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Public Disclosure Authorized

RESTRICTED Report No.

WH-201a

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT. ASSOCIATION

Public Disclosure Authorized

Public Disclosure Authorized

This report was prepored for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views.

CURRENT ECONOMIC POSITION AND PROSPECTS OF

Public Disclosure Authorized

ECUADOR

August 21,

South Anlerica Department

1970

CURRENCY 3C.VIVALUTTS USED IN THIS REPORT 1/ Us$1.00

.18.18 sucres

1 sucre (S/)

us$-.055

1 mil.UIn sucres

us$55,555.50

1J

On August 17, 1970, subsequent to the preparation of this report, tbe exchange rate was devalued. The new rate ía US$1.OO 25.00 sucres

CUR-R-ENT ECOFICMIC POSITION Q D PROSPWCTS OF ECUADOR TJABLE OF CONTENTS Page No. BA'SIC DATA SJ2'tARY AND CONCLUSIONS

I.

iii

...

i-ix

...

ECUADOR'S GRHWTH EXPERIENCE ......

................... .

A. The Pattern of Growth ......................... B. The Challenge of Petroleum ..... ..........

II. T.B EVOLUTION OF AGRICUITURE ...............

A. The Role of Agriculture in the Econony ........ B. Trends in Output .................. .6 C. Relative Productivities ................ D.

Livestock .....

................................

1

4 U............... 6 6 8 9

10

INDUSTRY .............................................

20

A. B. C. D. E. IV.

1

...........

E. Basic Problems and Issues ........ III.

1.................

..

Recent Growth Trends .................... Main Characteristics of the Industrial Sector Incentives and Industrial Promotion ........... ..................................... Financing ................... Problems and Prospects .....

PUBLIC FINANCE .........

..............................

. A. The Structure of the Public Sector ........... B. Trends in Revenues and Expenditures ........... C. Fiscal Performance, 1968-69, and Fiscal Outlook .......

........................

20 20 22 23 25 27 27 29 33

This report is based on the findings of a mission to Ecuador in October and November of 1969. The mission was composed of Messrs. Jose A. Guerra (Chief of Mission), David G. Greene (Chief Economist), Gary Luhman (Adviser, Public Investment), Francisco Aguirre-Sacasa (Assistant, Public Investment Program), Arthur Whitfield (IMF, Fiscal Economist), Conrad Gislason (OAS, Agricultural Economist), Heniy Steiner (Consultant, Transport Sector) and Saul Nelson (Consultant, Industrial Sector).

Page No. Y. PUBLIC INVESTMENT

.

41

...

A. Public Investment in the Recent Past .... ..... 41 B. The 1970-74 Public Investment Program: h2 Level and Composition ....................... 45 ..... C. Investment Program by Sectors ........... ...... 51 D. Financing the Public Investment Program VI.

BALANCE OF PAYMENTS AND GROaiTH PROSPECTS AID POLICIES A.

Balance of Payments: Recent Developments and Prospects

.................

.

... B. Growth Prospects and Policies ............. ............. .. . C. External Debt . ..................... D. Creditworthiness ........ STATISTICAL ANNEX MAP

54 54 58 61 62

BASIC DATA Population: Rate of growth per year 1960-69 Density per sq. km. Area:

5.9 million (mid-1969) 3.4 percent 22 271,3000 sq. kilometers

Income: Gross Domestic Product, 1968 National Income, 1968 Rate of Growth, real GDP 1950/52 - 1959/61 1960/62 - 1966/68 GDP by Industrial Origin (1966-68 average): Agriculture Manufacturing and mining Construction Utilities Banking and Trade Government and other services Financing of Investmnent: Investment Domestic Savings Less: Factor Income Payments National Savings Net Capital Inflow

25,044 million sucres, current prices 22,787 million sucres, current prices 4.9 percent per annum 4.8 percent per annum Percent of GDP 33.0 19.1 4.4 5.2 13.3 25.0 Percent of GDP 13.5 12.6 - 2.8 9.8 3.7 13.5

Per Capita GDP, Current lMarket Prices, 1968:

$250

Balance of Payments:

1968

1969

(mIllion 115) Balance on current account Exports f.o.b. Imnports f.o.b. Investment Income (net)

Other invisibles Transfers (net)

-67.5 210.7 -214.7 -27.2

-87.3 186.0 -215.0 -27.4

-49.5

-44.4

13.2

13.5

Balance of Payments (Conttd.):

1968

1969

(million US$) Balance on capital account

67.5

87.3

Direct investment Medium and long-term loans (net)

32.0

27.8

37-9 25.8

7.7

36.6

Decline in short-term assets (net) (including errors and omissions) lNoney and Banking (year end):

1967

1968

1969

(million sucresj

Currency and demand deposits

3,281

Quasi-money

3,634

3,845 42413

4,361 4,871

6,915

8,258

9,232

13.4% 4.9%

19.4% 2.9%

11.8% 4.0%

Total money and quasi money TLcrease from end of previous year Increase in cost of living Central Government Finances (fiscal years): Total revenues Current expenditures

1967

1968 1969 (million sucres

2,338 1,863

2,554 2,787

Savings before transfers

475

- 233

33

Transfers

520

- 558

- 610

Savings after transfers

Capital expenditures reficit

-

2,930 2,899

45

- 791

- 576

396

441

501

441

1,232

1,077

Relationship to Monetary and Customs Area:

Member, LAFTA and Andean subgroup

Official Foreign Reserves (Dec. 31, 1969):

US$51.3 million

Debt Service Ratio, 1969:

13.2 percent (export of goods)

Exchange Rate: Official selling, 1969 Free rate selling

US$1 = S/ 18.18 (sucres)

average, 1969

US$1 = S/ 21.95 (sucres)

IIMF Position JJuly 31, 1970): Quota US$25 mililion Cumulative drawings (incl. Compensatory Fin.) US$58.25 million Cumulative repurchases US$40 million Alugust 21, 1970

SUM4ARY ANfD CCNCLUSIMTS In 1969 Ecuador's Gross Domestic Product in real terms grew at 1. about the same rate as the annual average increase during the 19601s, i.e. 4.8 percent, while population increased 3.4 percent per year. Provided that adequate policies are followíed by the authorities, growth prospects during 1970-74 are quite favorable. Although exports of the basic agricultural crops are not like2y to grow mnuch over the period, tie large receipts aseociated with petroleum development should more than c ompensate the exchange effects of the stagnation of traditional exports. In 1973, when petroleum investments will taper off, the resulting exporta should begin and they may reach over one hundred million dollars in 1974, replacing bananas as Ecuador's leading export. On these bases, an average annual GDP growth rate of 6.1 percent in 1970-74 could be achieved. However, only with policies that can solve the present fiscal difficulties of the Central Government can a successful attack on sorme of the country's more fundamental medium- and long-term development problems be expected, and without such an attack the country's growth potential will remain large2ly unexploited. The decisive factor of Ecuador s development in recent times 2. was the expansion of its basic agricultural export crops - first cacao, later coffee and then bananas - produced in the Pacific coastal plains. The rapid expansion of this specialized agriculture for export in the last four decades constituted an economic revolution in a very real sense. lt opened up the cauntry to the outside world, enabled Ecuador to sustain a rapid growth of population and provided the economy with savings and foreign exchange needed for building basic infrastructure and achieving a certain degree of modernization and diversification. The export sector iras also an important factor in advancing the physical unification of the country and in breaking the isolation of the traditional agriculture that bad slowly evolved in the Andes highlands over several centuries. During the last fifteen years agricultural production for domestic consumption l.argely located in the Sierra - expanded at a rate sufficient for meeting the demands placed on it by the rapid growth of population and urbanization. The agricultural sector seems to have maintained an adequate pricecost relatioship, as a 4.7 percent annual average increase of aggregate output has been sustained ayer a fourteen-year period, while agricultural prices rose less than total wholesale prices and food prices increased at only about one percent annually. Past growth of Ecuador's export agriculture - and to a lesser 3. extent the production of food - was based mostly on a continuous expansion of the area under cultivation, a pattern of growrth which, while efficient when land was plentiful and population sparse, has become increasingly inadequate as these original conditions changed. Mounting population pressures, increasing land scarcity and the discernible trend to stagnation of the basic export crops, require a progressive reorientakion of Ecuador's agriculture towjards more intensive use of land and greater

-

ji

-

labor productivity, based on efficient production techniques using more diversified inputs and higher technology. The quick and effective response of Ecuadorian producers in reconverting banana production to meet the challenge posed by the change in world demand to the Cavendish variety - which requires modern production techniques - clearly indicates both the nature of the problem facing Ecuador's agriculture and its capacity To induce similar responses in cocoa production to meet it successfully. and agriculture generally, requires determined public policies, including investnents in irrigation, agricultural credit and the expansion of the The latter are vital to transfer to the farmers the extension services. significant progress already achieved by Ecuador in developing diseaseresistant, high-yielding varieties of cacao, imiproved varieties of wheat and corn and sone tropical crops capable of replacing the marginal banana areas that are being abandoned because of the relocation of production. Although additional successful research is still needed on certain crops, notably rice and cotton, the results already achieved could make a significant contribution to raise land productivity if production of the improved seeds and new varieties and their distribution to the farmers and the services for demonstrating to them their use wiere expanded. The developmeent of oil exports, whichby 1974 would account for over one-third of Ecuador's total exports, wjould represent a most important addition to production, incomes and fiscal revenues and substantially increase foreign exchange earnings, thus amply offsetting the likely stagnaticn These additional rescurces Cf traditional exports in the next few years. would offer excellent opportunity for strengthening and further diversify¡ng Ecuador's econony through higher levels of public investment in infrastructure and the expansion of a whole range of technical services and credit facilities designed to raise the efficiency and productivity of the traditional export crops and the domestic-consumption agriculture, as well as developing the country's potential in livestock and forest products and further accelerating its industrial growth. Given also the continuation of an appropriate environment for the display of private business initiative, which has been characteristic of Ecuadorts public policies in the past, the development of the oil resources could liave broader and deeper consequences for Ecuadorts economic development far beyond its direct contribution, however important this may be. The emergence of petroleum as one of Ecuador's najor exports, 5. besides its innediate beneficial effects and the opportunities it offers ior the country's development, entails some risk of future distortions. By strengthening the balance of payments, oil exports may mask unfavorable developments in the price-costs relationships and competitive position of the country's basic export crops, which from an employment point of vTiew will remain far more important than oil. The income and balance of payments effects of oil exports may also put pressures on domestic costs. To avoid the danger inherent in the possible development of an exchange rate out of line with internal-external costs relationships, Ecuador's

- iii

-

ftLui.e e.cchange rate policy vrill have to be geared explicitly to taking ¡ito account not only the overall balance of payments situation, but also the international competitiveness of the main employment generating activities.

The rapid growth of Ecuador's industrial sector in the 1960's, wlhen manufacturing output increased at an annual rate of abcut 11 percent, has been a significant factor in the expansion of the country's overall economic activity. The emplayment effects of industrialization, however, hlave been relatively small, and the size of the market places limitations on the degree and character of industrialization that Ecuador can efficiently achieve. Participation in the Andean Group sub-regional arrangemei.t w.ll open to Ecuador new industrial possibilities in a market nine times It will also expose the country's manufacturing as large as its own. its neighbors, with possible readjustment of from sector to competition certain lines of manufacturing where Ecuadorian production is probably noncompetitive.

6ó.

Ecuadorgs recent industrial development has been mainly based 7. o.n import substitution. It has taken place under the stimulus of tariff protection and import duty exemptions for capital goods and raw materials, as well as frcom income tax and some other minor taxes. In the last two years tax exemptions have caused heavy losses of fiscal revenues, particularly import duties, which as a result of the tariff reform in 1965 lhad increased substantially and now represent about 56 percent of the The present industrial promotion policies Central Governnent tax revenues. have been an important contributing factor to the serious fiscal disequilibrium experienced by Ecuador in the last few years. Stricter criteri.ú and more rigorous selection of industries, in the light of their real net contribution to the economy than have been the case in the past are clear]y'called for if further industrialization is to help overall economic growth rather than detract from it. In the last two years Ecuador has experienced fiscal difficulties 8. which have been reflected in serious disequilibrium of the Central Governr.ent finances and affected the country's external position. The difficultiez criginated in the efforts to increase public expenditures substantially in the face of a rather poor export performance and of the noted rapid erosion of the base of import taxes. Ecuador's present fiscal difficulties, while made acute by these direct causes, also reflect the more fundamenta', probleris of the excessive decentralization of the country's public sector and the rigidity of the tax system. The díspersion of the public sectorIS functions among a large number of frequently overlapping autonomous agencies is accompanied by a parallel fragmentation of the financial resources available to the public sector through an extensive and complex system of fiscal revenues earmarking. Tax earmarking leaves the Central Governr,ient only with about 43 percent of the revenues it collects. Although the public sector as a whole usually has been in a balanced position, revenue earmarking place the Central Governmaent in a chronic financial

- iv

-

Leali'ibriui iLwhich make it prone to resort to Central Barik credit for The weak financial position of the Central financing expenditures. GQcvernnent also makes fiscal management and the programning and implementation of public investnent on a national basis extremely difficult. The tax measures contemplated by the Government regarding the 1970 budget deficit, while helping to solve the irmediate difficulties and finance a znix.uni level of public investment iri 1970-72, do not touch upon the public Starting in 1973, however, subsector financebs structural deficiencies. the Central Governnent financial strengthen stantial oil revenues will - 6-7 percent annually in moderation position. Provided that reasonable is exercised, the Central expenditures real terms - in expanding current sufficient to insavings directly generate current Governnent would crease investment outlays substantially over past levels. Assuming that the Govermnent program for financing the 1970 9,1 budget is implemented and that Central Govemment current expenditures wliich rose abnormfally in 1968 and 1969 - are kept in 1971-72 at the 1970 level, Ecuador's economic prospects are quite favorable. The overall balance of payments gain from oil development will average over $25 million Disbursements on existing loan commitnents of per year during 1970-72. international lending agencies will be about $45.2 million in 1970. However, disbursements on these loans will decline steadily as drawingsapprcach the total value of loans. Volume of new commitments of international lending agencies will depend on the availability of projects suitable for f:inancing and the availability of donestic rescurces for local contribuIt appears that at least for the period 1970-72 tions on these projects. there are enough new projects in a sufficiently advanced state of readinesz to be undertaken to provide for an increased total level of loan disbursements. The projected level of disbursements, combined with high levels of direct investnent, would provide a capital account surplus sufficientT-r large to cover current account deficits and result in modest overall balHowever, failure ance of payments surpluses in 1970-72. to adopt fiscal measures would result in reduced public investment levels in 1970-72 and reduced capital inflows in years when conmodity exports ar:e not likely to grow. The most probable consequences would be economic stagnation and/or recurrence of the fiscal and balance of payments disequilibria of 1968-69. In the latter two years of the period under consideration, 10. 1973-74, the fiscal-balance of payments interrelationships will be different. Oil exports will provide substantial additional revenues in 1973 Under these circuistances, assuning the temptation to increase and 1974. Central Governnent current expenditures inordinately can be resisted, However, ample funds should be available to finance public investments. of paybalance overal1 the in 1973, exporta oil of beginning the despite nients picture is more doubtful for 1973-74 than for earlier years. This i.s largely because greater certainty exists for probable outflows than for inflows derived from external project loans. Uhereas larger official capital flows should be feasible, at present it is not possible to identify

- v -

enough orospective projects suitable for external financ-ing tO piovide ixncreased official capital infloews in this period. One important reason for this is that the bulk of total investments in Ecuador takes place in the private sector, often in quite small individual units. Consequently eaternal financing, too, will have to continue to focus to a considerable cLegree on the capital requirements of the private sector, and here it is i.nherently more difficult to be precise about the volume and timing of f'uture borrowing. :i. External debt maanagement has been generally good. The debt e;ervice ratio for 1969 was 13.4 percent and is expected to rise only to 1L5.5 percent by 1973 and then decline in 1974, reflecting the effect of oil exports. Ecuador s long-run creditworthiness rests on its favorable :resource endowment and on the dynamism of its private sector. This dynaism can be naintained only with a viable balance betueen private and public activity, i.e. assuring that claims of the public sector on total resources are kept within reasonable bounds while assn.ring that lack of ;public investment does not become a developmental bottieneck. However, even given reasonable econoíic policies, Ecuadoras low per capita income limits the aniount, of donestic savings that can be generated. It is expected that external lenders will continue to take this into considerabion by making part of Ecuador's loan capital available on concessionary terms. 12. In sunnary, Ecuadorts past performance shows a fairly satisfactory rate of growth, sustained over a considerable period of time and under conditimns of monetary stability. The country today faces new challenges and opportunities which, if properly met and utilized, could significantiy alter the pattern and pace of its development over the next several years. The most urgent and immediate issues of public policy arise from the serious fiscal disequilibrium which developed in 1968, worsened further in 1969, and which at present threatens the financial stability of the country. If neasures are taken to improve the fiscal situation, favorable long run factors should provide a good basis for continued vigorous development. A generally suitable fiscal program has recently been presented by the authorities to CIAP. However, only actual enactment of these measures could ensure conditions suitable for substantial amount of new lending operations by international agencies. The solution of the fiscal crisis is thus a pre-conditien for solving the countrys'amore fundanental development problema. These are: (a) the need to counteract a discernible stagnation of basic agricultural exports, which up to now have been the prime factor determining overall economic growth; (b) to reorient the character of its agricultural production both for exDort and for domestic consumption - whose growth has been largely based on the continuous expansion of the area under cultivation; (c) to remedy the vulnerability of the tax structure, excessively dependent on itnport taxes; and (d) to restructure and strengthen the country s

- vi public sector and economic management, including the preparation of investment projects suitable for external financing and designed to meet Only if the challenges posed by these the most urgent development needs. problems are met, can Ecuador efficiently utilize the opportunity for development offered by the additional resources that will be forthcoming from the exploitation of petroleum, as well as benefit from the broader Tnarket provided by the Andean Group sub-regional arrangement which Ecuador has recently joined. This report was completed prior to the devaluation of August 17, 13. 1970 when the Ecuadorian Goverrnment changed the par value of the sucre froll S/18.00 per U.S. dollar to S/25.00 per U.S. dollar. The measure was accompanied by a unification of Ecuador's dual exchange market system. The previous systern consisted of an official exchange market based on a par value of S/18.00 per U.S. dollar and a "free" market, which fluctuated between S/21.50 to S/21.80 per U.S. dollar in the first six months of 1970. Wlhile most of the merchandise transactions were supposed to have passed through the official market, a significant part of foreign exchange generated by exports, especially bananas, had gone into the free market because of special exemptions. The devaluation measure undertaken by the Ecuadorian Government 14. en August 17, 1970, is not, in itself, inconsistent with the fiscal program recomimended in Chapter IV, and in Chapter VI of this report. For the present, no basic changes in the analysis, conclusions and recommendations discussed in the report are required as a result of the devaluation.

I. EZUADOR'S GRat1TH EERIENCE A.

The Pattern of Grotith

1. During 1960-68 Ecuador's Gross Domestic Product increased at an annual average rate of U.6 percent and preliminary estimnates indicate that in 1969 the econoriy grew at about the same pace. Since the growth rate in tite 1960's is almost identical to that achieved in the 195Os, Ecuador's grotlth performance, while nat particularly rapid, has, cn the other hand, been sustained over a period of almost twenty years. As population increased at about 3.1 percent annually oaer the period, Ecuador's per capita incomes have risen by about 40 percent aver the last two decades. 2. This sustained rate of growtih over a considerable period reflecte basically the capacity of the countzy's export sector to respond quickly and effectively to the opportunities offered by the conditions of externa; demand for its productive potential. Exports of agricultural crops, developed on the Pacific tropical coastal plaine, have been the main factor of overall econonic growth. As exports of cacao and coffee, which twere the earlier export crops on twhich economic growth rested, completely stagnated in the 1950's, banana exports took their place> expanding at an impressive 11.6 percent annual rate. During the 1960Is, the very slow annual expansíon of banana exports - only 2.3 percent in 1960-62 to 1967-69 - was compensated, though only partially, by a recovery of coffee and cacao exports from their previous stagnation. Total exports increased in the 1960's at an anmual rate of 4.2 percent (see Table 3.2),conpared to an annual growth of 8.1 percent in the preceding decade. 3. Ecuador's economic growth in the 1960s wías achieved despite a mruch lower expansion of exports because this was offset by larger capital inflows, particularly in 1964-68 (see Table 3.8). But the slower export growbh of the 1960's gives reason for concern because at 16 percent of GDP?, exports exert a major irifluence on empleyrent, public finances, private sector savings and - through expectatioas - on the overall level of economic activIty. Despite the advance made in industrial production during the 1960's, Ecuador continues to be an open economy, essentially d.ependent on the conditions of external demand for its products. The poor ecport performance in the laat two years of Ecuadorts basic crops and tiheir limited prospects in the near future, merely accentuate a trend that has been discernible for some time and which carries heavy implicat.ions if not corrected quick;y. Jhíile from 1950-52 to 1960-62 exports grew at 8.1 percent annually on the average, the annual average growth

rate in 1960-62 to 1967-69 was only 4.1 percent. Ecuador's export performance in the latter period is in fact poorer tihan the preceding campaeison suggests. Since 1965 titere has been a clear picture of export stagnation that was only nasked by large shtpmenta of coffee in 3.967 and of cacao in 1968. These increased shipnents were apparently

- 2 nads otut of stocks, and in 1969 coffee volume exported feil by 28 perceont and cacao by 45 percent, resulting in substantially lover export values despite appreciably higher prices. ¼. Historically, the develoiment and expansion o£ specialized agriculture for export on the Pacific plains - first cacao, then coffee and later bananas - has been the decisive factor in Ecuador 's developnient in the past few decades and, in a very real sense, constituted an economic revolution. It opened the countrr to the outside i-Torld, nade i.t possible to sustain a large increase in popuilation and provided the eConomry with the savings and foreign exchange needed for building basic infrastructure and achieving sone degree of modernization and diversificat,ion. Besides, the export sector has also been an inportant factor in Gdvancing the unification of the country and in breaking the isolation of the traditional agriculture that had slow2.y evolved in the Andean highlands over several centuries.

Thle past grow^th of Ecuador's

export

agriculture vas, however, based on the continuous expansion of the area umder cultivation. That this was possible vas due to the improvement and etoension of the road net-work which, during the 1950Os, was extended to c:over most of the central part of the coastal plain. In the 1960's, it vas further extended to reach the coastal southern and northern extremes. JLS had been the case with cacao at the begínning of the centuxy and later uith coffee, banana production developed in the early 1 9 50ts by continuously opening up and settling new agricultural land. Ecuador's pattern of agricultural production vas economically efficient while land vas abundant and population sparse, but has become increasingly inappropriate as the original conditions changed nith the passage of tine. It has, nevertheless, continued up to the present. Between 1954 - date of the Last Agricultural Census - and 1968, the annual average rate of growth of h.4 percent of total agricultural production in the Coast, ujhere the export crops are gromn, was achieved by a 5.2 percent increase of the The increase is partly accounted for by the large expani¿area in crops. sion of rice and cotton production, but to a large extent it reflects the Surther extension during the 19601s of the area planteq in the basic export crops. No reliable data are available for bananas ,t/ b-t bett¡een 1960 and 1968 the area planted in coffee and to cacao still increased by 41 percent and 82 percent, respectively.

5. This pattern of production, almost wholly based in the extensive u-se of land, has been accompanied by failure to adopt more efficient production methols based on higher technology and better farming practices designed to raise yields and reduce the dependence of the crops on ujeather conditions. It partly explains the uneven procesa of export grouth that The marked ts a peculiar characteristic of the country's perfcrmance.

:year-to-year fluctuations of individual commodity exports during the 196 0,s reflect fluctuations in production caused by periodic crop failures. The

f/

See footnote on Fage 6.

- 3 e-xbeisiLvle character of production led to increased plantings tlCenevSr ¿Lemand conditions were favorable, and resulted in overproduction itich Eornetimes permitted immediate ticreases of exports in response to market conditions, The fact that both weather and external denand conditions have not alw:jays affected all crops simnultaieously permditted príce or cquantity declines of individual crops to be offset by increases in others, often resulting in an aggregate expansion of exports. The extensive character of production and its vulnerability to weather conditions, however, has prevented taking full advantage of favorable price developments in the external narkets (see Table 3.1). 6. Unfavorable price-cost relationships do not seem to have been she main factor for the slower export growth of the 1960's. Although falling yields have probably raised Ecuadorian unit production costs of oananas, coffee and cacao, banana export volumes increased at about percent annually up to 1964; despite declining prices, while coffee and cacao export volumes fluctuated rather erratically, reflecting changes in production related not to market prices but to weather conditions. Leaving 9aside coffee exporta, which il any case are subject to the lUttations established under the International Coffee Agreement, the difficulties of Ecuador s banana and cacao exports arise fron the conditions of external deaund. As discussed more fully in Chapter II (see paragraphs 28-32), the difficulties encoontered by Ecuadorls banana exports in the last several years sten from the shift of external demand to a different vanety of fruit than that gronn traditionally in Ecuador. As for cacao, the demand for tlie Ecuadorian product rests to a large extent in its superior quality and special flavor, which makes it ideal for aixing with the Brazilian and African varieties. Ecuadorian cacao exports are therefore, wjithin certain limits, complementary rather than competitive with other sources of supply, and strongly dependent on product quality. 7. Tn spite of the above, there are strong indications that the continuing expansion of the area under cultivation can no longer serve as the basis for the sustained growth of the tropical export crops, on which Ecuador's economúc growth largely dependa. The northwest corner of the country, in the province of Esmeraldas, is the only relatively large area of the tropical plains nat yet developed. Of rugged terrain and very humiid, the agricultural potential of this land reserve, at present under forest, ¡a considered quite linited. It is possible that further expansion and improvement of the road network may give access to some new, additional agricultural lands, but te additions are likely to be small. The vast spaces of the Oriente, while pronising for livestock development - already begun - are nat generally suitable for crop production. Thus, because of the nature of the problema faced mn the demand side and the increasing limitationa en the supply of land, Ecuadorts export agniculture requires a substantial reorientation fron the pattern of extensive production followed up to the present. It will requiire more intensive methods of land use, based on higher technology and capable of assuring a steady high quality supply.

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B.

