RrT RN TOREST RI CTED RCPCRTS D S \ mECO Report No. EA-165a ONE WEE This report was prepused for use withir Ithe Bank and its offilialed organizotions. They do not accept responrsbility for *ts accuracy or oornpleteress. The report rniay not be published nor mncy it be quoted os repreieniing.-heir views. INTERNATIONAL SANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION CURRENT ECONOMIC POSITION AND PROSPECTS OF SPAIN (in four volumes) VOLUME I THE MAIN REPORT December 8, 1966 Europe and Middle East Department CURRENCY EQUIVALENTS U.S. $1 60 pesetas 1 peseta = U. S. cents 1. 67 1 rmiLlionpesetas = U.S. $16,667 1 billion pesetas - U.S. $16,666,667 INTERNATIONAL BANK FOR RECONST'RUCTION AND DEVELOPMEN7' FILE COPY CONFID_ALL R66-165 FROM: The Secretary December 15, 1966 SPAIN There is attached for information a report entitled "Current Economic Position and Prospects of Spain" (in four volumes) (EA-165a) dated December 8, 1966 as follows: Volume I - The Main Report Volume II - Annex I : Industry Volume III - Annex II : Tourism Volume IV - Annex III: Public Finance and Capital Market. Distribution: Executive Directors and Alternates President President's Council Executive Vice President, IFC Deputy Executive Vice President, IFC Department Heads, Bank and IFC PREFACE This report was prepared on the basis of findings made by a Bank economic mission which visited Spain in March and April 1966 and of information received subsequently. With respect to agriculture, the mission based its views largely on the report "The Development of Agriculture in Spain", prepared by a joint Bank/FAO mission which vis- ited Spain in October-December 1965. The members of the economic mission were Marinus van der Mel (Chief), Patrick de Fontenay and Jesus Zarandin (general economics), Bertil Walstedt and Sanjaya Lall (industry), Sydney Fairmont (tourism), iMarto Ballesteros and Oktay Yenal (public finance and capital market) and Miss Alejandrina Perez (secretary). All were members of the Bank staff,except Mr. Fairmont who is on the staff of UNCTAD and acted as consultant to the mission. CURRENT ECONOMIC POSITION AND PROSPECTS OF SPAIN Table of Contents Page Map Basic Data Summary and Conclusions I Introduction 1 II Economic Developments during the 1960's 4 Economic Policy Reforms 4 The Development Plan 6 Economic Developments and the Problem of Stability 8 Economic Growth 8 The Equilibrium Problem 9 Employment and Wages 11 Monetary Developments 12 Foreign Trade 14 Protection and Export Promotion 15 Balance of Payments 17 Government Measures and their Effects 18 III Major Sectors of the Economy 22 Agriculture 22 Industry 26 Transportation 30 Tourism 33 Housing 36 Education 38 IV Public Finance and Capital Market Li Public Finance 41 Scope and Transactions of Public Sector 41 Revenue Effort 42 Public Expenditure and the Plan 44 Fiscal Management 44 Capital Market 45 Public Borrowing 45 Financial Reforms 46 Interest Rates 46 Role of Official Credit Institutions 47 Page V Economic Prospects and Creditworthiness 48 Importance of Economic Policies 48 Prospects for Economic Growrth 5° Balance of Payments Trends 5° Creditworthiness 54 Statistical Appendix 55 Separate Volumes: Annex I - Industry (Volume II) Annex II - Tourism (Volume III) Annex III - Public Finance and Capital Market (Volume TV) 2 > 8 ogobt \ = ~~~~~~~~~~~~~~~~~~~~~~~~) HAlL WAYC t - ' -g GENERA ~~~~~~~~~MADR > 9= __g_ f ~~~~~~~~~~~~~~~~~~~~~~~~~MALNleOh °! cZbor/Xvr t,c erz t0 60 w \1OUNYAINOIIS AREAS lANG ERj4 ? . .: - 77P' I'J_ _ __ SAFoBrAP lOAL BASIC DATA Area: 194,700 square miles (including Balearic and Canary Islands) Population (end 1965): 31.7 million (not including African Provinces with a total population of 0.5 million) Rate of growth, 1951-65: 0.8% p.a. (after emigration) Density (per square mile): 160 Emigration (net), 1961-65: 460,coo Gross national product (1965): 1,305 billion pesetas Rate of growth, 1951-58: 4.5% p.a.; 1961-65: 8 % p.a. Per capita, 1965: U.S. $ 690 Gross domestic product at factor cost (1965): 1,207 billion pesetas of which, in percent: Agriculture (including fisheries): 19.2 Mining: 1.5 Industry (including utilities): 32.9 Other: 46.4 Percent of GDP at market prices 1964 1958-64 Gross investment 24.2 21.9 Gross savings 24.0 22.2 Balance of payments current account deficit 0.2 -0.3 investment income payments 0.1 0.0 Public sector current revenue 15.9 14-15 (est.) Resource gap as % of investment 1.1 3.0 a/ Money and credit 1965 Rate of increase (billion pesetas; 1965 1961-65 year end) Total money supply 440.0 16.5% 17.3% p.a. Time and savings deposits 487.0 20.4% 21.4% p.a. Credit by commercial and savings banks to private sector 556.7 27.1% 24.6% p.a. Other lending to private sector 91.8 8.3% 23.0 p-a. a/ Excluding 1960 and 1961 bT Not including official credit institutions Prices Rate of increase 1966 1965 1962-65 lWholesale prices (yearly average) 10.1% 5.5% p.a. W,1holesale prices (first half 1966 over first half 1965) 3.3% Cost of living (yearly average) 13.2% 8.7% p.a. Cost of living (first half 1966 over first half 1965) 6.6% Central Government budget operations a/ (billion pesetas) 1965 1°62-65 Increase Revenue 150 16% p.a. Current expenditures 96 22% p.a. Capital expenditures 57 16% p.a. Total expenditures 153 20% p.a. External public debt ($ million) 1965 1960-65 Average Total debt (year end) 414 280 Total annual debt service 41 36 Debt service ratio (% of merchandise exports and tourism) 2.0 2.7 Balance of payments ($ million) 1965 1961-65 Increase Exports (f.o.b.) 1,019 8% p.a. Imports (f.o.b.) 2,778 28% p.a. Tourism (net) 1,027 33% p.a. Workers' and other private transfers 358 35% p.a. Current account balance - 1486 1965 1961-65 Average Share of total exports: fruits, vegetables, fats, oils, foodstuffs, beverages 45% 47% Gross foreign exchange reserves (year end) b/ 1,409 (or 1,200 (or 5.6 months' 7.3 months' imports) imports) IMF position ($ million) 1966 (Sept.) 1961-65 Quota 250 150 Drawings _ _ a! Does not include non-budgetary operations (including borrowing) and operations of public autonomous agencies. Current and capital expenditures for 1965 are estimates. b/ Including DhE gold tranche position. - iii - External financial assistance to public sectorC/($ million) 1965 1963-65 (Average) Commit- Disburse- Commit- Disburse- ments ments ments ments Total S¸.dA/ i5.oW 5h.o 7.2 Hard: IBRD 4o.O 8.h 46.o 3.1 US (Eximbank) ... ... -1.2 0.5 Germany _ 6.3 - 5.2 France - - 2.4 2.4 Suppliers' and bank credits ... 9.1 -1.6 Other ... ... -2.3 -2.3 c! Including loans to private sector guaranteed by Government. d/ Estimate. SULFIARY AND CONCLUSIONS 1. During the last decade and a half, and in particular since 1961, the Spanish economy has grown impressively. In the last five years, GNP has risen in real terms by about 8% per annum; income per capita at current prices now equals about $700. But growth has been accompanied by recurring inflationary pressures, particularly severe during the second half of the 1950's, absent or mild during the early 'sixties and again posing a major threat to steady growth since mid- 1964. In addition, income distribution has remained very unequal especially between the urban and rural areas, and difficult structural problems persist in agriculture and industry; they are legacies from the past and can be solved only gradually. 2. After virtual stagnation since the end of the Civil War in 1939, economic growth was resumed in the 1950's. Its main impetus was large-scale financial assistance from the United States, related to military base rights. GNP rose in real terms by some 5% per annum during 1953-58; but inadequate fiscal and monetary policies resulted in a progressive rise in prices and the near-exhaustion of external reserves in 1958. This led to the Stabilization Program of 1959-60 with participation of the OEEC and the IMF and financial support by these, the U.S. Government and private banks. The peseta was devalued, the exchange system unified and strict fiscal and monetary discipline enforced. The consequences were stability of prices and a marked im- provement in the external position, but also a stagnation in growth and investment and rising unemployment. 3. The stabilization effort marked, in addition, the beginning of a period of basic reforms in economic policies. Autarkic policies had been followed for many years. During the Tfifties the trend to- wards high tariff walls and tight import controls had even been streng- thened and many of the newi industrial ventures, including those of the State-owned INI, depended heavily on protection. Internally, the eco- nomy was restrained by a widespread network of regulations. Since 1959, imports of foreign goods, technology and capital were stimulated by a gradual reduction of restrictions. Tariffs were reviewed, al- though many remained high. Next, from 1962 onwards, detailed controls on investment, production, distribution, prices and wages were lifted progressively. Other areas of basic reform included the monetary, financial and fiscal fields. 4. Many of the reforms were related to the activities of the Planning Commission, established in 1962. Under its direction prepa- rations were completed for the first Development Plan, covering 1964-67. The targets of the Plan are supposedly binding for the public sector, and indicative for the private sector. The Plan in- cludes a detailed program of public investment and gives targets for investment, production and exports in the private sector. Its key target is a rate of growith in GNP of 6% per annum, close to 5% per head. - ii - 5. Stimulated by external and internal liberalization, the econ- omy expanded rapidly since 1961. Progress was fast in the secondary and tertiary sectors wTith average annual growth rates of 12 and 10%. By con- trast, performance in agriculture was disappointing. After an exception- ally good crop year 1963, 1964 was disastrously poor and in 1965 growth in output was still below¢ the 3% target of the Plan. The share of agri- culture in GDP dropped from 26% in 1960 to 18% in 1965. 6. Growth trends were affected by large-scale migration of labor from the land, to urban areas inside Spain and to other %uropean coun- tries. Iigrants were motivated by much higher wages abroad and, to a lesser extent, in the secondary and tertiary sectors in Spain; also, until recently, by widespread under-employment in rural areas. Total employment in agriculture declined by at least half a million during 1960-64 and by about 200,000 in 1965. Net emigration of workers since 1060 exceeded 450,000; the 1965 figure was 60,000. Migrants within Spain on the whole adapted themselves to their new jobs with remarkable smoothness and registered unemployment remained low. 7. In spite of rapid progress, difficult structural problems re- main. In agriculture, autarkic policies for many years aimed at raising output to satisfy domestic needs rather than at increasing efficiency. The results have been misallocation of resources, insufficient moderniz- ation,maintenance of inadequate production patterns and high costs. A further decline in the active population in agriculture is desirable, together with a rise in productivity and a progressive reduction in costs. Expansion of livestock production should be a key policy. It will call for a substantial increase in feedgrains and Lodder produc- tion, as well as a large program of pasture development. A program along these lines, supported by general measures to inprove agricul- tural performance (research, extension, credit, change in agrarian structure and more adequate price policies) will in the long run lead to important import savings of meat, grains and livestock. In addi- tion, with appropriate policies, output growth and augmented exports are possible for the traditional agricultural exports (citrus, other fruits and vegetables). 8. In industry, much remains to be done to improve its struc- ture and increase competitiveness, thus opening the way for closer ties with the European Economic Community, actively sought by Spain. It is necessary to strengthen the energy base, modernize the coal - iron ore - steel complex, accelerate the development of growth in- dustries like chemicals, machinery and automobiles and rationalize traditional industries such as textiles, food processing, paper and mining. Major policies under the Plan to support these objectives are structural rationalization (Iraccion concertada"), development of new regional growth centers ( tpoloslr), support of exports and tech- nological development, and stricter control of INI's growth. - iii - 9. In transportation, many of the road and railway facilities are antiquated; until some years ago they gradually deteriorated because of inadequate upkeep. There are redundant and uneconomic railway lines and unnecessary parallel services in rail and road transport. The ports are in need of expansion and modernization. Long-term investment and modern- ization programs for highways, railways and ports linked to the general Development Plan, are underw-ay to remedy these problems. 10. The new Plan is of special significance as the first coordina- ted effort in development and in remedying the various structural prob- lens. Some of its policies, in particular the accion concertada and the establishment of gro-th centers, clearly are already having an impact on the economy. Public investment is proceeding in accordance with the Plan, although during the first two years there was a shortfall of more than 10% which was larger in real terms owing to the rise in prices. The Plan has been less successful in other respects. There are import- ant cases where actual policies have deviated from those proposed in the Plan for reasons other than conscious revision or where little has been done to implement proposed policies. Also, in spite of more co- ordinating machinery, a certain lack of coordination of policies among ministries and autonomous bodies still prevails, as illustrated by the performance in checking inflation. 11. After a brief period of stability following the stabilization program, inflationary pressures recurred. Price increases became par- ticularly acute since mid-1964; between then and the middle of 1965 wholesale prices went up by 13% and the cost of living by 15%. Initi- ally, limited sectoral imbalances, notably in construction and agricul- ture, were largely responsible for rising prices and wages. Construc- tion expanded much too strongly, stimulated by official credit, govern- ment subsidies, foreign investment and speculation. Agricultural output did not keep pace wsith the growJing demand for food and through the end of 1964 restrictive policies held back food imports. Large rises in food prices stimulated wiage demands. With an accelerating price-wiage spiral, pressures on private banking credit increased. The public sector also contributed to inflationary pressures, by a rapid rise in budget outlays and by strongly increased expenditures of the public credit institutions, financed to a considerable extent through money creation. 12. Since the middle of 1965, the rate of price increase deceler- ated markedly, but at the cost of a large rise in imports (34% for the wjhole year), starting a fall in external reserves. From 1961 to 1964, reserves, including the I1iF position, rose by almost $1 billion, reach- ing $1.51 billion by the end of 1964. The fall in 1965 was $104 mil- lion. The strengthening of the external position in the 1960's owed much to the spectacular growth in tourism; net receipts from it in 1965 of over $1 billion for the first time exceeded those of merchan- dise exports. By contrast, the performance of the latter was below - iv - expectations. Increasing receipts from workers' remittances and inflow of private capital were other important items to offset the growing trade deficit. 13. In November 1964 and in the course of 1965 a series of measures were taken to restore equilibrium, including special food imports and restrictions on housing construction. Success was limited and in December 1965 further action followed. It included a ceiling for additional bank- ing credits to the private sector in 1966 of 17%; restrictions on addi- tional public expenditures and on bond issues for the public credit insti- tutions and by INI; and a limitation of wage increases in 1966 to 8%. In September 1966 it was decided to raise the daily minimum wage, which had been 60 pesetas since 1963, to 84 pesetas beginning October 1. The main measure for mitigating the expansionary effects of this step was a cut in public expenditures in 1966 by 6 billion pesetas. 14. Developments in 1966 indicate that the various measures have led to a gradual reduction of inflationary pressures. The price rise in the first half of the year remained limited to 2-3% and during the third quarter prices fell slightly. Imports were 34% higher in the first six months than in the same period of 1965 and external reserves dropped by another $217 million. The pressure on imports 'Lessened, however, in most recent months. Exports through September 1966 in- creased 36% over those in nine months of 1965; this strong recovery presumably indicates some shift from domestic to export sales. Exter- nal reserves rose $84 million in the third quarter, favored by high receipts from tourism. Tighter credit has been the main factor res- ponsible for the decrease in intensity of domestic demand. On the other hand, budgetary expenditures continued to increase rapidly; Treasury transactions remained an expansionary factor; wage raises in excess of the stated norm were approved on a substantial scale; and the increase in the minimum wage is a powerful new inflationary impulse. In spite of the improvement,the inflation problem therefore is not yet firmly under control. 15. To safeguard continuous long-run economic growth at a satis- factory rate it is essential that the re-occurrence of strong demand pressures be avoided, The lack of effective income restraint implies that credit and especially fiscal policies remain the principal tools for influencing the economic situation. Now that the economy has come closer to a state of equilibrium it is important that these tools be applied effectively in the light of changing circumstances. For the moment, credit restriction should be continued, although it should not be pushed too far. In addition, a more firm budget policy is re- quired, to prevent budget deficits, reduce the emphasis on private credit restraint and relieve to some extent the pressure on the capi- tal market resulting from the large issues of investment bonds for the public credit institutions. Budget expenditures offer some scope for adjustment but the main requirement is a stronger revenue effort by raising taxes and charges levied for public services. The effec- tive fiscal burden in Spain is quite low and so are the charges for many public services. 16. From the longer run point of view there is need for improve- ment of the system of taxation and budgetary management and strengthen- ing of the capital market. Although the tax reform of 1964 has achieved some degree of systematization and sirplification, the continuation and even extension of the system of global assessments (agreements between the tax authorities and representatives of groups of tax payers) for the income and turnover taxes deprives the tax system of its legal signifi- cance, distorts its impact and dampens built-in flexibility. It also facilitates evasion, No effective tax exists on property. 17. To achieve more efficient management of public funds, improve- ments are required in organization, accounting and programming of public sector activities. To increase the importance of the initial budget, more weight should be attached to both its preparation and implementa- tion. The Plan emphasizes the need for reorganization of autonomous agencies and improvement in their budgetary procedures, but little has been accomplished in practice. To arrive at a more efficient allocation of funds, a more realistic attitude is needed towards interest rates. 18. Preparations for the Second Development Plan (1968-71) are underway and little can be said about its contents. Between now and 1971 an annual rate of growth of 5.5% appears feasible, given approp- riate policies. Agriculture could grow by 3%, industry by 8% and the services sector by 5%. Higher growth rates would most likely put domestic resources and foreign reserves under excessive pressure. Even the attainment of a 5.5% growth rate can be considered realistic only if strong efforts will be made in the fields of substitution of imports and promotion of exports and tourism. 19. SFain has ample capacity for additional external public borrowing on conventional terms and it has an excellent debt record. External pul>Lic debt at the end of 1965 was $415 million, over one- half of which was undisbursed. Service of this debt, including un- disbursed, will not exceed 2 to 3% of receipts from exports plus tourism. Gold and foreign exchange reserves, in spite of the de- cline since 1964, at the end of September 1966 still equalled four months' imports at the current rate. I. INTRODUCTION 1. Metropolitan Spain comprises the Iberian Peninsula except Portugal and Gibraltar, plus the Balearic Islands in the Mediterranean and the Canary Islands in the Atlantic. In addition, there are the four Spanish provinces in West Africa, Rio Muni and the nearby island of Fernando Poo (together forming Equatorial Guinea), Sparnish Sahara and Ifni, and the two enclave cities on the African side of the Mediterranean, Ceuta and Melilla. The African provinces and cities have a total population of roughly half a million and are of little economic significance to Spain, although important deposits of phos- phate rock have been discovered recently in the Spanish Sahara. 2, Spain is very mountainous, which poses major problems to land transportation and contributes to significant differences in climate. The wide variations in topography and climate give rise to varying condi- tions for agriculture, until recently the predominant source of employ- ment. In some areas, largely in the north, precipitation is adequate or abundant but major portions of the country are confronted with insuf- ficient rainfall, compensated in part by irrigation. Temperature ranges are wede in the north and the center, but winters are mild in the south and part of the east, creating conditions favorable to subtropical agri- culture. Abundant sunshine, a long coastline and proximity to indus- trialized Europe have contributed to a spectacular growth in tourism, making Spain today one of the leading tourist-receiving countries in the world. 3. The country is not particularly rich in natural resources but there are large reserves of coal and iron ore, which are mined in sub- stantial quantities. Large deposits also exist of sulphur, potash and salt; those of a number of other minerals, including mercury, zinc, -- lead and copper, are only small. Resources of hydro power are substan- tial, but the best reserves have been mobilized and additional energy requirements will have to be covered increasingly from other sources, based mainly on imports. Oil has been struck in the north, but only in small quantities in relatim to existing needs. 4. Spain's population, excluding the African provinces, totals almost 32 million, The rate of natural increase has averaged about 1.2% annually since 1950, the result of a birth rate of about 2,1% and a death rate of about 0.9%. Size and distribution of the resident population were in recent years affected strongly by migration. Since 1960, more than 50,000 Spanish workers have an balance migrated to other European countries, particularly France, Germany and Switzerland, motivated by higher wages and unemployment or under-employment in do- mestic rural areas. Traditional migration by Spaniards overseas, his- torically of major importance, came to a standstill in recent years. (Table 2.1). - 2 - 5. In Spain itself, large numbers of workers and their families are leaving the rural areas, especially the central tableland (the "meseta") and some provinces in the south, mostly for Madrid, Barcelona and the industrialized north. This movement reflects the differences in employment opportunities and the existing strong inequalities in in- come distribution which, despite rising incomes in rural areas, have re- mained largely unchanged. Total employment in agriculture is estimated to have declined due to external and internal migration by at least half a millicn during 1960-64 and by about 200,000 in 1965. As a result of nigration the composition of the work force has been changing rapidly, with that in the secondary and tertiary sectors growing fast and that in agriculture ccntracting. (Table 2.2). 6. Politically, Spain is a monarchy without a king. After the devastating Civil War of 1936-39 General Franco emerged as the country's civilian leader. The Succession Law of 1947 made Franco Chief of State and Head of the Government for life and provided for restoration of the monarchy after his death or in the event of his incapacity. General Munoz Grandes was designated Vice President in July 1962. 7. A new constitutional law, to be submitted to a national ref- erendum, was recently presented to the Spanish Cortes (legislature). The new law confirms Spain's status as a monarchy without a king and indicates the procedure for nominating a king or a regent in the event of death or incapacity of Franco, who is 74 years old. The law also opens the way to the naming of a separate Prime Minister, who is to serve for five years and to be appointed by the Chief of State. 8. An important element in the governmental system are the more than 20 state-organized syndicates, each representing a sector of the economy and with membership of employers and workers The syndicates have an important voice in economic and social matters and are directly involved in preblems like wage negotiations, social security and voca- tional training. The new constitutional law provides the framework for a more liberal organizaticnal structure of the syndicates. Poli- tically, the syndicates have provided about one-third of the member- ship of the Cortes. Under the new law, a larger share of the Cortes members, although still a minorttyoneb will be elected by the electorate. 9. Another basic feature of the Spanish governmental structure is the existence of a large number of autonomous institutions (about 300). Most institutions are small, but some, such as the National Institutes of Industry (INI), Housing (INV) and Rural Settlement (mNC), are of major importance. They are empowered to operate in one or more - 3 - sectors of the economy and although they are responsible to one of the ministers, they have acquired a high degree of independence in practice. This, together with some lack of coordination among ministries, makes at times for some inconsistency and inflexibility in policy making and execution. 10. From the Civil IJar through 1950 growth of the economy was negligible. The W4ar caused great destruction and disruption and during the initial years after it the emphasis obviously was primarily on recon- struction. Economic growth was resumed in the 1950's, principally under the impetus of large-scale economic and military assistance from the United States, related to military base rights. During this decade Spain received over $1 billion in economic aid through U.S. grants and loans. 11. From 1950 on, larger resources enabled the Government to step up its investment expenditures, including those in 1NI enterprises. Private activity expanded rapidly as well. GNP rose in consequence by some 5% per annum during 1953-58, industrial production increasing by 7-8% and agricultural output by 2-3%. The counterpart was inflation- ary pressures nurtured through the financing of government deficits by central bank credit and a rapid increase in commercial banking credits. These pressures became particularly strong after 1956. During the en- suing two years the cost of living went up by 25% despite price controls, and foreign exchange reserves were almost depleted. 12. The result was the Stabilization Program of 1959-60 which came about iAth assistance of the OSEC and the IMF. The peseta was devalued to a uniform rate of 60 to the U.S. dollar and the complicated exchange system with premiums, taxes and multiple rates was abolished. Public expenditures and bank credit were subjected to ceilings. Financial as- sistance by Fund, OEEC, U.S. Government and private banks gave the stabilization measures the necessary financial foundation. 