23739Volume 2

The Basis of

A DEVELOPMENT PROGRAM FOR COLOMBIA

Report of a Mission

headed by

Lahli- uC ie-

'-vuuOlFUCtiOnl an DevelopmentK-.~~~~~~ai ~ ~~~ j- t-< I

dovernment of Colom /

International Bank for Reconstruction and DevelopmentWashington, D. C.

1950

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I B R D SPECIAL PUBLICATION

Sales Number: I BB D. 1950.2

Price, U.S. $5.00

A Spanish translation of this Report is availablefronm the Banco de la Republica, Bogota, Colombia

The Basis of a Development Program for Colombia

- - _ - _ _ _<

,~~~a-

The

Comprehensive Report

INTERNATIONAL BANK FOR

RECONSTRUCTION AND DEVELOPMENT

WASHINGTON 25, D. C.

OFFICE OF THE PRESIDENT

July 27, 1950

His ExcellencySefior Mariano Ospina PerezPresident of the Republic

of Colombia

My dear Mr. President:

I take pleasure in transmitting to you herewith the Report of theMission to Colombia, headed by Dr. Lauchlin Currie, wvhich was organ-ized last year under the sponsorship of the International Bank forReconstruction and Development in cooperation withl the Banco de laRepublica. The Summary highlights the Mission's major conclusionsand recommendations. which are further explained and elaborated inthe Comprehensive Report.

In the opinion of the International Bank, the Report provides anobjective, unbiased analysis of Colombia's development potentialitiesand problems by a competent group of independent experts. You will,of course, recognize that the Bank has not had the opportunity toconsider fully the numerous recommendations contained in the Reportand therefore must regard then as matters for study and futurediscussion with your Government rather than recommendations ofthe Bank to your Government. At the same time, we believe theiranalyses and recommendations are -deserving of the rnost carefuland sympathetic consideration by the Government and people ofColombia. This Report can be fully effective, however, only if itserves as a basis and guide for the Colombian authorities themselvesto work out a sound, well-balanced development program, and as ameans of educatinlg public opinion.

To this end we believe it is important that the Report be carefullystudied and discussed, from an objective, nonpolitical standpoint, toassure that its major implications are fully understood and that itcan enlist broad support from the Colombian people. We are verypleased that your Govern-ment, recognizing this need, has decided to

ix

establish a nonipartisani Commissioni of outstanding citizens to studythe Report and make recommendations thereon to the Government.

We are gratified also that your Government is already taking activemeasures in line with the Mission's recommendations to obtain expertassistance in the vitally important task of effecting improvements ingovernmental organization and administration.

The Bank -will be greatly interested in the progress of the analysisof the Mission's findings by the nonpartisan Commission. It is ourplan that the Bank's staff will undertake simultaneously an intensivestudy of the Report so that we may be in a position at the appropriatetimlle to discuss with your government the programn that emerges fromyour studies and to consider possible ways in wvhich the Bank canhelp in 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 positive and lastingbenefit to the Republic of Colornbia.

Sincerely yours,

Eugene R. Black

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 a Develop-ment Program for Colombia, prepared by a special mission of theInternational Bank for Reconstruction and Development.

On behalf of the Mission, I should like to record our appreciationof the arrangements made to facilitate our work in Colombia. Presi-dent Mariano Ospina Perez evidenced great interest throughout andgave freely of his time, as did members of his Cabinet. Dr. Luis-Angel Arango, General Manager of the Banco de la Republica, ourhost, left nothing undone to assist us. The help given us by thetechnical staff furnished both by the Colombian Government andthe Banco de la Repiblica under the direction of the CoordinatorGeneral, Dr. Juan de Dios Ceballos, was invaluable. Names of thetechnical advisers to whom we are indebted are listed below. I regretthat I cannot list by name the. hundreds of officials and privatecitizens of both political parties, as well as many foreigners, whogave so freely of their time and knowledge in answering our thousandsof questions.

The physical arrangeiiments provided by the Banco de la Repdlblicacould not have been imnproved upon and the hospitality and cor-diality wve encountered on every hand were most heartening.

The translation of the Report was carried out under the supervi-sion of Dr. Jaime C6rdoba, the Assistant Coordinator General, whoalso has contributed many helpful suggestions on editing and drafting.He was ably assisted by Dr. Jose Camacho-Lorenzana of the staffof the Bank. Main responsibility for the editing devolved upon MissRuth Aull.

xi

I am most appreciative of the complete cooperation furnished theAMlission by the International Bank in making available helpful studies,in furnishing technicians from its staff, and in supplying the needsof the Mission in ways too numerous to list.

I am most grateful to the individual members of the Mission fortheir enthusiasm and complete devotion to their tasks. I am par-ticularly appreciative of the assistance afforded by those membersof the Mission wvho were on the staff of the Bank-Messrs. David L.Gordon, Jacques Torfs and Gordon Grayson-and who, followingthe return of the Mission, carried double burdens in working on theReport as well as performing their regular duties. Names of Missionmembers are appended.

I appreciate that the treatment could be considerably improvedby the expenditure of somewhat more time. However, in view ofthe fact that action on certain projects is being delayed pendingthe receipt of the Report, that considerable time has already elapsedsince our observations \vere made, and that the proposed arrange-ments for study of the Report in Colombia will facilitate refinementsand other improvements, it appears that more would be lost thangained by delaying further the submission of the Report.

Sincerely yours,

Lauchlin Currie

xii

THE MISSION

LAUCHLIN CURRIE

Cilietf of MAission

GORDON GRAYSON

Assistant to Chief of JIissioiz(Intermational Bank for Reconstruction and Development)

RIOGER ANDERSON Adviser on 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 WV. FLESHER Adviser on Industry, Fuels aind

Power

FREDERICK C. GILL Adviser oln Transportationl

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

tion and Development)

WILFRED JOIINS Assistant Adviser oni Agricultture

JUAN ANTONIO M\ONTOYA Assistant Adviser oni Health(Pan American Sanitary Bureau)

JOSEPH NV. MOUNTIN Adviser on Health and Welfare(Assistant Surgeon General, U. S.

Public Health Service)

RICHARD A. MUSGRAVE Adviser on Finanice and Monev and(University of Michigan, Depart- Banking

ment of Economics)

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

JACQUES TORFS Economiiist(International Bank for Reconstruc-

tion and Development)

JOSEPIH WHITE Adviser oni Railroads

ADDITIONAL CONSULTANTS

V. LEWIS BASSIE Conisultant oni National Accounts(University of Illinois)

THTE MARSH ALL-MOORMAN Consultants on Petroleumiii Refineries

DEVELOPMENT COMPANY

New York

Editor: RUTii AULL

Secrcetaor: DOROTHY SODERLUND

2liii

COLOMBIAN ADVISERS TO THE MISSION

JUAN DE DIOs CEBALLOS

Coordinator General(General Maniager, Institute for Industrial Development)

JAIJiVIE F. CORDOBA

Assistant Coordiniator Genieral

(Banco de la Rep6blica)

H ECTOR ABAD GtXMEZ IMinistry of Hygiene

JORGE BOSHELL MIANRIQUE Ministry of Hygienie

GUILLERMO CAMASCHO GA-MBA Administrative Counlcil of theNational Railroads

MATmGUEL FADUL Banico de la Rep4blica

JOAQUIN FRANCO 'Iinistrv of Conitinerce anid Industrv

JORGE FRANCO Bainco de la Repfiblica

AUGUSTO HANNABERGHT Banico dce la Rep6blica

JORGE INFANTE Ministry of Agriculture

JORGE PEJA PoLo National Council of Communica-tions, Mfinistry of Public Works

JOAQUIN F'RIETO Nationial Steel Corporationi ofPaz de Rio

NORBERTO SOL.tNO IOZANO Ministry of Education

LEONEL TORRES Balnco de la Repi6blica

CONCIIA TRIANA National Institttte of Nutrition

JORGE ZULUAGA Ministry of AgricultuLre

Xilv

Preface

This Report is the outcome of nearly a year's wvork by an economiciMission, organized by the International Bank for Reconstructionand Development, which was assigned the task of working up theframework for a comprehensive, integrated development program forColombia.

