1963 238 8,490.00 28,083 19614 224 8,915.00 25,134 1965 263 9,360.00 28,088

11. The revision represents mairly a change in phasing and only a small reduction in the 1961-65 total program. Actual expenditures in 1961 were less than half the amount projected in the General Plan while the revised totals for 1962 and 1963 would be appreciably larger than in the Plan. The agency projection of external financing remained unchanged from that in the Plan, as summarized below, in millions of pesos:

a. Loans Already Approved:

Earmarked counterpart of U.S. Eximbank loan 40.0 Development Loan Fund, AID 80.1 Inter-American Development Bank 132.4 Point IV 4.0

Sub-total 256.8

b. New Loan Request, "Fondo de Emergencia" 210.0

Total 466.8

12. ICT anticipates that the approved loans of 80.4 million pesos from the Development Loan Fund and 132.4 million pesos from the Inter-American Development Bank will be disbursed during 1962 and 1963. The Eximbank loan of 40 million pesos, added to the capital of the ICT, was almost completely disbursed in 1961, as was most of the Point IV grant of 4 million pesos for demonstration projects. Under the current projections of the ICT, the additional 210 million pesos would be disbursed during 1963, 1964 and 1965.

13. The plan involves construction directly or indirectly of more than 112 thousand dwelling units during 1962-65, concentrated largely in areas which in 1961 had a serious housing deficit. The ICT would continue to carry out the policy, begun in 1959, of applying much more of its limited --6 G. HOUSJNG financial resources than previously to promote home owi-nershi! by the lower-income groups through several major types orf programs. The following construction or lending programs are of major importance in ICT's plans for 1962 to 1965:

a. Self-Help and Mutual Aid. These systems are designed for families of very low income. The self-help projects are for couples whose monthly income does not exceed 350 pesos, plus 80 pesos for each allowable dependent. The Institute provides the improved land to the families, who pay for the lots, worth about 1,400 pesos to 1,500 pesos, in monthly installments, and agree to complete their houses within a specified time, receiving aid from the Institute in the form of olans and technical supervision. For those who can afford it, loans for basic building materials up to a value of 3,500 pesos are also available. The Hiiutual Aid projects are for couples whose income ranges from 350 pesos to 700 pesos a month, plus 80 pesos for each allowable dependent, and provide for the construction of houses by groups of owners rather than individuals.

b. Three-Part System (P-3). This progran is designed to facilitate the construction of homes for persons who have capital of their own to invest. The individual must apply as part of a group of at least ten who plan to build on the same site. Once an individual has demonstrated that he can finance one- third of the cost, and that he has a private sponsor who will finance another third, the Institute will advance the final third, at the usual rate of interest. As an inducement to private investment, interest on the Institute loan may be deferred up to six years during which the private sponsor is repaid with interest up to 10 percent. After this, the Institute is repaid over a period of nine years at 9 percent interest. Maximum amount of the loan from the Institute is 25,000 pesos, and the total value of house and lot may not exceed 75,000 pesos.

c. Loans to Owners of Lots (P.?.L.). This program is to assist the individual owners of small lots in urban areas who need technical assistance and modest credits to build their own houses. The Institute receives the applications for credit, studies the conditions of each lot, and supplies the necessary plans and credits to the lot owners. The average loans, in return for first mortgages, have generally been small, from 2,000 pesos to 6,000 pesos per unit, though it is expected that these averages will increase somewhat in future programs. - 7 - G. HOUSING

d. Direct Construction. Up until 1959 thlis was the principal method of operation of the Institute. The agency would buy a large area of land, provide it with all public services, and construct housing by contract with private builders after public bidding on the basis of plans and specifications fur- nished by the Institute. A common variant at the present time is the core-housirng concept under which the homeowner is provided with a habitable shell which he can complete with flooring, paint, etc., at his own pace during occur,ancy. The owner is reouired to complete his house under penalty of repossession, and the presence of a social worker in the community for two years helps to assure that the house will be finished. Core housing is financed by a down payment of from 1,500 pesos to 2,000 pesos. Since it is possible to build two core houses for the cost of one complete dwelling, for which the 25,000-peso limit is not adequate anyway, the Institute has sharply reduced the construction of completed houses in favor of this program.

14. Direct construction activity by the Institute itself is now being limited to about 25 percent of the total number of units, while the remaining 75 percent are being allocated to other systems of construction which stress a maximum of self-help and mutual help, as well as participation of private enterprise. The various methods outlined above reduce costs, but do not employ direct subsidy; all houses are sold at their actual cost. All loans to families or individuals carry interest of 8 percent, plus an additional 1 percent for fire and life insurance. Depending on the type of program and the family income, the down payments may be varied, as well as the repayment periods.

Evaluation of ICT Plan

15. The missi-on was very favorably imoressed with the progress mnade by ICT in recent years. Output was eight times as large in 1961 as in 1958, rising from 2,349 units to 18,793 units, while the average public investment per dwellirng unit decreased from 23,500 pesos in 1958 to 5,719 pesos in 1961. During 1958-61 a toAtal of 34,0o0) units were built under ICT sponsorship, nearly twice the total number built in the entire period of 1942-57.

