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 It may not be published, quotedor cited without Bank Group authorization. The Bank Group does not accept responsibility for the

accuracy or completeness of the report.

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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 PRESIDENTTO THE EKECUTIVE DIRECTORS ON

A PROPOSED LOAN TOTHE 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$21.2million to help finance a +tird education project. The loan wouldhave a term of 30 years, including ten years of grace, with interestat 7-1/4 percent per annum.

PART I: THE ECONOMY

2. The Bank's most recent economic report (Economic Positionand Prospects of Colombia, 138-CO) was distributed to the ExecutiveDirectors on May 18, 1973. A number of indicators drawn from theeconomic report are presented in Annex 1.

3. The Colombian economy has shown impressive gains in the recentpast. The rate of economic growth has accelerated to more than 7 percentper annum, and the expansion of non-traditional exports has been remark-able. Such improvements are very much needed in order to accelerateemployment generation. Colombia also needs to spread more widelybenefits from growth in order to surmount problems of poverty andpopulation pressures in both rural and urban areas. Concentrationof land ownership, technical backwardness and underemployment charac-terize most rural areas. In urban areas, pressures of populationgrowth, compounded by heavy migration from the countryside, havegenerated serious unemployment. Prospects for coping with theseproblems lie in the accelerated growth path upon which the Colombianeconomy has recently embarked.

4. Recent Government administrations have reacted to ruralpoverty and urban unemployment in a more systematic fashion than inthe past but much remains to be done. In spite of the passage of anAgrarian Reform, Law in 1961 and the creation of the Agrarian ReformInstitute (INCORA), also in 1961, only modest results have beenachieved in alleviating rural poverty. Recently, additional agricul-tural legislation has been enacted, enabling a faster advance in landreform and introducing a tax on presumptive agricultural income. Inrecognition of the problems of urban concentration and unemploymentthe Government is now placing greater emphasis on urban development,particularly in the housing field. Through this program it hopesto 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.

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5. During the five-year period 1968-72 current revenues ofthe national government have risen at an average of 9 percent perannum in real terms. During the past year the National Government,pursuant to its program announced at the Consultative Group meetingof February 1972, took new fiscal and other measures which areexpected to raise revenues by Col$1.0 billion per year (6 percentof the 1972 total revenue). This should enhance its ability togenerate local currency needed to support foreign-assisted projects.At the latest Consultative Group meeting held in June 1973, membersof the Group expressed the view that growing needs for public invest-ment and o,her public expenditures called for further increases indo. ,stic fiscal efforts. The Government has expressed the intentionto further increase revenues by new tax measures now pending beforethe Colombian Congress and by increasing the savings of public enter-prises. It is also in the process of improving tax administrationwlhich should increase collections. The Bank intends to continue thediscussions with the Colombian authorities of their fiscal program.

6. To support the accelerated growth of the economy3 measureshave been taken to strengthen the export sector and thereby reducethe foreign exchange constraint to sustained growth. A substantialmeasure of success in this area has been achieved through policiesto encourage non-traditional exports. These have continued to growrapidly and their total value approached the value of coffee exportsin 1972. Although Colombia has not yet surmounted its dependence oncoffee, the rapid growth of non-traditional exports, if continued,should achieve this result in the foreseeable future. Merchandiseexport earnings during the past year exceeded US$800 million, andwere some US$150 million above the preceding yearts export earnings.Net international reserves of -the Bank of the Republic doubled in1972 as a result oL groTwth in exports, and reached US$345 millionby year end. Since then1 they have grown to US$437 million. Thisprovides an import coverage of about 5 months. In order to preservethe gains already achieved and to sustain the process of rapiddiversification by expanding both agricultural and industrial exports,it is particularly important that Colombia continues its policy offrequent exchange rate adjustments. I'he Government has declared itsintention to do so.

7. The strong growth in GDP has been accompanied by upwardpressure on prices. Contributing to this pressure has been centralbank lending to finance part of a 30 percent real increase ingovernment investment during 1972. High coffee prices alsoincreased demand, and there is evidence that the export boomreduced the supply of some commodities, e.g. beef, on the domestic marketwhile the rise in import prices was an additional important factor.