The Mission grew out of conversations late in 1948 between'MIr. John McCloy, then President of the Bank, and Dr. Einilio Toro,a member of the Board of Executive Directors of the Bank. Formany reasons, it appeared that Colombia, Dr. Toro's native country,was an admirable place to apply such a comprehensive approach. Theidea received an enthusiastic reception from President Mariano OspinaPerez, and the Bank was invited by Colombia to send the proposedmission. In May 1949, Dr. Lauchlin Currie was invited to act asChief of the Mission and to assist in its organization.

The Mission's terms of reference were very simple and yet verybroad. They were, in essence, to formulate a development programdesigned to raise the standard of living of the Colombian people. Tofulfill this assignment the services of experts in many diverse fieldswere required. The MIission included staff members of the Bank andthe International i\Ionetary Fund, private consultants, and expertsnominated by the Food and Agriculture Organization and the PanAmerican Sanitary Bureau. The first members of the Mission, ac-companied by Mr. Robert L. Garner, the Vice President of the Inter-national Bank, arrived in Bogota on July 11, 1949, and the last de-parted November 5, 1949. Expenses of the Mission were borne partlyby the International Bank and partly by Colombia.

The Banco de la Repfiblica acted as co-sponsor of the Mission inColombia, and organized a staff of specialists to advise and assist theMission in its work there. It assumes no responsibility, however, forour findings or recommendations. Final responsibility for both theoverall program and the specific recommendations rests on the Chiefof lvMission, although, of course, all members of the Mission mademajor contributions in their special fields and assisted in related fields.

As this wvas the first Mission of its kind sent out by the Inter-national Bank, there was little precedent to draw on. We have inter-preted our terms of reference as calling for a comprehensive and in-ternally consistent program--so far as is possible with the time,personnel and data available-rather than merely a series of discon-nected recomnmendations. This has added to the difficulty and magni-

xv

tude of the task in several respects. The relationships among varioussectors of the Colombian economy are very complex, and intensiveanalysis of these relationships has been necessary to develop a con-sistent picture. WVe have tried also to make our conclusions andrecommendations as specific and quantitative as possible. We realizethat this attempt may, in some cases, lay us open to criticism, fordefinite proposals are inevitably more vulnerable than generalities,and the statistical data wvith which xv,e have had to work have some-times been incomplete, unreliable or insufficiently detailed.

Nevertheless, wve believe this rather ambitious and hazardous ap-proach has proved its value. Its very difficulty and complexity haveperhaps led us to probe more deeply, to cross-check our results andtheir implications more carefully, than we might otherwise havefelt necessary. We have been able thereby to correct some apparentlyinaccurate information and assumptions and to fill in certain statisticaltgaps. Moreover, the principle involved in this approach-that theattack on the problem of poverty must be coordinated on many fronts,all closely interdependent-is more important than any of our par-ticular findings or recommendations. We have tried to illustrate thedynamics of economic development through an analysis of nationalaccounts and of the processes wvhich determine the volume of capitalformation and the direction of investment. An understanding ofthese processes and an approximate estimate of the magnitudes in-volved are essential to any satisfactory determination of develop-ment priorities and the policies and measures required to carry tlhemzout. We have undertaken in this Report to construct this necessaryframework as soundly as was possible with the materials at hand.In the course of further study and experience over the period of theproposed program, it will be possible to refine and fill out the statisticaldata, and to make appropriate modifications in the specific measuresdiscussed .

The organization and presentation of the Report have posed cer-tain other problems. It is addressed to several quite different audi-ences: to Colombians, wvho know^A a great deal about their own country;to foreigners, who knoxv little; and to the general public as well astechnicians. It has been necessary, therefore, to include enough factsand descriptive material to make the picture intelligible, yet not somany as to make the Report unmanaiiageable in size and borinlg to thosewho are already well informed about many of the subjects discussed.Further difficulties of oresentation arose from the very wide rangeof topics covered, some of them necessarily quite technical, and fromthe number of different contribnLtors.

xvi

In an attempt to meet these problems, we have prepared the Reportin two distinct forms. The Summary is designed for the generalreader who wishes to ascertain the highlights of the program buthas neither the time nor the interest to concern himself wvith detail.More extensive descriptive material, technical analysis and explana-tion of the recommendations are included in the ComprehensiveReport, which in turn is divided into two parts-first, a descriptionand diagnosis of economic conditions and problems in the variousfields discussed and, second, proposed measures for improvement andestimates of financial and other requiremelnts to carry them oit. Thisarrangement of the Comprehensive Report is designed to permitpurely descriptive material and most of the analysis to be kept sepa-rate from our conclusions and recommendations. The reader maythen, if he wvishes, consider the validity of the diag-nosis quite apartfrom the prescription or, alternatively, may rely on the summaryof the diagnosis contained in Chapter II and in the various chaptersof Part II and concentrate his attention on the recommendations.Inevitably this results in some overlapping and repetition. Thosewho wish to read together the diagnostic and prescriptive chapterson one subject, such as agriculture, will be most conscious of this.

Some technical appendices, relating mostly to methodology orpresenting more detailed data of interest only to specialists, are notprinted but may be obtained on request from the International Bankfor Reconstruction and Development. These are listed in the Contentsfor ready reference.

- Despite the range of topics covered, the Summary and the Com-prehensive Report do not pretend to contain a complete economicdescription of Colombia. An effort wvas made to cover only thoseaspects of the economy that appear to have direct bearing on thestandard of living and about which some recommendations could bemade. Oiie unfortunate consequence, howvever, has been to discussmainly the weaknesses and shortcomings of the Colombian economy,wvhich may convey a false impression to the reader. It is not ourintention to assign either praise or blame, nor to make any com-parisons wvith other countries unless they throwv some light onColombia's problems. All the members of the Mission, although theyfound need for improvement in many specific conditions and practices,became intensely interested in and most enthusiastic over Colombia'spotentialities.

It is hoped that the entire Report Awill be regarded as a wvorking

paper. It is intended to be provocative, to raise many problems and

xvii

to offer some suggestions for corrective action. It does not purportto offer precise or ultimate solutions for any problems; such solutionsmust derive from the experience and will and intelligence of theColombian people themselves. Our analyses and recommendationswill have fully served their purpose if they succeed in stimulatingColombians to think in terms of the whole economy, to take advantageof the experience of other countries and adapt that experience real-istically to Colombian conditions, and on that basis to formulate asound and internally consistent program of development which willenlist the broadest possible support.

xviii

CONTENTS

PART I -THE PROBLEM

Chapter Page

I. THE COUNTRY AND THE PEOPLE ............. ..... .......

The Country. 3The People 5Standard of Living 6

II. FACTORS ACCOUNTING FOR THE STANDARD OF LIVING 11AVhat Determines the Standard of Livig. .11

Productivity per Capita 13Natural Resources 13Capital 14M\Ianpower . . 16Organization 16International Economic Position S. .

