The Basis of

A DEVELOPMENT PROGRAMFOR COLOMBIA

23739Volume 1

Report of a Mission

The Summmary

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The Basis of

A DEVELOPMENT PROGRAMFOR COLOMBIA

Report of a Mission

headed by

Lauchlin Currie

and spo,nsor-ed by the

International Bank for Reconstruction and Development

in collaboration with

The Government of Colombia

International Bank for Reconstruction and DevelopmentWashington, D. C.

1950

IBRD SPECIAL PUBLICATION

Sales Number: IBRD. 1950.1

Price, U".S. $0.50

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INTERNATIONAL BANK FOR

RECONSTRUCTION AND DEVELOPMENT

WASHINGTON 25. D. C.

OFFICE OF THE PRESIDENT

July 27, 1950

His ExcellencySefior Mlariano Ospina PerezPresident of the Republic

of Colombia

My dear Mr. President:

I take pleasure in transmitting to you herewith the Reportof the Mission to Colombia, headed by Dr. Lauchlin Currie,which was organized last year under the sponsorship of theInternational Bank for Reconstruction and Development incooperation with the Banco de la Republica. The Summaryhighlights the Mission's major conclusions and recommenda-tions, which are further explained and elaborated in theComprehensive Report.

In the opinion of the International Bank, the Reportprovides an objective, unbiased analysis of Colombia's de-velopment potentialities and problems by a competent groupof independent experts. You will, of course, recognize thatthe Bank has not had the opportunity to consider fully thenumerous recommendations contained in the Report andtherefore must regard theni as matters for study and futurediscussion with your Government rather than recommendla-tions of the Bank to your Government. At the same time, webelieve their analyses and recommendations are deservingof the most careful and sympathetic consideration by the Gov-ernment and people of Colombia. This Report can be fullyeffective, however, only if it serves as a basis and guide forthe Colombian authorities themselves to work out a sound,well-balanced development program, and as a means of edu-cating public opinion.

iii

To this end we believe it is important that the Report becarefully studied and discussed, from an objective, nonpoliti-cal standpoint, to assure that its major implications are fullyunderstood ancd that it can enlist broad support from theColombian people. We are very pleased that your Govern-ment, reco-nizing this need, has decided to establish a iDio-partisan Commission of outstanding citizens to study theReport ancd make recommendations thereon to the Gov-ernment.

We are gratified also that your Government is alreadytaking active measures in line with the -Mission's recommen-dations to obtain expert assistance in the vitally importanttask of effecting improvements in governmental organizationand administration.

The Bank will be greatly interested in the progress of theanalysis of the Mission's finding-s by the nonipartisan Com-mission. It is our plan that the Bank's staff will undertakesimultaneously an intensive study of the Report so that wemay be in a position at the appropriate time to discuss withyour government the program that emerges from your studiesand to consider possible ways in which the Bank can helpin the execution of Colombia's development program, throughtechnical and financial assistance or by other means.

It is my sincere hope that this Report may be of positiveand lasting benefit to the Republic of Colombia.

Sincerely yours,

iv

INTERNATIONAL BANK FORRECONSTRUCTION AND DEVELOPMENT

WASHINGTON 25, D. C.

June 28, 1950

Mr. Eugene R. Black, PresidentInternational Bank for

Reconstruction and DevelopmentWashington, D. C.

Dear Mr. Black:

I take pleasure in submitting herewith The Basis of aDevelopment Program for Colombia, prepared by a specialmission of the International Bank for Reconstruction andDevelopment.

On behalf of the Mission, I should like to record ourappreciation of the arrangements made to facilitate our workin Colombia. President Mariano Ospina Perez evidenced greatinterest throughout and gave freely of his time, as did mem-bers of his Cabinet. Dr. Luis-Angel Arango, General Managerof the Banco de la Republica, our host, left nothing undoneto assist us. The help given us by the technical staff fur-nished both by the Colombian Government and the Bancode la Republica under the direction of the Coordinator Gen-eral, Dr. Juan de Dios Ceballos, was invaluable. Names ofthe technical advisers to whom we are indebted are listedbelow. I regret that I cannot list by name the hundreds ofofficials and private citizens of both political parties. as wellas many foreigners, who gave so freely of their time andknowledge in answering our thousands of questions.

The physical arrangements provided by the Banco de laRepublica could not have been improved upon and thehospitality and cordiality we encountered on every handwere most heartening.

v

The translation of the Report was carried out under thesupervision of Dr. Jaime C6rdoba, the Assistant CoordinatorGeneral, who also has contributed many helpful suggestionson editing and drafting. He was ably assisted by Dr. JoseCamacho-Lorenzana of the staff of the Bank. Main respon-sibility for the editing devolved upon Miss Ruth Aull.

I am most appreciative of the complete cooperation fur-nished the Mission by the International Bank in makingavailable helpful studies, in furnishing technicians from itsstaff, and in supplying the needs of the Mission in ways toonumerous to list.

I am most grateful to the individual members of theMission for their enthusiasm and complete devotion to theirtasks. I am particularly appreciative of the assistance affordedby those members of the Mission who were on the staff ofthe Bank-Messrs. David L. Gordon, Jacques Torfs andGordon Grayson-and who, following the return of the Mis-sion, carried double burdens in working on the Report aswell as performing their regular duties. Names of Missionmembers are appended.

I appreciate that the treatment could be considerably im-proved by the expenditure of somewhat more time. However,in view of the fact that action on certain projects is beingdelayed pending the receipt of the Report, that considerabletime has already elapsed since our observations were made,and that the proposed arrangenments for study of the Reportin Colombia will facilitate refinements and other improve-ments, it appears that more would be lost than gained bydelaying further the submission of the Report.

Sincerely yours,

vi

THE MISSION

LAUCHLIN CURRIE

Chief of Mission

GORDON GRAYSON

Assistant to Chief of Mission(International Bank for Reconstruction and Development)

ROGER ANDERSON ., ...................... Adviser oni Foreign Exchange(International Monetary Fund)

HAYWOOD R. FAISON .... ..... Adviser on Highways and(Board of Engineers for Rivers and Waterways

Harbors. U. S. Department ofDefense)

CARL W. FLESHER .. .................. Adviser on Industry, Fuels andPower

FREDERICK C. GILL .Adviser on Transportation

DAVID L. GORDON .............. Adviser on Community Facilities(International Bank for Reconstruc-

tion and Development)

WILFRD JOHNS ..... ................... Assistant Adviser on Agriculture

JUAN ANTONIO MONTOYA ....... Assistant Adviser on Health(Pan American Sanitary Bureau)

JOSEPH W. MOUNTIN . .. . Adviser on HIealth and Welfare(Assistant Surgeon General, U. S.

Public Health Service)

RICHARD A. MLUSGRAVE .... A.. Adviser on Finance and Money and(University of Michigan, Depart- Banking

ment of Economics)

RAYMOND C. SMITEI .Adviser on Agriculture(U. S. Department of Agriculture)

JACQUES TORFS ........................ E -conomist

(International Bank for Reconstruc-tion and Development)

JOSEPH WHITE .................... ... Adviser on Railroads

vii

ADDITIONAL CONSULTANTS

V. LEWIS BASSIE ... ................ Consultant on National Accounts(University of Illinois)

THE MARSHALL-MOORMAN

DEVELOPMENT COMPANY . Conistultanits on Petroleumii RefineriesNew York, New York

Editor

RUTH AUILL

SecrctaryDOROTUY SODERLUND

COLOMBIAN ADVISERS TO THE MISSION

JUAN DE DIos CEBALLOS

Coordiniator General(General Manager, Institute for Industrial Development)

JAAIME F. CORDOBA

Assistanit Coordinator Genieral(Banco de la Repuiblica)

HE'CTOR ABAD G6 MEZ .......... Min....... Ministry of HygieneJORGE BOSIHELL MANRIQUE .... .. Ministry of Hygiene

GUILLERMO CAMACIIO GAMBA .... Administrative Council of theNational Railroads

MIGUEL F'ADUL .... ..................... Banco de la Rep;iblica

JOAQUIN FRANCO ... Ministry of Commerce alnd Industry

JORGE FRANCO ....... .. ............ Banco de la RepublicaAUGUSTO HANNABERGE .. ........U Banco de la RepublicaJORGE INFANTE ...... ......... Ministry of Agriculture

JORGE PENA POLO -...... ..... ... .. National Council of Communica-tions, Miinistry of Public Works

JOAQUIN PRIETO . ..................... National Steel Corporation ofPaz de Rio

NORBERTO SOLANO l OZANO ....... Ministry of Education

LEONEL TORRES ......... ........... Banco de la Republica

CONCIIA TRIANA ............ ---- ..... National Inistitute of NutritionJ ORGE ZULUAGA ............. .............. Ministry of Agriculture

viii

Preface

This Report is the outcome of nearly a year's work by aneconomic Mission, organized by the International Bank forReconstruction and Developmernt, which was assigned thetask of working up the framework for a comprehensive, inte-grated development program for Colombia.

The Mission grew out of conversations late in 1948 be-tween Mr. John McCloy, then President of the Bank, andDr. Emilio Toro, a member of the Board of Executive Direc-tors of the Bank. For many reasons, it appeared that Colom-bia, Dr. Toro's native country, was an admirable place toapply such a comprehensive approach. The idea received anenthusiastic reception from President Mariano Ospina Perez,and the Bank was invited by Colombia to send the proposedmission. In May 1949, Dr. Lauchlin Currie was invited to actas Chief of the Mission and to assist in its organization.

The Mission's terms of reference were very simple andyet very broad. They were, in essence, to formulate a de-velopment program designed to raise the standard of livingof the Colombian people. To fulfill this assignment theservices of experts in many diverse fields were required. TheMission included staff members of the Bank and the Inter-national Monetary Fund, private consultants, and expertsnominated by the Food and Agriculture Organization and thePan American Sanitary Bureau. The first members of theMissiotn, accompanied by Mr. Robert L. Garner, the VicePresident of the International Bank, arrived in Bogota on1July 11, 1949, and the last departed November 5, 1949. Ex-penses of the Mission were borne partly by the InternationalBank and partly by Colombia.

The Banco de la Repfiblica acted as co-sponsor of theMission in Colombia, and organized a staff of specialists toadvise and assist the Mission in its work there. It assumesno responsibility, however, for our findings or recommenda-tions. Final responsibility for both the overall program and

ix

the specific recommendations rests on the Chief of Mission,although, of course, all members of the Mission made majorcontributions in their special fields and assisted in relatedfields.

As this was the first Missioti of its kind sent out by theInternational Bank, there was little precedent to draw on. Wehave interpreted our terms of reference as calling for a com-prehensive and internally consistent program-so far as ispossible with the time, personnel and data available-ratherthan merely a series of disconnected recommendations. Thishas added to the difficulty and magnitude of the task inseveral respects. The relationships among various sectors ofthe Colombian economy are very complex, and intensiveanalysis of these relationships has been necessary to developa consistent picture. We have tried also to make our coII-clusions and recommendations as specific and quantitative aspossible. We realize that this attempt may, in some cases,lay us open to criticism, for definite proposals are inevitablvmore vulnerable than generalities, and the statistical data withwhich we have had to work have sometimes been incom-plete, unreliable or insufficiently detailed.

Nevertheless, we believe this rather ambitious and hazard-ous approach has proved its value. Its very difficulty andcomplexity have perhaps led us to probe more deeply, tocross-check our results and their implications more carefully,than we might otherwise have felt necessary. We have beenable thereby to correct some apparently inaccurate informa-tion and assumptions and to fill in certain statistical gaps.Moreover, the principle involved in this approach-that theattack on the problem of poverty must be coordinated onmany fronts, all closely interdependent-is more importantthan any of our particular findings or recommendations. Wehave tried to illustrate the dynamics of economic develop-ment through an analysis of national accounts and of theprocesses which determine the volume of capital formationand the direction of investment. An understanding of theseprocesses and an approximate estimate of the magnitudesinvolved are essential to any satisfactory determination ofdevelopment priorities and the policies and measures re-

x

quired to carry them out. We have undertaken in this Reportto construct this necessary framework as soundly as waspossible with the materials at hand. In the course of furtherstudy and experience over the period of the proposed pro-,gram, it will be possible to refine and fill out the statisticaldata, and to make appropriate modifications in the specificmeasures discussed.

The organization and preselntation of the Report haveposed certain other problems. It is addressed to severalquite different audiences: to Colombians, who know a greatdeal about their owvn country; to foreigners, who know little;

and to the general public as Wxell as technicians. It has beennecessary, therefore, to include enough facts and descriptivematerial to make the picture intelligible, yet n-ot so many asto make the Report unmanageable in size and boring to thosewho are already well informed about many of the subjects

discussed. Further difficulties of presenitation arose from thevery wide range of topics covered, some of them necessarily

quite technical, and from the number of different contributors.

In an attempt to meet these problems, we have preparedthe Report in two distinct forms. The Summary is designedfor the general reader who wishes to ascertain the high-lights of the programii but has neither the time nor the

interest to concern himself with detail. More extensivedescriptive material, technical analysis and explanation ofthe recommendations are incltuded in the Comprehensive Re-port, which in turn is divided into two parts-first, a descrip-tion and diagnosis of economic conditions and problems inthe various fields discussed and, second, proposed nmeasuresfor improvement and estimates of financial and other require-ments to carry them out. 'I'his arrangement of the Compre-hensive Report is designed to permit purely descriptivematerial alnd most of the analysis to be kept separate fromour conclusions and recommendations. The reader may then.if he wishes, consider the validity of the diagnosis quiteapart from the prescription or, alternatively, may rely on thesummary of the diagnosis contained in Chapter II and in thevarious chapters in Part II of the Comprehensive Report andconcentrate his attention on the recommendations. Inevit-

xi

ably this results in some overlapping and repetition. Thosewho may wish to read together the diagnostic and prescrip-tive chapters on one subject, suchI as agriculture, will be mostconscious of this.

Some technical appendices, relating mostly to method-ology or presenting more detailed data of interest only tospecialists, are not printed but may be obtained on requestfrom the International Bank for Reconstruction and Develop-ment. These are listed in the Contents of the ComprehensiveReport for ready reference.

Despite the range of topics covered, the Summary andthe Comiiprehenisive 1Report do not pretenldl to containi acomplete economic description of Colombia. .n effort -wasmade to cover only those aspects of the economy that appearto have direct bearing- on the standard of living and aboutwvhich some recommenidations could be made. One unfortu-nate consequence, howvever, has been to discuss mainly thewVeaknesses and shortcomings of the Colombian economy,wvhich may convey a false impression to the reader. It is notour intention to assign either praise or blame, nor to makeany comparisons wvith other countries unless they throw somelight on Colombia's problems. All the members of the Mis-sion, although they found need for improvement in manyspecific conditions and practices, became intensely interestedin and most enthusiastic over Colombia's potentialities.

It is hoped that the entire Report Avill be regarded as awvorking paper. It is intended to be provocative, to raise manyproblems and to offer some suggestions for corrective action.It does not purport to offer precise or ultimate solutions forany problems; suclh soltitions must derive from the experienceand will and intelligence of the Colombian people themselves.Otir analyses ancl recommendations will have fully servedtheir purpose if they succeed in stimulating Colombians tothink in terms of the whole economy, to take advantage ofthe experience of other counitries and adapt that experiencerealistically to Colombian conditionis, and on that basis toformulate a sound and internally consistent program of de-velopment which Avill enlist the broadest possible support.

xii

CONTENTS

PAGE

I. The Objectives ....... 1

II. The Nature of the Programl . . 4

III. Agriculture . . . 8

Land Use and Land Tenure ... ... 10

Technical, Educational and Credit Services . . 12

Administration of Agricultural Programs .. . 13

Capital Requirements 14

IV. Industry and Fuels . . . . . 16

Industrial Productivity .. ... .. 17

Potential Expansion of Industry 18Iron and Steel. 18Petroleum ... .. 21Oil Refiniery . . - 22Coal . .. 23Forest Products 24Oiher Industries 24Power for Industry ... . 24

Capital Requirements ... . 25

V. Transportation . ..... 26

Regulation of Transportation . . 27

Railroad Transportation . 28Improvemeint of Operations 28Proposed Expansion of Railroads 29

Highway Transportation .32

Operational Improvemiienits 32Major Highway Extensions 33

xiii

PAGE

Water Transportation and Port Facilities ..... . .... 34Improvement of Operating Efficiency .v . . 35River and Port Projects. . 36Ocean and Coastwise Shipping . ... 36

Pipelines . . ........ 36

Air Transportation ... 37

Capital Requirenmenits ................. 39

VT. Public Health, Welfare andl Educatioll 40

Public Hlealth 40

Priority Objectives of the Public Health Program 41Organization .. 42Einvironmllenit 42Personnel .............. 43

Hospitals and Health Ceniters 44

W'elfare 45Education and Training 46

VII. Electric Power and Community Facilities .49

Electric Power .. 49Expansion of Power Capacity .............. . ............ 50Type and Location of Facilities............ . ............. 51Planning and Administration .51

Other Services ... ........ . 52

WVater Supply and Sewerage .... 52Public Markets and Slaughterhouses .53Telephones . ... .... .... .............. 54Street Paving and Cleaning and WVaste Collection 54

Administration and Financing of Community Facilities 55Utility Rates.. 55MWunicipal Finanices and Administration .. . 56

VIII. Housing and Other Buil(ling ... 57

xiv

PAGE

TX. Public Finance and Fiscal Policy ...... .... .. . 58

Taxes 59

Budgetary Practices 60

Departmental and Municipal Finance 61

X. Monetary and Banking Policy . . .. 62

XT. Foreign Trade and Exchange..... 65

Foreign Exchange Policies .... .... ......... 66

Foreign Investments ....... 67

Trade Policy ... ... ........ 68

XII. Government Organization and Economic Data ... ... 69

Government Organization and Administration 69

Economic Data .............. 71

XIIT. The Overall Programi . . . ..... 72

FIGURES

1. Relief map of Colombia ........ Frontispiece

2. Present and recommelnded( railroads, highways andpipeliiies facing page 26

TABLE

1. Projected investmnenit program by end use, 1951-55 . 72

xv

I. The Objectives

For nearly 400 years after the founding of Bogota in1538, economic development in Colombia was slow and limitedin scope. In the early years of this century the economy wasalmost wholly agricultural and pastoral. Gold and agricul-tural products were exported in exchange for the country'slimited requirements of manufactured consumers' goods andcapital equipment. Travel over any distance was a majorundertaking, the various regions of the country were almostwholly isolated from one another, and the people developedquite different accents and even different physical character-istics and outlooks. Throughout all this period, however,cultural and intellectual contacts with the outside world werezealously maintained by a small upper class.