16. While this experience furnishes a solid base for future growtlth, the mission believes ICT's plan to more than double its constriction program between 1962 and 1963 is not feasible and the mi.-iont s estimnates of investment expenditures assume a slower rate of growth. A comparison of the various estimates for expenditures for the ICT program follows in Table 3. - 8 - G. HOUSING

Table 3: COMPARISON OF EXPENDITURE ESTIN1,ATES FOR ICT PROGRAM (in millions of 1961 pesos)

1961 1962 1963 196h 1965

General Plan 229 19h 201 236 273 ICT Revision 1072/ 252 238 224 263 Nllission Recommendation 107 115 167 209 234 a/ Actual.

17. The current problems of ICT in expanding its program are indicated by the rate of utilization through May 1962 of outstanding DLF and IDB loans. Thus far disbursements of I1l million have been made against the ,i27 million outstanding. Requests for disbursements in June 1962 totaled $2.5 million, including an advance of $1.5 million from IDB for a revolving fund. On the basis that undisbursed balances of existing loans will be largely utilized in 1962 and 1963, the mission's projection of further external commitments includes '15 million late in 1963, for disbursement in 196h and 1965, and a further commitment late in 1965 to continue the program. The need for these additional funds will depend largely on the success of ICT in overcoming current organizational and onerational problems.

18. Forced draft procedures, plus the availability of large tracts of land suitable for the new programs in areas such as Cali, enabled the Institute to show notable quantitative increases in its accomplishments within a short time. Now that the first wave of expanded activity has terminated, however, the Institute is faced with problems of acquiring suitable land with public services and with other organizational, staffing, technical, and legal problems that will inevitably cause some delays during the next year or two of the program. All of the problems can be resolved; substantial financial resources, both internal and external, are available to aid in doing so, but certain changes in internal policies and procedures are called for as the Institute proceeds to carry out its program.

19. The 1962-65 program places the Institute increasingly in the role of a financing agency for housing, diminishing its role as a direct construction organization. This trend is to be encouraged, but even so the Institute must find and acquire land and provide it with public services for many of the projects it sponsors, whether for direct construction or for building upon by others under the aided self-help and mutual help systems. This is difficult because in many urban areas land suitable for the Institute's projects is hard to acquire at reasonable prices and it is often located beyond the service ranges of existing public service systems, such as 9 - G. HOUSING power, water, sewers and transportation. To provide such services is not only costly (from 5 to 20 times the cost of raw land), but also requires time and the coordination of efforts among the national and local authorities concerned.

20. A high rate of construction may also be held up in some areas by the nature of the programs themselves. Self-help and mutual help housing projects are notoriously slow in execution, subject to local conditions and psychological receptivity to such systems, even though the ICT has developed speed-up technicues which appear to work well in some areas.

21. While ICT faces serious organizational and operational problems, means are available for further re-orienting its activities to promote more speed and efficiency, in both administrative and technical operations. The work of the Institute has in the past tended to be too centralized because the key functions of legal work, property acquisition, site planning, architectural and engineering design, and even final tenant selection has been performed at the Bogota headquarters. Mquch can be done to accelerate operations by delegating more functions and responsibility to the regional offices of the Institute. Up to now the Institute has had an acknowledged bias toward the use of labor intensive practices and traditional building concepts, as a means of using as much manpower as possible. The rudimentary building processes in use at the present time can be improved with better on-site organization and more extensive use of machinery and equipment by contractors. The Institute also can and should make more effective use of the concepts of modular coordination, standardization of component elements and prefabrication, as other means of rationalizing and speeding its construction operations.

22. If administrative or technical obstacles to the execution of its programs as originally conceived become more serious, or even as a matter of basic policy, the Institute can deleg,ate a larger portion of its construction programs to municipal or local non-profit housing corporations, which it would help to strengthen and finance for the development of continuing local operations. As a matter of policy, it is not desirable for any public agency to serve as "landlord" or owner of a large housing stock; it is better to shape the management of particular projects so that this will be basically the responsibility of local groups, such as cooperatives, with suitable technical direction. The larger cities of Colombia all have organizations of this type which can be utilized under such a broader concept. It is anticipated that the neTw Federation for Housing Cooperatives will develop into an important agency for overall cooperation with many of the Institute's programs. The Institute currently has authority to make loans for a maximum duration of ten years to housing cooperatives which plan to build in groups of at least ten, up to 75 percent of the cost of the houses. However, as the maximum loans are limited to 25,000 pesos per housing unit, loans to housing cooperatives are now being channeled through the "three-part" system, described above. - 10 G. EO)USTNG

23. The programs of the ICT, although adeqizate for the present period, are too narrowly oriented, and should be revised in the future. For example, the Institute is bound in a strait jacket of requiring a return of 8 percent, plus 1 percent insurance charge, for all of its investments in housing, even though, through ingenious anproaches, it is serving families of very low income. More flexibility should eventually be permitted in the Institute's programs so that it can further diversify its support of housing for low-income famnilies in both central and fringe areas. A system of grants-in-aid to local governments might very well be encouraged for the promotion of planning and urban renewal efforts.

24. The Institute aopears to be particularly weak in its efforts to promote continuing research and evaluation with respect to its programs. Such research would not only permit improvements in housing technology and thus directly lower costs, but would also permit still further savings in maintenance and repairs for existing projects. The Institute should allocate a small percentage of its regular investment program for research and training in housing, and also intensify its efforts to develop precise information on local housing needs and resources and on the most effective utilization of ICT's funds to help supplement local resources in meeting existing needs.