13. The price rise came to a halt, but at a substantial cost in terms of output and growth. GNP probably declined from its 1958 peak as industrial output fell, inventories accumulated, public and private investment decreased and unemployment mounted. On the other hand, in 1960 a balance of payments surplus on current account occurred of almost $400 million and reserves rose by $372 million as results of improved receipts from exports and tourism and reduced inports. -4- II. ECONOIlC DEVELOPKENTS DURING THE 1960's Economic Policy Reforms 14. With the stabilization effort came the beginning of the lib- eralization of foreign trade policies. Autarkic economic policies had been follow-ed in Spain for many years, industrial development taking place with the support of strongly protectionist foreign trade policies. Problems of scarcity after the Givil War, the quickly following Second IWorld War and lim,ited external contacts after the War strengthened during the 1950's the tendency towiards high tariff walls and tight quantitative restrictions on foreign trade. The peseta was directly controlled and external capital transactions were subject to numerous restrictions. Internal flexibility of the economy was also restrained by a w,.idespread network of regulations. 15. Starting an effort to move awiay from economic isolation, Spain joined since 1958 fIlF, IERRD, OEEC and GATT, and with the Stabilization Plan started an effort to gradually reduce the controls in the economy. Initial steps were aimed particularly at reducing external controls, to stimulate the imports of foreign goods, technology and capital. A new tariff schedule was introduced in 1960, although it still contained many high duties. More important, import quotas were gradually lifted, par- ticularly for materials and capital goods. This trend towards liberal- ization has continued at a varying pace over the years. 16. Restrictionson capital transactions were also reduced gradu- ally. Free repatriation was allowed of foreign capital imported and income accrued since July 1959, foreigners were permitted to buy Spanislh securities and, since April 1963, they could have a majority interest in the capital of Spanish companies in a broad range of industries without prior authorization. 17. Internal controls at the start of the 1960?s included detailed regulations for investment, production and distribution in both the ag- ricultural and non-agricultural sectors, prices and wages and dlscharge of worLers. Most of these controls were removed from November 1962 on- wards. Controls over investment were abolished for a large part of the economy, except in specified industries and subject, in a number of in- stances, to prescribed minimum sizes and technical conditions to prevent the establishment of inefficient plants. Most restrictions on production and distribution also disappeared although government intervention re- mained substantial in the agricultural sector, as in many countries. Price controls were lifted progressively and the ones remaining at pres- ent are mainly for foodstuffs and rents. For wages, the trend has since 1962 been increasingly in the direction of collective bargaining, with very limited government control of collective wage agreements. Cn the - 5 - whole, the internal liberalization of the economy has made more headw-[ay than the external one. In spite of progress nade, substantial elerents of protection are left. Quantitative restrictions on foreign trade re- main more extensive than. in most western European countries and tariffs, whichn -,ere often raised when commodities were liberalized, are still araong the highest in Europe. Zxisting protecticn is related to the lack of competitiveness of many small and medium-sized enterprises, a legacy from the past. Internally, important controls that are left, in additicn tc tnose nenticred, are the ones in respect of the discharge of workers and the domestic capital market (including contrcl of new issues and of most interest rates). 18. Two other inportant areas of policy reform during the 1960's were the financial and fiscal fields. A series of decrees issued in 1962 aimed at strengthening the credit system, widening the capital market and increasing the supply of capital for in particular small and medium-sized firms. The Bank of Spain wias nationalized and given wider pow-;ers to regulate money and credit. Twro newz institutes were entrusted with the task of coordinating more effectively the activities of respectively the existing official credit institutions and the sav- ings banks. Cther rmeasures provided for a reform of the private bank- ing sy-stem, by aimang at a clearer separation between short and long- tern credit and the related creation cf separate industrial banks. 19. The basis for a reform of the tax systen was laid by legis- lation of 1963 and 196h. The implementation takes place gradually and is now largely completed. The primary aimnof the reform are -o simplify the tax system ar.d to distritute its burden more equitably, Another lawt of 196L brought a basic reviEion of the system of pTayment and rates of pay of the civil serviae; this revision was of h_gh priority in view of existing deficiencies. 20. Policy reforms vere also initiated in a number of other fields. H1any of these reforms were contained in a decree of lqovember 1962. This decree included, in addition to some of the areas mentioned befcre, as fields of reform, coordination of public investment, transport coordina- tion, professional training, government contracting procedures and re- vision of the field of activity and publication of the investment plans of pablic enterprises. It also proposed revision of the old laws on "national interesOL industries and cn "defense of national industry", dating from 1939. 21. Many of the announced reforms were in accordance with recoi- nendaticns made in the Bank's Geeneral Survey :jission Report of 1962 and they were closely related to the activities of the Planning Commission, mentioned below. The degree of implementation of measures in these various areas has varied3 although progress has been achieved in most fields, scne Drob½es still remain. This is not surprising onsidering thei histcry and difficult nature of many of these problems. -6- The Development Plan 22. The formal acceptance of planning as a coordinated effort in stimulating economic development came early in 1962 with the creation of a Planninrg Commission. Under the direction of this Commission pre- parations were completed for a Four-Year Plan for Economic and Social Development and the Plan came into force beginning 1964. The Develop- ment Plan follows the French example: its targets are supposedly bind- ing for the public sector, and indicative for the private sector. The Plan contains a detailed program for public investment and gives targets for investment, production and exports in the private sector. The latter wrere established in cooperation with private enterprise which participa- ted in a number of advisory cormdttees formed to assess the capacities and objectives of the various economic sectors. 23. The Plan gives a number of macro-economic targets. Its key target is a rate of grow-ith of GNP of 6%p per annum, close to 5% per head. This target is based on estimates of changes in active popula- tion and productivity in the economy with a breakdown for the primary, secondary and tertiary sectors. No attempt was made to build up the estimates from the prospects of the sub-sectors. To accomplish the output target it ras estimated that investment would have to rise from 21-224 of GNP in 1961-62 to almost 25% in 1967. For consumption, growth targets were set of 5.5% p.a. for the private and 5%0 for the public sec- tor, somewhat lower than the growth rate for production. (Table 5.1). 24. Tn the external sector import growth of 9-10% p.a. was con- sidered necessary and growth targets for exports and tourism were set of about 10 and 11% p.a. respectively. The various objectives implied that domestic savings would increase by 7-8% p.a., insufficient to fin- ance the forecast growth in investment. The Plan estimated the req-uired inflow of funds from abroad at an average of about $350 million p.a. (Table 5.6). 25. These various targets were on the whole realistic although since 1964 in particular imports and tourism have grown much more rap- idly than had been foreseen. 26. The total amount of public investment under the Plan was 335 billion pesetas ($5.6 billion), about 9p of GNP against 7% in 1962. The major allocations were to transport (25%), housing (20%), irriga- tion (15%), education (7%), agriculture (6%) and public enterprises (17%). (Table 5.3). 27. The Law-i on the Plan of December 1963 and the Plan itself con- firmed the various policy reforms described abave. In addition, they brought some new elements of which the new approach towards regional development and the effort towards rationalizing the structure of inef- ficient industries were the most important. - 7 - 2';. A regional development policy is of partieular economie and social significance in Spair in vieu of the wide differences in income distribution and employment conditionas and it is helpful in zitigating the overcrowding of the largest urban centers. It is also imiiportant as a means of reconciling conflicting regional ambitions and interests. A number of plans had been drawn up over the years for the development of certain regicns, but on the wyhole little had been done. Two well- known exceptions were the Plans Badajoz and Jaen. In the context of these, important sums were spent on projects for agricultural and re- lated development, many of which were of doibtful value in terms of econcmic priority and return. 29. Under the Development Plan, seven regional graoth centers (olosepronocion= dedesarrollo industrial) have been set up for industrial developrent. The Government periodically invites proposals for the establishment of enterprises in these centers and if apprcved -bthey are entitled to certain tax, credit and other privileges. This new.r approach towTards regional development has been very successful. Also, in order to reduce the overcrowding of Nadrid, smaller industrial centers (poligonos de descongestion) are being established in nearby lowz income regions. In addition, a new agricultural development center (Tierra de Ca'pos) has been created recently; it provides facilities comnarable to those available in the industrial growrth centers. 30. The effort aimed at restructuring certain industries takes place thFrough the concerted action (accicn concertada) of enterprises and the Government. Participation is voluntary. The enterprises agree to confornm to a prcgraul for an irmproved industry structure; the Government provides generous financial assistance. It is difficult to appraise success in vie;, of the early stage of the program in most branches where it has been applied. 31. The Plan is of major significance in coordinating economic development and in focusing attenticn on the importance of this effort. As an indicator of desired physical targets and policy aims it hrias been subjec.t to cerain limitationas. Public investnent expenditures have during tAe first two years of the Plan been falling substantially short of targets. (Tables 5.3 - 5.5). In real terms shortfalls were even greater, since expenditures in the Plan were expressed in 1962 prices and targets have not been raised to allowf for price rises. 32. For the private sector, the new government policies are the most important element of the Plan. The significance of physical tar- gets in tLe Plan for this sector obviously is limited due to their in- dicative nature. In the industrial sector, most production targets have during the first two years been in line with or exceeded Plan expectations, but in agriculture performance has been less satisfactory. - 8 - 33. The Planning Conrnission has an important voice in coordinating public investment and in economic policy decisions generally and the status of the Planning Commissioner was in the summer of 1965 up-graded to that of a Minister. Nevertheless, there are important cases in which actual policies have deviated from those proposed in the Plan for rea- sons other than conscious revision. This is one aspect of the lack of coordination of policies among ministries and autonomous bodies which in spite of more coordinating machinery to some extent still prevails. Economic Developmrents and the Problem of Stability 3h. After the stagnation in output brought about by the Stabiliz- ation Program of 1959-60 the Spanish economy has been growing vigorously. The internal and external liberalization of economic policies, discussed earlier, were no doubt the most important general factors behind this trend. Betwleen 1960 and 1965 industrial production rose faster in Spain than in any other member country of the OECD. All sectors of the economy, heowever, did not share equally in this spectacular performance: agricul- ture stayed behind and remained a major problem area in the economy. At the same time this dynamic picture was acconpanied by recurring infla- tion, particularly acute since the summer of 1964. 35. Economic Growith. As can be seen from the data given below, 1/ the secondary sector (manufacturing, construction, mining and utilities) during 1964 and 1965 continued the fast pace of growJth set in 1961-63 and is running wzell ahead of the target of the Plan. Similarly, the tertiary sector (transport and commlunications, commerce, services and public administration) has shaon great dynamism, surpassing its plan target by a iTide margin. By contrast, performance of the primary sector (agriculture, forestry and fishing) has been disappointing. Agriculture had, after an exceptionally good crop year in 1963, a disastrously poor year 1964, and in 1965 output was still below the projection of the Plan. As a result of the different rates of groazth of the three sectors their relative importance has been altered. The share of gross domestic product originating in agriculture dropped from 26% in 1960 to 18% in 1965. (Table 3.2). 1/ Spanish national accounts have had serious shortcomings that greatly reduced their usefulness. Following recommendations by the OECD the ac- counts are being revised for the period 1958-64 and the Mission has had access to a preliminary version of the revised series. The figures may be amended further and should be interpreted with caution. Rates of Growth of Gross Domestic Product by Sector a/ 1960 1961 1962 1963 1964 1965 Plan (Prov.) 1964-67 b. Primary Sector 2.1 2.3 3.4 5.7 -13.8 2.8 3.0 Secondary Sector 6.4 14.2 10.6 13.1 12.6 10.9 8.4 Tertiary Sector 1.8 16.4 9.0 5.5 10.7 8.3 5.9 Gross Domestic Product 3.5 11.9 8.2 8.4 5.9 8.4 6.0 a! At factor cost; 1958 prices. b/ Rates of growth of GNP at market prices. Sources: Revised National Accounts 1958-64 and INE. 36. The Equilibrium Problem. After a brief period of stability following the 1959-60 stabilization effort the Spanish economy has been beset by the recurrent problem of inflation. Price increases accelerated after the summer of 1964 led by food prices: between June 1964 and June 1965 the index of wholesale prices went up by 13% and that for the cost of living by 15%. The rate of increase decelerated however thereafter and the indices for December 1965 were 5% and 9% respectively above the level of a year before. (Table 8.1). Percentage Increases in Prices by Sector 1960 1961 1962 1963 1964 1965 (Prov.) Primary Sector 2.1 3.4 8.1 10.3 6.1 16.6 Secondary Sector -1.2 2.0 3.9 5.9 4.4 3.1 Tertiary Sector 0.4 2.1 7.6 12.7 7.8 15.8 Gross Domestic Product at factor cost 0.5 2.4 6.3 9.3 5.9 11.0 Sources: Revised National Accounts 1958-64 and INE. - 10 - 37. On the demand side, the most expansionary factor over the past years has been investment. In the last two years in particular, invest- ment demand has been well in excess of the Plan target of an 11% increase per annum and the share of gross fixed investment in GNP has increased from somewhat over 20% in 1961-63 to almost 23% in 1965. The growth in investment was reflected in a sharp rise in imports of equipment goods, which increased two and a half times from 1961 to 1965. The other com- ponents of aggregate demand have expanded also, albeit at a slower rate. Rates of Growth of Categories of Demand (Prices of 1958) 1960 1961 1962 1963 1964 1965 Plan (Prov.) 1964-67 Gross Fixed Investment 6.1 17.9 12.8 8.3 21.6 21.5 11.0 Private Con- sumption -1.5 11.4 7.9 11.9 2.4 9.1 5.5 Government Consumption 4.6 5.1 5.8 8.7 5.1 n.a. 5.0 Export Goods and Services 65.4 11.4 7.9 2.9 28.2 n.a. - (of which Her- chandise Exports) (64.2) (5.7) (-1.0) (-5.5) (32.5) (n.a.) (10.0) Sources: Revised National Accounts 1958-64 and INE. 38. Suply conditions were improved by the opening up of the Spanish economy after 1959-60 and the progressive liberalization of imports which alleviated a number of shortages and increased the elasticity of supply. Nevertheless, important rigidities in production and distribution remain- ed and ccntributed to inflationary pressures in the face of a rapid in- crease in demand. This has been the case particularly in the construction industry which experienced a strong surge in demand stimulated by official credit, government subsidies, foreign investment and speculation. Another main sector where supply limitations have been evident is that of agri- cultural production which has been growing at a rate well below that of consumerst demand for food. The deficit in domestic production could have been made up by larger imports, but in 1964 restrictive policies held back food imports at a time when Spanish agriculture was experiencing one of its worst years. By contrast, food imports rose rapidly in 1965 to bring back some stability in prices. Agricultural price support policy also contributed to the rise in food costs: in 1964 prices were raised for a large number of agricultural commodities coming under a system of price support or compensatory import duties. In 1965 such increases were much more limited. - 11 - 39. Employment and Wlages. The relatively large percentage of the labor force employed in agriculture provides the Spanish economy with a reserve of manpower that can be mobilized for the secondary and tertiary sectors in the course of development. Employment in agriculture decrea- sed at a fast rate in recent years. (Table 5.2). Part of the workers leaving the agricultural sector and of the natural increase in the labor force (about 1% per year) found jobs in industry and services, where em- ployment opportunities grew rapidly. In additicn, Spanish emigration, particularly to France, Germany and Siitzerland, has been important in stabilizing the labor market. Emigration reached a peak of 108,2CO in 1961 and has tapered off since. Overseas emigration was negative in 1964 and 1965. (Table 2.1). There is no serious shortage of skilled workers in Spain (thanks to an extensive and flexible system of profes- sional training), but the domestic labor market is on the whole fairly tight. Registered unemployment amounts to only about 1.5% of the work force and emigration clearly is primarily the effect of the competition of higher wtages offered in neighboring countries. 40. The result of high levels of intermal demand, attractiveness of employment abroad and large rises in food prices has been a rapid increase in wage rates, which in turn has contributed to the price-wage spiral. According to the quarterly surveys of the National Statistical Institute, which cover industry, trade, public utilities, construction and financial services, the hourly wage rate, excluding family allowance, increased by 13% in 1964 and 16% in 1965. (Table 8.2). For agriculture, the Ministry of Agriculture reported a general wage increase of 12% in 1964 and almost 13% in 1965. Percentage Increase of Wages per Wlorker 1_60 1961 1962 1963 1964 1965 Primary Sector 9.7 7.7 14.3 23.1 12.7 11.5 Secondary Sector 7.0 11.2 16.3 15.7 11.7 15.2 Tertiary Sector 6.6 8.5 14.4 17.8 14.5 14.4 Total 7.4 10.3 15.6 17.8 13.9 15.3 Sources: Revised National Accounts 1958564 and INE - 12 - 41. IIonetary Developments. The increase in real output and prices in recent years has been accoipanied by a rapid monetary expansion. To- tal liquidity in the hands of the public, including time and savings de- posits, more than doubled between the end of 1961 and that of 1965. (Table 7.1). The foreign, public and private sectors have contributed in various degrees to this increase. Increases in Major Items of Banking System a/ (billion pesetas) 1962 1963 1964 1965 Money supply 43.0 41.9 60.3 62.3 Quasi-money 50.8 51.8 77.5 82.6 iHiscellaneous 1.5 4.8 4.1 10.1 Assets = Liabilities 95.3 98.5 141.9 155.0 Foreign Reserves Y 14.8 10.0 21.4 -7.7 Claims on Public Sector 5.5 11.6 29.1 37.2 Net advances 3.3 3.8 12.1 9.2 - Central Government (-0.7) (-2.5) (2.2) (5.4) - Autonomous instit. ( 4.6) ( 4.5) (8.6) (0.7) - Official credit instit. (-0.7) ( 1.8) (1-3) (3-1) Purchases of bonds 2.2 7.8 17.0 28.0 Claims on Private Sector 75.0 76.9 91.4 125.5 - Advances and bills discounted 65.5 60.7 70.5 118.1 - Bonds and shares 5.3 10.6 11.0 13.9 - Other 4.2 5.6 9.9 -6.5 a/ Bank of Spain, commercial banks, industrial banks and savings banks. b/ Including changes in counterpart funds Source: Bank of Spain. 42. The balance of payments surplus contributed to monetary expan- sion until 1965 when a deficit emerged for the first time since 1958. - 13 - 43. Within the public sector, the Central Government ran each year from 1960-63 a cash surplus that was roughly equal to the amount OI government transfers to the public credit institutions. In 1964 and 1965 however, the Central Government had cash deficits of 1.1 and 8.6 billion pesetas. Transfers to public credit institutions jumped to 17.6 billion pesetas in 1964 and 24.7 billion in 1965. Consequently, the Government was forced to turn to the capital market and the Bank of Spain for relatively large amounts. After reducing its indebtedness with the Bank of Spain for six successive years, the Treasury drew 2.5 and 4.6 billion pesetas on its account in 1964 and 1965. Issues of government securities (investment bonds) amounted to 15.0 and 27.5 bil- lion pesetas in the same years. (Table 6.1). 44. In order to ensure subscription by the commercial banks, a compulsory ratio between holdings of government securities and total deposits (public debt ratio) was introduced in 1965 and fixed at 15% in September; the actual ratio then stood at 12.9%. Banks already had in their portfolios large amounts of government securities issued before 1958 which were automatically pledgeable, that is, securities that the Bank of Spain was obliged to accept as collateral for loans and on which it charged only slightly more (until November 1965 up to 1/2%) than the securities' yield. To meet the new legal requirement, the banks used substantial amounts of automatically pledgeable paper to borrow from the Bank of Spain and invested the proceeds in invest- rment bonds. This procedure, which amounted to a monetization of public debt, raised the banks' effective public debt ratio, since government securities pledged with the central bank are still considered part of the bankst assets in the context of this ratio. In addition, the le- gally required liquidity of the banks (see below) was not affected, since all unpledged government securities, including investment bonds, form part of this liquidity. The total worth of government securities absorbed by the comercial banks in 1965 was 17.2 billion pesetas while they borrowed 11.3 billion pesetas from the Bank of Spain by pledging other public securities. 45. Autonomous public agencies also contributed to money creation, particularly the Food Supply and Transport Commission (CAT) and the National Nheat Service (SNT) that enjoy special access, outside the budget, to the Bank of Spain's resources. In 1964, agricultural price support operations forced CAT to increase its indebtedness toward the Bank of Spain by 14.3 bilJionpesetas. In 1965, while CAT was refunding part of its borrowing, the Agency for Purchase of Wine Surpluses in- creased drawings on its account at the Bank of Spain by fairly large amounts. The total increase in indebtedness of autonomous institutions to the banking system as a whole was limited to 0.7 billion pesetas in 1965. - 14 - 46. Credits granted to the private sector by the Bank of Spain, commercial banks, savings banks and public credit institutions increased by 25% in 1962, 21-22% in 1963 and 1964 and 24% in 1965. For the commer- cial banks the combined effect of increased lending to the private sector and the emergence of a fall in gold and foreign exchange reserves was a reduction in their liquidity ratio; by the end of 1965 the liquidity ratio for all commercial banks stood at 16.1%, although several banks wJere approaching the legal liquidity ratio of 13%. 47. Foreign Trade. Imports rose much faster than exports over the past years; as a result, the deficit of the trade balance increased stead- ily, reaching $2,053 million in 1965. Betwleen 1961 and 1965 imports rose by an average of 29% a year, well ahead of the Plan's projections, in spite of a drop in food imports in 1964. Imports by Major Categories (millions of U.S. dollars; c.i.f.) a/ 1961 1962 1963 1964 1965 Food 223.5 290.5 415.2 388.2 573.1 (20.4) (16.5) (21.1) (17.0) (18.9) Raw M'Iaterials and 598.6 824.7 923.8 1,107.0 1)459.2 Intermediate (54.7) (52.5) (47-1) (48.8) (49.9) Products Equipment Goods L/ 233.9 399.5 529.9 633.0 823.8 (21.4) (25.4) (27.0) (27.8) (27.1) MTanufactured Con- 36.5 55.8 89.6 130.0 164.4 suxmpticn Goods (3.3) (3.5) (4.5) (5.3) (5-0) Total 1,092.5 1,570.5 1,958.5 2,258.8 3,020.5 (10o) (10) (la0) (loo) (100) a/ Percentages of total in parentheses. b/ Including livestock. Source: Ministry of Commerce. - 15 - 48. Among imports, manufactured consumption goods were the fastest growing group but wfere only 5% of total imports in 1965. Imports of equipment goods were particularly large, rising by 252p since 1961 and increasing their share in total imports from 21b% in 1961 to 27.1% in 1965. Except for the 1964 decrease food imports surged at a rate of 30% in 1962, 43% in 1963 and 48% in 1965. Food imports, however, have retained a fairly conatant share in total imports. 49. The rapid increase in imports can be accounted for by the pro- gressive opening of the Spanish economy and by the high rate of growth of internal demand, particularly of investment. 50. Exports rose by over 8%O a year with most of the increase taking place in 1964, when they benefited from the good 1963-64 harvest. Agricultural exports which make up almost half of total exports, with citrus fruits as the most important item, fluctuated widely from year to year. Manufactured goods were the most dynamic component of exports, in- creasing their share in total exports from 30% in 1962 to 41% in 1965, while exports to the developing countries of Latin America and Africa exDanded faster than those to Europe and North America. The high levels of internal demand explain in part the relatively poor performance of exports. 51. Protection and Export Promoticn. As aresult of trade liberal- ization, free imports, requiring only a declaration, represented by the end of 1965 63.9% of total imports versus 33.7% at the end of 1959, not including the results of an eleventh list of liberalized imports issued in December 1965 and February 1966e The list of countries to which the free im,port regime applies has also expanded. It nowi includes 94 coun- tries and dependent territories (Japan has recently been added to the list). To the free imports should be added capital goods imports sub- ject to global quotas for administrative reasons but authorized freely, and a number of agricultural commodities subject to a system of regula- tory duties that are also in practice imported freely. Thus, about three-quarters of the value of imports is now in fact liberalized. 