Allocation of Production between Present and FutureConsumption ....... 19

Distribution of Income and Consumliptioni 20

III. NATIONAL INCO-ME AND PRODUCT . .......... .... 22Computation of National Accounts for Colombia 22Growth of National Income 25Sources of National Income ......... . ...... _ 29Distribution of Personal Income _ 33

IV. CAPITAL FORMATION ....... 37

Structure of Capital Formation 38Capital Formation and Imports . 39Capital Formation and End Use . 41Capital Formation and Types of Assets . 43Importance of Construction Industry .. .. 44Public and Private Capital Formation . . 44Capital Formation and Gross National Product 46

Financial Aspects of Capital Formation. . 47

General Sources of Capital Formation 49

Savings and Investment Institutions 51Comlliercial Banks ....... 52Caja Colombiana de Ahorros 52Caja de Credito Agrario, Industrial y Minero 53

xit;

Cliapter Page

IV. CAPITAL FORMATION-(Continued)

Banco Central Hipotecario 55

Stock Exchange 55Insurance Companies . .56Indtustrial Developiiment Institute 56Instituto de Credito Territorial 57Fondo de Fomento AMunicipal.. ........ 58Federation of Coffee Growers 59

Capital Yields and Interest Rates .59

V.. AGRICULTURE 61

Land Use and Tenure . 61

Rural Population . 64

Standard of Living .. .... 65-- Rural Education 66

Rural Housing 68Rural Health alnd Nutrition 69

Farminlg Systems and Production Probleiis 69Soils and Soil Conservation . 72Irrigation, Drainage and WNTater Utilizationl 73

Agricultural Credit Facilities .. 75

Prices and Marketing . 77Storage ...... ....... ..... 78

Rural Industries 79

Transportation .. 80

Govermiienital Policy and Programs .s 80Agricultural Self-Sufficiencv 82The Cooperative 'Movement . 83Taxation . 84

Agricultural Statistics ... ........... ...... ......... . 85

Agricultural Research ..... . . . . 85

NI. INDUSTRY AND FU-ELS . 87

Historical Developmenit . . 87

Current Position of Industry .... 87Characteristics of Industry . 91-Transportation . . . .... ...... 91

Raw MIaterials . 91

Variation in Efficiency .... 91

Alanagement . 92

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Clhapter Page

VI. INDUSTRY AND F-ELS-(Continued)

Limited Markets ..... 93H andicap of L ocation... ............. . .................... 93Capital and Credit . ...... .... 94Social Legislation ... .... 95Power for Industry . 95

VII. SURFACE TRANSPORT . . . . . ........ 100

Railways ........................................... 104Description of Railway Systems . . 104

The Western System. .... .. .. 106The Eastern System ......... . . ........ 106The Isolated Lines 106

Railroad Administration 107Management, Structure and Policies .. 107Lack of Integration. 108

Railroad Operations . .109Maintenance of Way and Structlres 109Equipment ...... ............ ........ 110Operating Practices . 111Productivity and Cost of Labor ... 112Railroad Service .. 114

High Costs and Rates 115Highways . .. 116

Maintenance of Highways . . .118

Administration of the Highway Program ... 118Highway Operations . . 121Highway Equipment ... 124Operating Costs and Rates . . . 125

Port and Water Transport Facilities. .. 127Port Facilities 127Coastwise Transportation 131Inland Waterway Transportation ... 132

The Magdalena River. .. 133Canal del Diqe ... 134Equipment and Operations .... . . ........... 3 ....... 134Operating Costs and Rates. 135

Pipelines 138

V III. AIR TRANSPORT ................. .. ...... ... .. 142The Governmenit and Air Transportation 146

xxi

Chapter Page

VIII. AIR TRANSPORT-(Continued)

Aeronautica Civil ........ .............. ....... __...... 146G overnm ent A ir Services .............. ......................... 148Air Mail Service ........................................... 149

The Airline Route System ......... ... 150

Rates and Regulation .......... ............................... 153Passenger Fares ........................................... 153Air Cargo Rates .................. ......................... 154

Communications, Air Traffic Control, Navigationand A irport System s ...... ....... ........... .. .............. 156

Air Traffic Control and Air-Ground Communi-cations ........................... ................ 156

T he A irport System ......................... .................. 158Flight Equipment ..................... ...................... _162

Operating Costs and Rates ................... .............. 164Future Equipment Possibilities ............. ..... .... .. 167

fX. HEALTEr AND WELFARE . .. . . . ......... .......... . 168Physical Factors Affecting Health 168

Water Supply and Waste Disposal . . ......... ._ 169Housing . . 169Milk and Food 170Insects and Rodents 170

H ealth Status ... ........... I...... .. ........... 171Life Expectancy 171Birth Rate 171Death Rate 173

Incidence of Illness 177Malaria . ........ .......... ... .............................. 179Intestinal Infections . .... ...... ...... ................ 179Tuberculosis . . . ........ ........... .......... 181Venereal Diseases . 181Leprosy 182

Nutrition . . 183

Health Facilities and Resources 184Public Health Services . . . 184Hospitals, Clinics and Related Facilities 192Professional and Technical Personnel . . 195

Public Welfare ... 202Beneficencia . ... 203Social Security .. 206

xxII

Chapter Page

N. ELECTRIC POWER AND COMMIUNITY FACILITIES . . 208

Need for Community Facilities . ........ 209

Electric Pow er Facilities ............. ........................... 210G eneral U se of Pow er ............... ......................... 211

Water Supply and Sewerage. .... . ....................... 215

Telephones ........................................ 218

Schools, Hospitals, and Related Institutions ............ 219

Public Mlarkets and Slaughterhouses ... 219Other Services . . .20Utility Rates ... .... ... . 222

Administration and Financing . ....... 224Fondo de Fomento Municipal 226Other National Government Aid ... ..... 230

XI. HousiN . 23. . ....... .......... ... . . 232

Housing Conditions . 233Ability to Pay for Housing ....... 234

Financing of Housing ....... 235Instituto de Credito Territorial 236Federaci6n Nacional de Cafeteros . ....... ......... 237Other Forms of Housing Promotion . .. ..... .. 239

XII. EDUCATION AND TRAINING .............. ..... ................. _ 241

Primary Education .... ...... ... 242

Secondary Education ......................... ...... ... 246Normal School Education ........ . . ........ .... 249Vocational Education ........................................ 250

Industrial and Arts and Trades Training ........ .. .. 2 50Agricultural Training . 251Commercial Training ............. ....... .... . 252

Higher Education .................... 253

Expenditures for Education ................ .... 253

X III. PUBLIC FINANCE . . . ... ..................... ... ... ... .. 255

Revenues and Expenditures of the National Gov-ernment . . 55

Expenditures . . .2.............................. ...... 255General Revenue Structure 256Distribution of the Tax Burden .... ... ......... .. 259Taxation and Capital Formation . . . 264

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Chapter Page

XIII. PUBLIc FINANCE-(Continuted)

Tax Administration. 265Budget Legislation and Procedure . .. . 267Budget Presentation.2 ... 70

Revenues and Expenditures of Departments andMunicipalities 270

Departments .. . . . 270Municipalities .. . . 274

National and Departmental Aid . . 278Income from Municipal Property and Services 280Local Taxes . ....- .. . . .. . .. . 280

"Valorizacion" . . . 281

The Public Debt 8. ..... ... 282National Debt ... .. . . . 282Departmental Debt . . .. 284MIunicipal Debt . . . . .. 286

XIRV. MONEY, DEFICITS AND INFLATION . . . . .7. . 27

Causes of Inflationary Developments. . � . 287Sources of Increase in Money Supply . .... 290International Aspects ... . 293

Effects of Inflation . . . 294

Monetary and Credit Policy . ..... 295Structure of the Banking System . .. ... .... 295Central Bankinig Policy .. ... .. 296Commercial Bank Policy. . . 300