In the past 40 years, the picture has changed drastically.Railways, highwvays and airplanes have opened every partof the country to travel and trade, and journeys that oncetook weeks are now a matter of hours. New areas are beingopened to settlement, and some of the country towns andvillages of a generation ago have grown into thriving cities.The population has increased from less than 4 million in 1900to about 11 million today, and Bogota, now a city of 600,000people, looks forward to a million inhabitants in the not fardistant future.

The spirit and the fact of ecotnomic progress are abundantlyapparent. Numerous industries have been established-large

textile and cement mills, food processing factories, oil andore refineries, metal fabricating and chemical plants, powergenerating stations, etc. Ambitious new projects of manykinds are being started or are under active discussion. Amodern banking system has been created and a stock exchangeopened. A new class of entreprenieurs has emerged, vigorousand self-confident, to develop and manage these new industriesand institutions.

Foreign and domestic coml1merce has expanded greatly.Colombia's dollar receipts have increased from U.S.$81 milliolnin 1938 to over $300 million in 1949. Not only did this pro-vide the means of financing greater imports of manufactured

[1I]

products of all kinds, both consumer and producer goods, butit also has enabled the country to contract and service moreforeign debt and thereby enlarged its ability to secure capitalequipment to expand future production.

With this economic growth have come far-reaching socialand political changes. An extensive system of labor and wel-fare laws has beeti enacted and an income tax introduced.The Government has assumed an expanding role in promotingandl guiding the development of the national economy.

The potentialities for development in the future are great.Colombia is rich in the basic sources of power-coal, oil, gasand hydroelectric potential-and in forest resources. Goodland is limited, but there are a number of excellent agricul-tural areas and others capable of improvement by irrigationor drainage. The growing season lasts twelve months of theyear, and variations in altitude permit a greater diversity ofagricultural production than prevails in the whole NorthAmerican continent.

The economic progress of the past 20 or 30 years, however,while very real, has been quite uneven. A great deal remainsto be done, and there are many aspects of the situation thatgive thoughtful Colombians grave concern.

The darker side of the picture centers about the conditionof the masses of the people. The great majority are inade-quately fed, clothed and housed. Their health is poor and lifeexpectancy short. A large proportion is illiterate, and fewhave had more than two or three years of primary schooling.Their condition is better, no doubt, than that of the people inmany underdeveloped countries, particularly in the equatorialbelt. But their standard of life is far below the level that itcould attain if the country's potentialities were more ade-quately realized. This Report is focused, therefore. on theprobleni of how the general standard of living in Colombiacan be raised-what use of the nation's physical and financialresources and what kinds of governmental and private actionlcan best contribute to this end.

We have not, of course, tried to define the precise leveland components of a satisfactory standard of living. The con-

[2 ]

cept is necessarily vague and largely subjective, to be summedup, perhaps, as a general state of material well-being. But itsessential elements clearly include the consumption of enoughfood, and food of the right kinds, for good nutrition: theenijoymlent of generally good health; the possession of ade-quate housing and clothing; education and training enough tomeet the needs of modern life and to permit the developmentof the people's intellectual resources; and some opportunitiesfor leisure and amusemelnt.

The possibility of making these basic elements of a satis-factory living standard generally available depend upon (1)the size of the national product in relation to population,(2) the distribution of income among the population, and (3)the division of the national product between consumers' goodsthat can be enjoyed now and capital goods that will increaseproduction in the future. Of these, the most important isclearly the first.

Certainly a wide disparity in levels of income exists be-tween a small wealthy group and the great mass of thepopulation, in spite of efforts by successive governments tobring about greater equality through progressive taxation ofincomes and the extension of social services. So far as wecan estimate, nearly one-third of the national income (overPs.$900 million' out of some Ps.$3 billion total in 1947)accrues to less than 100,000 recipients. But the basic problemis not so much the distribution of present income as the small-ness of the income to be distributed. By the same token,wvhile public and private capital formation is quite satisfactoryin relation to gross national income-14 percent- it is smallin absolute magniitude and in relation to the population.

We believe that a very striking improvemeint is possiblein the factors that underlie the low levels of per capita pro-duction in Colombia. There appears to be considerable roomfor improvement in the efficiency of her manpower-in theeducation and training of workers, in their health and physicalstamina, and to some extent in the proportion of productive

I To distinguish sums in Colombiaii pesos fromn those expressed in U. S.dollars in this Report, we prefix the $ sign used for both currencies with"Ps." or "U.S.". respectively. The official value of the peso is about 51¢(U.S.$1=Ps.$1.95).

f 3]

workers to dependents. The country's abundant natural re-sources could be utilizer! more efficiently, and the handicapsof its mountainious terrain ameliorated. The flow of savingsinto investment could in many cases be directed into channelsmore productive and socially beneficial. The organization ofthe economy for the production and distribution of goods andservices, both by Government and private enterprise, couldbe considerably improved.

The major ground for concern over the long term lies in therapid rate of population increase (estimated at 2.15 percentper annumit) and the prospect of an even more rapid increaseas improved sanitation, diet and disease control mletlhodsproduce a decline in the present high dleath rate. Reallygood level land, as well as capital resources, is already strictlylimited in relation to population and an increase in the rate ofpopulation growvtlh would raise serious economic problems.

The problem, therefore, is to bring about an increase inproduction considerably in excess of the increase in popula-tioII. In our viewv this can be done, given adequate improve-ment in the present organization of the Colombian economyand better direction of the flow of savings and foreign fundsavailable for investmnent.

In this Stimmary, and in the more detailed supportingdoculmeints, wve cite a number of possibilities for suclh in-provenlents. Somle of thelmi, prolbably most of them, can beexpected to show significant results in increased productivitywithin a relatively short time. Others wvill take effect onlyover a longer period, but are no less important to achieve theprogressive, cumutlative advance essential for sound economicdevelopment.

I. The Nature of the Program

For the sake of simplicity wve have given this Report thetitle "A Development Program for Colombia", ancd wve referfrom time to time to the 'program'". In reality, however-as we emphasize several times-it is not, andl is not intenidedto be, a complete blueprint for action. It is a wvorking paper,designed to assist the Government and people of Colombia

[ 4 ]

to frame for themiselves a sounld, balanced, adequately de-tailed program of economic developmenit.

Nevertheless, we believe it containis the essential elementsof a true development program. In or(ler to make clear boththe potential utility and the limitations of this Report, as wesee them, it may be useful to summinarize the broad assump-tions wlhich underlie our recomlmenidationis:

1. Our approach is comprehensive, for the causes andcharacteristics of economic underdevelopmenit-poverty, ill-healtlh, ignorance, loxv productivity, and the like-are all inter-related and mutually reinforcing. The chances for successvill be greatly enhanced if the attack proceeds simultaneously

on several fronts.

2. We base our quantitative recommendationis, particu-larly our estimates of capital requirements, on the assumptionthat they wvill be carried out over a five-year period, 1951-55.Actually, because of the need for more detailed studies incertain fields, the time reqtuired to set tlp necessary admin-istrative mechanisms. and other factors, it wvill probably notbe possible to make some of the contenmplated investmentsand other changes by 1955. On some of the longer-rangerecommendations-in the field of education, for example-five years will suffice only to make a start. Nevertheless, thefive-year period should prove useful as a rough yardstick ofwlhat may be accomplished in many fields, and later as astandard against which to measure actual performance.

3. Our conclusions and recommendations vary greatly indetail and precision. In part this stems from the unavaila-bility of certain information, or from limitations of time ofthe Mission's personnel. But some variations of this kind areinhlerent in the nature of any economic program, whiclh mustbe implemented through innumerable decisions by malnythousanids of individuals. Maniy of our recommendations callfor Government action of various kinds-investment, defini-tion of policy, establishmenit or alteration of admiinistrativemachinery, and so on. Others involve areas of non-govern-mental activity, such as the desirability of expanding certainindustries or increasing acreage in certain crops; and( in suchcases wve are necessarily less explicit about how they are to be

[ 5]

carried out. We have tried, however, to indicate ways inwhich the Government can help to encourage and guide pri-v-ate economic decisions along desirable lines, by providiiig

a favorable atmosphere for productive enterprise, improvedfinancial regulations and machinery, and certain specific in-centives. Some of our conclusions also, particularly some ofthose relating to the amounts of capital investment in certainfields set forth in Chapter XXX of the Comprehensive Report,involve merely expectations of wvliat is likely to happen tobe consistenit wvith postulated growth patterns. AVe explainthis distinction at some length here, because of a possibleambiguity in the connotation of the wvord "program'".

4. In spite of these problems of analysis and presentationwve have tried so far as possible to express otur recommenda-tions in quantitative terms. The most difficult decisions inanv dlevelopmenit program are the deterni inationis of p)rioritiesin the allocation of limited resources, especially financialresources. We have tried to indicate, therefore, the generalmagnitude both of the overall investment programii and of itsmain components, wvhile appreciating that it may provenecessary or desirable to modify these magnituides afterfurther study. In our quantitative estimates, both of needsand of available resources, we have kept within limits \vebelieve to be realistically and conservatively possible.

5. So far as we can ascertain the facts and anticipatefutuire trends, wve believe our proposals are internally con-sistent; they do not, for example, call for more foreignexchange than is expected to be available.

6. The program is designed so that it can be undertakeniwithout producing inflation. The capital formation proposed,in other words, is approxiniately equal to the volumile ofexpected saving and foreign capital imports under concditionisof a balanced budiget and stable prices. If the interlnal orexternal price levels do not remain stable, the size and char-acter of the program wrill be considerably, and on the wholeunfavorably, altered.

7. We have assumed that rises in wages will not exceedincreases in xvorker productivity, and that no greater pecuni-ary incentives are necessary to secure the requiredl shifts of

[ 6 ]

the working force into imore pro(luctive (industrial ancd coII-

struction) employment.

S. AlthoughI the process ol econ(omiiic (leveloplimelnt in-

evitablv entails, an(d should entail, extensive social changes,we should expect such changes to be gradual and evolu-tionary in character. Our pre>ent proposals do not call forany drastic changes in the political, social or economic organ-ization of Colombia. Rather they involve a shift of emphasis

anid a multitude of relatively minor improvements an(lreformls.

9. The program we have outlined relies maillly on

Colombia's owIn resources, althougih we assume that a satis-

factory volume of foreign investment will be forthcomillgif a favorable atmosphere is established and a satisfactory rate

of progress is achieved in the development program.

10. In general, we have tried to avoid (lirect Governmentcontrol and management, except wlhere they were clearlynecessary. NVe place reliance so far as possible on financialincentives and deterrents to influence the flow of capital andlthe employment of other productioni factors.

11. W;Ve emphasize the need for a thoroughlgoilng reor-

ganization of the administrative machinery of Governmentat all levels to improve its planning and adminiistrationi.

B3ased oni these general considerations, the sections thatfollowv containi conclusions and recommend(lationis for improve-men-ts in prodluction and other practices, and in the organiza-tion and direction of capital investment, in the various sectorsof the economy. These conclusions, together wvith the reason-ing oni which they are based, are furtlher elaborate(d in theComprehensive Report, to wNhich reference shotild be ma(lefor explanatioii of any uniclear or controversial points.

[7 ]

III. Agriculture

Colombia is still preponderantly an agricultural ecoCnornV.

Some two-thirds of thie population (including- over 60 percentof the labor force) live in rural areas an(l are supported bAy

agriculture, vhichz accounlts for about 40 percent of thenationlal incomlte.

Succe>s in raising the general standard of living xvilldlepend in large part on the possibility of so improving agri-

cuLltural productivity that a much smaller proportion of thepopulation can raise the food, fibres and export crops thatthe country requires. Such a development would serve twvocomplemiienitary ends. First, it would release large numbers

of workers for the production of other things, or in somecases for longer or more intensive education. Second, itwould increase the income and living standard of individual

farm families andl make their life less laborious. Our recom-mendations in the field of agriculture are designed primarilyto brin'g about this increase in output per worker.

In Chapter NVJJI of the Comprehensive Report. xvv) pro-

pose target figures for 1955 productioii of 20 miajor a-ricul-tural products goals which we believe are realistically attain-able and wvill provide a better balaniced and miore economicpattern of output. WVith regard to imost farm comllloditiesfor dcomestic consumption we propose only a relatively smallproduction increase-hardly more than the estimated risein population-liut recommien (I improvement in their quiality

and diversity to correct nutritional deficiencies. Our targetsfor certain export crops. antl for products of wvhich sutbstail-tial imports are now reqLuired, represent a generally higherrate of increase.

It is iiniportailt to emlJlhasize that these targets are verytentative, since neither the data nor the planning and admini-istrative organlizationl now in existence is adequate f6i-setting and achievinig precise quantitative goals. Our targetsare desig'ned to illustrate the general objectives of a souil(la.grictltural production programi, wVhicllh shlolild be developedmore precisely andl intensively in the neaLr future, and( to callattention to the need for improving the organization of agri-

I 8 I

cultural activities so that carefully forntilate(d targets can

actually be attained.

The problemii of raising agricultural productivity in Colom-bia is made more difficult by the complexity of the counltry'sagricultural pattern. The variations of altitude and climate

make possible a (liversity of productioni probably greaterthaln that of any other country in the world. There is almostequal diversity in the techlniques of cultivation; they rangefrom highly efficient, mechanized operations on some of thelarge valley farms to semi-primitive metlhods (digging stickor hoe culture) used on tiny patches of steep hillsi(le, oftenonly a short distance awvay.

The most advanced cultural practices in cofi'ee productionafford a m)odel of the progress that can be achieve(d throtigheffort. By improved metlhods of soil preparation, seed selec-tion and propagationi, care of trees, andl processing of beans,it has been possible almost to clouble coffee procluction ineight years. At the same time, the achievemiients in coffeeculture pollnt tip the lack of progress in Imiost other sectors offarm production.

Colombian farms average about 2 hectares (5 acres) ofarable land, but the typical farm unit is even smaller, sincethe average is affected by inclusioni of some very large sugarcane, rice and cotton hacien(las. These small patches aretoo frequently farmed \vith practically no equipmnent andwith little animal or machlinie power; the farmers have gener-ally had almost no schoolinig or techlnical instruction, andloften suf'fer from inadequate nutrition and debilitating dis-eases; they have little or no capital or access to credit andolnly the most rudimentary facilities for marketing the crops

they grow.

Under these conditions, the surprisilng thing is not thatproductivity in agriculture is low, but rather that it is ashigh as it is. It affords Colombia's 11 million poptulatioin adiet adequate in calories, if somewhat unbalanced and lack-ing in protective foods, provides sufficient barley and tobaccoto meet the country's requirements for beer and tobaccoproducts, and produces some 5X2 million bags of colfee each

[9 ]

year. This augurs well for Nwhat coul(d be done iilider reallysatisfactory conditions of efficiency.

LAND USE AND LAND TENURE

The Mission wvas most forcibly struck by the paradoxicaland(I utneconioimiic use ot land. Althoug]h the amounlt of level,fertile lan(d in the populated areas is strictly limited, it is de-voted for the most part to cattle grazing- on an extensive andinefficient basis, wvhile most of the foodl crops are growv n otnsmall farms, generally on steep slopes, ancl in poor soil. Theresult is a twofold loss to the national economy-from theunderuse of goodl land which should be producinig muclh moreefficiently, and fromn the destruction worked by erosioni onslopes too steep to be culltivated without serious (lamage.

On the occasion of the Mission's first meeting with thePresident of the Republic, he directed our attention specificallyto the importance of getting the farming people off the hill-sides and onto the level plains and valley floors. We havegiven intensive thought to this problem, since it is perhapsthe most important singile factor making for low agricultturalproductivity. While suclh uneconiomiiic and wasteful use ofland-the nationi's most importaiit nattural resource-mighthave been of relatively minor consequence in the last centurywhen Colombia had only a fraction of its present population,its continuance today is dangerouis to the counitry's wvelfareand progress.

The basic cause of this illogical pattern of land use liesapparently in Colombiani social traditions and attitudes. Mlanylarge landowners are less interested in the income they de-rive from their holdings thani in the valtue of those holdingsas a source of security and as a hedge againist inflation. Landtaxes have been low and are more than covered by the pern-odic sale of a few cattle. Lanid prices have risen with inflation,andt under the pressure of large funlds seekiino investment inthe limited areas of good terrain, soil and water. Over theyears it canniot be dcenied that such holdin'gs have proved ex-cellent investments from the standlpoint of security andincrease of principal.

[ 10

The Go vernment has undelertakeln a Iinnlte(l program ofpturchasing land from large hol(lers anli reselling it in smallertracts to operating farmers. But the market price of goodlali(l is genierally imuchi above not onlly the assesse(l valua-tion but also that wlhiclh wvould result from a fair capitalizationof currelnt earnings. Consequently, we question AvIiether suicIa prograim caii really succeed, on any large scale, in securingmzore intenlsive utilization of the best lan(l. While N-e believean extension of this program is desirable, mainly in areaswlhere land can be purchased more cheaply, it must be supple-menited by broa(ler and more effective mleastures.

We propose specifically that undertutilizationi be penalized.The good arable land of Colombia is part of the patrimonyof the nation, and( the nation has both the right and thedtity to insist that it be used productively. We believe thatan importanit incentive to better land use may be an adjust-menit in the patrimngoii) tax as applied to landl. One way offormulating such a tax wvould be as follows: the farm-l landwould be assessed at its market valtue; the present usual taxrate of Ps.$4 per thlousand valuation would apply only to landyieldrilng the 'normal' rate of retuirln for land utilize(d reason-ably efficiently in each area; and a progressively hi-her ratewould apply to land yielding less thani the ''norm' for thearea.

For example, assuming that land in the savanniias of Cun-miaiamarca should yield, if it is properly farmed, 10 percent onits market valtie, a farm vworth Ps.$100,000 wh-lich yielded anannual return of Ps.$10,000 or more would be taxed at onlyPs.$4 per thousand, or Ps.$400 in all. But if a comparable farmof the same value yielded only Ps.$5.000 a year because ofinefficient use, it woould be taxed at a substantially higgher rate.say, Ps.$13 per thousand. The result would be to put a pro-gressively higher penalty on serious underuse of land.

These rates are suggested only as exanmples. The detailsshould be worked out with care, and various exceptions shoulddoubtless be made to avoid hardships and( to encourage cer-taim socially desirable uses of land.

While we do not put this proposal forwvard as a panacea,nevertheless, we believe that it can be wvorked out practicably

[ 111

and equitably, that the principle is sound, and that it meritsserious study. Besides providing a direct stimulus to moreintensive farming or stock raising, such a scheme would helpto depress over-inflated land values and so bring better landnearer the reach of ordinary farmers. And by expanding agri-cultural productivity and incomes it would help to enlargethe market for manufactured products and thus lay the basisfor a more efficient and dliversified industry in Colombia.