4 -

The Challenge of Petroleum

The discovery of petroleum deposits in Ecuador and ita exploitation 8. for export by TexSaco-Gulf that has already started, is likely to have an inmportant impact in the country's development prospects and potential. 'Uhile no estimate of the identified oil reserves has been published, they are evidently considerable since they have induced an investnent of t[S$250 million in production facilities, including the construction of a pipeline from the oil fields to Puerto Esmeraldas, on the Pacific, with a capacity of 250,000 barrels a day. On the basis of the agreement between Texaco-Gulf and the Ecuadorian Government reached in June 1968, the development of the oil fields and construction of the pipeline has already started. It is expected that the pipeline w'ill be finished by December 1972 and that petroleum exports rill begin in 1973, reaching about 200,000 barrels per day in 1974. The emergence of petroleum has obvious important short-run In addition, the proper utilization r2epercussions for Ecuador s economy. of the financial resources originating from oil production and exports The can significantly influence the country's long-term development. :.ncreased capital inflow associated with the development of the oil fields and the construction of the pipeline would compensate for the likely In 1973, bile the ;tagnation of Ecuador's basic exports in 1970-72. capital inflow would taper off, exports would begin, reaching an estimated lUS$116 million irn 1974, replacing bananas as the main export and accountingk Petroleum exports, net for about one-third of Ecuador's total exports. of profit remittances, would add about US$ 60 million to foreign exchange availabilities by 1974 and Us$ 50 million to the Central Government fiscal revenues (see Tables 3.6 (a) and 5.9). Apart from these direct repercussions, oil development is likely to accelerate the process of opening up the Oriente and linking it to the rest of the country through the new highwíay running parallel to the pipeline and the construction of US$20 million worth of roads in that region which Texaco-Gulf are committed to build under the terms of their contract with the Ecuadorian Governnent. 9.

The emergence of petroleum as a major export and source of 10. fiscal revenues at a time when Ecuador' s traditional exports are likely to be stagnant will involve an important structural change in the economy affecting savings and investment. During 1970-72 the net capital inflow associated with the construction of the petroleum facilities would accrue to the economy's private sector in wages and payment of local materials and services. By 1973, however, the capital inflow willtaper off and the bulk of reseurces obtained by Ecuador from oil production and exports will accrue to the countryls public sector in fiscal revenues for the Central Government. Since during the next several years private sector savings are likely to grow much slower than in the past,if the expected slow growth of traditional exports occurs, a marked shift in the distribution of total savings from the private to the public sector may ensue. Awareness of the implications of such a shift woóuld be important for fully utilizing the development potential opened up by petroleum production.

- 5 Because of its technology and cost structure, petroleun production 1L. has limited erployment and indirect income-creating effects compared to the other productive activities on wihich the economy of Ecuador is based. Petroleum is, therefore, a most important addition to the country's traditional productive resources, but it is not likely to be a substitute for thlem, even if developed in a much larger scale than at present contemplated. This consideration seems to suggest that the contribution of petroleum production to Ecuadorls economic development could be much greater than its direct effects on employment and incomes, Xf the financial resources it would bring to Ecuador were utilized Lor expanding and inproving the economic infrastructure and strengthening the productive activities on which the country's economie development depends. The expansion and strengthening of Ecuador's basic ecoonorc 1>. activities vuhich are the main source of productive employment, become tLhe more important when considered in relation to the country's population developrients. The high over-all population growth rate - 3J4 percent anmually - combined with the present age composition, would increase Ecuador's 1969 estimated labor force by nearly 700,000 peeple by 1975, - i.e., about 116,000 annually on the average - of which about 55 percent would be urban and [L5 percent rural (see Table 1i1). As discussed elsewhere in this report, the fragmentation of the farmland under population pressure is already a most serious problem confronting agricultural productivity and the employment effect of the recent industrial growth has been rather limited. Unless some reversal of present population trends takes place, a high and sustained rate of economic growth in employment-creating activities woould be required to prevent increased unemployment and the lowering of the living standards o£ the Ecuadorian people. A vigorous and enterprising private sector is one of Ecuador's 13. chiief sources of strength. The development of tropical export crops on Uie Pacific plains, the expansion of food production faster than population and the rapid industrial grouth of recent years clearly indicate the country's capability for utilizing its productive potential and diversiDJing its economic structure. There appears to be wide awareness in Ecuador that the development of petroleum offers an unequalled opportunity far giving newJ impetus to this process if its resources are utilized to expand and improve the economy's infrastructure and Lor providing the credit facilities and the whole range of technical services required for effecting the necessary transfoemation of the agricultural sector, both for export and for domestic consumption and further stimulate and diversify the process of industrialization. Appropriate policies irt this direction would be conducive to a stronger econony and widen and diversify the bases for future sustained economic growth.

-6 II.

A.

THE EVOLUTION OF AGRICULTURE

The Role of Agriculture in the Economv

The performance of the agricultural sector is a decisive elenent 14. of Ecuador's overall economic development. Despite the rapid gains of industrialization in the last several years, the country still is, and will continue to be for some time to come, primarily an agrarian economy. COriginating about one-third of the total national product, and comprising over two-thirds of the total labor force - about 1.4 million - its direct contribution to the overall economny is, in itself, decisive. By providing about 90 percent of the country's foreign exchange earnings and capacity to import, the agricultural sector also has a decisive influence on the activity of the nmnagricultural sectors, both directly and through the sectoris contribution to the formation of savings, and throuigh its impact on the demand for nonagricultural goods and services. Despite the reduction of agriculturets share in the Gross National Product, from 37 percent in 1960 to 33 percent in 1968, the country's level of economic activity continues strongly dependent on the performance of the agricultural-export sector.

B.

Trends in Out

In the fifteen years betwjeen 1954 and 1968, Ecuador's agricultural 15. oxutput, excluding bananas j, and considering only the expansion of the crops that were produced in cormercial quantities at the beginning of the peried, If - again excluding bananas r,rew at an annual average rate of 4 percent. .bhe new crops that have since then appeared are taken into account, the arnnual rate of growth is 4.7 percent. As over this period Ecuador's population grew at 3.4 percent annually, output per head increased at 1.3 percen.t :oer year. Food crops - excluding bananas - expanded at 4.3 percent annualr,y In Ecuador a high degree of specialization in agricultural ?roduction between the Pacific coastal plain - the Costa - and the Andean ighlands is evident. Determined by their different ecological conditions, "he Coast has specíalized in the basic tropical export crops - cacao, ,offee and bananas - while most crops destined for domestic consumption xxcept rice and cotton - are grorin in the cooler, less humid highlands

.16.

/

Bananas are excluded because, under Ecuadorian production practices, the concepts of area harvested and output are not particularly meaningful, as usually a large part of the fruit produced is left in the fields if no market is found for it, only the best quality part of the crop being selected for sale and export. If bananas were included, the annual rate of growth of output would be only slightly lower in the coastal region - from 4.4 percent to 4.3 percent.

-7C.;ee Table 7.2). A considerable degree of specialization also exists within each of the two regions. This is indicated by the fact that, except for comr, the production of which is rather uniformly distributed throughout the countty-, the production of each of the other crops tends to be substantially concentrated in the provinces in which the highest yields per hectare are obtained. 17O More significant perhaps than the striking degree of specialization is the extent to which the Sierra is the food basket of the couantry. Tlis role of the Sierrals agriculture and the fact that so far it has been able to fulfill it reasonably well, give special emphasis to the urgency of attacking vigorously the serious problerms of land scarcity, congestion of population, fragmentation of farms and deficient infrastructure with wlich it is burdened today. Failure to modernize the Sierra's agriculture f'urther, in order to increase yields per hectare and raise labor productívity, could force Ecuador into large food imports in the near future, with serious impli.cations for its whole development effort. Production has expanded faster in the Sierra than on the Coast, 183. at annual averages of 4.7 and 4.4 percent, respectively. Population has grown in the Sierra at only 2.7 percent, while on the Coast it rose at 4. O percent. A growing proportion of the Sierrats agricultural output seems to have gone into commercial channels to satisfy the consumption needs of the Coast, wdhere most of Ecuador's export crops are located and wiere population grovrth and urbanization have proceeded faster. The growth of production has thus been accompanied by a considerable expansion of commercial agriculture in the Sierra, where only traditional - and largely subsistence - agriculture existed for several centuries. For the country as a whole, the main source of increased agri19. cultural output has been the expansion of the area in crops, wihich grew at 4.1 percent annually over the period while output increased at 4.7 percent (see Table 7.1). The national averages nask significant differences between the specialized export agriculture of the Coast and the donestic consumption agriculture of the Sierra. The sources of growth of cutput in each of the two regions differ markedly. As indicated in the preceding Chiapter, production of the basic export crops growm on the coastal plain irncreased essentially - even in the 1960's - by expanding the area under cultivation, yields per hectare having fallen steadily for a number of years. There are indications that this source of growth is meeting increasing limitations. As the road network extended from the central part of the coastal plain to Esmeraldas in the north, close to the Colombian border and Puerto Bolivar, in the south and several east-west roads were built, most of the agricultural land wjas opened to access and in fact settled. WIhile additional secondary roads may possibly still reach some areas not yet developed, these are likely to be small. The only significant increases of the area in farns in the coastal plains in the 1960,s iwere registered in the extreme north and south outlying provinces, the increase in the Guayas province resulting from putting unproductive

-8land under irrigation. All told, the area in farms in the coast increased in 1954-68 at an annual rate of 1.2 percent, while the area under crops increased at 5.2 percent, suggesting a considerable shift from other karmd uses to the production of crops. These facts suggest increasing l-imitations for a continuing rapid expansion of agricultural production iLnto virgin, unsettled lands. They seem to indicate that increased agricultural output would depend on putting under crops land nowr in other x;es - as is already happening - or in raising yields per hectare in e:cisting farms. As indicated above, the 4.7 percent annual increase in output 20. in the Sierra iwas accompanied by an annual expansion of only 2.4 percent o:, the area in crops. The increase in land productivity in the Sierra may partly be expJained by the spreading of double-planting, i.e. raising two crops a year on the same plot, which is a widespread practice in several crops of short cycle. As farms have been increasingly fragmented anid population pressure mounted, this practice has probably become moro common. The most important factors, however, are probably the technological i,nprovements associated with the expansion in the number and area of medium and large conmercial farms, wihose acreage expanded by 34 percent over the fifteen-year periad, and with the expansion of irrigated lands, which now covers about one-fifth of the crop-land. A further factor contributing to the productivity increase is the appearance over the period of several new high-value crops and the relatively larger expansion of others, as the process of commercialization of agriculture advanced. However, even though such increases have been considerably larger in the Sierra than on the Coast, the average labor productivity in agriculture on the Coast remains considerably higher than in the Sierra. C. Relative Productivities 21. Agricultural productivity and per capita incomes in Ecuador remain very low compared with other sectors of the economy. With an average value of production of S/3,290 per person ernployed in farns in 1968, per capita productivity in agriculture is 30 percent lower than the national average. The average value of production per individual hides considerable disparities within the agricultural sector itself. Productivity per worker showjs a strong positive relationship with farm size. The average productivity of individuals emplayed in farms of 21-1,000 hectares is near],y four times the average of those working in farns of 20 hectares or less (see Table 7.3). IJhile other factors are also at work, labor as well as land productivity are strongly influenced by farm size and result in marlced geographical disparities in productivity. The Coast's per capita value of production of S/4,728 per person working in f'arms is about 44 percent higher than the sectorls average and more than twice the Sierrals average. Considerable disparities exist also among the different provinces, and these too seem broadly associated with average farm sizes (see Table 7.4).

- 9 22. The responsiveness of Ecuador's domestic consumption agriculture to the demands made upon it by the rapid increase in population and urbanization is particul.arly remarkable considering that more than 90 percent of the country's total number of farms are 50 hectares or less and cMnprise about 36 percent of the area in farms. These proportions are much higher in the Sierra. In 1968 more than two-thirds of the agricultural output for domestic consumption was produced in farms of 50 hectares or less. Probably one important factor for such responsiveness is Ecuador's pattern of land tenure. Although farm size distribution is very uneven and large numbers of very small farms exist, a very large praportioi of the land under cultivation - 82Q7 percent - is o^meroperated.1'Unstable forms of land tenure, which often inhibit greater efforts by farmers because they would only result in higher rents or higher share of the crop for the landowner, are relatively limited in Ecuador (see Table 7.5). Although marketing methods are still very imperfect and inefficient, excessively reducing farm-gate prices and causing large seasonal price fluctuations, faarmers obviously still feel strong incentives l;o increase production in response to demand conditions. 23. The large proportion of owner-operated farms and area in fanrs and the substantial increase of production and productivity of Ecuador's agriculture in the last several years should not in the least obscure the sad facts of the very low level of income and even stark poverty of the great masses of Ecuador's farming population. The average annual value of production of 3,290 sucres (U.S. 1183) per person employed in agriculture, which still drops to 2,141 sucres (U.S. $119) in the Sierra, is very low and indicative of an even lower average per capita income of the rural population, as not all the members of each farm household are producers. The poverty of great numbers of Ecuadorian farmers, more acute and widespread in the Sierra than in the Coast, is clearly related to the severe pressure of population on the available land. The large proportion of land otmership has probably facilitated the fragmentation of farms as population pressures increased. Tis fragmentation has been carried to extremes, particularly in the Sierra, where the area in farms per person working in farms in 1968 was only 3.6 hectares and the area in crops per person working on farms only 1.7 hectares. Unlike other situations, in this instance the average is highly representative of a general situation, as for the country as a whole the farms of 5 hectares or less represented over 74 percent of the total number of farms, the proportion reaching 78 percent in the Sierra. As indicated earlier, the area under medium-size farms increased substantially in Ecuador in the last fifteen years, essentially at the expense of the very large holdings of over one thousand hectares, a fact that basically explains the significant increases in production and productivity registered over the period, but the extremely large incidence of minifundia still remains the hard core of low labor productivity and deep poverty of Ecuador's agricultural population.

1/ About two-thirds of the agricultural labor force are farm oTnfers and members of their families.

-

D.

10

-

Livestock

21P. Production of livestock, which accounts for about one-fourth of agriculture's contribution to Gross Domestic Product, increased in Ecuador over the 1954-68 period at an average annual rate of 4 percent. The number of cattle increased by over 50 percent in the Sierra and by 125 percent in the Coast. Carrying capacity nearly doubled in response to better pasture and animal management, improved breed and particularly to a large expansion of the area in cultivated pasture. VWhile over the fifteen-year period natural pasture declined by 31 percent, cultivated pasture expanded by 126 percent, and practically in the sane proportions il the Coast and the Sierra. The productivity of the Ecuadorian herd, however, is still quite low. The average rate of calves born per 100 cows is only 60 percent and the effective calving rate (calves weaned per hundred cows) varies between 45 and 65 percent, depending on the region. Extraction seems to be also low. The number of animals slaughtered each year - about 200,000 - is equivalent to 12 percent extraction. Mhe registered figure, however, is probably an underestimate. Apart f-rom those killed for on-farm consumption, many animals destined for the market are probably killed in the farmis rather than in slaughterhouses to avoid the slaughter tax. 25. Dairy production is largely concentrated in the Sierra, which accounted in 1966 for about two-thirds of the dairy herd and more than three-fourths of milk production. The Sierra's dairy cattle are predominantly Holstein-Friesian, either pure or upgraded Criollo and can be veary productive under good management. Milk production is reported at about 1.1 million liters per day - i.e., .18 liters per capita - of w]hich about half passes through pasteurizing plants. hilk production per cow in Ecuador is low compared to temperate regions, to which Ecuador's Sierra can be compared. Productivity could be increased greatly through improved practices and management and the control of the three major animal health problems created by foot- and mouth-disease, tick infestation and internal parasites. 20. Ecuadorls livestock potential is goed. Apart from the expansion that may be achieved through increased productivity of existing pasture lands, considerable expansion of the area seems possible. Pasture area in the Coast could probably be expanded one hundred thousand hectares under abandoned banana plants. In addition, vast areas exist in the Oriente, especially at 1,000 meters altitude, where European cattle can be raised on pastures which, under good management, could carry 2 to 3 animals per hectare. Livestock development in the Oriente, already taking place in spite of difficult transportation conditions, could be greatly expanded.

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11

-

E. Basic Problems and Issues General 27. The most fundamental issues of Ecuador's agriculture are: (a) Tohether the country will be able to arrest and eventually reverse the trend of a slowdown in groTath o£ exports of its main erops - bananas, coffee and cacao - and (b) whether food production and domestic-consumptioni agriculture generally can keep up with the rapid population growith ¿i-td urbanization in the country. These problems are so fundamental that their solution cuts across the whole spectrum of public and private sector policies and measures, including improving transportation infrastructure arnd services, marketing facilities, extension of irrigation systems, inereased use of fertilizer and improved seeds and expansion of the agricultural extension service. With regard to banana production, they pose serious problems of reallocation of production and eventual reduction of acreage, which will involve serious social problems in the areas which have to be abandoned unless adequate substitute crops are found for them. N_ed for Changing Production Methods 213. The positive solution to the two fundamental issues just mentioned requires a substantial reorientation of the pattern of extensive agriculture that has been traditional in Ecuador to more intensive methods of land use based on higher technology. The problems faced by tvwo of the major export crops, bananas and cacao, discussed immediately below, cannot be solved in any other way. Dioreover, the internal demand for agricultural products will continue to grow very rapidly. Wqith a population growth rate of 3.4 percent per year, and assuming that the past elasticity of demand for agricultural products of 0.9 percent continues to prevail, the expected per capita income growth of 2.8 percent per year would imply an annual growth in aggregate demanr for agricultural products of 5.7 percent. As indicated above, the increase of production in the last fifteen years was largely achieved, particulariy in the Coast, by expanding the area in crops. As discussed above (see paragraph 19), it is doubtful that this process can be maintained much longer, on existing farms it would probably involve putting under crops lower quality lands nej under pasture or other uses and marginal lands previously unutilized. Unless sone of the soils in the Oriente prove suitable for crop production, increasing yields will soon have to become the major source of increase in aggregate agricultural output. Some major policy questions and possible priority fields for public investmnent and services to this end, will be discussed below in this section. Bananas 29. The proolem faced by Ecuadorls largest export crop dramatically illustrates the urgency of changing the traditional production methods. ,he rapid progress being made in solving it illustrates well the capacity

- 12 of Ecuador's agricuilture to meet new challenges. Although bananas have traditionally played an important role in Ecuador's export earnings, it was not until the 1950's and the outbreak of Panama disease, which ravaged Central American production, that production boomed and bananas came to outweigh all other exports. Ecuadorian banana export volume grew at 14 percent per year over that period. The annual dollar value of banana exports rose from 28.6 million in 1950-52 to 86.1 million in 1960-62, a rate of 1107 percent per year. In 1.950-52 bananas accounted for 34e3 percent of Ecuador's exports; by 1960-62 this had risen to 60.3 percent. Ecuadorian banana exports rose from 11.2 percent of the world's export tonnage in 1950-52 to 25.2 percent in 1960-62. 30. Ecuadorian banana export volume reached its peak in 1963-64 when Ecuador supplied more than 30 percent of world banana exports and had captured half the North American market. Since 1964, however, Ecuador has felt the results of the recovery of Central American production and the fact that wjorld supply has been increasing more rapidly than demand, and the volume of Ecuadorian banana exports has not increased. In ract, it has been possible to maintain export volume in recent years nmainly because of storm damage to plantations in Taiwan (1968) and Central America (1969). Nevertheless, in 1967-69 bananas still accounted for just over 50 percent of Ecuadorian exports. There is reason for serious concern over whether Ecuador can maintain its export volume in the future in the face of rising Central American production and a Ulestern European market which gives preferences to the high cost production of ex-colonies. 31. Recovery of Central American banana production was based on introduction of a new variety, the Cavendish, which is resistant to Panama disease. Moreover, because it is a smaller plant of which more can be planted per hectare, and which produces larger stems in a shorter periad of tir,ie, its per hectare yield is two to three times larger than that of the traditional Gros Michel variety still grown in Ecuador. The Cavendish, however, requires more sophisticated cultivation and distribution techniques. Because the Cavendish fruit bruises more easily, it must be packed in boxes before being transported. This means sorting for quality and boxing operations on the plantation and implies larger size operations. The virtually fresh start made necessary by the change in variety and changes in production and handling techniques required by the characteristics of the Cavendish, led to a rationalization and modernization of the Cen-tral American industry under the leadership of the two major firms which dominate the North American banana market. These finns have shifted much of their purchases to Central America. By 1968 Central American exports had almost doubled their 1960-62 level and had reduced Ecuador's share of the North American market to 20 percent. 32. IRhile it seems clear that Ecuador has lost the cost advantage .ver Central American production that it enjoyed in the early 1960's, lower production cost does not seem to be Central America's decisive advantage. The price paid to the farmer for the bananas only amounts to i. to 15 percent of the retail price. Furthermore, the cost of shipment

- 13 to the U.S. and European markets,where Ecuador is at some geographical disadvantage, does not seem to be crucial either. Boxing of fruit before shipment has substantially reduced freight costs, by saving shipping space, and with it the relative Ecuadorian disadvantage. In any event, it is probable that given Ecuador's climatic (especially freedom from high winds) and soil conditions and its lower labor cost compared with Central America, Cavendish bananas can be produced at an even lower cost than in Central Ainerica. Conversion to Cavendish varieties, which is going forward 33. rapidly, should reduce or eliminate Ecuador's cost disadvantage and simultaneously requires structural changes in the industry to bring about needed quality improvements. Unlike the Gros Nlichel, cultivation of the Cavendish requires considerable managerial ability. This, plus the requirement for on-farm packing and the fact that Ecuadorian Cavendish plantations will generally require irrigation, indicates that production will become increasingly concentrated in larger, more highly capitalized Furthermore, because Cavendish operations will have a much plantations. higher proportion of fixed costs than in Gros Michel culture, growers will need relationships writh buyers which insure longer-term stability of demand. Thus, the Ecuadorian banana industry wrill probably evolve into something resembling that in Central America with exporters or importers purchasing boxed Cavendish fruit from large producers on longterm contracts. Under these circumstances, given the almost ideal growing conditions in Ecuador, Ecuadorian production should be able to reduce the cost disadvantage it now faces vis-a-vis Central America and increase the quantity of its exports. The table below shows the progress made in t.he last three years in the conversion to the Cavendish variety. In i.nterpreting the figures it should be borne in mind that the yield per hectare of the Cavendish is about three tines the yield of the Gros llichel. It is estimated, therefore, that some 40 to 50 thousand hectares wrould suffice to produce Ecuador's present level of exports. The Gros DIchel production irLll soon become residual, but efforts ^inll have to be made to expand the markets for it. Recent performance in expanding its sales in new markets gives reason to believe that this can be accoimplished. AREA UNDER BANANAS QUALIFYING FOR DISEASE CONTROL

Area in Bananas (hectares)

Gros Michel

Percent Gros Michel

Area in Cavendish

Percent Cavendish

:L967 :L968

160,228 156,876

146,233 131,898

91.27 84.03

13,995 244,978

8.73 15,92

:L9691/

143,639

106,804

74.36

36,835

25.64

'L/

Preliminary.

Source:

Direccion Nacional de Bananas, Departamento Tecnico.

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Cacao

Although it ncw supplies only 3 to 4 percent of the world's cacao, Ecuador was a major world cacao producer in the nineteenth and early tijentieth cernturies. In 1919 Ecuador exported a record 47,000 tons of cacao. HovTever, that year was also marked by the first appearance of the fungus diseases which were to devastate Ecuadorian plantations. Because of the combined effects of these diseases and the depressed world prices that prevailed from 1921 through the end of World Wplar II, output plunged, and the 1914 level of exports was not to be approached again for more than fifty years. Cacao production did not begin to recover until after World WTar II when world prices began to rise and the Government instituted a progran to raise production by renovating plantations and increasing plantings. By 1950-52 cacao exports reached $17.7 million per year and accounted for 21.2 percent of export earnings. However, because of unfavorable prices in the early 196 0's the value of cacao exports was virtually the same in 1960-62 as it had been ten years earlier. Ecuadorian cacao exports increased sharply in 1967 and 1968, responding to favorable price movements. But the extraordinary cacao sales in 1968 apparently depleted stocks. Wlithout substantial stocks and with a crop severely reduced by drought, Ecuador was not able to take advantage of high cacao prices prevailing in 1969, and cacao export earnings fell by almost $15 million.

34.

Replantings took place throughout the 1950ts and new plantations 35. were developed in the early 1960's, but the Ecuadorian cacao industry still consists in :Large measure of aged trees in a poor state of cultivation yielding very low output (3-6 quintals per hectare, compared with Ecuadorian cacao, 15-20 quintal yields in experimental plantings) largely from these plantations, is of an aroma or flavor grade and sells at a premium price. Ecuador supplies about one-third of the world's flavor grades cacaos. A disquieting elemnent in the cacao picture, therefore, is the fact that since 1965 the premium paid for Ecuadorian cacao (as measured by the difference between the yearly average Ghana spot price and the average Ecuadorian f.o.b. price) has been declining. This is attributable to a deterioration in the average quality of the cacao. INew plantings are reportedly not producing high value flavor grade beans. According to cacao experts, the general quality level of Ecuadorian cacao has been declining for many years and now resembles only faintly the "Arriba" variety on which the reputation of Ecuadorian cacao is based. The sharp swings in the volume of production, the low yields per hectare, and the apparent deterioration of quality point to the need to modernize production methods, extend irrigation and renovate the old plantationa with high-yielding varieties. The Pichilinguo experiment station has developed varieties which are highly disease-resistant, produce high yields, reach maturity in only three to four years and are of very high quality. The limitation for rapid conversion to these new varieties is the number of clones that can be produced and distributed to farmers at present.

36.

The reorientation of production methods that Ecuador's agriculture requires has made important advances writh regard to the conversion and relocation of banana production of the Cavendish variety, but it needs to be extended to cacao production and to agriculture generally. Development of the new plantations and adoption of new production methods in bananas is being accomplished by the producers themselves. Its extension to other export crops and to agriculture generally requires, however, determined public policies and prograns in the fields of irrigation, storage and marketing, agricultural extension services and agricultural credit. 37. The prevalence of small farms in Ecuador's agriculture, where large numbers of farms of 50 hectares or less account for a very high proportion of total output, make the design and execution of such policies and measures particularly difficult and costly. To reach a substantial share of present production, extending the necessary services to large numbers of farms scattered over a wide geographical area is necessary, auite independent from any social or equity considerations. This does not mean that the credit facilities and technical services needed to increase output and productivity mnust cover all farms. It means, rather, that in Ecuador the provision of such services may not simply be concentrated in a relatively limited number of large farms or in circunscribed geographical areas, but must reach deeper and spread wrider than is usually necessary to significantly increase output. Since this raises the unit costs of such programs, the benefits will haye to be assessed with particular care. The infonmation concerning agricultural conditions of the small geographical sample units on which the 1968 Agricultural Survey ujas based could assist the authorities in the design of prograns and projects for attacking the problems identified as more critical in Sspecific crops and/or geographical areas. A selective approach would also make it possible to explicitly take into account the high complermientarity of nost inputs which is characteristic of agricultural production processes, concentrating or coordinating their use, when appropriate, :Ln given locations and periods of time. Agricultural Credit

.38.