Fiscal Policy 304Growth of Public Expenditures 304Taxation and Deficits . . . . 305Absorption of National Debt .. 307

XV. THIIE INTERNATIONAL ECONOMIC POSITION OFCOLOMBIA .............. 309

International Transactions and the Balance of Pay-ments - 309

Colombia's Termis of Trade .317

International Indebtedness and Investment. . 319

Exchange Rates and Exchange Controls 324Appraisal of the Exclhange Control Systemi. . 328

Export Control . 331

Contraband and the Black MIarket 332

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Chapter Page

XV. THE INTERNATIONAL EcoNo.s}c POSITION OF

COLOMBIA- (Continued)

Bilateral Agreements .333General Appraisal of Colombia's International Eco-

nomic Position .. .. - 335

XVI. ORGANIZATION FOR PLANNING AND ADMINISTRATION 341

Adequacy of Basic Data. 341Organization for Economic Planning . .. ..... 343Organization for Admiiinistration ... .. ........... 345Public Personnel ...... .. . ...... 347

PART II- THE PROGRAM

XVII. THE NATURE OF THE PROGRAM.. 353Objectives and Emphasis .................... ........... . 353Need for a Comprehensive and Integrated Program 355

Further Underlying Considerations .357

XVIII. AGRICULTURE . 360

Agricultural Planning and Production Goals 3601955 Production Goals. 361Targets in Specific Crops 367

Coffee 367Sugar Cane ... .... 370Cereals, Roots, and Similar Crops .. . 371Corn . . . . ... 372Rice .. ....... ............. 372Wheat ...... . . 373Barley 374Platano, Yucca and Name 375Export" Bananas 375

Potatoes .. .. . .. ..... .... ...... . 375Cacao . 377Cotton ... . . 378Fique ................... . . . 379Tobacco ... 380Beans ... 380Beef Cattle and Beef 380

Xv

Chapter Page

XVIII. AGRICULTURE-(Continued)

Hogs and Pork 381Milk ........................................... 382Sheep and Goats ....... ..................... 382Poultry and Eggs ....... ........ . .... .. 382Home Vegetable Gardens ..... 382Fisheries ................ ........................... 383

General Recommendations ..... ........ ...... ..... . 383Tax Inducements to Efficient Land Use .... .. 384Agricultural Credit 387Rural Fducation 389Irrigation, Drainage and Water Utilization. . 391Soil Conservation ....... .... .... .... ... 393Mechanization 394Fertilizers, Insecticides and Fungicides . 395Marketing, Storage, Processing and Transporta-

tion .... .. .... .396Research and Statistics ... 398Rationalization of Agricultural Programs 400

Estimated Cost of Program ...... 401

X IX . INDUSTRY AND FUELS .............................. ..... ........ 404

Measures to Increase Efficiency and Reduce Prices 404T ransportation ...... . . ...... ...................... . 404Raw Materials 404Worker Productivity . . 404Management 405Inventory Policy 406Research and Standards 406

Importance of Industry . 407

Volume of Consumption 408Desirable Expansion of Industry 409

Textiles 409S h o es - . . ... .. .. . . ........................... ...... ... 4 11Alcoholic Beverages . .411Cigarettes ..... . ..................... 411Mineral Water and Soft Drinks. 412Sugar Refining 412S alt . .. ..... ...... ........ ............ 4 12Fats and Oils ... .................. 412Leather ................................ 413Glass Products 413

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Chapter Page

XIX. INDUSTRY AND FuELS-(Continued)

Rubber Tire Manufacture .. ........... ............. 413Chemicals .. . . .......... 415Building Materials .......... . ........ ...... ....... 415

C em en t .. .......... ..... ...... .............. . . ......... 4 15Brick and Tile. 415Roofing Material ........... ....... ..... . 415L um ber ...... . ................................. .. 416

Forestry Products ............ 416Iron and Steel ............ 417

Integrated Steel Plant ...... ................................ 419Estimated Costs of Construction ........ ........ 421Domestic Financing .... 422Aid to Depressed Areas ..................... . . ...... 423Estimated Profitability of Operations .... ... 423

Additional Steel Fabricating Facilities ............. 426Petroleum Products ...................................... 428

Crude O il Situation .. ........................... _ .... 431Refining Requirements ................................. . 432

Nitrogen Fertilizer ...... .. ... ..... ........ 434Coal ...................................... 435Electric Power ......................... ............. 436

Estimate of Capital Needs . 436

XX. SURFACE TRANSPORT . ..... 440Railroads ..... 441

Adnministrative Reorganization ... ............... 441Operating Practices and Equipment ... ...... ... .. 442Maintenance Practices and Shop Facilities .. ..... 445Productivity of Labor .................. ........ .......... 447Proposed Extensions and Changes of the Railroad

System ...... .. .................... 448Elimination of the Magdalena River Route Dis-

ability .. .................................... _ 448Ibague-Armenia Railroad .. - ................ ......... 453WVestern Trunk Railroad-Bolivar Section ....... 455Buga-Buenaventura Cut-Off 456Standardization of Gauge ... .. .... 457Railroad Abandonments ....... ............ 458

Pipelines ...... .... ....... ..... ........ 459Economic Utility and Cost of New Pipelines ... ... 459

Highways .. ...... ... ............ ... ......... 460

xxvii

Clhapter Page

XX. SURFACE TRANSPORT- (Continued)

Measures to Increase Operating Efficiency . 461Highway Maintenanice, Paving and Improve-

ment .. 461Truck Operations 463

MIajor Extensions of the Highway Network 464Cartagena-Medellin 467Medellin-BogotA ..-. - . -....... 467Bucaramanga-Santa Marta .... ..... ...... . 467Buga-Buenaventura 467Tumaco-Pasto . 467M edellin-Turbo .......... ............... 467

Departmental Roads in Cundinamarca 468

WVater Transportation and Port Facilities 468Measures for Increasing Operating Efficiency . 469

Operating and Labor Practices on the Magda-lena River . . . . ... 469

Port Facilities 470MIajor River and Port Improvement Projects 471

Ocean Shipping .. .. .... ....... 473

Coastwise Shipping . 473Estimated Capital Inivestment 474

XXI. AIR TRANSPORT ....... .. .......... . . ...... 476Administrative Organization for Air Transportation 476

Regulatory and Other Functions .. 479Franchise Regulation . . ...... ... . .... 479Technical Regulation 480Rate Regulation 480

Air Mail 481

Improvement of Aviation Facilities and Equipment 482Communications and Control Systems . 482Airports . .. 484Flight Equipment . 487

Estimated Capital Requirements 490

XXII. HEALTH AND W7VELFARE 492

The Public Health Structure . .. ... 493

Sanitation and Other Protective Measures .. . 495Personniel Requirements 496

XXV-iii

Chapter Page

XXII. HEALTH AND WELFARE-(Continued)

Controlling Disease ................. ...................... 498M alaria ........................................ 498Infectious Diseases ........................................... 499T uberculosis .................... ....................... 499Venereal Diseases ........................................... 500Nutrition ... . . ................... ................. . 300Leprosy ........................................... 501Health Education ........................................... 501

Public Welfare and Beneficencia . .... ........ ...... 502Social Security ........................................... 503

Hospitals and Related Institutions ...................... 506Health Centers .................................. ......... 510Estim ated Cost of Program ................................... _ 513

XXIII. ELECTRIC POWER AND COMMUNITY FACILITIES ...... ... 514

Electric Power . ........ 514Industrial Demand ........... .. ................ 516Non-Industrial Demand ................ ............... ... 519Character and Location of Facilities......... ...... ..... 520Planning and Administration of Electric Power