TECHNICAL, EDUCATIONAL AND CREDIT SERVICES

The Caja de Credito Agrario, Industrial v 'Minero is theprincipal agricultural credit agency. Its activities have beenvery useful and have expanded greatly in recent years. Butthe needs for agricultural credit, especially those of smallfarmers, are being met only to a very limitedl extent. Werecommend that additional funds be made available to theCaja, andl that its operations be modified in the followringways:

1. By instituting a program of long-term cre(lit tofinance the purchase of farms and suchi improvements asbluildings, storage facilities and irrigation and drainage wvorks.

2. By laying more stress on small loans. The cost ofadministerinlg stuch loans, and providing the technical aidand supervision requLired to make them effective, is highin relation to the amounts lent. While the Caja s rates maybe raised slightly above present levels without causinghardship, we believe the Governmllenit should be prepared toassume part of these added costs as a subsidy.

3. By giving greater emlplhasis to assistance to coopera-tives.

4. By divesting itself. wvhere possil)le, of various salesand other activities only remotely connected wvith its creditprogram to give it greater freedom to handle a larger volumeof credit operations.

It is important that expandedl credit activities be closelyassociated wvith assistance in better farming methods.Colombia has an Agricultural Extensioni Service, but it hasbeen able to reach the great majority of small farmers only

12 1

to a linited extent. They certa.inly nee(l advice and instrtuc-tioin, but their capital is usually so limited that they cannottake proper advantage of such a(lvice. At thie same time theirtraining is so meager that they canniot reap the full beniefitsfrom any credit they are able to secure. We recomimenda closer linking of technlical with finalncial assistance, alongthe lines of the Farm Securitv Progranm for low incomefarmers in the Ulnite(d States in the 1930's, either bv meansof the Caja's emplovyig its own techlicians, or throtug-l aclose wvorking arrangemienit between the Caja and( the Exten-siOI Seri ice.

ADMINISTRATION OF AGRICULTURAL PROGRAMS

The numerous Goverunienlt and Governmnent-assisted

programs for improvement of agricultural practices shouldhe consolidated for greater effectiveness. The focal point ofthe coordinated program should be the whole farm1 andlfarm family, supplemenited hy stifficient attentioni to specialaspects of farm problems to support a sound farni and homemanagement plan. Special attention should he given togardeninig and home production of meat, milk and eggs toimprove farm diets. To carry out such a program we recoim-mend an expanssion of the Extensioni work as rapidly as per-sonnel can be adequately trained, with a budget ,-oal in 1955of perhaps Ps.$2 million a year, compared with Ps.$334 thou-sand in 1949.

To facilitate marketing xve recommend establishment ofa better system of grades and standards, and of a reportingservice to make information on1 current crop prices availableto buyers and sellers. We also recommend that the appropri-ate agricultural agencies assist in the formation of soundlymanaged marketing- cooperatives with advice and necessarycredit.

The program of the Instituto Nacional de Abastecimientosfor improving storage facilities should be expainded; the re-quired expenditure is estimated at Ps.$17.5 million. We rec-ommend special study of possibilities for improving the effi-ciency of small food-processing plants, particularly the panela

[ 13 1

'ills, and provision of linited technical and finalncial aid forimprovements that appear definitely worthwhile.

No individual or agencv in Colomnbia either lhas clear re-sj)onsibility for developing a comprelhensive, integratecl farmlprogram, or has the authority to carry out stuch a program.B'esides the Ministry of Agricullture, there are about twventyagencies and institutiolns whose operations affect agriculturedirectly and a numliiber of others that affect it indirectly. Thereis definite need for better coordinated aovernmental machineryfor collecting and organizing agricultural statistics, analyzingrural problems, and formutlatinig and carrying out a consistelntprogram of agricultural development. This is an importantsubject for study by the proposed Public AdministrationMission.

To achieve wvidespread improvement in agricultural techi-

niques, and shiifts to more desirable patterns of production,it is necessary to develop a closely-knit and flexible combi-nation of (1) research, to adapt the best seed strains and pro-duction practices developed abroad to Colombian conditions,and to improve on1 the foreign developments where possible;(2) programming of production goals, in the light of estimatesof yields and markets and the results of teclhnical research;(3) education, to dliffuse knowledge of techlnical improvemenatsand market information; and (4) productioln and marketingcredits, to provide ordillary farmers wvith the means and in-centives to adopt improved agricultural practices, raise themost productive crops, anId market tlhem more intelligentlyand efficiently. All these functions are interrelated, andI unlessan effective organiizationial structure is created to carry themout, there is little prospect of bringing about general implrove-ment of agricultural proutlctivity in the near future.

CAPITAL REQUIREMENTS

Certain irrigation projects are undoubtedly profitable in-vestments unlder present conditions wlhiclh are, hoevevcr, somic-what artificial. A sounider gauge of the economic justificationof many proposedI projects \vill be possible after Colombiamakes better use of the good landl it already has. Some w-7orksof this kind will certainly be justified, hovever, antd xve have

(14 ]

sti-este(l that about Ps.$80 millioln be provided in the overall

investment program for irrigation and for catch basins, ponldsand drainage projects. Efforts shonlld be made to make surethat the benefits of expensive, publicly-liilance(l irrigationworks are n1ot confinied to a few large landowners.

It is at least equally important, in our viewv, that a collmpar-able investment of moniey and effort be mnade in reforestationof land nnlsnitable for agriculture and in improvemelit of pas-tures through reseedling.

In viewv of the large losses of crops, particularly graills,that occur each year for lack of storage facilities, wve recoin-mend that Ps.$17.5 millioni be niade available for constructionof such facilities.

Considering, the seni-primitive character of mlany Coloin-bian agricultural practices, it is apparent that substantial belne-fits would result also from increased use of farm eqtuii)ment,fertilizers, insecticides and fungicides. We recommiielnd iii-creased expenditnres for these products-to increase (lomesticoutput, step up imports wvhere necessary, and develop a betterdistribution system, wvith a number of strategically locateddepots and a xvide nietwork of local sales agencies. It is pos-sible that a supply of basic nitrogen for fertilizers may be

obtainable as a by-product of gas fromn the proposed oilrefinery or from the country's nattural gas resources.

Our rough summary of capital requirements in the majorsectors of the agricultural economy over the next five yearsfollows:

Irrigation and drainiage projects . P. s.$ 80.0 nsillionGrain storage and dryinig facilities .1.. . 1,.Implements and equipment, fertilizers, pesticides, etc. 32.3.5Development and reforestation of land( (inclulding reset-l-

ing of pastures) 78.5Fisheries development - 17.5

Total .... .. ... ... Ps.$517.0 miillion

The recomlmien-ded newv capital outlays. averaging slightly

over Ps.$100 millioni a year, represent a mlodest rise over thelevel of investmenit in this field in recent years. In addition,it is expected that a substantial amount of labor will be ex-pended by individual farmers on iilproveniients to their land,

115

on which wve have placed llo pecuniary value. These estimatesdo not include funds for the purchase of land required tocarry OUt an e_Npai(led parcelization programii, since suchexpenditures constitute no drain on the physical resources ofthe nationi.

MAluch of this investment, of course, would be made tlhrout-lhprivate or cooperative channels, as well as by Governmentagencies. Technical and credit assistance by the Govern-ment may have great value in encourag,ilng and guilding thebeneficial an(l effective use of private capital. In many fieldsconsiderable capital formation may be obtained wvithout anycorresponding loss of consumption by more effective use oflabor, now employed only part time or in relatively unproduc-tive occupations, to improve rul-al roa(ds, land and buildin-s.

Finally, many of the capital investments and other improve-ments recommen(led in other sections of the Report wvill coII-tribute substantially to raising agricultural productivity.Obvious examples are improvements in transportation (espe-cially roads), primary and vocational education, healtlh andsanitatioln, rural housinlg, andl electric powecr.

IV. Industry and Fuels

Industry lna C)olombia has recentlv bee ti undergoillg a

rapid expansion, particularly during ancd since Wkorld NV ar11. 'We estimate that the value of industrial pronltictioll. inplants producin-g more than Ps.$6,000 wvorth of prodlucts inthe years 1944-1945, increased from IPs.$407 mlillioni in 1939t<, Ps.$S30 millioni in 1944-1945 and to Ps.$2 billion in 1948.Although- this spectacular grow,th was due mainly to a 215percent rise in prices, the actual vol]ume of production iii-creased by 143 percent. The value added to manufacturedgoods by labor, managemenit and capital increased fromabotit Ps.$120 million in 1939 to approximnately Ps.$500 millionin 1947, or from 11.5 percent of the national income to15.3 percent.

Colombia is now producing domestically almost all ofits current consumption of processed foodstuffs, beverages,

[ 16 1

tolbaccoj, textiles, shoes and fuels. It is fabricatin- a stub-stantial part of its building material requiremenits. It has

the foundatioln of a chemical industry in plants to make

sulphuric acid alni caustic soda, and could shortly be self-

sufficient in the pro(tluction of glass bottles and( rubber tires.On the whole, the developlmienit of industry appears to havebeen logically and( soundly based. For special reasons, how-

ever, the productioll of powver and fuels has laoged bellindwvhat mi2aht reasonably have been expecte(l and the develop-menit of luiribering and the forest products industry hasbeen slowv.

INDUSTRIAL PRODUCTIVITY

Colombianl industry is characterize(d by great variationsin efficiency. Some lines, includinig cotton textile and cemnelntmills, are qtiite comparable in efficielncy with many plantsin more advanced industrial nationis. In others, relativelyinefficielnt workshop andl handicraft condlitions prevail. Also,

the necessary increase in mechanization of ini(lustry has beenhampered by lack of po-wer.

Incentives to increased efficiency on the part of 1)othmanagement and labor appear necessary. Thle -rowth of themarket and in the numiiber of competilng units will be im-

portant factors in strengthening the incentives for capitaland malnagement, ai1(l in altering the prevalent highl price-lowvvolume psychology. 1Relaxatimn of qluantitative restrictionis on

imports, avoidance of excessive tariff protection, reductionof internial transport cGsts, particularly on imported goods,aLId maintenance of general price stability wvould be usefulin fostering healthier competition. A relaxation in exchangecontrols or more certainty in their operation wouldl hell) tofurther the same end: such measures would also tend toreduce the preoccupation of management witlh noli-produc-tion problems and wvould permit indtustries to operate on1lowver inventories.

In the case of the workers, the key problemns appearto be low levels of physical stamina and training, inadequateiucentives, and lack of proper supervision. \Ve suggest thatexperimenits in varying the length of the -work day, providillg

[171

better balanced diets, fostering ini-sholp trainil], antd promo-tioni, and using piece-work rate methods of paymelnt maypoilnt the way to effective u]etlhods of remedying these(ieficienlcies. Creationi of a much laroer group of qoalifiedplant foremnci andl supervisors is necessary to support afurther expansion of indtustry; most persons in this groupnoxv in Colombia are foreigners or foreign-trained.

Colombian industrial development has, on the whole,benefited substantially from the formation of joint foreignand Colombian companies. Local entrepreneurs have therebybeen able to take advantage of foreign experience in industriesnew to Colombia and of the malnagerial and technical skillsdeveloped in counatries with in ore extensive and variedindustrial backorotinls.

POTENTIAL EXPANSION OF INDUSTRY

In Chapter XIX of the Comprehensive Report, the expan-siOI requirements of a nutmber of specific industries areexaminied hi relation to the overall program. It may alsobe assumned that uiider competitive conditions capacity willbe increased in some lines above wlhat is strictly necessary tomeet demand, and( there will undoubtedly be opportunitiesfor expansion in various lines not discussed in this generalsurvey. The contribution of indlustry to national income maywNell amount to more than 20 percent of the total by 1955, asagainst 15 percent in 1947.

The field of industrial development is oIIe in which privateinitiative is likely to be most effective and private capitalamply available, giveni generally favorable economic condi-tions. We recommllend, therefore, that Governmenit policystress the pronmotioln of private induhlstrial enterprise rather

thani state-owned(t undertakillnos.

Iron and Steel

Because of the magnitude of the proposed investmentand the great public interest, the AMission maide a specialstudy of proposals for an iron and steel industry. Prodtictiolnof steel in Colombia is nowv quite small, aggregating approxi-

[18 1

niately 3,400 toils of reinforcilng rods a year from scrap inMedellin andl approximately 5,000 tonis of pig iron in Pacho.Most Colombian requirements for steel pro(lucts---mainlywire, reiniforcing rod, pipe antd light structurals-are metfroni imports an(l there is a strong feeling that a substantialpart of these requirements might be produced in the country.

There are two main possibilities for developing the Colom-blan steel industry. One is the creation of a completelyinltegrated plant utilizing domestic iron ore, coal, and lime-stone. The other is the development of additional fabricatingfacilities for processing local and imported scrap and im-ported pig iron, with the prospect of eventually working intoiron ore reduction. After intensive study, a summtiary ofwhich is provided in the Comprehensive Report, it was ourconclusion that it would be premature to embark on thedevelopment of an integrate(d steel industry in Colombiatoday, but that it woulcd be a very sound investment to expandfabricating facilities sufficiently to supply most of Colombia'srequirements for wire, rod, and light structurals.

We were influenced in this decision by many considera-tions. For one thing, the capital requirements for an inte-grated steel industry are very large. Two proposals wereexamined, one calling for expenditures of U.S.$95 millionand the other, U.S.$41 miillioni. Examination of the detailedestimates and consideration of experience in other similarprojects gave little assurance that the cost could be keptwithin these estimates. In addition to the high cost ofcapital amortization, operating costs for the proposed plantwould be high as a result of several factors, including thediversity of products required in Colombia in relation to thetotal demand, the geographical remoteness and altitude of theproposed site, the qualities of the ore and coal available, andthe lack of trained labor and community facilities in the area.According to our estimates, the costs of producing steel,includin-g amortization, would in some cases be more thanthree times the c.i.f. price of imported products thus theproposed plant would require heavy subsidies, either director in the form of high tariff protectiol, to enable it to competewith foreign producers. Suclh subsidies would constittite a

[ 19 ]

zerious burden on steel-usinlg industries and on the wholeeconomy, and wvotild halndicap furtlher industrial developmentfor many years to come. Anticipated saving-s of foreignexchan-ge would be largely offset by the very large servicecharges on new foreign debt that wvouild be necessary, andthe cost of foreign materials antd personnlel require(l tooperate the plant.

WYe appreciate th-at the Go-ernment xvishes to providenew employment opportunities in the depressed area ofBoyaca, but the amounlt of employment that would be pro-vided at and aroundel the mill site would be qcuite limited atbest and would not justify the large expeniditures whiclh theentire country wvould have to pay. Much more effective aidandi more productive employmelnt could be provided inBoyaca through much less costly public works and throtugdlevelopment of more efficient agricultuire ancd lighter in-<iiustries.

Generally, tiider free competitive conditions and in theabsence of special governniiental measures, the first step inthe development of a steel industry is to establish relativelysimple fabricating plants to process scralp. Japan built upa large steel industrv on the basis of imported scrap. It wvasnot until 'I orld War 1I that the \-ealthy anll(l lol)ulous NVestCoast of the LUnitedI States, witth a steel market imany timesthe size of the Colombian imarket, supplemeutecl its scrap-melting facilities (open hearth furnaces') with ore reductionfacilities (blast furnaces). The same process has been ap-parent in Chile and to a limited extent in Colombia itself.

The first project wve recommllend-l wvould be the creationof a steel industry at Barranq(uilla. This wvould consist of anopen hearth furnace for the melting of imported scrap, ablooming, merclhant and rod mill antid a wvire plant, togetlherxvith necessary facilities. A powver plant wouldc not be re-tuired, as ample electricity is already available at Barrani-

q*uilla, as are also essential communiity facilities. WVe estimatethat a plant to mlelt 65,000 tons of scrap and pig per annumland process this into 5,000 tons of light structurals. 30,000 toIIsof reinforcing rod and 25,000 tons of wvire proclucts, wouldnot cost in excess of U.S.$9 million, of which foreign exchange

[ 20 1

requiremenits would approximate U.S.$5 million. For this rela-tively modest capital investment the bulk of Colombia's fin-ished steel requirements would be met for some time to come.We believe this operation would be economical and fullycompetitive with foreign prodluction, and that the annualdollar savings would almost equal the total original dollarcapital requirement. Moreover, it is probable that this projectcould be undertaken by private enterprise.

In addition, we would endorse the provision of additionalsmelting facilities for the existing plant at Medellin. Thisvery successful plant has rolling capacity of 15,000 to 20,000tons of reinforcinig rod a year. The shortage of local scrap,however, has limited its annual production to 3,500 tons. Thiscompany has constructed a cement plant and a 4,000 kw.hydroelectric plant nearby and has developed coal mines andlimestone deposits and acquired iron ore deposits. Since,therefore, the company already has power facilities, developedmines and rolling facilities, it would be possible tc doubleits capacity of finished products by the relatively small in-vestment of U.S.$550,000 for a larger electric furnace andauxiliary equipment to smelt ore into pig iron for the makingof 4,000 tons of steel ingots a year. Tt is believed that thisproduction wxould be at a price competitive with imports.

Petroleum

Present proven oil reserves in Colombia are very limited-less than ten years' supply at the present rate of production.Even if exports are sharply cut, the rising level of internalconsumption, especially of gasoline, will require increasing,7amounts of petroleum. Moreover, the Barco reserves, whichbecause of their quality should form the backbone of thedomestic refining industry, constitute only one-third of thetotal.

We believe it is extremely important to encourage inten-sive further exploration by private oil companies, which havethe experience and resources necessary to undertake thishighly speculative function. It is urgent, therefore, that theGovernment clarify its relations with the oil companies with-out delay along lines that will give every encouragement tomutually advantageous exploratory work.

1 211

We also urge that the possibility of conserving Barco crudefor internal use be studied. It may, for example, be possibleto substitute increased exports of DeMares and Casabe cru(lefor Barco petroleum in an equitable manner.

Oil Refinery

To meet Colom)bia's requirements for petroleum products,wthich are estimated to be increasing at a rate of 10 percentper annium, it is necessary to supplement the present topping,units, wlliclh yield some 6 to 10 percent gasoline, and to addmodern cracking facilities giving a yield of approximately40 percent. The present capacity of the unit at Barrancaber-meja is 21,000 barrels per day, and there appears to be justi-fication for additional capacity to treat approximately 17,000barrels of crude a day.

W\,e recommend that the additional required capacity beestablished at Barrancabermeja to take advantage of its exist-ing facilities, its central location and its system of connectingpipelines. Construction of a combination crude distillationand 2-coil thermiial cracking unit could be started immediatelythere. The combination cracking unit would be economical tooperate anld should not cost over U.S.$10 million. This ex-pansion wotild enable products to be kept in balance over thenext ten years. Our recommendation assumes that the pro-posed unit will be operated by experienced private manage-ment.