Credit to agriculture in Ecuador is provided mainly by the commercial banks and the National Development Bank (Banco Nacional de Fomento), which is basically an agricultural bank, its lending to industry being very limited. The Central Bank finances agriculture through direct loans and through rediscounting agricultural paper, mainly of the National Development Bank. The volume of credit to agriculture increased sharply in 1966 as a result of a greater public emphasis on the sector through the National Development Bank and of requiring, since 196h, that commercial banks hold in agricultural loans at least 15 percent of their portfolios. Since 1967, however, the credit restrictions imposed for general monetary and balance of payments reasons resulted in a slow growJth of credit to agriculture in real terms. Direct credit by the Central Bank dropped, while credit by the conmercial banks stagnated.

- 16 Only the amounts of agricultural loans outstanding made by the National Development Bank expanded through the last five years, resulting in an overall increase of credit of only 2-3 percent in real terns. The table below shows agricultural credit in Ecuador, by source, in 1965-68 and only partially for 1969. AGRICULUTRAL CREDIT BY SOURCE, 1965-68-69 (Loans outstanding at the end of period _ (In Nillions of Sucres at 1960 Prices)

9-65 1966 1967 1968 1969

Total 610.8 75o.4 773.5 790.2 n.a.

-

Central Bank Direct Credit 111.3 122.2 1h2.7 109.6 95.9W/

Conmercial Banks 287.6 385.0 359.7 356.0 n.a.

National Development Bank 211.9 243.2 271.1 324.6 117.82/

17 July 31. 2/ May 31. Source:

Central Bank Monthly and Weekly Bulletins.

39. A breakdown of agricultural credit by size and length of loans is available only for the National Development Bank. As regards size, its portfolio is almost equally divided between loans of up to and over 50,000 sucres. About one-third of its total loans is of 5 years or more; about 60 percent 1 year and about 7 percent more than 1 and less than 2 years. Though no data are available, there is some evidence that the commercial banks lend mostly to large producers. Credit to the agricultural export sector is included in the commercial category. Since conmercial loans increased by about 9 percent annually in real terms during 1965-69, it is likely that the agriculture export sector has not su.ffered from shortage of credit. h0Do The National Development Bank finances its operations with the repayments of its own loans, the GovernmentT s annual contributions of 3S/30 million and S/20 million fron import duties and import surcharges, respectively, and rediscounting agricultural paper at the Central Bank. In the last few years, it has also obtained loans in the form of lines of credit from the IDB for US$6 and US 1.1 million equivalent, respectively1 Ihe National Development Bank's portfolio recovery ratio has inproved markedly; loan repayments have increased from about 58 percent in 1962 to about 80 percent in 1967; the drop to about 73 percent in 1968, due to that year's severe drought, is likely to be temporary. Continued success in.the bank's program for raising its recovery ratio to acceptable levels .s essential, both to prevent excessive dependence on Central Bank accommodation - already substantial - and to be able to supplement its domestic resou:rces with external f'unds, for the utilization of which an efficient administration is essential.

- 17 -

41 1

The Ecuadorian authorities have attenpted to stimulate agricultural credit by establishing the Central Bank's rediscount rate at 4 percejnt - compared to 5 percent for industry - by establishing an 8 percent interest rate ceiling on the National Development Bank's agricultural loans and by requiring the conmercial banks to hold a minimum of 15 percent of their total. portfolio in agricultural loans. Apart from the distorting effects that subsidized interest rates for a particular sector of the economy may have on the allocation of resources, the low rate of growth of agricultural credit in the last three years - about 2 percent in real terms - seems to indicate that the credit restrictions required on general monetary grounds have largely counteracted the effectiveness of these incentives. Nuch more important than diverting to agriculture sorne of the available private sector's financial resources is to increase the recovery ratio of the National Development Bank, improve its administration to enable it to use a greater amount of external resources and eventually to imerease its capitalization aith part of the inereased revenues that irill be available to the Central Governnent and the public sector as a wihole from 1973 ornuards. The demand for agricultural credit in Ecuador in the inmediate future ijill continue to expand. It must be satisfied if the sector is to meet the increasing demand for agricultural products arising from population and income growth. Irrigation h2. There are strong reasons for giving irrigation high priority in Ecuador. The increasing scarcity of virgin agricultural land and the recurrence of droughts have already been mentioned. In addition, there are in Ecuador special difficulties and costs involved in undertaking broad general credit and technical assistance prograrns designed to increase agricultural output and productivity capable of reaching large numbers of small farms over a wide geographical area. Hence, the need is to design and implement agricultural development prograns and projects on a selective basis as to their highest prospective returns. Given the essential compDementarity of the inputs required for increasing output and productivity :nd the fact that usually irrigation increases the return of most other izrruts and facilitates their application by farmers, the presence of potential for irrigation schemes should be an important criterion for select; ing agricultural development programs and projects in Ecuador. The early idantification of the most important areas iwith such a potential and the rpreparation of projects to develop it appear also to be a high priority activity for the efficient utilization of public investnent resources over the next several years. 43. Ecuador has some recent experience in this field. The development of the Cavendish banana production is taking place in irrigated plantations. Irrigation has also made possible the large expansion of rice production in the Guayas province, on the Coast. The increase in land productivity in the Sierra is probably partly explained by the expansion of the irrigated area. INost of the irrigated areas have been developed by the producers themselves, financed with their own savings

-

18 -

an.d by credit from the canmercial banks and, to some extent, from the Banco Nacional de Fomento. Such a process is likely to continue, but public sector investment has an important role to play in accelerating it, particularly in undertaking the projects where investment is relatively large. A significant public effort in the irrigation field woiuld involve the strengthening of the Ecuadorian Institute of Hydraulic Resources (INENHI) and a reorientation of its activities. INERHI, which funetons aithin the Iüinistry of Agriculture, was forrned by merging the Caja Nacional de Riego and the Direccion de Recursos Hidraulicos. It is responsible for formulating irrigation programs and undertaking both techrncal studies and construction work and was given relatively wide powers regarding irrigation, including water rights and the protection of the countryls rivers basins. INERHI has continued the work carried out by :its predecessor during 1963-66 in preparing several large irrigation p^ojects. However, being short of technical personnel and financial resources - almost wholly provided by the Central Government - the Distitute is too amalU for carrying out significant investment, and as a result, has beern involved in rnall projects scattered throughout the country. The Pisayambo combined hydroelectric-irrigation scheme and 414. several other projects in the Sierra would irrigate about 25,000 hectares. In addition, from INERHI's own studies and from the Guayas River Basin Study, funded by the Canadian Government and administered by the InterAmerican Development Bank, it should be possible to develop several Irrigation plays an important projects suitable for external financing. of the flat and because important role in the Guayas River Basin Study dry nature of the southern part of the basin and the large volume of water of the three rivers which traverse it. It is estimated that about 200,000 hectares of crop land could be put under irrigation in this part of the country alone. Agricultural Research and Extension Agricultural research on a national scale is carried out in b5. Ecuador by the Instituto Nacional de Investigaciones Agropecuarias (INIAP), forned in 1962 by merging several public and private research institutions. Free of political interference, INIAP has developed as a strong, dedicated technical institution doing serious agricultural research work. It has four separate experiment stations in different regions. The Pichilingue experiment station, in the humid tropics, concentrates in bananas, cacao, coffee,beans and corn, as well ae hog production. The Portoviejo station, in the dry tropics, carries research in cotton, corn, wheat and vegetable oil plants, including soybeans, peanuts, sunflower, castor beans and sesame. The Santa Catalina experiment station, near Quito, conducts research in wheat, barley, oats, potatoes, orage and dairying. Boliche is located in the heart of the Guayas J.iver Basin, also dry tropics, but with large irrigation prospects.

- 20 III.

A.

MiUSTRY

Recent Growth Trends

48. Industry has been the most dynanic sector in the 1960's, contributing appreciably to overall economic growith when exports increased more slowly than in the preceding decade. Between 1957 and 1968 manufacturing output in real terms grew at an average annual rate of aboub 11 percent, and in the last five years at 12.5 percent. Since 1955, the contribution of the manufacturing sector to the total gross domestic product increased from 15 to 17 percent. L9. Industrial growth in Ecuador has developed along the path often found in developing countries, with mass consumer goods - food, beverages, tobacco, textiles and clothing - taking the lead in the early stage,

£ollowed by branches producing intermediate inputs for other industries, such as wood products,

rubber products, paper and cardboard and hides and

leather products, and finally starting tfith more complex industrial processes in chemicals and metal industries. The trend in the 19 6 0os, and especially in the latter half of the decade, has been characterized by the faster growth of the two latter groups. IJhile the traditional mass consumer industries accounted in 1957 for about 71 percent of total manuSacturing output, this ratio had fallen to 55 percent by 1966 (see Table 8.2). Iaáy new industries wjere introduced during this period, including p2ywood, paper cartons for packing banana exports, fertilizers, glass and metal containers among others. In 1966-68 rubber products, chemicals, metal industries and transport equipment expanded at a faster rate than total manufacturing, and their share of total output increased to about 30 percent, compared to 20 percent ten years earlier. ',0. Ecuadorts industrial growth, while appreciably contributing to GDP growth, has had more limited effects on employment. UTith an urban

]abor force estinated at about 1.1 miullion, total manufacturing employTmeent

represents about 15 percent, and factory employment only 3.4 percent. The increase in manufacturíng employment seems to have lagged behind the expansion of total output. This probably reflects the slower growith of the traditional industries, which are relatively labor-intensive and the fact that industrial growth in the last several years largely reflected the establishment of larger and relatively capital-intensive plants in :Lndustry groups such as rubber products, petroleum, chemicals, nonnretallic innerals and basic metals. B.

MNin Characteristics of the Industrial Sector

Industrial Concentration 51. Ecuador's industrial sector exhibits a high degree of geograpllic¿,1 concentration in the twro large cities of Guayaquil and Quito, which together account for about 80 percent of total factory employnent. Thís is probably

-

21 -

-ne-vitable, considering the overohelming importance of those two cities as both labor and consumer markets. Although some decentralization of industry would be desirable from several points of view, policies designed to stimulate a wider geographical distr-bution of industry should be limited ty considerations of efficiency. There are already in Ecuador a few instances of plant locations induced by Governmient incentives which evidently

ignored the high transport cost involved in obtaining the raw materials

and supplies and in marketing the finished product.

INainly as a conse-

quence of the limited size of the market, concentration of production is also high, with 92 plants of S/lO million investment or more - less than 4 percent of the number of plants - accountiing for about 40 percent of f'actory employment, nearly 60 percent of the industrial payroll and over 70 percent of the total value of production and value added by manufacturing. The total output of some important conmodities is produced in one or two plants. Investment and Value Added The industrial growth of the last several years has required a r2. substantial investment effort for expanding and modernizing existing plants as well as for financing the facilities of new enterprises. Between 1957 and 1968, total fixed investment in new and existing plants totalled S/4.4billion - about $24 million - representing an annual average of about S/4oo nillion in current prices. Of this, about 41 percent was invested i.n new industrial establishments and 59 percent has gone toward expanding aLnd/or modernizing existing ones. At S/400 million per year, fixed investmnent in industry has accounted for substantial and growing proportion of total private sector investment in Ecuador. Investment in industry has been mostly made by Ecuadorian nationals. Foreign investment in industry has been limited, representing only 17 percent of the total (see Tables 8.!4 and 8.5). It has been registered almost wholly in the new enterprisss established over the last several years, reflecting a growing interest of foreign capital in Ecuadorls industrializa tion. No data are available on the sources of financing for fixed investment in industry, but the average clebt equity ratio of about 55 percent rnay be taken as an indication that the reinvestment of profits has played an iimportant role. As no long-tern credit has been available until recent years, a substantial part of invest mrent must have been financed by short-term credit facilities from commercic1 banks and Central Bank. The appearance in recent years of two specialized Industrial credit institutions, one public and one private, responded to ¿in obvious need for Ecuador's further industrial progress. Compared to other Latin American countries of similar charac',3. 1;eristics, the recent industrial development of Ecuador exhibits several 'avorable features. Value added, an average of 37.4 percent of the total value of production, is relatively high, especially when account is taken of the fact that the "Food" industrial group, wlith a value added ratio of only 32.4 percent, weighs heavily in the total. One reason for -this relatively high proportion may be the generally 1ow protection for

- 22 raw irlaLerials, joined with substantial tariffs on finished products. there is little A.lthough industrial production is quite concentratedc evidence, on the other hand, that the high ratio of value added to gross value of production is the result of excessive vertical integration in industry (see Table 8.7). Although for the industrial sector as a i-jhole the proportion of imported raw materials - 27 percent - is not low, Ecuad.orts manufacturing production largely consists of the processing of Pure d omestic raw materials, though there are a few important exceptions. exceptional. rather are plants industrial mixing or assembly Ecuadorís industrial growth has taken place under a degree of 54. tariff protection that, so far as can be judged, appears to be high. Only an intensive study could measure the degree of protection enjoyed by Ecuador's industry accurately, as the authorities - particularly the Central Bank - make extensive use of such non-tariff protective devices as advance deposits on imports, prepayment of import duties and import surcharges, raising or reducing them as an instrument of monetary and of balance of paymenit policies. A limited analysis of a selected list and values sales unit local of comparison specific products for ivhich the of percent 12 about covers which import unit values is possible, Ecuador's total manufacturing output, showed that for seven out of ten products, total ad valorem tariff duties exceed 60 percent, and for four products 100 percent. Since except for cement all the products included in the sanple have a high component of duty-exempted imported raw materials, the degree of protection seers high. A more general indication of Ecuadors average level of tariff is the fact that in 1966-68 import duty collection3 net of import surcharges - have represented on the average 42.2 percent of imports subject to duty. C.

-

Incentives and Industrial Promotion

An important stimulus for the sector wjas provided by the In55. dustrial Development Iaw, first enacted in 1957 and amended in 1962 and It established four categories of manufacturing enterprises, Spe1965. cial, A, B and Registered, on the basis of fairly broad criteria designed to reflect the anticipated contribution of the enterprise to the country's The most important benefits granted by this LawT economic development. are virtually complete exoneration for the three highest categories from import duties on capital equipment including replacement parts, and on niaterials incorporated in reexports, and substantial reduction of duties c>n other imported materials and income tax on certain categories of plants. Reinvested profits are exerapted from income taxes and the Special class There are enjoys complete profit tax exemption for the first five years. aidditional benefits related to sales taxes and various kinds of fees for Estamps, licenses, credit instruments and the like. The gross cost to the Treasury of these benefits has been estimated at arourid S/218 million (aboutt l10 million) for 1966. They have also entailed some indirect costs to the econonyr, especially in the case of import-substitution industries producing items at costs greater than those available on the world mnarket. However,

- 23 a;z tlie Law has effectively stimulated new investnent in Ecuadorian indu9try and has played some role in encouraging its diversification, these foregone revenues overstate the real cost to the Treasury of the incentive mechanism. From tlie point of view of prospective investors, the tariff benefits were clearly of prime significance, since the exemption from iinport duties on capital equipment probably reduced investment costs by 15 percent or more in many cases. The exemptions or reductions in duties on imported materials were also an irmportant factor, especially in the case of reexports having to compete on the world market. In 1966, the tariff duty exemptions granted by the Government for industry were the equivalent of 23.5 percent of costs (measured by the difference between the value of production and pre-tax profits). As in the last several years the number and proportion of plants enjoying duty exemption rose, the overall dependence of industry on this type of incen-tive is greater now than four years ago and raises some questions about the consistency of future fiscal equilibrium iith further industrial development, given the econony's basic reference prices, i.e. interest and exchange rates and wage levels. The critería of the Industrial Development lIaw for eligibility for benefits are rather broad and sometimes difficult to apply precisely. Under these circumstances, the fact that the Law allows ample administrative discretion with respect to the classifications on which the granting of tax benefits depend probably resulted in a more discriminating use of its benefits than if its application would have been more nsiadatory. Judging by the results, i.e. the type of industxy that has generally benefited, it may be concludei t,aat the procedures for screening industry applications through the various governnent agencies involved, has generally succeeded in avoiding the proliferation of industrial plants of a purely mixing, packaging or ass smbling character with high import components and low value added. Some improvenents in the Law uould seem warranted, however, with regard to the benefits. The sales tax exemption and other small tax benefits seem hardly essential and, more important, the exemption fromn income tax could well be more limited n1 duration. As the most obvious opportunities for import substituting industries are becoming fewer, a more rigorous screening of this type of industries becomes necessar_, in order to ascertain, as far as feasible3 the true economic benefits to the country of the proposed -nvestrment. D.

Financing

57. Ecuador s industrial sector has lacked,until recently, adequate sources of financing, which may have had an adverse impact on its growth. In the past3 the bulk of the industrial banlk credit, both for working capital and for inivestment, has been short-term loans - though usually renewable - fromn the commercial banks and the Central Bank. Longer term industrial credit is now provided by an autonomous public institution, the Comisión de Valores and Corporación Financiera Nacional (CV-CFN) and oy a private finanícing corporation, the Corporación Financiera Ecuatoriana

-

24

-

(CElXIC). l'he following table shoirs the credit made available to industry iri recent years:

EDUSTRIAL CR ZJlT BY SOJW-E2 1965-68 (Loans outstanding at the end of period, in mnillions of sucres at 1960 prices)

Total

Central Bank

Conmmercial Banks

National Development Bank

National Finance Corporation

1965 C1966

l,059.2 1,091.6

541.3 442.7

410.5 463.1

35.1 31.7

72.3 130.1

1e967

12349.9

347.8

88.9

35í6

196.8

1"68 1969

1,428.2 n.a.

461.1 287.81/

504;3 n.a.

29.hL 16.9

27h.4 289.92/

COFIEC

24.0 65.8

159.0 137.42/

l' July 31. Z/ May 31. Y/ September 30. S3ource:

Monthly and weekly bulletins of the Central Bank of Ecuador.

Total industrial credit increased at an annual rate of about 10 percent in real terms during the period. The increase izas aLmost exclusively rE3gistered in the specialized, longer-term credit provided by the tlío irndustrial financing institutions, while the expansion in commercial bank credit was almost wiholly offset by the reduction of credit provided by the Central Bank. 'WJhile only part of the loans of these tiTo institutions wEire of long or medium term, it nevertheless seems likely that the expansion during 1965-69 involved a significant qualitative improvement in the :Liability structure of the industrial sector. 558 The demand for industrial credit is likely to continue strong. TILe potential for furtler industrial expansion is not exhausted, and adlditional financial resources will be needed to sustain it. The rapid growth in the volume of operations of the two specialized institutions iri the last few years, as well as their lending programs during 1970-75, in themselves constitute indications of this. The CV-CFN contemplates a steady increase in its loans. In contrast with S/173 approved in 1968/69, it expects to lend S/187 in the current fiscal year with a gradual rise to S/330 in 1975/76. COFIEC 1 s program calls for gradual, but steady inerease to reach about S/300 million by 1973. 59. The CV-CFW is an autonomous corporation wholly owyned by the Government; it uras created in its present form in 1964 and capitalized

-

25

-

tris assets of the f orer Co-isión de Valores. It has access ta Ceatrn1 Bank credit and has Dbtained external loans froy AID and DB and from other 'Lending institutions. It finances industrial i nvestwent and lends also sorne funds for work-ing capital. In contrast, COFIEC, a private corporation cnmed by Ecuadorian investors and with a snall participation from tie CV-CfI and the IFC, has so far concentrated on short-term lending. Its loans for 5 years or more represent only 12 percent of its total lending. It also has a more diversified portfolio that the V-CFNI. About 32 percent of its outstanding loans are to agriculture, tourism-hotels-constructicn and transportation. COFIEC has obtained external financing from AID, IBrD, Eximbank and private foreign banks, a total of S/249 million as of June 30, 1969. There is a large degree of cooperation between the two institutions and, although there is sone overlapping il their operations, continuous exchange of information malces their respective loan operations increasing`-y complementary rather than competitve. wLit

E.

Problerms and Prospects

Ecuador's process of industrialization has enconntered the usual constraints of limited saurces of ranagerial ability and scarcity of skilled manpower associated with the early stages of industrial grorth. Until recently it has lacked specialized industrial credit institutions, and investment funds have general1y been limited, uncertain and costly. At present, shortage of electric power, particularly in Quito, ls beconrixg a bottleneck. Ths single most Luportíant limitatior fcr signlficant industrial grouthik, hownver, has been t.Pe small size of the market. Import substitution has been the main line of development under relatively high tariff protection, thcugh some manufacturing exports, notably pharmaceutical products, have also developed. The limited size of the market will become less of a constraint if trade liberalization under the Andean SubRegional Arrangemnent advances. The eventual complete removal of trade barriers would open to Ecuador a market nine times larger than its olm. Though its membership - already effective - in tie Andean Sub-Reglonal Arrangement is Likely to face Ecuador wi.th some economic adjustments, it offers also significant opportunities.

6o.

61.

Among these ray be - eventually - benefits derived from the sectorial industrial programe to be developed and approved under the Andean Sub-Regional Arrangement by the end of 1973. These, howrever, are still uimknom. But trade liberalization itself would open possibilities whlich, if supported by adequate preparation and policíes, may be significart for further industrial growih. Under the provisions of the Treaty, Ecuadcr and Bolivia will have the double preferential advantage of enjoying both an earlier liberalization for theír exports to Perú, Colombia and Chile, while delaying for an additional five-year period the complete renoval of trade barriers to irports criginating in its trade partners. As an indication of its interest in the implementation of the trade pact, Ecuador has already freed fron restrictions tba imports included in the first tranche of the Comon List of the LAFTA treaty, which was not required to do until

- 26 -

tS e:idd of thlis year. Other imports, except those which way fafl -udor undetermined - would be líbertihe sectorial industrial prograns - stíll ané. Chile, tiiile Ecuadcr olombia Per&, '2y period ten-year a orer algzeed -years. additional five and Bolívia enjcoy

rae dwoíla ad-ar.tage ci earlier openitzg of ihe r.eighbtring nar62. opening of its own may be signifícant for Ecuador's delayed kets and industrial sector further expansion and diversification ir utilized properly. Sone basíc measures are alreary being talcen to that erid. The Centro de Desarrol.o (C3MDES), which in the last Lew years has been engaged in industrial feasibility studies, has nowT devoted ita full attention to working out the inplicatiows for Ecuador of its nembership in the Andean Pact. The authorities are also completing the new tariff nornenclature and classification required. Tmís is partiicular1y important, as the presert import tariff suffer from a too limúted breakdoian of iterns and vague or anibiguous descriptions which tend to ncake custora adinistra½, AND OUTLOOK VGR 197(0 WITH (A) ANlD WTTFOUT (B) FISCAL PROGRAM (In millions of current sucres)

1967 Current Revenues

2,373

Bonds

Centraial Bank Other Use of Cash Balances

Note:

1969

2,527

2,925

1970 (A) 3,480

háL4á3 33424 3á61

Total Expenditures Deficit Borrowi¡tg Exteri¡al, net Internal, net

1968

1970 (B) 3,030-

51189

4o 1l 38 -27

897 811 TESU 70 774

762 1,0768 -21 1,097

850

2 159

100 450

100 1,759

(36)

(339)

(221)

(350)

(-57) (- 6) 29

(415)

(896)

(20)

(-23)

53

-314

(ioo) (_) 300

(100) (1,659)

(-) 3001/

Progran for 1970 is as follows:

Revenue, original estinate Plus increase import duties Surctarge inereases Other Tax Measures

3,030 +100 +250 +100

Expencb Lures, original estimate Reduc tions

5,189

3,h80

-859 h

Revised Deficit Internal Financing Payment of agencies in bonds Centra.l Bank, net

1/ 2/

30

85 100 350

400

Already used to repay 1969 carry-over into 1970 program. jDoes ¡¡ob include increased import duty collections that will result from higher import levels imnplicit in irionetary program.

Source:

1967-69 Central Bank, 1970 Bank staff estimates.

3UU>4ARY ACCOUNTvS OF TUE RBA!K!- SYSTEM, 1967-69, ANT PRO(EC.TTONS F()R 197() WITH (A) AND WITHUUT (kB) PISAL PRORAM (In millions of sucres)

1967

1968

1969

Net International Reserves

1,122

961

1,042

800

0

Domestic Credit

6,496

8,034 1,068

9,297 1,574

10,210

11,360

-198

4,943

-241 5,821

1,064

1,286

63

Central Government, net

522

Rest of Public Sector, net Private Sector Unclassified Float

-96

Administered Foreign Funds Medium and Long-Term Foreign Liabilities Liabilities to the Private Sector Voluntary Sucre Liabilities

1970 (A)

1,980/ _10¿1

1970 (B)

3,530 -200

1,500

6,430 1,500

100

100

41

40

40

121

114

120

120

7 651 6,963

8 870

9.400

9 750 B100

6,730

100

6,388 1,448 85

23

38

126

6 374

Currency

5 (1,371)

(1,564)

73,100 (1,702)

(1,900)

(1,900)

Demand Deposits

(1,910)

(2,281)

(2,659)

(2,800)

(2,800)

Time and Savings Deposits

(907) (1,255)

(1,211)

(1,323)

(1,366)

(1,45o) (1,500)

(1,450) (1,500)

(4h5) 366

(561) 463

160

232

(1,431) (522) 952 281

1,095

1,185

Mortgage Bonds Other Sucre Liabilities Advance Import Deposits Foreign Exchange Liabilities Capital and Reserves

1,314

1/ Drop reflects response to payment of entities in bonds. 2/ Increase reflects higher import level and increased advance deposit requirements. Source:

IFE,

1967-69, and Bank staff, 1970.

(450)

1,050 -

(450)

1,4o00

250

250

1,450

1,450

- 37

-

Central Governnent would seem feasible; this conpares with an unfinanced The Government t s program thus ains at reducing gap of S/1,959 million.

the gap by some S/I,500-1,600.