Programs 521Other Facilities . . 523

Water Supply and Sewerage ... ....... 523W#\ater .. ....... ........... 523Sewer Systems . 525

Telephones ... 526Schools, Hospitals and Related Facilities .. 527Public Markets and Slaughterhouses ... 527Street Paving, Cleaning. and Waste Collection., 528

Utility Rates ........ ........... I.. ....... ...... 529Local Administrative Machinery. 530

Assistance in Municipal Development 530Estimiated Capital Reqiuirements . 532

XXIV. HOUSING AND BUILDING CONSTRUCTION. ...... 535

Financing of Housing 536Rural Housing ... . ... 537Urban Housing . 538

Estimated Cost of Program 539

xxi>

Chapter Page

X- XV. EDUCATION AND TRAINING ..................................... 543

Primary Education 543Vocational Education 546

Industrial and Arts and Crafts Training 546Agricultural Training 547

Secondary and University Training 547Normal Schools 548Estinmated Capital Requirements 549

XXVI. FISCAL POLICY ........... 550

National Tax System . ....... ................... 551Improvements in Tax Structure . ................. 551Improvements in Tax Administration ... 555

Formulation and Presentation of National Budget ... 557Budget Formulation ................ ....... ................ 557Budget Presentation ........ .......... ... ......... .. 560

Fiscal Situation of Departments and Municipalities 561Rationalization of National-Local Financial Re-

lationships .. . ..... -................ ................ 561Municipal Taxes ....................................... .... 565

XXVII. MoNEY, BANKING AND CAPITAL MARKTS . . 567Volume of Commercial Bank Reserves . . .... . 567

M eans of Control . _ ......... . ....... ..... ............ 569Determination of Banco de la Republica Policy ..... 571

Portfolio of Commercial Banks ... ................. .... 573

Open Market for Public Debt .......... ........... ... 574Organization of Capital Markets ....... 576

XXVIII. FOREIGN TRADE AND ExCHANGE . . .. .... 577

Treatment of Foreign Capital . 577Bilateral Agreements 580

Contraband and Smuggling ..... . ........ .- . ................... 581

Desirable Changes in the Commodities Traded 582

XXIX. ADMINISTRATIVE REFORMS . . . . 584

The Executive Office of the President. . 585

Reorganization of the National Government . 589Relations with Departments and Mlunicipalities 590Personnel 591

Economic Data and Studies 591

xxx

Chapter Page

XXX. THE OVERALL PROGRAM AND ITS IMPLEMENTATION- 593Magnitude and Composition of the Overall Programn 593--The Program and Economic Stability ....... . ....... 595National Income by Economic Sectors in 1953 Model 601Projected Composition of National Accounts 601Fiscal Aspects of the Overall Program .604The Program and Foreign Exchange Requirements 606The Program and Physical Limitations 608Implementation of the Program. 608Broad Objectives of the Program. 614

I NDE X

INDEX . . .. . . . . . 619

xxxi

FIGURES

1. Relief map of Colombia .Frontispiece

2. Colombia: principal surface transport routes . 101

3. Truck traffic flow, 1946 .Facing p. 122

4. Colombia: principal air transport routes .151

5. Organization of Mlinistry of Hygiene 185

6. Functions of Ministry of Hygiene and other health agencies 186

7. Health organization and functions-Department of Narifno 191

S. Colombia: present and recommnended railroads and pipelines 451

9. Colombia: present and recommlilended highways 466

TABLES

1. Gross national product and components, 1939-47 26

2. National incomae at current and 1947 prices, 1939-47 27

3. Sources of nationial income, 1939, 1947 30

4. Distribution of population and labor force, 1939, 1947 31

5. Relative importalnce of income sources in three countries 32

6. Distribution of the labor force, 1939, 1947 33

. Estimated distribution of personal incomiie, 1947 35

8. Gross capital formiiatiol, 1939-47 39

9. Gross capital formiation by econolmic sectors, 1939, 1947 40

10. Relative importanice of imlports in various sectors of capitalformation, 1939, 1947 41

11. Gross capital formationi by end use, 1947 42

12. Gross capital formiation by type of asset, 1939, 1947 43

13. mnount expended on1 construction in gross capital formlationl,1939 and 1947 44

14. Public and private gross capital formationi, 1939-47 45

15. Major itemzs of public capital formation, 1947 .45

16. Gross capital formiation comipared wvith gross national prod-nct, 1939-47 46

17. Budget for Colomabian economy, 1947 50

18. Yields of securities traded at Stock Exchange of Bogota,1941-49 59

xxxii

Table Page

19. Components of value of production (ex factory) of all in-dustrial production, 1944-45. S9

20. Domestic production as a percentage of consumption, 1947 9021. Estimated total freight traffic volume by type of transpor-

tation, 1947 10322. Estimated national and interniationial traffic, 1947 10423. Railway network of Colombia .10524. Employee productivity on Colombian railroads compared with

U. 8. Class I railroads, 1947 .11325. Financial operating results of National Railways, 1948 11626. 1949 appropriations for national highways, -Ministry of

Public Works. 11927. Truck and bus registrations, 1946-48 12128. Truck traffic flow, 1946 .122

29. Typical motor truck rates for general merclhalndise, 1949 12630. Annual volume of commerce through the principal seaports,

1943-47. 12831. Average daily cargo in port of Buenaventura, 1948-49 13032. Average daily cargo moving from1 Buenaventura, 1948-49 13133. Average annual coastwise freight movements, 1940-46 13234. Average annual commliercial inland vwaterway traffic, 1943-47 13235. Average annual Mlagdalena River traffic, 1943-47 13336. Magdalena River public service fleet, 1941, 1948 13437. Comparative operating costs and statistics for sternwheel and(

propeller-type vessels 13638. Comparative transportation rates per ton for imports and

coffee exports, April, May, 1949 13939. Estimated distribution of commercial air traffic, Janiuary-

June, 1949 .T14340. Twenty major passenger revenue mlarkets, July 1949 .. 14441. Twventy major freight-producinig markets, JulI 1949 14542. Avianca: estimated revenue per ton-kilolmieter--mail, passen-

ger, express and freight. 1945-49 15043. Passenger fares in twventy principal markets, 1938-49 15344. Air freight traffic by commodity groups, July 1949 15545. Average number of daily comlmiercial airline landing,s and

takeoffs at principal airports, 1949 15846. Estimated average daily landings and takeoffs in localities

with duplicate airports, 1949 16047. Estimated productive capacity of commercial airlines, Octo-

ber 1949 16348. Estimated population of several American countries, 1900

and 1947 172

xxxiii

Table Page

49. Death rates of several American countries, 1938-46 . . 17450. Death rates by age groups for designated Americai couII-

tries for specified years . .17551. Deaths and death rates for selected causes in designated

American countries .. 17652. Incidence of selected reported illnesses in Colomnbia, 1948 .. 17853. Number of deaths from all causes, from malaria, and rates

per 100,000, 1939-43 ....... ...... ............... ........ 18054. Budget of the Ministry of Hygiene, 1947-49 ....... . 18855. Persolnel employed in the -Ministry of Hygiene and under

contracts betweeni Ministry, departments and municipalities 18956. Ntumber of beds available and required in general and allied

special hospitals . 19357. Total units and bed capacity of hospitals and related insti-

tutions . .. 19458. Expenditures of public hospitals and institutions exclusive

of leprosaria .. 19559. Distribution of physicians according to population, interests

and location .. 19760. Number of persons emploved by selected departments and

municipalities, according to salary levels ... 2.... 20061. Number of employees according to type of position and sal-

ary levels, Ministry of Hygiene . . .. . 20162. Miovement of personnel assisted in the establishments under

the General Junta Beneficencia of Cundinamarca, 1946 20563. Estimated growth of various municipalities, 1938-50 20864. Estimated urban and rural population of municipalities, by

size of urban centers, 1950 . . .... . .. 20965. Estimated public service generating facilities, by size of urban

centers served, 1950 21166. Public service generating facilities, by departments, 1950. .. 21367. Water supply facilities by size of urban centers, autumn

of 1949 ... ... 21568. Sewer facilities b- size of urban centers, autumn of 1949 ... 216