One loop of the Andean pipeline could be modified to per-mit transportation to Barranca of Barco crude oil, which isthe only crude entirely suitable for refining to the properbreakdown of products without going to extraordinary ex-pense in refining equipment. Crudle for export and crackedfuel oil could be alternated in the other loop of the Andeanpipeline for transport to Cartagena. If the country shouldsome time have to import crude it couldl be brought up oneloop of the AAndeani line.

This recommendation differs from those put forth in thejoint Foster-Wheeler-Consejo Nacional de Petr6leos report,which calls for a new refinery at Mamonal as well as addi-tional cracking facilities at Barranca, with further pr-ovisions

22 ]

for expanisioli of the Mamonal refinery by 1955. We feel thatin view of the shortage of proven oil reserves in Colombia sucha program, involving expendituires of about U.S.$35 million,cannot be justified. Moreover, looking ahead, all crackingfacilities should be at one location until a complete refineryof 40,000 to 50,000 barrels per day has been developed to securefull operating economies. Finally, the operation of the pro-posed distillation unit at Mamonal up to 1955 would be waste-ful of Barco crude oil. Even thereafter, the refinery atMalnonal would be uneconomic and could not show a reason-able return on the investment involved without being allowedan additional spread between refined products and crude oilprices, an unjustifiable subsidy.

In conjunction with new oil refinery facilities the feasibilityof producing anhydrous ammonia to supply Colombia's re-qtuirements for nitrogen fertilizer should be studied. Thisproduct has a very high nitrogen content (82 percent) andcan be made quite cheaply either from the gas by-product ofthe refineries or from the natural gas that exists in Colombia.Methods have been worked out whereby it is now possible toapply anhydrous ammonia directly to the soil and, if thesemethods prove adaptable to Colombia, tremendous savings incomparisoni with imported nitrates will be obtained. Alter-natively, it appears feasible to manufacture ammoniuin nitrate(33 percent nitrogen) or ammonium sulphate (20 percentnitrogen) for fertilizer use.

Coal

Colombia possesses great coal reserves xvhich should proveof enormous value in the future. At the present time they arebeing mined most inefficiently so that the price is high andthe consumption low. It is urged that study be given to thepossibility of introducing efficient coal rmining methods. Inaddition to supplying domestic fuel requirements it is possiblethat coal might become a siginificant export. There are sub-stantial proven reserves of apparently excellent quality coalat Cerrejon near the Caribbean coast. The Mission arrangedfor analysis of this coal by the United States Bureau of Mines,and that agency's preliminary report indicates that the coal

23 1

has excellent fuel qualities. Further work to prove reservesappears to be amply justified.

Forest Products

Another industry of potentially great significance is lum-ber and forestry products. It appears that the technique offorestry has now been developed to the point where tropicalforests may be economically exploited and for the first timeindustrialists are becoming interested in starting a modernlumbering and timber processing industry in Colombia. Whatis required is a multi-purpose operation that permits the useof a wide variety of wood for different purposes, such asfiberboard, construction timber, furniture, plywood, Kraft andother paper products. In the development of forest resourcesevery effort slhould be made to enforce the conservation lawsnow on the statute books and to check the wasteful practice ofburning forests to clear land.

Other Industries

The potentialities of other industries-including textiles.beverages, tobacco products, processed foods, leather andshoes, glass products, clhemicals, building nmaterials and rub-ber tires-are considered in more detail in the ConmprehensiveReport. It is apparent that Colombia lhas a substantial indus-trial potential and that in the next few years consi'derable ex-pansion will be economically justified, both to replace certaincurrent imports and to provide additional exports.

Power for Industry

Perlhaps the most fundanmental requisite for industrial de-velopment is clheap and( adequlate power, principally electric-ity. The exceptional rise in worker productivity an(d totalindustrial output in Colombia over the last few years may beascribed in large part to the growtth in power consumiption asthe principal motive force for maclhinery, for industrial lheat-ing and chemical processes. The use of electric powver hasexpanded since the Avar at a rate considerably faster tlhanthe increase in generatilng capacity. Seriouis shortages have

occurred and undoubtedly huanmpered induIn strial deveClmllentin some areas.

[ 24

As one result ot the unsatisfactory po\ver supply a num-ber of iiI(llstrial plants have e.>tablishe(l their owni generatingfacilities. These are unieconiomiiic, since both the initial in-vestmncnt and( the operating costs per unit of output arenormiially higher for suich planits thani for larger pul)lic servicefacilities; they involve a la-ge increase in the capital eC-

quiremeents for establishilng new enterprises; an(l they increasethe difficulty of obtaining, a satisfactory balance in the poX-erload between residlential requiremelnts (whlicll are heavilyconcentrated in a fewl hours of the day) andl non-residentialuses. Tn some localities the building of these factory-owned

powver facilities has apparently resulte(d in part from theestablishmenit of utility rates that give insuifficielnt encourage-mlenit to off-peak indutstrial uses.

Because of the desirabilitv of a balanced demiialndl for efl-cienlt and economical power operations-in wvhich residlential,commercial aIl(l industrial consumption complemenit eachotlher-it is impossible to deal realistically with incdustrialpower requiremelnts apart from otlher uses. H ence. capitalrequiremenits for powver facilities to serve all these purposesare shown in Section VII on Electric Power and( Community

FIacilities.

CAPITAL REQUIREMENTS

Aside from the investmen t of about Ps.$53 miillioi incdi-

cated for petroleum refineries and iron antd steel development,Ps.$93 millioni could be invested in priority projects -\vhicllare of major interest to the counltry and are currently undlerstudy. We estimate that other related capital requirementsfor the next five years, if the high rate of economic activityand expansioni prevailing- in 1946-1950 is to be maintailned,will be Ps.$500 million for other equipment an(l material andPs.$100 millioni for industrial buildina-s. On this basis, invest-nieit in industries in the five years to come would total aboutPs.$740 millioln, including foreign exchange requirements ofU.S.$190 illioii.

[ 25 ]

V. Transportation

Tranisportation is all cspecialkI (liffictlt p)roblemn iii Colom-

bia because of the v,ery rugge(d topography. Most of themaini centers of poptulationi are locateti on the slopes or thehiglh plateaus, or in the valleys of the tlhree Cordillera rangeswhich stretch the length of the country fromii south to northl.These mountainis (livide Colombia into four principal zonies;and interzonal traffic is largely confinied to goods of higllhvalue in relation to their bulk anid wveight, wvhich excludesany large-scale interchanige of most domestic products. Trans-port difficulties also inhibit the flowv and increase the cost ofexport-import shipments between interior cities and the majorports of Barranquilla and Cartagena on the Caribbean andlBuielnaveiitura oln the Pacific Coast. Despite considerable im-pro\-ement in recent years, higllh transportation costs, delay-sin tleliv ery. an<d excessiv e breakage and )pilferage still im-pose a heavy burden oni almost every sector of the nationalecollomlly.

The surface transportatioll S\'stCm is Iragiiieintarv- with

no indepenidenit, integrated system of raillwavs Iii-liways orinlanid waterways. Almost all traffic must milake uise of acomnbination of at least twvo of these means, with conse(qtuenitoperational inefticieincies anid relati-ely highler costs. ThlepriMcipal artery of commerce has traditiolnally beeni theAlagdalena \River, whichl proviiles the only surface coII-nlection between the Caribbeali ports anid the importanit centcrsof poptulation arounlld Bogota, Mfedellin and Bucaramanga.Railways have beeln built to conniiect these cities with theri-er and to linki the rich Catnca Valley s-ith the majorPacific seaport. Buenia\venittura. TIn recent years a consider-able lhighway umileagc has been built to tap areas whoseterrain is too diffictult or w-hose traffic is too small to julstifyrailwvay constrtuctioni. Figure 2 shows all the present mediaof surface transportation. as well as the chaniges recoin-ienlclded for their expansion anz(d integ-ratioln.

Air tramisportationi has develol)ed rapidly and is noiV oneof the principal meanis of tranisporting both passenigers andlfreight. BecaUse of the slowsrness andI high cost of surface

[ 26 1

transport, commercial aviation is able to compete on favor-able termls; the airlines carry niearly half the passenger

traffic and a much smialler hut steadily rising share of thefreighlt volmne. It is estimated that in 1947 the railwaysaccounted for about 32 percent of total freight ton-kilometers(excluding oil shipments by pipeline), the highways forabout 36 percent, inland and coastal shipping for 29 percentand aviation for about 3 percent.

The Mission recommends certain changes in management

and operating practices to increase the efficiency of exist-ing transportation facilities, and also some extensions andimprovements of these facilities. In addition we propose

the establishment of more effective regtulatory nmachinery tobring about better coordination of the various forms oftransportation and >better l)rotection of the p1 ublic interest.

REGULATION OF TRANSPORTATION

We believe it is most importanit to establish adequatem1achinery for regulation of all me(lia of transportation, inl

the interest of shippers, passengers and the public generally.'I'le National Council of rranspy,rtation, established in 1948,i. iiot a wholly satisfactory agency to performn this funictioii.

Its powers are not sufficiently broad or clearly (lefined. Itis co)mposed of top officials of thoe various (;overnmuent lo(lie.>conicerned withi transportation, \\xvo have (tier exteiisive adlpreSs-ilig lresponsibilities. It imeets only in1forinlall! ;.and has

n( a(ecluate stafi. Finally, its nueubcers generally represent

special economic and( bureaucratic interests, some of theias operators of particular transportation mledia. Such a setupis not conducive to careful, disinterested analysis of the coIml-plexities of the transportation picture, or to the developmentof a comprehenisive, consistent, and( ob)jective policy witlhregard to the various overlappin-g anld comp)eting systems oftransportation.

We recommend, therefore, that the prol)ose(l PublicAdministration Mission give special attention to the prob-lem of securing a proper organization of regulatory funlctions,as distinct from operations, in the whole field of transportation.

27 1

RAILROAD TRANSPORTATION

Improvement of Operations

For administration and operatioii of the National Rail-ways we recommend establishmenit of a Public RailwaysCorporation independent of the regular miniistries, with anoutstaniding part-time Board of Directors and a GeneralManager xvith broad executive power and responsibility forday-to-day operations. We believe this acdmiiinistrative changt•wtould better insulate railroad operations from political iniflu-ence, permit both greater continuity of policy direction and(more managerial flexibility, an(I help to fix responsibility fordirectioln and management. This appears to be a necessaryprerequisite to increased operational efficieiicv, and( a goodstarting- point for other improvements.

There has been a failure to put into practice the manyspecific recommen(lationis for improvemneut of operationswhich have been made in the past. particularly those by theUnited States Railway Mission of 1946. We strongly reiteratethe recomnmenidations of that Mission. We wvould emphasizeour view that substantial improvemnents in efficiency can leobtained by those means at relatively small cost, and( thatthere is little justification for large new capital investmentsunless operatiollal improvements are madce. In the Pacificoshops. for example, whiclh are the best iii Colombia. theav erage time reqtired to miiake genieral repairs actually in-creased f-romii 118 (lays per locomotive in 1945 to 145 daysil 1949.

In a(lditioill ti inore efficict t opceratillg all iinailiteinailcepractices for present equipuieit, wve recomniletn(l the pur-chase of several diesel-electric Ulnits to replace steanl loco-miotives on certain runs, andl of lighter weight freialit cars,as part of the re-equipmenit program projected b)y the NationallRailways. Through the use of dotuble UIit, yardc-gauge cliesel-electrics and( lighter weight equipmenit, we believe that itis possi'ble to increase train payloads on steep grades fromnthe present average of 100 tons to 700 tons. Centralizationl

olf maintenance shops ancd purclhase of improved types ofmachine tools, as recommlielndecl by the 1946 Railway Missioni,

are also very desirable.

[ 28 1

We suggest certain changes in operating an(d managemelitpractices to raise the productivity of railvay labor. WVerecomlilell(l also that the railway penisioni s stem be revised

so that experienced, still proltictive workers can be usefullyeiimploye(l for a ad] wa-er tie zll(I wages and social securitybenefits can 1Ie raisedl to a m ore ad(eluate level.

Proposed Expansion of Railroads

Tlhe plreselit prograni of the (Goveriinment for railroadexNiallsioli apl)pears to be open to two maini criticisms: (1) it

involves the buildling of several lilnes to compete for thesame traffic and an increase in the traffic handling capacity

of the railroads in excess of any reasonable estimate of fuiture

(lemand; and (2) so many projects are being carried on atuce that non)e of thiem can be completed for many years.

Our recommendations for new construction are desi-ned tofocus on the most urgent projects, to get themil completed

as sooni as possible and avoid further expendittires on1 uni1der-takin-gs of low economic value.

1in our view the m11o(st imlW1 rtmnL1t constructioii project isthe nll11di11 If a new railWay- alon1g thle .\lagllal ei a Riv-r

fronm the head If yea-ro-ilml I avi-atio1 at 1 'ierto \\ ilch cs

to I.a 1)orada alld Pucrt(c iSal-ar. It wIil( co01111(ct with tie

existi,g lines runiiling west to An tiollnia. Caldals and the

Canica Vallev. soutlh into Tolima and([ Hll a and east to

Bogota aiid inlto flovacfA. Tli> 11 new Iiiue woull supplement

the Magd alena River in its upper reachles where depenidable

navigation is impossible in the dry season, and thus woulcl

pirovide faster and chieaper year-round transportationi for bulkcommodities betxveen the most imiportant interior districts and

the Caribbean coast; this would help also to relieve traffic

c In"'esti(l ovyer the route froim lueinaventura. _Xlloreover, it

would provide a coninection) between the Eastern and W estern

rail\vay networks, and probably also tie the isolated P uerto\\ ilches-]3uicaratmanoa line intto the rest of the railway sys-

tein. Tlhs it votuld help to avoid costly anid timne-consuming

tr-ansIfers of freigllt between the railways andl otlher mneans

I0f tran sportatioli andoh xwonld permit iiiinch in ore effici cut Use

of e(luipiluenlt ano(l maiilinteniance facilities.

[29 1

The constructioll of the inewN Magdalena River railroad\vould greatly reduce the need for the followving railwayprojects now unlder slow constrnctioni.

(1) T'he C(onnection betweell tlle t\\-(w sectionIIs (if theN orte Vailwvay, similarly designed to provide tralnsportationfor bulk traffic from i'uerto YV ilches south to thc Boootaarea. T'he Magdalena P iver line wNould probably cost no miore to build and its operating costs wotuld he miuch lower:it wvould( have greater traffic potential ; and( it voull(li have theaddlitional advantage of linking the mnajo)r railway lines inColombia andl providing, through railroad coinnection,l> b1tween the major centers of 13ogot.'l, ;\ledellinl andI B)ncara-inanga.

(2) The Bolivar sectioni of the proposed We>ierin Trim]lRailroad from Cartagena south and( eventually inteni(lecd toconnect wvith the Western railvay system at Anza inAntioquia. After comapletioni of some 486 kilometers of newvline this would provide an alternative route to the ('Caribbeal.

The prospective volume of traffic is not great enlothll, how-ever, to justify such anl additional rOute, anid the Iocal [ra;JI iin Bolivar cotil(1 be adeq uatelv hand(lIed l)v iiv igi a v trallSl)ort.

(3) 'lThe lhagu6-Armienia railroad(l designed to connlectthe Eastern and( Wkestern systems over the extrenmely dlifficuilt(Ouindio Pass. The objectives of this project are certainlydesirable, but its cost is too high and( consequently othernmeans of achieving its objectives are preferable. The fag-dalena River railroad would connect the Eastern and \Vest-emr systems more cheaply and efficientlv and wuould handl]em1uclh of the traffic for which the Quindio route is proposed.The rest of that traffic could be handled more cheaply byefficient truckin.g methods than by the projected railway.

(4) The Buga-Buenaventura cutoff on the Pacifico rail-road, to provide a shorter and easier route from the CaucaValley to Buenaventura. This project is designed mainly-to ease the traffic bottleneck betweeu Buenaventura andl Cali.H4owever, construction of the Mlagdalenia River railway and(the Western trunk highway will tend to reduce the volunieotf this traffic; and the new Buenaventura-Buga highway and

f 30 1

improvemenit of operations on the existing railroad throughCali would take care adequately of the remainder.

Consequentlv, w -e reconm mlend(l that wvork on these lines

ceasc and( that the Governmient concenitr-ate its major rail-road construictioni effort on the Alag-dalena River route. Inaddition, the two meter-gauge lines serving Bogota shouldbe changed to the more generally used yard-gauge. The inter-change of freiglht between the meter-gauge andcl the two yard-gauge railroads entering BogotA is relatively small, but itis likely to increase. More important, standardization of theserailroads wvould permit substantial operating advantages,notably centralizatioln of shop facilities and more efficient useof equipmenit. The advisability of also changing the meter-gauge line running from Puerto Wilches to Bucaramangadlepends on wvhether the new Magdalena River railroad isbuilt on the east or on the wvest side of the river. Decisionon a shift to yard-gauge should, therefore, be postponed untilsurveys for the new lilne are completed and its route

(letermiinledl.

Our preliminary estimate of the capital requirements forthe Magdalena River railroad is Ps.$36 million, plus U.S.$12million. A more dletailedI survey is necessary to define thebest route and estimate ihe cost more accurately. Theseveral other projects wve recommend involve much smallerexplenditures andl can be initiated at once:

Central shop facilities, BogotA ... . - . Ps.$6,000,000 plus U.S.$2,000,000Diesel locomotives U.S.$1,000.000Standardization of gauge (2 linies) . Ps.$2,200,000 plus U.S.$ 100,000Relocation of facilities, BogotA Ps.$1,000,000 plus U.S.$ 200,000

Total. . . Ps.$9,200,000 plus U.S.$3,300,000 2

WVe recommend that two existing lines, isolated fromthe main systems of thie National Railroads, he abandone(cbecause of their low traffic volumes and high operating

losses. These are the Narifno and the Cartagena-Calamar

2 In addition to the foreign exclanige expenditures, 33 percent of the c.i.f.cost of imported equipment shoulcd be added to cover transport and trademarkups for such equipment. A similar addition of 33 percent should be madein all cases where internal distribution costs on imported material are notspecifically included.

[ 31 1

railroa(Is. Other means of transportationi-a hig-hway iii the

former case and ani improved waterway in the latter-would

.Žerve the areas involved inore efficienitly.

'I'he savings fromin al)alid(ining these holies are cstilinate(l atlPs.$1,300,000 alnuallv. in additoin, we l)elieve that savinlgsof Ps.$6 millioni per year can1 l)e achieved tlhrotighi improvedoperating pr-actices, and perlhla)s P's.$1i2500.000 i Year forcoristructionl projects niow in the Natiolial Rlailroad Fund(Lhat we reconinien(I he al)anldolciid (i r iostpoiicd. T'Ihese say-in_gs would cover capital re(nilrenients in less tlhan fouir years.