52. Since 1959, several tariff reductions have also taken place, to encourage importation of capital goods not produced in Spain, as anti-inflationary measures and as negotiated duties in the context of GATT. Revenue from imports duties dropped from 12.5% of the value of imports c.i.f. in 1961 to 8% in 1965 and the unveighted average of import duties effectively applied fell from 23.5% in 1960 to 16% in 1966. At the same time, however, following the example of other European countries, Spanish authorities introduced in 1960 an equal- ization tax ("tarifa fiscal", since the tax reform of 1964 called "impuesto de compensacion de gravamenes interiores") designed to levy on inported goods the equivalent of the indirect taxes paid by Spanish firms (assuming a standard production structure) and to offset the - 16 - exemptions from such taxes which a number of countries grant to their exporters. In 1965 the equalization tax yielded 9.6 billion pesetas or 5.3% of imports c.i.f. (in fact, the tax is levied on the value of the imported item plus the customs duty). Yield of Customs Duties and Equalization Tax Revenue Imports (c.i.f.) Yield (g) Customs Equalization (million Customs Equalization Year Duties Tax pesetas) Duties Tax (million pesetas) 1961 8,200 2,308 65,538 12.5 3.5 1962 10,377 3,691 94,158 11.0 3.9 1963 12,249 4,477 117,306 10.4 3.8 1964 14,147 5,471 135,528 10.4 4.0 1965 14,459 9,602 181,230 8.0 5.3 Source: Ministry of Finance. 53. In addition to the regular duties and the equalization tax, Spanish law provides for anti-dumping levies and for similar charges in the case of 'abnormally-priced imports". At present a variety of steel products are subject to anti-dumping legislation wqhatever the country of origin. Because liberalization is greater de facto than de iure and effective duties are generally below the negotiated ones, there is a strong temptation for Spanish authorities to revert to greater restrict- iveness. If, however, integration of the Spanish econony with the world outside is to progress, this temptation should be resisted. 54. The equalization tax acts as an export promotion device since the exporter is refunded an amount approximating the indirect taxes le- vied on his product. Spain has also endeavoured to build up a system of export insurance and credit similar to that of other major exporting countries. Most of these measures are still fairly recent and lack of experience on the part of exporters and administrators may be a source of dlfficulty. 55. M4any Spanish firms still are little export-minded and prefer the easy domestic market to the external ones where it is much more dif- ficult to get a foothold, risks are greater and profit margins sometimes lower. Also, there is a need for setting up more firms specialized in export business since producers themselves are not always equipped for this task. Growth prospects for total agricultural exports are only - 17 - limited; therefore, exports of manufactured goods will have to expand sizably if the deficit of the balance of trade is to be maintained within manageable limits. This is largely a new field for Spain and it w-ill not be easy to build up an adequate share in this highly com- petitive trade. 56. Balance of Payments. In accordance with foreign trade develop- ments, the balance of trade on a payments basis went from a smafl surplus in 1960 to a deficit of $1,759 million in 1965. (Table 9.1). A large part of this growing deficit was covered by the rapidly rising surplus of the non-comrodity part of the balance of payments on current account, which increased from $336 million in 1960 to $1,272 million in 1965, in spite of the disappearance of official transfers. The two major sources of receipts are tourism and remittances of Spanish workers abroad, Awose yearly groA:th rates, together with those of imports and exports, are shown below. Yearly Percentage Increase of Some Balance of Payments Items Plan 1962 1963 1964 1965 1964-67 Imports (f.o.b.) 38.6 25.1 15.4 33.8 9.0 Exports (f.o.b.) 5.4 -1.8 27.9 1.4 10.0 Tourism (net) 40.9 31.2 39.4 20.5 11.0 Workers' Remittances 23.7 33.6 21.9 25.3 - Source: Ministry of Commerce. 57. Receipts from tourism and remittances, including repatriation of capital by returning emigrants, totalled $1,386 million in 1965, more than twice the 1962 figure. Receipts from tourism alone exceeded in 1965 total export receipts. The net deficit on other service items, in parti- cular freight, investment income, patents and royalties, increased rapidly in past years to a total of $114 million in 1965. As a result the current balance, which showed a small surDlus in 1962 and 1964, sustained a deficit of $186 million in 1963 and $486 million in 1965. 58. The net inflow of long-term private capital has increased mar- kedly in recent years; receipts from direct and portfolio investment reached $169 million in 1965, almost double the 1962 figure, in spite of a fall in portfolio investment in 1964 and 1965. The strong performance of the Spanish economy and the relaxation of existing restrictions on foreign investment both account for the increase in direct investment. - 18 - 59. Use of suppliers credits has been limited; net foreign com- mercial credits to the private sector averaged only $14 million in the last three years. Net private disbursements on Eximbank loans were on average $18 million during this period and the corresponding figure for foreign loans not directly related to imports to Spanish firms was $32 million. 60. From 1961 to 1964 net receipts from tourism, private transfers and capital inflow more than offset the deficit of the balance of trade, and Spain's international reserves (gold, foreign exchange and reserve position with the INF) rose from $541 million at the end of 1960 to $1,513 million by the end of 1964. (Table 9.2). In 1965 however, for the first time since 1958, the balance of payments showed a deficit and reserves dropped by $104 million to a total of $1,409 million, or five months of imports c.i.f. at the average monthly rate of the last quarter of 1965. In 1966 there has been a further decline (see below). 61. The international position of the peseta has been strong in recent years as indicated by the fact that since M4arch 1966 IMF's peseta holdings have been only 34% of the enlarged Spanish quota. However, price increases have diminished the competitive advantage of Spain that resulted from the 1959 devaluation. Between 1960 and 1965 the cost of living rose faster in Spain than in any other OECD member country except Iceland. The increase was 40% versus an average of 22% for all OECD countries. Any continuation of this divergence would jeopardize the stability of the exchange rate. 62. Government Measures and their Effects. As follows from the preceding analysis, the Spanish economy showed during 1964 and 1965 increasing signs of overheating. Initially, limited sectoral imbalances, notably in construction and agriculture, were largely responsible for rising prices and wages. Gradually, inflationary pressures became more broadly based. In 1965, food was no longer the fastest growing compon- ent of the cost of living index. Pressures on private banking credit were increasing, as did those on the Treasury, the rising demands of the public credit institutions being a major contributing factor. The be- havior of imports also clearly demonstrated the mounting pressures of demand. 63. The Spanish Govermment became in the course of 1964 increasingly concerned with the rise in prices and in November 1964 and in the course of 1965 a series of measures were taken to restore equilibrium. These included tariff reductions, import liberalization, special food imports, tightening of bank loans for construction, ceilings on new building per- mits, and an increase by 0.5% of the interest rate charged by the Bank of Spain on loans against government securities. These measures met with limited success. - 19 - 64. Consequently, in December 1965 another major round of measures followed. Credits by commercial and savings banks to the private sector in 1966 were to increase by no more than 17% over the level of the end of 1965. Public expenditures in 1966 were to rise by no more than 5% and this measure was reinforced by special scrutiny of contracts for public works, orders for supplies and supplementary budget appropriations. Is- sues of investment bonds, the proceeds of which are transferred to the public credit institutions, were to be limited to 28.5 billion pesetas and issues by ThI to 9 billion pesetas. TWage increases in 1966 were not to exceed 8% (in February 1966 the Government decided that collective agreements including wage increases exceeding 8% would not be approved unless endorsed by the Committee of Economic Wilnisters). Also, a new import liberalization list was published, some indirect taxes were in- creased by 10%, terms of instalment credit for consumer durables wqere tightened and the Bank of Spain's rate for loans secured by government bonds was raised again; twice by 1/2% in Mvarch, 65, More measures were taken in September 1966. Early in the month the Government decided to raise the daily minimum wage, which had not been revised since January 1963, from 60 to 64 pesetas. To mitigate the expansionary effects of this step, subsequently some further restrictive measures were announced. The chief decision was to reduce public current expenditures in 1966 by 6 billion pesetas. Also, the existing restraint on public sector current and capital ex- penditures will be maintained in 1967 unless it will prove to be un- necessary. Cther measures of more limited effect included a short amnesty period for tax fraud, a raise in the minimum interest rate for loans by public credit institutions (excepting agricultural loans) to 4,5%, a further tightening of terms on instalment credit and increas- ed vigilance over prices and profits. In addition, a number of detailed measures were adopted to encourage personal savings, strengthen the cap- ital market and to provide limited tax concessions for some specified activities. 66. Developments in 1966 indicate that the various measures have led to a gradual reduction cf inflationary pressures. Prices remained relatively stable. In the first half of the year this was only pos- sible at the cost of a very high level of imports, accompanied by a further loss in foreign reserves. The pressure on imports lessened, howfever, in most recent months. Expcrts improved in 1966 and, favored by the tourist season, the balance of payments was in surplus in the third quarter. The decrease in the intensity of domestic demand can be attributed largely to the more tight credit situation in the private sector. Budgetary expenditures continued to increase rapidly and Treasury transactions remained an expansionary factor. Wage agreements in excess of the stated norm of 8% were approved on a substantial scale and the increase of the minimum wage is a powerful new inflationary im- pulse. In spite of the improvement the inflation problem therefore is not yet firmly under control. - 20 - 67. Industrial output in the first half of 1966 was 18% higher than during the same period of 1965, against a corresponding rise in 1965 over 1964 of 7% and an increase for 1965 as a whole of almost 10%. Agricultural production has benefited this year from plentiful rains in the spring. Crops will be especially large for cereals, wine and olives and expected surpluses of some products may have to be financed by the Government. 68. Imports went up by 34% ($479 rillion) during the first half of 1966 compared to the same period of 1965; for nine months the increase was 25% ($537 million). Practically all categories shared in the rise, with particularly marked advances in machinery, metals and agricultural products. Imports were stimulated by rumors early in the year about possible restrictions. It is likely that in some sectors stocks are now being reduced. Another indication of less severe pressure on in- ports is that the growth rate of the value of licenses authorized and declarations accepted has been falling in recent months. For the first nine months of 1966 as a whole it was 11%, substantially below the rise in actual imports of 25%. 69. A bright spot has been the recovery this year of exports from the sluggish performance in 1965. The rise during the first three quar- ters of the year was 36% ($227 million). It was in part attributable to larger volume and better prices for agricultural exports (including a favorable export season for citrus). But the relative increase of manu- facturing exports, especially machinery and transport equipment, textiles and paper products, wfas substantially higher and presumably indicates some shift from domestic to export sales in response to tighter demand conditions at home. In spite of this advance much scope remains for a stronger long-term performance of manufacturing exports. 70. In addition, tourism expanded further. Net foreign exchange receipts from this source were $567 million during the first seven months of the year, up 11% from the same period in 1965, and data on arrivals during August and September exceeded those for 1965 by wide margins. 71. External reserves fell by $217 million (15.14) during the first half of 1966, with most of the decline ($144 million) concentrated in the first quarter. During the third quarter there was a recovery of reserves of $54 million, tourism being a major contributing factor. 72. The rise in prices in the first half of 1966 (June over Decen- ber) was limited to 2.4% for both wholesale prices and the cost of living against rises of 3.5% and 4.2% respectively in the same period of 1965. Indications are that during the third quarter prices fell slightly. Lar- ger crops helped in keeping down food prices. 73. Wage increases under revised collective agreements have this year, as mentioned, substantially exceeded the general norm of 8%, It is apparently a fairly widespread practice to increase actual wages dur- ing the course of an agreement in anticipation of the next revision, - 21 - which makes the revision in part a sanctioning of raises which already occurred. The impact of wage increases on costs has been mitigated in many sectors by further advances in productivity as a result of large investments. 74. The increase in the minimum wage, effective since October 1, w-ith the added novelty of a yearly revision has important consequences. It has been officially estimated that it will augment the total wage sum by 52 billion pesetas, equal roughly to 10% of this sun. Of the total, 9 billion pesetas will be needed for raising salaries actually below the new ceiling (the large majority of workers earn substantially more than the minimum wage), 15 billion for larger social security contributions, beginning January 1, 1967 (the minimum wage is the basis for social se- curity contributions of all workers), and 28 billion for necessary upward adjustments of wages in brackets close to the new minimum wage. 75. Credits of the commercial banks to the private sector went up by 23.2 billion pesetas during the first half of 1966 against 37.3 billion in the same period of 1965. Since the additional credits by the savings banks, official credit institutions and through placement of securities with non-banks rose by 7.9 billion pesetas, the total increase in credit to the private sector of 77.1 billion pesetas was no more than 6.2 bil- lion below the figure for the same period of 1965. 76. The dominant factor in the contraction of private credits by the commercial banks was the balance of payments deficit which reduced their liquidity and for many of the larger banks brought the liquidity ratio down to close to the compulsory ratio of 13%. Cn the basis of de- velopments up to now it appears that the aimed at limitation of the ex- pansion of credit of 17% for 1966 can be attained. To avoid a too strong contraction of credit the Bank of Spain in recent months even increased the rediscount facilities of the commercial banks without abandoning the norm of 17%. Tighter credit is now presumably leading to a reduction in stocks. In the somewhat longer run, some slowing dowm in private fixed investment appears likely. In the housing sector the effect of the spe- cial government measures of 1964 and 1965 should be felt before long. 77. Central Government budget expenditures went up 26/% and revenues 22% in the first eight months of 1966 compared to the same period of 1965, resulting in a reduction of the seasonal budget surplus for eight months from 6.3 billion pesetas in 1965 to 3.5 billion pesetas in 1966. (Table 6.2). On the other hand, Treasury transactions outside the budget resulted in a deficit of only 0.6 billion pesetas, a significant improvement over the corresponding figure for 1965 of 11.7 billion pesetas. Transfers to the official credit institutions were 19.3 billion pesetas in eight months against 16.3 billion pesetas in the same period of 1965. Issues of in- vestment bonds were no more than 8.9 billion against 10.0 billion in eight months of 1965. The prescribed minimum public securities ratio of the commercial banks has been raised from 15 to 16% as of November 1966, in- dicating the Government?s intention to raise the absorption of investment bonds by banks. - 22 - 73. As a result of these various factors, the impact of public sec- tor finances has remained expansionary in 1966. Total advances by the Bank of Spain to the Treasury (including the issue of coins) were 7.5 billion pesetas in eight months, 4.2 billion pesetas less than in the same period of 1965. Altogether, public sector finances have remained strained and the Government has not been able to limit the rise in budget expenditures to 5% as initially intended. III, MAJOR SECTORS OF THE ECONONY Agriculture LI 79. Agriculture in Spain is beset with a number of basic problems. Many of these derive from the period of isolation and consequent autarkic policies. Attention was focussed in that period on raising output to satisfy domestic needs rather than on efforts to increase efficiency. The results iere misallocation of resources, slowing down of the process of modernization and maintenance of inadequate production patterns and high costs. 8. The emphasis on self-sufficiency is reflected in the large irrigation program carried out over the years. At the end of 1965 the irrigated area was almost 2 million he*ctares; anotlher 1.6 million hec- lares had bEnl selected for furthler irrigation ard of these 1.3 miillion hectares were in projects at some stage of execution. Annual expendi- ture for irrigation averaged in recent years 9-10 billion pesetas, some 70Z of total public investment in agriculture. The Government's irriga- Iion program as a whole has not yet been subject to the scrutiny that its size would reouire. Its scale wound have been considerably less if social considerations, particularly the problems of rural employment and lowa farm incomes, had not been given so much weight. 81. To favor maximum growth of output, the Government has pushed up substantially the prices paid to producers for various cormodities. Prices for rice and cotton, for instanice, are now out of line with world market prices. For other commodities, such as sugar beet and wheat, producer prices are considerably higher even than average prices in ˇther European countries, As a result, production of a number of com- aiodities has been pushed to areas which are not entirely suitable for c-uch crops. For example, wheat is raised in areas where barley would be a more favorable crop, and parts of the cotton, rice and sugar beet trops come from areas where these crops are uneconomic. 1.' This section is based largely on the report of the IBRD/FAO Agricul- iral I-1ission which visited Spain during October-December 1965. - 23 - 82. Production costs increased in recent years also as a result of growling costs of inputs, particularly labor. W4ages in agriculture are still low compared with other sectors, but they increased more rapidly, except in the construction industry. The most basic factor underlying the rise -was the large migratory movement from agriculture to the urban areas and abroad0 Although there is still underemployment in agriculture, labor is scarce in several regions during the peak season. Many farmers have therefore turned to mechanization to cope with actual or potential labor scarcity. An increase in tractor numbers was particularly notice- able from 1960 to 1963; it slowed down in the subsequent two years. 83. Fragmentation of land is another major obstacle to moderniza- tion of agriculture. About 73% of cultivated land is held in some 42 million plots whose average size is no more than 0.5 hectares. Mecha- nization is hardly applicable to these plots and production costs are thus bound to increase with rising wages. The size of plots also limits the range of crops which can be grown; this contributes in turn to a less than optimum production pattern and misallocation of resources. 84. In addition, the present structure of land tenure is an im- pediment to modernization. About 400,000 farms are operated under share- cropping and there is little incentive for sharecroppers to invest in the land which they work. Another 840,000 farms are under leasehold, and many of its tenants lack an adequate guarantee of being reimbursed for improvements they make. 85. Incomes of farmers in areas where structural problems are particularly serious or where the size of farms is inadequate in rela- tion to the crops that can be grown, have increasingly lagged behind incomes in other agricultural areas and in other sectors. The Govern- nent has endeavored to improve incomes of such farmers by raising pro- ducers' prices and by large direct subsidies, particularly to wheat growers. Ifn the last few years subsidies to wheat farmers averaged over 2 billion pesetas per year. The policies of large subsidies to producers and of artificially high prices have not been conducive to modernization and development of agriculture. 86. Further difficulties surrounding agriculture are inadequate flexibilLty of price and marketing policies, insufficient use of ferti- lizers, inadequate credit facililies for certain types of operations and categories of farmers and shortcomings in channels of distribution, ex- tension services and research. 87. In spite of these problems, agricultural production grew in 1959-63 by about 2-1/2% per annum, in line with the rate of output ex- pansion during the 1950's and not negligible if compared with that of many other European countries. Exceptionally adverse weather caused a decline in output of over 10% in 1964, and only a moderate increase took place in 1965. - 24 - 88. Output growth over the last several years was fastest for ex- ports crops (citrus, other fruits and tomatoes), sugar beet, cotton and, since 1964, rice. Meat production also expanded, that of beef, veal and lamb growing at 5% p.a. from 1960 to 1964. There was, however, a slcwer increase in livestock numbers, primarily the result of large slaughter- ings of young calves. 89. Despite the increase in production, certain agricultural com- modities have been in short supply. Rising incomes have stimulated es- pecially meat consumpticn. Meat demand has increased faster than output and large imports, particularly of beef, have become necessary. Cn the other hand, domestic supply of pigs and poultry, produced at internation- ally competitive prices, kept pace with demand. Feedgrains production, basic to livestock expansion, has increasingly lagged behind domestic requirements and the volume of imports is now over two million tons per year. 90. The Government is aware of the problems in agriculture and the Development Plan envisages a series of measures to improve agricul- tural performance; they include strengthening of agricultural education, research and extension, changes in the agrarian structure, adoption of more adequate price policies and development of credit. 91. The Plan also establishes targets for inputs, such as tractors, other machinery and fertilizers. These targets are very ambitious and unlikely to be met. The need for expanding livestock production has also been recognized; however, it will take considerable time to mount the substantial livestock program outlined in the Plan and targets for 1967 are unlikely to be reached. A program for regrouping about one million hectares of land in 1964-67 is given high priority in the Plan and a special effort is in fact made in that direction. 92. The changing labor situation in agriculture is a major element affecting the future of this sector. The active agricultural population is still large (over four million people or one-third of the total) and the Government should favor continuation of migration, albeit at a slower rate. It should assist farmers leaving by providing proper training to facilitate shifts. A further decline in agricultural population repre- sents at the same time a unique opportuniity for raising incomes of those remaining in agriculture. This of course requires a major effort to raise labor productivity and to progressively reduce production costs. 93. The expansion of livestock production should be a key element in developing agriculture. Spain possesses the natural conditions for expanding livestock, and market prospects for livestock products are very encouraging. The Bank/FAO Mission envisages in particular a large expansion in beef production, of 5 to 5-1/2% on average per annum until 1975. Owing to the difficulties in implementing such a program it is - 24 - 88. Output growth over the last several years was fastest for ex- ports crops (citrus, other fruits and tomatoes), sugar beet, cotton and, since 1964, rice. Meat production also expanded, that of beef, veal and lamb growing at 5% p.a. from 1960 to 1964. There was, however, a slcwer increase in livestock numbers, primarily the result of large slaughter- ings of young calves. 89. Despite the increase in production, certain agricultural com- modities have been in short supply. Rising incomes have stimulated es- pecially meat consumpticn. Heat demand has increased faster than output and large inports, particularly of beef, have become necessary. Cn the other hand, domestic supply of pigs and poultry, produced at internation- ally competitive prices, kept pace with demand. Feedgrains production, basic to livestock expansion, has increasingly lagged behind domestic requirements and the volume of imports is now over two million tons per year. 90. The Government is aware of the problems in agriculture and the Development Plan envisages a series of measures to improve agricul- tural performance; they include strengthening of agricultural education, research and extension, changes in the agrarian structure, adoption of more adequate price policies and development of credit. 91. The Plan also establishes targets for inputs, such as tractors, other machinery and fertilizers. These targets are very ambitious and unlikely to be met. The need for expanding livestock production has also been recognized; however, it will take considerable time to mount the substantial livestock program outlined in the Plan and targets for 1967 are unlikely to be reached. A program for regrouping about one million hectares of land in 1964-67 is given high priority in the Plan and a special effort is in fact made in that direction. 92. The changing labor situation in agriculture is a major element affecting the future of this sector. The active agricultural population is still large (over four million people or one-third of the total) and the Government should favor continuation of migration, albeit at a slower rate. It should assist farmers leaving by providing proper training to facilitate shifts. A further decline in agricultural population repre- sents at the same time a unique opportunity for raising incomes of those remaining in agriculture. This of course requires a major effort to raise labor productivity and to progressively reduce production costs. 93. The expansion of livestock production should be a key element in developing agriculture. Spain possesses the natural conditions for expanding livestock, and market prospects for livestock products are very encouraging. The Bank/FAO Mission envisages in particular a large expansion in beef production, of 5 to 5-1/2% on average per annum until 1975. Owing to the difficulties in implementing such a program it is expected that expansion will be more modest over the next five years. A somewhat slover expansion of output is envisaged for other types of meat, 3% p.a. for lamb and mutton and about 5% for poultry. 