DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTIO J ELOPMENT Not For Public Use Report No. 1292a-CO REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF COLOMBIA FOR A THIRD EDUCATION PROJECT July 5, 1973 This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. CURRENCY EQUIVALENT 21 Currency Unit = Colombian Peso (Col$) US$1.00 - Col$23.47 Col$1.00 = us$o.0426 Col$1,000,000 = US$42,600 Colombia's Fiscal Year = January 1 to December 31 i/ May 31, 1973. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EKECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF COLOMBIA FOR A THIRD EDUCATION PROJECT 1. I submit the following report and reccmmendation on a pro- posed loan to the Republic of Colombia for the equivalent of US$21.2 million to help finance a +tird education project. The loan would have a term of 30 years, including ten years of grace, with interest at 7-1/4 percent per annum. PART I: THE ECONOMY 2. The Bank's most recent economic report (Economic Position and Prospects of Colombia, 138-CO) was distributed to the Executive Directors on May 18, 1973. A number of indicators drawn from the economic report are presented in Annex 1. 3. The Colombian economy has shown impressive gains in the recent past. The rate of economic growth has accelerated to more than 7 percent per annum, and the expansion of non-traditional exports has been remark- able. Such improvements are very much needed in order to accelerate employment generation. Colombia also needs to spread more widely benefits from growth in order to surmount problems of poverty and population pressures in both rural and urban areas. Concentration of land ownership, technical backwardness and underemployment charac- terize most rural areas. In urban areas, pressures of population growth, compounded by heavy migration from the countryside, have generated serious unemployment. Prospects for coping with these problems lie in the accelerated growth path upon which the Colombian economy has recently embarked. 4. Recent Government administrations have reacted to rural poverty and urban unemployment in a more systematic fashion than in the past but much remains to be done. In spite of the passage of an Agrarian Reform, Law in 1961 and the creation of the Agrarian Reform Institute (INCORA), also in 1961, only modest results have been achieved in alleviating rural poverty. Recently, additional agricul- tural legislation has been enacted, enabling a faster advance in land reform and introducing a tax on presumptive agricultural income. In recognition of the problems of urban concentration and unemployment the Government is now placing greater emphasis on urban development, particularly in the housing field. Through this program it hopes to stimulate a pattern of demand that will maximize urban employment. The programs have necessitated and will continue to require a strengthen- ing of the fiscal effLort. -2- 5. During the five-year period 1968-72 current revenues of the national government have risen at an average of 9 percent per annum in real terms. During the past year the National Government, pursuant to its program announced at the Consultative Group meeting of February 1972, took new fiscal and other measures which are expected to raise revenues by Col$1.0 billion per year (6 percent of the 1972 total revenue). This should enhance its ability to generate local currency needed to support foreign-assisted projects. At the latest Consultative Group meeting held in June 1973, members of the Group expressed the view that growing needs for public invest- ment and o,her public expenditures called for further increases in do. ,stic fiscal efforts. The Government has expressed the intention to further increase revenues by new tax measures now pending before the Colombian Congress and by increasing the savings of public enter- prises. It is also in the process of improving tax administration wlhich should increase collections. The Bank intends to continue the discussions with the Colombian authorities of their fiscal program. 6. To support the accelerated growth of the economy3 measures have been taken to strengthen the export sector and thereby reduce the foreign exchange constraint to sustained growth. A substantial measure of success in this area has been achieved through policies to encourage non-traditional exports. These have continued to grow rapidly and their total value approached the value of coffee exports in 1972. Although Colombia has not yet surmounted its dependence on coffee, the rapid growth of non-traditional exports, if continued, should achieve this result in the foreseeable future. Merchandise export earnings during the past year exceeded US$800 million, and were some US$150 million above the preceding yearts export earnings. Net international reserves of -the Bank of the Republic doubled in 1972 as a result oL groTwth in exports, and reached US$345 million by year end. Since then1 they have grown to US$437 million. This provides an import coverage of about 5 months. In order to preserve the gains already achieved and to sustain the process of rapid diversification by expanding both agricultural and industrial exports, it is particularly important that Colombia continues its policy of frequent exchange rate adjustments. I'he Government has declared its intention to do so. 7. The strong growth in GDP has been accompanied by upward pressure on prices. Contributing to this pressure has been central bank lending to finance part of a 30 percent real increase in government investment during 1972. High coffee prices also increased demand, and there is evidence that the export boom reduced the supply of some commodities, e.g. beef, on the domestic market while the rise in import prices was an additional important factor. -3- As a consequence consumer prices are estimated to have risen by some 11.4 percent in 1971 and 13.5 percent during 1972, as compared with a 7.5 percent average increase for the 1967-70 period. Infla- tionary predsures have continued to accelerate during the first few months of this year. The authorities are aware of the danger this presents and the fiscal measures referred to in paragraph 5 should bring about some improvement. Further action is also being under- taken, such as the issuance of special bonds to reduce excess liquidity resulting from the boom in coffee exports. Another anti- inflationary measure placed into effect was a substantial liber- alization of imports. 