As part of its program, the Governnent

has been considering budget cuts in the arder of S/860 million and payment of autonomous entities with S/250 million in bonds. It should be noted, however, that payment of entities in bonds may cause them to draw down their deposits in the Central Bank, partly offsetting this measure. The Government of Ecuador has several revenue measures under 82. consideration, the most irmportant of these, at least for the shorter run revenue impact, is an increase in import surcharges. The yield from these surcharge increases cannot be estimated precisely, given the uncertainty regarding their impact on the demand for inports, as well as the timing of the neu measures. However, given the level of imports consistent with exexcluding pected credit expansion during 1970, $261.5 million c.i.f.,i/ those related to oil development, an increase of 10 percentage points in the level of surcharges should yield S/450 million on an annual basis, ceteris paribus. The Governnent has also been considering a new sales tax, at 83. the wholesale level, and is already receiving OAS technical assistance for its establishment. While the 1970 yield from such a measure, even if instituted before mid-year, would be small, perhaps S/100 million, it is important from a longer run point of view: first, because new reve--nues will be required in 1971 if a repetition of 1970's problem is to be avoided; second, to reduce vulnerability of tax revenues to changes in the external sector. The Government also has under consideration several other minor revenue neasures which, if taken in conjunction with an increase in surcharges and the introduction of the sales tax, would provide These measures, together with the revenues sufficient to close the gap. can avert a recession and/or programn, monetary complementary required of 1970. They would also part latter the in crises payments of balance produce substant;ial increases in Central Government revenues in 1971-73, before the favorable fiscal impact of oil production is felt. The full effect of these tax measures wçill not occur until 1971, when a 13 percent increase in current revenues is projected. A smaller increase, about 5 percent is forecast for 1972. In 1973 and 1974 the combined effects of the tax measures and oil revenues would result in revenue increases of 15 and 22 percent, respectively. However, because of the large increase

1/

C.I.F. figure used because surcharges are assessed on this basis. Reconciliation with balance of payments figure of $264.7 million total imports, f.o.b. for 1970 is as follows: $269.2 less $36.4 oilrelated imports equals $228.3 million non oil-related imports, f.o.b.? plus $33.2 freight and insurance equa-ls $261.5 million, c.i.f. Thus, ion-oil-related imports may well expand in 1970. (See Tables 3.6 and 3.6 a).

- 38 -

ILLUYERATME, PROJECTION'I

OF C.ENTRAL GOVflNMENT FINANCES

(millions of 1969 sucres)

A.

Jithout new

dJith new revenue measures

-U.evenues Currer.t expenditures Current saving TransA'ers rnavinz af'ter transi'er Inve.:3c.cnt -.urplu;, or deficit C.

1972

1973

1974

2,900

3,215 3 650

3,74h

h,661

-230

3,061 3,380 -319

-580

-580

-710 50( -1,210

-879 500 -1,379

-580 -1,013 500 -1,515

-580 926 ~ 500 -1,_2

3,330 3,13() +200 -580 3

3,767 3 380 +387 -580 -193

3,975 3,650 +325 -580 -255

4,56h L 090

500

500

500

500

-693

L75

3,132

090 -75

4

,586 -580 -5 500

-1,00

1/

-:

+ -380

-16

5,561 L,586 _7h 975 -380

±+395 -Q00 -los

-

!.'th new revenuie measures and expenditure restraint

ievenues Current exnenditures Current 3avlng

Trans fers Saving after 1;ransfer Inves'ment ,ur-plus or deficit

1/

1971

measures/

Revenules Current expenditures Current savings Transfers Saving after transfers In ves tri en t Surplus or deficit B.

1970

3,330 3,130

+200 -580 & -3 500

-T8055

3,767 3 130 +637 -610 0+27

570

?1

3,975 3 130 + -64o +205 610 -Z3

h,564 12..3 1,121 -670

625 -:171

5,561 3 787 +1,77 -710 -1,07óh 700 -6h

Current expenditures growing at 8 percent 1971-72 a,id 12 percent 1973-7h.

.our ce:

Banlk ;taf-- estimates.

- 39 -

in current expenditures in 1968-69 and the resulting high level of these expenditures by 1970, continuation of relatively unrestrained expansion of current expenditures would leave the Central Government with a level of current savings in 1971-72 inconsistent with the znoderate expansion of transfers and capital expenditures necessary for a modest program of public investments, given the probable level of external financing and limited internal bond placement prospects. To demonstrate the need for fiscal restraint, illustrative projections of Central Governmznt finances through 1974 have been prepared (see table on Page 38). In the first example (A) revenues are projected without the tax measures now under consideration (but naturally with the effect of oil development). Current expenditures are allowed to increase 8 percent per year in 1971-72 and 12 percent in 1973 and 1974 and transfers about 8 percent on the averUnder these circunstances the Central Government wculd have negative age. savings in 1970-73 and only a small current surplus in 1974. Thus, even with Central Government capital expenditures maintained at the 1969 level, severe fiscal difficulties would continue throughout the period. Projection (B) shows that if revenue measures currently under consideration are enacted, while current expenditures are allowed to increase as in (A) above, the current savings picture would be considerably improved. Nevertheless, the savings generated during 1971-73, averaging somewhat under S/400 million per year, would not support an expanded program of public investment. Even at the 1970 level of Central Government transfers and investment, annual overall deficits averaging about S/680 million would It is not possible to say precisely whether be incurred over 1971-73. deficits of these magnitudes could be financed with external borrowing and internal bond placements sufficient ta avoid excessive resort to Central Bank firnancing. There is, however, serious question as to whether deficits of this magnitude are tolerable, but even if they were, they could be held to this level only at the expense of growth of public investment. The third set of projections (C) assumes that revenue neasures 84. are taken and, in addition, that the real level of current expenditures is held at the 1970 level in 1971 and 1972. Given the sharp increase of expenditures in recent years, this is not an overly restrictive assumption. Expansions of 10 percent per year are then assumed for 1973 and 1974. The level of current savings generated under this hypothesis would be sufficient to support a 5 percent annual increase in transfers and a modestly increasing level of investments while producing declining deficits averaging about under S/400 million per year. This level is lower than achieved at any time during the 1960's. E£5. In line with past experience and given projected revenue and expenditure levels, the rest of the public sector can be expected to generate substantial current savings in 1970-74, even before transfers. In fact, asauming that the new tax measures are enacted and that Central Government expenditures are restrained during 1970-72, the operations of t,he public sector as a whole can be expected to generate considerable current savings, especially in 1973 and 1974 (see table below).

- 40 -

PROJECTED PUBLIC SECTOR SAVINGS, 1970-74 (millions of 1969 sucres)

1970

1971

1972

1973

1974

Current revenues

7,880

8,44o

9,040

10,070

11,520

Current expenditures

62474

6,674

6,887

7,425

8,008

Current saving

1,ho6

1,766

2,153

Source:

2,645

3,512

Bank mission estinate.

Since institutional rigidities prevent the reallocation of revenues within the public sector, the alternative, if Central Government deficits are

to be held down fhile public investment increases moderately, is to increase total revenues, with the increment going to the Central Governrnernt This policy, coupled with restraint on Central Goverment current expenditures in 1971-72 and with oil revenues in 1973-74 could generate overall public sector savings in excess of those required by the public sector fcl its own domestically financed capital expenditures. If this proves to be the case, the most productive use of the surplus may well be channelling a large part of it back to priority activities in the private sector. This, however, is an issue which will probably only have to be faced several years from now; for the time being the overriding problem is that of the shortfalls in Central Government resources.

-

V. A.

41

-

PUBLIC INVESTNDIT

Public Investmrent in the Recent Past

As indicated in the preceding chapter, the level of Ecuadorian 86. public investnent ís highly dependent on Central Government current savñnPs In the past, the level of these savings has been limited both by- the earmarking system aid by pressures to expand Central Government current expenditures. As a result, the Central Government's own investment level has not risen and some of the investnent-oriented autononous entities, which are dependent on voluntary transfers for their investment programs, have been chronically starved for funds. Even within the Central Government, earmarking of revenues, especially ior highway prograns, has reduced flexibility in allocating funds to other sectors. Furthermore, dispersion of investment funotions into numerous, often regionally-oriented autonomous entities nmakes the establishment of sectoral and geographical priorities difficult and leads to coordination problerm. Unfortunately, available data on public investment do not permit 87. complete sectoral analysis. Noreover, no sectoral data are available for the two most recent years. Available data do, however, indicate the extent to which public investment has been concentrated in transport and power (see table below). Over 1962-67, 39.6 percent of public investment has been devoted to transportd/(roads, bridges, airports and docks) and 34.9 percent to electrification and water supply. The Central Governznentrs oínn investment effort was even more heavily concentrated in these sectors. Budgetary information indicates that the sectoral concentration of investrment intensified over 1968-69. Despite tite shortconings of the data, it is still elear that relatively little public investrnent has been devoted to agriculture, education and health. It should be pointed out, hovever, that the investment totals below include only fixed capital formation of tiqe public sector. They do not include the channeling of resources for private investment through operations of publio or quasi-public financial .ntermediaries.

1/

To the extent that the "machinery and equipmentt" category in the table contains transport related goods, this percentage is an underestimate.

-

42

-

STRUCTUIDE OF PUBLIC SECTOR IEST

Schools l-ousing Hospitals Other Buildings Roads and Bridges Aírports, Harb ors and Docks ELectrification and Iñater Supply Irrigation Machinery and Equipment Total Total in Millions of 1960 Sucres

Source: B.

1962-1967 Percentages Central Rest of Govern- Public Sector ment

Total Investment, Central Rest of Govern- Public ment Sector

1962-67 Total Public Sector

51.2 O.6 8.2 22.8 75.6

48.8 99.4 91.8 77.2 24.4

100.0 100.0 100.0 100.0 100.0

7.1 0.1 0.2 3.6 63.6

3.8 5.6 1.6 7.0 11.9

5.0 3.7 1.1 5.8 30.8

38.9

61.1

100.0

9.h

8.5

8.8

14.1 -

85.9 100.0

100.0 100.0

9.5 0.0

33.8 5.2

24.9 3.3

14.5

85.5

100.0

6.5

22.3

16.5

36.7

73.3

100.0

100.0

100.0

100.0

1,591.0

2,747.0

4,338.0

Total Public Sector

Table 5.4. The 1970-74 Public Investment Program: Level and Composition

Because a large part of investment activity is in the hands of 88. effectively autonomous entities, the Government has not yet been very successful in establishing overall investment priorities and imposing these priorities on the public sector. Sectoral distribution of investment is more a function of the system of earmarking and transferring planned program. Thus, the plans revenues than the result of a centrally of investing entities and their ongoing programs and projects, rather than the more formal official program of the National Planning Board, are indicative of the likely future structure of public investment. VWhile the National Planning Board's program is not likely to determine what will in fact happen in public investment, it does indicate the relative priorities held desirable by the central authorities. The National Planning Board's development plan for 1970-73 calls for a reallocation of investment away from transportation toward other sectors, especially power, agriculture (including irrigation) and health and education. This reallocation of

-

4.3 -

investment is generally in line with the Mission's view of priorities. MIowever, because of fiscal rigidities, a drastic sectoral reallocation of investment effort in the short-run is not in prospect. Over the lonoarterm some redistribution can be accomplished by using additional resourc3s generated by the contemplated tax measures and later by oil revenues in higher priority sectors. 89. Using the planned investments of the Central Government and inajor autonomous entities for the period 1970-74 as a base, the mission has developed an indicative public investment program for the period. This program allows for a gradual reallocation of investment away from transportation (especially highways) into other sectors and is consistent with the lending programs of international agencies. As will be shown below, the program is also consistent with the availability of Central Government current savings under the assumption that tax measures now under consideration are enacted and that restraint is exercised in the growth of current expenditures over 1971-72. The program is based on the investment progranm of the major investing agencies and broadly reflects the national priorit es established by the Planning Board; it is thus in part a forecast and in part a recommendation. The basic criteria are institutional feasibility and economic justification. 90. table:

The main elernents of the progran are summarized in the following

INDICATIVE PUBLIC INVESTHIEJT PROGAr&I, BY SECTOR:_1970-74 (Amounts in PIllions of 1969 Sucres)

Total Expenditure 1970-74 Agriculture Commu.nications Education Power Health and Sanitatien Transportation Other Total

197 r

1974

4.8 5.4 13.4 16.4

8.6 3.8 10.2 21.1

8.8 5.1 8.5 24h4

12.6 4.8 9.9 25.0

9.2

8.6

12.8

44.6

57.1

44.4

-

2.8

11.1 42.7 2.8

8.9 42.0 2.8

40.3 2.8

100.0

100.0

100.0

100.0

100.0

1,467.6

1,685.7

1,979.2

2,130.8

2,010.4

65.1 lh.2 73.1 40.7

34.9 85.2 16.9 54.3

7.9 4.7 10.7 20.7

852.1 4,137.3 192.0

39.4 77.2 33.3

60.6 22.8 66.7

9,273.7

61.7

38.3

100.0

Table 5.8.

1970

Sectorial Distribution Percentages 1973 1972 1971

2.9 4.7 12.4 14.2

736.7 439.2 992.8 1,913.6

Anniual Total

Source:

Financing By Source (Percnt) External Donestic

2.1

5.0

The indicative program would provide for a level of public investment rising from S/1,467.6 million in 1970 to S/2,130.8 million in 1973 and an increase of public investnent as a percent of GDP from 4.6 percent in 1970 to 5.4 percent in 1973. However, despite the fact that the Central Government's fiscal position will be considerably improved as a result of the increase in revenues generated by oil production and export in 1973-74, a larger increase in investment expenditures in those years cannot be projected at present because of the lack of new projects and Furthermore, the shortage of projects and programs suitable programs. for financing by international entities will have an effect on their conmnitment levels over 1972-73 and on the availability of external resources beginning in 1974. C. Investment Program by Sectors Transportation During the late 1950's and the 1960's Ecuador built most of 91. what should constitute its major highway system. North-south arteries, one on the coast and one in the Sierra, and the two main east-west links and five lesser ones between the regions were virtually completed. All weather and secondary roads were also extended considerably. The table below shows the expansion of Ecuador's road system between 1962 and 1967. ROAD SYSTEM GROWTH (kilometers) Road Type Asphalt or concrete Gravel or macadam surface All weather Dry season only Total Source:

1962 857 5,832 1,967 5,397 14,053

1967 1,957 5,465 3,009 8,497 18,928

Annual Compound Growth Rate (1962-67) 18 -1 9 10 6

Ministry of Public WVorks.

Ecuador's First Highway Program, begun in 1958, provided for construction This program was or improvement of 700 kilometers of trunk highways. largely financed by an IBRD loan ($14.5 million) for foreign exchange cost, and a U.S. DLF loan ($5.3 million). These loans financed construction of 538 kilometers of highway. The Second Highway Program, which was begun in 1965 and should be completed in 1970, provided for construction or improvement of 1,650 kilometers of road. This program was assisted by a

- 46 -

consortiun consisting of tha Bank, IDEA, IDB and AID ujhich together lent $39 million for construction of 500 kilometers of road. Thís program will virtually complete construction of the major roads in the coastal plain and its links with the Sierra. A Third Highway Program has already been begun by the Ministry of Public Works, which carries out about three-fourths of road construction. The Ministry is beginning to initiate construction of Stage I of this program which involves a total cost of S/1,741 million. External financing has been requested for a package of four Stage I roads. The key road in this package is one which will run from Ambato in the Sierra to Puyo and Macas on the eastern slope of the Andes, improving access to the eastern part of the country. 92. Part of the Central Government's revenues is earmarked for the Highway Construction Fund of the Ministry of Public Wiorks. The Ministry has chosen to finance the rest of its Stage I roads internally rather than request external financing. It has done so using these funds to repay sucre-denominated bonds issued to domestic contractors, as authorized by Congress. Despite the fact that the repayment of these bonds will pre-empt funds that might othervise have been made available Within the Central Government for other investments, including counterpart contributions on external loans, the Ministry of Public diorks has been reluctant to accept the need for the studies that would be required if these roads were to be financed by international entities, feeling that their obvious need calls for immediate execution. Since it is obvious that these roads will be built, funds for their construction are included in the Mission's indicative public investment program. 93. Outside of highway construction, the highest priority projects in the transport sector involve improving Ecuadorls air and sea links with the rest of the world. The indicative public investment program includes funds for the expansion of the nation's principal seaport, Guayaquil, and construction of a new international airport near Quito. The Guayaquil project, which will entail addition of two banana berths and two other bulk cargo wharves to the portts existing facilities, will cost approximately $16.5imillion. The airport project for which a feasibility study will begin shortly, will probably involve building a completely new facility costing $30-35 million. Power 94. Because lack of a stable amount of sufficient electric power is rapidly becoming a bottleneck limiting Ecuador's industrial development, increasing electric generating capacity must continue to absorb a large prcportion of public investment funds. Ecuador's utilization of electric power has been estimated by the National Planning Board to be increasing at 12 percent per year, and a number of the country's urban centers are

-

;oi

experiencing,

47

-

or will shortly face, power shortages.

The situation

:Ls particularly acute in Quito where inadequate rate policies have unnecessarily limited tite internally financed investment capacity of the enterprise. In order to alleviate the rapidly deteriorating power situaticn, work on three major hydroelectric complexes and nuraercus minor projects is contemplated for the next five years.

95. The Ecuadorian Electrification Institute (INECEL) is the principal public entity operating in the power sector. Legally, it is an autonomous agency attached to the Ministry of Industry and Commerce. According to its charter, INECEL should (1) formulate and execute a national electri4ication plan; (2) foment the creation of private power companies; and (3) train persannel for positions throughout the sector. In keeping with its legally imposed tasks, LIECEL plans to complete a number of electrification projects in Ecuador t s smaller cities during 1970-74 with the assistance of AID, Eiimbank, British and Polish loans. These projects will be dwarfed, however, by INECEL's plans to commence construction on the first stages of the Pisayambo and Paute (Cola de San Pablo) hydkoelectric complexes which will, in fact, dominate public investment in the sector duríng the next five years. It shouild be noted that both projects are located in the Sierra and that external financing of both is now under active consideration. 96. Pisayambo is a combined hydroelectric-irrigation scheme. Available data indicate that the hydroelectric project's first stage will generzize 64.6 Ibí with the estimated total capacity for the completed complex estifrate3. at 14 8 NW. The cost for Pisayambo's first stage is calculated at S/477 million and Tnost of its power would be used by consumers in the country's central and northern Sierra. Paute is the single largest project planned for Ecuador in the next five years. Its first stage alone is expected to cost S/1,600 million and to generate 315 Nwld. Most of this power would be used to meet the demand in the southern Sierra and the coast, including Guayaquil.

97. The third large hydroelectric complex scheduled for constructicrn in 1970-75 is the publicly owned Quito Electric Companyts Nayon project. The total cost and generating capacity of the coimplex are estimated at S/306 million and 30 Mí., respectively, and most of Nayon's power aould be used by Quito area consumers. According to the electric company, Nayon's power will satisfy Quito's additional demand until Pisayambo is completed and will eventually supplement power from the larger Pisayambo project. The Quito Power Company expects to receive suppliers' credits to assist it in the financing of Nayon. 98. The mission's indicative public investment program for the power sector in 1970-74, which includes these three major projects, is ratIier ambitious, involving as it does expenditure of S/1,914 millioon ($105 million) over 1970-74 - over 20 percent of total public investment. Investment in

this sector is particularly vulnerable to problems caused by Central Governnment fiscal difficulties since the counterpart funds for Pisayambo and Paute will depend almost entirely on Central Goverrment transfers to INE¡CcL. Agriculture Relative to its importance for overall economic development, 9% agriculture is by any measure the most under-funded sector of publio investment. The only readily identifiable agricultural component of public investment over 1962-67 was irrigation, which accounted for 3.3 percent of the total. This consisted almost exclusively of small projects, executed by the Institute of Hydraulic Resources, ITERHI. The programs of this entity, which is almost totally dependent on Central Government transfers, have suffered from low appropriatíins and from its attempt to satisfy regional interests by spreading its available resources toe thinly. Since irregular and generally inadequate rainfall, both in the :L00. Sierra and the Coast, is one of the principal factors limiting agricultural yields, greater productivity can be stimilated through improvement and extension of the national irrigation system. This Would prove especially beneficial en the Coast, where in recent years recurrent and extremely severe droughts threaten to turn sone regions into desert. Several relatively small projects are now in preparation which 101. could increase land under irrigation and probably allow international agencies to channel financial assistance into irrigation. Included in the indicative public investment program is INEmfl5 S/63 million Milagro project, wrhich would improve approx:imately 3,700 aectares en the Coast. Three other projects in the Sierra, Pisque, Xontufar and Pisayamnbo which will irrigate approximately 20,000 hectares at a total cost of S/206 million are also in the prcgram. A follow-up loan to finance feasibility studies in

the Guayas river basin by the Cowmmission for the Developnent of the Guayas

This entity was originally limited. Basin (CEDEGE) is under consideration. River systen. In the latter Guayas by law to studying the potential of the projects. CEDEGE was execute to part of 1969, however, it was empowered organizat;on and its entry investigatory established a solid reputation as an CEDEGEs development.l positive a into the irrigation fields would be the basis providjig projects work is likely to develop additional irrigation in assistance, external possibly for additional investment expenditures, and included been have resources additional Qn this basis substantial irrigation. in the indicative program fcr the agricultural sector on an unassigned basis, bringing agriculturets share of total publie investment up to 12.6 percent 1/ It shoald be noted that the responsibilities of CEDEGE and MEREI overlap and may require further delineation.

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49 -

4 zn

1974. Emphasis on improvement and expansion of technical capabilities for project preparation could greatly increase the absorptive capacity of investing entities in this sector. 102.

In addition to these irrigation projects, the Agriculture Research expansion of its network of its experiment stations rounds out likely public investment in agriculture in the program. INIAP is an autonomous agency attached to the Ministry of Agriculture carrying out agricultural research aimed, inter alia, at increasing yields and diversifying production. Much of INIAP's research has been oriented to assisting farmers adversely affected by the shift in banana varieties. Tt has carried out successful research in cacao, African palm and other crops. A $2.2 million loan for IfILAPs project, having a total cost of $3.3 milL:cn, has recently been approved. INIAPts future role will undoubtedly be oriented more toward bringing the results of its research to farmers. In this, the

Instítute's (INIAP)

e.xpected cooperation between INIAP and the National Deve2opment Bank in its credit programs for agricultural diversification will be beneficial. Education 103. Tn the past decade Ecuador has made substantial progress in education at all levels. Enrolment in primary schools, well above 80 percent of the 6-12 age group, is higher than in most comparable Latin American countries. At the secondary level, the number of students attending school trebled in the last decade to about 20 percent of the 13-J.C age group. At the post-secondary level--universities and specialized schools--enrolment has grown at an annual rate of about 10 percent for thie last sixteen years, with over one-third of the students attending physicalt sciexces and engineering courses. NIaturally, such programs have a heavy current expenditure ccmponent and their expansion has acted as a limitation on the amount of funds available for capital investment. The growth of Ecuador 1 s educational system has not been matched by a corresponding increase of fully qualified staff or facilities, including school buildings ard laboratories. As a result of these and other factors, output and quality of tite education system are still low, particularly at the primary levels, arxs there is a high rate of drop-outs. The system also suffers from excessrve decentralization, especially of vocational schools, where scarce resources, skilled teachers, raaterials and equipnent, are dispersed over a large nuinuer of sinall units--22 technical industríal, sorne 170 conmmercial, 16 agricult;ulrax and 38 teacher-training schools. In addition to the regular vocational schools, adult education evening courses are carried en ir 35 general secoiidi3 schools and 19 commercial and technical schools for working youths who ha-Te previeusly dropped out of the systen; more than 12,000 students are enroiea im these courses. 1Oh. Ecuadeors educational target of raising primary schoel enrolnent to 92 percent of the 6-12 age group by 1974 seems attainable, particularly since improvements recently introduced in the curricula and some structural reforms should improve the flow of students through the system and reduce ¿he drop-out rate. Tlie increased flow of primary scheol graduates ray.

-

5o

-

however, overbuiden the secondary schoal system and make the qualitative improvements which are required more difficult, particularly in providing qualified teachers and sufficient facilities. Recogrlizing the importance to the economy of raising education105. al levels generally and increasing the supply of trained manpower, the international lending agencies have become increasingly involved in Ecuador's education sector. AID has been assisting the expansion of educatiorz at the primary level and in specialized industrial courses for workers for several years. At present, it is participating in a project which involves the construction of 1,200 new classrooms by 1972 at a total cost of S/ll million. At the secondary level, IDA is helping in the financing of a school construction program involving the expansion of four agricultural, three technical, one teacher-training and four general secondary schools arnd the construction of one new agricultural, four teacher-training and The program, having a total cost of eleven general secondary schools. at the secondary level by over enrollment increase will US$10 million, graduates per year. The World 5,600 of output an have and students 6,000 the same size in tne approximately of loan follow-up a Bank is considering assisted in the has Bank Development Inter-American same subsector. The it has recentand Guayaquil of and Quito of expansion of the Universities improvement and expansion for equivalent loan ly approved a US$1.5 mnillion Ecuador's modernize to need The School. of the National Polytechnical agriculture and to further expand industry as discussed earlier in this Report will require sustained effort in the education field, where additional external financing may be forthcoming if suitable projects are prepared and provision is made for the necessary counterpart funds. Conmunications Almost all the public investmnent in Ecuador's communications 106. sector is accounted for by three state-oiwned enterprises, namely, the Quito and Guayaquil Telephone Companies and the National Telecommunications Company (ENTEL). Both telephone companies have continuous annual investment programs, particularly financed by suppliers' credits, which seek to improve telephone service within the country's tewo principal cities. ENTEL's investmenit program, on the other hand, reflects the conpany's national and international concern and emphasizes improving Ecuado~^'communications link with the outside world. Specifically, ENTEL plans tu install within the course of the next 5 to 7 years, with external assistance, a modern UHF telecommunications systein at a total cost of S/8 mill-zon, This system would hook into similar systems in Colombia and Peru. These investments are included in the public investment program. Public Health The bulk of investment in public health from 1970 through 1°L74 107. provided for in the indicative program will involve construction of sewer

-

51 -

aid water supply systems for Ecuador's cities. The single largest project in the sector is the ongoing Quito Water Supply project which has a total cost of S/17.5 million and which is being partially financed by IDB. External assistance is also being sought to finance the s/B.9 million Gulayaquil sewer systemn project. In addition to investment in the two largest cities, about S/215 million a year will be'invested in similar projects for the country's smaller cities and towns. This investment will be carried out by the Ecuadorian Institute of Sanitary Works (IEOS), an autonomous agency attached to the Ministry of Public Health, with the The Ministry of Public Health also has proceeds of suppliers' credits. plans for building several hospitals and for an extensive rural medicine program, if funds become available. 'Jhile funds for the rural medicine program are not now included in the indicative program, this program would be expanded at a later date if fiscal prospects permit. D. Financing the Public Investment Program On the bases of the revenue and current expenditures projections, the public sector as a whole would generate in 1970-74 ample savings for financing the investment levels contenplated in the indicative public investment program. Given the structure of public sector finances, the Central Government, however, would have negative current savings, even before transfers,through 1973 and only very small savings in 1974. On the other hand, over one-half of Ecuadort s total public investment program is accounted for by projects which depend directly on Central Government budgetary appropriations and/or transfers £rom the Central Government to the spending apency. Many of those proj ects are also instrumental for securing the capital inflow required for balance of payments equilibrium. The key problem in f:nancing the public investment program is, therefore,to assure that the Central Government generates sufficient current savings for its own direct investnent outlays and for the transfers necessary to carry out the investment projects dependent on them, without excessive resort to Central Bank credit. On the assumption that the revenue measures and current expenditures restraint discussed in the preceding Chapter are in fact implemented and of the projections of net external financing likely to be available, tlhe required internal borrowing for the inveGstmcnt prograr depending on Central Governnent financing can be estimated. Of the internal financing, approximately S/200-300 million on bonds per year can be placed within the rest of the public sector. Required internal financing in 1970, S/715 miíllion less S/200-300 million bond placements would require Central Bank financing of s/400-500 million. As indicated in the discussion of the fiscal ouitlook, this level of financing would have adverse balance of payments However, the level of Central Bank financing required in 1971consequences. 72 would not be excessive, and after 1972 none would be required.