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As a consequence consumer prices are estimated to have risen bysome 11.4 percent in 1971 and 13.5 percent during 1972, as comparedwith a 7.5 percent average increase for the 1967-70 period. Infla-tionary predsures have continued to accelerate during the first fewmonths of this year. The authorities are aware of the danger thispresents and the fiscal measures referred to in paragraph 5 shouldbring about some improvement. Further action is also being under-taken, such as the issuance of special bonds to reduce excessliquidity 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 currencyamounted to US$2.2 billion at the end of 1972, or US$1.4 binllionexcluding undisbursed commitments. Service on this debt is nothigh (14.8 percent of foreign exchange earnings in 1972), relativeto many other developing countries. Since exports have risen atthe same rate as debt service in recent years, there has been noincrease in the debt service ratio, at a time when economic growthhas accelerated. The debt service ratio may be expected to riseto about 20-21 percent in 1977-78 as a result of greater capital inflowsassc-_ated with a sustained high growth rate. Should economic growthcontaaue at a rapid pace which appears feasible, and should that growthbe accompanied by a further strong expansion of non-coffee exports andsound economic and financial policies, Colombia should find it possibleto secure the large amounts of external capital it needs and to manageservicing the indebtedness that this volume of borrowing would generate.Some of this capital will have tobe provided to finance local costsif foreign assistance is to make a significant contribution to projectsof high priority such as those in the social sectors, with a low foreignexchange 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$l1,048.9million (net of cancellations). Of the foregoing amount, DS$77145mil'lion is now held by the Bank. IDA has made one credit of US$1965million for highways in Colombia in 1961.

10. Disbursements have been comrpleted on 29 loans and the oneIDA credit. IFC has made effective investmrents and under-writing

commitments in 18 enterprises in Colombia, cotalling aboutUS$19.7 million of which IFC now holds US$9.7 million. Annex IIcontains a summary statement of Bank loans, the IDA credit, andIFC investments as of May 31, 1973 and notes on the execution ofthe 23 on-goiLng'pojects.

11. Bank d-isbursements as a percentage of total disburse-ments by official lenders to Colombia are expected to peak atabout 40 percent in 1973-74 and then decline. The Bank's shareof total debt service is projectedtopeak at about 31 percent in1974-75, and the Bank group share of total debt disbursed andoutstanding can be expected to fall from 28 percent in 1972 to24 percent in 1978.

12. A Bank loan is in an advanced stage of prepaiatiofifor a sixth railway project. OVer the past few years, BankClending in Colombia ha.s become increasingly diVersified a-sactivities 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 ourefforts in these sectors have been mainly production-oriented insupport of economic growth and related export expansion objectives,we are now seeking to develop projects in such a way as to combineincreasing output with maximum benefits in terms of employmentand improving the inccme of the poor, particularly in ru.ral areas.Such a flurther shift in emphasis of Bank lending, however, willrequire a new approach in many instances and hence project preparationand appraisal are likely to be more time-consuming. Also, at leastin the initial stage, such projects are likely to be of much smallersize than the traditional large infrastructure projects.

13. We expect over the next several years to make an increasingcontribution to the agricultural and industrial sectors, withperhaps as much as 60 percent of our total lending, in those twooectors.

14. The other major focus of our activities would be in suchsocial sectors as education and water supplv, as well as in otherproject areas such as the traditional sectors of Bank lending--electric power and trniisportation-- in cases where support can begiven to strengthening institutional- 6veIopment. In addition theBank would continue to cooperate with the Government in its effortsto improve the fiscal system and in developing institutions capableof increasing public savings.

15. The operations of external lenders in Colcmbia are shownin Annex I, page 3. While IBRD, IDB, and AID provided about four-fifths of total external financing to Colombia in the 1961-71period, their share decreased tSo 53 percent in 1972. This resultsfrom unusually low IBRD lending in that year as well as from recentmedium and long-term borrowing Abroad from commercial banks andbond issues on an unusually large scale. The IDB has assistedprojects 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 fromprogram to sector loans, particularly for education, urban develop-ment, and agriculture.

PART III. EDUCATION IN COLOMBIA

16. Colombia has a rapidly developing educational systemand has achieved a literacy rate of 74 percent which comparesfavorably with other countries in Latin America. Almost 5 per-cent of the GD? is devoted to education, about the same as inneighboring countries. Enrollment of the respective age groupsin 1970 was 70 percent for primary schools, 19 percent for secondaryschools and 3.5 percent for universities. Private schools andinstitutions 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 systemare good, there are serious flaws. Primary education starts at,age seven and lasts five years buit is hampered by a shortage ofschools many of which have orly one, two or three grades. About30 percent of primary school students are over-age students whoeither started late or are among the large number of repeaters.The drop-out rate is high: of each 100 students beginning primaryschool in 1964, only 22 graduated five years later.