8. The public external debt repayable in foreign currency amounted to US$2.2 billion at the end of 1972, or US$1.4 binllion excluding undisbursed commitments. Service on this debt is not high (14.8 percent of foreign exchange earnings in 1972), relative to many other developing countries. Since exports have risen at the same rate as debt service in recent years, there has been no increase in the debt service ratio, at a time when economic growth has accelerated. The debt service ratio may be expected to rise to about 20-21 percent in 1977-78 as a result of greater capital inflows assc-_ated with a sustained high growth rate. Should economic growth contaaue at a rapid pace which appears feasible, and should that growth be accompanied by a further strong expansion of non-coffee exports and sound economic and financial policies, Colombia should find it possible to secure the large amounts of external capital it needs and to manage servicing the indebtedness that this volume of borrowing would generate. Some of this capital will have tobe provided to finance local costs if foreign assistance is to make a significant contribution to projects of high priority such as those in the social sectors, with a low foreign exchange component. PART II: BANK GROUP OPERATIONS IN COLOMBIA 9. The proposed loan --the fifty-fourth to be made to Colombia-- would bring the total amount of Bank loans to Colombia to US$l1,048.9 million (net of cancellations). Of the foregoing amount, DS$77145 mil'lion is now held by the Bank. IDA has made one credit of US$1965 million for highways in Colombia in 1961. 10. Disbursements have been comrpleted on 29 loans and the one IDA credit. IFC has made effective investmrents and under-writing commitments in 18 enterprises in Colombia, cotalling about US$19.7 million of which IFC now holds US$9.7 million. Annex II contains a summary statement of Bank loans, the IDA credit, and IFC investments as of May 31, 1973 and notes on the execution of the 23 on-goiLng'pojects. 11. Bank d-isbursements as a percentage of total disburse- ments by official lenders to Colombia are expected to peak at about 40 percent in 1973-74 and then decline. The Bank's share of total debt service is projectedtopeak at about 31 percent in 1974-75, and the Bank group share of total debt disbursed and outstanding can be expected to fall from 28 percent in 1972 to 24 percent in 1978. 12. A Bank loan is in an advanced stage of prepaiatiofi for a sixth railway project. OVer the past few years, BankC lending in Colombia ha.s become increasingly diVersified a-s activities have expanded and as the Bank assumed greater - responsibilities as head of the Consultative Group for Colombia. Increasingly, projects involving Bank loans in agriculture, industry and the social sectors were developed. While so far our efforts in these sectors have been mainly production-oriented in support of economic growth and related export expansion objectives, we are now seeking to develop projects in such a way as to combine increasing output with maximum benefits in terms of employment and improving the inccme of the poor, particularly in ru.ral areas. Such a flurther shift in emphasis of Bank lending, however, will require a new approach in many instances and hence project preparation and appraisal are likely to be more time-consuming. Also, at least in the initial stage, such projects are likely to be of much smaller size than the traditional large infrastructure projects. 13. We expect over the next several years to make an increasing contribution to the agricultural and industrial sectors, with perhaps as much as 60 percent of our total lending, in those two oectors. 14. The other major focus of our activities would be in such social sectors as education and water supplv, as well as in other project areas such as the traditional sectors of Bank lending --electric power and trniisportation-- in cases where support can be given to strengthening institutional- 6veIopment. In addition the Bank would continue to cooperate with the Government in its efforts to improve the fiscal system and in developing institutions capable of increasing public savings. 15. The operations of external lenders in Colcmbia are shown in Annex I, page 3. While IBRD, IDB, and AID provided about four- fifths of total external financing to Colombia in the 1961-71 period, their share decreased tSo 53 percent in 1972. This results from unusually low IBRD lending in that year as well as from recent medium and long-term borrowing Abroad from commercial banks and bond issues on an unusually large scale. The IDB has assisted projects in law-cost housing, university education, agrarian reform, ports, electric power, water supply, transportation, and industry. AID has shifted the emphasis of its lending in recent years from program to sector loans, particularly for education, urban develop- ment, and agriculture. PART III. EDUCATION IN COLOMBIA 16. Colombia has a rapidly developing educational system and has achieved a literacy rate of 74 percent which compares favorably with other countries in Latin America. Almost 5 per- cent of the GD? is devoted to education, about the same as in neighboring countries. Enrollment of the respective age groups in 1970 was 70 percent for primary schools, 19 percent for secondary schools and 3.5 percent for universities. Private schools and institutions play an important role in secondary and higher education, accountirng for 54 percent and 44 percent respectively of enrollment. 17. While the overall ac omplishments of the education system are good, there are serious flaws. Primary education starts at ,age seven and lasts five years buit is hampered by a shortage of schools many of which have orly one, two or three grades. About 30 percent of primary school students are over-age students who either started late or are among the large number of repeaters. The drop-out rate is high: of each 100 students beginning primary school in 1964, only 22 graduated five years later. 