69. Telephones in service, by size of urban communities, 1946-48 21870. Projected expenditures of various cities for street paving,

street cleanillg and waste collection, 1949-54 .22171. Rates for electricity in certain cities, 1949 .2..... 22372. Works completed and in progress under auspices of Fondo

de Fomento Mlunicipal, December 31, 1948 ... 2. ... .. I.. 22873. Financial operations of Fondo de Fomento MIunicipal,

1940-49 .. .......... 2974. Estimated number of buildings and dwellings, 1938 and

1948 . ............. ........ .......... 232

xxxiv

'fable Page

75. Investment in buildings bv category, 1939 and 1947. 23376. Income levels, 1947, 1950 ..................... 2............................. . 3477. Average value of dwelling for various income groups ... ....... 23578. Cost and area of dwellings constructed by Coffee Federa-

tion, 1948 ................................................... 23879. Estimated number of children of primary school age com-

pared with enrollment in public schools, 1948 .......... ....... 24280. Size and enrollment of public primary schools, by depart-

ments, 1948 .. 2................................................. 4481. National primary school construction programn for the fiscal

year 1948-49 ................................................... 24582. Training of primary school teachers, 1946 .......... .... ... 24683. AMonthly salaries of public primarv school teachers, urbain

and rural, 1946 24784. Secondary school enrollment by grade, 1946 ......... ....... ...... 24885. Municipal, departmental and national expenditures-total

and for education, 1948 ...... ................. .. .. ............... . 25486. Expenditures of national government, 1940-47 ....... 25687. Revenues of national government, 1940-47 25988. Tax liabilities at selected salary levels ....... 2. ......... ... ... ...... 26089. Tax liabilities at selected levels of patrimony and profit in-

come . ............. ........ ........... ........... ... ......... 26190. Distribution of income tax returns, 1947 . 26391. Departmental expenditures, 1941-48 .. ........... ... . .... 27192. Per capita expenditures by departments, 1945-48 . ... - .. . 27293. Sources of departmental revenues, 1941-48 . 27394. Sources of municipal revenues, 1941, 1946 and 1948 27495. Municipal expenditures by departments, 1941, 1946 and 1948 27596. Income and expenditures of principal municipalities, 1948 27597. Revenues of municipalities by size of revenues, 1946 . 27698. Number and monthly costs of municipal personnel bv de-

partments and functional groups, 1948 27799. Public debt of Colombia, 1940-49 ... ...... 283

100. Domestic debt of national governmiient by types of issue,May 1948 ..... .... ... - . I 284

101. Domestic funded debt of departments by types of issue,ay 1949 .... ...... 285

102. Departmental funded debt, May 1949 ... 86103. Price indices, 1940-49 .. . 8. 28104. Increases in money supply and prices, 1940-49 289105. Money supply, 1940-49.. . 291105. Annual incrcasc in money supply, 1941-49 .... 292107. Sources of money supply, 1941-49 ................. ....... 29210S. Sources and tuses of reserve funds, 1941-49 298

xxxv

Table Page

*109. Position of comnmercial banks, 1940-49 301110. New loans granted by commercial banks, 1940-49 302Ill. Public expenditures and gross national product, 1940-47 305112. National budget summary, 1940-49 ............................... ...... 306113. Colombia's exchange receipts and exchange authorizations,

1948 .. .... ... 310114. Condelnsed statement of Colombia's balance of international

payments, 1938-49 . 312115. Percentage distribution of Colombia's exports by destina-

tion, 1938-48. .................... 313116. Percentage distribution of Colombia's imports by source,

1938-48 ............... .......... 313

117. Colombia's terms of trade, 1937-49 . -.. ........ . 318113. Foreign capital invested in Colombia and registered with the

Office of Exchange Control, June 1947.. .... ....... .. 319119. Colombia's external debt, 1949-50 . ...... ..... ...... ....... 322

120. Contractual charges on Colombia's external public debt,1950-70 ....... 323

121. Permanent national governmenat personnel by functionalgroups, 1948 .348

122. Permanent national government personnel by salary scales,1948 348

123. Personnel of departmental governments by functional groups,1948 . .349

124. Production goals and performance, 1945 and 1948, of five-year plan for agricultural development 361

125. Procduction trends indicated for various crops, 19- i 362126. 1.evel of nutrition in Colomnbia compared with requirements,

1946 . ....... .. .... I........ .. 364

127. Suggested production targets for 1955, compared with pro-duction if present trends are maintained . 366

128. Trends in agricultural production, 1938-48, and "clesirable"and "practical" targets for 1955 .368

129. Illustrative tax rates per tlhousand by income classification 385

130. Rate of growth per year in production and consumptioln ofrefined products, 1937-47 .. 428

131. Registrations and imports of automotive vehicles, 1938-49 . 429132. Estimated demand for petroleumil products, 1955 and 19S0 430

133. Recommenided investlmient in specific industries, 1951-55. . 437

134. Model projection of industrial capital formation, 1953 ... 438

135. 1955 estimated cost per ton and per ton-kilometer for trafficvia proposed Ibagu6-Armienia railway 455

136. Estimated capital requirements for major highway projects,1951-55 ... 465

xxxvi

Table Page

137. Capital investment in specified surface transport projects,1951-55 .. ..... ..... .................... ., 475

138. Annual projected investment in surface transport, 1951-55 475 1/

139. Estimated capital reqnirements, annual revenues and ex-penses of the proposed Airport and Communications Cor-poration ..... . .... ... ..... . . ...... 478 -

140. Estinmated capital requiremzents for air navigation equipmentprogram .483 V

141. Air navigation equipment program-estimated annual oper-ating and m1ainteniance costs .483

142. Proposed government plan for construction and improvemzentof national airports .... . ..... 485

143. Capital investment in specified air transport projects, 1951-55 490

144. Anlual projected investment in air transport, 1951-55 491 V'

145. Number of beds available in 1948 and needed by 1955 ingeneral and special hospitals ............................ .... .... 508

146. Number of beds in 1948 and estimated number needed in1955 by designated types of hospitals . .. .... 509

147. Estimated numlber of required public health and Beneficenciapersonnel and estimated annual expenditures for salariesby 1955.. 512

148. Projection of electric power consum1ption, 1950-55 .516

149. Projected powver availability for industrial purposes, 1955 518

150. Sources of capital for self-liquidating and other commnunityfacilities, 1950-55 .534

151. Number of dwellings in 1948 compared with estimated needs,1950-55. 535

152. Distribution of population and average cost of dwellings 540

153. Dwelling requirements. 1950-55. 540

154. Total projected capital expenditures for dwellings and build-ing construction program, 1951-55. .. . 541

155. Estimated capital requirements for construction of additionalschools, 1951-55 549 V

156. Projected investment progranm by end use, 1951-55 594

157. Projected investment program1 bV end use, 1953 .. . . 594

158. Percentage composition of capital investmtent, 1947, 1953 595

159. AIodel projection of gross national product. 1947-50-53 599 >9160. Comaparison of projected and recommiended patterns of capital

formation in 1953 . 600

161. MIodel projection of national income, 1947-53; employmlent,productivity and price indices, 1939-53 ....... ............... 602