9L. A basic requirement for success of this program is to assure farmers that prices will not be subject to the wide fluctuations experi- enced in recent years. Such fluctuations were primarily the result of inadequate coordination between imports and domestic production and de- mand trends. To provide sufficient inducement to farmers for entering livestock production on a large scale, it is suggested to keep prices of imported meat fixed initially; thereafter, they should be adjusted to the trend of world prices, expected to be upward. If domestic prices sllould fall below a minimum level, a government agency should perform support buying operations. 95. The livestock program envisaged will call for a substantial increase in feedgrains and fodder production, as well as a large program of pastures development. Much of the area required for feedgrains pro- duction will have to come from land presently under wheat, consumption of which is expected to continue declining with rising incomes. A large part of the additional fodder requirement will have to come from newly irrigated areas where climate and structure of farms allow a pattern of integrated livestock production, with breeding and fattening on dry and irrigated land respectively. 96. WJith respect to higher value crops, citrus production over the next five to ten years is almost entirely determined by plantings already done. Output may grow in the next ten years at an average annual rate of 4-5,. The citrus industry is heavily export oriented (almost 80% of out- put is exported) and future plantings therefore must be based largely on prospects in foreign markets (particularly the EEC). European demand for citrus has remained strong, even in the face of significant price increases, and Spain has been able to maintain a large share of the mar- ket. There are now some uncertainties as a result of the EEC policy, which may have an adverse effect on the value of Spanish exports. Never- the'ess Spain has many advantages over its competitors (including a var- ied composition of its harvest and lower transport costs) and a too cautious attitude in Spain's production policy could endanger long-term grwtAh prospects of this industry. 97. Spain is in a favorable position as a producer of other fruits and vegetables; total exports of fruits (other than citrus) and vegeta- bles 7T luing tomatoes) amount to about 40% of total agricultural ex- ports. Larger overseas sales of these commodities appear possible, pro- vided that quality improvements and more out of season production are achieved. Such improvements have not always been carried out adequately in the case of tomatoes, a principal export crop, and the relative im- portance of Spain as an exporter to European markets has been declining. - 26 - 98. To achieve long-term production objectives, a net additional area of about 4CO,000 hectares will have to be put under irrigation by 1972. The proposed 400,000 hectares will have to be selected from the 1.3 million hectares which presently the Government envisages to put under irrigation and for which irrigation works are now at some stage of completion. The Government should carefully review the irrigation program and choose those projects which are in the most favorable lo- cations and have lowest completion costs. 99. Cn the basis of the foregoing considerations, the Bank/FAO Mission envisages an increase in agricultural output of the order of 3% p.a. over the next ten years. Output of certain commodities such as animal feeds and meats, should expand at a considerably faster rate, but due to the difficulties of mounting a livestock development program, this is more likely to happen towards the end of the period. To achieve a 3% growth rate, while at the same time making production more efficient, with less reliance on subsidies and with a substanti- ally smaller agricultural population, is a great challenge to Spain's agriculture. It would require, among other things, an improvement in the organization and strengthening of such public services as agricul- tural credit, extension, education and research. 100. The envisaged output growth would provide for augmented ex- ports in the traditional export corniodities of Spain. A more substan- tial contribution to the improvement of the balance of paym.ent would come, in the longer run, from the import saving program which would apply particularly to meats, grains and livestock. On the basis of the outlined program, import substitution should apply in the next five years particularly to cereals other than wheat; more substantial results can only be achieved over a longer period. Industry / 101. Spanish industry grew rapidly in the 1950's. Grow%th was stimulated by economic autarky and a critical scarcity of nearly all commodities. However, funds and equipment were increasingly channeled to the State sector and the private sector had difficulties in modern- izing and improving its structure. Many industries were fragmented and ill-equipped, and growth in output was distorted by extensive government controls and lack of foreign exchange. All this resulted in high cost production. 1/ A more detailed analysis is given in Annex I. - 27 - 102. Since liberalization a transformation has been taking place in the structure and technology of Spanish industry. Some sectors have grown rapidly and are approaching internaticnal levels of efficiency; various new industrial fields have been entered, and an injection of foreign capital has been accompanied by much needed modern technology, particularly in steel, chemicals, automobiles and machinery production. Industrial output as a whole has grown by about 11% per annum since 1960, with the highest rates of growth in the mechanical engineering, automobile, basic metals and chemical industries, and relatively slow growth in the traditional textile and food industries. (Tables 4.3 and 4.4). The only stagnant sector has been mining. Altogether, the recent pattern of industrial growth has been appropriate to Spain's needs. 103. In spite of this progress, Spain faces a major task in making its economy truly competitive and capable of integration with more de- veloped economies, the EEC in particular. From the industry point of view, this will involve strengthening the energy base, modernizing the coal - iron ore - steel complex, accelerating the development of growzth industries (like chemicals, machinery and automobiles) and improving the structure of traditional industries (such as textiles, food proces- sing, paper and mining). To hasten these changes, new policies have been forged. Most of these aim at strengthening private enterprise through structural rationalization (accion concertada) or new regional growth centers (polos), through support of exports and technological development, and finally by stricter discipline and control of INI's growth. 104. Spain's energy base is precarious. Its economic hydro-electric potential will soon be fully exploited, its crude oil production prospects are limited, and its coal mining industry badly needs reorganization. Electric energy in Spain today is generated and distributed by a large number of private power companies. The technological and financial prob- lems in building nuclear powqer stations and the economic necessity of coordinating the expansion of the high-voltage transmission grid are bringing these companies together, though hardly fast enough for the Government which is rightly pushing for more far-reaching coordination of investments. In the petroleum sector there is ample refining capa- city. The Government is striving for greater participation in overseas oil development hoping thereby to reduce the cost of crude oil imports which are likely to exceed $500 million equivalent by 1970 at present market prices. 105. A great problem is the improvement of the coal - iron ore - steel complex, where expansion and modernization have been regrettably delayed. Coal mining is in a critical situation and its modernization, imperative for its survival, is being aided by accion concertada (see b-1elow). Iron ore mining is similarly in need of modernization and - 28 - concentration of operations around a few large modern beneficiation plants. This sector suffers from competition with newq high-grade ore mines abroad and from the constantly falling world prices. There is no special program for its assistance, though a government study is under way. 106. If the problems of supply of iron ore and coal can be solved there should be quick progress in the steel industry. There has been remarkable improvement in recent years in Altos Hornos, INI's Ehsidesa should be entering a more profitable phase if the current expansion program can be implemented, and a third large integrated steel combine is being born through the amalgamation of three existing Asturian steel producers. The modernization of the steel industry, including iron ore and coal, will necesstate very heavy capital investments over the next five years, and finance is bound to become a problem. 107. The greatest industrial growth potential should be in chemicals, machinery, and transport equipment. Recent refinery construction has made available petrochemical supplies. In addition, Spain is in an excellent position to produce sulphuric and phosphoric acid. The Rio Tinto pyrite deposits have become increasingly valuable by the world sulphur shortage, and substantial phosphate deposits are available in the Spanish Sahara. As a result, there has been strong investment activity in chemicals, and some large new petrochemical centers have grown up around the refineries. 108. Machinery production has expanded rapidly but not sufficiently to meet the groawth in demand; consequently, imports of machinery rose rapidly. Shipbuilding has fared well, particularly in exports. Produc- tion of railroad and electrical equipment has also expanded at a rapid pace, aided by large investment programs in the railroad and power in- dustries. There is a need for greater specialization and consolidation of units, which are too numerous by world standards. Financing is a problem, in spite of large investments by foreign companies, and special government action may be required. While trucks are being exported with some success, the automobile sector may need ftaer firms. 109. The textile industry has had great difficulty in modernizing and two special programs were started in 1963 to assist the cotton and wfool textiles industries. The programs affect only a small portion of industry and large remaining sectors are still uneconomic, coexisting with some very modem large enterprises. A similar situation exists in the pulp and paper industry, where three modern cellulose plants have been built but where the major part of the industry is traditional and uncompetitive. - 29 - 110. The Government provides special benefits to industries which are in a difficult position, by entering into a special agreement with the firms concerned which in return undertake to modernize. This scheme, the accion concertada, has thus far been applied to steel, coal, pulp and paper, vegetable canning, flour, meat production, leather and shoes. The programs for steel and coal are very large, involving major structural reorganization of the industries. Not all firms in the respective in- dustries are included; some voluntarily stay out for fear of the commit- ment involved, others are too small to qualify and vw1l be eliminated naturally. The policy seems appropriate for amending the structure of the less efficient industries; it is complemented by the Government's policy of prescribing minimum sizes and technical requirements for new plants in various industries. 111. Regional industrialization is another important new policy. Seven growth centers (polos) have been set up to stimulate the industri- alization of certain regions believed to have a good industrial potential, and simultaneously to ease overcrowding in Bilbao and Barcelona. Spe- cial incentives are given to new private industries established in these centers in the form of credit facilities, tax rebates and subsidies; the industries are expected to act as catalysts to economic life in their surroundings. Response has been excellent, and in two selections made in 1964 and 1965, investments totaling 51 billion pesetas were ap- proved, creating 85,000 new jobs; at the time of writing, a third round of selection was under way. It is difficult, of course, to calculate the ultimate returns from this program. It involves a large cost to the State and the incentives may induce some excess capacity and misalloca- tion of resources. Nevertheless, in the M7ission's judgement, this pro- gram holds great promise. 112. One of the major tasks facing Spanish industry is exporting. The expansion of industrial exports will have to make a vital contribu- tion to the future balancing of Spain's foreign payments. Spanish pro- ducers in general are not export-minded. In spite of the vigor exhibited by some industrialists in fields like machinery, inorganic chemicals, petroleum products, and transport equipment, the industrial sector as a wfhole has not expanded its exports fast enough, and the level reached is still low in relation to industrial output and latent export potential. Tj'he Government's recent export promotion program does not yet seem force- ful enough to create new attitudes towards foreign markets, or to launch successful exporters on a substantial scale. 113. Spain has fed its recent industrial expansion on borrowed tech- nology. This is appropriate and desirable; yet the stage is being rea- ched where it will have to develop new technology on its own. Thus the Plan emphasizes the importance of research and provides for nearly 1.7 billion pesetas during the Plan period for public research. Facilities to improve private research will also be provided. - 30 - 114. Cne important aspect of the attitudes embodied in the Develop- ment Plan is the emphasis on private enterprise and the attempt to con- trol public enterprise (the role of INI). Until very recently INI's role was vaguely defined and its vigorous expansion limited the role of private industry in important sectors - steel, shipbuilding, auto- mobiles and trucks, heavy mechanical equipment, cellulose. Its growth had not always been economically sound; because of emphasis on autarky and physical expansion rather than economic viability, its financial results were disappointing. It must be granted in fairness, however, that INI has made many pioneering contributions to the development of Spanish industry and some of its enterprises (e.g. of trucks, shipbuild- ing, short-fibred pulp) are attaining international competitiveness. 115. The Plan Law attempts to define INI's role, stressing that it may expand only where private initiative is lackiLng, providing for scrut- iny and control of its budget and future investments, and postulating the sale of its enterprises where state ownership is no longer required. The effect of the law is difficult to judge; the ultimate role of INI still is a subject of discussion within the Government. Nevertheless, the budgetary limitation is effective and future expansion has been curtailed. Further, some thermal plants, a textile mill, and a machin- ery plant are being sold to private companies. 116. The general picture is one of dynamic growth of private in- dustry, aided by generally sound and imaginative government policies and shaking off gradually the slough of old and uneconomic enterprises. Prospects for future expansion are good. The role of the public sector requires further clarification and more effort is needed in promoting exports of manufacturers. Transportation 117. Spain has an extensive system of land transport, its principal lines radiating from ladrid and running along the coasts. There are a large number of ports writh important coastal and overseas traffic. Air transport, especially for passengers, has assumed an increasing role, favored by fastly growing tourism and slowness of surface transport, in turn due to topography and location of the island provinces. 118. Facilities for surface transport would be about adequate if capacity was the sole criterion. Much of the facilities are, however, antiquated and because of inadequate upkeep have gradually deteriorated. Mqoreover, the absence of rational transport coordination resulted in redundant and uneconomic railway lines and unnecessary parallel services in rail and road transport. - 31 - 119. Highways, with a total length of about 132,000 km, form an extensive network. Though adequate in overall length and distribution, growing traffic needs have far outpaced the quality and type of exist- ing roads. Registration of motor vehicles and inter-city traffic grew during the last decade at a rapid rate. (Table 4.6). 120. Important efforts are now made to improve road conditions. The basis is a General Highway Plan covering the 16-year period 1962-77. It includes details on improvements, repairs, maintenance and new con- struction, requiring a total investment of 178 billion pesetas. High priority is given to a network of national routes designated the "'Blue Network". The first Bank loan to Spain of October 1963 ($33 million), assists in financing this network. Investments in roads during the period of the Development Plan are geared closely to the Highway Plan. Planned expenditure for 1964-67 is 38 billion pesetas and covers, in addition to the Blue Network, construction of arterial, access and cir- cumferential roads. Moreover, expressways are planned for the Catalan and the Basque regions, connecting Barcelona and Bilbao with the boundary of France. 121. The railroad network is composed of the RENFE system which comprises all road-gauge lines, and some 50 small narrow-gauge railways mostly operated privately. Some of the narrow-gauge rail companies are important carriers of coal and minerals and are expected to continue operating profitably. A majority of private companies are, however, not very profitable and expected to disappear in due course. 122. RENFE, an autonomous public corporation, came into existence in 1941 with the nationalization of all broad-gauge rail lines which until then were run by more than 20 private firms. Its net covers about 13,300 km, including 2,700 km of electrified and 2,000 km of double-track lines, Inadequate maintenance and renewal, old and ob- solete equipment, and lack of proper integration of the facilities of the more than 20 companies inherited by RSJFE all contributed to the multifarious problems confronting the network today. 123. During the last decade, RENFE incurred operating deficits averaging 1.8 billion pesetas and made annual gross investments aver- aging 3.6 billion pesetas. 124. An important shift took place in freight from rail to road. Road freight almost trebled from 1958 to 1965, whereas rail freight dropped 10% and 15.5% in 1959 and 1960 (affected by the economic reces- sion and an untimely increase in fares) and increased by no more than 3.7% per annum thereafter. Passenger traffic by rail fared better, despite growing competition from road traffic; after declines of 2.3% and 14.1% in 1959 and 1960 respectively, there was an average growth of 12.9% per year from 1960 to 1965. - 32 - 125. RENFE's shortcomings are being remedied by a far-reaching program of modernization and expansion, covering 1964-73. Numerous administrative reforms have already been adopted in line with this program. Of its total estimated cost of 62 billion pesetas, 46% or 28.3 billion pesetas are earmarked for 1964-67. More than 55% of the four-year total will go to tracks, diesel motive power and rolling stock. After a peak of 8.2 billion pesetas in 1966, investments are planned to level off to 2.1 billion pesetas by 1973. Here, the Bank has contributed $65 million through its loan of July 1964. RENFE's program also allows for the expected growth in traffic. 126. Ports in Spain total more than 300, including those in the Balearic and Canary Islands. Twenty-seven are relatively large. Over 85% of harbor cargo is handled by the 17 largest ports, each of which accounts for more than a million tons. A majority of the larger ports are in artificial harbors and despite the rising draft of offshore traffic,problems of depth are not so serious as in other European countries. 127. Congestion is no current problem but expected growth calls for expansion and modernization of facilities. Equipment for loading and unloading of cargo is in part obsolete and inadequate, backlogs exist in the repair of the superstructure, and there is need for mcd- ernization of wharfs and docks. Moreover, some ports require dredging and the dispatch of port traffic is in general rather slow. 128, Port investments during 1964-67 form part of a comprehensive port modernization and development plan, covering 27 ports in Peninsular Spain and the Islands. Expenditures planned for 1964-67 total 18.4 bil- lion pesetas. The Bank has made a $40 million loan for ports in Septem- ber 1965. 129. In the context of the modernization program, important changes are taking place in the administration and financial situation of the ports. In the past, administration was strongly centralized. A new Principles of Autonomy Law will bring autonomy to the operation of bet- ween five to seven of the largest ports. A Ports Finance Law enables the ports included in the Bank loan to raise rates to a level adequate to cover full costs. 130. The Spanish merchant fleet contains many units over 25 years old and is inadequate to meet the country's commercial needs, making sea freight a net liability in the balance of payments. Spanish ships transported 34 million tons in 1965, against 30 million in 1961 and 23.5 million in 1958. Total freight traffic in Spanish ports was 80.6 million tons in 1965. The Development Plan aims at easing the foreign exchange burden by the construction of new vessels during the four- year period with a combined capacity of over one million gross regis- tered tons. - 33 - 131. Air traffic has been growing rapidly. In 1965 alone, passenger traffic rose 22% wihile air cargo grew 25%. Domestic passenger traffic registered a 16% increase and international travel grew 30%. The share of Spanish carriers in international traffic is about one-quarter; do- mestic flights are al1 covered by local airlines. 132. Projected investment (public and private) in 1964-67 in air transport totals 15.3 billion pesetas, of which almost 70% would go to airport facilities and new aircraft. 133. Coordination of the various types of transport now receives high priority in overall transport development. Coordination of all modes of transport (land, sea and air) is the task of a Transport Coordination Commission, established in 1963. Coordination of land transport (rail and highway) is being worked out by a body created in 1964, the Superior Council of Land Transport. Tourism A/ 134. From about three million at the beginning of the 1950's, the number of foreign visitors 2/ to Spain grew steadily during the decade, at an average rate of 19-20Q annually; but it was not until the Stabi- lization Program was adopted, and the peseta devalued, that Spain was really "discovered"1. Since then the growth of foreign tourism has been remarkable and the rise in the number of visitors has averaged about 25% a year. Arrivals in 1963 and 1964 far exceeded the assumptions of the 1964-67 Development Plan and the estimated gross gain to the balance of payments surpassed expectations to an even greater degree. Gross foreign exchange receipts from tourism in 1965 were probably about $1 billion (if allowance is made for the inclusion of certain receipts not related to tourism), against a plan figure of $862 million; five years earlier they were less than $300 million. 135. In 1965, the increase in the number of arrivals was exception- ally small, amounting to only 5%, but gross foreign exchange receipts rose by 10-15%. Most probably 1965 is a forerunner of a slower growth of arrivals in the future, but the Mission believes that a number of special factors were operating (including bad weathor conditions and shortage of acconniodation) and that there is no question of market or physical saturation. This is also borne out by the batter figures so far in 19 66. 1/ A more detailed analysis is given in Annex II. 2/ Figures on tourist arrivals mentioned in this section refer to tem- porary visits exceeding 24 hours. For further details concerning the coverage and reliability of Spanish statistics of tourism see Annex II, Appendix I. - 34 - 136. The boom that Spain has experienced in tourism since 1960 was largely a spontaneous one resulting from private initiative, and govern- ment policy has played only a limited role. The tourist sector did not receive any preferential fiscal treatment and the contribution of offi- cial credit for hotel construction appears to have been marginal. Dir- ect public investment has been very small and public investment in infrastructure has faflen behind. 137. Spain was attractive because of its natural tourist assets in the form of a long coastline and much sunshine and because it was cheap. Several other Mediterranean countries in Europe have also de- rived important gains from the region's popularity with tourists from industrial Europe but Spain has done particularly well. 138. Until quite recently the supply of accommodation was unable to keep up with strongly growing demand. In this sellers' market profit margins were high and the attraction to private investors strong. In the last two years the situation has changed somewhat, since both current and capital (building) costs have been rising, while hotel prices have been kept fairly stable, and net additions to hotel capacity have been smaller. Nonetheless, investment remains profitable, though the pros- pective rate of return is no longer exceptional. Although Spain has lost much of the initial price advantage from devaluation, it is still a relatively cheap country for foreign tourists. 139. A further consequence of the "boom" has been a lack of suffi- cient complementary facilities such as beach and sporting amenities and the accumulation of arrears of supporting infrastructure and other services (roads, telecommunications, clean water supply, refuse dispo- sal, etc.), which in certain tourist regions that have developed very rapidly it is na; urgent to put right. 140. The next five years should see a steady but less spectacular growth of tourism in more normal market conditions; the Mission regards an annual average growth in the number of foreign visitors of 10% as a definite minimum potential. In the short run there may be a period of adjustment before the private sector appreciates fully that long-term prospects for sound investments are still good, but for the period as a whole there should be no difficulty in providing for a growth of this order of magnitude and even more. Much of the coast is still suitable for further development, or has not yet been brought into use for tour- ist purposes at all, and the supply of labor is still adequate. Private enterprise should continue being responsive to opportunities for invest- ment (in both the traditional field of hotels and the provision of apart- ments and villas). - 35 - 141. There is no question that Spain continues to be attractive to foreign visitors and can benefit from the continued growth in inter- national travel, especially from nearby countries. In fact, the assump- tion of a 10% rate of future growth of the numnber of arrivals allows for the probability that Spain will not further increase its share of the i4editerranean region's income from foreign travel and that it may even fall as a result of faster expansion in such competing countries as Portugal (Algarve) and Yugoslavia (following the devaluation of 1965) as well as of the growing attraction of other countries that are now making a major effort to seek foreign tourists (North Africa and east- ern Europe). It also allows for some slowing down in the second half of the 1960's (compared with the first half), of the rise in real national product in the European countries that supply the bulk of Spaints foreign visitors and for some further though limited decline in the relative price advantage of Spain, as tho economy reaches a higher stagc of economic development. 