18. In secondary education, the academic type of school aiming at university entrance accounts for 70 percent of enrollment, exceeding by far the economic need for this type of training. Many of the private secondary schools are overcrowded and can not afford the equipment investmentF needed for vocational schooling. The academic course consists of six years divided into a lower cycle of four years and an upper cycle of two years, leading to the "Bachillerato" degree. The attrition rate is high, about 40 percent in the first cycle and 30 percent in the second cycle. Primary teacher training accounts for 9 percent of secondary education enrollment and various vocational options for 21 percent. The Bank- financed type of "diversified secondary" schools described below are gradually assuming an increasingly important role but their capacity is still far from meeting requirements for trained manpower. -6- 19. In 1970, total enrollment in universities and post- secondary institutions was 78,000 or 3.5 percent of the 19-24 age group. The uncontrolled rapid expansion of university education has resulted in a proliferation of institutions and hi drop- out rates. Of those who entered the university, only 5 per- cent graduated, and yet an over-supply of uni-versity graduates in various fields, including engineering, already exists. In recent year-s, waves of student strikes have had the effect of keeping higher education in turmc.L', thereby absorbing much of the energies of the highei officials of the Ministry of Education. 20. In the area of non-formal training, SENA, the National Apprenticeship Service, has assumed a dominant position. SENA's main function is to provide speciiic technical training -- most of/it in its own training institutions-- for workers at various levels. Between 1958 and 1970, SENA trained 2,000 instructors and over 700,000 workers in about 25,o0o courses. The activities of SENA are financed by an industrial payroll. tax of 2 percent which gives SENA a strong financial position. Accion Cultural Popular (ACPO) is a non-profit institution whose main goal is basic education of the masses, especially the adult rural population, by radio. In 1971 the number of listeners was 150,000 with fifty thousand hours of transmission time. The Ministry of Education, through its Division of Adult Education, admdnisters literacy and general education programs for adults thxiough 400 centers and 2,500 teachers. 21. Thers has been an improvement in the qualifications of teachers, mainly in the primary schools, but the proportion of teachers which can be considered to be adequately qualified remains low --56 percent in primary schools and 33 percent. in secondary schools. Primary school teachers are trained in normal schools which pursue the academic program during the first four-year cycle followed by a two-year professional cycle. Secondary teachers are trained in the pedagogic faculties of the universities in four- year courses. Existing facilities for training of teachers in vocational subjects are insufficient to meet the needs generated by the proposed Third Education Project which therefore includes a component for technical teacher training. 22. The rural areasT backwardness is becoming an increasing concern of the Government. In these areas public services, particularly for education, health and transportation, are poor. The education level of the rural population is very low; 40 percent are illiterate as against 16 percent in the urban areas. Only 3 percent of the rural primary school entrants complete the five-grade course, as ccmpared with 45 percent in urban schools. Secondary education and vocational training facilities are virtually non-existent in the countryside. -7- The Government has initiated a program for establishing rural development centers and is increasing its input for general rur-l education; this effort is being supported by USAID. The proposed Bank project also includes components intended to promote rural education, mainly at the secondary level. 23. To improve management capability, the Ministry of Education has decentralized same oL its functions by establishing a number of semi-autonomous agencies and expanding the functions of existing agencies. Nevertheless, the Ministry is still too burdened with administrative work, while policr -making and planning is receiving insufficient attention. A draft.eneral Education Law, presently awaiting action by the Congress, proposes centralization of policy making in the Ministry and delegation of administration to a new semi-autonomous Institute for Education and Teachers' Services (INCAES). The UNDP will provide technical assistance to help reorganize the structure of education administration and to strengthen it. 24. Between 1965 and 1970, the proportion of the national Government's budget spent on education remained at about 15 per- cent but because of the increase of the budget this constituted a rapidly increasing share of GDP. The Central Government finances only 55 percent of total education expenditures; departments and municipalities 22 percent, and the remaining 23 percent comes from private sources. 25. The Government gives high priority to a further implemen- tation of the secondary education reform program and has defined the broad outline for the development of other levels of education. The key to education development is the system of diversified secondary education. Through the proposed project, the diversified curriculum will be extended to existing secoi__ary schools and new schools in the rural areas. The philosophy of diversified secondary education would also exercise its influence downwards through an integration of the present five-year primary cycle with the lower four-year cycle of diversified secondary education into nine years of basic education. An integrated nine-year cycle is conceived to be the minimum schooling needed to enter and compete successfully in the labor market and would become compulsory in the long run. Upwards there would be an influence on higher education as the more practically oriented technological institutes are strengthened as an alternative to a further overexpansion of the academically oriented programs of the universities. The Government recognizes that its objectives are essentially long term in character and that there is a need to work out a strategy for education develop- ment indicating timing, priorities and means for the i.nplementation of its objectives in view of manpower and financial constraints. -8- Meanwhile, projections show that the expenditure of 5.7 percent of GDP in 1980 (as compared with 4.8 percent of GDP in 1970) would make it possible to offer primary education to all 7-11 year olds and secondary education to 33 percent of the 12-18 age group, without compromising the improvement of teachers? qualifications and salaries. PART IV: THE PROJBCT 26. The main purpose of Bank lending for education in Colombia hag' been to assist the Government in introducing and spreading the diversified system of secondary education in order better to meet the needs of the