HIGHWAY TRANSPORTATION

I ighwav tranisportationi has growni rapidly iii importancesilce its inception in Colombia 25 years ago. llighxvays ha\e

several advaantag-es over othier inedlia of stirface tran'sporta-tioli: they can be uised efficiently by maniy types of vehicles

for both local anid long-hlaul traffic, thley call traverse ter-rain too difficuilt for railway construction : antd the in vestmienitinl thieir Cti1structi(o)i cani bct adlj tstedl in cOiiin lderabl e I nca-s-ure to til ecollomic 1tility of the rmi te il-volvted. I Iowever.a ver-y 11high 1minimum ilvestmleCn1t i.> al\wayVs< r-e(iireil fir arailrdal. I )espite tIhese a'dVaLnta1ge s, h1ighwaW tranislil-tiltio1

in it VCty t i;s l its pifolw-r Illace iii the traIsporIt SVstemI(Hi Cooil l)ia I)iCMSC s f excessively hig- h cilistrulct1i0Ii costs.p ii r roacl mnailntenianice. and the iiicoinileteiiess of the higl-

wxav iiet work.

Operational Improvements

1The prescntt tillsatisfactorv stanilards f highitv\av m11aiu1tc-naneCe are le,s the result of inad(eqItiate approipriatiolis thallot tiiiecoii omi c aduininistratioll if thle ftlun(ds available. The

av erag-e National (GoVerInIlmenlt allow)ance if it Ps1.)000 perkilometer per year for Imailiteniancc and paving , which wasal)proximiately provided in the 1950 b)udget. should be sufti-cient if properly used, especially sine e it is supplemneted bysbl)stanitial departmnclital expenidituires.

Fir- mani thirouli higliwxavs with a highII traffic x ollne,Ilk 'weer, 'Ps.$I,001l per kilometer is far t(uo low, while for

f 32 1

less important roads it is too high. It is important, there-fore, that the allocation of maintenance funds be based onsound economic criteria and accurate and tip-to-date surveysof present andl prospective traffic. In view of the importanceof good highway maintenance we suggest that it may be usefulto make the experiment of turning over to private intereststhe reconditioning and maintenance of one or two badstretches, or the construction of a new highway section tobe financed by tolls. Alternatively, the Government mightconsider entering into a contract with competent and speciallyexperienced private firms to mainitain- soie important stretchesof highway.

Greater use of mechanical road equipment is recom-mended. The equipment now in use should be concentratedin fewer larger pools to permit better supervision and main-tenance and more flexible use. Budget allocations for pur-chase of highway machinery and parts should be larger thanin past years; the 1950 figurc is more adequate, however, andwe recommend that this level be maintained for some yearsto come.

Un satisfactory highway con ditionis have contributed(greatly to the excessively high cost of truck operations.MN/aintenialnce an(d accident costs are heavy and the life ofeqtipmient is short; a large part of every truck fleet is alwayslaid up. As a result of these hazards, light equipment andlow speeds are genierally used and reduce the efficiency ofoperationis. Thie wide diversity of truck types in use andlthe foreign exchanige restrictions of the past few years havemade it difficult to maintain adequate inventories of spareparts, and have increased maintenance costs and delays. Webelieve it shotuld be possible, by improving the quality ofthe major highways and using more uniform fleets of highercapacity trucks, to redutce truck operating costs by at least50 percent.

Major Highway Extensions

We.recommend that highway construction efforts, insteadof being spread out over more than a hundred projects, asin 1949, be concentrated on a few projects of outstanding

1 33 1

economic importance. Most of these are relatively shortsegments required to complete important through routes. Aswe see them, the top priority constrtuctioln projects are:

the Taraza-Planeta Rica segmenit of the Cartagena-

Medellin highway:

the la Dorada-Sons6n segment between Bogota andMedellin;

the Cachira-Abrego gap and the cutoff from Rincon Hondo

to Caracoli on the route from Bucaramanga to SantaMarta and Barranquilla;

the Buga-Buenaventura cutoff;

the Tumaco-El Diviso highway to replace the presentrailway;

various parts of the Medellin-Turbo road.

We estimate the capital requirements for these undertakings

at Ps.$33.5 million plus U.S.$1.5 million. An additional U.S.$3millioln for road machinery would serve both for these con-struction projects and for maintenance work.

In additioni, we believe considerationi should be givell toclosing the gaps in the lBogotA-Neiva-Popay4n route an(d tobuilding the direct highway link between Barranquilla aridSanta Mlarta.

WATER TRANSPORTATION AND PORT FACILITIES

Magdalena River transport, historically the most inmtpor-tant medium for import-export traffic, has become increasin-lvunsatisfactory in recent years, partly because of the difficultiesof navigatioln above P'uerto Wilches at the low water season,and( partly because of the inefficiency and high cost of cargocarriage andl handling. The recommelnded new railway soutlfrom Puerto Wilches should remedy the first deficiency inlarge part, and certain river improvements which we haveoutlined are desirable below Puerto Wilches. The most im-mediate need, however, is to increase the operating efficiencyof water transport, for otherwise investments in better facili-ties wotuld be largely ineffective.

[ 34 1

Improvement of Operating Efficiency

We recommend that:

(1) The present high uniform transfer charges be reducedand differentiated for commodities of different types andvalues, to attract a greater traffic volumte;

(2) Greater use be made of mechanized loading and un-loading equipment, ancl the resulting labor savings passedon in lower transfer charges;

(3) Shipping rates on the Magdalena River be differen-tiated for different cargoes and types of service;

(4) The "turn" system of assigning cargoes be changedto enable shippers to choose the vessels best suited to theirrequirements and to foster more effective competition amongship operators; and

(5) Crew labor practices be revised to permit efficient useof modern equipment.

Our recommendations witlh respect to terminal handlingat ocean and river ports are similar. Emphasis should beplaced on speeding up the loading and unloading process,especially at Buenaventura, by 24-hour work while ships arein port, greater use of mechanized equipment, payment ofwages on an incentive basis, and use of lighters. Part ofthe difficulties of port operation apparently stems from divi-sion and confusion of administrative responsibility. We there-fore recommend the establishment of a National PortAuthority to administer and operate all ocean and river portfacilities. Such a coordinated port administration would bein a better position than the various agencies now concerned,or private stevedoring companies, to install modern mechan-ical facilities, to adjust handling charges to fit economic andcompetitive conditions, and to negotiate fair agreements withthe stevedores' organizations.

Several of the changes proposed involve substantial modi-fication of present labor practices, which may be stronglyresisted unless the workers understand how dangerous totheir long-run interests is the decline of water transport. Itis important, if serious labor difficulties are to be avoided,

[ 35 1

that the higher productivity resulting from these changesbe adequately reflected in higher wages or other benefits.

River and Port Projects

Three major projects for improvement of waterways ap-pear to merit high priority. They are:

(1) Stabilization of the shifting Magdalena River channelfor 20 miles opposite and below Puerto Wilches. We believethe Government should be prepared to spend at least Ps.$3million, plus U.S.$1.5 million for dredges, and to undertakeannual maintenance expenditures of Ps.$250,000.

(2) Dredging of the Bocas de Ceniza at the entrance toBarranquilla harbor. An initial outlay of Ps.$10 million anda continuing cost of perhaps Ps.$2 million annually areestimated.

(3) Improvement of the Canal del Dique to permit fulleruse of the excellent natural port of Cartagena and abandon-ment of the inefficient Cartagena railway. This is estimatedto require Ps.$4 million and annual expenditures of aboutPs.$285,000.

Ocean and Coastwise Shipping

We believe it is doubtful that further expenditures by theGran Colombiana line for the purchase of more ships andthe opening of new routes would yield returns as large asequivalent investments in Colombia itself, especially since themaritime shipping industry is becoming increasingly competi-tive. However, the acquisition of a 1,000-ton seagoing freightvessel, as planned by the government, would aid in main-taining adequate coastwise shipping and is probably justifiedfor social and political reasons, although it is not likely to bedirectly profitable.

PIPELINES

Pipelines now handle perhaps half of the total ton-kilome-ters of freight traffic in Colombia, consisting mainly of crudepetroleum for export. However, as the domestic demanid forpetroleum products increases and supplies of crude diminish,

[ 36 ]

COLOM BOA

PRESENT AND RECOMMENDED RIOHAcHA

RAILROADS, HIGHWAYSAND PIPELINES BARRANQUILAA MARTA

FU~~~~~INDAGA6

CARTAGENA UN A _O

5 > RA~~~~~~~~CoL

SINCELE~~~~~~~~L 8ANCO

MONTERIA

PLANETA RICA GAMARRAIlfLA4A

TURBO OCANA VILLAMIZAR

7 ' EOCAS 4.l CUCUTAt ~~~~TARA OAI *AHR

PAMPLONA

kOARE aA KRA5 SANTATIO^N BCARMAA-N GA ARAUCA

A-lIi MANGA%g' U RT L< . - .

.CAh I. R9NAf SOCORSRORN..'3O.'.A BERRDO 5PUERTO LA

'LA DORADA R TUNJA

CARTAGOCTAI't: .

s QRMENI / / - OGOTA

BUENAVENTURA PUERTO LOPEZ

} f / - ' ~~~~~~~~~~~~~~~~PPESENr.CALS};RbuiSA , -} jCOL OM4A Pr$I-I- RAILWAYS

t~~~~~~~~~~~~~~~~~~- t -IV - PIPELINES

POPAVAN_-. RECOMM(N/DEO

t - _ HIGHWAYS

h-4p"t PIPELINES

W ;\; .-0. . kF~~~~~~~~~~~~FLOR ENC IA

EIgure }GPIALES~~~~~~~~~~~~~~~~~~~~~~~PIEIE

Figure 2

as is anticipated, the pattern of pipeline transportation shouldincreasilngly stress internal distribution from the refinery atBarrancabermeja to the major consuming centers.

Two extensions of the existing pipeline that runs southfrom Barranca to Puerto Olaya appear fully justified on eco-nomic grounds: (1) from Puerto Olaya to Puerto Salgar, and(2) from Puerto Berrio to Medellin. The present pipelineshould also be replaced, since it was built during the warwith inferior materials. Distribution of petroleumii productsfrom Puerto Salgar to the Bogota area and beyond, andfrom Medellin to Antioquia, Caldas and the Cauca Valley,can be adequately handled over the next few years by railand truck. Consequently, we recommend against constructionof a pipeline from Buenaventura to Cali or, for the present,from Puerto Salgar to Bogota pending experience wvith the

cost reduction measures we have recommended for railroads.

We estimate tentatively that Ps.$12 million, including, per-haps U.S.$2.5 million, should be sufficient for these recoin-mended projects.

AIR TRANSPORTATION

The development of commercial aviation in Colombia, al-most wholly throtugh private initiative and with little Govern-ment aid, has many favorable aspects. At the present stage,however, a greater measuLre of public assistance and theelimination of some uneconomic competitive practices areclearly necessary to enable the industry to maintain itselfon a sound basis, to expand and improve its facilities to meetrapidly growing demands, and to serve the interests of thepublic and( the needs of the national economy to its fullcapacity. A contintuation of unrestricted competition, withall the cutthroat practices entailed, would be likely to under-mine the solvency of the remaining lines and eventually toeliminate competition. Moreover, certain aspects of the com-petitive picture are clearly uneconomic (as, for example, theconstruction of duplicate airports) or prejudicial to safety(such as the inadequate system of air traffic control now inuse).

[37 ]

We reconmmend, therefore, that:

(1) An appropriate regulatory agency be assigned respon-sibility for establishing and adminiisterin- a system of routefranchises, for revie-wing and regulating,- air transport rates,

safety regulations and standards of service.

(2) Communitijcationis, air traffic control and navigationequipment satisfactory to hanidle present and foreseeable needsbe purchased and installecl; we estimate the cost of suicIequipment at U.S.$1,750,000.

(3) Night flying be initiated on the major routes as soonas facilities permit, especially for cargo traffic, in order toimprove the utilization of equipment and bring (loxvw unlitcosts.

(4) Top priority be giveni to the constructioni of an air-

port at Buenaventura and to the improvement of the fieldsat Bogotfi (Techo), Medellin, Cartagena (L-pez), Cali(,AkTIANCA), and BPucaraimiaulga to permit their heing used

by heavier equipment; capital requirements are estimated atPs.$6 million plus U.S.$2 million.

(5) Duplicate air fields at numerous localities be aban-doned to ease the financial drain of maintainiing and im-proving the extra facilities and to reduce safety' hazards.

(6) The Government Air Force abandon its operation ofcommercial flights on certain marginal routes, and to the

extent that service to these areas is deemed necessary in thenational interest, that the Governinent provide subsidies tothe private airlines to the extent necessary- until sufficienit

traffic is generated to permit self-sustainiing operations.

(7) The carriage of airmail, until recently a heavilysubsidized monopoly of AVIANCA, be opened to all fran-chised air carriers on a contract basis at compensatory rates.

As a means of carrying out recommendations numbered(2), (4) and (5) above, and generally of putting air transpor-tation on a sounder, more efficient basis, wve recommend theestablishment of an Airport and Communications Corpora-tion, xvith the Governm1lent and the airlines as principalowners. This Corporation wvould take over (by purchase orlease) and operate a nationwide system of air fields-using

[ 38]

the best field in each locality where more than one existsat present-and air navigation facilities, for use on a fee basisby all licensed carriers and other flyers. This Corporationcould be financed from communications and landing fees andother charges, the gasoline tax, and the subsidy no1W coII-cealed in the airmail contract; probably an additional subsidyof about Ps.$1' million annually would be required, at leastinitially. However, such an arrangemenit would permit mucthsafer and more efficient airline operations and would releaselarge amounts of the companies' capital funds, now tied up infixed installations, for other necessary investments.

CAPITAL REQUIREMENTS

The specific projects mentioned above amount to approxi-niately Ps.$180 million, which include exchange requirementsof U.S.$32 million. In addition, markups and internal trans-port charges for imported equipment bring the total to nearlyPs.$200 million.

The building and maintenance of higlhways, ports andairfields, other than those discussed above, to maintain pastrates of growth would absorb another suim of approximatelyPs.$400 million. Motor cars, trucks, buses, planes and otheroperating equipment will have to be bought and maintainedand existing railways will have to be maintained to providefor the projected rates of growth of the entire economy. Re-quired expenditures for this purpose wve estimate at Ps.$920million.

The grand total of capital expenditures for all forms oftransport in the period 1951-1955, therefore, comes to aboutI's.$1.5 billion, or 30 percent of the requirements of the entireprogram, of w,vhich U.S.$322 million represent foreign ex-clhange requirements.

1 f9 1

VI. Public Health, Welfare and Education

A natural tendency in formulating objectives and plans foreconomic development is to lay primary stress on expansionof facilities and improvement of efficiency in those sectors ofthe economy-notably agriculture, industry and transporta-tion-which contribute most directly to the production ofgoods. The importance of increasing physical output isobvious, and the effect of such an increase on the standardof living is relatively easy to measure. But in the long runthe raising of standards of health, welfare and education islikely to be even more fundamental in promoting soundeconomic development. For these services not only are majorcomponents of a higher standard of living in themselves, butalso are vital means of improving the human resources of thenation and thereby laying the groundwork for further economicand social progress.

In recent years less rapid advances have been made inhealth and educational standards in Colombia than in pro-duction and national income. The Mission has, therefore,devoted considerable attention to these problems and topossible means of effecting improvements.

PUBLIC HEALTH

Health is probably the most important single componenitof a people's standard of living, and at the same time one ofthe most important determinants of that standard. Poor healthlowers productivity and constitutes a continuing drain onnational wealth and resources, resulting from loss of workingtime, from the need for large capital outlay to build hospitalsand similar facilities, and from increased costs of welfare,insurance, and sickness and accident benefits.

Colombia's health status compares favorably with thestandard of most of her South American neighbors, but thisstandard is not very high. Although available statistics arenot wholly reliable, it appears that life expectancy at birth isbelow 40 years, as against 70 in some of the most advancedcountries. This short average life expectancy, and the destruc-tion or grave impairment of the productive capacity of many

[ 40 1

people as a result of ill health, results in a very high ratioof dependents to workers, apparently over four to one.

The people of Colombia suffer from a high incidence ofdisease, including those common to temperate zones as wellas all the maladies found in tropical climates. Malaria, intes-tinal infections, tuberculosis and venereal diseases take aheavy toll of lives and account for much of the nation's dis-ability. Nutritional disorders are widespread. Ordinary sani-tary precautions are at a bare minimum, and adequate systemsof water purification, milk pasteurization and sewage andwaste disposal are practically non-existent.

A significant beginning has been made in attacking theseproblems. Anti-malaria measures and campaigns to eliminateor control some of the other major diseases have been started,numerous hospitals and asylums have been built, and an ex-tensive program of water supply and sewer construction isunder way. But much still remains to be done before satis-factory minimum health standards can be attained. And thefinancial and personnel resources presently available to under-take this task are seriously inadequate. Health workers arefew, generally poorly trained, and inadequlately paid. Medicalpractitioners and specialists of all kinds are in acute shortage.Hospital facilities are generally inadequate in quantity andquality.

Priority Objectives of the Public Health Program

Present public health activities are predominantly medical,with the first emphasis on treatment. This emphasis is perhapsnatural in view of prevailing health conditions. But, wvhllemedical treatment is a vital aspect of any satisfactory program,the greatest need is for better preventive measures. In ourview, major emphasis should be given to (1) strengtheningthe public health structure and reshaping its functions so thatit concentrates more directly on the promotion of positivegood health and the prevention of disease; (2) safeguardingenvironmental health, primarily through the provision andmaintenance of sanitation facilities, such as water purificationand sewage and waste disposal systems; and (3) training andrecruiting more professional personnel of all kinds-especially

[41 ]

physicians, dentists, public health nurses and sanitarians-forpublic health service. Hospitals and related institutions alsoneed improvement and expansion, but they cannot fulfill theirpurpose adequately in the absence of proper attention to themore fundamental requisites for good health.

Organizationt. Health problems are of most immediateconcern to local authorities, and health services can normallybe provided most efficiently and economically at the municipaland departmental levels. Because of the weakness of the greatmajority of municipal health administrations, however, (andto a somewhat lesser extent of departmental agencies) manyfunctions that should properly be the responsibility of localbodies are performed by the National Ministry of Hygiene,because it has superior organization, funds andl personnelresources.