142. A growth in the number of foreign visitors by 10% a year would imply an increase in the level of foreign exchange earnings between 1965 and 1970 of about $600 million. This estimate does not allow for the possibility of rising per capita expenditure on tourism as real incomes increase in European countries; nor does it allow for rising prices. The potential therefore exists for a considerable increase in foreign exchange earnings from tourism over present levels, but in view of un- certainties surrounding any such estimate, it cannot be taken for granted. 143. For the immediate future public policy should concentrate on im- proving facilities in existing tourist regions and localities (including infrastructure so far as competing claims permit) and on expanding these facilities where there is still room. Preparatory work should continue on the longer-term development of new regions that will be needed as tourism further expands, but the Government should be cautious in en- couraging private investment, or investment by public agencies, merely for the sake of its social effects, in areas or localities that have no real tourist vocation. This applies both to official credit (where a closer scrutiny of loan applications is desirable with a view to en- suring that public funds are used only when really needed and for wThich an alignment to market rates of interest is recommended) and to the new law on centers and zones of national tourist interest. This new law is the major instrument by which the Government hopes to avoid some of the uncontrolled development of the past, but it also aims at promoting the establishment of many new tourist localities. Initially the Govern- ment should proceed slowly and selectively with the designation of cen- ters of national tourist interest and it should also satisfy itself in each case that the loss of public revenue involved is justified. - 36 - 144. Now that Spain faces growing competition from other countries and its price advantage is smaller than in the immediate post-stabili- zation period, budgetary allocations for publicity and promotion should be substantially enlarged. Also, priority should continue to be given to professional training, in which there are important arrears. Housin& 145. Housing is an important sector in the Spanish economy. Gross investment in housing accounted in recent years for about one-fifth of total gross investment and consequently had a significant influence on the economic situation. Moreover, housing is supported by substantial amounts of government subsidies and credit, provided to a large extent by two of the official credit institutions and the savings banks. 146. The Government's active role in housing dates back to 1911 when the first national housing law was enacted. In this and subsequent legislation the provision of government subsidies and interest-free loans was a major element. Relatively little was accomnplished through the 1930's, largely because very limited financial resources were pro- vided. Widespread destruction during the Civil War made housing prob- lems more acute. 147. Since 1939 there have been three subsequent housing plans, in- cluding the present one covering the 16-year period 1961-76. Two im- portant institutional changes during this period were the creation of the National Housing Institute as an autonomous agency in 1939 and a separate Ministry of Housing in 1957. Changes in legislation during the periods of the first and second plans, which ended in 1954 and 1960 respectively, were numerous, although throughout government sub- sidies and easy credit were retained as essential elements. Initially, accomplishments were limited, but in the 1950's the public authorities started to give higher priority to filling housing shortages by backing programs with a substantial allocation of financial and real resources. As a result, units constructed in 1960 (128,000) were more than double the 1950 figure. At the same time, the share of housing units receiv- ing official financial support grew from 25% in 1950 to 91%o in 1960. This share of state-supported dwellings remained at about the same le- vel during the 1960's and only very recently was there a modest decline in the percentage, related to restrictive measures on housing construc- tion mentioned below. - 37 - 148. Another aspect of the Government's role in the housing sector has been widespread rent control, still existing today. The 1961-76 National Housing Plan aimed at the construction of 3.7 million housing units, with numbers rising gradually from 125,000 in 1961 to 353,000 in 1976. Unit targets were based on a projection of total housing re- quirements by 1976, in turn derived from estimates of the housing def- icit at the beginning of 1961 (placed at one million units), population increase (1.55 million units), internal migration (0.25 million units) and replacement of obsolete and sub-standard houses (0.91 million units). Total investment over 16 years was estimated at 550 billion pesetas ($9.2 billion) at 1961 prices. 149. The general Development Plan for 1964-67 retained the Housing Plan's targets for these years and made explicit provision for the con- struction of complementary buildings to meet cultural, religious, health, recreational and other needs. These various requirements were linked to general urban development. 150. Three major classes of housing are envisaged by the Plan, ranging in cost, based en 1961 prices, from about $1,500 in the cheap- est class to $6,000 for the most expensive type. For 1962-65, produc- tion was to be allocated as follows: 30% of units for official housing (covered by direct state investment and that of semi-public agencies); 60% for protected housing (initiated by private individuals or groups with public assistance, but subject to rent limitation); and 10% for free private housing (without government aid). Protected units were divided in two categories, called respectively 'Group I" and 'subven- cionadas". Group I units comprised25% of protected housing and benefitted from national and local tax exemptions, right to expropriation of land where needed, and eligibility for loans up to 60% of budgeted cost. Subvencionadas, -wzhich comprisodthe remaining 75%, were eligible for direct state grants of 30,000 pesetas per dwelling unit, paid to the builder. 151. In fact, housebuilding has since 1961 expanded at a very rapid pace and increasingly exceeded the targets of the Plan. (Table 4.5). As-mentioned earlier, this was a major contributing factor to demand pres- sures in the economy. As a result, a number of measures were taken to reduce housing construction. 152. In June 1964, terms of loans for Group I housing were tightened. In April 1965, a ceiling of 250,000 was established for new authorizationa for State-supported dwellings for the two years 1965 and 1966. In June 1965, the Credit Bank for Reconstruction (one of the official credit in- stitutions) discontinued granting new loans for Group I housing and tightened credit terms for all other construction credits. Savings banks set the maximum they would lend for housing at 20%' of the total increase in their deposits during the previous year. On the supply side, measures were taken to expand available materials, especially cement. - 38 - 153. The steps taken to mitigate existing pressures can make them- selves felt only with a time-lag, especially in view of the backlog of authorizations granted. In 1964, requests for State supported house- building were approved for 394,000 units, more than double the yearly average of total units to be constructed during the period of the Development Plan. Although approvals went down to 127,000 units in 1965, it appears doubtful whether any significant effects of the re- strictions will become noticeable before the end of 1966. An additi- onal complication is that the Government has no effective control over non-residential construction which has added to inflationary pressures and may well continue to expand. 154. It is obvious that in the years to come housing will remain an important element in the economic situation and that, especially as a result of large-scale migration to urban areas, social and eco- nomic pressures to maintain construction at a high level will remain strong. It is also evident that if major disturbances in the econo- mic situation resulting from excessive housebuilding are to be avoided in the future, coordination among the various ministries and agencies responsible for construction will have to be strengthened. Cn the other hand, in view of time-lags a strong brake on housing, if pro- longed, could lead to a level of construction below capacity at a time when this would no longer be required for general economic rea- sons. The Govermment has shown awareness of this by giving thought to measures whose implementation could in due course contribute to a quick re-expansion of construction activity if so required. 1/ Education 155. Expansion and up-grading of education are of prime importance in relation to Spain's rapid economic and social development. Both the Government and the private sector have recognized this and for a number of years efforts to improve the educational system have inten- sified. Two important areas where Spanish education lags compared to other western countries are general literacy and technical education. Both are receiving major attention. 156. In primary education, growth has been held back by shortage of classrooms, inadequate teacher salaries, shortage of teachers in rural areas and lack of teaching equipment. The substantial illitorncy was, however, not solely the result of inadequate resources. The mar- ked stratification of social classes, the almost exclusive access to 1/ In June 1966 a decree was passed which opens the way for some ad- ditional authorizations for State-supported housebuilding this year. - 39 - secondary and higher education for the upper and middle classes and the widespread poverty in rural areas historically all contributed to indif- ference towards educational opportunities on the part of substantial population groups0 In some areas this indifference still is an impedi- ment to advancement. 157. The Government has taken important steps to correct deficiencies in primrary education. A school building program aimed at the construc- tion of 25,000 new classrooms during 1957-61. Although delayed, it con- tributed to a sharp increase in enrollment rates in the 6-12 year age bracket, from 69% in 1952 and 72% in 1956 to 95% in 1963. In the context of the Development Plan, the compulsory age limit for school attendance was raised from 12 to 14 years. This caused new room shortages. By the end of 1965, the enrollment rate in the 6-10 age group was 91% and in the 11-14 age group 85%. 158. Better remuneration has improved the teacher situation in pri- mary schools. Between 1959 and 1963 teacher salaries more than doubled and the 1965 Civil Service Law further raised teachers' pay by 2.3 times, with additional provisions for new teachers, As a result, the teacher shoortage has been overcome in the major urban areas, but shortages per- sist in rural areas. 159. The Government aims at wiping out illiteracy by 1970 and since 1963 has assigned 5,000 specially trained teachers to this task. Through 1967, the program will deal with illiterate men of ages 15 through 59 and waomen of ages 15 through 49, During 1964 and 1965, 463,000 adults became literate, reducing the illiteracy rate for the age group 14 to 60 from 8.5% at the end of 1963 to 4.2% at the end of 1965. 160. In the technical field, education has not kept pace with the expanding needs for qualified manpower. This is explained in part by the traditional emphasis in Spanish education on the liberal arts. There is an acute shortage of scientists and engineers, and different kinds of lower grade technicians also are in short suipply to varying degrees. 161. Although shortages persist, vocational training at the secon- dary-level has expanded considerably. There has been a certain lack of coordination, demonstrated by the existence of five different groups of secondary vocational schools, operated by the Government, semi- governmental groups, the syndicates, the church and private business - 40 - firms, 1/ Two groups combine general and vocational training, while the other three concentrate on the latter only. 162. Lower-level agricultural technicians and farm operators are trained in public schools for practical workers in agriculture. There are also a number of intermediate-level schools for agricultural tech- nicians. Only recently two university-level agricultural schools have started turning out graduates in significant numbers. 163. The Plan gives special attention to up-grading technical edu- cation at various levels. It provides for technical training of an additional 113,000 persons at the intermediate vocational level, and new schools of engineering with 6,000 places for intermediate and 9,000 for advanced technical specialists. These targets imply an im- portant expansion of educational facilities. 164. Also, curricula and entrance requirements for technical schools have been changed to eliminate excessive requirements and thus increase attendance. The law of 1964 which raised to 14 the compulsory school age limit also reduced the length of the engineering study from seven to five and that for middle-level technical specialists from five to three years. By simplifying preparatory work, the total number of years saved is three. 165. An imaginative program run by the Ninistry of Labor since Hay 1965 is the rrPromocion Profesional Obrero" scheme, It provides for mo- bile training units, bringing teachers to areas where no permanent training facilities exist. The scheme is an important tool in provid- ing short-term training for adults who change employment as a result of the rapid transformation of the Spanish economic structure. Present plans allow for the training of 800,000 persons in five years. 166. In addition to the Government (central and local), various other groups are involved in education, especially the church. At the primary level, about three-quarters of students are in public schools, and almost all of the rest in schools of the church. On the other hand, at the gen- eral secondary level, only about one-sixth are in public schools, over one-third in recognized schools of the church, one-sixth in other recog- nized private schools, and the remaining one-third in unlicensed private 1/ They are: the Vocational Training High Schools (Tnstitutos Laborales, administered by the Ministry of Labor); the Labor Universities (Univer- sidades Laborales, semi-governmental); the Vocational Training and Apprenticeship Schools (Escuelas de Formacion Professional, administered by the Government, syndicates, church and private business); the Armed Forces School; and the Artistic Crafts Schools (some operated by the IJinistry of Education, others supported by various provincial and muni- cipal councils). - 41 - schools, in private classes or studyino by themselves. The Plan en- visages the expansion of general intermediate education through 1967 by 465,oo0 places, divided almost equally between public and private schools; total enrollment in 1963-64 was 691,000. At the university level, out of a total of 14 universities 12 are public. The number of university students still is low by western European standards and drop- out rates are very high. 167. The total target for investment on education and vocational training under the Development Plan is 22.86 billion pesetas ($381 mil- lion) at 1962 prices, 6.6% of total expenditure under the Plan. No corresponding estimate is available for current expenditure. Total expenditure on education in 1964 was estimated at 25 billion pesetas (Sj625 million), about 2.3% of GNP. 168. Relatively high priority will have to be given to education under the Second Plan if educational standards are to be brought closer to those of other western European countries. This is fully recognized by the Government, which has already indicated that special attention will be given to educational problems in the context of the Second Plan. 169. Some indication of the magnitude of the task can be obtained fron an intensive study made by OECD during 1961-62 of Spanish manpower requlirements. In this study, which has influenced strongly current Spanish thinking on educational needs, it was estimated that about 1.2 million persons wqith higher and middle level education would have to join the active population between 1961 and 1975. IV. PUBLIC FINANCE AND CAPITAL MARKET V Public Finance 170. Scope and Transactions of Public Sector. The public sector includes, in addition to the Central and Local Governments, a large number of autonomous agencies with heterogeneous structures and poor accounting. Progress in arriving at more complete data on public sec- tor transactions has been slow. This makes a systematic analysis of public sector finances difficult. Cn the basis of an approximation, current revenue of the total public sector (excluding social security and syndicates) equalled in recent years 15-16% of GNP, the tax ratio being only about 11%. Public expenditures, including substantial trans- fers to the official credit institutions in 1964 and 1965 financed by bond issues, constituted about 17-18% of GiNP. Current expenditures re- presented on average 11%, capital outlays 5-6% and transfers to offic- ial credit institutions (in 1965) 1.9%. 1/ A more detailed analysis is given in Annex III. - 42 - 171. 'he major trands of Central GovernmLent finances during the 196's i-nere cdscribed before (see rages 13, 21 and 22) The T nain fea- tLres were: (a) the charge fror a caslh surplus to a cash deficit pcs- tion since 1964j (b) in additicn, the steep rise in transfers to pumblic eredit institutions sinc.e 19624; rc) the inadeq2ua-y of issues of invest- ment bonds (cedulas para inversicnes) to finance these trarsfers ccmplete- ly; (d) the resulting reaourse 'by the Treasury to the Sank of Spain ard (e) the monetization of public debt connected weith placem:ent of fnVest- ment bonds with the commercial banks - more important than (d). 172. Revenue Effort. The Development Plan does not contain a sys- tematic analysis of expected public revenues during 1964-67. It cnly refers to the tax reform, indicating that the reform is intended to systematize and simplify the tax systemn without increasing the fiscal burden on the economic system. 173. The Tax Reform, Law was enacted in June 1964. Reforms were to be ef.fectively applied between July 1, 1964 and January 1, 1966. one of the proposed taxes, however, the tax on capital gains realized in sales of real estate (which should receive high priority from the stand- pcints of equity and resource allocation) is yet to be put into effect, Also, important details of the new individual income tax still remain to be published. 174. Table 6.2 indicates the mrajor sources of current revenue of the Central Government in recent years. Prior to 1964, direct taxaticn consisted of a number of schedular taxes, with surtaxes applied to per- sonal and business income. The 1964 reform made the individual income tax and the business income tax the two najor direct taxes. Schedular taxes (the rural and urban real estate tax, tax on income from labor1 tax on income from capital and industrial tax) subsist with modifica- tions, but liabilities under them are now credits against the two major Ones. The estate tax has been eliminated, and levies on transfer of property in case of death have been limited to the inheritance tax. 175. Simplification has been largest in the field of indirect taxa- tion. Twro majcr levies, the turnover tax and the property transfer tax replace the vast number of consumption, stamp and transfer taxes pre- viously in existence. Little change was made in either excise taxes or customs duties. Rates of the equalization tax on imports were revised, uppwards and appreciably in many instances, reflecting the changes in other indirect taxes, especially the introduction of the turnover tax (see also page 16). 176. The Spanish tax reform has fallen short of expecta- tions. It appears true that some degree of systeratization and simrplification has been achieved, both for Central and Local Government taxes. Xost of the latter's tax revenues will hence- forth consist of participations in Central Government tax receipts, - 43 - thus eliminating a large number of minor local taxes which were duly criticized in the 1962 IBRD report. It would appear, however, that no real progress has been made in attacking other ills that afflicted the Spanish tax system. Furthermore, the basic premise on which the reform was based, namely that no increase in the total tax burden was called for, is now open to serious question in view of the deficit that emer- ged in 1965, the increasing volume of borrowing on behalf of the offi- cial credit institutions which strains the capital market and the bank- ing system, and likely future trends in public expenditures. 177. In spite of the efforts to establish an equitable and redis- tributive tax system, direct taxation continues to present a dismal picture in Spain. The progressive individual income tax is not applied in reality. Little, if any, effort is made to seek compliance and it appears that an excessive share of the burden falls on salaried employ- ees subject to withholding. Compensations of high executives often escape even the proportional parts of the schedular tax through compan- ies' under-reporting of true amounts In fact, if a thorough look into the situation were possible, the perscnal income tax might well emerge as the most regressive feature of the whole Spanish tax system. 178. The 1964 reform not only sancticns the system of global as- sessments (i.e. agreements between the tax authorities and represent- atives of the taxpayers) for the determination of taxable income of business enterprises and independent professionals, but expressly ex- tends it to other areas, specifically the turnover tax and the tax on agricultural income. The use of global assessments deprives the tax system of its legal significance, distorts its impact on the process of economic decision making, and dampens the built-in flexibility fea- tures that it might possess. It makes crosschecking of tax returns among firms and among taxes impossible and in this way facilitates evasion, such as that of individual income tax. 1/ 179. No effective tax on property is yet levied in Spain. Real estate taxes, particularly those on raral property, are insignificant in practice and little improvement is foreseen as a consequence of the tax reform. 180. It seems desirable that the Spanish authorities by this time reconsider their previous pronouncement regarding the desirability of increasing the tax effort. If such increase should be decided upon, better administration and enforcement of the existing system, with per- haps tightening of property and capital gains taxes, would suffice to provide ample additional revenues. 1/ Since this was written, the Government has decided to reduce to some extent the application of the global assessment systen. (For details, see Annex III). - 44 - 181. Public Expenditures and the Plan. The Plan set some targets for current and investment expenditures of the total public sector. Current expenditures were expected to grow at a maxinum rate of 5% annually, and public investments at 10% per annum after a jump of 15% from 1963 to 1964. -With the assumed GNP growth rate of 6%, these tar- gets implied increases in the size of public sector expenditures rela- tive to GOP and in the share of investment in total public spending. 182. The meaning of Plan targets and the reporting on ctual outlays under the Plan have been shrouded in unnecessary confusion arising from the treatment of price changes. No clear distinction is made in com- paring targets and realization between current and constant prices. Ac- tual increases in current expenditures in 1964 and 1965 are defended, rightly, on the ground that if price changes are eliminated, rises are much less - although still in excess of the Plan target of 5%. On the other hand, actual public investment figures for 1964 and 1965 are corpared with Plan investment targets wiqthout making allowance for rising prices and the public budgets for 1966 and 1967 include the same investiment sums as specified in the Plan, which was prepared in 1962 and 1963. This greatly reduces the meaning of Plan targets and data on their implementation. In addition, if performance is compared with Plan targets in relation to GNP, developments in the public sec- tor appear to have been opposite to Plan intentions: public expendi- tures relative to GNP apparently have declined and the share of invest- ment in total public expenditures appears to have diminished. 183. Fiscal Hanagement. Because of defects in programming and control of public revenues and expenditures it is not possible to predict the fiscal performance during the rest of 1966; a great deal will depend on ad hoc decisions of the administration. Spain formally has a system of -two-year budgets. In practice, a system of partial and ad hoc authorizations has developed which does not even provide a framework for programming the transactions of a single year. Legisla- tion involving extra expenditures is automatically incorporated into the budget. Supplementary authorizations during the year and carry- overs from previous years amount to significant sums. Transfers among chapters of the budget are too easy and common. And expenditures based on advances (anticipos) are made by the Government as Treasury transactions outside the budget. i84. To achieve more efficient management of public funds, imiprove- ments are needed in organization, accounting and programming of public sector activities. The Mission endorses the view stated in the Plan that autonomous agencies should be reorganized, incorporating into the general budget the accounts of those with a "general service" function. The budgeting process of agencies having an "enterprise" character should be unified within a framework that allows enough flexibility for independent decision-making, but at the same time provides a means of coordination and control for general financial planning. - 45 - 185. Good accounting and meaningful classification of activities are essential for efficient management. The results of financial op- erations of Central Government, Local Governments and autonomous agen- cies should be available without much delay and classified on an economic and functional basis. Financial transactions of the adminis- tration which now take place outside the formal budget should be re- flected in public sector accounts. Whether the present two-year budget is kept in form or not, in substance, realistic estimates of revenues and authorizations of expenditures are needed on an annual basis. Amendments to budgets after they have been enacted should be kept to a minimum. The problem of carry-overs should also be treated in a more systematic manner. An increase in the importance of the initial budget will require that more weight is attached to both its preparation and imolementation. Capital Market 186. The capital market in Spain, in its broader meaning, includes the banking system, official credit institutions and securities ex- changes. Funds transferred through this market from lenders to borrow- ers amounted to 14-15% of GNP during the last five years. 187. Approximately three-fourths of resources had their origin in liquidity creation - increase in currency and deposits - with important implications for monetary management and stability. The value of funds provided in securities markets (through the purchase of stocks and bonds by individuals and institutions outside the banking system) is small compared to the funds generated by the banking system in the form of currency issue or deposits; nevertheless, they equalled 3.5 - 4.5% of GWF, which is not low for a country at the stage of development of Spain. 188. Public Borrowing. The public sector was not the main benefi- ci;ary of £urids borro-wed in the capital market, receiving 9-10% of the total during 1961-65. This figure does not include, however, the funds transferred through official credit institutions, which increased rapidly after 1963. Including these transfers, the share of the public sector rises to 23-24% in 1964-65. 