economy for trained manpower, while at the same time easing pressures on the universities. The first Bank loans of US$7.6 million (1968) and US$6.6 million (1970) were for the equipping and construction of 19 diversified secondary schools in the larger cities wThich when completed later this year will enroll 78,000 students. The physical execution of the first two projects has been slower than expected but the main bottleneck, the procure- ment of equipment and furniture, is being 6vercome through strength- ening the implementation agency's procurement capacity. The new diversified curriculum is being implemented properly and a number of innovations have been introduced successfully. As a result, the diversified secondary schools are having an impact on the whole education system. This impact would be further broadened in the proposed Third Education Project with the establishment of 24 common facilities centers, providing workshops and laboratories for an additional 109,000 secondary students mainly in medium-size cities and of 13 rural comprehensive secondary schools enrolling 7,000 students. lhe latter institutions will give opportiunities forilower--se6ondary- education which now are lacking in rural areas and be the basis for an education extension service needed to support rural development. 27. The third project was appraised in November 1972 and loan negotiations were held in May 1973. The Borrower's delegation was led by the Deputy Minister of Education, Dr. Guillermo Alberto Gonzalez. A Loan and Project Summary is attached as Annex III to this report and an appraisal report (132a-CO) is being circulated separately to the Executive Directors. Description and Purpose of the Project 28. The project consists of (a) construction and equipping of 24 common facilities centers; (b) construction and equipping of 13 rural comprehensive schools; (c) a special program for the training of technical teachers; (d) an extension of the rural development center in "Las Gaviotas" i-n the Eastern Plains; (e) technical assistance for a sector survey and sector studies. The 24 common facilities centers would provide the necessary workshops and laboratories to enable a total of 91 existing secondary schools to adopt a diversified curriculum combining practical and academic subjects. These schools are in general too small to make separate provision of such facilities economic. -9- 29. TIhe 13 lower-cycle secondary schools (grades 6-9) in rural areas would have a total enrollment of 7,000 students in one shift, in- cludinig 1,700 boai,ding places. These schools would have a curriculum similar to that of other diversified secondary schools but with fewer options and an orientation towards agricultural activities. The schools would provide a broad introduction to practical skills as a basis for SENA-courses, agricultural training programs and on-the-job training. The rural secondary schools will form part of a government program for the establishment of 39 such schools. Tho remaining 26 need only an extension of facilities expected to be financed by AID. The latter is also assisting the completion to all five grades of the primary schools in the areas involved. These primary schools will become the feeder schools for the comprehensive schools. A third element of the project is a program for the training of 2,000 teachers in industrial and other practical subjects over the period 1974-77. This program would provide the technical teachers for the proposed common facilities centers and rural comprehensive schools. 30. The Project would also provide for the completion of the existing pilot rural development center in Las Gaviotas in Vichada Department in the Eastern Plains; it would establish three affili- ated centers in nearby areas. In addition to agricultural extension services arid training, each center is intended to provide primany education, health services, general supply availabilities and a mechanical workshop. Las Gaviotas is supported by government and private organizations. 31. Thus, the proposed project is designed -to ac1.ieve several important results. First, it will reinforce the ongoing program of reform in secondary educiation, raising substantially the percentage of secondary students receiving diversified secondary education and thus reduce the proportion of students in the academically oriented secondary schools from 70 percent to 55 percent. Secondly, the Bank will became associated with the field of rurnal education by supporting the Government?s program to extend secondary diversified education to about 21,000 students in the countryside. Thirdly, the prcposed project will assist a successful pilot center for rural development services which later could be expanded in the vast areas of the Eastern Plains. Finally, the proposed project is expected to support important institutional improvements in the field of education administration and planning. Technical Assistance and Special Studies 32. Successful implementation of the proposed project will require specialists in various fields where expertise at present available to the Government is lacking or inadequate. Such assistance will be required to reorganize education administration, st,rengthen - 10 - education planning, organize a vocational education supervisory service, develop and improve teaching in industrial and agricultural subjects and develop curricula and syllabi for the technical teaching training program. The major part of the technical assistance in question will be provided by the UNDP and has been authorized in its 1972-76 Country Program; the necessary detailed agreements have been made. 33. Provision would be made under the proposed project, for an initial period,for ACP0 (see paragraph 20 above) to operate an education extension service and mobile community development units based in the rural comprehensive schools and train the personnel to carry on these services. A contract has been negotiated with ACPO and the Bank would finance 80 percent of the cost. In addition the project would finance a sector survey to evaluate the past development of the education system and to design policies and priorities for further development. Studies would also be carried out on manpower needs, experience with the Bank financed secondary schools and on the local production of school equiLpment and learning materials. Cost and Financing of the Project 340 The total cost of the project, excluding interest during construction, is estimated at US$33.5 million, and its