We recommend that the relationship between the Ministryof Hygiene and the health agencies at lower levels be clarified,in general seeking to achieve the largest possible measure oflocal administrative and financial responsibility. NationalGovernment grants will continue to be necessary to assist localagencies to maintain satisfactory standards, and the Ministryclearly must supervise the allocation and use of such grants.Beyond this, we believe the Ministry should limit itself, ingeneral, to broad areas of responsibility-issuance of regula-tions, setting of standards, provision of consultant services,research and statistical work, and the operation of certaininstitutions which serve the entire country or broad regions.Similarly, the departmental health agencies should providecertain department-wide services, such as diagnostic clinicsand the distribution of drugs and biologicals, while most ofthe day-to-day treatment and preventive activities should becarried on through local agencies.

Environment. The major requisites for improving environ-mental conditions are the provision of more adequate housingand community facilities, particularly safe water supplies andsewage disposal systems in urban areas and satisfactory in-dividual installations-wells or streams protected againstpollution and sanitary privies or septic tanks-for rural

[ 42 1

dwellings.3 It is essential that these facilities, once provided,be properly maintained. Protective measures for food andmilk, through Government regulations and inspection andbetter refrigeration and other food preservation methods, arealso very important. Present milk pasteurization plants andpractices in Colombia are unsatisfactory in many cases; butuntil refrigeration facilities are more widely available, webelieve the development of evaporating plants is preferableto large-scale investment in new pasteurization facilities.

Personnel. The possibility of accomplishing the necessaryimprovements in public health organization, disease controlmethods and hospital and medical care facilities depends, inthe last analysis, upon the availability of sufficient numribersof properly trained professional and specialized personlel.

In Chapter XXII of the Comprehensive Report w,ve esti-mate the number of professional personnel that will be re-q(uired in 1955 to operate an expanded public health programand staff the proposed hospital and health center facilities.Indicated are 2,750 physicians (2,500 on a part-time basis),870 dentists and dental assistants (250 part-time dentists),and 6,250 nurses. This represents a very considerable in-crease over the present numbers in these categories, and willinvolve the public employment, mainly on a part-time basis,of the great majority of the country's medical and alliedpersonnel, especially physicians. This would not greatlyalter present practices, since most doctors already devotepart of their time to public medical care, but it emphasizesthe importance of increasing the number of trained personnelnot only in the public health service but also in privatepractice.

Several noteworthy steps have been taken recently todevelop reservoirs of competenit persoinnel in the public healthprofessioins, in particular the establishment of the NationalSchool of Hygiene. Training- programs in this field need tobe enlarged and systematized, w%ith greater emphasis Onup-to-date disease prevention and health protection techniques.

3Requirements in these fields are analyzedl in some detail in ChapterXXIII of the Comprehensive Report.

[ 43 ]

Equally importanit is the need to increase the attractive-ness of public health service. We recommend that seriousconsideration be given to a substantial increase in salariesto bring them more closely into line with the incomes ofprivate practitioners and the cost of living. Better job stand-ards, adequate security of tenure and opportunities for advance-ment through a genuine merit system will also be importantfactors in attracting- qtialified, public-spirited, professionlalpersonnel into the public health service.

In Chapter XXII of the Comprehensive Report we out-line some of the elements of a disease prevention programfor Colombia, emphasizing campaigns against the infectionisand parasitic diseases. Advances in recent years in dealingwith such diseases as malaria, smallpox, diphtheria, whoopinigcough, syphilis and gonorrhea have been such that soundlyconceived, adequately organized and persistently conductedcampaigns for their suppression should have excellent possi-bilities of success. Reduction in the prevalence of thesediseases should help to mitigate both the incidence and theseverity of tuberculosis, which is presently a serious problem;use of mass chest X-rays to find active or incipient cases,and a program of immunization with BCG vaccine, also offerconsiderable promise. We recommend modification of thepresent leprosy program, which now takes nearly one-fourthof the national health budget-far out of proportion to theimportance of the disease in Colombia.

Effective health education on a wider scale is necessaryto gain public acceptance and support for programs of pre-ventive medicine, to promote good habits of personal hygiene,and to encourage the people to seek proper diagnosis andctreatment of diseases in their early stages. In additioln,education about dietary requirements will be an importantmeans of improving nutrition.

Hospitals and Health Centers

The Ministry of Hfygiene has estimated hospital require-ments on the basis of a proposed ratio of 5.3 beds per thou-sand population. (The present ratio is about 211000.) 'Webelieve this is too ambitious an expaansion to be realized in

[ 44 1

five years, and suggest instead that the present objective beset at 3 beds per thousand for the nation as a whole, withno Department to have less than 2 per thousand. A tentativeprogram of construction, by major regions and Departments,is outlined in Chapter XXII of the Comprehensive Report.It would call for over 17,000 new general hospital beds, atan estimated cost of Ps.$86 million. More than 4,500 addi-tional are recommended for tuberculosis care, at an estimatedcost of Ps.$13.6 million. For other custodial institutions weestimate capital requirements of somethilng over Ps.$11 millionfor expansion and replacements.

We endorse the plans of the Mlinistry of Hygiene to estab-lish a comprehensive system of health centers to serve as aframework for the entire public health program. The Minis-try proposes to build some 146 primary centers for the largercities and 648 secondary centers for the smaller municipalities,at an aggregate cost of Ps.$22 millioni.

In this connection also, it is important to bear in mindthe basic problem of personnel: There would be little pointin carrying out the proposed expansioni of facilities for medi-cal care unless sufficient doctors, nurses and technicians canbe found to administer and staff them. Thus we would re-emphasize the necessity for giving top priority to buildingtup an adequate corps of physicians and other trained per-sonnel for public health work.

WELFARE

Public welfare in Colombia, like the public health system,is only partially effective. Trained social workers and otherprofessional personnel are lacking, funds are inadequate, andthe organization is characterized by duplicatioln in some placesand important gaps in others. The most important welfareagencies are the departmental Beneficenicias, controlled by,autonomous "juntas" and supported mainly from lotteryprofits and earmarked taxes. The National Government exer-cises some general supervision over, and provides limitedfunds for, these departmental organizations.

Beneficencia activities are limited alniost exclusivel v to thesupport and operation of hospitals and other institutions-

[ 45 1

orphan asylums, homes for the aged and infirm, and the like.These institutiolns vary widely in the quality of their facilitiesand the care provided, although most of themii need improve-ment or expansion. But in our view the trend( should beaway from this strictly institutional approach, and shotil(deml)hasize mlore field \vork and, for child(reni especially, place-mlent in a suitable family environluienit rather than an insti-tution. A muclh larger number of social workers will beneeded to carry out such a program, anii a programn of recruit-melnt and training for such Avorkers shouldl be initiate(l.

Colombia has an ambitious social security system on thestatute books, whvhich involves serious problemiis of costs and(of coordination wvith other public \velfare agencies andl activi-ties. It is estimated that when the social security programis in full operation, it may entail an outlay equal to 24 per-cent of payrolls-8 percent for health and maternity, 4 percentfor old age, 4 percent for invalidism, 4 percent for survival,and 4 percent for work accident insuranice. Financing is byjoint contributions of employer, employee and Governmenit.

The problem of the proper relationsllip of the social secnritysystem to other health and welfare programs is complex anddlifficult, and the Mission has not attempted to draw specificconclusionis. However, in view of the importanice we attachto preventive medical programs ani( certain Beneficenciaactivities, which do not lend themselves to the insuraniceapproach, we feel it would be unfortunate if the developmentof the new social security program, however desirable initself, were permitted to obscure the need for expansion ancdimprovemenit of these older social services.

EDUCATION AND TRAINING

Education, like health, is both a determinant and a coin-ponent of the standard of living. It has a direct relation toproductivity and, at the same time, contributes to a fullerappreciatioln and enjoyment of life. The raising of edcliationlalstancdards, therefore, slhould receive high priority in any de-velopment program.

The Colombian Govern ment is makinig earnest efforts,and is currently sp)ending some Ps.$57 millioni a year, to edu-

1460

cate its people, but educatioinal stan(lar(ds-nieasured byschool attendance, literacy and other criteria-are still unsat-isfactory. Information suppliedl to the Mission by theMinistry of Education in(licates that about 44 percent of thel)opulation is illiterate and that there wvere more illiteratesamong both adults and children of school age in 1947 thanthere were ten years previously. In 1948, only about half theclhil(lreni in the 7 to 11 age gronp attended primary schools.

The small numllber of stnd(eiits in the higher grades anidin vocational schools is even more disquietilig, for it is thesesources that must be counted on to supply the majority ofthe trained people so sorely needed in Colombia's economicdevelopmnent. Althouighl there were nearly 674.000 pupils en-rolled in public primary schools in 1948, only about 17,000graduate from such schools each year. The number finishingsecondary schools is abotut 3,000 annually. In 1946 there wereslightly over 4,000 pupils enrolled in indlustrial andl arts an(dtrades schools, and about 800 students in agricultural voca-tional schools. Total enrollmelnt in the two genleral agricul-tural colleges is only 300.

The Mission dlid not attemipt any intensive study of educa-tional problems, but in view of the influence they have onalmost all aspects of Colombia's economic development, webelieve the followting Ženleral observations are appropriate

(1) It is clearly of primary importance to increase thenumlilbers and improve the training *of teachers. Out of some16,650 primary school teachers in 1946, nearly two-thirdsm-ust be considered ulntrained, since they did not have any(legrees or any certificates from either elementary or superiornornmal schools. The public and private normal schools pro-dluce perhaps 800 graduates per year but only 30 percent ofrecent graduating classes have gone into teaching. This isless than the nuimber required for normal replacement ofteachers nIow in the school system, and as facilities are ex-panded the average quality of teaching personnel will falleven more unless vigorous efforts are made to increase thenumber of qualified teachers. The normal schools should becapable of turning out many more graduates; short, intensivecourses might well be instituted to raise the qualifications of

[ 47J

inadeqtiately trained teachers nowv employed. Most important,salary levels should be increasedl to provide an inducementfor properly trained persons to enter and stay in the teachinigprofession.

(2) Construictioni of schools at a faster rate is necessaryto proxvide facilities for the many places which now lack themand to relieve wvidespread overcrowvding. Howvever, lack ofschool buildings does not seem to be the chief reason for thesmall proportion of the child population enrolled in schoolin many areas, and there woould he little advantage in greatlyexpandin1g facilities unless teachers are available. Thus, ex-pansioni and improvement of the teaching staff remaill thefirst priority. Appropriations at the present rate for primaryschool construction would probably be adequate over thenext five years if buildinig costs were brought doown throughuse of cheaper materials and more efficient productionmethods.

(3) Special effort should be devoted to providing practicale(tlcation for a much larger proportion of rural children.

(4) An expanded program of vocational training, in bothindustry and agriculture, appears to be very necessary as ameans of raising individtual productivity and extending theuse of improved production techniqtues.

(5) Additional financial aid to prolmising studenits fromlower incomiie families would be of value in increasing thenumliber of secondary school and university studenits.

In Chapter XXV of the Comprehensive Report we outlinea moldest program of capital investment in educational facili-ties, amounting to about Ps.$50 million over five years. Cur-rent expendittures for education might well increase over thisperiod by 60 to 80 percent. At best, however, these figuresare only very rough estimates. In view of the central import-ance of progress in this field, we urge that there be furtherintensive study, taking full advantage of foreign experience,to design a wvell-rounded educational program as an integralpart of Colombia's over-all development programii.

[ 48 1

VII. Electric Power and Community Facilities

The difference in living standards between the most andthe least developed countries can be expressed largely interms of differences in the facilities available for modern com-munity living-electric power, sanitary facilities, and similarpublic services. Their adequacy has a major bearing not onlyon the comfort and convenience of life, but also on the possi-bilities for industrial development, the efficiency of labor, andthe general rate of scientific, technical and social advance.

In Colombia great strides have been made in recent yearsin the provision of community facilities. But the need forsuch facilities is almost everywhere far in excess of theiravailability, partly because of the rapid increase of urban popu-lation and partly because the advances of the past twvo orthree decades started from a very low level in comparisonwith standards in most of North America or Western Europe.

Most of these facilities and services are provided andadministered at the local ("municipio") level. There are morethan eight hundred "municipios" in Colombia, ranging fromlarge cities to tiny hamlets and sparsely settled rural areas,so that generalizations as to the adequacy of community serv-ices and requirements for investment in these fields are difficultand hazardous. It was impossible, of course, for the Missionto make a first-hand examination of facilities in more than avery few localities, and statistical data on the subject are frag-mentary and unreliable. We have tried, nevertheless, to reachsome general conclusions as to the nature and magnitudeof the needs, distinguishing w herever possible between dif-ferent classes of towns and different regions.

ELECTRIC POWER

Development of electric power is the essential foundationland stimulus for development in a wide variety of fields. Itturns indlustrial machinery, heats electric furnaces, and isessential in many chemical processes; it provides lighting forhomes and factories, energy for cooking and refrigeration, forirrigation punlps and urban water systems; and it makespossible new forms of mass education and recreation, such asthe radio and motion pictures.

[ 49 1

Presenit poNver capacity in Colombia is (quite low. 'heMission's estimate of total generating facilities is 241,000 kw.,or 24 watts per capita. This compares with 359 watts in theUnite(d States at the end of 1947, 72 w atts in Uruguay andabout 63 watts per capita in Chile.

The patterni of pow\er developlment prevailing in the pastis provin.g inade(uate in several respects:

(I) The rapid rise in current andl prospective (lemandcImakes it necessary to build relatively huge generating stationsto supplement and replace the existino small local plants.These new facilities involve capital outlays too large to beundertaken by most private or municil)al enterprises.

(2) As power networks increase in size andl scope, thetraditional local administrative and regulatory mechanismsbecome less and less adequate.

(3) The rate structures in many places. designed to fit aresidlential and commercial consumption pattern and particu-larly to ease the cost of power to small consumers, provideinsufficient incentive to industrial and other off-peak users.This has several disadvantages. It does not aid industrialg-rowth, particularly in fields requiring large qiuantities ofpower: it tends to encourage the building of inefficienit, fac-tory-owned power plants; and it reduces the overall efficiencyof the utility systems involved by holding doxvn off-peakconsumption.

Expansion of Power Capacity

We estimate that Colombia's electric generating- capacityshould be increased over the next five years to 475,000 kw.,about 205,000 more than exist at present. This represents arate of expansion (12 percent per year) about equal to the lastfive years' extraordinary growth in demand. The total costof this program-for all necessary generating, transmissionand distribution facilities-we estimate at Ps.$255 million,of wlich U.S.$51 million would be foreign exchange.

The proposed capacity would be sufficient to produce 3.4times the amount of power generated in 1944-45, and nearlytwice the estimated present production. It would supportwithout difficulty the expansion of industrial production pro-

[ 50 1

jecteti elsewvhere in this Report, anid wvould permit a veryconsiderable increase in commercial and residential use ofelectricity.

In viewv of the time required for planning and construc-tiotn work onI suclI an ambitious scale, particularly in relationto hydroelectric projects, it is important that this work getunider wvay at once.

Type and Location of Facilities

Most important Colomibianl poNver installationis in recentyears have been hydroelectric. For future expansion in cer-tain areas, e.g., Bogota, Cali and the Atlantic Coast region,it may be desirable, however, to lay greater stress on thermalplaints. In many cases a combination of hydraulic and ther-mal units wvould make for the most flexible arrangement andthe lowest cost per KVA.

The principal urban areas-around Medellin, Barranquilla,Bogota, Cali and Manizales-offer an established and rapidlygrowing market for power and will be the chief centers ofindustrial and commercial expansion; they should clearly beassigned a high priority in the development of new powerprojects. Similar considerations apply to other potential iin-dustrial centers wvith a very limited power supply at present-e.g., Cartagena, Bucaranianga, Cfitcuta and Popayain. Fromthese centers the distribution of electricity should branch outprogressively into rural dlistricts. Special emphasis should begiven to rural electrification in certain areas that offer par-ticular promise for rapid agricultural development, such asthe upper Magdalena Valley between Girardot and La Dorada,the Cauca Valley north of Cali, and the Sindi Valley.

Planning and Administration

The Institute of Water Utilization and Electrical Devel-opment is assigned the major task of planning ancd admin-istering a national program of power development. Thehydroelectric "centrales" of mixed owvnership (usually na-tional, departmental and local governments), in which theInstitute plays the major role, will doubtless form the back-bone of the proposed power expansion. They constitute a

[ 51 ]

practical administrative device, combining the advantages ofnational planninig and supervision wvith decentralized manage-ment and flexible financin'g. However, the Institute is stillrelatively new an(d its plans are quite general. We recommendthat it be provided xvith funds and staff adequate to (1)obtain accurate flow data on potential hydroelectric powersources; (2) survey comprehensively the present and prospec-tive demandls for poxver in Colombiai ; (3) develop a nationalprograml and priorities for providing generating facilities tomeet these demands; (4) develop plans for interconnectilloregionally, and eventually nationally, the mlajor sources andmarkets for power as rapidly as is economically feasible; (5)plan efficient combinations of hydraulic and thermal powerto meet varying conditions in the major power markets; (6)w ork out sound arrangements for financing power projects,

including the difficult problem of the subscription of neces-sary funds from local sources ; (7) review project designs andconstruction plans; and (8) exercise general supervision overthe construction and operation of projects aided financiallyby the National Government.

OTHER SERVICES

Water Supply and Sewerage

A good supply of pure wYater and satisfactory means fordisposing of human waste are essential to the health andwelfare of every community. Most of Colombia's large citieshave some central wvater supply system (although a numberin the 10,000 to 20,000 population range do not) but the vol-ume or purity of the water is often unsatisfactory. Most smallcommunities have to rely on wvells and rivers, frequently pol-luted and difficult of access. Sewer facilities are even lessadequate with sanitary sewers almost non-existent. No cityhas a sewer system coverinig the entire urban area, manylhave none whatever, and there are no sewvage treatmentplants.

In our recommendations regarding this field we give firstpriority to providing every community which now lacks apure and adequate supply of water and sanitary means ofwaste disposal xvith at least minimum facilities, which will

[52 ]

(1) eliminlate any sUtbstantial health hazard, (2) be at leastas convenient as those presently available, and (3) not beunduly difficult to maintain. The second priority, we believe,is to improve the existing systems in those cities wvhosegrowvth hias far outrun their present facilities.

We therefore question the soundness for most Colomlbianimunicipalities of plans calling for quite elaborate and costlywater supply and sewver facilities, suitable for communitiesin which a large proportion of the houses have interiorplumbing. As a water supply system for the smaller townsand villages we envisage a number of outside taps at coIn-venient intervals throughout the towni, with community pullmp-ing and purification facilities kept as simple as possible.AtTaste disposal reqtiirements for these communities can prob-ably best be taken care of by sanitary privies, which are lessexpensive and easier to maintain than sewer systems. Forthe larger towns and cities, of couirse, more elaborate facili-ties will be required.