108.

The result of this program, which is necessarily geared to avoiding 109. Central Government fiscal difficulties,is a growing "over-financing" for

-

52

-

INiANCa]G 07 PIJBLIC ]flVZSRS4T, 1970-74 (nillion¡ s of 1969 sucres)

1970

1971

1972

1973

197h

lo'al Invest,n. nt -inranoCin

1,65?

1,6E86

1,979

2,131

2,n1c

1avyng

1,[email protected] 399

2,15, 510

2?,6i25

3,

-3147

1,766, 38C -Ii60

500

610

¿SO

670

203 205n

Vi

Fublic Sector

Ourrent

Il,et internal, DNet :ternal,

519

i ' o«,>

-654 -1,033 -1,902

rent.ra 1 Governrnent Total Tnvestmrent. Financinc Current Savsng1: Sxternal Internal,

PJet Net

-380 165 715

2?7 1L53 1435

200

230

12

700 1CtL ]At -509

lest oí' Public S'ecto,r ?o¿al Inves tm.e' Žinaning r Currer xterral, Net Intezrnal, ?k.-"

.av¡.r=

1/

95

1,076

1*33~- 1 _

1, 786 2314 ,1 962

1, 739 235

1,918 305

-858

-9

_

1 3-10

2,1914 2,4U8 319 25' -1,.,2 -1,393

After tranaisr5 s.

?clurce:

Tables 3.7 and 5.13 Tables on pages 38 and 4f0 F-nance chapter and Bank Starf estimate.

of Puiblic

- 53 -

tlie public sector as a whole,With negative internal financing rising from :,3/347 million in 1970 to S/1,902 million in 1974. This will take the form either of deposits ín the Central Bank or banking system. Monetary policies w:ill have to be designed to assure that the effect of the growth of these deposits is consistent with developmental objectives.

VI.

BALANCE OF PAYMENTS AND GROWTH: PROSPECTS AND POLICIES

The development of Ecuador's newly discovered petroleum resources 110. growth is expected in traditional exports will have at a time when little strong repercussions on the balance of payments and has structural implications for the level of saving and investment in the econony and for the distribution of saving and investlent between the public and private sector. The development and growth of petroleum exports can provide resources which, with appropriate public policies and prograns, could accelerate growth and improve the economic structure. At the same time it calls for new; attention to the criteria by which exchange policy is managed since in the future a greater possibility will exist that relatively favorable balance of payments situations may mask growing disparities between domestie and external cost structures in other productive sectors. Maintaining the rest of the economy - where virtually all of Ecuador's labor force will continue to be employed - competitive, will have to become a more explicit concern of policy than was needed in the past when balance of payments problems could be relied upon to provide the signals for emergent cost-price disparities. A.

Balance of Payments:

Recent Developments and Prospects

Current Account Difficulties have been predicted for Ecuadorls trade balance 111. for several years. These predictions were based on the expectation of a recovery of Central American banana production and its effect on Ecuador's banana exports (which in 1960-62 accounted for 60 percent of export eanlIn fact,, these predictions have largely been borne out; but a coinings). bination of largely fortuitous circumstances prevented the emergence of critical imbalances on trade account until 1969. While Central American production reduced Ecuador's share of the North American banana market sharply in 1966-68, storm damage to plantations elsewhere, and somewhat more liberal European trade policies kept the overall value of Ecuadorian banana exports from falling. Good coffee and cacao crops and rising cacao prices over 1966-68 contributed greatly to rising export value. So, despite what seemed to be poor prospects, exports managed a gain of 7.7 percent in 1967 and 4.8 percent in 1968. The three major commodities - bananas, coffee and cacao - still accounted for 82.6 percent of the value of exports in 1967-69, compared with 85.9 percent in 1960-62. Exports suffered an 11.7 percent decline in 1969 as coffee and 112. cacao crops were severely reduced by drought. Coffee exports feLl 22 percent and cacao 37 percent, despite rising prices for both commodities. Banana exports felt the impact of Central American competition in early

- 55 -

1969, especially in the North American mnarket but recovered toward the end of the year, as a result of storm damage to Central American production. Banana exports were down 8 percent for the year. It is expected that coffee and cacao production will recover by 113. late 1970 from the effects of the 1968-69 drought and grow moderately

through 1974.

The outlook is for favorable coffee prices in 1970-72,

with declines thereafter and for a gradual weakening of cacao prices after 1970. The prospects are dim for substantial contributions to export g:rowth from coffee and cacao over the period 1970-74. Ecuador has been fortunate in getting a breathing space in 1968-70, while its coversion to the Cavendish banana was underway. By 1971, the worst will probably be over for the Ecuadorian banana industry as conversion to Cavendish will In all probability banana export have been substantially completed. the 1968-69 average level, with exports volumes can be maintained at about consisting almost entirely of Cavendish. As in the case of coffee and immediate prospect for export growth. cacao there is little Oil exports are expected to add $53.7 million and $122 million 114. to the trade balance in 1973 and 1974, respectively. However, after profit remittances the increase in the current account balance will be about The net receipts from oil $21.8 million in 1973 and $51.1 million in 1974. development including capital flows is estimated at $31.2 million in 1973 and $61.7 million in 1974 (see Table 3.6(a) ). Ecuadorian sugar is exported almost exclusively to the U.S. be115. cause production costs are too high to permit export at the world market Sugar exports depend, therefore, on the growth of the U.S. market price. Prospects are very favorable for exports of and the Ecuadorian quota. fish and seafood. vWhile supply considerations limit the expansion of export of shrimp and lobster, both supply and demand factors are favorable for continued expansion of export of tuna both frozen whole and canned in brine. Expansion of fishing capacity will be assisted by an IBRD fisheries loan. Overall, the prospect is that minor exports, i.e. - those other 116. than bananas, cacao, coffee, sugar, seafood and petroleum - could grow at about 7.5 percent per year over the period 1970-74. wJhile the more traditional minor exports - pharmaceuticals, pyrethrum, balsa, panama hats, tagua and castor may grow slowly or not at all, the outlook is favorable for development of several new exports such as cacao products, tropical hardwoods, tea, charcoal briquettes and canned mushrooms. Total minor exports accounted for 8.5 percent of export earnings in 1967-69. Despite the anticipated growth of this group, their relative contribution will be lower in 1974 because of expected large petroleum Because of projected stagnation of major exports, total exports. They will only exports are projected virtually unchanged for 1970-72. start growing again in 1973 with the beginning of oil production. By

1974 oil exports should reach $116 million, and replace bananas as the leading export (see Table 3.3). 117. The rapid advance of imports of 1966-66 was halted in 1969, Imports, wihich grew 16.7 percent in 1967 and 21.6 in 1968, were unchanged in 1969 (see Table 3.5). Rapid foreign exchange reserve losses early in the year resulting fron poor fiscal performance and export difficulties led to a series of neasures to reduce importse Advance impcrt deposit requirements were increased, and a regulation was instituted requizing foreign financing of at least 90 days for essential imports and 180 days for other goods. This latter measure also resulted in short-term capital inflow ini the forn of increased exporter credits to Ecuadorian importers. Additional steps were taken to curtail the rate of banking system credit expansion to both the public and private sector. The result of these neasures was a decline in imports in the second samester of the year. 118.

Irport levels in Ecuador are generally closely related to

the exports and gross capital flows and the previous year's incone level. On the basis of the historical relationship with these variables imports, fLo.b. other than those related to oil development are projected as growing at 6 percent per year.l/ The projected overall import pattern is somewhat irregular, as oil-related imports - those needed for pipeline construction and oil field development - will be very heavy during 1970-72, while other imports grow more slowly. During the last two years (1973-7h) of the period, import needs associated wTith oil field developmnent will drop off sharply while other inports accelerate. As a result, total imports will decline in 1973, but resume their uprard trend in 1974, On this basis, it is expected that trade balances, which werei positive in 1960-67 and turned negative in 1968 as a result of acceleration of imports in 1967 and 1968, will remain negative through 1972, becoming positive only in 1973 and 1974 when oil exports begin. Current acoount

deficits are projected throughout the period, as later positive trade balances in 1973 and 197h will be overshadowed by a services deficit wjhich in these years will include remittances fror petroleuim operations. Capital Account

119. Presently foreseeable current account deficits, direct investment flows and long-term capital inflows and repayments indicate a balance of payments deficit of $13í. million in 1970. Ecuador finished 1969 with a $4.2 million reserve gain despite its record trade deficit. This was poSSi.ble largely because of $11 million in payments by foreigan

1/ Data for tahe period 1950 to 1969 yield a statistically significant (at the one percent level) relation writh a coefficient of determinatiron of R=0.947; a standard error of estimate of US$9 million and

a d test of the absence of serial correlation significant at th_b one percent levele

- 57 -

SUMMARY BALANCE OF PAYMENTS, 1969, AND PROJECTIONS 1970-74 (In millions of U.S. dollars)

Balance on current account

197L

1969

1970

1971

1972

1973

-100.8

-136.8

-135.0

-146.3

-110.4

-127.1

265.2 -253.1

-288.2

330.5

Exports f.o.b. Imports f.o.b. Investment Income (net)

186.0

214.2

215.1

216.1

-215.0 - 27.4

-264.7 - 28.6

-263.9 - 29.4

-270.6 - 29.5

- 64.3

-104.0

Ot,her Invisibles

- 44.4

- 57.7

-

56.9

- 62.3

- 58.3

- 65.4

-100.8 13.5 34.9

-136.8 13.7

-135.0

-146.3

-110.4

-127.1

14.0

147.3

T.9

84.9

95.8

95.2

14.6 46.6

25.8

24.8

28.o

35.8

38.3

32.6

26.6

13.4

2.8

1.0

11.0

33.3

Balance on Capital Account

Transfers (net) Direct Investment Medium and long-terín loans (net)

Decline in short-terin a.ssets (net) (including errors and omi ssions)

Source:

Table 3.7

-

46.3

oil companies and a short-term capital infIou of about $30 million (including errors and omissions) resuiting from requirements for foreign supplier financing of sales to Ecuador, Private investment expenditure should average more than $°0 120. million per yrear over 1970-72 largely ref'lecting expenditures associated vith cil-Sfeld development and pipeline construction (about $70 million per year)0 The net foreign exchange gain from -oil development will average about $24 million per year during 1970-72 reflecting local costS of exploration and construction. Disbursements un existing loan coImmitments of international lending agencies will be about $40 million in 1970, provided public sector savings sufficient to provide the required domestic contributions are in fact mobilized. However, disbursements on these loans wçill decline steadily as drawings aprroach the total Volume of new cominitments of international lending value of loans, agencies and disbursen.ents on loans will depend on existence of projects L.Zn the public investment program suitable for financing and the availability of domestic fiscal resourses for local contributions on these projects. In addition, the volumne of lending operations wjill depend on the extent to i-Thich international agencies are prepared to provide additional resources to the private sector in the form of loais forcredit prograns channeled through the government to public or quaspublic financial intermediaries. An increasing level of loan disbursement is projected for 121.1970-72e Disbursements on existing loans will be supplemented by those on new loans for projects and credit prograns for which commitments are expected early in the period. Given the expected level of imports, projected net disburserents on external loans, combined with high levels of direct investnent, would be sufficietnly large to cover current account deficits and result in approximate balance of payments It should be re-emphasized that achieving the projected equilibrium. disbursement levels dep-ends on the availability of funds for government contributions to projects. Because of the scarcity of new projects, as indicated in the--discussion on public investnent, contemplated comnitmenit levels over 1971-72 will not be suffient to provide for continued Given the expansion of net loan drawjings over the whole 1970-74 period. balance expected level of imports and direct investment flows, overall of payments deficits are likely in 1973-7I, unless sufficient new projects for external financing are developed to increase the official capital flow over the preserit projected level. B.

Growfth Prospects and Policies

Ecuaderfaces a period of structural readjustment which will 122. affect the pattern of saving and investnent woithin the econcay. The relatively low level of saving has been a structural weakness in the It is estimated that in 1970 national saving will Ecuadorian econony. be only 12,1 percent of GNP. Because traditional exports are not likely

to increase during the period 1971-74, the rate of increase of saving in the agricultural export sector s likely to taper off, However, it is estimated that construction of the oil pipeline will increase net foreign exchange receipts by about $24 million per year during 1970-72, reflecting local costs of construction of the pipeline (largely wages) and result in a concomitant increase in private sector incones. The combined effect of completion of pipeline construction in 1972 and stagnation of traditional exports would bring about declining level of private sector savings beginning in 1973. On the other hand, with the beginning of oil exports in 1973-74, the bulk of the benefits of oil development Will shift from the private sector to the public sector in the form of increase tax receipts, Fiscal projections for 1973-74 indicate large public sector savings, partly reflecting this shift of savings from the private to the public sec-tor. This is especially relevant since in the past the public sector nornally accounted for only about one-third of total investr:ent. Historically, income growth in Ecuador has been strongly related to the level of exports and external capital flows. If past relationships hold, given an expected annual growth of exports and capital flows of about 10 percent during 1970-74, real income grow-th could exceed 6 percent per year over the period, compared with 4.8 percent for 1960-68. The opportunity presented by the developrnent of petroleum as a najor export could only be fully utilized by a Governrnent developrent strategy consistent wnith tlhe facts that (a) past growth was attributable mainly to private sector investments, but (b) the main future increase in investable resources uill accrue to the public sector, 123. Present projections indicate that during 1970-74 the gap between private sector savings and private investments is likely to grow as a result of the stagnation of traditional exports, At the same time the savings of the public sector will exceed public investiaent requirements by increasing amounts, even if the sizable expansion of public investmnents envisaged in the suggested program takes place (see Table 5.10), provided that reasonably prudent current expenditure policies would be followed. Even though in the Central Governnent :avings will only exceed estinated investnent requirements by 1974, policies to transfer to the private sector an appropriate amount of the unutilized public savings would eventually be required. These miay take the forni of domestic debt repayrnent as well as the supplying of additional capital funds for the National Development Bank and CV-CFN bo satisfy credit needs of the agricultural and industrial sectors. At -the same time, government policies and measures designed to assist and provide proper incentives for the private sector would help the level of private invest;nent to continue rising. These policies would involve tbhe entire range of government activitiee influencing the climate for private investment including, among others, tax credit and tariff policies and technical assistance, e.g. through C2INDES and IRIAP,- It also involves

-

60 -

assuring that low levels of public investirmnt do not result in shortagos of social overhead capital becoming a bottleneck for development. 124. As a first step, it would be essential that prompt action be taken to limit Central Government curi,ent expenditures and enact the revenue measvres now being considered in order to reduce the 1970 budget deficit to manageable proportions. Barring futher advance payments, the fiscal impact of oil production will not be felt until Thus, during 1970-72 the neasures con1973 (see Tables 5.5 and 5.6). templated, discussed in Chapter IV, will provide the basis for the fiscal resources necessary for carrying out the public investment program and utilizing existing and prospective development loans. Past lending by international organizations has implicitly taken into consideration the difficulties for the Central Governinent to make large contribulions on projects, by financing a modest part of local currency costs. More recently, a substantial proportion of international lending has been directed to the private sector. It is estimated that by 1974, about one-third of long and medium-term external capital disbursements will be destined for private sector But even if this continues to credit (see table on folloring page). be a feature of future lending prograns, failure to adopt fiscal measures would result in reduced public investment levels in 1910-72 and reduced capital inflows in years when commodity exports are not likely to grow. The result would be a recurrence of the fiscal and balance of paynents disequilibria of 1968-69 and/or economic stagnation. In 1973-74 oil exports will provide the public sector with 125. However, as indicated in the analysis of the substantial new revenues, public investmnent program, it is not yet possible to identify enough prospective projects to predict steadily increasing external capital inflows through the period. The prospect thus is for a considerably expanded overall public sector surplus in 1973-74. This surplus can be reduced by an expanded public investment program. As indicated earlier, there is considerable scope for expansion of public investment, especially in agriculture, provided project preparation is accelerated and upgraded and the flow of well conceived projects and The public sector surplus not absorbed by an exprograms expandsa pansion of public investment would be transferred back to the private sector. This has occurred in the past. In years of good overall fiscal performance, public sector surpluses result in a buildup of deposits in the banking system and are trasferred through bank credit expansion to the private sector. While this process is fairly automatic, there is no mechanism in it to channel resources into particular sectors of private activity. More direction can be given to the use of surpluses by, for example, using them to add to the capitalization of specialized public and quasi-public financial intermediaries.

-

61 -

PROJECTED OFFICIAL CAPITAL INFLOW

-

PRIVATE SECTOR CREDIT PROGRAMS, 1970-74 (millions of dollars)

1970

1971

1972

1973

1974

Agriculturel/

2.8

7.6

8.0

8.4

9.4

Industr2/

6.7

6.8

6.7

10.1

9.6

Total

9.5

14.4

14.7

18.5

19.0

44.4

50.8

57.8

65.4

58.7

Total Capital Inflow

1/ 2'/

Includes livestock and fishing. Includes rural electrification.

'ource:

126.

Mission estimate. To sunmmarize, because of petroleum developments,

economic potential is

greater than at any time in

Ecuador's

recent years.

The se-

luence of policies for the period 1970-7h, designed for fully exploiting i;his potential, seems reasonably clear: (1) Increase public sector savings in the period 1970-72 by freezing current expenditures and enacting new revenue measures; (2) redistribute public sector savings in favor of the Central Governnent and entities responsible for carrying out the pub:Lic investnent program by restricting transfers and by placing government bonds; (3) continue restraint - albeit less rigid - on current expenditures in 1973-74; (4) prepare more projects suitable for international financing for disbursement in 1973-7h; (5) develop policies for the channeling of public sector surpluses to the private sector in a manner con;istent with development objectives. C. External Debt 127. Ecuador's axcessive resort to been avoided. Debt 13.4 percent of the

external debt mranagement has generally been good as short and medium-term suppliers' credits has largely service payments amounted to $24.6 million in 1969 or value of exports of goods and services net of profit

- 62 -

remittances.-/ Unlike past borrowing, addLtions to external debt during 3968-69 consist largely of suppliers' credits negotiated by autonomous entities. Lending by international entities has been restricted by fiscal difficulties limiting the availability of contributions by the Central (overnnent. This, together with changing conditions in the international capital market, has contributed to a deterioration of average loan terms. 'L28. While the average term of loans outstanding at the end of 1967, as calculated by the Planning Board, was 20.1 years duratíon, 3.6 years gtrace and 3.9 percent interest, the $56.5 million in loans contracted in 1968 averaged 13 years duration, 2 years grace, and 6.2 percent interest. Hlowever, after a year of fairly heavy borrowiing in 1968, undoubtedly rel.ated to a change in government, borrowing slacked off considerably in 1.969. New loans contracted in 1969 totalled only $15.3- million and on the average bore better terms (15.1 years duration, 2 years grace, and 5.8 percent interest) than those contracted in 1968. 129. Estimated debt service payments for 1970 are $27.9 million, 1.3.4 percent higher than in 1969. However, because of the expected recovery of exports the debt service ratio for 1970 remains near 13.2 percent. With the projected stagnation of exports in 1971-72, the debt servi.ce ratio ís likely to rise to 15.5 percent in 1973. Influenced by the coming on stream of oil exports, the ratio should decline to 13.7 percent in 197h. D. Creditworthiness ].30. Ecuador's long-run creditworthiness rests, as it has in the past, c,n its reasonably favorable resource endownment, and on the proven vigor and ingenuity of its private sector. The dynamism of the private sector vill presumably be maintained if steps are taken to keep the clains of the public sector on total resources within reasonable bounds, while assuring that lack of public investnent does not become a bottleneck for overall growth. Thus, specific emphasis must be placed on fiscal policies designed to redistribute revenues within the public sector so as to maximize total savings in the economy. However, even under conditions of good econoniic management, Ecuadorls low per capita income and relatively high fiscal burden puts a limit on the amount of additional savings that can be generated. In the past, external lenders have taken this into consideration by niaking part of Ecuador's loan capital available on concessional terms.

1/ Although profit remittances have not been especially important in the past as indicated by the fact that the debt service ratio on a gross basis would be 12.2 percent compared with 13.4 percent net of remittances, profit remittances will be an important consideration beginning in 1973-74.

-

63 -

The developnent of Ecuadorian petroleum resourcss will rnrovio.e 1;'1. ^--n unparalleled opportunity for increasing public investnent and external capital flows in the future. Despite this, fiscal difficulties which have plagued Ecuador since mid-1968 are not expected to ease substantially durFailure to resolve these shorter run difficulties could prejing 1970-72. udice future development. If measures are taken to improve fiscal perfornmance, favorable longer run factors should provide a good basis for contin-Indeed, it may be possible in a few years to disued creditworthiness. pense with concessional terms on extemnal loans, especially if the as yet unverifiable optimistic estimates of future additional oil exploitation prove correct.

South America Department May 22, 1970

INDEX TO TABLES Table 1.

Population Population and Labor Force, 1960-1969-1975

....

2. National Accounts Gross Donestic Product, 1960-68

........................... 2.1

3. Trade arñ Paynents Commodity Exports, 1960-69 '''^ Comnodity Exports, 1950-69..'.......

................ ' 3.1 ''''.''''''''3.2

'

Comnodity Exports Projections ...

..

3.3

*.....

Percentage Composition of Imports, 1960-68 ................ Balance of Payments, 1960-69 .............................. Balance oa Payments Actual 1968, 1969 and Projections 1970-74 ..... . . . . . Balance of Payments Effects of Petraleum Develapment, 1969-74 ........... Resource Gap, Net and Gross Capital Inflows, 1960-69, and Projections 1970- 7l .. . . . . .. . . . . . . . . . . . . Capital Flows and Their Financíng, 1970-74 .3.8 dL

3.6 3.6(a)

3 .7

External Debt External Public Debt Outstanding as of December 31, 1968 Reported Additions to E;xternal Public Debt Contracted January 1 - Decenber 31, 1969 .4.la Estimated Future Service Paynents on External Public Debt Outstanding Including Undisbursed as of December 31, 1968 Estinated Futuro Service Payments on Reported Additions to External Public Debt Contracted January 1 - December 31, 1969 ...... . .,.

5,.

3.4 3.5

4.1

h.2 .2a

Fiscal Statistics Central Government Finances, 1963-68 ...............

5.1

Consoli&.:ted S4taterennt of the Publio Sector, 1963-68 . Public Sector Revenues, Expenditures and Savings, by Segments, 1962-67 . ................. Fixed Investment . ............. ...

,-.

. .

5.2 5.3

5.4

Ta.ble ':.

Fiscal Statistics (conttd) Central Government Revenue Performance, 1964-69 and ...... Projections 1970-74 (Acerual Basis) ............. Public Sector Revenue Performance 1965-69 and . . Projections 1970-74 (Acerual Basis) Indicative Public Investment Program, by Sectors, 1970-74 .5.8 Indicative Public Investment Program, 1970-74 . .................. ...... Exploitation of Oil Impact Fiscal Projections of GDP?, GNP, Investment and Savings; Public h.... .............................. and Private, 1970-74 Consolidated Statement of Public Sector Finances, 1962-69

5.5 5.6 5.7

5.9 5.10 5.11

6. Monetary Statistics Summary Accounts of the Banking System, Central Bank Summary Accounts o£ the Banking System, Total System 7.

6.1 6.2

Agricultural Statistics Rural Population, Land Use and Agricultural Output, 195h-68 Regional Distribution of Agricultural Production, by Crops, 1968 ......................................... Value of Production Per Person by Size of Farm, 1968 Value of Production Per Worker and Average Farmn Size, ......................... by Regions and Provinces, 1968 . Number of Farms and Area, by Size and Form of Tenure, 1968

7.1 7.2 7.3 7. 7.5

8. Industrial Statistics Index of Industrial Production, 1957-68 ............. Composition of the Nanufacturing Sector, 1957-66 ......... Manufacturing Emp1oyment, Payroll, Production and Value . Added by Size of Establishment - 1965 .. New Investments Between 1957 and 1968 by Existing Establishments Classified or Registerea during that Period ................................................. Investments by Neew Establishments Classified or Registered between 1957 to 1968 ............................ Value Added Per Employee and Per Sucre of Investment, and Investment Per Employee, by Industry Groups, 1966 ...... Manufacturing: Value of Production and Value Added, 1966 . . Cost Elements in Mlanufacturing, 1966 .................... Cost of Private Bank Credit Under Regulations as of ............... e ............ ....... November 1969 .