foreign exchange component at US$16.9 million, (for details see Annex III, Loan and Project Summ2,i,rS) The proposed Bank loan of US$21.2 million would finarnce the estimated foreign exchange component, andUS$2 million of furniture and equipment expected to be ordered in Colombia after international ccmpetitive bidding. In addition, the loan would finance (a) US$0.5 million representing the local cost of technical assistance which ACPO would provide, and (b) US$0.2 million of the local cost of civi'l works for the rural development services centers (in addition to the estimate-d foreign exchange cost of' those centers). Finally, the loan would financ~e US$1.6 million of interest and other charges on the Bank loan during construction. The remaining local cost of US$13.9 million equivalent would be provided by the Government. Management Arrangements 35. For the implementation of the first two-Bank financed education projects, a Project Unit was established in ICCE, the school construction unit of the Ministry of National Education. Given the satisfactory performance of ICCE (Inshituto Colombiano de Construc(,iones Escolares), it is proposed that the agency also be charged with the implementation of the third project. The draft loan Agreement provides that new appointments of staff in charge of construction and pedagogics be made in consultation with the Bank; their salaries and other operational expenditures for project admin- istration are included under the project. Procurement and Disbursement 36. All contracts for the supply of equipment and furniture and for the const,ruction of schools would be awarded under interna- tional competitive bidding. F4uipment and furniture items would be grouped to form sizable bid. packages for bulk purchasing. Except for equipment, it is unlikely that many foreign bidders would be interested, since Colombia has a well-developed furniture industry and a large, highly competitive construction industry which is expectedtowin all contracts. Local bidders for goods would be granted a margin of preference of 15 percent or the applicable customs duties, whichever is lower. Colombia is a member of the Latin American Free Trade Association (LA?TA) and of the Andean Pact. Preferential treatment under these agreements, however, does not apply in this case, since the Ministry of Education is exempt from duties on imported equipment. 37. The proposed loan would be disbursed according to the schedule in Annex III, i.e., in aboitt three and a half years. PART V: LEGAL INSTRUMNTS AND AUTHORITY 38. The draft Loan Agreement between the Bank and the Republic of Colombia, as well as the Report of the Cormaittee provided for in Article III, Section 4 (iii), of the Articles of Agreement and the text of a draft Resolution approving the proposed loan, are being distributed to the Executive Directors separately. 39. The draft Agreements contain provisions to reflect the various arrangements described in Part TV above, and contain the provisions custaaary for education projects. 40. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI: RECOMNDATION 141. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments ANNEX I Page I 6/22/73 COUNTRY DATA - COLCIMEA AREA POPULATION DENSITY 2 1,139,000 km2 23.0 million (mid-1972) 2Q , per km, Rate of Growth: 3.27. (from 1965 to 1970) 84 per km2 of land in farms POPULATION CHARACTERISTICS (1968) Crude Birth Rate (per 1,000) 44 HiEATH (1967) Crude Death Rate (per 1,000) 10 Population per physician 2,230 Infant Mortality (per 1,000 live births) 70 Population per hospital bed 420 INCOME DISTRIBUTIONL/ (1970) DISTRIBUTION OF LAND OWNERSHI02/ 70 of national income, lowest quintile 3.5 % owned by top 10% of owners highest quintile 59.14 7 owned by smallest 10% of owners ACCESS TO PIPED WATER (1967) ACCESS TO ELECTRICITY (1968) % of population - urban 88 7 of population - urban 70 - rural 46 - rural 7 NUTRITION (1970) EDUCATION (1968) Calorie intake as % of requirements 89 Adult literacy rate %7"' Per capita protein intake 55 Primary school enrollment % 94 GNP PER CAPITA in 1970OJ4 US$370 GROSS NATIONAL PRODUCT IN 1970 ANNUAL RATE OF GROWTH (%, constant price&5 US$ Min. 7. 1960-65 1965-70 1970 GNP at Market Prices 6,865 100.0 4.1 5.1 6.3 Gross Domestic Investment 1,521 22.2 3.0 5.8 15.2 Gross National Saving 1,228 17.9 1.3 3.9 -3.5 Current Account Balance -293 -4.3 Exporto of Goods, NFS 1,000 14.6 1.7 4.8 0.9 Imports of Goodo, NFS 1,149 16.7 5.0 5.5 17.1 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1970 Value Added Ladbor ForcdW V.A. Per Worker uS$ M1n. - Mln. % US$ 7. Agriculture 1,885 29.1 2,349 40.7 802 71 Industry 1,703 26.2 1,136 19.7 1,499 133 Services 2,900 44.7 2,279 39.5 1,272 113 Unallocated . a ... Total/Average 6,488 100.0 5,764 100.0 1,126 100 GOVERNMENT FINANCE General Government2/ Central Government (Col Mln. 7% of GDP (Cl .$ Mln.) % of GDP 972 .l972 1969-72 1972 1972 1969-72 Current Raceipt9 39,282 21.2 21.6 16,085 8.7 9.0 Current Expenditure 26,393 14.2 14.0 11,397 6.1 6.3 Current Surplus Deficit (-) 12,889 7.0 I.6 4,,688 2.5 2.7 Capital Expenditures 22,853 12.3 11.8 8,362 4.5 4.0 External Assistance (net) 5,591 3.0 2.2 3,291 1.8 1.2 1/ Estimate of XLA based on 1970 household survey of National Statistical Department (DANE). g/ Data not available. Results of the 1970 agcultural census are still incomplete. 3/ The Per Capita GNP estimate is at 1971 cerrent U.S. dollars.-rJ.. edlby the same conversion technique as the 1973 Wczld Atlas. All other conversions to dollars in this table are at the average exchange rate prevailing during the period covered, 4/ Total labor force; unemployed are allocated to sector of theiL normal occupation. J Consolidated account of national governrtant, national decentralized entities, departments, municipalities, and municipal enterprises. not available no. applicable ANNEX I Page 2 COUNTRY DATA - COLOMBIA March Maich MONEY, CREDIT and PRICES 1965 1970 1971 1972 1971 1972 (Million Col$ outstanding end period) Money and Quasi Money6/ 13,360 30,432 34,729 43,571 Bank Credit to Public Sector-;7. 6,818 8,139 8,621 Bank. Credit to Private Sector-/ .. 25,60o 30,3914 33,105 (Percentages or Index Numbers) Money and Quasi Money as % of GD} 22.0 23.3 22.9 23. . .. General Price Index (1963 = 100)_/ 126.0 194.8 217.8 248.0 237.6 280b.5 Annual percentage changes in: General Price Index . 6.7 6.9 13.9 . b.1 Bank credit to Public Sector . 3.1 19.4 5.9 Bank credit to Private Sector . 