18. In secondary education, the academic type of schoolaiming at university entrance accounts for 70 percent of enrollment,exceeding by far the economic need for this type of training. Manyof the private secondary schools are overcrowded and can not affordthe equipment investmentF needed for vocational schooling. Theacademic course consists of six years divided into a lower cycle offour years and an upper cycle of two years, leading to the"Bachillerato" degree. The attrition rate is high, about 40 percentin the first cycle and 30 percent in the second cycle. Primaryteacher training accounts for 9 percent of secondary educationenrollment and various vocational options for 21 percent. The Bank-financed type of "diversified secondary" schools described below aregradually assuming an increasingly important role but their capacityis still far from meeting requirements for trained manpower.

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19. In 1970, total enrollment in universities and post-secondary institutions was 78,000 or 3.5 percent of the 19-24 agegroup. The uncontrolled rapid expansion of university educationhas 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 invarious fields, including engineering, already exists. In recentyear-s, waves of student strikes have had the effect of keepinghigher education in turmc.L', thereby absorbing much of the energiesof the highei officials of the Ministry of Education.

20. In the area of non-formal training, SENA, the NationalApprenticeship Service, has assumed a dominant position. SENA'smain function is to provide speciiic technical training -- most of/itin its own training institutions-- for workers at various levels.Between 1958 and 1970, SENA trained 2,000 instructors and over700,000 workers in about 25,o0o courses. The activities of SENAare financed by an industrial payroll. tax of 2 percent which givesSENA a strong financial position. Accion Cultural Popular (ACPO)is a non-profit institution whose main goal is basic education ofthe masses, especially the adult rural population, by radio. In1971 the number of listeners was 150,000 with fifty thousand hoursof transmission time. The Ministry of Education, through itsDivision of Adult Education, admdnisters literacy and generaleducation programs for adults thxiough 400 centers and 2,500 teachers.

21. Thers has been an improvement in the qualifications ofteachers, mainly in the primary schools, but the proportion ofteachers which can be considered to be adequately qualified remainslow -- 56 percent in primary schools and 33 percent. in secondaryschools. Primary school teachers are trained in normal schoolswhich pursue the academic program during the first four-year cyclefollowed by a two-year professional cycle. Secondary teachers aretrained in the pedagogic faculties of the universities in four-year courses. Existing facilities for training of teachers invocational subjects are insufficient to meet the needs generatedby the proposed Third Education Project which therefore includesa component for technical teacher training.

22. The rural areasT backwardness is becoming an increasingconcern of the Government. In these areas public services, particularlyfor education, health and transportation, are poor. The education levelof the rural population is very low; 40 percent are illiterate asagainst 16 percent in the urban areas. Only 3 percent of the ruralprimary school entrants complete the five-grade course, as ccmparedwith 45 percent in urban schools. Secondary education and vocationaltraining facilities are virtually non-existent in the countryside.

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The Government has initiated a program for establishing ruraldevelopment centers and is increasing its input for general rur-leducation; this effort is being supported by USAID. The proposedBank project also includes components intended to promote ruraleducation, mainly at the secondary level.

23. To improve management capability, the Ministry of Educationhas decentralized same oL its functions by establishing a number ofsemi-autonomous agencies and expanding the functions of existingagencies. Nevertheless, the Ministry is still too burdened withadministrative work, while policr -making and planning is receivinginsufficient attention. A draft.eneral Education Law, presentlyawaiting action by the Congress, proposes centralization of policymaking in the Ministry and delegation of administration to a newsemi-autonomous Institute for Education and Teachers' Services(INCAES). The UNDP will provide technical assistance to helpreorganize the structure of education administration and tostrengthen it.

24. Between 1965 and 1970, the proportion of the nationalGovernment's budget spent on education remained at about 15 per-cent but because of the increase of the budget this constituted arapidly increasing share of GDP. The Central Government financesonly 55 percent of total education expenditures; departments andmunicipalities 22 percent, and the remaining 23 percent comes fromprivate sources.