25. ICT must gradually develop clear concepts and approaches for its entry into the field of urban renewal, as the bulk of its programs cannot continue to be based on the building of housing projects on the outskirts of cities, because of the costs of extensions of public services, transportation, schools, etc., -which such projects require. In turn, such new programs will entail further studies of how a better balance can be achieved in public investment for urban housing, particularly to seek better quality and diversity to avoid projects that involve large homogeneous groups of very low-income families on large tracts of land, and to point up ways of stimulating the production of rental housing and condominium type housing. To carry forward the research and evaluation function ICT could advantageously create within its organization a separate unit divorced from direct operational responsibility.

26. The housing program of the ICT as presented will require virtually no importation of materials. By careful purchasing and stockpiling programs, the ICT is assuring itself of the availability at reasonable cost of the materials it needs for the immediate future, Bowever, considering the long-term situation, and the demands for building materials by the private sector and by other public sector programs, steps should now be taken to finance the expansion of existing plants and the development of new building materials industries where these produce components that may be in short supply.

27. The investment programs for housing and urban services, supported by external resources, will provide major sources of new employment during the next several years, particularly for construction workers and - 11 - G. 1HOUSINTG unskilled laborers. It is likely, however, that certain shortages will develop of foremen or more skilled workers, which indicates that the ICT must prepare or arrange for new training programs in many, if not all, of the regions where projects will be under construction.

28. Although the relationships between the TCT and the Instituto de Fomento Municipal are cordial, more can be done to develop effective working relationships to resolve the problems involved in the timing and financing of the public services needed for housing projects and programs. As stated, the ICT has tended to concentrate on large projects that require the provision or extension of public services away from the main urban centers. This policy has tended to put a burden on the Instituto de Fomento Municipal or on the Empresas Municipales concerned, which must execute and finance the services for such projects. These wqorking relationships should be close from the time of initial programing and selection of municipalities and sites for the specific projects.

Consideration of Longer-Term Measures

29. The current program under which ICT's activities are being expanded and focused on low-income families can be considered as a "stop gap" arrangement in the sense that it is designed to prevent an aggravation of current housing shortages without, however, alleviating the existing situation. While the ICT program goes forward it is highly desirable to develop supplementary measures to help improve housing conditions in non-farm areas. These include:

30. Action to Stimulate Saving and Investment. The Banco Central Hipotecario is continuing to provide much of the financing needed for private contruction, and other existing savings institutions have intensified their promotional activities to attract savings for housing purposes. However, a major new effort is needed in this field, to accumulate small long-term savings from individuals under an institutional framework that iall significantly expand Colombia's housing and home oianership. The solution that has been proposed and for which carefully drafted legislation has been submitted to the Colombian Congress provides for creation of a system of private savings and loan associations, functioning within the framework of a national central bank for home financing. The program would be an important complerment of the public investment for housing projected in the General Plan. The principle of attracting new small savings for channeling toward investment in housing is particularly important to help assure increased financing of a non-inflationary kind.

31 The system would operate under government chartering, regulation and supervision. It would be designed at the same time to be independent in operation and free from political interference or affiliation in its objective of rendering service to the community and to its individual depositors. The United States Government has offered an initial loan of - 12 - G. H'OU$IJING

85 million. As planned, the capital contribution of the Colombian Government would be derived principally from the one-third of the special 6 percent income tax earmarked for non-profit housing corporation, mentioned above.

32. Action on the necessary legislation for the new savings and loan system has, however, been long delayed. If this legislation is not approved shortly, consideration could advantageously be given to the creation, with the aid of external financing, of a special fund to help finance middle-income housing. Such housing would be in a general cost range reaching groups of the population which have some capability to pay but do not have adequate financing for home ownership available at the present time, although they strongly need and desire such ownership. The fund, in combination with private resources of individuals, savings institutions and employers, would be able to give immediate support for worthwhile projects sponsored by cooperatives or non-profit housing associations. It is suggested that the management of such a fund be handled by the Federation of Housing Cooperatives which has now been established in Medellin, under experienced and responsible direction, and which has produced a thorough survey of the status of projects ready for financing.

33. A loan to this Federation will ensure that the resources are used for institution-building, to encourage the growth of local building organizations on a continuing, experience-accumulating basis. These organizations themselves wqill foster local initiative, work closely with employer and labor union groups, and develop and stimulate the greater use of savings and private resources for housing construction.

34. Reducing Current Deterrents. Deterrents to further private investment in housing include the costs and legal delays caused by administrative procedures for processing applications for building permits, insistence upon standards that are too high and too unrealistic to permit other than high-cost housing; and requirements that subdividers cede large areas of their plots for streets, green areas, schools and other public purposes -- often these requirements serve to deter the building of large-scale projects. A psychological deterrent also exists in the existing rent control law, freezing rents on construction as of 1956, although this has no direct effect on new construction.