22.1 18.7 6.9 BALANCE OF PAYMENTS MERCMANDISE EXPORTS (AVERAGE l969-72)1 5/ 1969 1970 1971 US$ Mln % (Millions US$) Exports of Goods, NFS 870 1,000 984 Coffee 411.3 5.9 Imports of Goods, NFS 939 1149 1,148 Petroleum 50.2 6.£ Resource Gap (deficit -) -69 -149 -1TM Cotton 38,4 5.2 Cattle and Beef 34.5 4.7 Interest Payments (net)-' Textiles 27.8 3.8 Workers' Remittances Bananas 18,9 2.6 Other Factor Payments (net) -144 -180 -185 Sugar 20.2 2.7 Net Transfers / 38 36 25 All other Commodities 134.3 18.3 Balance on Current Account -175 -293 324 Total 735.6 0 Direct Foreign Investments 50 102 92 EXTERNAL DEBT. DECEMBER 31, 1972 Net MLT Borrowing Disbursements (199) (233) (202) US$ Mln Amortization j67j -4)(87) Subtotal 132 , 15 Public Debt, ncl guaranteed 1,490.0 Capital Grants . .. .. Non-Guaranteed Private Debt 400.5 Other Capital (net .. Total outstanding & Disbursed 1, d90.5 Other items n.i.e. i -48 -68 -l25 Increase in Reserves (+) 55F -7- 8 DEBT SERVICE RATIO for 19721-/ Gross Reserves (end year)23/ 257 257 265 % Net Reserves (end year) 97 152 170 11 Public Debt, incl. guaranteed 14.8 RATF OF EXCHANGF-1. Non-Guaranteed Private Debt 9.6 Through - 1972 Total outstanding & Disbursed 21 US$i.00 Col$22.03 IBRD/IDA LENDING, (MIY 31 1973) Million US$): Col$1.00 US$.0438 1 May 1973 IBRf-d IDA usC$1.00- Col$ 23.47 Outstanding & Disbursed 477.9 23.2 Col$1.00 - US$0.01426 Undisbursed .&22.3.L. - Outstanding incl. Undisbursed 777.2 .2 f/ Includes currency, sight deposits, time and savings deposits, and certificates and bonds. Excludes deposits in foreign exchange. .7j/ Central bank and commercial bank credit (net balances at year end) to national government, departments, municipalities and official entities. t/ Central bank and commercial bank credit (net balances at year end0 to development agencies and the private sector. 9/ National consumer price index for blue collar workers. 10/ Included in other factor payments (net). 11/ TotJ. net unrequited tranafers. 12/ Includes SDR allocation of US$21 million in 1970 and US$17 million in 1971. 13/ Central bank reserves. 1Ti/ Certificate selling rate of exchange. i1/ Registrations. 5/ Ratio of debt service to exports of goods and non-factor services. 71/ Includes third parties. ff / Tncludee exchange adjustment. not available not applicable ANNEX I Page 3 COLOMBIA - COTMENTS OBTAIED FROM EXTENAL FINANCING SOURCES (1963-72) (1ilions of! US Dollars) Averagev 1970 171197 Auiual Amnt ( Amount (%) Amount (%) Amount (%) US AID 61 (30) 72 (23) 82 (21) 89 (25) US EXIKAK 14 (7) 12 (4) 3 (1) 4 (i) 1BRD 50 (25) 109 (36) 153 (40) 4/ (13) IDB 44 (22) 49 (i6) 85 (22) 50 (14) Subtotal 242 187 Belgiwna 2 ( ) 2 (1) - ) Fance 5 (2) 7 (2) 1 (-) Germany 16 (5) 12 (3) 10 (3) Great Britain 8 (3) 2 (i ) 52 (15) Italy 3 (1) 10 (2) ( ) Japan 4 (1) 1 (-) 14 (4) 3-dedenb b 20 (7) 4 (l) 12 (3) SwitzerlandJ 3 (I) (-) (-) USA - excluding AID and EXITBANK 4 (1) 12 (3) 59 (17) Others 1 (- 1 18 Suibtotal 33 (16) 66 (21 62 (i6) 166 ( GRAND TOTAL 202 (100) 308 (100) 385 (100) 353 (100) a/ Amounte Oor most bilateral financing not available0 b/ Not member of Consultative Group. j;/ Includes US$30 ntLion of IBRD loan No. 842-CO. Source: Colombian National Planning Department. ANNEX II Page 1 cf 7 THE STATUS OF BAN¸ .3ROUP OPEi-iATIONS IN COLOMiBIA A.. STkATEMENT COF BAiLK LOAN!S AND I-DA CGEDITS (As of Play 31, 1972) US$ Yillion Amou1 J (less cancellationsj Number Year Borrower Purpose Bank IDA Undisbursed Fully disbursed loans and credits -- 448.6 19.5 -- 502 1967 Instituto Colombiano de la fteforma Agraria Irrigation 9.0 2.7 534 1968 ianco de la Republica Industry 12.5 0.3 536 1966 Empresa de Acueducto y Alcantarillado de Bogota' Water Supply 14.0 1.0 537 1968 Empresa de Energla Electrica de Bogcta' Power 18.o 1.9 550 1968 Colombia Roads 17.2 0.9 552 1968 Colombia Education 7.6 1.9 575 1968 interconexion Electrica, S.A. Power 18.o 5.5 624 1969 Colombia Agriculture 17.0 12.9 625 1969 Banco de la Rep'ublica Industry 25.0 2.3 651 1969 Colombia Agricultuire 18.3 14.2 679 1970 Colombia Education 6.5 4.1 68o 1970 Colombia Roads 32.0 12.5 6t1 1970 Interconexion Electrica, S.A. Power 52.3 32.2 6,t2 1970 Empresas Municipales de Cali dater Supply 18.5 14.7 73& 1971 Empresas iuIunicipales de Palmira Nater Supply 2.0 1.7 739 1971 Colombia Agriculture 8.1 6.6 740 1971 Empresa Nacional de Tele- comunicaciones Communications 15.0 11 .8 741 1971 Empresa de Acueducto y Alcan- tarillado de Bogota 4ater Supply 88,O 81.3 742 19,71 Banco de la Republica Industry 40.0 12.3 b42 1972 Colombia Industry 30.0 10.0 849 1972 Instituto Colombiano de la Reforma Agraria Irrigation 5.0 4.9 860 1972 Instituto de Fomento Mlunicipal ,.iater Supply 9.1 9.1 87)4 1973 Empresas PThblicas de iMedellin Power 56.0 54.5 Total 967.7 19.5 299.3 of which has been repaid 190.5 0.3 Total now outstanding 777.2 19.2 Amount sold 20.2 of which has been repaid 17.5 2.7 Total now held by Bank and IDA 774.5 19.2 Total undisbursed 299.3 299.3 NOTE: A loan of US$60 Million to Banco de la Republica was approved and signed subsequent to the above date: it is not yet effective. ANNEX II Page 2 of 7 i. SaATEMhNT Oi IFC rNVF1EST2NTS (As of May 31 , 1973) Year Obligor Type of Amount in US$ Million Business Loan Equity Total 1959 L4ininas del Caribe, S.A. Fiber-board 0.50 - 0.50 1960-65 Industrias Alimenticias Noel, S.A. Food products 1 .98 0.08 2.O6 1961 Envases Colombianos, S.A. Metal cans 0.70 - 0.70 196' -68 Morfeo-Productos para el Hogar, S.A. Home furniturre 0.08 0.09 0.17 1961 ElectLromanufacturas, S.A. Electrical Equipment 0.5<0 - 0o50 1962 Corporacion Financiera Development ¢olombiana Financing - 2.02 2.02 1962-63 Corporaci6n Financiera Development Nacionajl Financing - 2.04 2.04 1963-67- CompaPila Colombiana de 65-69 Tejidos, S.A. Textiles 1.86 0.27 2.13 1 964-70 Corporacion Financiera de Development Caldas Einancing - O.81 0.81 1964-68 Forjas de Colombia, S.A. Steel forging - 1.27 1.27 1966 Almacenes Generales de Deposito Santa Fe, S.A. WLarehousing 1 .00 - 1.00 1966 Industria Ganadera Colom- biana, S.A. Livestock 1.00 0.58 ..58 1967-70 ENKA de Colombia, S.A. Textiles 1.00 1.65 2.65 1969 Compafiia de Desarrollo de Ho-eles y Turismo, Ltda. Hocurismo Tourism - 0.01 0.01 1969 Corporaci6n Financiera del Development Norte Financing - 0.45 0.45 1969 Corporacion Financiera del Development Valle Financing - 0.43 0043 1970 Promotora de Hoteles de Turismo Medellin, S.A. Tourism 0.23 0.11 0.34 1970 Pro-Hoteles, S.A. Tourism 0o80 0.22 1.02 Total gross coimnitments 9.65 10.03 19.65 Less cancellations, terminations, repayments and sales 8.32 1.68 10.00 Total commitments