25. The Government gives high priority to a further implemen-tation of the secondary education reform program and has definedthe broad outline for the development of other levels of education.The key to education development is the system of diversifiedsecondary education. Through the proposed project, the diversifiedcurriculum will be extended to existing secoi__ary schools and newschools in the rural areas. The philosophy of diversified secondaryeducation would also exercise its influence downwards through anintegration of the present five-year primary cycle with the lowerfour-year cycle of diversified secondary education into nine yearsof basic education. An integrated nine-year cycle is conceived tobe the minimum schooling needed to enter and compete successfullyin the labor market and would become compulsory in the long run.Upwards there would be an influence on higher education as the morepractically oriented technological institutes are strengthened asan alternative to a further overexpansion of the academicallyoriented programs of the universities. The Government recognizesthat its objectives are essentially long term in character andthat there is a need to work out a strategy for education develop-ment indicating timing, priorities and means for the i.nplementationof its objectives in view of manpower and financial constraints.

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Meanwhile, projections show that the expenditure of 5.7 percent ofGDP in 1980 (as compared with 4.8 percent of GDP in 1970) wouldmake it possible to offer primary education to all 7-11 year oldsand secondary education to 33 percent of the 12-18 age group,without compromising the improvement of teachers? qualificationsand salaries.

PART IV: THE PROJBCT

26. The main purpose of Bank lending for education in Colombiahag' been to assist the Government in introducing and spreading thediversified system of secondary education in order better to meetthe needs of the economy for trained manpower, while at the sametime easing pressures on the universities. The first Bank loansof US$7.6 million (1968) and US$6.6 million (1970) were for theequipping and construction of 19 diversified secondary schools inthe larger cities wThich when completed later this year will enroll78,000 students. The physical execution of the first two projectshas 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 newdiversified curriculum is being implemented properly and a numberof innovations have been introduced successfully. As a result, thediversified secondary schools are having an impact on the wholeeducation system. This impact would be further broadened in theproposed Third Education Project with the establishment of 24 commonfacilities centers, providing workshops and laboratories for anadditional 109,000 secondary students mainly in medium-size citiesand 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 foran education extension service needed to support rural development.

27. The third project was appraised in November 1972 and loannegotiations were held in May 1973. The Borrower's delegation wasled by the Deputy Minister of Education, Dr. Guillermo AlbertoGonzalez. A Loan and Project Summary is attached as Annex III tothis report and an appraisal report (132a-CO) is being circulatedseparately to the Executive Directors.

Description and Purpose of the Project

28. The project consists of (a) construction and equipping of24 common facilities centers; (b) construction and equipping of 13rural comprehensive schools; (c) a special program for the trainingof technical teachers; (d) an extension of the rural developmentcenter in "Las Gaviotas" i-n the Eastern Plains; (e) technicalassistance for a sector survey and sector studies. The 24 commonfacilities centers would provide the necessary workshops andlaboratories to enable a total of 91 existing secondary schoolsto adopt a diversified curriculum combining practical and academicsubjects. These schools are in general too small to make separateprovision of such facilities economic.

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29. TIhe 13 lower-cycle secondary schools (grades 6-9) in ruralareas would have a total enrollment of 7,000 students in one shift, in-cludinig 1,700 boai,ding places. These schools would have a curriculumsimilar to that of other diversified secondary schools but withfewer options and an orientation towards agricultural activities.The schools would provide a broad introduction to practical skillsas a basis for SENA-courses, agricultural training programs andon-the-job training. The rural secondary schools will form partof a government program for the establishment of 39 such schools.Tho remaining 26 need only an extension of facilities expected tobe financed by AID. The latter is also assisting the completionto all five grades of the primary schools in the areas involved.These primary schools will become the feeder schools for thecomprehensive schools. A third element of the project is a programfor the training of 2,000 teachers in industrial and other practicalsubjects over the period 1974-77. This program would provide thetechnical teachers for the proposed common facilities centers andrural comprehensive schools.

30. The Project would also provide for the completion of theexisting pilot rural development center in Las Gaviotas in VichadaDepartment in the Eastern Plains; it would establish three affili-ated centers in nearby areas. In addition to agricultural extensionservices arid training, each center is intended to provide primanyeducation, health services, general supply availabilities and amechanical workshop. Las Gaviotas is supported by government andprivate organizations.

31. Thus, the proposed project is designed -to ac1.ieve severalimportant results. First, it will reinforce the ongoing program ofreform in secondary educiation, raising substantially the percentageof secondary students receiving diversified secondary education andthus reduce the proportion of students in the academically orientedsecondary schools from 70 percent to 55 percent. Secondly, the Bankwill became associated with the field of rurnal education by supportingthe Government?s program to extend secondary diversified educationto about 21,000 students in the countryside. Thirdly, the prcposedproject will assist a successful pilot center for rural developmentservices which later could be expanded in the vast areas of theEastern Plains. Finally, the proposed project is expected to supportimportant institutional improvements in the field of educationadministration and planning.