189. Most government bonds were absorbed by the banks. As mentioned earlier (see page 13), prior to 1958 these bonds were automatically pled- geable with the Bank of Spain. They were very popular with banks, since the rate of interest charged by the central bank on loans against public bonds pledged was equal to or at times even lower than the rate on the bonds themselves. Absorption by banks contributed to monetary expansionl since the bonds wiere an almost perfect substitute for reserve money. The issue of pledgeable bonds was discontinued after 1957, but large amounts of previously issued bonds continued to be held by banks as part of their reserves. - 46 - 190. Since 1959, issues by the Treasury have been confined to in- vestment bonds (cedulas para inversiones), which cannot be pledged automatically. The bonds offer no attraction other than a 4-4.5% return and their placement with the banks has not been as automatic as that of pledgeable bonds. Regulation of asset portfolios had to be used by the Government to induce banks to hold investment bonds. 191. Private Issues. Whereas most public securities were absorbed by the banks, private securities were mostly placed with individuals and institutions outside the banking sector. Recent years witnessed a growing amount of private issues, of both shares and bonds, against the background of a sluggish share market. Total private issues more than tripled from 1961 to 1965, while prices of shares declined after 1962. (Table 7.3). Although securities issues were by no means neg- ligible, the main flow of funds to the private sector was in the form of bank credits. In 1965, credits to the private sector increased by 136 billion pesetas compared to gross security issues of 61 billion. 192. The stock market has structural weaknesses, including poor in- formation on the financial situation and results of many companies, lack of familiarity with the market on the part of the public at large and narrowness of the market. The fall in prices in recent years has been stimulated by a decline in profit margins in some branches, at- tractiveness of investment in real estate and taxation of dividends. 1/ 193. Financial Reforms. The most important financial reforms un- dertaken in 1962-63 were the nationalization of the Bank of Spain, the legal separation of investment banking from connercial banking and the reorganization of the official credit institutions. Two important re- sults were the emergence of the Bank of Spain as the central agency responsible for monetary policy and the new set-up for the official credit institutions under the authority of an Institute for MIedium and Long-Term Credit. A number of investment banks have been formed since the banking reform, but this development has not yet had a significant impact on the nature of lending by the banking system. Some progress has also been made in connection with the organization of securities markets. 194. Interest Rates. Spain has a strong compartmentalization of banking funds, This stems from the neglect of the interest rate as a regulator in the credit market. Considering price increases, real in- terest rates are very low and at times even negative. The highest lending rate is 7.5% and many rates are around 4.5 - 5.5% which inevi- tably leads to credit rationing. Rates paid on deposits are also kept low, apparently to discourage savings from floring to the money market (banks) and encourage investment in the security market. 1/ As part of the economic measures adopted in September 1963 the Government has taken some steps to encourage personal savings and strengthen the capital market. (For details, see Annex III). - 47 - 195. Although this policy may have some merit in view of langers of high dependence of industrial financing on bank credit, prcsent low and inflexible interest rates are undesirable from the point of' view of efficient resource allocation. To arrive at a more efficient allo- cation of funds, more reliance should be placed on market forces - that is, interest rates should be increased and consolidated. In addition, higher rates should be offered on time deposits to encourage savings by individuals who are neither rich nor sophisticated enough to enter the security market. 1/ 196. Role of Official Credit Institutions. A rationing of funds takes place as a result of the forced sale of investment bonds to the banks, the proceeds of which go to the official credit institutions. The size of this transfer has grown strongly in 1964 and 1965. Its merits depend on the efficiency of official credit institutions relat- ive to private banks in allocating funds. In view of events in 1965, extreme caution should be exercised in ensuring that investment bonds are not utlimately financed by the Bank of Spain. 197. Funds allocated to official credit institutions in 1965 equal- led 20% of the increase in total bank resources. Present plans are for the issue of 28.5 billion pesetas investment bonds in 1966, expected to contribute to total financing of 32.5 billion by the official credit institutions. In the near future, credit availabilities in the Spanish eccnomy will depend, to a large extent, on the rate of monetary expan- sion. To aim at an ever expanding volume of business for the official credit institutions with a somewhat less expansionary monetary policy may put a squeeze on private credit availabilities. For this reason, issue of investment bonds in the amount of 28.5 billicn for 1966 should be considered a maximum. 1/ Since this was written, it was decided in September 1966 to increase the interest rates on loans by public credit institutions (excepting agricultural loans) below 4.5% to that level and the way was opened for an increase in interest rates on savings accounts. These measures are welcomed by the Mission as steps in the right direction. V. ECCNONIC PROSPECTS AND CREDITWORTHINESS Importance of Economic Policies 198. Spain's economic prospects are linked closely with the effec- tiveness of economic policies. The short-run task obviously is to bring inflationary pressures adequately under control by selective measures that will affect the rate of growth as little as possible. Longer-run policies will have to bring about and support further structural changes in the economy and to be related to increased effectiveness of the Plan as a tool of economic development. 199. It is now clear that the steps taken in 1965 have led to a reduction of inflationary pressures. Restrictive action has been most effective in regard to private credit, due in large part to the decrease in bank liquidity resulting from the balance of payments deficit in the first half of 1966. Credit restraint obviously has to make a contribu- tion in present circumstances, although possibilities of applying it selectively are limited. There is, therefore, a real danger that the contribution to restraint to be made by private investment will become unnecessarily large, which should be avoided. In this light, the re- cent action of the central bank of easing restrictions slightly after they threatened to reduce credit more than intended, appears justified. 2C0. The 8% limit for wage increases in 1966 has been largely ineffective as demonstrated by the much larger raises allowed in col- lective agreements that came up for revision. Moreover, the recent increase in the minimum wage, though logical under the circumstances, will act as a powerful inflationary impulse. 201. The Government's relaxed attitude towards wages may have been influenced by the lack of similar norms for most other types of income and the practical difficulties of introducing such norms. The recent Septeiber measures allude to the intention of reintroducing controls on prices and profit margins in certain sectors of the economy and some action has recently been taken along these lines. It is important that measures of this nature be kept to a minimum since a more widespread application would steer the economy back to the undesirable course of detailed direct controls on the economy. 202. If growth is to continue at a satisfactory rate and is not to be interrupted in the end by drastic emergency measures, it is es- sential that the re-occurrence of strong demand pressures be avoided. Owing to the initial lack of adequate measures, prices rose in 1964 and 1965 faster than in most competing countries with the result that the competitive edge of Spain existing in the early 1960's was reduced. Domestic price developments have been much more satisfactory this year, but this was due in part to the effect on food prices of the present good crop year. The most recent measures of September have added little to the previous ones for reducing effective demand and their impact is - 49 - likely to be outwjeighed substantially by that of the raise of the minimuun wage. The price situation therefore still is not firmly in hand and there is need for continued vigilance. Similarly, although the foreign exchange position has remained comfortable, especially after the seasonal balance of payments surplus of recent months, an external deficit may well recur in the near future. A new decline, if sizeable and protracted, could en- danger external liberalization and affect confidence, with cumulative adverse results. Maintenance of the present degree of external liberal- ization and its increase in the longer run are fundamental for raising the efficiency of the Spanish economy and its integration with the out- side world. 203. The lack of effective income restraint implies that credit and especially fiscal policies remain the principal tools for influencing the economic situation. Now that the economy has come closer to a state of equilibrium it is particularly important that these tools be applied ef- fectively in the light of changing circumstances. For the moment, the emplasis should remain on restraint. Credit restriction should be con- tinued although it should not be pushed too far. Mqoreover, a more firm budget policy is required, to prevent budget deficits, reduce the emphasis on private credit restraint and relieve to some extent the pressure on the capital market resulting from the large issues of investment bonds for the public credit institutions. 204. As long as substantial wage increases are allowed in the pri- vate sector, it is difficult to see how these can be avoided in the public sector. This limits possibilities to hold down current public expenditures, although some scope no doubt exists. Public investment expenditures offer more scope for adjustment, but many obviously are of high priority for sustaining long-term economic growth. Alertness is also required in preventing the building up of too large future commit- ments. The main requirement, however, is a strong revenue effort by raising taxes and charges levied for public services. As pointed out before, the effective fiscal burden in Spain is quite low and so are the charges for many public services. An increase in taxes and levies, applied selectively, will also help in controlling the rise of private consumption. 205. In addition to more adequate short-term fiscal policies, there is a strong need for improvement of the system of taxation and budgetary management and for a revision of interest rate policies (see section IV). 206. More generally, there is the need for sound long-run structural policies, wihich center to a large extent on and around the Plan. The key period for preparation of the Second Plan is between the fall of 1966 and mid-1967, when the Plan document will have to be ready for approval, first by the Cabinet and next, before the end of the year, by the Cortes. So far, only a short policy document has been published, in which a number of topics are listed for special consideration. These are: agriculture; exports; education and research; transport and communications; hous- ing and urban development; basic industries and financing. - 5o - 207. Another key factor in the years to come will be Spain's rela- tionship to the EEC. Adequate access to the EEC markets is most urgent in regard to Spaints agricultural exports, but will increasingly also come to the fore for non-agricultural commodities. Spain will be eco- nomically unprepared to be a full member of EEC for many years to come and the best it can hope for is some form of an associ-ation or special arrangement. Official discussions, started in November 1964, have been proceeding at an uneven pace and no reliable prediction seems possible of the time still required to arrive at some form of agreement. Prospects for Economic GrowTth 208. The Mission has reviewed the growth prospects for the main sectors of the economy for the next five to six years, covering the period through the end of the Second Plan. It has retained the 3% rate of growth for agriculture, forecast by the Planning Commission for 1963-67, in view of the judgement of the Bank/FAO Mission that given appropriate policies this rate is capable of achievement for the decade through 1975. Industrial output could grow by about 8% a year, and the services sector should be able to post gains in the order of 5% annually. As a result, an overall rate of growth of 5.5% between now and 1971 appears feasible, given appropriate policies. A higher rate would most likely put domestic resources and the balance of payments under excessive pressure. 209. As the economy slows down to a more sustainable rate of growth, the two items that expanded most rapidly in the past five years, namely investment and imports, should bear the brunt of the adjustment. Gross fixed investment in 1958 prices increased by al- most 16% a year between 1960 and 1965, against 3% for GIIP. As a result, in 1965, the incremental capital output ratio (assuming a one-year lag between investment and output) had almost doubled to 3.4 and gross fixed investment exceeded 29% of GNP (both expressed in 1958 prices). A continuation of this trend is highly unlikely, even after account is taken of further modernization needs oI' the Spanish economy and the expansion program of capital intensive in- dustries like steel, oil and chemicals. Balance of Payments Trends 210. Prospects for growth are linked closely to the outlook for the balance of payments. Projections of the balance of payments are especially hazardous in Spanish conditions in view of the rapid struc- tural changes which occurred in recent years, the uncertain effect of recent measures to restrain effective demand and the relatively large impact of receipts from tourism, workers' remittances and private foreign capital which are, to a considerable extent, determined by factors beyond control of the Spanish authorities. - 51 - Balance of Payments Projection for 1971 Annual Rate AnnualJ Rate 1965 of Increase 1971 of Increase Amount 1961-65 Amount 1966-71 Category (million $) GD 1/ (million $) jj . Trade Data A Imports 3,020 29 4,800 8 Food and Livestock 582 27 900 8 Raw IMiaterials and Semi-manufactures 1,459 25 2,200 7 Agriculture 2/ (69) (90) Industry (642) (1,050) Petroleum (270) (580) Investment, Other 3/ (47B) (480) Equipment Goods 815 37 1,3C0 8.5 Agriculture (34) (60) Industry (612) (970) Transportation (89) (150) Services (80) (120) M1anufactured Consump- tion Goods 164 46 4oo 16 B Exports 966 8 1,900 12 Agricultural Com- modities 485 5 8oo 9 Ilanufactures 481 12 1,100 15 `L- Balance of Payments Data Impcrts f.o.b. 2,778 28 4,400 8 Exports f.o.b. 1,019 8 2,000 12 Balance of Trade -1,759 -2,4Co Tourism (net) 1,027 33 1,800 10 Workers Remittances 298 26 ) Other Transfers Pt 62 ) 550 7 Other Services -114 -300 18 Of which: (Investment Income) (-31) (-2C0) (36) Balance of Services and Transfers 1,272 2,050 Balance on Current Account -436 -350 2/ Statistics on imports for years preceding 1963 presumably understate actual imports; actual rates of increase in imports therefore presumably were loTw- er than those shmon. 2/ Tncluding food processing. V Semi-manufactures for investment purooses (including steel products) and other semi-manufactures. I/ Including official transfers ($;2.3 million in 1965) assumed to be nil by 19 L. ~Q-e: ivfnistry of Comnerce, Informacion Comercial Fs sch (.for .19I62.. - 52 - 211. In spite of these difficulties the Mission has vamtured a bal- ance of payments projection through 1971 (the end of the period of the Second Plan). The 1iission wants to emnphasize that this p:'ojection ser- ves illustrative purposes only and for some items includet a task-sett- ing element; it also intends to clarify the importance ol the behavior of the major variables in the balance of payments, 212. In respect of imports it is obvious that the gro Th rates of the past years cannot be sustained. They have been assoc.bated with structural changes, in part of a non-recurring nature, and :.iore recen- tly with inflationary pressures and speculative demand that require correction. 213. Agricultural imports, particularly of meats, sugar znd edible oils should remain large owing to the slow expansion of agrici tural production, but below the 26.5% annual rate of increase betwe!n 1961 and 1965. With restraint on internal demand and greater self-suffici- ency in cereals, agricultural imports should rise by no more than 85 a year. 1/ Imports of raw materials and semi-manufactured goods should be limited by import substitution in the iron, steel and chemicals in- dustries, but imports of oil and oil products will continue heavy. Al- together, it should be feasible to reduce the rate of growth of this group from a 25% annual increase between 1961 and 1965 to 7%. Wdith the investment boom abating, imports of equipment goods should increase by less than 9% a year between 1965 and 1971 versus 37% a year in 1961-65. IManufactured consumption goods have been assumed to continue to increase rapidly, above 15% a year, as a result of import liberalization and higher standards of living. Total imports should then increase by 8% a year until 1971, to a total c,i.f. of $4,800 million or $4,400 million on an f.o.b. basis. 21. To finance this import bill, Spain will depend, as in past years, to a large extent on its receipts from invisibles, mainly tour- ism and workers' remittances. Barring catastrophic developments, these items are fairly dependable as sources of foreign exchange in the next five to six years. Peceipts from tourism (including some other receipts wqhich cannot be eliminated for statistical reasons) can reasonably be expected to grow at a rate of 10% a year to a total above $1,800 million in 1971. As for remittances, the Ministry of Labor forecasts a slower increase in the number of Spanish workers employed in the rest of Europe, from the present 690,0co to 770,000-780,000 in 1969-70. Beyond 1970, returns are expected to exceed departures. At the same time, the increa- sing number of returning wTorkers should inflate the "other private trans-. fers" item of the balance of payments, Taking also into account the 1/ This and following percentages should be interpreted as averages roompound). - 53 - normal increase in emigrantsl incomes, one could expect total private transfers to increase by about 7% annually to $550 million in 1971t Cn the other hand, the net deficit of the other services item, mainly freight and insurance, investment income, patents and royalties wrill expand; it is assumed from $114 million in 1965 to $300 million in 1971. 215. The prospects for xports are only moderately favorable. Spain's present exclusion from the Common Market entails the risk of discrimination against Spanish exports of agricultural products, but- grmwing demand in western Europe and Spain's traditional advantages - seasonality and quality of production - should contribute to a moder- ate expansion of exports of citrus fruit, quality wines and processed fruit and vegetables. A 9% annual increase in agricultural exports between 1965 and 1971 is a reasonable expectation, considering that exports in 1965 were affected by the disappointing- harvesst of 1964/65. Exports of manufactures have increased more rapidly than agricultural exports in past years, but further progress is bound to become more- and more difficult with increased competition abroad and limited ex- perience and preparation on the Spanish side. Spain is making a special effort to increase its sales to the less developed countries of Latin America and Africa, and an abatement of internal demand would help exports, but it would be imprudent to expect manufactured exports to rise by more than 15%o a year. This means that total ex- ports f.o.b. could amount to $2,COQ million in 1971, a 12% annual in- crease. 216, It should be re-emphasized that the projections given are to some extent targets to be attained only if appropriate policies are being followed. The lission believes that a rate of growth of 5.5%-a year for the economy is compatible with an 8% annual increase in im- ports and that a 12% annual growth of exports is feasible with a rea- sonable amount of effort, If, however, these projections should prove to be overly optimistic, there would be no alternative but a reduction in the overall rate of growth. A 10% yearly increase of both imports- and exports, for example, would in combination with the other assump- tions burden Spain with a current account deficit in 1971 of more than $1 billion. Capital imports of such magnitude appear highly ullikely in the light of a realistic assessment of capital movements and absorp- tive capacity of the Spanish economy, apart from the rapid expansion of transfer obligations which capital inflow at this rate would entail. 217. On the other hand, the Mission believes that net capital in- flow (private foreign investment plus public borrowing) of on average $4CO million through 1971 - slightly higher-than the $350 million a year estimate included in the present Plan - could well be sustained. Assuming an average burden for transfer of profits and interest of, - say, 6%, the total burden on the balance of payments, including ser- vice on past capital inflow, could be around $200 million in 1971. This equals 10% of exports, but only 5% of exports plus receipts from tourisn. - 54 - 218. If the current account deficit could be limited to $350 millicn annually, net capital inflow of $400 million annually would also enable some reconstitution of foreign reserves; this would be useful in view of the projected expansion of foreign transactions by considerably more than one half. 219. The previous discussion of balance of payments trends does not cover developments beyond 1971, If at that time the growth of the Spanish economy is not to be thwarted by problems of external finance, serious efforts will have to be made in the direction of further export promotion and import substitution. Agriculture is one of the sectors - where import substitution is particularly promising and it is encourag- ing that agriculture and exports are among the subjects selected by the Planning Commission for special review in the context of the Second Four-Year Plan. Creditworthiness 220. At the end of 1965, Spain's external nedium and long-term pu- blic debt amounted to $414.5 million, of which $216.6 million were still undisbursed. (Table 1.1). Service of this debt, including undisbursed, in 1966 equalled no more than 4.3% of 1965 merchandise exports. A peak in debt service will be reached in 1968, equal to less than 5,% of 1965 exports. If account is taken of tourist receipts, these percentages are halved, Spain therefore has ample capacity for additional external pu- blic borroiing on conventional terms and it has an excellent debt record6 221. Part of future external capital needs will continue to be cover- ed by private long-term capital which has entered Spain at a fast pace in the past five years. If the economic picture remains healthy there is no reason to expect a reversal of this trend. In the public sector, available undisbursed credit lines are largely those with the IBRD, the Eximbank and the Kreditanstalt fUr W,iederaufbau. Total foreign capital inflow into Spain is small in relation to total resources (between 1 and 2% of GNP); nevertheless, it is vital and the Bank can continue to play a useful role in covering part of the need. 222. Gold and foreign exchange reserves, including the IMF position, have dropped from a maximum of $1,513 million at the end of 1964, cor- responding to seven months' imports at that time, to $1,276 million by the end of Soptenbor 1966, equal to four inonths I imports *-t the currcnt rate. If reserves would remain unchanged through 1971, they would then equal three months' imports, assuming an 8% annual rate of growth of the latter. - 55 - STATISTICAL APPEMDIX Table of Contents l. External Debt 1.1. External Public Debt Outstanding 1.2. Estimated Contractual Service Payments on External Debt 2. Population and Employment 2.1. Growth of Population 2.2. Distribution of Work Force 3. National Accounts 3.1. National Product and Expenditures 3.2. Gross Domestic Product by M4ajor Sectors 3.3. National Income by Origin 3.4. Investment by Major Sectors 3.5. Investment and Saving Effort 4. Production h.l. Agricultural Production 4.2. Output of Principal Farm Products 4.3. Industrial Production 4.4. Output of Principal Mineral and Industrial Products 4.5. Housebuilding 4.6. Land Transport 5. Plan 5.1. National Resources and Expenditures, Growth Rates Projected in Plan 1965-67 and Realization 1964-65 5.2. Employment, Projections in Plan 1964-67 and Realization 1964-65 5.3. Public Investment by Sectors, Projections in Plan 1964-67 and Realization 1964-65 5.4. Public Investment 1964 by Sectors and Entities, Plan versus Realization 5.5. Public Investment 1965 by Sectors and Entities, Plan versus Realization 5.6. Balance of Payments, Projections in Plan 1964-67 and Realization 1964-65 6. Public Finance 6.1. Central Government Cash Receipts and Expenditures 6.2. Central Government Budget Revenue 6.3. Central Government Budget Expenditi.r? - 56 - 7. Money, Banking and Capital Market 7.1. Consolidated Account of the Banking System 7.2. Principal Assets and Liabilities of Commercial Banks 7.3 The Capital Market 7.4. Official Credit Institutions 8. Prices and Wages 8.1. Prices 8.2. Wages and Salaries 9. External Trade and Payments 9.1. Balance of Payrents 9.2. Gold and Foreign Exchange Reserves 9.3. Foreign Trade 9.4. Imports and Exports by Principal Commodity Categories 9.5. Composition of Imports 9.6. Composition of Exports 9.7. Principal Exports and Imports 9.8. Principal Trading Partners Table 1.1:SPAIN - EXTERNAL MEDIUM- AND LONG-TERM /1 PUBLIC DEBT OUTSTANDING INCLUDING UNDISBUMSED AS OF DEC1ER'17e 31, 1965 Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) Debt outstanding Item December_31,1965 Ne t o f Including undisburs ecl undi sbursed TOTAL EXTERNAL PUBLIC DEBT 19,851 hThjso112 0 Publicly-issued bonds 9217 77 Pts0 1.,930,556,000 Government of Spain, Perpetual, L% 183 8,397 8,397 $212,000 Governr.,ent of Spain Treasury bonds, !, 19L8-1973 20 20 M$N4hOO,C00,O00 Govern,-,ent, of Spain Ext. (Argentina)3 3/LCJ, 1946-1971 700 700 Privately-placed debt L6 578 77 568 Suppliers I credits 16:-997 <7zt7 Private bank credits 28,581 30,511 IBRD loans 9,218 138,000 Bank for International Settlement loans (participation in four Exirtbank loans) 10)808 _21808 Eurofir-a loans 2g690 _50 U.S. Government loans 88,983 LLODJ h Export-I-mport BarLk 3Y7023 Other 3%960 35,96o ECA loan $62,265,709.07, various borrowers, 3°, 1951-1931 33st70 33,270 AID loan $3,500,000 to REN%FE, 33,270 1959-1979, U.S. dollar portion 2,690 2,690 Loans from other governments 31,457 65,873 Lit 5,000,000,000 loan from the *Govt. of Italy, 1 1/ 'L - I.' 19O0-1967 720 720 FII 200,000,000 loan from Kreditanstalt fUr Wiederaufoan, Germarny, 3 1/44, 1962-1981 15,584 50,000 NF 51,252,325 loans from Credit Lyonnais France to IBERIA Lineas Aereas, 7%, 1963-1969 7vS12 7S212 $27,613,Lt71l61 and '_,M$N240,C05,870,09 loan fromn Argentina, 2 3/1A4, 19L 7)9b1 7,9L1 /1 Debt with an original or extended maturity of cne Year or.oe, Statistics Division IRED-Economics De-a.rtmnent Table 1.2 SPAIN - ESTIALTED CONITRACTUAL SERVICE PAYflETS ON EXTERNAL E1DIUS.- ANID lONG-TEER- PUBLIC DEBT OUTSTANDIIG INCLUDIIiG UNDISBURSED AS OF DECEMIBER 31, 1965 /1 Debt Repayable in Foreign Currency (In thouaands of U.S. dollar equivalents) Page 1 G RA NID TOTAL DEBT OUTST - (BEGI.'1 OF Pi Lm) PAY'M1.EiTS CUR;NGPRIuD - I JCLU.JDI IG AI ORTI - YEAR ZDSCSE ATIG>O.,! iolr 5I S'UiUS ZA TIr l: T'TER' S-T T;OTAL 1966 76,044 15I49a 2,992 18,41l 1967 6 ,555 13,313 3, 17 ? 