35. Strengthening Urban Planning and Renewal Programs. Private investment in urban housing can also be stimulated indirectly by strengthening local and metropolitan planning, particularly to insure the coordination of all services necessary for individual projects, schools, transportation, electricity, parks, paving, water and sewers, etc. The field of planning for urban renewal in Colombia, outside of Bogota, appears to be poorly developed, another reason why housing is generally built on the outskirts of the cities, forcing costly and premature extensions of services. A comprehensive approach to overall community development, involving the - 13 - (J. dqUSITC

creation of balanced neighborhoods with some diversity of housinrg type and income classification, is all too rare. The large new project of El Techo in Bogota, sponsored by the Institute, appears to be an exception, but it is located on the fringes of the city, with expensive needs for extension of services and future costs to its dwellers in transportation, etc., and it is unlikely that it will draw forth much in the way of newT private investment, nor contribute substantially toward solving other planning and development problems of the Bogota area,

36, More tools should be developed to assist local governments in planning and preparation of urban renewal sites and projects suitable for investment in areas that are closer to the urban centers. Bogota has established a Rotating Fund for Redevelopment, authorized to issue bonds to enable the acquisition of urban land and clearance of sites for rebuilding. These procedures will stimulate private participation in the building of apartments, whether for rent or sale on a cooperative or condominium basis. Such apartments will help balance the existing public and private building of single-family dwellings on the outskirts, by improving, protecting and preserving urban environments which now are otherwise subject to rapid deterioration at a cost which cannot be afforded by a country in Colombia's stage of developrent.

Farm Housing

37. Public investment in the field of ruril housing was not provided in the General Plan, apparently on the assumption that any funding could be covered by the agricultural bank (Caja de Credito Agrario) which was treated as part of the private sector. In the view of the mission the current housing problem of rural areas, as described below, calls for a pilot program in the public sector to supplement the work of this institution.

38. Current Housing Conditions. The various studies and evaluations which have been made of the rural housing situation in Colombia have taken as their starting point the census of 1951, wqhich showed that there were a total of 1,212,161 rural dwellings and 1,161,282 rural families averaging 5.8 persons per family. Aoparently, therefore, there was an excess of 50,879 dwellings or structures for the rural population, although the census showed that at least 1,019,699 of the rural dwellings were hygieni- cally inadequate. There is no doubt that dwellings in rural areas are in much worse condition than those in urban areas. This inferiority is reflected in the following Table 4, based on the 1951 census: - 14 - G. hOUSING

Table 4: RURAL VERSUS URBAN HOUSING CONDITIONS, 1951 CENSUS (in thousands of units)

With dirt W.1ithout Without W4ithout Without floor water water closet bath electricity

Urban 252 331 198 506 357 Rural 680 926 887 974 958

39. The following classification has been made of the rural housing existing at the time of the 1951 census:

Acceptable units (10 percent) 116,128 Lacking water and sanitary services 174,192 Units to repair 406,449 Units to construct, impossible to repair 464,513

Total 1,161,282

40. More recent evidence on housing conditions in rural areas suggests that the situation has not improved and may even have deteriorated.

41. Current Activities of Agricultural Bank. Since 1957, the Caja de Credito Agrario has served as the designated government agency responsible for credit programs and action in the rural housing field. It absorbed these functions from the ICT, which was initially created in 1939 primarily to attend to rural housing needs, and which, until being limited to urban housing, was responsible for the construction of about 14,000 rural dwellings. One problem is that the Caja de Credito Agrario has had very limited financial and staff resources available. The role of other institutions has also been limited. The National Coffee Growers Federation has engaged in a program of subsidies for the housing of coffee workers who have at least a minimum plot of land, but the total number of units constructed since 1944 is only about 6,100.

42. The volume of outstanding loans of the Caja de Credito Agrario for the construction and repair of rural housing in recent years is shown in Table 5.

Table 5: LOANS BY CAJA DE CREDITO AGRARIO, 1958-61 (in millions of pesos)

Number of Amount loans outstanding 1958 3,201 4 1959 7,468 15 1960 10,112 21 1961. 11,355 25 - 15 - G. D)U31iN1

43. The Caja has two systems for extending loans for rural housing: One is through the program of ordinary credit, which can be made available by all the agencies and offices of the Caja throughout the country, based on a valuation of the land or other holding which the farmer gives as a guaranty for the loan,, and on a review to insure that the investment has taken place. The other is through a supervised credit program which has operated in pilot zones in six departments throughout the country. This program provides control and technical assistance through an interventer and whenever possible a home demonstration worker stationed in each zone. The program has been limited by the scarcity of resources as well as by the lack of sufficient trained personnel, but the two years of experience to date indicate that it is the type of program which can well be expanded into a substantially larger operation, with funds to assure training and stability of personnel and larger amounts of resources for lending operations. For example, in the first six months of 1960 there were 207 houses under construction or repair under the supervised credit program, representing a total investment of 832,950 pesos, while in the same period of 1961 there were only 109 under construction or repair, representing an investment of 588,729 pesos. The loans cannot exceed 8,000 pesos in amount, and are only given in exchange for a first mortgage based on a maximum of 70 percent of the value of the house and land. However, the costs for the rural housing constructed with credits awarded to date in the pilot zones have been quite low.

44. Recommendations for Further Action. The mission recommends an approach to the rural housing program which builds on the experience of the agricultural bank and involves provision of funds for additional credits. Accordingly, the mission's expenditure projections include a total of 87 million pesos of public investment during 1963-65 to supplement the resources of the agricultural bank. This amount appears adequate to undertake a demonstration low-cost housing program within the means of a larger number of Colombian farmiers. A portion of the initial credit should be used to support an expanded program of training personnel and staffing field offices over a four-year period in seven basic zones of the country. Commitments for external financing totaling %5 million are recommended, one of *,1 million in 1962 and perhaps another of %hmillion in 1964. These would cover approximately 50 percent of disbursements for the new program during 1963-65.