162. 'Model projection of national accounts, 1947-53 .... ...... .. ....... 603

163. Projected incomze and expenditures of segments of Colombianeconomy, 1953 . . .. . 604

164. Model projection of Colombialn budget, 1947-53 ........ 605

xxxvii

APPENDICES *

A. NVational Accouniits, inclluding NVational Income anld Capital Formationlby Jacques Torfs.

B. NAuitrition, by Jacques Torfs.

C. Clharacteristics of Po-wer Facilities of Principal Citics, by David L.Gordon.

D. WFater anzd Scaer Facilities, by Depart117enlts anzd in TVarimis Cities,by David L. Gordon.

E. Soutrces of ilfunicipal Revenues, 1946, by David L. Gordon.

F. Putblic Finance, by Richard A. MIusgrave.

G. 31oncy and Credit, by Richard A. Musgrave.

H. Balanzce of International Payments, by Roger V. Anderson.

I. MllInltiple Rates of E-x-chlangc, Mllid-1949, by Roger V. Anderson.

J. Statistical Bases for Trends and Projectionis, by Jacques Torfs.

* Available on request fromn the Tnternational Bank for Reconstriuction and Development

N Vxx Vi

PART I

The Problem

CHAPTER I

The Country and the People

THE COUNTRY

The Colombian economy is one of the most interesting in the world.The peculiar topography of the country, together with its position nearthe Equator, permits a diversity of agricultural production customarilyfound only in a country occupying the better part of a continent.Indeed, the diversity is greater than that obtainable in the UnitedStates ancd Canada combined. Climates of the inhabited zones rangefrom tropical at lowv altitudes to temperate at higher altitudes, per-mitting the simultaneous growth within a comparatively few miles ofsuch diverse crops as bananias, coffee, potatoes and \vheat. Aloreover,the proximity to the Equator results in little variation in seasons andpermits cultivation throughout the twelve months of the year. A studyof the relief map of Colombia is indispensable to an understanding ofthe problems of the country.

While, however, the topography and climate are Colombia's great-est elements of economic strength, they are at the same time the sourceof the country's greatest economic problem, transportation. Thegreater part of the wvestern and inhabited part of the country is tri-sected by three lofty and continuous mountain ranges which haveoffered severe and, indeed, until comparatively recently, almost in-superable barriers to the bulk movement of goods throughout thecountry. Consequeutly, the same factors that permit diversity andspecialization in agricultural production impose obstacles to taking fulladvantage on a national scale of this diversity. Moreover, the topog-raphy and climate have up to now prevented the colonization of largeareas of the country to the east of the Andes, along the Pacific Coastand in the lowver klagdalena V7alley.

One extremely significant consequence of the topography of thecountry has been the emergence of four fairly distinct and separate'economic entities or tradiing zones, which center around (1) Tolima-Huila and the high easternl plateaus, (2) the Atlantic Coastal region,(3) Antioquia, and (4) the Pacific Coast departments. Each of thesezones includes lands and climates permitting a wide diversity of agri-cultural production. Each has a metropolitani area wvhose food require-ments are met very largely within the zone. Within each zone thetransport facilities permit considerable movement of agricultural com-modities. Each of the zones has, on one or more of its sides, un-

3

4 THIE BASIS OF A DEVELOPMENT PROGRAAI FOR COLOMBIA

developed lands of potential significance for the future. This self-contained characteristic extends even in part to industry. Each of thezones supplies all or part of its own requirements for cement, mostbuilding- materials, cotton textiles and beer. Curiously enough, eachzone contains coal. The goods that move across zonal lines are thosethat can bear high tranisport costs and comprise mainly salt, sugar,oil, imported and exported goods.

It is a temptation to think of Colombia as four separate countriesunited politically, but that would be an oversimplification. Actuallythe zones are not clear-cut and improvements in transportation willpermit greater specialization and more interzoinal trade. The zonal ap-proach, however, does facilitate the understanding and treatment ofColombia's problems.

From a relatively small area, not too efficiently utilized, Colombiaproduces not only food for its people but also some 5'2 million bagsof coffee for export which in turn largely pay for imports. Part ofthe clothing requirements, as well as all of the shoes, beer andtobacco needed by its inhabitants, is also supplied by the processingof its agricutural products. In addition, Colombia has produced approx-imately one-half billion barrels of oil in the last twenty-five years,possesses eQorimous coal deposits, and great stands of accessibletropical forests, and is particularly rich in actual and potential hydro-electric resources.

The presently thickly settled parts of the country are relativelysmall in area. The whole area east of the Andes, drained by theheadwaters of the Orinoco and the Amazon, is sparsely inhabited antiit is debatable whether it will in the foreseeable future support a largeincrease in population. The same is true of the swamp lands in thelower Magdalena Valley, the arid lands in the upper Magdalena Valleyand the very humid, tropical country along the Northern Pacific coast.I\Ioreover, it is doubtful whether a good living can ever be obtainedfrom many of the steep mountain slopes of the Cordillera Central andother ranges now under cultivation. There are some promising newvareas, notably in the Sinti and San Jorge valleys and the middleMagdalena Valley below La Dorada, but the high price of valley land,the extreme parcelization of the land of Narifio, the small farms creep-ing up incredibly steep mountain sides, and the agitation for irrigationprojects are all warning signals that the growth of population is begin-ning to press on limited arable land resources. The relatively smallarea of suitable arable land places limitations on possible future agri-cultural expansion and new settlement for a population of 11 millionpeople, which is increasing at about 2 percent per annum.

THE COUNTRY AND THE PEOPLE 5

THE PEOPLE

Population in 1900 was estimated at 3,880,000. The last officialcensus in 1938 indicated a population of 8,700,000. Since the rate ofincrease appears to be about 2.15 percent per annum, the 1950 popu-lation is probably about 11,000,000, or an increase of some 186 percentsince the turn of the century. The official birth rate for 1946 was33 per thousand and the death rate in the same year 15.6 per thousand.Since there is good reason to believe that many births and deaths areunreported, and the official birth and death rates are inconsistent withpopulation and population growth figures, a more reliable indicationof the birth and death rates is probably afforded by the figures forsome of the main cities. These show birth rates ranging from 31.4 inBogota to 41.7 in Medellin, and death rates of 19.3, 19.6 and 20.4 forManizales, Bogota and Medellin, respectively. A birth rate of around39 per thousand is nearly double that of the United States, higherthan Venezuela or Chile, and only slightly belowv Mexico. A deathrate of around 20 is again approximately double that in the United

States and very close to the rates prevailing in Mexico, Chile andGuatemala.

It is apparent from such high birth and death rates, and with theknown heavy infant mortality rates, that the expectation of life isrelatively short, probably being around 37 to 40 at birth. This maybe contrasted with an expectation of life in the United States of 66years at birth. The population of Colombia is relatively youthfull inage composition. On the basis of the 1938 census, it appears that some40 percent of the total population were under fourteen years of age,and only 11 percent were over fifty years of age.

Excessively high birth and death rates and low expectation of lifenot only have significance in terms of human well-being or happiness,but also have economic implications. For example, adult males ofworking age obviously have to care for more dependents, and acquiredskills are lost to the community after relatively short use.

The racial composition of the people derives from three mainstocks: European, Indian and Negro. There has, however, been aconsiderable mixture of these stocks in the past four centuries. Accord-ing to a recent authority,1 the percentage composition of the popula-tion by races in 1852 and in 1942 was as follows:

1852 1942

Indiai. 1.3.8 1 6%,Indian-White 44.5................ . . 5. .. .5 46.0Negro . . . . 3.5 4.4Negro-Indian/White . . . . 17.6 22.0White .. . . . 20.6 26.0

I Pablo Vila, Geografia de Colombia, 1945.