16,496 1968 47,237 11.56' 2,47 2 14,0Q32 1 969 35 t 677 10,125 1, 852 11 I 972 1970 25,552 7,500 1,323 . ,52 1971 1P,O51 4,213 954 5,167 19772 13,839 3,209 746 3,955 19>73 10,63( 3,115 56/f 3,61 1974. . 7,515 3,006 3?.9 3,395 1975 4,509 31006 216 3,222 1976 1,503 1,5C3 4> _ 1,54 SUPP LI ERS CG EMITS DEBT OUTST (BEGIN Or- PlD) P 1 - : INCLUDING ArK ;j RnT I - YEAR UPiDISSUrtSEUr ZATIC. IJ T ERSST TOJTAL 1966 45,533 9,390 1,415 10,303 1957 36i143 6,325 1,914 8, 2 39 1968 29,81 3i 4,682 1,601 6,263 10?69 25,136 41252 1,361 5,613 1970 20,88 _° 4 3, 79 1, 13 34_,37 1971 171083 3,246 930 44,17 1912 13,33) 3,209__ 7_ . 3,95 1973 10,630 3,115 564 3,6% 1974 7 , 5 1 5 3,0C6 3 9 3, 395 1975 4,509 3,006 216( 3v272 1976 1,50)3 1,503 43 1,546 Table 1.2 SPAIN - ESTIIATMD CONTRZACTUiL SERVSICE PAYSNTS ON EXTERNAL lEDJCIU'- AUND iroI-wgm*i PUBIJO D131T OrjTSTANVDI.13 INGLIDIUIG UIDISBJRSED AS OF JE03trli j5i~ S6 15 /1 (courj. Le'bt Vtepaycfle in Foreign Ciurrenry (In thou.sarAs of U.S. collar equivalents) Page 3 PRIV-?LACEO ra3T-OTl-g PEST UST T Y BEia>i t>: I o E l PAYK E TS AUT1 I; N'. PS 7 I s 1 N'C U?i3 ;'.N A"9,IORT I _- YEAR t:41D1Sr3%%a5Z ZA,T3IJ IN1TE-gi%T VflA 1965 30i,51 1 6,0) 1T57Es5 7,671 1 92 24t 4,412 S33 -26et 2 ,2 7 1 9 6 8 17, 4 2r0 6 ,7 - 7 1 fr 7,4 I959 10,5'i1 5,873 I0 2 6,3673 1970 4f,653Z 3 ,7432 184 3_ ,186 1971 966 96-5 2 4 991 IE2lC t.O \1.-VIS _ . PEt`T CUIST - IBESrij S.;f PERIGf) PAY I-V TS J% iR i FIE,'v I I C LUi 1U G A .OR' j- YEAR UJ!N154URfSF3 ZAT1I U.J !NTP.- ST TUJTAL 1 966 1 3 I,I0 1, 662 6 6 2 1967 L35,O000 4,752 ',752 1 96 8 1 3 8, CC0 1 2 _ 6,283 2 L 5 19.59 136,07$ 4,900 7,043 I,P43 1970 1-3127 5 5, S5-7,139 ___13,C24 1971 125, 3 g0 6, 72 O 6, i3' 1 121 C31 1972 US1'?C 7 b,5U) S, -r5- _ _ 13,0254 1973 112,610 6,930 S,'y)R 13,028 t974 - 1.5rS0E - 7320) 5,7)12 13,t03? 19T5 7136U ?7,I; 5,324 13,C19 _ 1976 - - ,O6 45 S31i _41UT5 _ 13,25 1 S J C 2, 4 ; 5 M S re@3,0 41 C A 13 : ;25 -9768 73 g90 %C'c- 3,c1 4 13-,721 1979 b4,81)0 9,5d5 3,434 13,01-z 1 9 50 . 55?25 10,1t5 2,900 1 3,C.,025 Table 1.2 SPA.IT - EST111ATED CONTRACTUAL SERVICE PAYiNTS ON EXTERNAL I3HDIUM- AND IlONG-TERM PUBlIC DEBT OUTSTSXDING INCLUDIN7G UNIDISBURSED AS OF DECEMBER 31, 1965 /1 (CONT.) Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) Page L . 'IS LOA'NS . I)ET CLIUTSET {DEGE O37 ; I F PER-lU? PAYACEaTS £JU? IN3 PII I D I CLUDI T N .C[S A2:-,ORT I- YEAR U Di s 'I.URSED: ZATIO7, I4TERCS -T TJ TAL 1966 1OdOS 3,303 562 4, 371 1967 7,000 3,573 345 3,923 1968 3,421 2,34'3 147 _ 2249 5 1969 1,074 1,074 42 1,116 ELIROFINKA LCAThS [EOT OUTST. r--.---.----~-~ ( BE?G I iSl '-F PER I ) PAY 1_';TS 0;IIG PRJ IC 1 NUCLUDI .CiG AM"ZRT I- YEAIR 01 5; U r' S F 0 ZATION INTEREST T-TAL 1966 2690 103 70 174t 1967 2,587 174 14?. 31. 1968 . 2,,413 180 1 3 3 312 1969 2s233 185 123 3083 1970 2,048 I_ 191 113 304 1971 1, 857 197 103 300 1972 1 660 203 92 296 1973 1, 456 210 8? 292 1974 1,246 217 71 288 1975 1 029 224 59 2: 3 1976 805 13_ __ 137 47 184 1977 663 141 40 181 1973 526 66 32 . 9 1979 461 66 28 94 1%9z0 395 65 24 90 Table 1.2 SPAIN - ESTIMATED CONTRACTUAL SERVICE PAYMENITS ON EXTERNAL XEDIU4- AND ICGEGF-dEi PUBLIC DhEDt OUTSTANTDI.G INCLUDIN!G UTDISBURSED AS OF DECEMBER 31, 1965 /1 (CO'NT.) Debt Repayable in Foreign Currency (In thousands of U.S. dollar equlivalents) Page 5 US GOVT. LOAOS - TOTAL DE'21 OUTSIT (81E G1I ' OF P EAIO) PAYIEfIT. ITS DUING P7IiCK 1 ' !CL U D I Sj5 ANO ~R T I- YLEARI tJ.)I".) I S3 RSUS ZSTIQiNI IJUT ERE T TOTAL 1966 1103t44 8,094 4,663 12,753 1967 102 340 8,570 4,333 12 ,902 1968 93,7763 10,731 32,836 14,624 1969 :3,tf32 10,745 3,&L4 1-4, 1 59 1970 7 2,287 10,7 51 2,/9_4 13,693 1971 61t538 10,757 2,469 13,226 1972 50,77h 10,76 63 1,995 12,759 1973 40,015 10,530 1,575 912,955 1974 29,487 8, 38)7 1 05 5 9t 94 2 1975 20,600 6 , 96 743 7, 639 1976 _ 13 ,704 5, 494 . _._. _ 4 5,781 1977 8i417 3,272 300 3,572 1978 5,14i5 2729-2 195 2 1979 2,353 2,t132 11i 2,300l 1950 670 445 42 487 US_ GOVT. = EXL A D EMT OUTST - EGI71N DP PERIOD)) PAY;IlE4 TS DuL;iu ?H `-(I:1) INAIC LUDING 4DNRT I - YEARt U I ISDU'J RSEC ZATION IJTERSST EJIAL 1966 74,474 4,325 3, 59 2 8,417 1967 69,649 5,296 3,354 8,6500 1 9 6 8 _ 6 4 3 5 3_ 7 , 4 59_ 3 , 0C1 6 _ _ _ 10,4 7 5 1969 56, 894 7,459 2,64!4 10,193 1970 4_ 49,435 7,459 2,271 9,730 1971 41,tC976 7,459 1,I9 9,357 1972 34,517 7,459 1,525 8,98y4 1973 27,O55 7,21 9 1,154 8,373 1 974* 19,S3? 5 , 57 0 78; 4 . - 6,354 1975 14,2692 3,5'75 57, 4, 14,3 1975 10, 894t 3,574 416 3 ?? ,0 1977 7,120 2,50930 264 2 1, 4 4 1978 4,540 1 ,9410 179 2, 11-) 1979 2,600 1,_9/K] I1t 2,051 1.930 660 4,4O 42 4A2 Table 1.2 SPAIN - ESTIAATEII COTIRACTUALL SERVICE PAY4ENTS OGN EXTERNALk li.BEDIUM- AND LONG-TERM PJDLIC DEBT OUTSTAIMDING ITNLUDETG UDIS-BRSED AS OF DECE1r3FR 31, 1965 /1 (CONT.) Dbet Repayable in Foreign Currency (In thousands cf U.S. dollar equivalents) Page 6 US S VT. - fTF.'.t DEt'T DUTST (BEi4'1 ciF P E.1Z; ) P A Y,>.iTS DIJ.kI ?i } LIjL _~~~IOu . 1^Vi> AMSJIl ,s'I- .. YEAdR lJDIS U2SLD ZATJITI I¾JTE,EST TOTAL 1966 35,96,0 3, 269 1,033 4,336 1957 32,69 1 3,274 959 4,242 19C68 29, 417 3,26 0 870 i _ 4,149 19o9 23,13'5 3,286 77'0 4,056 1970 232 _ 3,2 _ 29 2 67 1 _ __ 3,63 1971 19,5f60 3,298 57' 3,859 1972 16, 26.62 3,3C 47 1 3,775 1'93 12 ,95. -' 3,3 1 37 1 3, 682 1974 9,64- 3 3,317 271 3, 58M 1975 6,3 31 3,32 1 170 3,42! 1976 3,010 1,71.3 78 1,791 1971 1,?97 6_J7 35 728 1978 605 352 17 359 1979 253 242 7 249 1 930 . . . 10 5 5 _OTHER_G-ovr. LOuIIS -TO-TAL DE2T G'JTST Ui,,EG1N OtF PEA;IO13) PAY:2E\- TS U1JRI2GPU0: INCLUOI:\Gr A", J RTf - E U- ~~I S :C PUI S rEu 4, Z hT I aA 1N ES - YE&R UX>DISBURSUO -.xTbdii IT sR-Sr TJTAL 1966 57,932 2,737 995 3,782 1967 55,145 5IS72 1,933 7P805 1968 _ 49,273 5,344 1,6 58 7,0G3 3. .4... . . _ 2 _ - . 1969 43,928 3,903 1,4 5, 33 -1970 40,025 3,325 1,301 4,626 1971 36,700 33 25 1,193 4,518 1972 33 , 37 5 3 J 32 5 1 05 5 _4, 4r 1 0 1973 30,9050 3,325. 9/7- 4, 3)2 1974 25, 725 3,325 859 _ 4,1:94 1913 2 3 49* 3,325 750 4,0O5 1976 20,075 3, 325 652 _ _ _ 3977 1977 16,750 3,325 544 3,867 1978 13,425 3,325 436 3,7 1 1 97 9 1 , 1 0!- 3, 35_ 32 3 3t 653J 1930 6,7 7 3,325 220 3,545 Table 1.2 SPAIN - ESTIMLATED CONTRACTUAL SERVICE PAYIE2NTS ONl EXTERNAL MEDIUMI- AND lONG-TELMI PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSSD AS OF DECEMBER 31, 1965 /1 (CONT.) Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) Page 7 LOANS F:&J,'TALY DEUST OUTST (L¼IOIN OF PER4'3I:f PAY;;ac'TS [TURING P, 1IJC INCLUDI,sG A, "U ;TI - YEAR U KBISBUilSEG ZAT ICI-1 INTr~RUEST TjTAkL 1966 720 430 24 504 1967 240 240 5 245 ---LO FRM GERoF.OJ -Y ._- DEST OUTST (GEGI1 0 r-OF PERl CO) P AYM Er TS OUJ';& P erIiD I "OiC L ID I AG l AM0-/ r I- YEAR UJDISB1URSED ZATION- ITE\EST TOTAL 1966 50,000 - 506 506 1967 50,000 3,325 1,625 4,930 1968 46,675 _-3,325 1,517 4 4, 8 4 1969 43,350 3,325 1,40') 4,734 1970 40,025 3,325 1,301 _ _ 4,626 1971 36,700 3035 1,193 4,518 1972 33,375 3,325 1,03s. 4,410 1973 .30,05 0 3, 32 5 977 4, 302 1914 26,725 3,325 859 4_ 4,194 1975 23,400J 3,325 760 4, --85 1976 20,075 3,325 _ 652 3,977 1977 16,750 3,325 544 3, 869 *1978 13,425 3,325 436 3,761 1979 10,100 3,325 328 3,653 1 930 _ 6,t 775 3,32 5 220 3,545 Table 1.2 SPAINI - ESTITMATED CONTRACTUAL SERVICE PAYIMNTS OlN EXTERNAL NEDIUM- AND lON;G-TERN1 PlUBLIC DEBT OtTSTA?IDILG INCLUDING UN-DISBUrSED AS OF DECENBER 31, 1965 /A (CONT.) Debt Repayable in Foreign Currerncy (In thousands of U.S. dollar equivalents) Page 8 LOANS Fr`Gil FRA 4E!-_--- DE0T1 OJT%T (M20EIm CIF PE2ICD) PAY.A.. ;rs ouiIs ECO-:IG YEAR I h'OLUJ I 'i. 37 'AF1 I - YEAR u IqO U IIS.,U. SE Z. ATTIS- IJ.iXTESRST Tl,AL 1966 7,212 2,307 464 2,771 1967 4,905 2,307 303 2,610 1968 2,598 2?019 141 2,161_ 1 96r9 578 578 20 599 /A Includes service payments oIn all debts listed in Table 1 prepared June 6, 1966 except the follow.ing: $7,9h0,695.88 outstanding of the loan fr6m Argentina to the Goverrnment of Spain. Schedule of repayaent is not available but the debt is beIzng liouidated by the delivery of ships and iron. Sfrs 78b,ooo ($182,000) of Sfrs 2,617,627.50 from Sulzer Freres S.A., Ffrs 2,573,hLO ($521,250) and Ffrs L,051,920 (820,716) from S.I.G.M.A., France to Gas y Electricidad. Statistics Division IBRD-Economics Department Table 2.1 Growth of Population 1950 1960 1964 1965 (Census) (Census) (Est.) (Est.) 1. Total Population (millions; 28.0 30.4 31.5 31.7 year endl/ 2. Increase in Population Average Rates (% p.a.) 1951-60 1961-64 1951-60 1961-64 Births 6.o8 2.65 2.10 2.14 less Deaths 2.75 1.07 0.95 0.86 Natural Increase 3.33 Er57 1.15 17 less Emigration (net)2/ 0.88 0.54 0.30 0.44 Net Increase 2.15 1.04 0.85 0.84 3. Emigration (thousands) 1951-60 1961 1962 1963 1964 1965 (Average)3/ Overseas (net)4/ 33.3 10.2 10.0 0.7 -1.3 -4.3 To European Countries: Gross 30.3 116.5 147.6 145.8 182.8 181.3 Returns 17.1 8.3 46.3 52.7 99.0 120.7 Net 13.2 IOU*Th 101.3 93.1 T778 60.6 of which to: France 12.8 38.6 49.5 29.3 29.0 26.0 Germany (Federal Republic) 7.3 52.4 22.0 30.5 21.5 31.7 Switzerland 6.4 15.4 22.4 19.4 22.0 -2.9 Other 1.5 1.8 7.4 13.9 11.3 5.8 Seasonal workers 5/ 22.6 64.5 72.1 79.3 103.5 108.7 4. Principal Cities (thousands; Increase (% p.a. compound) year end) 1950 1960 1964 1950-60 1960-64 Madrid 1TSTh 2259.9 275.6 3. 3M Barcelona 1280.2 1557.9 1696.0 2.0 2.2 Valencia 509.1 505.1 583.1 -0.1 3.7 Sevilla 376.6 442.3 531.6 1.6 b.7 Zaragoza 264.3 326.3 377.4 2.1 3.7 Bilbao 229.3 297.9 350.9 2.7 4.2 Malaga 276.2 301.0 324.9 0.9 1.9 1/ Includes Peninsular Spain and Balearic and Canary Islands. Not included are Ceuta and Melilla (about 160,000) and the West African Provinces (in 1960 320,000). 2/ Residual, including other factors. 3/ For European countries as a group and for seasonal workers, 1959 and 1960 only; for individual European countries, 1960 only. h/ Excluding those travelling by air. 5/ These are employed in France, many in agriculture, for periods ranging from a few weeks to around seven months. Sources: Instituto Nacional de Estadistica (INE) and Ministry of Labor. Table 2.2 Distribution of Work Force 1950 1960 19631' 196L/ 19651/ En-jed by Sector: Thousands % Thousands % Thousands % Thousands % Thousands Agr4uliture 5,271 1488 ,803 41.3 4,486 36.9 4,140 33.9 3,935 32.1 Mtrn'ng 174 1.6 203 1,7 187 1.5 182 1.5 178 1.5 Manufacturing 1,904 17.6 2,546 21.9 2,586 23.7 2,975 24.4 3,074 25.0 Colnstructicn 574 5.4 822 7.1 859 7.1 925 7.6 992 8.1 Power and Water 57 0.5 81 0.7 90 0.7 98 0.8 99 0.8 Comnerce and Finance 698 6.5 912 7.8 1,035 8.5 1,186 9.7 1,252 10.2 Transportation 421 3.9 537 4.6 564 4.6 594 4.9 601 4.9 Other Services 1,694 15.7 1,618 13.9 1,967 16.2 2,001 16.4 2,065 16.8 Unspecified - - 112 1.0 101 o.8 94 0.8 79 0.6 Total Employed Force 10,793 100.0 11,634 100.0 12,175 100.0 12,195 100.0 12,275 100.0 of which: Women 1,709 15.8 2,120 18.2 2,809 23.1 2,897 23.8 3,007 24.5 Registered Unemployed:2/ In thousands 166 114 100 130 147 Percentage of total work force 1.5 1.0 0.8 1.1 1.2 1/ Figures for 1963-65 are not strictly comparable with those for previous years- See also Note to Table 5.2. 2/ Figures for most recent years probably reflect an increase in the rate of registration. Sources: INE, Censo de Poblacion for 1950 and 1960; Ministry of Labor. 'ratsle 3.1 NRiti2nal Prodjct and 3cpenditures 1/ (billion cesetas, irn current prices) 1958 19S9 1960 1961 1962 1963 396L 1965 National ilncme 502.0 CI-3. 529.0 6063. 7C2.2 835.8 ?3L.9 ,126.0 Dpreciation 39.0 L2.2 43.5 1t6.2 52.9 58.7 677 7 9.L Indi rect Taxes h3.th 4u .2 56.5 6 3.2 72.E 0D 2 96., n9;2 .Iunqls: S':bsidies 56.3 6.3 7v .6 9.6 12.1 12-. Gross Nataional Froduct (nt market pri-es) 78. 1 593.0 621.9 712.2 818.h 292.6 1,086.5 1.304.7 Amn:jal Csange cf [YP Gt:P - cia-rent prises ---- 2.6 lh. LIJ,5 14.9 17.6 12.9 23.0 - 1958 prices ---- -b.c h7 11.6 7.7 7.3 7.0 7.8 nomoosition of Expenditures Private Consuimption h20.7 h32.9 h31.1 492.2 561.1 682.7 747.8 n.a. Governrent Consunption ill.7 51.1 5h.3 60 .2 68.1 80 . 92.h n.a. 1ross Gapitl ?ornatinn 122.9 11.1 , --.5 156.2 1599.3 25.9 263.2 n.a.. Net Fereign P-Innce -10.2 -5.1 18.6 3.6 -&0.1 -26.3 .16.6 n.a. Total 5-3.1 553.0 621.9 712.2 818.t 962.6 1.o86,.8, 1,30E.7 Fe rcentages Privata Oonsvnpticr. 72.5 73 69.3 69.1 68.6 7C.9 68.8 Governrient Consrption 7.7 8 .6 8.8 8 .5 8 .3 8 .3 8 .5 Grcss Caeltal Forration 21.3 19.3 15.9 21.9 2h.4 23.5 2b..2 ,Jet Foreign Balance -1.8 -0.9 3.0 C0.5 -1.3 -2.7 -1.5 Pe tal 100 1l0 100 100 100 100 100 Note: rational acrounts are being revised. The Yission had access to a preliminary version of the revised series. Figures may be amended further and should be interpreted with caution. This is also relevant to Tables 3.2 - 3.5. I/ Pre-.isional Sources: 9evised National Acc,unts, 1959-6&, and data provided to Mission. Table 3.2 Grass Domestic Product bZ Major Sectors (Percentages) 1958 1959 1960 1961 1962 1963 1964 1965 1/ Agricuilture and Forestry 24.6 26.0 25.9 23.8 23.1 22.7 18.3 18.2 Fisheries 0.8 0.8 1.0 1.0 1.0 1.0 1.0 1.0 Primary Sector 25.4 26,8 26.9 24.8 24.1 23.7 19.3 19.3 Mining 2.4 2.2 2.2 1.9 1.7 1.6 1.6 1.5 Manufacturing 24.7 23.8 24.6 25.7 25.5 25.7 26.9 25.7 Power and Water 2.2 2.2 2.2 2.2 2.2 2.2 2.2 1.9 Construction 5.3 5.2 4.7 4.5 4.9 5.1 5.5 5.3 Secondary Sector 3L.6 33.4 33.7 34.3 34.3 34.6 36.2 34.4 Transport and Communications 6.5 6.4 6.6 6.2 5.9 5.7 6.1 6.2 Commerce 11.5 10.1 9.1 10.1 10.8 10.9 11.5 12.1 Financial Services 3.6 3.3 3.1 3.6 3.7 4.1 4.2 L.4 Ownership of Dwellings 2.9 3.1 3.2 3.3 3.5 3.3 3.5 ) Other Services 15.5 17.0 17.5 17.7 17.7 17.7 19.2 )23.6 Tertiary Sector 40.0 39.9 39.5 40.9 41.6 41.7 44.5 46.4 GDP at factor cost 100.0 100.1 100.1 100.0 100.0 100.0 100.0 100.1 Net Income from abroad -0.1 -0.1 - - - - - -0.1 GNP at factor cost 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 GiU? at factor cost (billion pesetas in current prices) 541.0 551.1 572.5 656.6 755.1 894.1 1,002.5 1,205.5 1/ Provisional Sources: Revised National Accounts, 1958-64, and data provided to Mission. Table 3.3 National Income by Origin A. Percentages of Total 1958 1959 1960 1961 1962 1963 196L 1965 1! Income of Households and i'on-Profit Organizations Wages and Salaries 36.9 38.4 39.6 38.7 40.o b0.3 h1.0 n.a. Social Secuarity Contribu- tions h.5 4.7 4.7 4.5 b.3 4.7 5.2 n.a. Other Labor Income 12.6 12.8 12.3 12.L 11.6 11.2 11.1 n.a. Labor Income 5b.1 55.9 56.6 55.5 55.8 56.2 57.3 n.a. Income from Agriculture 14.L 15.8 15.4 1L.6 13.4 13.6 11.1 n.a. Income from the Professions 2.1 2.2 2.2 2.2 2.0 1.9 1.9 n.a. Other Entrepreneurial Income lh3 10.8 9.7 10.5 11.9 12.2 13.1 n.a. Income from Capital 12.0 12.6 13.0 13.2 12.4 11.6 11.4 n.a. Entrepreneurial Income 1X3.0 41.5 L0.4 hO.7 39.9 39.3 37.6 n.a. Transfers from Government and Social Security 2.5 2.2 2.5 2.7 3.0 3.1 3.5 n.a. Transfers from Rest of the World .5 .4 .7 1.2 1.3 1.5 1.6 n.a. Transfer Income 3.0 2.6 3.1 3.9 4.3 4.6 5.1 n.a. Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 B. Billion Pesetas, Current Prices Income of Households and Non-Profit Organizations 465.6 477.9 494.9 570.0 657.0 794.7 891.3 n.a. Uindistributed profits 51.7 46.4 52.2 61.9 73.6 77.1 86.9 n.a. Personal Incone 517.3 524.3 547.1 631.9 730.7 871.8 978.2 n.a. Mintus Transfer Income and Interest on Public Debt Pluis Profit of Government Enterprises -15.1 -15.4 -18.1 -23.5 -28.5 -36.0 -43.3 n.a. National Income 502.0 508.9 529.0 608.4 702.2 835.8 934.9 1,126.0 1/ Provisional Sources: Revised National Accounts, 1958-64, and data provided to Mission. Table 3.b Investment by Major Sectors 1958 1959 1960 1961 1962 1963 1964 1965- Gross Fixed Investment (Percentages) Agriculture, Forestry and Fisheries 9.9 10.6 10.3 10.5 11.4 12.1 10.0 n.a. Mining and Quarrying 0.9 0.9 0.9 1.0 1.0 0.9 0.6 n.a. Manufacturing 29.7 25.6 27.8 32.4 34.2 30.0 31.0 n.a. Power and Water 8.5 10.1 8.5 7.3 9.0 9.3 8.9 n.a. Transport and Communications 14.6 15.9 16.3 16.1 14.8 15.6 17.9 n.a. hlousing 26.4 26.9 26.4 22.6 19.3 22.2 21.3 n.a. Government 2.1 2.0 2.1 1.9 1.8 1.7 1.6 n.a. Other Servicus 7.9 8.0 7.7 8.2 8.0 8.2 8.5 n. Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 -- Private Enterprises 74.4 72.7 74.2 74.1 75.8 72.5 74.4 n.a. Public Enterprises 11.4 12.4 10.9 9.4 8.7 10.0 8.4 n.a. Government 14.2 14.9 14.9 16.5 15.5 17.5 17.2 n.a. C--oss Fixed Investment TiIlion pesetas, current prices) 117.9 115.2 120.6 144.0 167.0 193.0 244.9 297.6 I/ Provisional Sources: Revised National Accounts, 1958-64, and data provided to Mission. Investment and Saving Effort 1958 1959 1960 1961 1962 1963 1p64 1965 V GNP (billion pesetas at current prices) 578.1 593.0 621.9 712.2 818.4 962.6 1,o86.8 1,304.7 Gross Investment as Percentage of GNP Total 21.3 19.3 18.9 21.9 24.L 23.5 24.2 n.a. Fixed Investment 20.4 19.4 19.4 20.2 20.4 19.9 22.5 22.8 Variations in Stocks 0.9 -0.1 -0.5 1.7 3.9 3.5 1.7 n.a. Government 2.9 2.9 2.9 3.3 3.1 3.5 3.9 n.a. Private Enterprises 15.8 13.9 13.8 16.h 19.1 17.6 18.1 n.a. Public Enterprises 2.6 2.4 2.2 2.2 2.1 2.3 2,2 n.a. Gross National Savings as Percentage of GNP Total 20.1 19.0 22.7 23.8 24.3 21.9 24.0 n.a. Government (net) 4.8 4.9 5.6 5.8 5.2 h.5 5.2 n.a. Private Households and Non- Profit Organizations (net) 8.5 6.9 10.1 11.2 12.5 11.3 12.5 n.a. Depreciation 6.7 7.1 7.0 6.8 6.5 6.1 6.2 n.a. Net Foreign Balance as Percentage of CNP -1.2 -0.3 3.8 1.9 -0.1 -1.6 -0.2 n.a. Sales of goods and services and factor income from abroad 5.6 7.3 11.2 10.9 11.1 10.5 12.0 n.a. Purchase of goods and services and factor income to abroad -7.4 -8.2 -8.2 -10.4 -12.4 -13.2 -13.5 n.a. Net Current Transfers o.6 o.6 0.8 1.4 1.2 1.2 1.3 n.a. Note: Discrepancies are due to rounding. 1/ Provisional. Sources: Revised National Accounts, 1958-64, and data' provided to Mission. Table 4.1 Agricultural Production A. Indices of Production (1953-19514 lCC) Year Agriculturel/ Livestock Combined Index 1957/58 103 93 101 1958/559 1114 109 112 1959/60 123 111 119 196C/61 115 122 118 1961/62 124 135 128 1962/63 130 1lk2 134 1963/64 145 172 154 196L765 122 172 140 1965/66 1262/ 16621 1412? B. Volume and Value of Production by Sector Index of Output (1953/514-1975145=lOO) Share in Value of Production (88 1963/614 1965/65 1965/66 19 63/64 19614/65 19685/66 Cereals 126 111 112 14.7 13.6 12.6 Fruits 141 1402/ 151 12.2 13.9 13.1 Vegetables 155 153- 155 10.2 10.4 10.9 Indus trial 2' Products3/ 195 193-' 2114 4.2 4.2 4.2 Potatoes 134 112 106 5.5 5.6 6.3 Olive oil 198 314 97 8.3 1.8 14.7 IJine 126 173L/ 128 4.4 7.2 5.0 Meat 180 169 171 18.7 20.4 21.2 Milk 116 118 120 5.9 7.1 7.1 Eggs 258 237 234 7.0 6.6 7.2 Other itemrs 8.9 9.2 7.7 Total 151 1140 141 2302/ 2175/ 2435/ l/ Output for human consumption; excluding livestock. 2/ Provisional figures. '/ Sugar, cotton, etc. U Estimate. ri Total value of production in billion pesetas. Sources: Ministry of Agriculture, Informacion Estadistica y Econorica, various issues. Table 4.2 Output of Principal Farm Products (thousand metric tons) 1951-55 1956-6c 1961-65 1961 1962 1963 1964 1965 V Product (Average) (Average) (Averaae) Theat L,031 4,358 4,266 3,431 4,812 4,860 3,976 4,250 Barley l,950 1,772 1,959 1,744 2,162 2,070 1,927 1,891 Qre 487 488 384 351 453 423 346 346 Oats 515 493 442 495 513 466 390 346 Corn 665 874 1,103 1,067 92D 2,171 1,203 1,155 Rice 358 379 385 393 392 399 398 34 Potatoes 4,019 4,784 4,479 4,918 4,153 5,075 4,254 3,997 Olive oil 362 385 348 361 316 638 110 314 Wine 2/ 1,836 1,938 2,624 2,048 2,451 2,584 3,418 4/ 2,621 Oranges 1,178 1,118 1,605 1,704 1,213 1,815 1,622 1,669 Tomatoes 816 981 1,2662/ 1,205 1,269 1,290 1,300 Cotton 63 157 281 318 335 285 225 242 Sugar beet 2,615 3,145 3,584 4,423 3,584 2,750 3,331 3,830 Meat 5/ 4O0 1,99 751 651 671 811 850 772 Milk 2/ 3,012 3,207 3,650 3,440 3,470 3,732 3,770 3,838 Eggs gi 231 262 489 382 429 579 531 526 Notei Data refer to erop years (1965/66 etc.), except those for meat, milk and eggs. 1/ Frovisional Y/ Million liters V Average 1961-6h / Estimate / Livestock numbers developed as follows (in millions)! 1950 1962 1963 1964 1965 Cattle 3.3 3.1 3.7 3.7 3.7 Sheep 16.3 15.9 19.9 17.6 17.1 Groats 4.1 2.3 2.3 2.3 2.2 Pigs 2.7 4.8 6.1 5.0 4.9 Horses 0.7 0.4 0.4 C03 0.3 Mules 1.1 1.1 1.0 0.6 0.7 Poultry (over 6 ironths old) n.a. n.a. hi.o 35.2 38.5 6/ Million dozens Sources: INlE, Anuario Estadistico Ministry of Agriculture, La Agricultura Espanola en 1964; Ibid., 1965. .51 ia I ; r1 Erodu c tLori India c-, (19>11<) h'e.nhtc 19&I :6 16 ,5 General index ZO 111 3ne.xL 137.3 155. 3 RI.? 116.) *''Cod!, d-rinks and tobacco 72 IYL7 7T 127. -'3 LL6t- e:. d 1le-'s 16 113.9 120.6C1 125.8 13)>.' 1)F0.,11 131.3 1 128. ra-iC metals 6 129.3. 133.5 15 .8 169; 9 5 197.9 G2.3 ZrJ-ireering and transport equipment It 125.5 1 17.1 159 1j .) 223 35 227.L 292.7 Cherical and petroleum products 10 116.9 132.0 151.7 17C2.8 137,6.8 lV" .3 222. tlier manufacturing, industries 20 109.8 127.6 1)i2.1 165.5 >i. L 17L..c 213.6 Thnufacturing (total) 86 115.7 129.2 14o.8 160.3 176.5 170.1 202.0 iining 8 103.3 97.6 97.1 94.3 99.7 Q'992 100.6 alectricity and gas 6 111.6 122.2 137.h 156.3 167.1 171.0 207.6 B. Increases (monthly averages; percentages) J an. -J une 1961 162 1963 19 6 1965 1965 1966 1 Industry (total 16.5 10.6. 8.6 13.0 9.8 7.3 18.0 Food, drinks and tobacco 8.6 5.2 1.7 15.9 1.6 1.2 3.3 Textiles 13.9 5.9 4.3 .8 ; 3.3 -027 10.7 Basic metals 29.1 7.3 8.9 12.7 12.1 11.6 8.1i Egineering and transport equipment 25.5 17.2 8.ki 19.9 22.2 1, 0J. 290.3 Chemtical and petroleum products 14. 161.9 1.9 13.9 8.: 6.2 23.3 Other manufacturing industries 9.5 16. 2 15. 12.5 9.0 L.5 22., lanufieturing (total) 15.7 11.7 9.0 13.7 10 2 7,LI 18. Thning 3.3 -5 -.5 -2.9 5.7 36 1.L C'ectricity and gas 11.6 90, 12.L 13.5 6.9 5.7 21.3 1/ Prorvlional- -our-e- TJE, Indicadores Economic os. Table 14.4± Output of Pri-ncipal Mineral and Industri.1 Products Uni t 19514 1958 1561 1962 1963 196I4 .1965 1967 21 Coal million tons l14.2 17.1 15.9 15.2 15.5 114.8 15.7 22. 3 Including: bituminous 10.4± 11.3 11.2 10.1 10.1 9.5 10.1 114.0 Iron ore 3.8 5.0 6.1 5.8 5.1 5.i 5.7 7.14 Pyrites 1.9 2.0 2.1 2.1 1,9 2.3 2.1±L 2.8 toad ore thousand tons 83.8 1LOu. 120.8 106.5 92.9 87.2 83.u 113.0 Zinc ore 11167.2 11±.5 161.5 1145.4± 167-4 162.7 70D.0 99.7 Sulphur FT 140.14 27.9 L144 45 37 26.6 17.1± Manganese ore FT 36.6 36.5 15.5 12.8 '15.3 .6. 1 Potash (Kx2o content) I1 186 238.3 262.2 235.1 260.2 292.5 351.9 B78.0 Electricity billion kwh 10.5 1i6.4 20.9 22.9 25.9 29.5 31..6 39-1, Including: hydra It 7.5 11.3 i.6,o 16.1 21.1 20.6 19.6 29%? Gas million cubic 322.5 362.6 305.i 1402.2 1±00. 5 1402.6 1428.6 1473-0 meters SteelI million tons 1.1 1.6 2.3 2.3 2.8 3.2 3.5 14.14 Cast Iron 0.9 -1. 3 2.1 2.1 1.9 1.9 2.3 Cement TI3.3 14.8 6.1 6.7 7.2 8.3. 10,0 13.3 Refined copper thousa-nd tons 18.± 142.7 50.8 51.3 50.5 57.1 59.9 58.0 Zinc 11 22.8 214.3 52.5 61,2 614.7 614.1 514.9R 82.0 lead II56.1 69.8 77.7 72,2 67.3 55.0 56.2 110.9 Palueniu paste4.7 16.1 37.6 141.7 1,5.5 149.6 52.8 70.0 Paper paste " ~~~~~~~~~~~~ ~~~~~1h6.7 266.6 3314.3 369.2 142B.1± 471.6 Paper and cardboard 7,225.2 315.5 386.7 4±23.9 145.14 554.9 632,6 Palperi pulp d n.a. n.a. 296 326 353 1±87.5 592.3 Sulphuric acid ~~~~~~~million tons 0.7 1.1 1.2 1.2 1.5 1.7 1.8 Caustic soda thousand tons 89.14 139.6 1-43.6 141.7 152.3 168.8 172.5 Phosphate fertilizer million tnns I.h4 1.8 1.7 1.8 1.9 1.8 1.9 Petroleum products "1 n, a.. uL... 7.7 9.6f 10.7 12.8 114,14 Clotton yarn thousand tons 53.3 76,0 92.9 1.17.1 106.8 112.2 115.6 1145.0 Cotton fabrics ", n.e. 45.2 73.6 86.5, 83.3 100.9 1014.2 1110.0 Rayon and viscose eQ 4 L9-5 hO 56.4 bo.5 62.9 5 54.5 Woolen Yarn u~~~~~~~1.6 1.117.5 23.0 27.0 29.0 3i,8 514.0 Woolen Yabrnc n.10.2 13.9 18.6 22.0 23.0 36.0 Footwear millions o! pairs 21.14 27.2 314.6 37,2 141.2 142.14 14149 55.0 Raw siugar thousand tons 322,3 326.2 1474.5 513. 374.0 1483.0 Ships launched .1n.a. 11±5.0 147.0 152.1 188.14 219.6 306.3 Automobiles thousands 6.5 32.6 53.2 67.3 79.14 119.5 159,1 130.0 Trucks 0.14 15.1 29.0 140.1 10.1. 59.9 73.5 Tractors "0.1 2.0 11.5 9.1 13.3 12.8 13,9 Radio sets 3/ n.a,. 262.3 232.3 321L,6 54i1.7 576.0 616,0 Televis3ion -sets 3/1I n.e. 14.0 53.6 161.3 315.5 1439.0 527,0 Refrigerators jf 1 n.a. 21.3 143.2 61.14 2143.2 295.0 1±09.0 Washing machin_es 3/ n.a. 67.1 82.7 122.2 227,3 320.0 1410,0 Bicycles 1144.8 158.8 1±4L.9 159.5 185,6 171.0 151.0 Motor cycles 1±5.8 11±5.2 133.1 1143.9 178,1 179.0 175.0 1/ Provisional figures, 2 Projections included in the Plan; 3/ Figu.res for tndi,jidual Years not strictly comparable. Sources, IN2, Anuarto £stadistico, various issuea; Ministry of Indiustry, Informe sobre ]A Coyuritura Industrial. 1965. Table I.5 Housebuilding (thousand units) 1960 1961 1962 1963 196h 1965 State-supported housebuilding Requests submitted to Ministry of Housing 210.1 215.8 312.6 467.2 240.7 Requests approved 172.7 229.0 301.5 393.8 127.2 Dwellings completed: a) Henta limitada, 1st group 26.7 26.1 24.5 33.9 57.7 79.3 b) Other groups 91.1 95.8 123.4 15h.0 173.5 161.5 Total 117T 121.9 117.8 187.9231.2 2h0.8 1/ Private housebuildingz/ aDellings completed 11.6 13.5 1L.6 18.8 25.7 42.5 Total dwellings completed 129.4 135.4 162.4 205.7 256.9 283.3 Targets of long-term housing plan (1961-1976) - 125.1 139.6 150.5 162.1 175.1 1/ Dwellings financed fully from private sources. The Ministry of Housing has estimated that through 1964 their number equalled about 10% of State-supported dwellings. For 1965, the estimate is higher, about 17%. Source: Ministry of Housing. Table 4.6 Land Transport A. Roads TMotor Vehicle Registration (thousands) 1954 1958 1961 1962 1963 1964 1965 Motor vehicles registeredl/ 215 324 546 660 791 967 1,195 including: automobiles 116 192 359 Lh1 53 652 807 New registrationsl/ 18 44 98 117 136 187 239 including: autom.obil'jo 12 33 69 83 91 127 159 Gasoline consumption2/ n.a. n.a. 2,150 2,389 2,746 3,217 3,723 Inter-City Passengers and FreightY/ (billions) 1954 1958 1961 1962 1963 196h 1965 Ton-kilometersV/ 5.8 7.8 10.8 12.3 16.2 17.8 20.2 Passenger-kilometers5! 6.5 11.0 34.1 39.0 44.4 51.5 61.6 B. Rail Freig>ht and Passenger Traffic (billions) 1955 1958 1961 1962 1963 1964 19656/ Ton-kilometers 8.2 9.3 7.3 7.7 8.0 8.h 8.5 Passenger-kilometers 8.0 8.7 7.8 8.8 10.1 11.8 13.4 1/ Excluding motor cycles. 2/ Expressed in thousand tons of coal equivalent. Includes diesel oil. 3/ As a result of more detailed traffic surveys since 1961, the 195L and 1958 figures are not strictly comparable with those of later years. 4/ Commercial carriers only. 5/ Including both commercial carriers and private vehicles. Passengers include transport companiest personnel operating vehicles. 6/ Provisional. Sources: IME, Anuarlo Estadistico, various issues; Government Commission for Economic Affairs, Mlemoria sobre la Ejecucion del Plan de Desarrollo Economico y Social 1965; Ministry of Public Works. Table 5.1 National Resources and Expenditures, Growth Rates Projected in Plan 1964-67 and Realization 1967-75 Growth Projection Actual Growth (20 of Plan 1964 1965 1/ (% p.a.) Gross national product 6.o 7.0 7.8 Imports: Merchandise 9.0 } 8 33.8 2/ Services 12.7 ) 9-28.8 2/ Private consumption 5.5 2.4 9.1 Governm.ent consumption 5.0 5.1 n.a. Gross fixed capital formation 9.0 21.6 21.5 Exports: Miierchandise 10.0 )1.4 Tourism 11.0 )282 20.5 Other services 2.8 )0o.3- 1/ Provisional 2/ Growth rates in current prices Sources: Planning Commission, Plan de Desarrollo Economico y Social para el Periodo 1964-67; Revised National Accounts, 1955-64; IIE; Government Commsssion for Economic Affairs, Mlemoria sobre la Ejecucion del Plan de Desarrollo Economico y Social 1965. Table 5.2 Employment: Projections in Plan 1964-67 and Realization 1964-65 (thousands) Plan Realization 1,i;l o-rer 1963 1?-S5 ov7er 1964 1962 1967 Absolute Percentage 1963 1964 Abs Jute Percentage 1964 1965 Ab: :Jite ctteutage Change Change p.a. Change C7hange Chanre Change Agriculture 4,710 4,370 -340 -1.5 4,486 4,228 -258 -6.1 4,140 3,935 -205 -5.0 Industry 3,850 4,440 590 2.9 4,022 4,211 189 4.7 4,180 4,343 163 3.9 Services 3,260 3,640 380 2.2 3,667 3,783 116 3.2 3,875 3,997 122 3.1 Total 11,820 12,450 630 1.0 12,175 12,222 47 0.4 12,195 12,275 80 0.7 Note: Data for number of persons employed are not available for 1963. Instead, the total number of occupied jobs (which exceeds employment because many Spaniards have more than one position) for 1964 is compared to that of 1963 in order to provide a rough approximation of the growth of employment in 1964. Sources: Planning Commission, Plan de Desarrollo Economico v Social para el Periodo 1964-67, and Memoria sobre la Eieci;cion del 1PThn de De.sarrollo Economico y Social 1964. Government Counission for Economic Affairs, Mlemoria sobre la Eijecucion del Plan de Desarrollo Economico y Social 1965. Table 5.3 Public Investment by Sectors, Projections in Plan 196h-1967 and Realization 1964-1965 (in billion pesetas) 1964 1965 1966 1967 1964-67 (Plan) Plan Actual Plan Actual ITh Plan Total Share (V Social investment: Education 3.6 2.5 4.3 3.8 6.4 8.6 22.9 6.8 Housing and urban development 15.2 15.9 16.0 17.1 16.8 17.5 65.6 19.6 Health and social welfare 0o6 0.4 1.1 0.7 1.2 0,9 3.8 1.1 Information services 0.2 0.3 0.2 0.2 0.05 0.05 0.5 0.1 Civilian investment in defense services 1.2 ... 