Technical Assistance and Special Studies

32. Successful implementation of the proposed project willrequire specialists in various fields where expertise at presentavailable to the Government is lacking or inadequate. Such assistancewill be required to reorganize education administration, st,rengthen

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education planning, organize a vocational education supervisoryservice, develop and improve teaching in industrial and agriculturalsubjects and develop curricula and syllabi for the technical teachingtraining program. The major part of the technical assistance inquestion will be provided by the UNDP and has been authorized in its1972-76 Country Program; the necessary detailed agreements have beenmade.

33. Provision would be made under the proposed project, for aninitial period,for ACP0 (see paragraph 20 above) to operate aneducation extension service and mobile community development unitsbased in the rural comprehensive schools and train the personnel tocarry on these services. A contract has been negotiated with ACPOand the Bank would finance 80 percent of the cost. In addition theproject would finance a sector survey to evaluate the past developmentof the education system and to design policies and priorities forfurther development. Studies would also be carried out on manpowerneeds, experience with the Bank financed secondary schools and on thelocal production of school equiLpment and learning materials.

Cost and Financing of the Project

340 The total cost of the project, excluding interest duringconstruction, is estimated at US$33.5 million, and its foreignexchange component at US$16.9 million, (for details see AnnexIII, Loan and Project Summ2,i,rS) The proposed Bank loan ofUS$21.2 million would finarnce the estimated foreign exchangecomponent, andUS$2 million of furniture and equipment expected tobe ordered in Colombia after international ccmpetitive bidding.In addition, the loan would finance (a) US$0.5 million representingthe 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 ruraldevelopment services centers (in addition to the estimate-d foreignexchange cost of' those centers). Finally, the loan would financ~eUS$1.6 million of interest and other charges on the Bank loan duringconstruction. The remaining local cost of US$13.9 million equivalentwould be provided by the Government.

Management Arrangements

35. For the implementation of the first two-Bank financededucation projects, a Project Unit was established in ICCE, theschool construction unit of the Ministry of National Education.Given the satisfactory performance of ICCE (Inshituto Colombiano deConstruc(,iones Escolares), it is proposed that the agency also becharged with the implementation of the third project. The draft loanAgreement provides that new appointments of staff in charge ofconstruction 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 furnitureand for the const,ruction of schools would be awarded under interna-tional competitive bidding. F4uipment and furniture items wouldbe grouped to form sizable bid. packages for bulk purchasing. Exceptfor equipment, it is unlikely that many foreign bidders would beinterested, since Colombia has a well-developed furniture industryand a large, highly competitive construction industry which isexpectedtowin all contracts. Local bidders for goods would begranted a margin of preference of 15 percent or the applicablecustoms duties, whichever is lower. Colombia is a member of theLatin American Free Trade Association (LA?TA) and of the Andean Pact.Preferential treatment under these agreements, however, does notapply in this case, since the Ministry of Education is exempt fromduties on imported equipment.

37. The proposed loan would be disbursed according to theschedule 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 Republicof Colombia, as well as the Report of the Cormaittee provided for inArticle III, Section 4 (iii), of the Articles of Agreement and thetext of a draft Resolution approving the proposed loan, are beingdistributed to the Executive Directors separately.

39. The draft Agreements contain provisions to reflect thevarious arrangements described in Part TV above, and contain theprovisions custaaary for education projects.

40. I am satisfied that the proposed loan would comply withthe Articles of Agreement of the Bank.

PART VI: RECOMNDATION

141. I recommend that the Executive Directors approve theproposed loan.

Robert S. McNamaraPresident

Attachments

ANNEX IPage I6/22/73

COUNTRY DATA - COLCIMEA

AREA POPULATION DENSITY 21,139,000 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 2,230Infant 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 6.3Gross Domestic Investment 1,521 22.2 3.0 5.8 15.2Gross National Saving 1,228 17.9 1.3 3.9 -3.5Current Account Balance -293 -4.3Exporto of Goods, NFS 1,000 14.6 1.7 4.8 0.9Imports of Goodo, NFS 1,149 16.7 5.0 5.5 17.1

OUTPUT, LABOR FORCE ANDPRODUCTIVITY IN 1970

Value Added Ladbor ForcdW V.A. Per WorkeruS$ M1n. - Mln. % US$ 7.

Agriculture 1,885 29.1 2,349 40.7 802 71Industry 1,703 26.2 1,136 19.7 1,499 133Services 2,900 44.7 2,279 39.5 1,272 113Unallocated . a ...