45. It is important that the pilot zone experience of the Caja de Credito Agrario be considerably reinforced so as to serve more effectively the development programs contemplated b- the agrarian reform program as well as to raise primitive living standards to conditions that wrill promote better health and productivity. It is suggested that the internal resources available for rural housing be increased by diverting to such programs all or part of the 10 percent of deposits which the Caja de Credito Agrario is now required to invest in - 16 - G. hOUSING

Parcelaciones y Colonizacion. When the time comes, the rural housing program should serve as the source of technical assistance and credit for the dwellings that the Institute will need in its colonization projects.

46. The procedures suggested for establishing an accelerated rural housing program are as follows:

a. Define, by regions and departments, the rural housing deficit and demand situation.

b. Establish regional offices for rural housing, with considerable decentralized responsibilities for action, but depending basically from a central office in Bogota. This central office could well be a separate department of the Caja Agrario, with an advisory committee to ensure coordination on the agrarian ref'orm and other projects.

Suggested zones for such regional offices are the following areas:

i. Coastal area, including the Departments of Magdalena, Bolivar, Cordova and the Intendencia of Guajira.

ii. Department of the Valle and Cauca.

iii. Department of Narino and southern part of Department of Cauca.

iv. Departments of Antioquia, Caldas, northern part of Department of Tolima, and northern part of Department of the Choco, Zone 4.

v. Southern part of Department of Tolima, Huila and the eastern part of Department of Caqueta.

vi. Department of Cundinamarca, Santander, Santander del Suir and eastern part of Department of Boyacazz.

vii. Regions of the Llanos Orientales:

(a) Northern part, formed by the Comisarias del Casanare, Arauca, Vichada, Department of Meta and northern part of the Comisaria del Vaupes.

(b) The southern part of the Llanos Orientales including the Comisarias del Caqueta and Amazonas and south of the Comisaria del Vaupes. - 17 - G. HOUSING

47. Each regional office would have a director responsible for sections of technical supervision and plarning, and for control of the pilot zones. Accounting would be carried out by the agency of the Caja de Credito Agrario in which the regional office has its headquarters. The pilot zones would be formed by a supervisor and a home demonstration worker.

48. The orogram could advantageously begin with a three-year build-up period, starting with training of personnel to staff the regional offices as well as the pilot zones.

49. The regional offices and zones might be placed in operation as follows:

First year: Ibague, Pasto, Pledellin, Bogota Second year: Bucaramanga., Cali, Neiva and I"Ianizales Third year: Villavicencio, Florencia, Monteria, Santa Marta, Tunja, Cucuta, Puerto Carreno and Leticia.

The pilot zones that are already in operation would continue functioning as they are at present, as would the Caja's normal credit programs. ANNEX VII, SECTION H

PUBLIC INVESTEI-NT IN WrATHR AND SEETRAGE FACILITIES

The Hleed for Improv-ement

1. Under the General Plan, expenditures for water and sewerage facilities would rise rapidly during 1959-64, in a major effort to attack current health problems. One of the principal causes of death and illness in Colombia at the present time is the group of enteric infections, particularly gastro-enteritis, amoebic and bacillary dysentery, typhoid and paratyphoid, and intestinal parasites, which are caused by the lack of notable water and defective water services. For example, the Instituto de Fomento iFunicipal (ITHSFOPAL) has listed for 1959 the recorded illnesses and deaths from the folloi!inu causes relating to lack of potable water and defective water services:

Illness: Diarrhea and enteritis 247,262 Amoebic dysentery 77,721 Bacillary dysentery 13,820 Typhoid and paratyphoid 12,382

Total 351,185

Mortality: Gastro-enteritis 18,190 Bacillary and Amoebic Dysentery 1,169 Typhoid and Parat7rphoid 758

Total 20,117

2. Serious health problems also exist in Colombia as a result of the heavy rate of infection by human disease germs, worms, and viruses which are present in sewage. Unchlorinated sewage in streets, on farm lands, in open channels or in rivers, which are accessible to nersons, animals or insects, results in transmittal from infected nersons to healthy individuals. INISFOPAL has also made surveys with respect to the numbers of cases of two ty,pical diseases directly traced to soil polution from lack of sewers in 1959. The results follow:

Illness: Helmintos (parasites) 229,527 Anquilostomiasis (hooklworms) 69,100 Total 298,627 Death: Helmintos (parasites) 2,965 Anquilostomiasis (hookworms) 455 Total 3,1L20 - 2 - H IVATat I12 SAhJ4DAGB

3. INSFOPAL has estimated that the costs of illness and death attributable to deficiencies in water and sewierage facilities amounted to over 665 million pesos during l9590 ijhile there may be differences of view on the basis used to calculate these cost estimates, it is obvious that the human and financial costs have been very large.

4. The lack of reliable central water supply systems is also a deterrent to industrial growth in both small and large communities, particularly to the growth of food processing, canning, and beverage industries. Other types of industry need water, not necessarily potable, for more basic industrial processes and would prefer to get this from reliable and inexpensive central systems rather than from independent water supply systems which, on the basis of the experience in Medellin, may cost from 500,000 pesos to 2 million cesos apiece, for new plants or factories.

5. There are also great savings in cost to individuals from trans- porting water through pipe systems. In urban areas not served by central water supply svstems, families are paying, depending upon the time of year, conditions of seasonal shortage, etc., from .50 to 1.50 pesos for 10-gallon cans or drums, filled by tanktruck. This compares to an average cost per cubic meter (264 gallons) of .30 pesos for piped water delivered throurh the s,ysters under the direction of the Instituto de Fomento kunicipal,

6. Currently water and sewerage facilities in smaller towrns are extremely limited. At present there are about 3,300 localities with less than 5JO,O inhabitants. Their total population is 4,334,832, of whom 81 nercent are without a wiater supnly system, 99 percent without pure potable water, and 90 percent without a sew-erage system.