1.3 4, 1. 1.6 5.6 1.7 Productive investment: Agrc =t 3.h1 2.8 4.7 3.3 i.9 5.h 1.93 5.8 Irrigation 11.7 9.6 12.1 9.5 12.2 12.9 48.9 14.6 Transport 17.1 15.2 19.8 19.6 22.1 23.4 82.4 24.6 Teleccumunications o.5 0.2 0.4 0.2 o.4 0.4 1.8 0.5 Tourism 0.3 .3 0.3 0.4 0.4 o.4 1.4 0.4 Technical and scientific research 0.4 0.3 0.5 0.5 0.4 0.3 1.7 0.5 Domestic trade 0.3 - 0.3 - 0.2 0.2 1.0 0.3 Other sectors 3.9 2.8 2.9 2.1 3.4 3.9 13.3 4.0 Growth centers and basic export industries 0.7 - 1.0 0.1 1.2 2.0 5.0 1.5 Investaents still to bO approved 0.4 0.1 1.0 2/ 1.2 2.0 4.9 1.4 Funds for financial investment in the public sector 12.3 11.4 13.6 12.3 14.9 16,.h 57.3 17.1 TOUTL 72.2 61.8 79.4 70.0 87.3 96.0 335.0 100.0 Percentage increase over previous year's offitial public in-wesaeset estimates +15%2' +10% +10% '-10% NOTE: Figures may not total die to rounding. I/ Local government investment in "Agriculture" is included in "other sectors*. 2/ Distributed among other categories. if Increase over 1963 public investment estimate (62.8 billion). - nil - not available Sources: Planning Commission, Plan do Desarrollo Economico y Social Eara el Periodo 1964-67, and Memoria Sabre la Ejecucion del Plan de Desarrollo gconomico y Social 1964. Government Cmnmission for Economic Af fairs, Memoria Sobre la Ejecucion del Plan de Desarrollo E-onm4ico y Social 1965. Table 5.h Public Investment in 1964 by Sectors and Entities - Plan versus Realization (in billion pesetas) Central Government and Autonomous Local Authorities Total Public Agencies __ Actual Actual Actual SECTORS Plan Actual as % Plan Actual as % Plan Actual as % ____ of Plan _ of Plan _ of Plan Education 2.h 2.1 88 1.1 0.h 30 3.6 2.5 70 Housing and urban development 12.h 12.5 101 2.8 3.4 121 15.2 15.9 105 Health and social welfare 0.3 0.1 26 0.3 0.3 102 0.6 0.o 64 Information services 0.2 0.3 134 - - - 0.2 0.3 13L Agriculture 3.8 2.9 76 2/ 2/ _ 3.82/ 2.9J 76 Irrigation 11.7 9.6 82 - - 11.7 9.6 82 Transport 15.4 13.4 86 1.6 1.8 110 17.1 15.1 89 Telecommunications 0.5 0.2 40 - - - 0.5 0.2 ho Tourism 0.3 0.3 94 - - - 0.3 0.3 94 Scientific investigation 0.4 0.3 61 - - - 0.h 0.3 61 Domestic trade 0.3 - I - - - 0.3 - 4 Investment still to be approved 0.4 0.1 39 - - - OAt 0.1 39 Subsidies for growth centers ("Polos1) 0.7 - - - - - 0.7 - - Funds for financial investment 11.8 11.h2/ 96 0.5 - - 12.3 11.4 92 Other sectors 2.4 0.7 30 1.5 2.0 141 3.9 2.8 72 TOTAL 63.1 53.9 85 7.8 7.9 101 71.0 61.8 87 Total without financial investment 51.3 42.5 83 7.3 7.9 108 58.7 50.4 86 1/ Breakdown of expenditure between Central Government and public agencies is unavailable. The table excludes investment for defense. 2/ Agricultural investment included in "other sectors". 3/ Of which 8.3 billion pesetas from bonds issued by the National Ins-titute for Industry (INI). - = nil Sources: Planning Commission, Plan de Desarrollo Economico y Social para el Periodo 1964-1967, and Memoria Sobre la EJucucion del Plan de Desarrollo Economico Social 1964. Table 5.5 Public Investment in 1965 by Sectors and Entities - Plan versus Realization (in billion pesetas) Central Government and Autonomous Local Authorities Total Public Agencies - _ Actual Actual Actual SECTORS Plan Actual as % Plan Actual as % Plan Actual as % of Plan _ of Plan of Plan Education 3.9 3.3 84 0.4 0.5 124 4.3 3.8 88 Housing and urban development 13.3 13.0 98 2.7 4.1 152 16.0 17.1 107 Health and social welfare 0.7 0.3 44 0.3 0.° 126 1.1 0.7 70 Information services 0.2 0.2_ 110 - - - 0.2 0.2 110 Agriculture 4.2 3.2 76 0.5 0.1 22 4.7 3.3 70 Irrigation 12.1 9.5 79 - - - 12.1 9.5 79 Transport 18.0 17.8 98 1.8 1.9 104 19.8 19.6 99 Telecommunications 0.4 0.2 54 - - - 0.4 0.2 56 Tourism 0.3 0.4 129 - - - 0.3 0.6 129 Scientific investigation 0.5 0.5 112 - - - 0.5 0.5 112 Domestic trade 0.3 - - - - - 0.3 - - Investment still to be approved 1.0 -3/ - - - - 1.0 3/ - Subsidies for growth centers ("Polos") 1.0 0.1 12 - - - 1.0 0.1 12 Funds for financial investment 13.1 11.6i/ 89 0.5 0.7 136 13.6 12.3 90 Other sectors 1.8 0.3 16 1.1 1.8 170 2.9 2.1 72 TOTAL 70.8 60.5 86 7.6 9.5 130 78.1 70.0 90 Total without financial investment 57.7 68.9 85 6.9 8.9 129 66.6 57.7 89 1/ Breakdown of expenditure between Central Government and public agencies is unavailable. The table excludes investment for defense. 2/ Excluding "general acquisitions". 3/ Distributed among other categories. 4/ Of which 9.1 billion pesetas from bonds issued by the National Institute for Industry (INI). - = nil Sources: Planning Commission, Plan de Desarrollo Economico y Social para del Periodo 1966-1967. Government Commission for Economic Affairs, Memoria sobre la Ejecucion del Plan de Desarrollo Economico y Social 1965, Madrid, 1966. Table 5.6 Balance of Payments, Projections in Plan 1964-67 and Realization 1964-65 (million U.S. dollars) 1263 1964 1965 1966 1967 Plan Actual Plan Actual Plan Actual Plan Plan Trade Exports, f.o.b. 755 786 865 1,005 923 1,019 1,017 1,118 Imports, f.o.b. 1,938 1,799 2,112 2,076 2,287 2,778 2,488 2,708 Trade balance -1, 183 -1,013 -1,247 -1,070 -1,364 -1,759 -1,471 -1,590 Services (net) Foreign travel 700 611 777 852 862 1,027 957 1,062 Other services -22 -42 -43 -70 -70 - 114 -99 -127 Services balance 678 569 734 782 792 913 858 935 Total Goods and Services -497 -444 -513 -288 -572 -846 -613 -655 financed by: Net transfers 1/ 223 201 233 242 243 300 253 268 Net inflow of capital 274 276 280 334 329 369 360 387 Errors and omissions ... 72 ... 39 ... 46 Changes in Gold and Foreign Exchange Reserves and other Monetary Movements ... +105 * +327 ... -131 1/ Mainly emigrant remittances; excluding repatriation of capital, which is included under "Net inflow of capital". Sources: Planning Commission, Plan de Desarrollo Economico y Social para el periodo 1964-67, and Memoria sobre la Ejecuc-on del Plan da Desarrollo Econo-ico y Soc½J.-. 1964; Government Commis.aion for Economic 1Affairs, Nemorj sobre la Ejecucion del Plan de De.,arrol_LD Zconomico y Sc-Jial 1965. Table 6. 1 Central Government Cash Receipts and Expenditures (billion pesetas) Jan. - Aug. 1~59 1960 1961 1962 1963 164 1965 W6 Y1966 Revenues Budget Revenues 63.2 72.7 81.1 95.o 109.0 125.8 149.5 98.0 119.1 Annex Budget Revenues 3.8 2.5 4.8 3.3 3.8 1.6 1.2 0.9 1.3 Collections for Local Govts. 3.4 3.7 3.6 4.0 4.3 4.6 4.8 2.5 2.6 Other Income (net) 0.3 --- 0.5 2.0 --- - a-- 1.3 Total Revenue 70.4 79.2 89.5 102.8 119.1 132.0 155.5 101.4 124.3 Expenditures Budget Expenditures 59.8 67.1 74.0 88.8 109.2 124.6 153.1 91.7 115.6 Annex Budget Expenditures 3.2 3.0 4.1 4.2 4.0 2.3 1.9 1.3 1.1 Payments for Local Govts. 3.3 3.5 3.7 3.7 1.5 4.0 4.2 4.1 4.7 Other Expenditures (net) 5.6 --- 0.8 --- --- 2.2 4.9 9.7 Total Expenditure 71.9 73.6 82.6 96.7 114.7 133.1 164.1 106.8 121.4 Surplus (+) or deficit (-) -1.5 5.6 6.9 6.1 4.4 -1.1 -8.6 -5.4 2.9 Transfers to Official Credit Institutions -3.4 -7.2 -8.6 -5.7 -7.3 -17.6 -24.7 -16.3 -19.3 Total to be Financed -4.9 -1.6 -1.7 o.4 -2.9 -18.7 -33.3 -21.7 -16.4 Financing Issue of Bonds --- 1.0 3.0 0.5 5.o 15.0 27.5 10.0 8.9 Borrowing from Bank of Spain 2.1 O.4 -1.7 -1.2 -3.2 2.5 4.6 11.1 6.9 Issue of Coins 2.7 0.3 0.4 0.4 1.2 1.2 1.2 o.6 o.6 Source: Bank of Spain, Boletin Estadistico. September 1966. Table 6.2 Central Government Budget Revenue (billion pesetas) 1961 1962 1963 1964 1965 1966 Direct Taxes 25-58 29.28 31.84 34.95 41.05 43.10 Rural and urban real estate 3.10 3.24 3.52 3.66 3.87 14q30 Income from labor 5.89 6.65 7.59 83.33 8.61 8.0o Income from capital 2.64 2.89 3.14 3.49 4.28 4.80 Business income 7.95 8.89 9.19 9.69 11.61 12.50 Commercial and indust- rial enterprises 2.49 3.56 4.03 4.62 5.48 6.20 Individual global income 1.02 1.20 1.40 1.63 1.84 1.60 Inheritance and estate 1.37 1.65 1.60 1.90 1.99 2.50 Other 1.12 1.20 1.37 1.63 3.37 3.20 Indirect Taxes 47.76 55.17 63.99 75.25 88.87 102.10 Transfer and stamp 9.53 10.53 13.05 14.21 9.88 11.30 Turnover 4.83 5.38 6.oo 7.13 14.93 16.1o Internal excises 22.12 24.49 27.31 33.05 38.69 45.80 Customs duties 8.20 10.38 12.25 14.15 14.46 15.00 Equalization taxes on imports 2.31 3.69 4.48 5.47 9.60 11.50 Other 0.77 0.70 0.90 1.24 1.31 0.40 Total Taxes 73.34 84.45 95.53 110.20 129.92 145.20 Non-tax revenues 7.73 10.50 13.28 15.64 19.62 23.50 Total Revenues 81.07 94.95 109.11 125.84 149.54 168.70 (Per cent of GNP) 11.4 11.6 11.3 11.6 11.5 Note: For details, see Annex III Source: M4inistry of Finance. Table 6.3 Central Government Budget Expenditure (billion pesetas) Budget 1962 1963 1964 1965 1966 Chapter Actual Actual Forecast Actual Forecast ActuaJi?/ Forecast 1 Wages, salaries, pensions 29.3 33.6 41.4 39.6 47.5 48.0 68.7 of which: education (4.2) (5.0) (6.4) (5.8) (6.7) (7.1) (11.4) 2 and 3 Other current expenditure 10.2 13.3 13.0 13.7 13.6 11.2 15.6 of which: defense (4.0) (4.4) (5.8) (5.5) (5.8) (2.2) (6.6) 4 Current subsidies and transfers 13.2 21.1 16.9 24.4 21.3 24.6 23.4 of which: agriculture (0.9) (1.7) (0.4) (4.3) (0.5) (1.0) (0.5) national funds 1/ (1.0) (2.8) (2.7) (5.0) (3.0) (4.7) (3.6) local administration (0.3) (4.2) (3.9) (4.8) (7.5) (8.5) (8.0) Total current expenditures 52.7 2/ 67.9 2/ 71.3 77.6 2/ 82.4 83.8 107.7 6 and 9 Direct investment 2/ 10.5 14.2 20.5 19.0 23.1 21.9 25.4 of which: public works (4.8) (7.8) (9.7) (11.8) (10.9) (11.9) (13.0) education (0.4) (1.0) (1.6) (1.1) (1.9) (1.4) (2.9) defense (4.0) (3.8) (5.2) (3.7) (5.3) (3.8) (4.6) local administration 3f (1.0) (1.4) (1.7) (1.6) (2.7) __ (2.0) 8 Investnent subsidies 14.6 15.5 20.5 21.0 22.3 22.6 25.3 of which: housebuilding (6.6) (7.5) (7.4) (9.2) (7.4) (9.2) (7.6) Total capital expenditures 25.1 29.7 40.9 40.0 45.4 44.5 50.7 5 and 7 Financial transactions 11.2 10.8 8.8 7.5 9.0 6.7 10.3 of which: public debt operations (6.8) (6.1) (6.9) (6.3) (7.0) (4.0) (7.2) Grand total expenditures 89.1 108.4 121.0 125.1 136.8 135.0 4/ 168.7 1/ Proceeds of certain taxes are earmarked for "national funds". These funds provide financial assistance to workers dismissed because of reconversion of enterprises, are used to distribute study granta, etc. 2/ Expenditure authorized in preceding budgets (Chapter 9) relates almost entirely to public investment projects, except for minor amounts which are included in the totals of actual current expenditure. 32 Participation of the central budget in the cost of investment carried out by local administrative bodies. hi Payment authorizations. This column is not comparable with other columns. Total actual expenditure in 1965 comparable with other years was 152.7 billion. (Source: Hinistry of Finance). Table 7 .1 Consolidated Account of the Banking System 1/ (billion pesetas; end of period) 1961 1962 1963 1964 1965 1966 June Money Supply 232,5 275.5 317.4 377.7 4ho.0 432.9 Currency 83.9 98.0 112.9 131.7 151.1 153G5 Sight Deposits 118.6 177.6 20h.5 246.o 289.0 279.h Time and Savings Deposits 224.4 275.2 327.0 404.5 487.0 515.5 Foreign Currency Deposits ?. 3.0 3.5 5.4 6.o 5.8 5.8 Total 459.9 554.2 649.8 788.2 932.8 954.3 Foreign Assets 144.6 59.L 69.4 90.7 83,O 67.7 Claims on Public Sector 2/ 152.8 158.3 169.9 199.0 236.3 245.0 (Bank of Spain) (27.2) (29.0) (28.4) (39.9) (43.2) (45.7) Claims on Private Sector 281.1 356.1 433.0 522.9 648.5 689.6 1/ Bank of Spain, commercial banks, industrial banks and savings banks. 2/ Series revised in 196h. The revision reduced the 1964 figures by 1.4 billion pesetas. Source: Bank of Spain, Boletin Estadistico. Table 7.2 Principal Assets and Liabilities of Commercial Banks (billion pesetas; end of period) 1961 1962 1963 1964 1965 1966 Assets June Cashi/ 9.7 11.0 15.0 21.9 24.4 18.7 Government securities: 61.1 58.9 59.3 66.8 84.0 87.3 of which: Deposited with Bank of Spain 16.3 18.5 13.4 6.6 17.9 14.2 and used as collateral?/ Deposited but not so used?/ 21.4 20.6 25.6 27.5- 24.3 32.9 Private portfolio (long-term) 21.7 22.7 23.2 25.9 27.9 29.7 Credit to private sector 217.9 276.8 325.2 383.3 484.9 508.0 Liabilities Total Deposits: 282.3 341.3 394.3 483.2 566.0 567.0 Sight deposits 144.4 173.0 197.1 239.4 278.6 265.5 Time and savings deposits 134.9 164.9 191.9 237.8 281.6 295.6 Foreign currency deposits2/ 3.0 3.5 5.4 6.o 5.8 5.9 Operating ratios (end of year) Cash ratio4/ 11.0 9.3 10.3 10.2 8.6 8.5 Government securities/deposits 21.6 17.2 15.0 13.8 14.8 15.4 "Liquidity ratio" (commercial banks)5/ 19.3 15.1 15.8 17.5'/ i6.1 16.1 Rediscount rates of Bank of Spain Commercial 4.0 4.0 h.0 4.0 4.0 4.0 Financial 4.6 4.6 L.6 4.6 4.6 4.6 1/ "Cash" includes deposits with the Bank of Spain. t/ Amounts shown are advances obtained or available against deposits of government securities with the Bank of Spain (up to 80-90 per cent of the nominal value of the securities). 3/ Series revised in March 1964. The revision reduced the 1964 figures by 1.4 billion pesetas. t/ Ratio of cash (including deposits with the Bank of Spain) and credit available at Bank of Spain on government securities deposited with it, to total deposits. 5/ '"Liquidity ratio': ratio of cash, unpledged government securities and bills which are automatically rediscountable at the Bank of Spain, to total deposits (excluding interbank balances). 6/ Since 1964, revised series. Source: Bank of Spain, Boletin Estadistico. Table 7.3 The Capital Market A. New Bond and Share Issues (billion pesetas) 1961 1962 1963 1964 1965 Public Issues: Central Governmentl/ 3.0 0.5 5.0 15.0 27.5 Autonomous agencies and public enterprises2/ 9.6 4.9 8.6 8.3 9.1 Official credit institutions 1.8 1.3 0.3 Total-Public 14.4 6.7 13.9 23.3 36.6 Private Issues: Shares 14.6 14.5 19.3 20.1 34.8 Bonds 4.9 9.7 20.4 19.9 25.9 Total-Private 19.5 24.2 39.7 40.0 60.7 Total Issues 34.0 30.9 53.6 63.3 97.3 B. Market Quotations, Yield and Turnover Quotations (1958=100) Shares 96.7 105.2 104.2 93.0 87.1 Public bonds. 105.4 107.5 109.2 108.5 107.9 Private bonds 117.2 125.7 126.7 122.7 122.8 Yield (percentages) Shares 3.38 2.99 3.03 3.21 3.90 Public bondsY/ 33.62 3.48 3.36 3.83 3.34 Private bonds 5.14 4.92 4.96 5.22 5.29 Market Turnover (billion pesetas) Shares 12.7 14.7 17.1 18.0 22.3 Public bonds 2.8 2.6 2.5 3.8 5.5 Private bonds 2.5 2.9 3.1 2.8 3.1 Total Turnover 18.0 20.2 22.7 24.6 30.8 1/ Medium-term investment certificates (cedulas para inversiones). 2/ National Institute of Industry (INI). ly' Four per cent bonds of the internal debt. Source: Bank of Spain, Boletin Estadistico. Table 7.4h Official Credit Institutions (billion pesetas) New Credits Approved Credits Actually Used 1961 1962 1963 19614 1965 1961 1962 1963 1964 1965 Agricultural Credit Bank 1.0 1.1 5.3 3.8 7.5 1.0 1.1 3.3 3.0 6.2 Ccnstructions Credit Bank .0 3.1 5.9 9.0 9.9 3.2 3.2 3.7 6.4 9.7 housing (1.6) (1.9) (1.9) (4.1) (3.7) Urban Services (0.3) (---) (1.7) (2.2) (0.8) Shipbuilding (2.0) (1.5) (2.8) (2.0) (2.9) Other (0.1) (-0.3) (-0.5) (0.7) (2.5) Mortgage Bank 1.6 1. 1.9 1.9 1.9 1.5 1.6 1.7 1.9 1.8 Industrial Credit Bank 1.0 0.4 1.9 6.8 10.6 1.0 0.4 1.9 3.9 7.9 of which: "Priority sectors" 1/ (0.7) (5.9) Export finance (0.7) (2.7) Local Credit Bank 1.0 1.3 0.6 3.2 2.6 0.8 0.4 0.7 2.7 1.4 Fisheries Credit 0.1 --- 0.1 0.1 0.2 0.1 --- 0.1 0.1 0.2 Total 8.6 7.3 15.6 25.0 32.8 7.6 6.7 11.5 17.9 27.3 Note: Some figures do not total due to rounding 1/ Priority sectors, regional industrialization centers ("polos") and "accion concertada'. Sources: Instituto de Credito a Miedio y Largo Plazo, iemoria del Credito Oficia1, 1963, 1964 and 1965; Government Commission for Econcmic Affairs, Ilemoria sobre la Ejecucion del Plan de Desarrollo Economico y Social 1965; Ministry of Finance, Economia Financiera XSspanala, No. 9. Table 8.1 Prices Increases During Year (%) Average Annual Increases (%) (December to Decemnber) Weights 1962 1963 1964 1965 1962 1963 1964 1965 1966 2! W>oJ.esale Price Index (1955=100): General Index 100 4.9 4.3 2.9 10.1 5.7 1.0 9.1 5.5 4.5 Food 52 8.0 6.3 2.1 15.7 9.0 0.1 12.5 8.5 6.1 Textiles 13 2.5 0.4 3.5 0.6 -0.2 2.5 2.0 1.1 Metal products and machinery 9 -0.1 0.9 4.6 5.8 1.1 -0.1 9.8 1.5 Fuel and electricity 9 1.9 2.2 1.9 1.4 3.5 1.6 1.4 1.0 Chemicals 6 -1.2 0.4 5.0 5.9 -0.4 1.6 8.1 2.3 Constructions materials 4 2.2 8.9 3.4 2.2 5.9 7.0 3.6 1.0 "Special Groups": Agricultural products 34 7.4 6.4 0.7 15.5 9.5 -1.4 12.0 7.9 9.3 Processed agric. products 12 6.6 6.3 8.1 8.4 6.6 7.4 11.0 0.3 -1.2 Industrial products 30 0.9 1.6 3.0 3.1 1.1 1.8 4.3 1.6 2.2 Cost of Living Index (1958=100) 1/ General Index 100 5.7 8.8 7.0 13.2 9.9 5.5 12.7 9.4 7.4 Food 55 7.7 10.0 5.0 15.8 13.2 3.6 14.9 8.7 6.5 Clothing 14 4.2 9.9 13.5 12.6 8.5 10.1 14.5 11.5 9.2 Household expenditures 8 2.0 7.9 7.9 7.1 4.7 9.4 6.9 6.3 3.9 Rent 5 6.3 4.4 5.6 10.5 4.7 4.3 5.1 13.3 7.0 Miscellaneous 18 2.5 5.3 8.4 8,9 5.0 6.8 8.4 10.3 10.2 1/ National index. Source: INM 2/ June 1266 ovsr Jume 1965; for wholesale 'riOO, nrov-s-onal. data. Table 8.2 Wages and Salaries A. Percentage Change from Year to Year 1959 1960 1961 1962 1963 1964 1965 Agriculture 17.3 10.1 7.9 13.0 24.0 12.0 10.8 Fisheries 13.4 6.3 9.5 19.2 15.8 16.4 12.4 Primary Sector 17.6 9.7 7.7 14.3 23.1 12.7 11.5 Mining and Quarrying -3. 77 27 19.5 9 9 21.6 Manufacturing 5.0 4.4 10.9 19.3 12.7 12.4 14.6 ?ow.ier and WIater 7.6 12.7 8.6 15.7 21.0 13.8 16.3 Construction and Public Works 6.7 9.9 20.8 5.5 23.4 11.6 17.0 Secondary Sector 5.3 7.0 11.2 16.3 15.7 11.7 15.2 Transport and Communications 2.1 .9 4.3 11.3 20 .1 15.9 1I49 Commerce 2.1 3.2 7.3 20.0 17.6 15.4 12.5 Financial Services 3.4 6.0 8.2 16.1 24.5 6.8 14.5 Other Services 9.7 8.O 10.4 1i.6 16.6 18.3 17.2 tIertiary Sector 6.4 6.6 8.5 14.4 17.8 14.5 14.4 'total 7.1 7.4 10.3 15.6 17.8 13.9 15.3 tources: Revised National Accounts, 1958-64 and INE 13. Percentage Change in Average Hourly Compensation of Employees by Quarter over Same Quarter One Year Ago (Excluding Family Supplements) 1964 1965 First Quarter 13.6 16.1 Second Quarter 13.0 16.6 Third Quarter 13.6 15.3 Fourth Quarter 11.9 15.7 Year Average 13.1 16.0 Coverage: Mining, Manufacturing, Commerce, Electricity, Construction and Financial Services. Source: INE. Table 9.1 Balance of Payments (million U.S. Dollars) 1962 1963 1964 196%' Imports (f.o.b.) 1,h38.2 1,798.6 2,075.5 2,777.8 Exports (f.o.b.) 800.3 785.9 1,005.3 1,019.1 Trade balance -637.9 -1,012.6 -1,070.2 -1,758.7 Foreign travel 465.8 611.0 852.0 1,026.6 Other services 1.4 -42.0 -69.6 -114.1 Workers' remittances 146.o 195.0 237.8 298.0 Other private transfers 63.1 56.4 79.0 59.6 Official transfers 11.9 6.5 4.° 2.3 Balance of services and transfers 688.2 826.9 1,103.2 1,272.4 Current balance 50.3 -185.8 33.0 -486.3 Direct investment 38.9 67.3 78.1 115.9 Portfolio investment 4B8.2 87.1 71.5 53.4 Eximbank and Development Loan Fund 35.0 18.5 17.2 19.7 Other private capital -17.1 41.3 101.5 133.3 Official capital movements 13.4 4.6 -13.5 -13.6 Balance of capital movements in the non-monetary sector 118.4 218.8 25h.7 308.8 Errors and omissions 33.7 71.8 38.8 46.7 Monetary rmovements?/ -202.8 -10.7 -326.5 +130.7 Changes in reserves -1lb.1 -85.h -312.8 +138.9 Operations with IMF -15.0 -16.5 -52.5 -34.5 Liabilities in pesetas to the U.S. Government -h8.0 -57.5 -16.7 -11.2 Other official transactions -14.6 13.0 18.5 8.0 Convertible peseta accounts 18.9 41.7 37.0 29.5 1/ Provisional. 2/ (-) = increase. Source: Ministry of Cosmmerce. Table 9.2 Gold and Foreign Exchange Reserves and IMF Gold Tranche Position (million U.S. dollars; end of period) 1960 1961 1962 1963 1964 1965 1966 1966 1966 March June Sept, Gold 178 317 447 573 616 810 785 785 785 Bank of Spain (55) (66) (66) (66) (67) (67) (67) (67) (67) Exchange Institute (123) (251) (381) (507) (548) (743) (718) (718) (718) Foteign exchange 363 547 561 520 791 458 314 241 325 IMF gold tranche position - 23 38 54 107 141 166 166 166 Total 541 886 1,045 1,147 1,513 1,409 1,265 1,192 1,276 Deposits with commercial banks in convertible pesetas _22 4 1 83 120 149 145 172 l7 52 1/ August Sources: Ministry of Commerce, Informacion Comercial Espanola, various issues. Bank of Spain, Boletin Estadistico, various issues. Table 9. 3 Foreign Trade 1966 1960 1961 1962 1963 1964 1965 Jan. - Jxae Value (million of U.S. dollars) Imports (C.i.f.) 722 1,092 1,570 1,955 2,259 3,019 1)893 J.xports (f.o.b.) 726 710 736 736 954 967 597 Trade Balance -_ -382 -834 -1,219 -1,305 -2,052 Volumte of Trade (1958=100): Imports 93 141 206 253 278 378 Exports 168 170 158 153 207 194 Indexes of Prices in U.S. Dollars (19O8=100): Imports (I) 89 89 88 89 94 92 Exports (E) 89 86 94 98 95 102 Terms of Trade (E/I) 100 97 107 110 101 110 Source: JMF, International Financial Statistics. Table 9.4 Imports and Exports by Principal Commodity Categories (million U.S. dollars) Imports, c.i.f. Exports, f.o.b. 1961 1962 1963 1964 1965 1966 1961 1962 1963 1964 1965 1966 (June) (June) Food Products 190 226 346 364 486 321 316 364 334 448 437 271 Raw Materials 261 337 319 329 466 319 132 106 117 133 86 33 Fuels 178 247 248 286 301 160 42 45 43 48 38 28 Manufactured Goods 466 762 1046 1270 1765 1093 221 222 242 328 405 265 of which: Equipment Goods 1/ (251) (419) (561) (674) (857) (550) - - - - - - Total 2/ 1094 1573 1958 2248 3019 1893 711 738 737 956 266 597 Percentages of the Total Food 17.3 14.4 17.7 16.2 16.1 17.0 44.4 49.5 45.3 46.8 45.2 45.4 Raw Materials 23.8 21.4 16.3 14.6 15.4 16.8 18.5 14.4 15.9 13.9 8.9 5.5 Fuels 16.3 15.7 12.6 12.7 10.0 8.5 5.9 6.1 5.9 5.0 3.9 4.7 Manufactured Goods 42.6 48.5 53.4 56.5 58.5 57.7 31.1 30.0 32.9 34.3 41.9 44.4 of which: Equipment Goods 1/ (23.0) (26.7) (28.7) (30.0) (28.4) (29.1) - - - - - - Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Notes: The classification of imports differs from that in the tables included in the main text of this report. Figures may not total due to rounding. l/ Includes machinery, instruments and transport equipment. 2/ Import totals exclude non-monetary gold. Source: Bank of Spain, Boletin Estadistico various issues. Table 9.5 Composition of Imprts (million US dollars a 1961 1962 1963 1964 1965 Cat~egzories Amount 7 ount o Amount LIoint 72 A -7 Ani--al products 16.1 1.5 48.8 3.1 79.8 4.1 42.1 1.9 128.5 4.3 Vccetable products 137.2 12.6 137.7 8.8 157.3 8.1 204.6 9.1 300.2 9.9 Fats and oils 47.6 4.4 71.2 4.5 83.7 4.3 31.3 1.4 73.5 2.4 Focd. drinks and tobacco 45.2 4.1 58.7 3.7 128.3 6.6 143.6 6.4 119.2 3.9 Minerai products 217.6 19.9 292.7 18.7 307.4 15.7 363.7 16.1 41o.7 13.6 Chemiicals, plastic, rubber and related products 134.6 12.3 180.2 11.5 219.9 11.3 261.2 11.6 329.9 10.9 Wood, paper and related products 45.7 4.2 60.6 3.9 78.2 4.0 93.8 4.1 119.3 4.0 Textiles and textile products 88.6 8.1 102.9 6.6 88.3 4.5 112.7 5.0 135.4 4.5 Common metals and their uses 83.5 7.6 152.1 9.7 186.2 9.5 236.4 10.4 420.7 13.9 M4achinery and appliances 166.9 15.3 286.3 18.2 430.8 22.0 550.8 24.4 695.8 23.0 Transport equipment 72.6 6.6 112.1 7.1 100.3 5.1 89.6 3.9 111.9 3.7 Optical instruments and glasses, etc. 16.6 1.5 27.6 1.8 39.6 2.0 45.5 2.0 69.4 2.3 Various goods 20r1 1.9 38.4 2,4 55.3 2.8 83.5 3.7 104.2 3.5 Total 1,092.3 100.0 1,569.3 100.0 1,955.1 100.0 2,258.8 100.0 3,018.7 100.0 Sources: Ministry of Finance, Directorate General of Customs; Estadistica del Comercio Exterior de Espana. Government Commission for Economic Affairs, Memoria Sobre la Ejecucion del Plan de Desarr'llo Economico y Social 1965. Table 9.6 Composition of Exports mThion US dollars 7 1961 1962 1963 1964 1965 Cate onries Amount 7Z Amount 2 Amount % Amount o Amount - An4irr.l products 17.4 2.5 21.4 2.9 27.7 3.8 35.6 3.7 35.6 3.7 VeegetE-able products 217.5 30.6 253.8 34.6 213.8 29.1 301.3 31.6 280.8 29.1 Fats and oils 68.2 9.6 44.9 6.1 49.1 6.7 57.3 6.0 18.2 1.9 Food, drinks and tobacco 88.7 12.5 97.6 13.3 102.9 14.0 121.6 12.7 133.8 13.8 Mineral products 77.5 10.9 73.1 10.0 70.1 9.5 80.5 8.4 68.7 7.1 Chemical and related products 34.2 4.8 35.6 4.8 36.2 4.9 54.3 5.7 78.9 8.2 Skins and hides 11.8 1.7 11.3 1.5 12.4 1.7 17.7 1.8 17.1 1.8 Wood, paper and related products 41.1 5.8 42.3 5.8 44.2 6.o 57.1 6.0 62.5 6.5 Textiles and textile products 52.6 7.4 38.7 5.3 51.1 6.9 53.3 5.6 61.6 6.4 Common metals and their uses 57.8 8.2 39.6 5.4 42.9 5.8 55.3 5.8 56.2 5.8 Machinery and appliances 21.7 3.1 25.2 3.4 25.5 3.5 40.5 4.3 52.6 5.4 Transport equipment 3,8 0.5 28.2 3.8 36.0 4.9 42.0 4.4 46.4 4.8 Various goods 17.3 2.4 22.5 3.1 23.7 3.2 38.0 _ 4.0 54.1 5.6 Total 709.6 100.0 734.2 100.0 735.6 100.0 954.4 100.0 966.5 100.0 Sources: Ministry of Finance, Directorate General of Customs, Estadistica del Comercio Exterior de Espana. Government Commission for Economic Affairs, Miemoria Sobre la Ejecucion del Plan de Desarrollo Economico y Social 1965. Table 9.7 Principal Exoorts and Imports (million U.S. dollars) Exports: 1961 1964 1965 Imports: 1961 1964 1965 Oranges, fresh 93.7 123.7 84.3 Machinery and equipment 167.0 550.8 695.8 Olive oil and olives 92.6 56.3 17.6 Petroleum and products 162.7 250.7 270.3 Canned fruit and vegeta. 45.9 51.3 67.0 Iron and steel pmducts 57.2 139.5 295.5 Transport equipment 3.8 42.0 46.0 Transport equipment 72.6 89.6 119.6 Wine 29.2 40.8 44.0 Sugar, refined 4.3 61.0 21.7 Petroleum products 36.9 g 35.9 38.0 Barley, unmilled 21.0 48.8 35.9 Non-electrical machinery 15.4 33.9 42.4 Copper products 15.3 46.6 69.5 Almonds 20.8 33.5 34.5 Nitrogen fertilizer 34.7 36.8 40.6 Tomatoes, fresh 22.1 25.4 26.9 Coffee, green, unroasted 13.2 34.2 42.0 Books 16.2 24.3 27.6 Coal, coke and briguettes 9.4 32.4 32.9 Iron ore and pyrites 26.5 21.7 21.6 Rubber,crude andsynthetic 22.1 32.0 35.3 Cork and products 15.7 16.0 15.8 Fats and oils 47.6 31.3 73.5 Mercury 8.3 16.0 32.5 Tobacco, urnanufactured 23.8 24.5 28.3 Grapes, fresh 10.3 13.8 15.7 Wool, greasy-fleece washed 11.6 15.4 12.3 Canned and preserved fish 15.2 12.1 14.1 Natural lime phosphates 12.4 14.5 16.5 Bananas, fresh 10.2 11.7 10.5 Meat, fresh, frozen, chilled 4.2 12.9 70.5 Iron and steel products 36.4 11.0 13.5 Cotton, raw 49.1 11.9 21.1 Potash 8.9 10.4 13.5 Jute, raw 6.1 8.3 6.3 Cotton fabrics, woven 21.0 9.3 8.3 Wheat, unmilled 66.8 5.5 9.5 Electrical equipment 6.3 6.6 10.1 Copper ore 6.9 3.8 6.2 Lemons, fresh 4.0 5.1 4.3 Cellulose and derivatives 14.8 2.5 3.0 Total - Principal Total - Principal Exports 539.4 600.8 588.2 Imports 822.8 1,453.0 2,G96.3 Others 170.2 353.6 378.3 Others 269.5 805.8 21.4 Total Exports 709.6 954.4 966.5 Total Imports 1,092.3 2,258.8 3,018.7 Source: Ministry of Finance, Directorate General of Customs, Estadistica del Comercio Exterior de Espana. Principal Trading ?ortners (million U.S. dollars) I orts ( .i.f.) Eorts (f.o.b.) T9_ i2W 19i5 1962 1965 -9 1965 1962 196 Value Value Val7u Va Eu-ropean Economic Community 467.8 1,128.0 29.8 37.4 276.3 345.1 37.5 35.7 Germany 206.7 423.9 13.2 14.0 109.5 133.1 14.8 13.8 France 149.1 328.0 9.5 10.9 67.5 102-1 9.2 lo.6 Italy 44.8 183.6 2.8 6.1 51.4 35.0 7.0 3.6 Netlerlands 35.4 114.9 2.3 3.8 26.7 47.3 3.6 4.9 Belgium - Luxembourg 31.8 77.6 2.0 2.6 21.2 27.6 2.9 2,9 European Free Trade Association 265.1 521.9 16.9 17.3 186.8 222.4 25.4 23,0 United Kingdom 149.2 276.5 9.5 9.2 117.7 129. 16.0 13.4 Switzerland 32.5 86.5 2.1 2.9 21.0 24.5 2.8 2.5 Sweden 36.5 74.7 2.3 2.5 16.8 19.2 2,3 2.0 Portugal 10.9 18.0 0.7 0.6 7.1 19.7 1.0 2.0 Eastern Europe 21.9 68.6 1.4 2.3 17.0 24.5 2.3 2.5 Total Europe 778.9 1,762.0 49.6 58.4 500.7 610.8 68.0 63.2 UJnited States 310.7 527.6 19.8 17.5 79.1 114.7 10.8 11.9 Canada 13.7 36.5 0.9 1.2 6.7 10.2 0.9 1.1 Latin America 147.9 265.7 9.4 8.8 68.0 107.1 9.2 11.0 Total Western Hemisphere 472.3 829.8 30.1 27.5 153.8 232.0 20.9 24.0 Africa 66. 0 242.2 4.2 6.0 30.1 57.2 4.1 5.9 Asia 215.0 166.3 13.7 5.5 23.9 31.2 3.2 3.2 Oceania 36.0 i5.6 2.3 0.5 5.7 6.3 0.8 0.7 Miscellaneous 0.7 2.9 0.1 0.1 22.0 29.0 3.0 3.0 Grand Total 1,569.7 3,018.8 100.0 100.0 736.2 966.5 100.0 100.0 Sourcsc!3 Ministry of Fin.rlance, Directorate Ger-Eral of Customs, Estadistica del Oomercio Exterior deEcpana; :TnT -t' ,tternatic¸aI ."e.-,