8.1 8.2 8.3 8.4

8.5 8.6 8.7 8.8 8.9

Table 1.1:

POPULATION AND LABOR FORCE-, 1960

1960

Thousands 1975 1969

Population, Total Urban Rural

4,414 1,506 2,908

5,973

Labor Force, Total

2,265 3,708

Annual Rate of Increase 196?/60 1975/69

3.4 4.6 2.7

3.L 4.6 2.6

3.3 4. 6 2.5

3.7 5.0 2.8

2,138

2,859

747

1,124

Rural

1,391

1,735

3,556 1,505 2,051

34.1

37.9

40.5

Rural

65.9

62.1

Labor Force Urban Labor Force Rural Labor Force

48.4 16.9 31.1

47.9 19.1 28.8

59.5 48.7

34.9 61.1

39.9 60.1

Cormposition of Labor Force, Per cents Urban Rural

1969-- l975J/

7,28h 2,957 4,327

Urban

Percentage of Total Population Urban

-

20.6 28.1

42.3 57.7

1/ Population over 14 years to 60 years of age. 2/ Estimated. 3/ Projected. Sox ce:

IFroyeccid.n de la Poblacion del Ecuador," Junta Nacional de Planificaci6n y Coordinación.

Table 2,1:

GROSS DOMFSTIC PRDDUCT 1960-1968

(In Millions of 1960 *Gucres and Percentages)

Average Value

A.

1963-65

1966-68

1960-62

i963-65

1966-68

13,304 4,972 305 2,050 523 169

15,144 5,367 332 2,547 597 212

17,504 5,779 350 2,988 766 263

100.0 37.5 2.3 15.h 3.9 1.3

100.0 35.4 2.2 16.8 3.9 1.4

100.0 33.0 2.0 17.1 h.4 1.5

4.4 2.6 2.8 7z5 4.6 8.0

4.9 2.5 1.9 5.5 8.7 7.5

4.7 2.5 2.3 6.5

558 1,491 362

597 1,662 438

642 1,849 487

4.2 11.2 2.6

J.9 11.0 2.9

3.7 10.5 2.8

2.3 3.7 6.5

2.4 3.6 3.6

2.4 3.6 5.0

2,874

3,391

4,380

21.6

22.4

25.0

5.6

8.9

7.2

16,577 14,201 12,070 2,¿Oj s,285 1,504 781

19,163 16,775 14,176 2,599 J,579 1,719 858

100.0 o4.9 -1.5 13.3 lh.8 5.9 5.9

100.0 U6.1 72.9 13.3 13.8 9.1 4.7

100.0 U7.5 74.0 13.6 13.5 9.0 4.5

4.6 5.1 5.2 4.4 2.1 5.3 -3.2

4.9 5.5 5.5 5.7 4.1 4.6 3.2

4.8 5.3 5.3 5.1 3.1 5.0 0.1

2,845

3,068

17.9

17.2

16.0

3.0

2.6

2.8

-2,834

-3,259

-17.6

-17.1

-17.0

3.5

4.8

4.1

16,577

19,163

100.0

100.0

100.0

4.6

4.9

4.8

-398

-522

2.9

2.4

2.7

-1.7

9.6

3.9

16,179 -1,506 73

18,641 -1,745 86

97.1 -5.4 o.L

97.6 -9.1 0.4

97.3 -9.0 0.4

4.7 6.3 7.6

4.8 4.o 5.6

4.8 5.5 6.6

14,746

16,982

88.9

90.0

88.7

4.6

4.8

4.7

2,146 2,193

2,284 2,296

2,579 2,300

100.0 102.2

100.0 100.5

100.0 92.6

2.1 1.4

4.2 1.3

3.1 1.4

-415 1,778 368

-398 1,898 386

-522 1,866 713

-19.3 82.8 17.2

-17.4 83.1 16.9

-20.2 72.L 27.6

-1.6 2.2 1.6

9.5 -o.4 23.7

3.9 0.8 11.6

B. GDP by Exnediture Type (market príces) 145102 1. Consumption 12,309 Private 10,375 Publie 1,9j4 ¿. Investeent 2,146 Private 1,289 Public 857 3. Export of Goods and Services 2,602 4. Less DIort of Goods and 'Síivices -2,555 5. Equals: GDP at Market _ices 14,502 6. Less Net Factor Income Payments -415 7. Eauals,GNP at Market crses M14,087 8. Less Indirect Taxes -1,256 9. WSuidies 58 10. Equals GNP at Factor Cost 12,889 C. Gross Domestic Capital Fornation 1. Domestic Saving 2. Less Net Factor Payments EiFoad 3. Equals National Saving 4. Net Capital Inflow Central Bank of Ecuador.

Rate of Increase 1960-62 to 1963-65 to 1960-62to 1963-65 1966-68 1966-68

1960-62 GDP by Industrial Ori n (factor cost l 1. Agriculture 2. Mining 3. Manufacturing ' Construction 5. Electricity and Gas 6. Transport and Com=unication 7. Trade 8. Banking and Irsurance 9. Government and Other Servvices

Source:

Conposition

6.6 7.7

CONODIY EXPOr2M, 1960-69 (volumes in thousand metric tans, prices in U.S. dollars per meetrio ton, values in millions of U.S. dollars) Tab

1:

1960

1961

-1962

1963

196).1

1965

1966

1967

1968

196? (est.)

1,173.0

1076.0 75.2 80.9

1,128.0

1t3h9.0 63.1

1,383.0 70.9

1,200.0

1J,265.o

1,,263.0

53.2

83.0

0043

BS

1,251.0 82.9 103.5

i,í65.o

79.9 95.9

31.3 700.0 21.9

22.7 6613.2 14.6

43.1 7424.8 32.1

687,6 39.5

3J.6 601.1 21.4

15.2

15.9

12.9 141.1

26.7 107.1

63.2

Fl ic e Value

0.9

2.5

6.0

0.9 0.3

1.5 0.5

1.0 0. 4

Bañarias

VOlume EPrice Va lue

76.2 _9.5

COf fee VolwUIIe Price Value Cacao Volune Price Value Sugar Volume

harniaceutical.s tyrethhrum Seafnod and fish Batilsa wood

Uic Dúther Total ESxorts Sour-cse

783.6

82.0

%.2

93.0

32.9 638.3 21.0

29.5 620.3 18-3

24?7 855.3 21.2

47-6 802.5 38.2

32. l

31.6

468.6

503.2

34.5 557.7 19.8

28.7 564.5 i6.2

39.3 48f60 19.1

32.2 534.2 17.2

53.3 . _2.9

47.0 119.0 5.6

58.2 112.0

65.0 112.3 7.3

67.7 ±10. 7.5

11. 4

7.1

50.3 129.2 6.5

1.2 1.6 6.3 1.5

1.7 1.8

1.5 1.6

1.6 1.7

6.3

8.9

2.1 3.0 10.2

3.1

8.8 3.4

-

-

7.2

i.6 1.9 6.7 1.7 79

8.i

10.4

11.2

180.3

136.2

200.1

210.7

186.o

-8.5

94.0 -

3.6

5.4

1.64 :3.7 5.1

1.2 2.8 7.14

1.2 0.6

0,3 1.0 6.3 1.6' 3.7

8.6

5.3

149.0

132.0

148.6

Central Bank of Ecuador.

5.4

150 -

1.1 161.4

_

57.9

45.o

49.2 696.o 3h.2

35.5 750.0i 26.6

65,5 595. 0

36. 680.0

38.9

26.5

70.9

78.0 137.2

7.9

_

.S

1.8 li. 10.8

3.3 -

Tab1e 3.2: (val:ues iIri

_Averafe Value

3aananas : orfee

C

ii

§'POC,I; 195,0-1969

)IT

illionIs

of

'U.S.

dollars)

Per,entage joiposition

1950-52

1960-62

1967-69

13.5 18.3

86.h 19.2

101.L; 33.5

17.5

49.5

1950-52

1960-62

1967-69

Arinual Gr&wth percent 1950-52 1960-62 1950-52 to to to

19602

1967-69

1967-69

60.3 13.{¡ 12.2

51.0 16.8 L.8

20.J4

22.l

20.5 27.8 26.9

123.1

164.3

75.3

5-.9

82.6

.5

.2

7.3

0.1 0.6 0.0

3.1 1.1 0.4

15.9

6.2

5.5 21.9

4.8

27.5 5.9 n.a.

0.9

10.2

20.3

Rice

6.9 7J0

1.3 2.4

1h.2

7.0

0.0 9.9

2.2 o.8 0.3 3.I o.g 1.7 ). 9

3f.3

0.4

0.2 0.9 0.0 o.6 1.4 10.5 11.2

14 0.8 0.8

Seafood Balsa Wjood

8.7 1.6 1.6 9.5

7.9 n.a.

143.2

198.9

100.0

1l-0. 0

100.0

-17.7

acao .,ubtota1

Sugar Pharmaceuticals

Pyrethrurl

C>ther Total

Source:

65.8

Central Ban7k, of Ecuador.

3.3

0.5 -0.1

4.8 1.6

n.a. 28.2 3.7

0.0

-6.0

°. 8.1

2. 3 8.3 7.7

n.a. 51 -1.O8

12.6 3.6 3.0

6.7

Table

.3.: COGODITY

XPORT$ PROJiaTIXS

(volumes in thousand matric tons, prices in U.3. dollars per metric ton, values in milliona of U.S. dollars)

1963

1969

1970

1971

1972

1973

197h

1,251.0 82.9 103.8

1,165.0 82.0 95.5

1,200.0 82.0 95.4

1,200.0 82.0 93.4

1,200.0 82.0 98.-

1,200.0 82.0 98.4

1,200.0 82.0 98.4

49.2 696.o

35.5

L,5.0

46.,4

47.7

49.2

50.6

750.0

85o.o

850.0

850.o

800.0

700.0

34.2

26.6

31.2

39.4

40.5

39.4

35.4

Volume

65.1•

Price

59.0

36.0 LSo.o

Value

38.9

24.5

58.5 500.0 29.2

Bananas Volume Price Value CofTee

Volume Price Value Cacao

50.0

52.0

54.1

56.2

7°° 35.0

650,o

575.0 31.3

525.0

33.3

29.5

Sugar

Volune

70.9

78.0

79.0

73.6

74.9

76.3

77.4

Price Value

111.4 7.9

137.0 10.8

112.0 8.8

112.0 8.2

11. 0 8.1 4

12.0 8.,

112. 0 8.7

Pharnmaceuticals

1.6

1.8

1.8

1.8

1.9

1.9

1.9

Pyreth:ru.

1.7

1.5

1.5

1.4

1.4-

1.4

1.3

Seafood and Fish

8.3

10.8

13.0

14.1

15.2

16.4

17.8

Balsa

3.4

_-3. 3

36

Other

10.4

11.2

13.9

15.2

16.3

17.8

49.5

116.0

265.2

330.5

Petroleum

-

Total Exports

Sourne:

210.7

Bank Mi.ssion estimates.

-

136.0

33 14.3 -

_i>L.2

-

215.1

216.1

Table 3.4:

PEROENTAGE O'23OSITION OF IMPORTI3, 1960-68

(on basis of import permits granted)

Rate of Increase

Composition 1960-62

1966-68

1960-62 to 1966-68

Composition Jan.-June Jan.-June 1969 1968

11.2

9.6

8.7

8.7

10.9

Consumer durables

8.0

5.3

1h.o

5.0

5.2

Fuels and lubricants

2.8

6.3

28.3

6.5

6.7

Agricultural raw materials

2.0

2.5

15.9

2.7

2.6

39.9

35.3

9.4

33.8

32.7

Construction materials

3.9

5.7

18.6

5.5

5.4

Agricultural capital goods

2.3

2.7

15.0

3.0

3.6

Industrial capital goods

15.3

18.1

14.8

16.0

15.7

Transportation equipment

1h.3

14.4

11.7

18.3

16.9 0.2

Consumer non-durables

Industrial raw materials

0.3

0.2

4.9

0.1

100.0 106.h

100.0 206.4

11.7

100.0

Other Total Nillions USA

Source: Central Bank of Ecuador.

100.0

Table 3.5:

BAL41fNC (in

1960

1961

OF PAY1fi-T3 1960-196y

millions of U.S.

1962

1963

dollars)

1964

1965

1966

1967

1968

1969 (prel.)

Trade Balance

Exports, f.o.b. Imports¾ f.o.b. Total Servioes (net) Freight, insurance and transport Profits Interest Governnent, n.i.e. Other Services

Total Current Account Balance Transfers (net) Long-Term Capital Private Direct Investment Loans (net) Subtotal Official Drawings Amortization Other Subtotal Total Basic Balance Short-Term Capital/ Monetary Movements Central Bank Commercial Banks

148.3 132.0 -109.8 l18.7

150.9

161.9

180.7

-118.7

140,.0

-155.2

186.5 -151.3

201.0 -176.6

210.7 -214.7

186.0 -215.0

38.5

23.3

37.0

32.2

21.9

25.5

35.2

24.4

-4-.

-29.0

-17.6 -20.6 - 2.3

-16.8 -20.3 - 3.0

-18.4 -15.6 - 4.3

-20.8 -11.4 - 5.3

-24.5 -14.9 - 4h4

-22.9 -20.2 - 4,8

-26.8 -19.8 - 5.4

-30.6 -18.6 - 6.3

-37.6 -19.9 - 7.3

- 2.7 -13.5

- 2.0 - 9.4

- 1.1 - 8.1

- 1.1 - 3.3

- 0.8 - 7.9

-37.7 -19.8 - 7.6

-

1.6 - 5-4

-

9.0

0.3 -12.2

-12.1

-56.7

-51.5

-47.5

-41.9

-52.5

-54.9

58,3

-65.h

-76.7

-71.8

-18.2 7.2

-28.2 7.1

-10.5 9.3

-9.7 6.9

-30.6 11.9

-29.4 9.3

-23.1 9.4

-41.0 12.7

-80.7 13.2

-100.8 13.5

8.0 3J3 11.3

8.2

3.4 3.6 7.0

3.6 -0.2 3.4

10.2 -0.2 10.0

7.4 0.7 8.1

16.o 1.7 17.7

16.4 0.3 16.7

29.2 2.8 32.0

33.4 1.5

13.6 -7.2 -1.2 5.2 12.2 11.0

12.5 -11.3 - 0.2 1.0

17.6 -11.0 - 1.6 5.0 15.0

20.5 -10.0 - 0.8 9.7 17.8 -2.3

o.6

9.7

-8.7

30.1 -10.8 -O.g 18.4 36.1 22.4 -10.3

-11.5 -0.1 -

-10.6 -0.7 -11.3

-4.8

12.3

-11.2

0.1 -47

-103

-°.9

11.0

-12.1

15.9 -4.0 -1.4 10.5 21.8 10.8 -12.5 3.7 -2.0 1.7

mIcludes errors and omnlaSlos. Preliminary. Source: Central Bank of Ecuador. *

1>49.1 -112.1

3'4 11.6 12.9 -3.9 -1.6

7.4 19.0 -2.1 -12.3

14.5 0.9 15.

4.4 1.6

-3.7 8.4

0.4

- o.g

6.7

-

5.4

34.9

34.7

46.o

45.1

-11.7

-15.9 -23

-17.0 -2,3

23.0 39.7 11.4 -3.0

27.8 59.8 -7.7 -1.2

25.8 60.7 -26.6 30.8

-8.9 0.5

11.3 -2.4

-4.2

T

-4.2

-

Table 3.6:

BALAN3E OF PAYID'XITS ACTUAL 1968, 1969 4AND PROJECTIONS 1970-74

(In Millions of U.J. dollars)

Trade Balance, Exports, f.o.b. Imports, f.o.b. Total

1968

1969

1970

1971

1972

1973

210.7 -214.7

186.0 -215.0

214.2 -264.7

215.1 -263.9

216.1 -270.6

-253.1

330.5 -288.2

-4.0

-29.0

-50.5

-48.7

-54.5

12.1

42.3

-37.6 -19.9

-37.7 -19.8 -7.6

-47.0

-46.9

-49.0

-45.1

-5.4

-20.3

-21.0

-8.4

5.5

3.0

-55.0 -8.5 1.0

-95.3

-8.3

-21.0 -8.5 1.0

~13.0

-14.3

-15.0

-16.o

197h

265.2

Services (net) Freight, insurance and transport

Profits Tnterest Governnent, n.i.e. Otlier services Total Current Account Balance Transfers (net) Long -Term Capital Prixate Direct Investment Loans (net)

-7.3

-8.7 1.0

0.3 -12.2

-12,1

2.0 -12,7

-76.7

-71.8

-86.3

-86.3

-91.8

-122.6

-169.4

-80.7 13.2

-100.8 13.5

-136.8 13.7

-135.0

-146.3

1h.3

-o10.h 1h.6

-127.1

14.0

29.2 2.8 32.0

33.4 1.5 34.9

82.9 2.0 34.9

93.8 2.0 _957

93.0 2.2 _95.72

44.1 2.4 4677.

14.9 43.5 2.8

Official

Drawings A.mortization Other Subtotal

Total Basic Balance Short-Term Capital Monetary Movements Central Bank Comnercial Banks

46.o

45.1

44.4

50.8

57.8

65.4

58.7

-15.9 -2.3 27.8

-17.0 -2.3 25.8

-19.6 24.8

-22.8

-22.0

-27.1

-26.1

59.8

60.7

-7.7 -1.2

-26.6 30.8

11.3 -2.4

-

-

-

28.0

35.8

38.3

32.6

109.7

123.8

131.0

84.9

78.9

-13-4

2.8

-1.0

-11.0

-33.0

-4,2 -

*Preliminary. Source: Official data and Mission estimates. Central Bank of Ecuador, 1968-69, and Mission estimates,

1970-74.

_

Table 3. 6 (a):

1969 Trade Balance Exports, f.o.b. Imports, f.o.b. Total Services, net Freight, insurance and transport Profits Goverrment,

1969-74

BALANCE OF PAYMENTS EFFECTS OF PETROLEUM DEVELOPMENT, (in mil z ors of Uk.S. do-i-ars)

n.i.e.

Total Current Account Balance Long Term Capital Private Direct investment

1970

1971

1972

1973

1974

-36.h

-4o.o

-38Q9

+ 49.5 + 4 2 "

+116.0

-7.6 -7.6

-36.4

-4o.o

-38.9

+ 53.7

+122.0

-1.4

-6.4

-7.0

-6.9

-

-

-

+ 0.5 l - 32.4

-

-

-

--

+3.6

-6.b

-7.0

-6.9

-4.0

-42.8

-47.0

+13.8

+65.9

+72.3

-

-1/

+5.0-

-

-

-

+

+ 0.9 71.2 -

31.9

- 70.3

-45.8

+ 21.8

+ 51.7

+70.4

+ 13.3

+ 12.1

-

Official

9rawings

Amortization

Total Basic Balance

+ 6.0_

-

-

-

_/ -3-9"

-

+19.8

+65.9

+72.3

+70.4

+

+15.8

+23.1

+25.3

+24.6

+ 31.2

9.4

2.1"

+ 10.0 + 61.7

1/ Payment of "entry fee." 2/ Advance payment. _/ Imports 1973 = +15.5 from substitution of oil imports; -11.3 development related imports. 1974 = +16.3 from substitution of oil imports; -10.3 development related imports. 4/ Freight, etc. 1973 = +2.5, saving on oil imports; - 2.0, cost associated with development related imports. 1974 = +2.7, saving on oil imports; - 1.8, cost associated with development related imports. 5/ Repayments of advance payment in 1969. Source:

Bank Mission estimates.

Tab3e 3.7!

RESO)URCE GAP, NEr AND GROSS CAPITAL INFiJŽWS, 1960-69, AND PECJECTIONS 1970-7LI (In millicns of U. S. do&líns). 1960

1961

1962

1963

196L

168.3 -102.8

132.0 -108.7

149.1 -112.1

150.9 -118.7

161.9 140.0

1966

1967

1968

1969

1970

1971

1972

1973

1974

180.7 155.2

186.5 151.3

201.0 176.6

210.7 -214.7

186.0 -215!0

216.2 2!kE

215.1 263.9

216.1 -270.6

265.2 2531

330.5 288.2

1965

Requirements 1.

Goode

.

Exports, f.o.b. Imports, f.o.b. Gan (Slurpllis)

2.

Trade

3.

Services and Private Transfers Net Services

6.

6. 7.

Resource Gap (Surplus) Investment Income Payments Direct Investment Interest Other Net Capital Inflow (outflow) Amortization (public)2/

8.

Gross Captal Inf

5.

1ws

(38.5)

(23.3)

(3701o

(32.2)

(21.9)

(25.5)

(35.2)

(2hJi)

ji.0

29.0

5o.5

L8.7

56.5

(12.1)

(62.3)

20.3

18.1

19.5

21.9

25.3

24.5

26.4

31.5

39.3

32.3

65.0

43.9

48.o

44.1

49.4

(18.2) 36.4 20.6 2.3 13.5 18.2 5.4

(5.2) 32.7 7U3 3.0 9.4 18.4 5.5

(10.1) 28.0 12 4.3 8.1 10.5 8.4

(10.3) 2>4.8

1.0 30.4 20.2

8.8

41.3 39.4 19.9

61.3 39.5

32.0

43.8

78.5

19 7.6

92.6 42.4 21.0

21.0

55.0

7.1 120.0 95-3

7.3

95.5 41.3 2C).3

102-5

31.9 19.

3.3 9.7 11.5

3.4 27.2 16.9 4.4 7.9 30.6 12.6

12.2 80.7 18.2

12.1 100.8 19.3

12.7 136.0 19.6

13.0 135.0 22.8

16.3 146.3 22.0

15.0 110.4 27.1

16.0 127.1 26.1

23.6

23.8

18.9

21.2

153.2

7,2 8.0

7=1 8.2

9.3 3.4

6.9 3.6

3.3 15.9

3.4 12.9

3.6 13.6

(10.8) 23.6

2.1 23,8

(11.0) 18.9

4.8

5.4

5.4 29.6 10.8

6.7 23.1 11.7

7.1 33.9 IWV 6.3 9.0 l1l.O 11.7

63.2

40.2

36.0

52.7

98.9

120.1

156.6

157.8

168.3

137.5

11,9

10.2

9.3 7.4

16.o

12.7 16.4

13.2 29.2

13.5 33.4

13.7 82.9

14.0 93.8

14.3 93.0

244.1

43.5

(0.2) 12.5

(0.2) 17.6

0.7 20.5

1.7 30.1

0.3 36.7

2.8 46.0

1.5 I65.1

2,0 Jh6,4

2.0 50.8

2.2 57.

2.4 65.4

2.8 58.7

(1.6) 21.2

3.7 43¡-

2.3 40.2

(22.4) 36.8

(11.4) 52.7

7.7 98.9

26.6 120.1

13.6 156.4

(2.8) 157.8

1.0 168.3

11.0 137.5

33.3 153.2

ITT 5.3

8.3

8.4

8.5

8.7

8.5

Financing 1. Trarsfers 2. Direct Investment 3. Loan Drawings Private (net) 2/ Public 4. Changes in Short term Asaets or tiabilities 5. Gross Finaicing

1/ 2/

Includes norononetary gold. Includes errors and omjssions.

S5urce:

Officíal data and Mission estimates.

91.

n

1

1).9 1o6

Table 3.8:

CAPITAL FLOWS AND THEIR FIANCING, 1970-74 (in millions ofIU.S. dollars)

1970

1971

1972

1973

1974

Gross C`apital Inflow

156.4

157.8

168.3

137.5

153.2

Private Investnl5tl/ Transfers

84.9 13.7

95.8 14.0

95.2 14.3

46.5 14.6

U6.3

98.6

109.3

109.5

61.1

61.2

44.4

50.8

57.8

65.4

58.7

2.5 3.8 5.8

5.8 2.8 9.6

2.6

1.7 6.9

1.5 1.2

6.4

-

-

-

-

Suppliers3J Total B. New Comnmitments IBRD AID IDB C ons ortium Suppliers Total

22.6

14.0 32.2

9.9 24.6

8. 4 17.0

6.7

3'9 1.5 7.6

8.5 2.2 18.4

13.0 3.4 30.2

17.1 4h5 28.6

-

-

-

-

1.5 3.3

5.6 18.6

4.1 33.2

1.8 48.4

1.8 52.0

Increase in reserves (-)

13.4

-2.8

-1.0

11.0

33.3

Subtotal Official Loans?/ A. Loan Commitnents before December 31, 1969 IBRD AID IDE C ons orstium

41.1 -

1.8

1.9 10.2

14.9

-

1]

Includes private loans.

2]

Includes loans to the public sector and to financial intermediaries (for relending to the private sector). The former category is the dollar equivalent of the external financing shown on Tables 5.8 and 5e.9, while the latter category is derived from the Text Table on Page 93.

L/

IlcIludes Eximbank and bilateral lenders.

Source:

Table 3.6; official data and Mission estimates.

Table >4.1:

EXTERNAL PUBLIC DEBT OUTSTANDING AS OF DECEMBER 31, 1968k" Debt Repayable in Foreign Currency (In thousands of U.S. dollars)

Saurce TOTAL EXTERNAL PUBLIC DEBT2/ Privately held debt2/ Publicly issued bonds Suppliersp Belgium France Germany Italy Mexico Spain Sweden Venezuela Financial institutionsJ /

France Netherlands Switzerland United States

Loans from International Organizations IBRD

DA IDB

1

163,362

277,193

1.523

98.355

3,574

3, 7

34/770 140

87,258

2,259

140

6,o86

6,54o 6,o86

11,158

21,921

-

2,500 12,047

6,830 144,697 30,465

580 380

7,524

-

580

1,800

280

280 199

2,312

2,701

3,131

45,856

71,108

34,076 1,924

4,768 13,100 13,240

9,856

Loans from Governnients2/

2/

Debt Outstanding Disbursed Including Only Undisbursed

75,983

107,729 1,166

Canada

536

Czechoslovakia

621

Germany Netherlands Poland United Kingdom United States Others

137

5,000 4,600

-497 1,133

1,440

72,814

743

800

93,,484 743

Debt with an original or extended maturity of over one year. Includes debts payable in French Francs and Deutsche Marks which are converted at the exchange rates as revalued in August and October 1969, respectively.

Sou.rce:

Statistical Services Division and Central Bank of Ecuador.

Table 4,la:

REPORTED ADDITIONS TO EXTERNAL PUBIIC DEBT CONTRACTED JANUARY 1 - DECEMBER 31, 19691

Debt Repayable in Foreign Currency (In thousands of U.S. dollars)

Reported Additions January 1December 31, 1969

Source

TOTAL PEPORTED ADDITION2S

13,716

Privately held debt Suppliers France Others

5,338 4,453 2e456 1,997

Financial institutions

Loans from Governments Germ2 any Poland Switzerland United Kwngdou United States

1

-

France

881

8,378 17 2,278 232 497 3,185

Debt with an original or extended xaturity of over one year.

ocurce:

Statistical Services Division and Central Bank of Ecuador.