Proposed Investment Program

7. The General Plants projection of inrvestments for water and sewTerage orogrars include amounts for a national program under the auspices of (INSFOPAL) and for large cities which sponsor their own programs. The projections follow in Table 1.

Table 1: PUBLIC INVESTNENT IN WATER, AND SEWERAGE FACILITIES UNDER GENERAL PLAN (in millions of 1961 pesos)

1962 1963 1964 1965

National Program 141 13h 150 156 Major Cities 81 93 104 114 Total 222 227 254 270 NATIONAL PROGRAIK

Background

8" Colombia is fortunate in having an experienced and effective national agency responsible for promoting, planning, financing and irmplementing the construction of water supply and sewerage facilities. It should be noted that INSFOPAL was first created in 1950 as an autonomous organization, replacing the former Fondo de Fomento Municiral. The agency has subsequently evolved through various phases, but since its reorganization in October, 1957 has been under the same basic staff direction. It has made substantial progress in dealing comprehensively with all aspects of local public services, and has attempted to put them on a sound economic basis. In its organization, the Institute has given special attention to the importance of thorough technical and economic planning and justification, as is evidenced by its project presentations.

9. ILNSFOPAL has expanded its activities since 1957, with annual investment rising from 3.8 million pesos in that year to 97.7 million pesos in 1961, and it is in a position to further expand its operations. Its administrative capacity has increased substantially as a result of good internal organization and the syrstem of the decentralized societies and empresas. Thne Institute's programs are carried out in large part through water and sewerage corporations which have been created in the 17 departments, and in the Intendencias of San Andres and Providencia, Guajira, and Leticia. These corporations have as their objective the study, construction and operation of water and sewerage services under the technical and administrative sunervision of the Institute. Their capital is subscribed by the Institute, the respective departments and municipalities. The corporations orvanize the individual comnanies which actually administer the projects in accordance with clear instructions. The Institute, in addition to providing legal and technical services required by the cormpanies fixes the rates for the services, based on the construction and other costs for each -roject, which then are sent to the Sunerintendencia de Regulacion Economica for approval. The Institute has 19 regional "interventorias" for supervis- ing the studies and projects contracted by the corporations.

10. INSFOPAL has also been very successful in building the staff needed to carry out its expansion program. Because the agency is not bound by civil service requirements, it is able to be more flexible in its conditions of employment and to pay adequate salaries to its professional and technical employees. The fact that it is completely autonomous also aids in fostering a continuity of program and standard of services, At the present time, INSFOPAL has a total staff of almost 2,000 in its own organization and in the affiliated societies, including 236 professional engineers, In addition there are 413 consulting engineering firms registered in Colombia rho can be drawn upon for - 4 - FIu WLTrM AND S'*EcAE,

collaboration with the agencyfs program. Training facilities are also being expanded. Plans are under way for the organization of a new School of Sanitary Engineering in the Universityr del Valle in 1962, and for a post-graduate course in sanitary engineering to be offered at the National University, with the cooperation and backing both of INSFOPAL and the United Nations IJorld Health Organization. These programs are expected to meet the increasing need for additional. engineers required for the institute's projects, which are estimated at 393 by 1970.

11. Summary of Investment Plan. INSFOPAL has developed a comprehensive and detailed 10-year program to provide at an accelerated rate potable water and sewerage services for a growing population. The plan is based on a survey carried out in 1960 and is divided into two programs __ one of short term (1962 through 1965) and one of long term (1966 through 1971).

12. The 1962-65 program for urban areas, as projected in the General Plan, would nrovide improved facilities for 405 cities and towns. Specific p rojects for planning and construction include the followTing:

18 Studies and projects for water supply systems;

136 Studies and projects for water supply treatment plants;

108 Studies and projects for sewerage systems;

Construction of 110 new: water supply systems and improvement of 217 existing systems;

Construction of 200 new water supply treatment plants and improvement of 21 existing plants;

Construction of 195 new sewerage systems and imurovement of 190 existing systems;

Installation of 403,330 water meters.

13. The four-year program for small towfns (aqueductos rurales) includes construction, financing and improvement of 611 water supply systems in localities of less than 5,000 people, having a total population of 563,555. The work would include building new water systems in 537 villages with a total population of more than 500,000 and completing or improving existing systems in 74 villages. A breakdown of the projects by size of the population group served is shown in Table 2. - 5 - h, ,3ATR!, :;! S,B?YAG

Table 2: PROJCT-ED WAWIT. SUPP7LY S-Y'STS IF S:4ALL TGCIJWJS A-IJD VILLAGES

Number of Existing Ifater Number of New 1L.ater Supply Supply Systems to be Population Group Systems to be Constructed Completed ind Improved

0-500 224 25 501-1000 116 24 1001-3000 169 25 3001-5000 28 Total 537 74

1k. The agency i-s proceeding with projects that it is able to finance through the use of internal resources and has made a request to the Inter-American Development Bank for external assistance for a two-year nrog,ram from July 1, 1962 to July 1, 1964. This program rJould involve an investment of 03 million pesos for both the uorban and rural urograms, with slightly more than half -- 205 million pesos or $23.2 million -- proposed for financing from an external loan,