Total/Average 6,488 100.0 5,764 100.0 1,126 100

GOVERNMENT FINANCE

General Government 2/ 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 9.0Current Expenditure 26,393 14.2 14.0 11,397 6.1 6.3Current Surplus Deficit (-) 12,889 7.0 I.6 4,,688 2.5 2.7Capital Expenditures 22,853 12.3 11.8 8,362 4.5 4.0External 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 theaverage 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 availableno. applicable

ANNEX IPage 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 BorrowingDisbursements (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 availablenot applicable

ANNEX IPage 3

COLOMBIA - COTMENTS OBTAIED FROM EXTENAL FINANCING SOURCES(1963-72)

(1ilions of! US Dollars)

Averagev 1970 171197AuiualAmnt ( 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 available0b/ Not member of Consultative Group.j;/ Includes US$30 ntLion of IBRD loan No. 842-CO.

Source: Colombian National Planning Department.

ANNEX IIPage 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$ YillionAmou1 J (less cancellationsjNumber Year Borrower Purpose Bank IDA Undisbursed

Fully disbursed loans and credits -- 448.6 19.5 --

502 1967 Instituto Colombiano dela fteforma Agraria Irrigation 9.0 2.7534 1968 ianco de la Republica Industry 12.5 0.3536 1966 Empresa de Acueducto yAlcantarillado de Bogota' Water Supply 14.0 1.0537 1968 Empresa de Energla Electricade Bogcta' Power 18.o 1.9550 1968 Colombia Roads 17.2 0.9552 1968 Colombia Education 7.6 1.9575 1968 interconexion Electrica, S.A. Power 18.o 5.5624 1969 Colombia Agriculture 17.0 12.9625 1969 Banco de la Rep'ublica Industry 25.0 2.3651 1969 Colombia Agricultuire 18.3 14.2679 1970 Colombia Education 6.5 4.168o 1970 Colombia Roads 32.0 12.56t1 1970 Interconexion Electrica, S.A. Power 52.3 32.26,t2 1970 Empresas Municipales de Cali dater Supply 18.5 14.773& 1971 Empresas iuIunicipales dePalmira Nater Supply 2.0 1.7739 1971 Colombia Agriculture 8.1 6.6740 1971 Empresa Nacional de Tele-comunicaciones Communications 15.0 11 .8741 1971 Empresa de Acueducto y Alcan-tarillado de Bogota 4ater Supply 88,O 81.3742 19,71 Banco de la Republica Industry 40.0 12.3b42 1972 Colombia Industry 30.0 10.0849 1972 Instituto Colombiano de laReforma Agraria Irrigation 5.0 4.9860 1972 Instituto de Fomento Mlunicipal ,.iater Supply 9.1 9.187)4 1973 Empresas PThblicas de iMedellin Power 56.0 54.5

Total 967.7 19.5 299.3of which has been repaid 190.5 0.3

Total now outstanding 777.2 19.2

Amount sold 20.2of 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 subsequentto the above date: it is not yet effective.

ANNEX IIPage 2 of 7

i. SaATEMhNT Oi IFC rNVF1EST2NTS (As of May 31 , 1973)

Year Obligor Type of Amount in US$ MillionBusiness Loan Equity Total

1959 L4ininas del Caribe, S.A. Fiber-board 0.50 - 0.501960-65 Industrias Alimenticias

Noel, S.A. Food products 1 .98 0.08 2.O61961 Envases Colombianos, S.A. Metal cans 0.70 - 0.70196' -68 Morfeo-Productos para el

Hogar, S.A. Home furniturre 0.08 0.09 0.171961 ElectLromanufacturas, S.A. Electrical

Equipment 0.5<0 - 0o501962 Corporacion Financiera Development

¢olombiana Financing - 2.02 2.021962-63 Corporaci6n Financiera Development

Nacionajl Financing - 2.04 2.041963-67- CompaPila Colombiana de

65-69 Tejidos, S.A. Textiles 1.86 0.27 2.131 964-70 Corporacion Financiera de Development

Caldas Einancing - O.81 0.811964-68 Forjas de Colombia, S.A. Steel forging - 1.27 1.271966 Almacenes Generales de

Deposito Santa Fe, S.A. WLarehousing 1 .00 - 1.001966 Industria Ganadera Colom-

biana, S.A. Livestock 1.00 0.58 .. 581967-70 ENKA de Colombia, S.A. Textiles 1.00 1.65 2.651969 Compafiia de Desarrollo de

Ho-eles y Turismo, Ltda.Hocurismo Tourism - 0.01 0.01

1969 Corporaci6n Financiera del DevelopmentNorte Financing - 0.45 0.45

1969 Corporacion Financiera del DevelopmentValle Financing - 0.43 0043

1970 Promotora de Hoteles deTurismo 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 19.65Less cancellations,terminations, repaymentsand 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 tothe above date, but are not yet effective.