Table 4.2: ESTIMATED FUTURE SERVICE PAYMENTS ON EXTERNAL PUBLIC DEBT OUTSTAINDING INCLUDIDY UNDISBURSED AS OF DECEMBER 31, 1968 Debt Repayable in Foreign Currency (In thousands of U.S. dollars)

Year

Debt Ouitst. (Begin. of Period.) Including Undisbursed

Payments During Period Amortization

Interest

Total

TOTAL EXTERNAL PUBLIC DEBT

1969

273,242 255,560

17,569

6,746

19,484

8,236

235,966

1974 1975

213,556 192,879 171,770 1.51,539

22,302 20,571 21,006 20,130 18,535

8,143 7,168 6,hW39

1976

1.32,905

16,236

1977

116,574

15,946

1978

100,,534

10,769

4,259 3,529 2,900

1979

89,67h

1980

82,70o

1981

76,109 69,495 62,758

6,882 6,594 6,614 6,736 6,67h

1970 1971

1972 1973

1982

1983

Note:

30,h44h5 27,739 27,h445 25,659 23,348 20,494

19,475 13,670

2,568

9,451

2,288

8,882

2,020 1,748 1,70

8,634 8,485 8,lt4

Includes service on a.U debt listed in Table 4.1 prepared March 26, 1970, with the exception of the following, for which repayment terms are not available: Total Suppliers Financial institutions

Source:

5%530 4,813

24, 315 27,720

31 91,000 1,037,000 2,,Uh1,000

Statistical Services Division and Central Bank of Ecuador.

Table 4.2a: ESTIMATED 'UTURE SERVICE PA!MENTS ON REPORTED ADDITIONS TO EXTERIAL PUBLIr DEBT CONTRAJTED JANUARY 1 - DECEMBER 31, 1969 Debt Repayable in Foreign Currency (In thousands of U.S.

Year

Debt Outst. (Begin. of Period) Including Undisbursed

dollars)

Payments During Period Amortization

Interest

Total

TCTAL EXTEi?NAL PUBLIC DEBT

364

98

1,052

512

1971 1972

13,351 12,299 11,030

1,269

1973 197h

9,918 8,969

950 981

606 569 513

7,988 7,034

954 954

6,030

737 737

1969 1970

1976 1977 1978 1979 19830 1931 1932 1933

Note: Source:

_

5 343 4,607 3,978

3,45h3 2,939 2f419

1J112

628 520 520 520 520

461 4 02

346

294 25h 213 182

155 127 99

Includes service on all debt listed in Table 4.la prepared Marzh 26, 1970. Statistical Services Division and Central Bank of Ecuador.

L463 1I,594 1,875r

1,680 1,h62 14441

1,356 1,300 1,031 990 Sbi 702 674

647 619

Table 5.1:

CENTRAL GOVERNMENT FINANCES,

1 9 6 3 -68V

(In Millions of Sucres at 1960 Prices)

Total Revenues Tax Revenues Income Tax Taxes on Capital and Wealth

1963

1964

1965

1966

1967

1968

1264 1157 163

1633 1547 229

1598 1480 233

1475 1390 238

1791 1640 228

1889 1711 233

30

45

35

26

28

29

558 118

733 226

657 196

755 98

982 99

1013 107

168 15 77 27 108 65 16

182 14 85 33 86 43 14

275 9 73 3 117 39 21

191 9 71 1 85 37 18

193 10 81 20 150 39 22

196 10 100 24 178 49 37

15 12

9 20

15 42

11 19

6 84

13 78

Total Expenditures

1532

2029

2143

2057

2128

2800

Surplus or Deficit (-)

-268

-396

-546

-582

-338

-911

268 -07 47 280 380 -100

396 12 90 -78 378 505 127

546 15 -89 74 559 654 -96

582 51 136 -85 521 633 -112

338 49 127 -78 280 400 -120

911 49 130 -81 852 1032 -181

-5

-6

-27

10

9

11

Import Duties Export Taxes Sales Tax and Taxes on Industrial Production Taxes on Transport Stamp Taxes Other Taxes Non-Tax Revenues Fees Property Income Transfers from State Enterprises and Autonomous Entities Other

Financing External Borrowing Amortization Internal Borrowing Amortization Cash Balances (Accumulation - ) 1/

-54

Fiscal year basis, i.e., includes the liquidation period.

Source:

Central Bank of Ecuador and Ministry of Finance.

Table 5.2:

CONSOLIDATED bTATEMT

OF TaE PUBLIC SECTOR Y

(In Millions of Sucres at 1960 Prices)

1962

1963

1964

19652/

1966-2

1967i

Current Revenues Tax Revenues Import Taxes Export Taxes Income Tax 3/ Sales Tax and Taxes on Industrial Production Stanp Taxes Taxes on Capital and Wealth Taxes on Transport O th er 1kcn-tax Revenues Fees Property Income Other

3068 2225 623 228 626

3433 2457 771 239 653

3875 2865 918 312 725

3480 2615 820 242 747

3714 2809 915 220 880

14078 3040 1167 216 822

392 75 177 34 69 843 343 371 l o

394 82 201 39 78 976

506 94 214

403 138

422 107 220 38 6 905 452 252 201

429 127 233

1010 455 420 136

446 109 206 38 8 865 429 246 190

7 1038 494 255 289

Current Expenditures Wages and S¿..laries Goods and Services 4/ Transfers to the Private Interest

2601 1237 741 56¿ 62

2693 1271 721 632 69

3010 1412 837 688 73

2985 1441 742 732 70

2939 1563 621 686 69

3033 1566 738 664 65

Current Account Surplus

1467

740

865

495

776

10145

Capital Expenditures

696

702

758

712

654

750

-229

38

107

-217

122

296

229 103 127

-38 -26 -12

-107 22 -129

217 -12 228

-122 66 -188

-296 45 -341

iector

Cver-all Surplub or Deficit (-) Financing External Borrowing Internal Borrowing 5/ 1/ 2/

i7/ Í7/

Qi/

435

48 48

Fiscal years. F`nancial institutions have been excluded. Includes social security contributions. Includes a small amount of purchases of land and buildings. Includes use of cash balances.

Source:

Central Bank of Ecuador.

40

Tabllo 5.3:

PUBLIC SECTOR 51V323UEC, EXPIROD 3 1¡ESA0 SAVINGS, El SECMINST, 1962-67 (o

AutonotoI A9en-

1962 Iuoolpal Cos-

Fr-nAolal C-oll

Total

1327

127!.

119

4.8

3068

1261

1657

1,1

57

3133

1633

17CI

1,80

59

3875

1596

11.19

38S

53

31011.5

1124.

1129

332

17

2601

1152

1195

327

19

2693

1I18

1127

319

16

3010

1506

1íSí

279

20

2985

-2Cl

95

88

31

167

112

162

12 7

38

285

377

160

43

866

92

268

101

33

-268

206

56

7

-

-381

291

51

9

-

-18.2

380

56

6

-

-365

309

32

5

-65

351

114

37

1.67

-239

753

178

1.7

71.

-158

357

216

8.9

165

-253

577

133

38

222

.328

~116

31

131

12

758

390

258

99915

-287

23

28

6

86

7

107

-573

319

3.

Ceotral Toer--t

SR-

-ue

1---r--t sopeodítuolarIng

belor

Tm-nofera

Tran-f-r Saningo ala CaPIlta

Cranero

ueníun

Net larInge

lauos.-

Central Bk

Milleo of lucres at 19611 Primo)

of Ecuador

wol Hiedn

ol.ato

CAO -229

entralAutolo-saoca-oa an Agen-

19733 -1.36

1.20

1963 Kantcípal C-sc-

Pro-íojl Cosa-

Total

71.0

-Ce_tral AutoToer--ou --t Agen-

127

1.5

712

303

281

51

2

38

-1.61

175

1996 Muolooal C--n-

Previola C----

Tot.l

Central CGoermort

1965 loto- M --Protono--us alpeS clal Agno- CoroCos-

3

Total

Cntr-l Toer-onal

Autoenano Agen-

1966 ?nlí- ProntolMl ojl Cocos- Coso-

Total

Cental Sonoroo-nt

1967 Auto- MonInasa aopal AgeoCoc-

Pr-ño-Total ojal Cas-

1815

377

18

1711.

1790

1110

387

51

4O76

1195

282

71

2939

51406 1342

272

11

3011

38.

620

95

27

776

116

38

10I5

-

-354.

335

ib

6

13

5

4.95

-370

955

109

33

776

287

86

32

668

22

1

1.95

712 -217

11.1.

28.9 -569

-

381. -392

506 374.

-

-8

881

129

4.3

1045

651.

299

335

77

39

750

122

-307

54.7

52

4.

295

Table 5.4:

FIIEI

: NVESTMENT

(In Millions of Sucres at 1960 Prices)

1962 Central Public Government Sector

1963 Central Public Government Sector

1964 Central Public Governyient Sector

196< Central Public Governmen t Sector

1966 Ce¡t. al Public Governmhnt Sector

1967 Central Public Government Sector

Total, Fixed Investment

222

o96

198

702

303

758

320

741

249

674

299

764

Total Buildings Schools

27 17

108 17 31 u1

33 21

166

41 32 9

130

94 54 -

18 6

75 30

21 11

34 5 44

33 26 7

-

-

6

8 38

4

34

_ 12

103 34 28 15 26

258 196 38 23 -

489 256 44 166 23

219 187 21 11 -

462 237 30 172 22

270 228 21 21

30

158

12

136

8

Hcusing

-

Hosnitals Other Buildings

10

Total Constructicn and Public Works Roads and Bridges Airports, Harbors and Docks Electrification and Water Supplies Irrigation Machinery and Equipment

Source:

Central Bank cf Ecuador.

186 156 18 13 -

8

37

47

1

67

4

49

12

59

504 203 138 '140 23

155 1I4 27 24 -

450 162 70 190 29

225 141 24 60 -

503 i89 55 232 28

9

86

37

125

84

7

-

534 291 46 181 17 127

TdDle 5.5:

WENTRAL UOVIERNM&'IT REVU9!E PERFORIMiAiCE, (Iii

196d

1969

136. 7 3j¿.0 325.0 2ó6.u 3ons8t6ptiZr i8+ó 916.5 1,053.k 113.0 118.6

135.1 3153 ¿69.¿ 1,369.9 154.5

119.3 354.9 ¿'(.4 1,413.1 1ó6.9

121.2 353.6 335.5 1,403.0

¿ 064.6

1,939.1

¿,¿bÑ.b

¿386.6

2,5d1.U

163.2

ííe.6

209.3

255.3

41¿.9

i,O29.2 2

2,Y05.6

2,495.4

¿,635.2

2,931.3

-

-

-

¿,¿¿9.2

2,657.6

¿,498.4

¿,635.2

273.,

l'ax Revenue Non-Tax Revenue

Total Reven Oil Revenue-Tax Reforrj/ Total

1/

2/

196b

PROECTIOwS.

1970-74 (ACERUAL BASIS)

íillicnais of Sucres at 1969 Prices)

196/

196S'

Export Taxes1/ Income Tax• Taxes on import uuties OtiLer TaxesiE

196ii-59)iD

1972

1973

1974

130.0 137.0 4j7.0 30.0 30.0 370.0 1,¡0oo.o 1,46o.o ¿.162.0 ,,(0.0

138.0 515.0 416.0 1,510.0 ¿7f6.0

137.0 534.0 443.0 1,5b0.0 290.0

137.0 t5.O 473.0 1,810.0 3O6.o

2,600.0

736.0 ¿>,

¿>655.0

¿,9d4.0

3,291.0

300.0

325.0

360.0

410.0

2,900.0

3,061.0

3,>15.0

3,394.0

-

-

350.0

430.0

700.0 3,761.0

760.0 3,975.0

8¿0.0

900.0

4,564.0

5,561.0

1970

z273.6

-

-

2,931.3

3,J30.0

1971

450.0

3,741.0 920.0

Projecteca on tfte basis of thie average relation prev-ailing during 1966-69 to exports (excludi.ng oil) of 3.5 percent Past (1964-1969) relationship of income tax to GD1 has been fairly consistent 1.3 percent. 1970-74 presumes a

continuation of this level plu3 S/.36 nl'iion in 1970 from a new efSorcement drive, 1971>

+

3/36. 1972 et seq.,

+ 3/46.

3/ 4/

5/ _

This group includes the sales tax, petroleum products, cigarettes, sugar, beer, cigarette, etc., influenced by a wide variety of factors and policies. Projection of authorities Is used. The last available relatianship (31.4 percent for 1969) between import values and importa la used to project import duties from import projections. Lrop in 1970 due to inclusion of advance royalties in 1969. Estimates are those of authorities. 1974 1973 3TW3 (SI mls.) Til -a (S/ mls.) Royalties ¿.5 2.5 Surface Rights 18.6

Transport Uflarges

Incoma Tax Repayment of Advance

¿56.8 70.6

43.5

626.4 38.5

348.5

7/ Sales tax Mis cellaneous Acictiional Surcharges

toal aata and Source: O)ft

57170 30 230 SouZe:Offcia

ilission estimates.

1970 -71 3740 (mis.) 60 200 daaa77Wd (mis.)

Table 5.6 :

PUBLI" SECTOR REVSN1JE PERFORMANCE 1965-69 AND PROJECTIUIS 1970-1974 (ACCRUAL BASIS) (In mlllions of sucres at 1969 prices)

Export Taxe 2/ Income Tax Taxes on ornsumption!v Import DUtiBesá( Other Taxes Tax Revenue Nontax Ravemaes Total Revenue Oil Revenues Tax Reforms Total

1/

1965

1966

1967

336 1,038 620 1,140 500

306 1,223 587 15272 516 3,905 1,258 5,162

300 1.143 596 1,622 566 4»227 12443 5,670

-

-

53162

5,670

3,635 1,202 4,837 4,837

1 96 8

310 1,162 606

14738 869

4,685 1,850 6,535 -

6,535

g

196#"

1970

1971

1972

1973

1974

300 1,279 749 1,727 719 h,773 2,196 6,696

300 1,400 870 1,730 720 59020 2,460 7,480

300 1,500 870 1,800 770 5,240 2,500 7,740

300 1,600 930 1,870 810 5,510 2,770 85280

-

-

-

-

400

69696

7,880

700 8,440

760 9,040

300 1,660 990 1,950 850 5,750 3,150 8,900 350 820 10,070

300 1,760 1,050 2,230 900 6,240 3,460 9,700 920 900 11,520

Projections.

2/ Export Taxes: 1968 has been projected on the basis of the performance of the coffee, cocoa, and banana taxes. For 1969 et seq. a relationship of 7.7 percent of export values has been used.

3/ Rest of Public Sector income tax receipts and social security taxes have been calculated on a relationship of 3 percent of GDP and added to projections for the central government income tax revenue.

4/

Sales and consumption taxes assigned to and collected by the rest of the Public Sector have averaged 54 percent of total receipts; revenue for 1968-1974 are based on the central government projections.

5/

IImport duties earmarked to the rest of the Public Sector amounted to 19 percent of total receipts on the basis of most recent information. Projections for the Public Sector were made by grossing up the projec. tions.

Source:

Official data and Mission estimates.

Table 5.7:

INDICATIVE PUBLIC INVE3TMENT PROGRAM, BY SECTORS, 1970-74 (In Millions of Sucres at 1969 Prices)

1970 Domestic External

1971

1972

1973

1974

Domestic External

Domestic External

Domestic External

Domestic External

Agriculture

18.1

25.1

33.3

47.5

99.3

71.5

137.3

50.8

191.8

62.0

Commuruication

10.9

57.7

11.7

78.7

3.4

72.0

13.4

95.0

23.0

730 4

120.9

61i4

139.1

87.5

152.4

50o3

150.0

32.0

163.6

35.6

Power

67.2

131.3

128.1

148.0

172.8

244.7

190.6

328.9

244.6

277.4

Health and Sanitation

52.2

74.1

83.4

132.6

82.6

137.4

72.9

116.5

44.7

55.7

559.8

278.9

619.3

128.5

677.7

167.1

706.2

189.2

631.4

179.2

16.0

32eO

16.0

32,0

16.0

32.0

16.0

3220

1030.9

65h.8

204.2

775.0

1286.4

844h4

1295.1

Education

Transport Other

829.1

Source:

628.5

National Planning Institute and Mission estimatesQ

715.3

Frnrc n

iflsitn-0 (2) (3) (1.>

1

tmnIgatí,nn ruet Potfn,FSqun, PinayanbCírrígatlón

M¶iagn, I-nlgatlon tINIA project

121 1') 1881 DR

(5> 0ay~qu11 Basito ldy (6> lrn1.ga~ton wrd di------ft-aílon etudy

12Ž8 A.D

T.t.1

(1] Hallonal Chonael 1731u. (2) Int.mation.l 111Fíyften (3) »7113 butldlngo (1>Qolto md Ouoy.qíOl Telephone Conpo-e

íupplI-r 018 -

Suppliors

Total

-Io --di trno

jp,. r 252.,0 31..7

L970-71

3~t .0 ['1.0 " 9.9

'171

13,0

-

60".0

19.8

2.41 602

20,.8 72.2

10.5 1-1. 6

2l.9 16.6

736.7

679.8

256.7

30.0 87.0 16.2 306.0 _

16.6 29.6 to.2

439.2

62.4.

166.i. 180.2 1.6.7 17.2 4646 100.0

517.7 90.2 23.5 13.6 16.0 36.0

-

,n 3.5 2.4.

13.6 57.6

13.1 7.í 1.6

I8.í

25.1

8.7

6.7

-

-

2.6

-

306.0)

-

n 10

-

'12.

~

L1?

11

¿itt 23.

21.0

L

io5.í 29 2

-

1,1,c

.6.0 o.8

-

-

-

6. 3,5 ,.6

13.). 7.7 7.0

6.6 3.5 6.6

03J, 7.7 7.0

33.7

1..5

99.3

71.5

8.3

6.7

-

-

-

-

-

-

3.1.

-

720

10.0 .4 -

20.2

7..

72.0

09.1.

95.0

-

1.0

376.8

10.9

57.7

01.7

78.7

86.7 097 22.8 3.6

1.7.7 1 13.6

78.7 J .3.1 9.3

30. 52.6, 6.1

27.7 5i.L 8.9

-

77.

-

3.6

2.7 -

155.6 29.0 7 .2

1.6.0 18.0

--

-

-

So.a

137.3

lol.8

62.0

---

-

75,0

19.6 3.1.

37.1.

-

36.0,

23.0

-

73.6

Odun atíle

(1) (2) (3) (6~) (5) (6)

h.no.y adueel pregra

AID

2¿o0Iralulpoaa 1D Poíyn.nhnt 1n.tIWte Seoond.ry ---eel pra-a- 20 2war.Uz. -hohl nstatapogras Polit-ebele IZtít.tel bíldlng

IDB 18017 -

mDR

Total

~

992.8

(1.) R.9g-loaPe.Crp~moR a (2) PísaYeab dat (3> P.tl. dat (4) ÁlanTI (5) Nayen

Ruppllero 169.1. EDB 677.0 IDR 937.8 23.2 Supplfeirs306.5

-

66.0

726.0

2616.8

2b.8 163.1 622.1 23.2 170,7

-

-

--

120.9

60.1.

1I.6.3 333.9 515.7

16.o

104.0

-

-

-

17.2 36.0,

136.6

--

---

-

10.0 --

139.1

---

87.5

50.3

156.1.

132.0 80 150.0

-

32.0

17.6 32.0 78.0

.32.0

32.0

163.6

35.6

12.0 185.9 131.0

0.2 2.3 222.1

0.8 5.3 271.3

--

50.

-

-450.0

20.8 24.9 h6,-

23.1. 25.2 3.8

-

25.0 31.7 23.1

27.3

6.5 13.6 18.9 6.0 85.1

68.2

51.0

60.9

-

-- -

----

-

0.1. 1.7.5 73.9 -

2.5 171.0 90.3 -

3.7 79.7 107.2 -

-

3.6 -

-

1,913.6

783.3

1,130.3

67.2

131.3

128.1

148.0

172.8

246.7

igo.6

328.9

246.6

319.3 IDR 160.?1 AID) 52.1 Suppll---s320.0

1.01.1 51.3 23.1. 1.0

218.7 1o9.4 28.7

16.0

36.2

3i.6 9.6 7.2

68.1. 20.6 8.8

31.6 16.0

68.6 36.0

21.9 16.0

47.2 36.0

-

-

9.7

20.7

Total

277.4

Hesith azd Oamt.taton (1) Quito .al., 12) OhayaqUhl aevOr (3 Malaria orí.datie (1) Ibaral mauitatín

0D8

Tetel

(1> (2) (3) (1.) (5) (6) (7) (8) (9) (12) (11)

Ratd Pengr 10 i ParC1al Híghway Preola 00 Thtr6 Hlgbway Poregr Pera11a1 HO000ayProgra, III, Ifn-etractéd Para11e1 1II Rgíonal Read P-egr-u Gua-YaqI P-rt QuIte Aleteen F-aabilOty Btudíoe Rau.IaylthabííOt.aIen Guayas ínidg.

852.1

cton... ttli

cntLtaU

&m/nIIR2w 115.0 I~~~~~~~~DB 593.7 TU 1.75.8 .o6. 707.8 791.0 1B88 256.1 ¡882 300.0 ATO 26.9 Sumpíle270.0 Oappltn- 135.7

Total

-

-

1801.6

1. Ž0.0

199 20.0

,3j,0

.5L2

25L2

35

35.0

35.0

35.0

39.0

335.8

516.3

52.2

74.1

83.6

132.6

82.6

1.37.6

72.9

116.5

1.-7

55.7

30.5

I16.5

30.5

1164.5

-

206.0

-

86.6t 66.6

593.7 261.9 446.0 707.8 791.0 102.7 167.3 9.1 55.0 30.04C

6,137.3 3,191.,

213.9

-

.

1.26.0

-

-

-

160.0

156.0 132.7 17.8 215.0 95.01

-

2.3 15.0 20.

9.2.9

559.2

~

6.1. 90.0 l00 278,4

---

-

166.9 33.9 126.0 10.1 155.0

--

----

70.0 81.2 126.0 179.2 172.0 8.1 17.8 3.6 10.0

-

27.8 -

-

-

6.o 3 .o 12.0 10.0

6.0 6.7 65.0 25.0

619.3

128,5

677.7

12.0

16.0

-

-

-

66.9 -

27.2 26.7 6.7 LtO. ---167.1

86.6 82.6 68.0o 199.5 170.0 1.2.0 67.9

67.6 -134.0

63.1. 31.9

19.0

-

62.0 95.8

63.6 63.8 ---

-

-

-

10.0

20.0

10.0

----

-

52.0

-

706.2

182.9

631.6

16.0

37.0

16.0

179.2

lIbar Toanlo lvaonnt i2Žoat

topínn

1. 4-27m.

60

L 1,72. .3

:;1:726

~

2!. 1

nOn .5

1,30.9

15.2-j

1i,20.

22.2 7'.

,0.~125

32.0 713.5

Table 5.9: FISCAL IMPACT OF OIL EXPLOITATION (In thousands of U.S. dollars)

1973 Production in bble per day

(1)

Value of output per year Royalty (at 11,5 percent)

Surface rights Transport c ?rges(3) Income tax 2 Total fiscal yield

Less repayment of advance Net fiscal yield

1974

100,000

200,000

67,525

135,050

7,765

15,530

140 1,024 U11,25

140 2,391 34,457

23,045

52,518

3,882

2,118

19,163

50,ho0

344,934

907,200

67,525 13.,240

135,050

Less depreciation Royalty payment

7,765

15,530

(thousands of sucres)

(1) At $1.85 per bblo (2) Calculation of Income Tax Total inrcorne

Surface rights Transport payment Other costs Pretax profit Incorne tax Net profit Plus repaymnent of advance (3)

13.,640

140

14o

1,024 5,000

2,391 5,000

ho,356 14,125 26,23i

98,449 34,457 63,992

3,882

2.18

30,113

66110

Assuming hypothetical transport charge of $0.35 per bbl. and Ecuadorian Goverrnent share of 4.5% in 1973 and 5.25% in 1974.

Source:

Official data and Mission estimates.

Table 5.10:

PPOJECTIONS OF GDP, GNP, INVESTIENT AND SAVIIIGS: PUBLIC AND PRIVATE, 1970-7L (In

197C

Capital Inflcw

1,769

253

2,022

5L8

1,746

299

2,0h5

574

1,892

280

2,176

1,1

1.027

350

1,777

1,553

1,613

337

1,980

19,419

,0Ih8

3,215

2,679

1,233

536

23,538

20,196

5,D088

3,890

3,302

1,198

24,857

21,003

5,7Ló

u,1i28

1,318

Consumption

«9rD 28,387

26,834

Savings Private Public

Investmontl/

26,ót

25,óL10 M,2^_ 21,ELg3

22,717

Pri-vate

5,751

Investment Public 4/

8,85

'a,E'LL

,797

Llcí

',67n

0,117

90

1,928

751

3,0ol

1,007

L0,08

1971

2,073

1,269

3,877

1,211

5,088

1972

2,235

1,619

0,320

1,022

5,746

1973

1,697

1,900

3,703

1,531

5,220

1970

1,595

2,522

4,307

1, L0s

5,751

Projection based on the relationship between real GDP and exports plus net capital inflow during loso-t,. d test of the absence of serial correlation significant at the 2.5 percent level. Based on GDP and balance of payments projection and assumption oef l percent snnual growth in consumption. Fron Table 3.7. From Table 5.8. F/ Mission estimates and Table

Net Capizalií/ Inflow

Tota

1970

Sources:

Amortiaatien3/

22,098

86

25,431

3/

Net Fau torY Payments

22,63L

1972

2/

Eiesuurcei/ Gap

GNP

2a,0

1/

Savings Domestic National

GDP-1/

1971

197.'

sillions of sucres at 1960 prices)

mentioned in footnote

0'.