150 The program as submitted to the IDB, would involve the following financing: Table 3: NIISFOPAL'S DEVELOVEN T PROGRAM, 1962-6k (in millions of pesos)

National ExLternal Total Cost Resources Resources V

Urban Water and Sewerage 311 166 145 Programs (5354k%) (46,66%) Small Town WIater Systems 92 32 60 (Aqueductos Rurales) (3h.92%/) (65 08o) T'otal Program 403 198 205 (h49.13/) (50,87%) j Includes financing for 2.5 years from January 1962 to June 196L40 b/ Amounts of external resources, expressed in millions of U.S. dollars converted at 8,80 pesos ner dollar; are: urban program 2116.5, small town program $,6e, and Total ti23.3 0 _ 6 - W-IV,'IFh AVID Sc:,I-AGE

The four-year program of INSFOPAL, as currently planned, would involve basically a doubling of the two-year nrojections.

16. A new Department of Construction has been created in the Institute to carry out the "small town" program. Most of the program would be directly under the administrative and technical direction of the Institute, as a cooperative endeavor among the Ministry of Fomento, Ministry of Public Health, Ministry of Government and the National Federation of Cafeteros. U4ICEF is also contributing a small amount through the Ministry of Public Health for this work. The Federacion de Cafeteros, through its departmental committees, wifl finance 8 million pesos worth ,f construction. This figure is based on contracts in existence. The major contribution of national resources to the program will come from the Cormmunity Action Movement, and will consist primarily of local manpower, equipment, and materials that will be made available to the Institute for construction of the local projects, estimated to cost 25 million nesos, or 15 percent of the total cost of each project.

M4ission Recommendations

17. The mission reccmendations for investment expenditures for the national program of INSrOPAL are presented in Table 4.

Table 4: MISSION RECOMMENDATIONS FOR NA.TIONAL INSFOPAL PROGRAM (in millions of pesos at 1961 prices)

1962 1963 1964 1965 Total

Regular urban program 88 136 114 120 458 Special "larger city" prigram 16 20 30 39 105 "Small town" program 14 17 33 35 99 Total I18 173 177 194 662

18 Regular Urban Prog?am. The reccmmended amount for 1962 is somewhat below the 9b million total for 1961 because of a reduction in the volume of external financing available this year. An expanded program is recommended for 1963-65 in order to enable more rapid progress in improving water and sewierage systems and is clearly feasible in view of the demonstrated capability of INSFOPAL.

19. Special "Larger Cityl! Program. In addition to the regular urban program, the mission recommends that a special program be added during 1963-65 to meet the critical needs of six large or fast-growing cities. These cities are Barranquilla, Manizales, Armenia, Pereira, Bucaramanga - 7 - PIo, ATL , ArD 3BdAGE and Barrancabermeja. Particular attention ou,ght to be given to improving the water and sewerage s-ystems of thnese cities in vieiw of the health nroblems resulting from the rapidly -rowing population and of the needs of expanding industry, The needs of these cities are pressing, and their economic potentials are rromising. Nloreover, several of these cities have their project and engineering plans near completion. Th:ree of the cities (Barranquilla, Bucaramanga and M4anizales) were not included in the regular program nresentations and the others (Pereira, Armnenia and Earrancabermeja) had not been given the priority they deserve. (The programs of five other large cities for which financing has already been nrovided directly from external a7encies wiithout INSFOPAL sponsorship and sunervision or which should receive such direct financing in the future are discussed separately below.)

20, INSFOPAL has prepared nreliminary estimates of the costs of engineering studies and construction or expansion of water supply, wjater treatment plants and sewerage systems duiring 1963-66 for the cities recommended for the special nrogram. These estimates are showM in Table 5.

21 The mission recommends that this nrogram be financed by an external loan of 50 percent of the total cost, to be matched b7y internal resources from the municipalities or their rublic service corporations. The program, would involve an average rate of expenditure of arnroxi- riately 36 million neses a year0

22. In carrying fonTard the special program, the logical approach wTould be for INSFOPAL to enter into contractual relationships w.;ith the empresa or municinality in each of these cities to act as supervisory and lending or re-lending agency for thle projects to be financed and constructed. Tthe agreement ought to include provisions for at least 50 percent financing of the investment to be provided locally and for assurance of adequate rate structures to cover amortization of the external loan. As the cities already have a reasonably firm economic base, rates can be established for the vater and sewerage services which will cover amortization of loans.

23. "Small Town" Program, The Tdssion fully recognizes the need to attack the water supply problem of smalltowns but suggests consideration of simpler wzater supply systems0 INTSFOPAL's program contemnlates providing rather complete water systems, including source development; some chlorination treatment, storage facilities and a distribution system, including house connections, to populations that are small in size and scattered,

24, The average per capita cost for the development of systems serving less than 500 people is about 570 pesos, as oresently conceived, and for systems serving 501 to 1,000 people, about 337 pesos. The difficulties of establishing orderly tariff systems and of collecting Table 5: PRELIMINERY INSFOPAL ESTIhITES OF COSTS OF SPECIAL "LARGER CITY" PROGRAM, 1963-66

Expansion of Water Estimated Supply and W.1ater Expansion of Population Treatment Plants SeweragenSystems Cities i963 lY93 Eng. Study Construction Eng, Study Construction Total Ain millions of pesosT