ANNEX IEPage 3 of 7

C. PROJECTS IN EXECUTIONI/

aumarized below is the current status of all loans signed but notfully disbursed:

Loan 502 - Irrigation (Atlantico I), US$9 million, June 1967.

Implem-entation of the project financed under loan 502-CO remainstwo years behind schedule due to difficulties in the selection ofareas suitable for irrigation and technical probiems in theconstruction of major irrigation and drainage works. As aconsequence of this and poor project management, agriculturaldevelopment is still limited to a small area and mainlyrestricted to dry farming. However, the few agricultural resultsobtained on a small number of farms are very promising. To completethe scheduled works, a second extension of the closing date by oneyear beyond the revised closing date of December 31, 1973 may becomenecessary.

Loan 534 - Development Finance Comparies II, US$12.5 million, May 1968.

This loar is fully committed for approved sub-projects, and theundisbursed balance of US$0.3 million is expected to be disbursedshortly.

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 improvingThe operating performance of the Empresas is good and the remainingworks should be completed by the end of 1973, The Closing Date hasbeen prolonged to Jurne 30, 1974 to permit completion of the projectand payment to suppliers.

Loan 537 - Electric Power (Bogota), US$18 million, June 1968.

The project financed by this loan is substantially completed. Lowerthan anticipated participation of joint financing agencies togetherwith foreign cost increases due to the devaluation of the U.S. dollarled to a re-allocation of funds in mid-1972 among the loan categories.Delays in the definition of the distribution expansions have causedlate bidding for distribution equipment. The Closing Date has beenextended to the end of 1973 to allow completion of the project.

/ These notes are designed to inform the Excecutive Directors regarding theprogress of projects in execution, and in particular to report anyproblems which are being encountered, and the action being taken toremedy them. They should be read fn this sense, and with the under-standing that they do not purport to present a balanced evaluation ofstrengths and weaknesses in project execution.

ANEX IIPe of 7

Loan 550 - Highways V, US$17.2 million, July 1968.

There have been substantial cost overruns and delays in the civilworks financed under this loan. The project is about 90 percentcomplete; the present closing date of June 30, 1973, alreadypostponed for one year from the original, will be postponedfor one more year.

Loan 552 - ducation I, US$7.6 million, July 1968.

School construction is virtually completed. All furniture and75 percent of the equipment has been delivered to the schoolsand procurement of the remainder is under way. However, procure-ment of furniture and equipment is considerably behind scheduleand this is reflected in slower than expected disbursement.Improvement is expected now that the procurement unit has beenstrengthened.

Loan 575 - Electric Power (Interconnection), US$18 million, December 1968.

The project as originally described in the Loan Agreementstarted operation in November 1971. Mainly due to the fact thatthe joint financing arranganents raised more funds than expectedduring 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 theextension is scheduled by mid-1974.

Loan 624 - Agricultural Credit II, US$17 million., June 1969,

The Project continues to be far behind schedule. However, recentchanges in Project management and organization and an increase intechnical personnel provided the basis of the Bank's approval ofColombia's request to enlarge the Project area and include lendingto small farmers under the Project. The Project has now begun tomove 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 extendthe 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 untilmid-1972. In October 1972, the Bank and Caja agreed on certainmodifications to the Project, including appointnent of one ProjectGeneral Director with overall responsibility for the Project,extension of the Project area and greater flexibility in regard totems of sub-lending. At the same time it was agreed that increasedsub-lending should be directed towari\s small holders. These changeshave resulted in all increase in the rate of sub-lending under theProject and it is now expected that the Loan will be fully disbursedby mid-1976.