We estimate that capital requirements in these fields overthe next five years will be as follows: for water supply, Ps.$71millioln, of wvhich U.S.$20 million wotuld be foreign exchange;and for sewers and privies, Ps.$70 million, including U.S.$1.5million .

Public Markets and Slaughterhouses

Many of the urban public markets in Colombia are un-sanitary, decrepit and seriously overcrowded, and constitutea definite health hazard. It appears unldesirable, however,to make very large new investments in facilities of the presentcharacter, in view of the inherent inefficiency and wasteftul-ness of the present system of food retailing, often directlyby the producer, in central public markets. We recommend,therefore, that expenditures for public markets and slaughter-houses be limited in the main to (1) improvement of sanitaryconditions in existing markets and slaughterhouses throughpaving, screening, water supply, etc.; (2) improvement ofrefrigeration and storage facilities for meat and other perish-ables; (3) construction of new public wholesale markets wherenecessary; (4) such expansion of existing markets and

[ 53 ]

slaughlterlhouses as may be required for short-term needs.We estimate roughly that about Ps.$40 million, incltudingU.S.$4 million, wvill be required for these purposes.

Meanwhile we believe that the possibilities of institutitiga more efficient food marketing system should be thoroughlyexplored. The increasing shortage and rising, cost of spacein the existing public markets may actually encourage such1a change, by strengthening the position of more efficientretailers and forcinig the decentralizatioln of other retail Ineatand produce shops.

Telephones

In 1948 the nulllber of telephones connlected in Colombiawas sometling less than 70,0J0-about 7 per tlhousanid ofpopulation compared with 14 per thousand in Latin America.generally. Substantially all telephone facilities are in citiesover 20,000 population; rural service is not provided. Therehas been a rapid expansion of telephone service in the lastfew years but there is a contilnlued strong demand. On thebasis of this demand and the plans of the operating com-panies, so far as they have been defined, we estimate thatan additional 70,000 telephones may well be installed overthe next five years; the cost of such an expansioni wvouldbe about Ps.$48 million, of which the foreign exchange com-ponient wotuld be approximately U.S.$21 million.

Street Paving and Cleaning and Waste Collection

The indicated capital requirement for expansion and im-provemenlt of street paving and cleaning and waste collectionservices is about Ps.$53 million, including U.S.$1.5 million offoreign exchange. We recommend that the possibilities ofgreater use of concrete for street paving and of a large-scalesanitary fill for garbage and waste disposal, as used in Bar-ranqtiilla, be explored by other cities.

The estimated capital requirements indicated in this sec-tion, including electric powver, total Ps.$537 million, includingU.S.$98.5 million of foreign exchange. These figures, of course,are only a rough estimate. Further analysis will be necessary

1 54 ]

to fill out the data that were available to us and to providea firm basis for definite plans.

ADMINISTRATION AND FINANCING OF COMMUNITY FACILITIES

Public utility enterprises in Colombia were establishedinitially by private capital. Maany have been taken over bythe Governmenit, and the prospect is that most future under-takings of this kind will be publicly administered and financed.The major responsibility for such administration and financ-ing, devolves on local authorities, w hich are presently theweakest part of Colombia's governmental structure. Some ofthe problems involved are discussed in the following para-graphs.

Utility Rates

About 70 percent of the capital requiremients indicatedabove are for power, water and telephone facilities, whichlare largely self-liqtuidating and which may be either privatelyor publicly owned, althoughl public owinership is more com-mioni. In either case, however, a sound rate structure to pro-

vide adequate and stable revenues for the enterprises involved,and at the same time protect the public interest, is of crucialimlportanice to the healthy developmenlt of these services.

Utility rates in Colombia are establishied by the respectivemunticipalities, subject to reviewv by the National iniilistry ofln(lustry an(l Commerce. Despite this review, both the leveland the pattern of rates vary xvidely from one locality toanother. With the prospective expansion of power systemsfrom local to regional scope, these disparities are likely tocreate substantial problems. Moreover, the rate structure innumerous cities appears to be ill-suited to promotinig efficientuse of electric powver, and a superficial analysis of Awater ratesreveals similar problems.

We recommend, therefore, that consistent general princi-ples for setting- utility rates be established as soon as possiblefor the country as a whole, and that effective administrativemachinery be set up to apply and enforce these principles.We suggest that it may be advisable to establish an autono-mouis, qtuasi-jti(licial regulatory commission to condcttt stuclies

1 55 1

of utility finances and rate structures, to develop sounldlstanldards of rate-making, and to approve or modify specificrates for all the power, water and telephone systems inColombia, whether publicly or privately ownvued. In addition,we believe consumption of powrer and water should be metered

insofar as possible in order to discourage wvaste.

Municipal Finances and AdministrationAlthough the national and departmental governments pro-

vide considerable help in the financing of power and othercommuniity facilities, a major share of this financing mustcome from local sources, principally munlicipal governments.At present, howvever, the smnallest municipalities, which con-stitute by far the largest number, are incapable of financingmore than a bare minimum of community services. Moreover,the allocation of aid from the National Government is toooften arbitrary anid determined by considerations of politicsrather than need or equity. The poorest communities, in fact,receive the smallest amount of natiolnal assistance in propor-tion to their population.

The principal channel for National Government financialaid to the municipalities is the Municipal Development Fiund,which also exercises some supervision over the constructioniof municipal facilities-primarily power, water and sewersystems, schools and hospitals-it helps to finance. We sug-gest that the Municipal Development Fund be strengthened

and reorganized to enable it to aid municipal governmentsmore extensively and effectively, specifically by: (1) servinig

as a center for studies on municipal development problemsand as a clearing house for technical and financial adviceto municipalities: (2) administering the National Govern-menit's grants-in-aid on the basis of clearly established anidequitable criteria; (3) guaranteeing loans to municipalitiesfrom private sources, in appropriate cases, to finance desirableprojects; (4) setting and enforcing standards for the planning,design, construction, management and maintenance of com-mnnitv facilities built wvith National Goverment aid; and (5)having a staff of qualified technicians, and supplies of repair

parts and equipment, at convenient field stations for themaintenianice of local installation-s.

[56 1

VIII. Housing and Other BuildingPopulation in Colombia appears to have been increasilng

more rapidly than housing units have been provided, so thatthe average occupancy per dwelling unit has risen from 6persons in 1938 to nearly 6X2 in 1948. Since the typical dwell-ing unit measures about 10 by 20 feet, this indicates seriousovercrowvding. In addition, most houses have no runningwater, lights or sanitary facilities.

The great majority of houses are built privately. TheInstituto de Credito Territorial has built, or has financedthe building of, less than 10,000 units. Funds for this organi-zation have always been inadequate, and the average costper house has been excessive, ranging from Ps.$5,000 forrural dwellings to Ps.$18,000-30,000 for housing for salariedemployees. The Federacion Nacional de Cafeteros has assistedits members in building truly low-cost homes, but becauseof inadequate funds it financed the construction of only 388houses in 1948.

On the basis of the standards set forth in Chapter XXIVof the Comprehensive Report, we estimate that 350,000 newhousing units should be built in the period 1951-55. Con-struction at this rate wvould not reduce the occupancy perhouse, but it would make available somewvhat more livingspace and better facilities. Of the total number, 190.000 unitsare needed to take care of the increase in population and160,000 to replace dilapidated dwellings. Requirements fornew urban houses are estimated at 106,000 and for rural housesat 244,000, but because of higher costs for constructioni, theurban portion of the program will be the more expensive.

In view of the low income of most of the people and thelarge proportion spent on food, it is doubtful that they can beexpected to spend miore than 10 to 15 percent of their incomefor housing. On this basis-and assuming that interest rateswill be kept relatively lowv, if necessary througlh Govern1menitassistance or guarantee-we estimate that the average cost ofrural housing shoul(d be kept down to Ps.$2,250 ancd of urbanhousing, to Ps.$5,550 per unit, to enable farmers and wvorkerseither to acqIuire new houses or to pay rent in line wvith theirincome. In the poorer areas of the country, the cost should

[ 57]

not exceed Ps.$1,000-l,200. We are satisfied that dwellingssuperior to those nowv available can be built at this cost.

Governmeint action wvill be necessary to promote large-scale, low-cost building of houses to assure the observanceof minimumn constructioni and hygienie standards, and to keepinterest rates within reach of those who need housing. Ingeneral, we believe actual construction should be performedby private enterprise, with the Governmenit providing incen-tives and setting standards. We suggest that the agencyresponlsible for administering the national housing programshotuld be granted power to g-uarantee mortgage loans madeon specified terms by commercial banks and savings institu-tions, for dwellings that meet established standards. WVerecomlmienid a close study of the guarantee provisions of theU. S. Federal Housing- Administrationi in this respect. Inorder to keel) dolon monithly rental or amortization and in-terest payments for the lowest incom-le group, some publicsubsidy in the form of financing charges belowv the marketrate will undoubtedly be required.

We believe that through the use of nexv buildin-g mate-rials, reduced transportation charges and inmproved buildingpractices, the cost of construiction can be substantially reduced.

To meet the postulated housing needs wvould re(Juirecapital cxpeniditures of Ps.$230 million a year, or Ps.$1.15billion for the five-year period. In addition, we estimatefive-year capital needs for commllercial buildings, factories andpuiblic buildings, exclusive of hospitals and health centers, atabout Ps.$450 million. Approximately half of this total ex-peinlittire of Ps.$1.6 billion would be for domestic labor, and17 to 20 percent wvould represent foreign exchange reqluire-menits.

IX. Public Finance and Fiscal Policy

Finanicial policies and mechanismiis are vitally importantas mealns of using the country's natural resources and man-power efficiently for economic development. Thus thie properfornulation and executioni of financial measures are essentialto a comprehensive developmenit program.

[58]

In 1947, total public expenditures on1 goods and servicesin Colombia, including national, departmental and municipalgovernments, amounted to about 12 percent of the gross na-tional product. Adoption of the recommendations in thisReport would involve a rise to about 16 percent.

In view of the size of this figure, it is most important thatthe Government obtain its revenues in a way conducive toeconomiic stability and which will contribute to a broaddistribution of purchasing power as well as encourage privatebusiness to develop in such directions as will contribute mostto the country's welfare. Thus the overall magnitude andstructure of taxation, as well as the volume and pattern ofpublic expenditures, are important elements in economicprogress. Improper fiscal policy may not only result in animproper use of scarce capital resources but may produce in-flation with its attendant evils.

TAXES

Like all Western countries, the National Government hasrelied increasingly on direct taxation; nearly half of thenationaal revenue is derived from such sources, including bothpersonal and business income taxes. On the whole, the taxstructure is rather well designed and balanced. In ChapterXXVI of the Comprehensive Report, however, we recommendthat:

(1) The present income tax structure with three sets ofrates should be consolidated into one;

(2) Individual rather than corporate income tax ratesshould apply to the entire salary income of corporation execu-tives instead of only partially, as at present;

(3) The capital gains tax should be broadened and appliedmore generally to capital gains, possibly being graduatedaccording to the type of gain;

(4) Additional required revenue should be raised, first, bybetter tax collection; second, by raising rates and loweringexemptions on income tax; third, by selectively increased ex-cise taxes and customs duties, particularly on luxtury articles.

[ 59 ]

The National Government undoubtedly loses a consider-able amount of revenues from undercollection. We believethat a substantial expansion in the number of employees inthe fiscal service, and an increase in their salaries to attracthig-her caliber personnel would yield manifold returns in theform of increased tax revenues. Because of the shortage ofqualified personnel in these fields, an extensive training pro-gram is essential; we believe that consideration should alsobe given to sending a number of key members of the revenuestaff abroad for advanced training.

BUDGETARY PRACTICES

The Mission has given some study to the problems ofbudget reform and to the proposals now under considerationin Colombia for their solution. The present procedures, basedon a series of amendments to the original legislation of 1923,are quite unsatisfactory. The changes recently enacted byDecree4 would improve the situation in many respects, butthey still appear to have certain weaknesses.

The previous requirement that the budget must alwaysbe balanced by taxes and other non-loan revenue, which hasproved unsatisfactory and ineffective, is modified to requirea balance only in the "ordinary" budget. While it may wellbe desirable to impose some restraint on legislative actionto increase expenditures without providing correspondingrevenue, this kind of distinction between "ordinary" and otherexpenditures seems of dubious validity and doubtful wisdom.It is suggested that as a substitute for this and other pro-visions of the plan, a two-thirds majority of Congress mightbe required for incurring debt beyond that needed to financeexpenditures recommended by the Government.

The adoption of a less rigid formula for estimating revenuesis a desirable step, and the new formula has the advantageof favoring a compensatory fiscal policy. On the other hand,the practice of limiting drawings by the Administration againstauthorized appropriations to the rate of actual receipts inter-feres with sound administration. Finally, the new provisionsdo not alter the trend toward earmarking certain revenues for

4 Decree No. 164, January 24, 1950.

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specific purposes, which makes the budget structure undulyrigid and hampers adaptation of the fiscal program to changingconditions.

In our opinion there is need for a review and recastingof the entire system of budget accounting and presentation,so that the Government's revenue and expenditure accounts,their impact on economic activity, and the level of the publicdebt can be adequately appraised. This task is a difficult oneand may well require special technical help.

DEPARTMENTAL AND MUNICIPAL FINANCE

The decline in the financial importance and strength ofthe Departments and municipalities in relation to the NationalGovernment, and particularly the great disparity in resourcesamong the various Departments and municipalities, havehampered the development of health, welfare, sanitation,educational and other services for which these latter levelsof government are responsible. The financial difficulties ofthe Departments are aggravated by the narrowness of theirtax base and their heavy dependence on revenues from theproduction and sale of liquor by departmental monopolies.Most of the municipalities have very limited revenues, derivedmainly from real property taxes, which are inadequate tosupport any satisfactory standard of public services withoutextensive outside aid.

Arrangements for sharing of revenue sources amongvarious levels of Government, or for matching NationalGovernment grants, have only limited application in meetingthese problems since there is often little revenue to share,or with which to match national contributions. On the otherhand, the transfer of responsibilities for various functions tonational agencies, with a view to relieving the burden onlocal governments, tends to produce overcentralization. Ingeneral, the allocation of responsibilities among the variouslevels of Government has not been based on any consistentprinciples, but is the outgrowth of a series of ad hoc expedients,and has led to considerable overlapping and confusion ofauthority. Finally, the present methods of apportioning andadministering direct grants from the National Treasury arequite unsatisfactory; their effect is often to aggravate rather

[611

than to mitigate the disparity in the resources of various localgovernments.

We recommend, therefore, that the division of functionsand of sources of revenues among the three levels of Govern-ment be reviewed comprehensively to reduce inequities andundue complexities of the present structure. Departmentaland municipal taxes which interfere with the free flow oftrade within the country should be eliminated. The proposalsfor reforms made by the Committee of Financial Experts inthe Ministry of Finance appear to deserve careful and sympa-thetic study. The establishment of a more effective MunicipalDevelopment Agency should help considerably to improve thefinancial organization and administration of the weaker muni-cipalities and to strengthen their ability to borrow for develop-ment purposes.

Municipal revenues could be substantially increased byimproving local tax collections. The reassessment of propertyvaluations now in progress should help to increase receiptsfrom the real property tax, which is the basic source of muni-cipal revenues. Collections of other taxes should be improved,and inequities reduced by simplifications in the tax structure.Some upward adjustment in the average rate of real prop-erty taxes from the present "emergency" level of Ps.$4 perthousand (the "normal" level is only Ps.$2 per thousalnd)seems desirable; a higher average rate may, in fact, havepositive value in promoting sound development, especiallyif the principle (proposed in Section III of this Summary) ofprogressive rates of tax on underused land is adopted.

X. Monetary and Banking PolicyInflation has been an almost universal economic problem in

the past decade, and it has profoundly influenced the economyof Colombia. The adverse effects of inflation are many: itintensifies inequalities of income distribution; gives excessivewindfall profits to investors in many fields and fosters ex-travagance on the part of those who reap such profits; en-courages speculative rather than productive investments; andoften necessitates resort to drastic controls over prices andexchange in an attempt to avoid, or lessen the seriousness

[ 62 ]

of, its consequences. Inflationary pressures will almost cer-tainly be a major problem in Colombia for years to come; itis important, therefore, to recognize their causes and devisemeasures to control them more effectively in the future.

The index of consumer goods prices rose from an averageof 100 in 1940 to 182 in 1946 and 272 in December 1949, or anincrease of 172 percent; and still further increases have sinceoccurred. In the same period, the total money supply (cur-rency in circulation plus demand deposits) increased fromPs.$212 million in 1940 to Ps.$740 million at the end of1946, and to Ps.$940 million in June 1949, an overall increaseof 343 percent. In the period up to 1945, when many goodswere unobtainable, the money supply increased more rapidlythan prices rose, but this relationship was reversed in theperiod 1946-49.

In part the rise in prices was an almost unavoidable reflec-tion of world developments. The rise in prices abroad, andthe inability of Colombia to import many articles, led to anincreased flow of exchange proceeds, an increase in bankreserves and a multiple expansion of deposits. To preventany rise in the price level during such a period would havecaused severe hardships. The actual price rise, however,exceeded that necessary to adjust to inflation abroad, and themonetary expansion resulting from exchange inflow was sup-plemented by expansion of commercial bank credit andGovernment borrowing from the Central Bank. An attemptis made in Chapter XIV of the Comprehensive Report totrace the increase in money supply to these three sources.In very general terms, the increase up to 1945 can be attrib-uted primarily to acquisition of foreign exchange, and thatfrom 1946 to 1949 primarily to expansion of commercial bankand Central Bank credit, which far more than offset theloss of foreign exchange. That chapter also includes a tablewhich provides for the first time an accurate accounting forchanges in the reserve funds of commercial banks due tosuch factors as changes in foreign exchange, Central Bankcredit, Treasury deposits at the Central Bank and currencyoutside banks.5

5 See Table 108, Chapter XIV of the Comprehensive Report.

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The Colombian banking system is based in part upoII thecommercial loan theory of banking-that is, the theory thatif bank credit is restricted to short-term commercial loans,its volume and the resultant volume of deposits will so adjustthemselves as to obviate any danger of inflation. In general,this theory has not proved valid. Rather, it appears that con-tinuous and deliberate measures are required to adjust thesupply of money to the needs of the economic situation. Todo this the Central Bank must be in a position to exerteffective control over commercial bank reserves on xvhichdeposits are based. In the absence of an open market inpublic debt, this control must operate primarily through therediscount operation. But such control has been handicappedby statutory requirements under which commercial banks areentitled to ample rediscount. We recommend, therefore, thatthe Banco de la Repfiblica be given power to ration its creditadvances. This might be done by giving it power to varyperiodically the tipper limits of rediscounts as a percentageof a commercial bank's capital and reserves.