Armenia 93,443 303,064 Ol 8c4 01c 2.0 10o6 Barrancabermeja 40,753 132,128 Ocl 5.5 0.1 600 117 Barranquilla 499,164 2,157,300 0,2 26.O 0.2 30.0 56.4 Bucaramanga 195,546 845,o63 0,2 16o0 0.1 7.0 23.3 Manizales 147,310 520,780 0.2 15.6 0.2 400 19o9 Pereira 172,450 1,303,400 01 20.0 0.1 2,0 22.3

Total 191482666 5,261,735 0.9 91.5 o0,8 51.0 144.2

cn I:1 r - 9 - H, Wa.ATET AND SXET¶hAGE

revenues in these small centers will undoubtedly be great and anticipated income will be less than calculated,

25. The major recommendation that emerges, therefore, is that the provision of water supply in such communities should be simpler, based on the use of public hydrants or standpipes rather than an attempting to orovide a complete service. The estimate has been made that such sirmpler s-ystems should result in the lowering of per capita costs from 570 to 250 pesos in the case of the smallest localities, and from 337 to 150 pesos in the case of communities with from 501 to 1,000 population. The resultant savings in the four-year program would then amount to 35.5 million pesos, Furthermore, the mission recommends that 50 percent of the financing for the "small town" program should be supplied from internal sources,

MUNICIPAL PROGRMIS

Background

26, The larger cities of Colombia have not generally been considered as forming part of the national programs of the Instituto de Fomento Municipal. Instead they generally rely entirely upon autonomous or semi-autonomous local public corporations, known as empresas municipales9 to supply their recuirements for public services. Most of the empresas have developed techniques to enable them to finance services for the very low income groups of the population. In some cases, this has involved the establishment of a special loan fund, on a revolving basis, which may be a mechanism for subsidizing some of the installation costs of water or sewerage services or for enabling such installations or house connections to be financed over a period of time rather than requiring heavy initial payments.

27. The emnresas of some of the larger cities have already started to impleament development plans. With the support and guaranty of the national government, several have secured external financing from the Inter-American Development Bank for expansion and improvement of their water and sewerage systems. The folr cities to which external loans have been made thus far, and the amounts involvred, expressed in U.S. dollars are as follows:

City Amount of Loan

Cartagena - water and sewerage systems 5,831,095 Cali - water supply 2,h54,000 Cucuta - water and sewerage systems 5,183,000 Medellin - water supply 5,944a,Po9 - 10 - I-I, WATER AND S.

28. Disbursements of these loans will take place du!ring the p,eriod 1962 to 1965, and are included in the mission's nrojections of investment disbursements for this sector.

29. The cities of Cali and Medellin have developed detailed plans for the expansion of their sewerage systems and have made applications for loans of 03 million and $7 million, resnectively, to the Inter-American Development Bank. The city of Bogota has a comprehensive plan for constructing in stages sewerage, drainage and sewage disposal works to serve an area of anproxiimately 18,500 hectares of the Special District of Bogota, estimated to be sufficient for a total population of 3,200,000.

30. The estimated cost of construction of the complete 24-year program for Bogota, based on 1961 prices and including an allow$Iance of 20 percent on each item for engineering and contingencies, is about 465 million pesos. The plan would be carried out in three stages, with the first ttTo stares due to be completed by 1980, or 15 years after the start of major projects. In the program proposed by the consulting engineers, the costs of the three stages of the project are as follows:

Table 6: ESTE,1ATED CONSTRUCTION COSTS OF STORM U-rATER AND SEWERAGE SYSTR4S FOR BOGOTA (in millions of pesos at 1961 prices)

1st Stage 2nd Stage 3rd Stage Total

Storm Water SyNstem 102,h90 61,200 56,65o 220,3h0 Sanitary Sewerage System 72,210 76,530 90,710 245,450 Total 180,700 137,730 147,360 465,790

31. Internal resources of the empresa will be used to finance the start of construction in 1963, but an external loan will be needed to help finance the heavy construction necessary to complete the bulk of the proposed first stage.

32, Mission Recommendations The mission recommendations for invrest- ment expenditures in comparison with the General Plan are presented in Table 7. - 11 - H. IWATTAiP M Ft,RACE

Table 7: PUBLIC ITNVES 7M11Tt ILN 1LAT-4R AND 3EI1EERAGE FACILITIES (in millions of *pesos at 1961 prices)

1962 1963 1964 1965 Total

General Plan 81 93 lo1 lL4 392 Mission Pecommendation 64 96 86 91 337

33. The mission's figures for investment expenditures during 1962-65, involving somewhat smaller total expenditures than projected in the General Plan, are based on the rate of activit.y which currently appears feasible in view of the current and prospective availability of internal resources and the probable phasing of construction under existing and pending external credits.

34L The expenditure nrojection includes funds for the expansion of the Bogota sewJerage system in view of the urgency of the need. However, because of the close relationship between severage and water programs, the mission recommends that complete engineering studies be undertaken quickly for an expanded long-range water supply and distribution program for Bogota. Certain studies exist but they should be broug'it up to date, esnecially because the diversion of a substantial amount of vater for irrigation purposes involves the prospect that current sources of water at their present rate of exploitation iiill not be sufficient to provide for the estii,ated future pooulation of Bogota. The estimated safe yield of all existingr sources of sunply, including the Bogota River at El EsTino, is apprcximately 9.8 cubic meters a second. A population in excess of 3 million will require at least 13.8 cubic meters a second.