R2= .951,

standard error of estimate = 8.7 million U.S.

dollars;

Table 5.11:

CONSOLIDATED STATE

2N OF PTBLIC SECTOR FINANCES, 1962-69

(millions of sucres at 1969 prices)

1962

h,271 34621 +650 969 -319

Central GoveWnuer Current Revenues Current Expnditures Saringo, Before Transfers Transfera Savings After Transfers Capital Excpenditures Surplus or Deficit

1,847 -12565 +2d3 -373 -90 309 -39

1,759 -1Ž604 +155 -489 -333 274 07

2,424 -2 56

3,020 145

+3

+489 +1,364 70

Note: Source:

660

5,39h 4É29 +1,20h 1 055

5,170 4,8144 -4 091 -41255 +II689 t1W 910 991 +170 -302

5,677 -4 222 +1,45 1 044

6,336 -57l 1 100 -

1,200 -330

2,273 -1,876 +397 -615 -220 422 1-797

2,224 -2 096

2,053 -2,006 +47 j493 ---45 347 -792

2,492 -1 957 +53 5 -546 -11 416 -7

2,635 -2 875

2,931 -2J899

-576 -516 452 -1,268

-610 77 500 -1,07

3,117 o85 +1,032 +4 15Ž5 56 +963

3,185 -2 265 2 +546 +1,466 628 3

3,701 -2 918 7838 +576 +1,359 648

4,O38 -3200

4h,779

Public Sector Current RevenUes Current Expenditures Savings Capital Expenditures Surpius (+) or Deficit (-)

Rest of Public Sector Current Revenuws (incl.) Current Expenditures Savingo Before Transfers Transfers Savings After Transfers Capital Expenditures Surplus or Deficit

1967

1964

-3.749 +1,030 977 ;3

1965

t+I

-480 -32 445

3,121 2,620 -2 o52 i+87 $61 +615 +480 +1422 +l,014¿1 6 5á6 91 +!95

t41i

1968 (est.)

1969 (est.)

1966

1963

45LJ

t+32

6,969 -6,099 .870

+610 +l,448 700

1962-64 figures not strictlJr comparable with those of later years as earlier figures include of public financial intermediaries. small amnits resulting from operatione Central Bank and Bank Mission estimates.

Table 6,1:

SUMAIY ACCOUNTS OF THE BANKING SYSTEMI,

CENTRAL BANK

(In millions of current suc.res)

Ulet international reserves Domnestie credit Public sector (net) Central Goverument (net) Credit Deposits Rest of Public Sector (net) Credit Deposits

1964

1965

1966

1967

1968

Sept. 1969

907

687

889

1,049

846

698

1,167 1 582 1 70 563 206 650 755 -U4U -192 -36 8 100 105 -136 -97

1,745 702 701 1,032 -331 1 89 -88

1 716 516 908 -392 -52 99 -151

2,394 64* 8 9 1,061 1,303 -242 -172 123 -295

2,845 993 1,153 1,445 -292 -Ó1O 222 -382

*

Barnking sector Commercial banks National Development Bank Private sector Unclassified assets (net)

243 38 205 565 189

296 79 217 562 153

264 47 217 585 194

320 92 228 549 383

367 100 267 712 426

526 113 413 799 527

Liabilities To banks Conmercial banks National Development Bank To private sector Currency in Circulation Advance iimport deposits Other liabilities

2 014 5 524 66 1,h24 1,115 103 206

2,181 611 546 65 1,570 1,215 189 166

2,543 770 675 95 1,773 1,320 310 143

2 674 9 730 89 1,855 1,371 366 118

3,137 93 867 116 2,154 1,564 436 154

3,439 1,016 901 115 2,423 1,474 802 147

60

88

91

91

103

104

Capital and reserves

Scurce:

IMF, Central Bank's balance sheets,

Table 6.2:

SUMMARY ACCOUNTS OF THE BAJING SYSTW,

TTAL SYSTEX

(In millions of current sucres)

Sept. 1969

1964

1965

1966

1967

1968

949

751

970

1,122

961

803

h 833

5 393

5 7766

6 196

8 034

8 618

208

703

522

-91 4,038

567 -26 h,106

-4O 4,298

4,9h3

1Y068 -241 5,821

1,168 -253 6,250

Unclassified assets (net) Interbank float

660 18

720 26

765 40I

i,o6h 63

1,286 100

1,329 124

Administrated foreign funds

39

48

15

13

38

41

99

110

133

126

121

118

4 759

4 991 t> bt'gr

5 628

6 374

7 651 t

7 971

Currency in circulation

(1,115) (1,215) (1,320) (1,371)

(1,564)

(1,L¿74)

Demand deposits

(1,410) (1,384) (1,611) (1,910) (2,281) (2,325)

lNet internatíonal reserves

Domestic credit Public sector (net) Central Government (net)

Rest of public sector Private sector

-23 3827

-96

tr1

Medium- and long-term foreign

liabilities Liabilities to private sector Voluntary sucre liabilities Time deposits Savings deposits [ortgage bonds Other sucre liabilities Advance import deposits L.iabilíties in foreign. exchange C-apitLal and reserves

Source:

21C{,

(128) (4226) (1,067) (422) 103 88

3B

X

(139) (189) (143) (144) (133) (764) (1,022) (1,091) (579) (481) (1,090) (1,132) (1,255) (1,366) (1i508) (398) (561) (405) (375) (392)

885

Central Bank balance sheets.

189

310

366

436

802

107

157

160

232

234

995

960

1,095

1,185

1,291

Table 7.1.

1954 (hectares

1966

Ecu ador11 Fereent

unlese

otherwise stated) Rural populatí un £rnt 7e§P) Agricultural output_ Ares in farms Ares in all crops Ares in food cropa Areg ín annual crops Area in oermanent crops Natural pasture Cultivated pasture Total tillable land Ratio tillable land te area in faras Nurmber of farans

RURAL PP0°ULATICN,

o'

Increase

LAND LSE ANDAGRICULTURL OrTPUT, 19514-6

Coast Annual Rate of

~ncrease

19514 (hectares

1965 unless

of Increase

otherwise stated)

2,430,000*

3,591,146

47.3 83.9

2.7 147

1,073,000

1,570,508

5,999,700 1,211,900 1,070,560 896,6o0 315,300 1,257,500 520,800 2,161,000 36.4 344j -5

6,924,671 2,163.699 1,863,209 1,209,787 571,910 853,030 1,062,872 3,667,23h 53.0 624,181

5.54 78.5 71.0 314.9 81.h4 -32.2 104.1 68.1

1.0 3.8 2.0 h. -1.9 U.9 3.6

6110

4.0

2,y79,300 609,400 6.1 491,1460 319,000 290,400 299,600 363,000 1,333,60C 45.8 864,665

3,701,044 1,29u,,688 1,024,667 569,556 469,183 229,085 777,336 2,351,71h7 63.5 207,592

*

Estimate

1/

Excludes the Oriente for lack of data for 1954. Its figures are smell and do not rmaterially affect the totals. Exclusive of bananas. Physical volmses in metric tons at 1968 prices as weights.

2/ 2

Sources:

Sierra

_

Percent

Annual Rate of

Increa5e

1955 1968 (hectares unless othervise stated)

46.4 814.0

2.6 14.4

1,357,000

24.2 112.5 108.5 78.6 61.6 -23.5 103.0 76.4

1.5 5.2 5.1 4.0 3.3 -1.4 5.3 4.1

155.2

6.5

3,020,100 602,500 579,100 577,600 24,900 957,900 137,800 857,400 28,1 259,400

2,020,636 2,652,182 2,842,182 869,011 838,5h2 650,231 102,727 623,945 285,536 1,315,487

Percent cN Inerease

Annual Rate of

Increase

9,g 9. 9-

2.7 .7

40.7 4h.2 h14.6 10.8 312.6 -34.9 107.2 55.2

2.7 2.3 2.4 2.5 0.7 7.9 -2.0 5.0 3.0

6o0o

3.2

46.3 416,589

Agricultural Oensus of 1954; Encuesta Agropecuaria Nacional, 1966 and Proyeccion de la Poblacíon del Fruiador, Division de Estadistica y Censos, National Planning Board.

Table 7.2: REGICNAL DISTRIBUTION OF AGRICULTURAL PRODUCTION BY CRoPS, 1968

Total

Sierra

2oast

Oriente

Cotton

100.0

2.2

97.8

-0-

Ric e

100.0

2.3

97.7

-0-

Bananas

100.0

23.7

76.3

-0-

Plantains

100.0

14.3

77.6

8.1

CofTee

100.0

11.3

87.4

1.3

O oc oa

100.0

8.2

91.8

-O-

"arns

100.0

29.7

42.1

-0-

Hemp

100.0

30.2

69.2

-0-

.orn

100.0

59-0

38.0

3.0

Peanuts

100.0

20.2

78.1

.7

Pineapples

100.0

22.2

69.7

8.1

5abbage

100.0

99.6

-0-

.4

C-reen beans

100.0

81.-

18.2

-0-

Dry beans

100.0

95.9

3.3

.8

Lima beans

100.0

98.7

1.3

-0-

Petatoes

10C.0

99.8

.2

-0-

Onions

100.0

100.0

Wheat

100.0

99.9

Barley

100.0

100.0

-0-

-0-

Peas

100.0

100.0

-0-

-0-

1li1k

100.0

76.9

19.2

3.9

Livestock (stock)

100.0

5h.2

41.6

U.2

Livestock (slaughtered)

100.0

54.6

34.4

u .O

Source:

Encuesta Agropecuaria Nacional, 1968.

-0.1

-0-0-

Table 7.3:

VALUE OF PRODUCTION PER PERSON OF FARM, 1968

P§arm Size in Hectares

Tholesand of Sucres per Worker

Ázc-iE

3,290

Ah

575

0-1 ??ore than 1 to 5 I'-ore tlian

1,L26

5 to 10

2, 30 h,206

More thani 10 to 20 More than 20 to 50 'ore than

0 to 100

6,7bo 9,n09

:'ore than 100 to 500

.-:Ore thlan

t°tat`za

U

airze:

BY SIZE

]ueo:i

700

13,552

teC 1,000

7,586

u,3000

;orecuaria

.acional,

1969.

Table 7.4:

VALIJE OF PRODUCTION PER WORKER AND AVERAGE

FARM SIZE, BY RGICNS AND PROVTNCEi, 1968

. erion- andc

Provinces

.uadJor, total zierra, total rzc r irncha 'archi dm nar imbabura ,OtOp2.i

;o1:lva r ,oja'L / ?hrn,borazo w-u2 arrua ,osta, total wsmera idas Lo; RIos U a7U S 71

3ro

*~iiaabn

1.

*-J'fered nabictularly hardc

S our.- e:

Value of Prod. Per _Torker (sucres)

Average Farm Size (hectares)

3,290

11.0

2,1k1 ,2 75 2,973 2,025 2,120 1,90L 909 1,776 770 1,716 14.728 9, 7C2 7,0l:8

6.8 2 3. 7 11.7 ó6.9 6.8 6.2 9 5'3 4.7 3.8 2.3 17.8 35.0 26.3

~~~~~4,2915

16.3

2,LC8

3,871 2,°213.8

f roar the 1963 drought.

3ncuesta Agropecuaria Nacional, 1968.

19.L.

Table 7.5:

Farm Size Groups (Hectares)

NUMBER OF FARMS AND AREA, BY SIZE

All Forrms of Tenure Number of Farms Area Percent Percent No. of Total Het ares cf Total

AND F0RM

OF TENURE,

1968

Owner-Operated Nunmber of Farms Area Percent Percent No. of TotaL Hectares of Total

other Forms of Tenure Number of Farms Area Percent Percent No. of Total Hectares of Total

All Sizes

633,218

100.0

6,937,520

100.0

180,8479

100.0

5,736,L28

100.0

152,739

100.0

1,201,092

less than 1

206,273

32.6

93,018

1.3

169,955

35.L

7L,196

1.3

36,318

23.8

18,822

1.6

More than 1 to 5

264,074

41.7

615,556

8.9

181,35L

37.7

420,66o

7.3

82,720

5L.2

194,896

16.2

More than 5 to 10

68,527

10.8

466,315

6.7

51,096

10.6

3L5,796

6.o

17,431

11.4

120,519

10.0

More than 10 to 20

36,228

5.7

485,572

7.0

29,118

6.1

388,805

6.8

7,110

4.7

96,767

More than 20 to 50

32,746

5.2

1,018,315

JJ.7

28,090

5.8

870,319

15.1

4,656

3.0

147,996

12.3

More than 50 to 100

15,555

2.5

976,653

J.L.i

12,4j7

2.6

810,074

11.1

3,108

2.0

166,579

13.9

More than 100 to 500

8,467

1.3

1,647,904

23.7

7,246

1.5

1,448,554

25.2

1,221

0.1

199,350

16.6

922

( -0-

634,554

9.1

806

( -0-

548,201

9.5

116

7.2

426

367

(0.3 ( -0-

829,823

14.5

59

( -0( 0.8 ( -0-

86,353

(0.2 ( -0-

More than 500 to 1,000 More than 1,000

Source:

Encuesta Agropecuaria Nacional, 1968.

999,633

1L.5

169,810

100.0

8.1

14.1

Table 8.1:

INDEX OF INDUSTIUAL PRODUCTION - 1957 to 1968 (;9Ú)= .L)A

Manufacturing Industry - Total Food Beverages Tobacco Products Textiles Clothing and Shoes Wood Products WIooden Furniture Paper and Paper Board Printing and Publishing Hides and Leather Rubber Products Chemicals

Petroleum Products Non-MetaUic Minerals Metal Products Electrical Machinery and Equipment

Transport Equipment Miscellanecus

Note:

1957

1960

National Planning Board 1961 1962 1963 1964

'43.5

55.4

62.8

63.6

72.14

43.7 65.8 48.7 60.6 73.3 17.2 38.2 3.2 52.0 82.0 15.4 31.0 34.0 46.7 35.5

58.5 78.4 46.8 62.8 69.2 15.6 51.4 4.7 71.3 78.9 14.7 39.6 72.5 57.5 53.9

70.9 79.7 53.9 71.5 78.5 15.3 54.7 6.2 74.0 80.9 15.7 56.8 70.5 66.8 54.1

68.9 78.4 60.7 76.0 86.9 15.7 56.8 7.3 77.4 86.1 15.9 62.5 67.9 66.0 61.6

2.1 12.4

3.9 23.0

5.1 33.8

7.5 36.2

Central Bank 1966 1967 1968

1965

1966

87.2

100.0

104.9

108.6

121.9

133.9

72.5 76.0 77.4 81.5 85.3 21.2 54.5 57.4 80.2 90.1 68.8 71.2 77.0 78.4 70.6

88.1 87.7 81.6 100.4 85.9 58.3 71.7 70.1 92.2 92.8 99.2 82.7 86.1 87.3 87.9

100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

98.3 93.}4 83.4 109.4 109.3 133.4 70.5 102.7 123.3 89.3 104.9 114.4 110.1 114.2 115.7

113.7 98.4 33.4 98.4 121.0 133.4 n.a. 102.8 111.0 89.9 103.9 114.6 106.1 113.5 115.1

126.2 100.9 91.3 115.4 121.6 189.0 n.a. 113.2 120.7 92.6 118.4 124.8 111.7 127.8 165.5

140.2

6.5 13.8 71.0

11.3 77.7 80.5

100.0 100.0 100.0

110.5 102.8 130.1

108.6 130.4 131.8

138.4 170.4 151.6

136.0 176.4 166.9

106.5 94.6 119.8 139.6 190.4 n.a. 116.2 126.6 87.3 128.7 135.8 139.2 143.6 211.6

The Planning Board and Central Bank figures for 1966 compare reasonably well for most groups, but there are substantial discrepancies in a few cases reflecting the difference in coverage. The Planning Board coverage is more complete and hence more reliable.

Sources: A. B.

1957-1966, National Planning Board based on Census data 1966-1968, Central Bank based on sample surveys

Tablo 8.2:

COiTPOITI0i

CFfl THIS LEiJUFACTUÁ.N1

S&3TOPt

1957 TO 1966

Percent

of

the Procuctioc

Indc-x for 1Wn-U'acturuin

CoiitriUated

by M1ajor Groups

1957

1960

1963

1966

100.0

100.0

100.0

100.0

Food

29.4

31.0

29.4

27.4

BeveraGcs Tobacco Textiles

17.2 3.6 18.3

16.1 2.7 L4.9

11.9 3.4 15.3

10.1 2.5 13.7

Clothing anid Shocs ilooad Proclucts

2.4 0.8

1.7 0.6

1.5 2.7

V!ood Furniture Paper and Cardboard Printimn and Publishing Elides and Ieather

0.2 0.3

1.8 O. 0.2 0.3

0.1 3.0

0.1 3.7

4.8

5.1

4.14

4.7

1.4

1.1

0.7

Ribber Products Chemicals

0.9

0.7

5.5

5-5

0.9 2.5 7.6

Petroleum Products

6.5

10.8

8.8

8.7

lion-Metallic

5.7

5.6

.8

5.8

liatal Products Elec-trical i'chinexy TransporL Equiprnent

2.3

2.8

2.8

*

*

*

-

-

1i'scellaneous

o.6

0.8

0.2 1.9

3.2 0.7 1.2

llanu.facturing Industiy, Total

*

nerails

Less than 0.1

Source:

National Planning Board.

2.6 8.2

2.4

Table 8.3:

MAIIUFArCTURr¡G EMPLOSU§T, PAYROLL, PRODUOTIONl AND VALDE ADDED Fi

Size of Establishment (QQO) sucres per annum

Under

Number of Estbl.

SIZE OF-EMABLISfST

Numnber of Emp1oyees

-

1yo5

Payrol1 (nillions sucres>

Value of Production (millions sucres)

Value Added (millions sucres)

25

209

796

0.9

4.o

2.5

25 - 50

273

1,309

2.6

10.5

6.7

50 - 75

271

1,377

4.1

17.1

10.5

75 - 100

187

1,115

3.6

16.2

9.7

100 - 250

725

4,686

23.0

117.5

58.4

250 - 500

237

2,326

16.3

85.9

38.0

500 - 750

U.U

1,64h

13.9

71.8

32.7

73

1,661

14.7

66.7

30.7

750 - 1,000 (Subtotal-under 1,000)

(2,089)

(1h,919)

(79.1)

(389.7)

(189.2)

1,000 - 5,000

269

9,904

108.9

632.1

270.3

5,000 - 10,000

56

4,038

49.0

411.3

150.2

92

18,769

332-4

3,932.1

14U.9.6

(32,711)

(490.3>

(4,975.5)

(1,870.1)

47,629

569.5

5,365.2

2,059.3

10,000 & over (Subtotal-1,000 and over)

Grand Total Source:

Census of Manufactures,

(417) 2,506 1965.

Table 8.Ll:

HEW INVI,TUE,,3 BL,TirEEN 1957 AlD 1968 BY EXSTIX, S3TABLISHME.WS CLA,I,SIFIED OR REGISTERED DUIRING THAT PERIOD (In Millions of Sucres)

Industry Group

Form of Investment Equity Debt

Origin of Investment Domestie Foreign

No. of Enterprises

Total Investments

Food

07

1,091.4

626.0

465.4

1,081.8

Beverages

11

451.1

263.7

187.4

329.1

Textiles

30

536.3

256.7

2h9.6

536.3

-

Clothing and Shoes

2

3.5

1.9

1.5

3.5

-

Wood and Cork

2

12.7

h44

8.3

12.7

-

Furniture

1

0.8

o.8

-

0.8

-

Paper and Paperboard

3

7.1

2.8

4.3

7.1

-

11

78.6

66.0

12.6

78.6

-

Hides and Skins

4

17.8

14.7

3.1

17.8

-

fÍabber

3

2.5

1.7

o.8

2.5

-

25

192.8

95.8

97.1

190.4

-

-

Printing and Publishing

Chemicals

9.6 122.0

2.5

Petroleum and Coal

-

Non-Metallic Minerals

7

166.1

93.1

73.0

164.7

1.3

Basic Metals

2

18.0

4.9

13.1

18.0

_

13

40.7

19.9

20.9

40.7

-

Metal Products

-

Non-Electrical Machinery

Electrical Machinery Source:

Official data,

1 Ministry of Industry and Commerce.

-

_

-

-

-

1.5

1.4

0.1

1.5

-

-

p b Ef

SAI

ILnrMTF

CTC

i -r12 ES^uL `¡S»;IlIo,X>¡

BETWEEN

R no IST

i9Y>7 TG iyóo0

(In Millions of Sucres)

Industry Group

Nunber of Enterprises

Food Beverages Textiles Clothing and Shoes W4ood and Cork Furniture Paper and Paperboard Printing and Publishing Hides and Skins Rubber Chemicals Petroleum and Coal Non-Metallic Minerals Basic Metals Metal Products Non-Electrical Machinery Electrical Machinery Transport Equipment Other Industries Totals

Source:

National Planning Doard.

Total Investnent

Form of Investnent Debt Equity

Origin of Investment Foreign Domestic

244.6 13.1 101.7 .6 10.0 2.3 84.4 5.3 0.8

354. 6 36.3 178.9 1.1 29.8 4.5 142.2 10.3 0.9

68.1

4

4.5

9 6 1

211.3 10.3 0.9

178.1 23.1 78.4 0.5 19.8 2.1 126.9 5.0 0.2

4

33.1

29.1

4.1

23.6

31 5 25 2 27 2 114

317.2 63.1 183.7 83.9 117.7 11.5 37.3 12.9 77.7

119.8 28.6 61.2 35.0

197.4 34.5 122.5 48.9

117.9 37.1 175.7 35.0

199.3 26.1 8.0 18.9

45.7

71.9

94.h

23.3 5.0 9.9 3.9 36.6 508.9

86 20

46 1 9

5 33 330

422.7 36.3 180.1 1.1 29.8

l1.5 19.1 11.7 29.3

18.2 1.2 148.4

6.5 27.14 9.0 41.2

825.5

1 009.9

15326.5

-

-

1.1 69.o _ -

9.6

Table 8. 6:

VALUJE ADDED PER 1PLOYEE AND PER SUCRE OF INVESTMENT, AND

Industry Groups

Number of Employees

All Manufacturing, Total Food Beverages Tobacco Textiles Clothing and Shoes Wood and Cork Purniture Paper and Paper Products Printing and Publishing Hides and Leather Products Rubber Products Chemicals Petroleum and Coal Products Non-Metalhic Minerals Basic Metals Metal Products Non-Electric Machinery Electric Machinery and Equipment Transport Equipment Other Industries, n.e.c. Source:

Census of Manufactures, 1966.

Value Added (Million Sucres)

NVESTMENT PER EMPLOYEE, BY INDUSTRY GROUPS, 1966

Fixed Investment (Million Sucres)

Value Added (sucres) Per Sucre Per Worker of Investment (000)

Investment Per Worker (000 sucres)

37,610

2,035.4

3,332.6

54.1

0.61

88.4

10,186 2,033 254 9,021 1,070 1,595 889

652.4 210.1 27.6 271.2 19.9 52.9 19.9 75.8 83.6 12.8 71.7 162.2 146.7

1,321.2 366.1 29.9 556.9 16.2 40.7 26.5 80.3 113.8 18.6 61.9 180.5 216.7 134.1 7.3 48.5

64.0 103.3 108.7 30.1 18.6 33.1 22.4 101.9 37.5 25.1

o.49 0.57 0.92 0.49 1.23 1.30 0.75 0.94

109.1

1.16 0.90 0.68 0.78 0.26 0.70 0.44 0.98 0.91 0.76

129.7 180.1 117.6 61.7 15.1 25.5 29.8 107.9 51.1 36.4 94.3 75.3 159.3 92.7 98.6 49.2 20.1 46.1 31.7 69.1

744 2,228 510 657 2,398 1,360 1,447

74 986

54 379 812 913

104.1 1.9 34.0 0.5 17.2 23.4 47.6

67.6 107.9 71.9 25.9

34.5

108.6

8.8

17.5 25.8 63.1

45.4 28.8 52.2

0.74 o.69

Table 8.7 :

MANUFACTURINGs VALUE OF PRODUCTION AND VALUE ADDED, 1966

Industry Groups

Total Manufacturing Food

Value of Production (mrillions of sucres)

Value Added (millions of sucres)

Value Added as Percentage of Value of Production

2,016.2

2,035.4 652.4

32.4

5,438.8

37.4

Beverages

458.7

210.1

45.8

Tobacco Textiles Clothing and Shoes WJood and Cork Furniture Paper and Paper Products Printing and Publishing

100.2 611.0 50.2 106.9 39.8 420.6 171.5

27.6 271.2 19.9 52.9 19.9 75.8 83.6

27.5 44.4 39.6 49.5 50.0 18.0 48.7

Hide and Leather Products Rubber Products Chemicils

37.9 123.1 388.2

12.8 71.7 162.2

33.8 58.2 41.8

Petroleum and Coal Products Non-Metallic Minerals Basic Metals

428.5 198.6 7.8

146.7 104.1 1.9

34.2 52.4 24.4

94.8 1.2

34.0

.5

35.9 41.7

41.5 46.4 95.7

17.2 23.4 46.7

41.4 50.4 48.8

Metal Products Non-Electric Machinery Electric Machinery and Equipment Transport Equipment Other Industries, n.e.c.

Source:

Official data and Mission estimates.

Table 6.3

CCC2 ELEIUYTS I1N TLUSUA2TURmG,

1966

illions of Sucres

Perc ent of Prod-uction Value

5,439

100.0

Ravr rLaterials - Domestic

1,521

28.0

,arr 'YAterials - Imported

I,1479

27.2

Purchased Elec-bric Energy

49

0.9

Fuels and Lubricants

B3

l.5

272

5.0

2,035

,7L

100.0

Wages and Salaries

578

10.6

28.4

Social security

118

2.2

5.8

Depreciation

276

5.1

13.6

Interest;

92

1.7

4.5

Sales

79

l.5

3.9

992

16.4

Value of Production

Other Purchased Itens

Value Aided byr il.anufacture

Other Costs and Profit

Source:

Cernus of Manufactures, 1966.

Perc ent of Value Added

43.8

Table 8.9:

COST OF PRIVATE BANK CREDIT UNDER REGUIATIONS AS OF NOVE{BER 1969

30 days Nomiral Value of Loan - sucres

100,000

Interestliat 10o Taxi/ - 7-11/2%

of interest

Taxes / - 1/2%

of face value

Stamp tax - 0.95%9 valuel] Total Discount Discounted loan Annual rate of true interest

1]

833.33

360 days

100,000

100,000

100,000

2,500

5,000

10,000

62.5o

187.50

375.00

750.00

500.00

500.00

500.00

500.00

950o.0o

950.00

950.00

950.00

2,345.83

4,127.50

6,825.00

122?00.00

97,654.17

95,872.50

93,175.00

87,800.00

of face

28.8

Paid in advance.

Source:

Term of Loan 90 days 180 days

Data from Fi.rst National City Bank.

17.2

1h.6

13.9

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