We have noted that olne cause of the expansion in themoney supply was the borrowing by the Governmiient fromthe Central Bank. For example, in the years 1947 and 1948,the extension of Banco de la Republica credit to the NationalGovernment and the Stabilization Fund reached the relativelylarge figure of Ps.$73 million which, of course, tended toincrease commercial bank reserves. We urge that under conl-ditions of full employment the Government should make everyeffort to avoid borrowving from the Central Bank either tocover deficits or to finance long-term development projects.In either case, the borrowings result in an addition to com-mercial bank reserves and make possible a multiple expansionof bank deposits.

While the commercial banks have made available anample, and at times excessive, volumne of commercial credit.their contribution to longer term investment has been slight.We recommend that commercial balnks be permitted to invest,under proper safeguards, an increased proportion of theirassets in longer term loans in sectors of the economy wherecredit is very short. This Avill help to improve the direction

[ 64 ]

of capital flow and, if held within proper limits, may be donewithout endangering the liquidity or solvency of the bankingsystem which, in the last analysis, can only be assured bya healthy and expanding national economy.

From this brief discussion, it is apparent that the formu-lation of correct central banking policy is a matter of greatdifficulty, requiring a knowledge of some of the most technicalaspects of economic theory, an ability to assess the futureimpact on the economy of developments in the exchange,fiscal and monetary fields, and the courage and disinterested-ness to pursue unpopular restrictive policies at certain times.The Mission of experts from the Board of Governors of theFederal Reserve System of the United States affords anopportunity to study the basic organization of the Banco(le la Rep6blica and its relation to tlhe Government on theone hand, and the Exchange Control Board on the other-, witha view to improving its effectiveness.

XI. Foreign Trade and Exchange

The foreign trade position of Colombia is relatively favor-able, particularly in relation to hard currency markets. Thecountry's dollar earnings derive principally from the exportof coffee, and rising demand and prices for this commodityhave largely accounted for the increase in the value of Colom-bia's exports from U.S.$81 million in 1938 to U.S.$284 millionin 1948. Should coffee hold at anywhere near its price in early1950, foreign exchange receipts might very well approachU.S.$400 million annually. Over the lolnger term, however,this dependence on the fortunes of a single crop may be asource of weakness. In past years coffee has been subject toserious fluctuations in supply and demand and consequentwvide variations in price, and less favorable conditions mightwvell recur in the future.

For the next few years, however, Colombia's satisfactorytrade position should greatly ease the problems of develop-ment, if wise financial policies are followed. The foreipgnexchange resources prospectively available should he suffi-cient to finance both the necessary purchases of capital equip-

[ 65 ]

ment from abroad and an adequate volume of consumer goodsimports as well. At tlle same time, domestic production ofgoods and services may be expected to increase at an accelerat-ing rate, replacing some of the products formerly imported.

Another relatively favorable aspect of Colombia's interna-tional position is that the service on its external debt ofapproximately U.S.$130 million amounts to less than 4percent of current exchan-e receipts.

Colombia has been able in the past to produce enoughoil to meet its own requirements, has received a steady dol-lar revenue from royalties on exported oil, and has attracteda very substantial amount of foreign capital for oil explorationpurposes. The country's petroleum situation, however, hasrecently become less favorable. No major new fields havebeen discovered, domestic consumption has grown steadily,and exploratory work has been sharply curtailed.

FOREIGN EXCHANGE POLICIES

In spite of Colombia's generally favorable internationaleconomic position, the country's foreign exchange reserveswere subjected to a severe drain in 1946-48, which was curbedonly by resort to detailed, complex controls over imports andexchange transactions.

These controls have succeeded in their primary purposeof restricting the loss of exchange, but as they have beenadministered they have entailed serious adverse consequencesas well. They have increased the cost and complexity of for-eign trade, have weakened competition, have caused certaindistortions in business policies, and have encouraged highmarkups and permitted excessive profits on both legitimateand illegitimate imports. They have frequently been used topromote economic self-sufficiency without much regard forthe relative costs of domestic and foreign production. Theircomplexity and discretionary character have tended to dis-courage foreign investment and to distort the pattern ofdomestic investment.

The heavy demand for imports which so endangered Co-lombia's exchange reserves was caused essentially by the

[ 66 l

relatively greater rise in prices and incomes at home thanabroad-a rise that was not sufficiently compensated by afall in the exchange rate, so that prices of foreign goods werelow relative to domestic products.

It is clear that the system of multiple rates and compli-cated, discretionary controls over foreign trade and exchangetransactions constitutes a substantial hindrance to orderlyeconomic development along the lines outlinied in this Report.It is clear also, however, that these controls can safely berelaxed only as part of a complex of measures that will reachto the inflationary pressures underlying the exchange dis-equilibrium. The whole problem is a highly technical one, tiedin with almost every aspect of the development program.

We recommend, therefore, that an intensive study of pos-sible changes in monetary and exchange policy be undertakenas an integral part of the sttudy of the overall developmentprogram outlined herein; and that this aspect of the study becarried on in close consultation with the International Mone-tary Fund, whicli has special responsibility and competencein this field.

FOREIGN INVESTMENTS

The great bulk of direct foreign investments in Colombiahave been in oil and gold mining. Only a relatively smallamount of foreign capital has gone into manufacturing, al-though the experience of firms that have established plantsin Colombia, either on their own account or in partnershipwith Colombian capital, has generally been very favorable.The Colombian economy could derive considerable benefitfrom larger and more diversified equity investments fromabroad. Such investments usually are accompanied by tech-nical skills and managerial experience from the more highlyindustrialized countries, which in many cases would be ofvalue not only to the particular enterprises in which the in-vestment is made but also as a stimulant to the industrialgrowth in the whole economy. Our estimates in ChapterXXX of the Comprehensive Report indicate that the overallprogram can be realized within the period specified only ifthere is a niet inflow of foreign capital of approximatelyPs.$60 million a year. The gross inflow must be much larger.

[.67]

Unfortunately, however, an atmosphere and economic en-vironment unfavorable to extensive foreign private invest-ment appear to have developed. The actual treatment offorei-n capital in the middle of 1949 seemed to be reasonablyfair, but a feeling of tincertainty was prevalent about the ex-change rate, the operation of exchange controls and aboutthe way in which the many other laws and regulationsaffecting foreign investment might be applied in the ftiture.Private capital can adjust itself to nmany conditions, but notto extreme uncertainty. Whatever rules may be establishedrelating to the export of earnings and the re-export of capital,it is of primary importance that they be fixed, known andchanged as seldomii as possible.

TRADE POLICY

Advantage should be taken of the present favorable con-ditions to encourage the diversification of Colombian exportsand thereby reduce the importance of coffee in the country'sforeign trade. Sugar, bananas, forestry products and coalappear to offer possibilities worthy of further investigation.It seems desirable also to encourage exports of both manu-factured and agricultural goods to Venezuela, as a means ofearning dollars. The present relatively high external valueof the peso tends to discourage exports of many commoditiesby imposing unduly high prices in terms of foreign currencies;it may also handicap the development of domestic manufac-tures to replace imported goods.

In recent years, a beginning has been made in inauguratinga system of bilateral trades with a number of other countries.Although such trades offer a possibility of stimulating worldconsumption of coffee and thus strengthening its price, thedisadvantages attendant upon bilateral trading in generalraise serious question as to the wisdom of extending thispolicy.

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XII. Government Organization and Economic Data

A development program cannot be soundly formulatedand successfully carried out unless a well-organized andefficient administrative structure exists and unless adequateeconomic and statistical data are available.

GOVERNMENT ORGANIZATION AND ADMINISTRATION

The Mission has had neither the time nor the personnelto undertake an intensive study of the administrative struc-ture and problems of the Government. We recommend thatthis task be undertaken by a special public administrationadvisory mission. But our substantive recommendations inevery field inevitably have important administrative implica-tions, and at numerous points in the Summary and the Comn-prellensive Report we have had occasion to call attenition tothe need for certain administrative improvements and to makesuggestions as to their general character.

Among the most important of these needs, in our view,is to strengthen the Office of the President to enable himto exercise more effectively his constitutional function asChief Executive and his responsibility for coordinating theprograms and operationis of the Executive Branch of the Gov-ernment as a whole. Specifically, we propose the establish-ment, directly under the President, of a Resources PlanningAgency to undertake continuing analyses of the economicpotentialities and needs of the nation; to review, from thestandpoint of overall economic policy, the programs and pro-posals of the various Government agencies; and to advisethe President on these matters. We also recommend thatthe Budget Bureau be located in the Office of the President,to serve as his agent and technical adviser on the interrelation-ships and requirements of the various governmental agencies,in order to help secure more efficient administrative coordina-tion and a well-conceived budgetary program. Such changesshould be of value not only to improve efficiency and coordina-tion in the Executive arm of the Government, but also tomake it easier for the Congress to review the policies, opera-

[ 69 ]

tions and fiscal requirements of the Government in properperspective.

The need for strengthening the President's office is em-phasized by the growth in the size and complexity of govern-mental functions in recent years. The many new agenciescreated to meet new needs frequently have closely relatedor overlapping jurisdictions. As a result there has been con-siderable confusion and diffusion of authority, without anyclear cut assignment of responsibility for working out andadministering a coordinated program in various importantfields. For example, twventy or more agencies are concernedwith various aspects of agriculture in addition to the Ministryof Agriculture, and similar situations exist in other functionalareas. We have recommended some specific organizationalchanges in appropriate sections of the Summary and theComprehensive Report.

One matter which we have given particular attention isthe importance of distinguishing between operational andregulatory functions. We recommend, for example, the estab-lishment of autonomous, semi-judicial commissions for theregulation of utility and transportation rates, divorced fromthe agencies concerned with development and operation ofthese services. In the case of functions akin to those of privatebusiness, such as the operation of railways and certain muni-cipal services, we suggest the advisability of concentratingadministrative authority and responsibility in the hands ofa general manager, responsible in turn to a board of directorschosen for their business and administrative competencerather than on political grounds.

The relations among the different levels of govern-ment-national, departmental and municipal-also reveal aserious diffusion of authority and responsibility. The adminis-trative and financial weakness of most local governmentsgives special ground for concern because of the importanceof the facilities and services-electric power, sanitation, edu-cation, health and the like-which must be furnished atthat level.

Finally, one of the most urgent necessities is the improve-ment of Government personnel. A large reservoir of trained

[70]

and enterprising personnel is not available in Colombia, andthe Government has not been too successful in recent yearsin competing with private industry for existing personnel.With the rapid development of industry, this problem maybecome more acute. We believe it is of the utmost importanceto make a career in the public service more attractive; im-provements in salary scales, greater security of tenure, andbetter definition of responsibilities would be important factorscontributing to this objective.

ECONOMIC DATA

The Mission spent much of its time working over therather abundant but often undigested statistical data inColombia, in order to establish some approximation of therelevant magnitudes of the problems discussed in this Report.Series depicting the gross national product and its sources,the national income and its distribution, the amount spentyearly on capital goods produced domestically and imported,the balance of payments, the sources and uses of reservefunds and money supply, and the like, are indispensable forintelligent determination of the overall size and compositionof a feasible and desirable program. Despite our best efforts,much significant information is still lacking and many ofthe data we have had to use are still not precise or reliable.In consequence, somc of our conclusions and recommenda-tions have had to be more general or tentative in characterthan we would have wished.

We urge, therefore, that every effort be made to buildup within the Government a competent group of analyticaleconomists, statisticians and accountants to fill in the gaps,improve the quality of basic statistics and study their signifi-cance more fully, and thus provide a firm basis for futureplanning and implementation of national development policiesand programs.

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XIII. The Overall Program'I'hroughout this Summary anid the Comprehensive iteport

we have stressed a coordinated approach to the task ofeconomic development in Colombia. The problems we havediscussed are closely, inseparably interrelated, and we havetried to ensure, so far as possible, that our conclusions andthe recommendations are integrated and internally consistent.We have tried also to make these recommendations as specificand quantitative as possible, so that they may serve as usefulguides to action and not merely as expressions of general aims.

Because we have followed this coordinated, quantitativeapproach, it is possible to make some judgment as to thegeneral economic feasibility of the contemplated volume ofinvestment-whether it is within the physical and financialcapacity of the nation, whether it can be realized withoutinflation, and whether sufficient foreign exchange will beavailable to finance the required imports. We devoted con-siderable time to study of these questions, and our judgmententailed a number of rather technical calculations and pro-jections of past trends, which are reflected throughout PartII of the Comprehensive Report, and especially in ChapterXXX. In summary, therefore, we are satisfied that the capitalexpenditures indicated are reasonable in magnitude and areconsistent with an integrated pattern of economic growth.

Total capital outlays required for this program in the years1951-55 are estimated at approximately Ps.$5 billion-assum-ing stable price conditions-or an average of about Ps.$lbillion each year. This compares with an estimated level ofinvestment of Ps.$850 million in 1950. Of the total capitalrequirements, Ps.$1 billion would be for imported equipment.Table 1 presents a breakdown of the projected total invest-ment by end use.

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TABLE I

PROJECTED INVESTMENT PROGRAM BY END USE, 1951-19551Private Public Total Percentage

Total Invest- Invest- Invest- Compo-Imports ment ment ment sition

(millions)

Industries .................. U.S.$191.5 Ps.$ 741.5 Ps.$ - Ps.$ 741.5 14.5Agriculture .10. .... 109.0 341.0 176.0 517.0 10.3Transport .32 . 322.5 878.0 645.5 1,523.5 29.9Mining .. ........... 46.0 135.5 - 135.5 2.7Construction Trade 14..... . 40.5 - 40.5 0.8Housing .43.5 1,145.4 - 1,145.4 22.5Buildings 28. . .. 28.5 150.0 297.7 447.7 8.8Municipal Facilities

and Power 98. ....... 98.5 - 536.6 536.6 10.5

Total. U.S.$853.5 Ps.$3,431.9 Ps.$1,65 5 .8 Ps.$5,087.7 100.0

1 This table also appears as Table 156 in Chapter XXX of the ComprehensiveReport.

In attempting to determine the amount of capital availableto meet these requirements, we have calculated that in 1953,the mid-year of the period, it is reasonable to expect, frompast trends and under certain assumptions, investmentamounting to Ps.$1 billion. The main assumptions involvedare that price and exchange stability will prevail throughoutthe period, that an increase in productivity of 4 percent peryear will be achieved, and that net foreign capital inflow willbe approximately Ps.$60 million per year, after servicingexternal debt charges and payment of dividends. Grossnational product for the same year, on the basis of the sameassumptions and trends, would be some Ps.$6.7 billion com-pared with about Ps.$5.7 billion for 1950. Private capitalformation would be 10.2 percent of gross national product in1953 compared with 12.1 percent in 1947; but in that periodthe high rate of capital formation wras sustained by consider-able inflation. The lower rate here projected for 1953 shouldnot exceed the country's voluntary saving plus net capitalinflow.

So far as can now be determined, therefore, the programcould be carried out without inflation. We believe great careshould be taken not to initiate a greater volume of capitalexpenditures than can be financed out of voluntary savingsand foreign borrowing. Continued inflation would hamper

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effective execution of the program by fostering waste, throwv-ing out of balance the planning and completion of essentialprojects, and creating additional social and administrativeproblems.

Under our basic assumptions, total foreign exchange re-quirements for consumers' goods and services, as well ascapital goods, in the average year of the program wouldamount to approximately Ps.$900 million. Assuming nodrastic decline in the price of coffee and a gross inflow ofU.S.$200-250 million in foreign loans and equity investmentsduring the entire period, this figure does not appear un-reasonable.

National, state and local government expendituresamounted to about Ps.$500 million in 1947. In view of thetrend since then and the requirements estimated in the pres-ent program, wve anticipate that total government expendituresmay amount to over Ps.$1 billion by 1953, of which Ps.$650million might be for current account and Ps.$350 millionfor capital formation. Expenditures of this magnitude-16percent of the projected gross national product-could bemet through an increase in the yield of the various directtaxes from 4 percent of estimated personal incomes in 1947to 6 or 7 percent, and through an increase in the yield of indi-rect taxes from 38.2 percent to 9.6 percent of gross nationalproduct. The required increase in yield might be achievedpartly through the increase of the tax base which will resultfrom a rising level of national income and partly through im-proved collections. Only slight, if any, increases in the levelof tax rates should be required. Also, a portion of the publicexpenditures can safely be covered through borrowing fromabroad.

Physical limitations should not obstruct a program of themagnitude we envisage since the basic assumptions of growthwe have made are the same for all the component parts of theprogram. Consequently, the shifts in population and em-ployment involved are matched by programs to provide neces-sary electric power, housing, school, hospital and transporta-tion facilities. The looked-for improvement in agricultural

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productivity would free a larger percentage of the growingworking force for industrial employment in general and forthe building industry in particular.

It is perhaps well to reiterate that all our calculations aretentative. Our Report should be regarded as a working paper,not as a precise or immutable program. Various of its com-ponents need to be analyzed in more detail. Many of ourestimates can be refined in the course of the intensive studyof our proposals which is planned by the Colombian authori-ties. Better and more complete data will undoubtedly becomeavailable, and will indicate the need for modifications, duringthe period 1951-55. And changes in any of our assumptionsas to prices, employment, balance of payments, public expen-ditures and revenues, and so forth, would set in motion aseries of other changes and necessitate adjustments in theprogram. This emphasizes the need for continuing analysisof current and developing trends, so that prompt fiscal andmonetary action may be taken to compensate for excessivefltuctuations in investment and consumption expenditures.This type of analysis would properly be a major responsibilityof the technical staffs of the proposed Resources PlanningAgency and of the Banco de la Repuiblica.

In general, however, we believe the Report indicates realis-tically the development potentialities of Colombia over thenext few years, and the measures necessary for their realiza-tion. The proposals, in their quantitative aspects, appearto be well within the capacity of the economy. They call forno more saving and capital formation than may reasonablybe anticipated at rising levels of income; and we suggestvarious means by which this investment may be improvedthrough appropriate tax and credit policies, public invest-ment in certain fields and other measures. Qualitatively, ourproposals envisage no drastic reforms, except possibly withrespect to land use. We stress rather a multitude of relativelysimple improvements in many fields, designed to secure abetter direction of national effort and higher productivity.We rely on a simultaneous attack on many fronts as the bestway to break the vicious circle of ignorance, poverty, illhealth and low productivity, and to initiate a self-generatingand self-sustaining rise in the standard of living.

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The proposals sketched herein, and spelled out in con-siderable detail in the Comprehensive Report, are merely thefirst phase of a long campaign against these complex andclosely related problems. They cannot be solved in five years.But we believe it is wholly feasible, in this relatively shortperiod, to make substantial progress toward a much stronger,better balanced, more productive economy in Colombia anda fuller, healthier, more comfortable life for its people.

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