now held by IFC 1.33 8,35 9,68 Total undisbursed - - - NOTE: Two equity investments,totalling Col$22.5 million, were approved subsequent to the above date, but are not yet effective. ANNEX IE Page 3 of 7 C. PROJECTS IN EXECUTIONI/ aumarized below is the current status of all loans signed but not fully disbursed: Loan 502 - Irrigation (Atlantico I), US$9 million, June 1967. Implem-entation of the project financed under loan 502-CO remains two years behind schedule due to difficulties in the selection of areas suitable for irrigation and technical probiems in the construction of major irrigation and drainage works. As a consequence of this and poor project management, agricultural development is still limited to a small area and mainly restricted to dry farming. However, the few agricultural results obtained on a small number of farms are very promising. To complete the scheduled works, a second extension of the closing date by one year beyond the revised closing date of December 31, 1973 may become necessary. Loan 534 - Development Finance Comparies II, US$12.5 million, May 1968. This loar is fully committed for approved sub-projects, and the undisbursed balance of US$0.3 million is expected to be disbursed shortly. Loan 536 - Water Supply (Bogota I), US$b4 million, June 1968. The major part of the First Bogota Project is in operation. Water service in mosti areas writh poor service is rapdily improving The operating performance of the Empresas is good and the remaining works should be completed by the end of 1973, The Closing Date has been prolonged to Jurne 30, 1974 to permit completion of the project and payment to suppliers. Loan 537 - Electric Power (Bogota), US$18 million, June 1968. The project financed by this loan is substantially completed. Lower than anticipated participation of joint financing agencies together with foreign cost increases due to the devaluation of the U.S. dollar led to a re-allocation of funds in mid-1972 among the loan categories. Delays in the definition of the distribution expansions have caused late bidding for distribution equipment. The Closing Date has been extended to the end of 1973 to allow completion of the project. / These notes are designed to inform the Excecutive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read fn this sense, and with the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. ANEX II Pe of 7 Loan 550 - Highways V, US$17.2 million, July 1968. There have been substantial cost overruns and delays in the civil works financed under this loan. The project is about 90 percent complete; the present closing date of June 30, 1973, already postponed for one year from the original, will be postponed for one more year. Loan 552 - ducation I, US$7.6 million, July 1968. School construction is virtually completed. All furniture and 75 percent of the equipment has been delivered to the schools and procurement of the remainder is under way. However, procure- ment of furniture and equipment is considerably behind schedule and this is reflected in slower than expected disbursement. Improvement is expected now that the procurement unit has been strengthened. Loan 575 - Electric Power (Interconnection), US$18 million, December 1968. The project as originally described in the Loan Agreement started operation in November 1971. Mainly due to the fact that the joint financing arranganents raised more funds than expected during the appraisal, the 230 KV line Cuatape-Barrancabermeja, which will incorporate the northeastern region into the inter- comected system., was included in the loan. Completion of the extension is scheduled by mid-1974. Loan 624 - Agricultural Credit II, US$17 million., June 1969, The Project continues to be far behind schedule. However, recent changes in Project management and organization and an increase in technical personnel provided the basis of the Bank's approval of Colombia's request to enlarge the Project area and include lending to small farmers under the Project. The Project has now begun to move fairly well. Loan 625 - Development Finance Companies III, US$25 million, June 3.969, US$24.9 million of this loan is comnitted for approved sub-projects. To pemrit completion of disbursements the Bank has agreed to extend the original Closing Date from September 30, 1972, to December 31, 1973e Loan 651 - Livestock II, US$18.3 million, December 1969, This Project moved slowly from effectiveness in March 1971 until mid-1972. In October 1972, the Bank and Caja agreed on certain modifications to the Project, including appointnent of one Project General Director with overall responsibility for the Project, extension of the Project area and greater flexibility in regard to tems of sub-lending. At the same time it was agreed that increased sub-lending should be directed towari\s small holders. These changes have resulted in all increase in the rate of sub-lending under the Project and it is now expected that the Loan will be fully disbursed by mid-1976. ANNEX II Page 5 of 7 Loan 679 - Education II, US$6.5 million, June 1970. All major civil works for five of the nine project schools had been completed at the time of the last supervision mission in December 1972 and the remaining four were expected to be completed by mid- 1973. There has been scme delay in project execution owing to slow procurement of furniture and equipment. Improvement- is expected now that the procurement unit has been strengthened. The Closing Date was recently postponed by one year to June 30, 197)4. Loan 680 - Highways VIT, US$32 milLon, June 1970. In general, there have been substantial cost increases and serious delays on the civil works. The most serious problem confronting the project relates to the financial difficulties of the Colombian contracting industry, leading to a temporary halt in construction on several groups of the Paving Prograr. In this situation, where some of Colombia's major contracting firms were facing bankruptcy, the Government has recently taken drastic steps to resuscitate operations. Estimated cost increases for ci.l works now amount to about 30 percent of original contract amounts, while consultant services will be about double the original amount. Civil works are nearly 40 percent completed, but are about one year behind schedule. The situation is more satisfactory on the other two elements of the project, the construction of the Barranquilla bridge and of the El Pailon-Buenaventura road. Loan 681 - Electric Power (Chivor I), US$52.3 million, June 1970. Progress