ANNEX IIPage 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 beencompleted at the time of the last supervision mission in December1972 and the remaining four were expected to be completed by mid-1973. There has been scme delay in project execution owing to slowprocurement of furniture and equipment. Improvement- is expected nowthat the procurement unit has been strengthened. The Closing Datewas 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 seriousdelays on the civil works. The most serious problem confrontingthe project relates to the financial difficulties of the Colombiancontracting industry, leading to a temporary halt in constructionon several groups of the Paving Prograr. In this situation, wheresome of Colombia's major contracting firms were facing bankruptcy,the Government has recently taken drastic steps to resuscitateoperations. Estimated cost increases for ci.l works now amount toabout 30 percent of original contract amounts, while consultantservices will be about double the original amount. Civil worksare nearly 40 percent completed, but are about one year behindschedule. The situation is more satisfactory on the other two elementsof the project, the construction of the Barranquilla bridge and ofthe 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 satisfactoryand in agreement with the contractual dates. Bidding for the restof the civil works financed by the Bank is proceeding as planned.Higher than expected prices for equipment, due partly to therevaluation of various European currencies and the yen, togetherwith changes in the access road program, have substantially increasedthe total cost of the project. Recently we have received a revisedcost estimate and as of March 1973 total project costs are estimatedat US$140 million, that is, about US$25 million more than estimatedin the Appraisal Report. ISA plans to finance the cost overruns withunallocated funds of the IBRD and the IDB loan and with supplierscredit and a direct loan from a group of foreign banks. The Bankhas reassessed the economic and financial viability of the projectin view of the cost overruns and found that Chivor I remains thebest 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 changein the Cali Municipal Government that occurred after theloan wassigned. The Board of EMCALI has appointed a new manager and takenremedial actions suggested by the Banlc in order to improve EKCALI'sacninistrative capacity and f inancial performance.

ANNEX IIPage 6 of 7

Loan 738 - Palmira Water Supply and Sewerage, US$2 million, May 1971.

Construction on this project was delayed due to slow projectdesign and administrative problems with the consultants and theBorrower. Lower than anticipated sales of water and a shortfallin projected local borrowing has resulted in an unsatisfactoryfinancial performance of the Borrower. As a consequence the Bankhas proposed to Empresas Publicas Municipales the rephasing of theproject 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 percentof its appraisal objectives. Sablending is being delayed byadministrative procedures associated with cattle purchase andthe provision of technical assistance. Arrangements have beenmade to improve the organization, and there are prospects that1973 operations will be on target. The benefits from the projectare likely to be higher than appraisal projections while the costestimates 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 costoverrun of US$2-4 million. The Bank and the Borrower are consideringvarious 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 Chingazatunnel construction, is behind schedule. The Borrower is reviewingthe latest measures proposed by the contractors to improve performance.Recent information shows that revenue from water sales is lower thanforecast. The Bank has suggested actions to assure that this short-fall will not adversely affect the financial performance of theBorrower 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. Disbursementsare 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 cancelledbecause coffee prices exceeded the upper limit set in the LoanAgreement for release of the second tranche.

ANNEX IIPage 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 hasexperienced difficulties in the initial phase of the project; however,the recent stationing of a Bank water supply specialist in Bogotais helping solve these problems. Construction of several subprojectshas 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 IIIPage 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 atinterest 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 projectcosts:

US$ MillionLocal Foreign Total

Common Facilities Centers 9.9 9.8 19.7

Rural Comprehensive Schools 2.9 2.6 5.5

Technical Teacher TrainingProgram 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 interestduring construction 16.6 16.9 33.5

Interest during constructionon Bank loan 1.6

ANNEX IIIPage 2

Financing Plan: The total cost of the project, excluding interest duringconstrudtion, of US$33.5 million would be financed asfollows:

US$ Million

Bank 19.6Government 13.9

33.5In addition the Bank would finance US$1.6 of interest

during construction of the proposed loan.

Estimateddisbursements: Calendar Year

and Quarter US$ Million

19734th 0.035

19741st 0.1352nd 0.343rd 0.354th 1.87

19751st 1.892nd 1.933rd 3.494th 3.55

19761st 1.922nd 1.953rd 1.994th 0.75

19771st 0.52nd 0,5

21.2

ProcurementArrangements: All contracts for the supply of equipment and furniture

and for the construction oL schools would be awarded underinternational competitive bidding. Local bidders would begranted a margin of preference by adding 15 percent or theapplicable customs duties, whichever is lower, to the foreignbids. The Ministry of Education is exempt from customsduties; the bidding would therefore not be affected byregional preferences.

ANNEX IIIPage 3

Consultants: ACPO, a Colombian institution, will organize and supervisethe education ex.)tension service operating from the ruralconmrehensive schools and train the personnel for thisservice. The Bank would finance 80 percent of the cost.

Appraisal Report: No. 132a-CO, dated June 11, 1973.