of the main civil works contract is generally satisfactory and in agreement with the contractual dates. Bidding for the rest of the civil works financed by the Bank is proceeding as planned. Higher than expected prices for equipment, due partly to the revaluation of various European currencies and the yen, together with changes in the access road program, have substantially increased the total cost of the project. Recently we have received a revised cost estimate and as of March 1973 total project costs are estimated at US$140 million, that is, about US$25 million more than estimated in the Appraisal Report. ISA plans to finance the cost overruns with unallocated funds of the IBRD and the IDB loan and with suppliers credit and a direct loan from a group of foreign banks. The Bank has reassessed the economic and financial viability of the project in view of the cost overruns and found that Chivor I remains the best alternative. Loan 682 - Cali Water Sapply and Sewerage, US$18.5 million, June 1970. The project was delayed for about one year due mainly to a change in the Cali Municipal Government that occurred after theloan was signed. The Board of EMCALI has appointed a new manager and taken remedial actions suggested by the Banlc in order to improve EKCALI's acninistrative capacity and f inancial performance. ANNEX II Page 6 of 7 Loan 738 - Palmira Water Supply and Sewerage, US$2 million, May 1971. Construction on this project was delayed due to slow project design and administrative problems with the consultants and the Borrower. Lower than anticipated sales of water and a shortfall in projected local borrowing has resulted in an unsatisfactory financial performance of the Borrower. As a consequence the Bank has proposed to Empresas Publicas Municipales the rephasing of the project to reflect the above inentioned financial constraints. Loan 739 - Land Settlenent Caqueta I, US$8.1 million, May 1971. During its first year, the project has achieved about 75 percent of its appraisal objectives. Sablending is being delayed by administrative procedures associated with cattle purchase and the provision of technical assistance. Arrangements have been made to improve the organization, and there are prospects that 1973 operations will be on target. The benefits from the project are likely to be higher than appraisal projections while the cost estimates are likely to be about the same as envisaged at apprai.sal. Loan 740 - Telecommunications II, US$15 million, May 1971. The recent currency revaluations have caused an estimated cost overrun of US$2-4 million. The Bank and the Borrower are considering various alternatives of financing this overrun. Loan 741 - Water Supply (Bogota II), US$88 million, May 1971. The principal civil works component of this project, the Chingaza tunnel construction, is behind schedule. The Borrower is reviewing the latest measures proposed by the contractors to improve performance. Recent information shows that revenue from water sales is lower than forecast. The Bank has suggested actions to assure that this short- fall will not adversely affect the financial performance of the Borrower which has been satisfactory hitherto. Loan 742 - Development Finance Companies IV, US$40 million, May 1971. Only US$0.7 million of this loan remain uncammitted. Disbursements are ahead of schedule. Loan 842 - Developrment Program and Expansion Project, US$60 million, June 1972. The second tranche (US$30 million) of this loan was cancelled because coffee prices exceeded the upper limit set in the Loan Agreement for release of the second tranche. ANNEX II Page 7 of 7 Loan 849 - Irrigation (Atlantico II), US$5 million, June 1972. This loan became effective on November 14., 1972. Loan 860 - Medium-Size Cities Water Supply and Sewerage Project, US$9.1 million, A October 1972. This loan became effective on March. 7, 1973. The Borrower has experienced difficulties in the initial phase of the project; however, the recent stationing of a Bank water supply specialist in Bogota is helping solve these problems. Construction of several subprojects has recently began. Loan 874 - Guatape II Hydroelectric Powrer Project, US$56 million, January 1973. Construction of the Santa Rita dam (2nd stage) has started. ANNEX III Page 1 COLONBIA LOAN AND PROJECT SUMMARY Borrower: The Republic of Colombia Amount: The equivalent in various currencies of US$21.2 million. Terms: Repayment in 30 years, including 10 years of grace at interest of 7-1/4 percent per annum. Project Description: The project consists of: (a) 24 common facilities centers; (b) 13 rural comprehensive schools; (c) a technical teacher training program; (d) extension of a rural development services center, (e) assistance for a sector survey and for sector studies. Estimated Cost: The following table summarizes the estimated project costs: US$ Million Local Foreign Total Common Facilities Centers 9.9 9.8 19.7 Rural Comprehensive Schools 2.9 2.6 5.5 Technical Teacher Training Program 0.1 0.3 0.4 Rural Development Services' Centers 0.4 0.3 0.7 Sector Studies 0.1 0.4 0.5 Project Administration 0.2 0.0 0.2 Contingencies 3.0 3.5 6.5 Total, excluding interest during construction 16.6 16.9 33.5 Interest during construction on Bank loan 1.6 ANNEX III Page 2 Financing Plan: The total cost of the project, excluding interest during construdtion, of US$33.5 million would be financed as follows: US$ Million Bank 19.6 Government 13.9 33.5 In addition the Bank would finance US$1.6 of interest during construction of the proposed loan. Estimated disbursements: Calendar Year and Quarter US$ Million 1973 4th 0.035 1974 1st 0.135 2nd 0.34 3rd 0.35 4th 1.87 1975 1st 1.89 2nd 1.93 3rd 3.49 4th 3.55 1976 1st 1.92 2nd 1.95 3rd 1.99 4th 0.75 1977 1st 0.5 2nd 0,5 21.2 Procurement Arrangements: All contracts for the supply of equipment and furniture and for the construction oL schools would be awarded under international competitive bidding. Local bidders would be granted a margin of preference by adding 15 percent or the applicable customs duties, whichever is lower, to the foreign bids. The Ministry of Education is exempt from customs duties; the bidding would therefore not be affected by regional preferences. ANNEX III Page 3 Consultants: ACPO, a Colombian institution, will organize and supervise the education ex.)tension service operating from the rural conmrehensive schools and train the personnel for this service. The Bank would finance 80 percent of the cost. Appraisal Report: No. 132a-CO, dated June 11, 1973.