6 THE BASIS OF A DEVELOPMENT PROGRANI FOR COLOMBIA

Despite the rapid growth of industry, towvis and cities, Colombiais still predominantly rural. According to official estimates for 1948,71 percent of the people lived on farms and in villages under 1500.Ag-aim, according- to the 193S census, 40 percent of the people livedin tile hot or tropical districts, 36 percent in the moderate or temperatezones, and 24 percent itn the cool uplanids.

Considerable attention w-ill be devoted later in the Report to thegeneral problem of health.2 We may anticipate the findings there byremarkilg- that by and large the Colombians cannot be called ahealthy people, though they are better off in this respect than thepeople of most tuderdeveloped countries. Not only are the deathrates excessively high, but the bnrden of illness, such as dysentery,malaria and tuberculosis, is heavy. This again has economic as wellas welfare aspects.

STANDARD OF LIVING

Since our main concern in this study is the development of a planto raise the standard of living, it is of considerable importance todetermine the facts relating to the present standard of living. Un-fortunately, this is a difficult field in which to obtain a high degree ofprecision. Only one or two carefully controlled spot studies have beenmlade and Colombia exhibits such diversity that it is unusuallyhazardous to base generalizations on isolated studies. The onlyrecourse seems to be to present the results of such studies togetherwith inmpressions formed by the members of the MIission through veryextensive travels throughout Colombia, interviews, and studies ofavailable statistics.

One available study made in 1945 is of Tabio, a community aboutthirty-five miles north of Bogota on the savanna.' This community isprobably somewhat above the average in income and level of livingfor rural communities in Colombia. It has also been somewhatinfluenced, particularly in migration, by its proximity to Bogota. Itcontains about 29 square miles (74 square kilometers) and three-fourths of this area lies in fairly level valley bottom with one-fourthmade up of steep mountain slopes. It contains a village or pueblo.About 44 percent of the families are those of farm laborers wvith thebulk of the rest being small proprietors and a few substantial land-owners. Three percent of the population control one-half of the land.The system of farming utilized is characterized by a lavish use oflabor. The plow, the w heel and animal pack have as yet entered only

2 See Chapter IX.3 Tab io, A Staidy int Rio-al Social Organization, by T. Lynn Smith, Justo Diaz

Rodriguez and Luis Roberto Garcia, U. S. Department of Agriculture.

THE COUNTRY AND THE PEOPLE 7

incidentally into the farming operations of the municipio. Conse-quently, the productivity per wrorker is low, which again is reflectedin a lowv standard of living. Most of the produce is constumed locallyand the community obviously furnishes little market for the productsof industry. According to the study, "the typical house in Tabio is atwvo or three room affair of wiattle and daub and covered w-ith thatch.Its floor is of bare earth and there were either no windowrs or merelyopening-s with no shutters, and the houise is wvithout ceiling. Theaverage home's furniishin'gs and conveniences do not include electricity,running wvater or any sanitary equipment." The stove is customarilythree stones on a bare floor or a pipeless little brick stove with ironcovering. About half the houses are seriously overcrowded, \vith fourand even six people to a room being common.

The family does not appear to be as strong a unit as is generallyasstumiied. Of 517 households visited for the study, less than three-fifths were inhlabited by families \vhose father was present in the home.Mlore than 7 percent were cases in which the household \vas headedby a married woman whose husband \vas away permanently, 16 per-cent wvere families broken by the death of one of the parents, andnearly one-fifth -vere quasi-family groupings headed by an unmarriedman or woman.

In Tabio, educational institutions are still in their incipient stages.Schools designed to fit the children for life in the community are stillto come. The boys of the municipio need instruction in agriculture.Many of the girls spend their lives as domestic servants in Bogota.In general, the authors of this report felt that educational institutionsdesigned to bring out the latent possibilities of the municipio's youthwere urgently needed.

A field investigation was made by the present MAlission of thestandard of living of agricultural workers in the Armero-Guayabaldistrict in Tolima, xvhich is more or less representative of conditionsprevailing throughout the middle Mfagdalena Valley from Huila toPuerto Berrio, but above the average for the country.

The typical production unit of the Magdalena Valley is a largehacienda producing cotton, rice, sesame and cattle. A typical agricul-tural worker in the region studied is part of a family of six-father,mother and four children under twvelve. The family usually lives ina small village and the father works on nearby haciendas. At harvesttime his wvork is supplemented by the work of the mother and anychildren above seven. The income of such a family amounts to aboutPs.$1200 per year, assuming a full work year of 52 \veeks for thefather, supplemented by the Nvork of the mother and older children.

S THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Food, beverages and tobacco absorb almost all of this income leavingonly a bare minimum1i for clothing and utensils. This family lives ina house costing Ps.$300 to Ps.$500. The floors are usually earthenor very thin concrete, the wvalls are constructed of bamboo and mud,and the roof is thatched with palm leaves wveatherproofed wvith clayor mud. The house is usually divided into tvo rooms, one for sitting

and the other for sleeping. There are generally no beds and a minimumof chairs. The kitchen is situated in a straw hut behind the housewvith cooking done over an open fire. Kitchen utensils are usuallyearthenware. Toilet installations are limited to a wvash basin andprivies are rudimentary and inadequate. In this region there is gen-erallv no water supply in either the rural communities or the haciendas.Small sums are given the children andl older people to carry the xvaterfrom nearby rivers.

There appears to be no deficiency in the diet so far as the numberof calories is concerned, nor in this region is there much evidence ofmalniutrition, since an unusually abundanit supply of meat is availableto balance the customary starchy diet of most country people inColombia. Less than 50 percent of the workers read or write, ascontrasted with Tabio, where the percentage of literacy wvas 60 percent.The wvorkers generally have very little schooling and what little theyhave appears to be of small help in the practical problems of life.Despite this lack of training, xve found the workers interviewed tohave a higher cultural standard than might have been expected. Theywere clean, courteous, wvith a good sense of humor and a very activeinterest in political issues. The xvorkers in the region live so closely tothe margin of subsistence that the occurrence of any of the ordinarymisfortunes of life, such as illness or death or lack of employment, islikely to wvipe out any accumulated savings they may have or to causethem to go into dlebt. Credit facilities are extremely limited and itrequires unusual energy and foresight and determination to enable anindivi-dual to better his position in life. At this level, the rungs of theeconomic ladder are \videly spaced and difficult to scale. From ourobservation, the conditions of small freeholders and tenants in thisarea do not differ sign-ificantly from those of \vorkers.

There are considerable variations in levels and modes of livingthroughout the country regions of Colombia. Coffee, for example, istypically groxvn by a small freeholder. In 1938 it wvas estimated thatthere were some 300,000 proprietors of coffee fincas. A typical coffeefinca is relatively small, containing about 3200 trees which at pricesprevailing in the middle of 1949 wvould yield its owner around Ps.$1200a year, an income that xvould cover little more than the bare necessities

THE COU-NTRY AND THE PEOPLE 9

oi life. The coffee growers are considered to have a better than averagestandard for the country.

On the other Ifand. the condition of the people in Boyaca and inNarifio is considerably below the national average. The half millionodd people of Nari-no are proprietors and their individual holdingsare so tiny and are farmed so primitively that a very low level ofliving results. In 1946, the average income of people in these twodepartments was well below that of the rural workers in Tolima andCundinamarca.

The workers in industry, commerce and transportation are some-what better off than the country people. They receive a somewhathigher money income, averaging Ps.$3.58 per day in 1948. In addition,in some of the cities, they enjoy the benefits of certain municipalservices, such as light and water. Moreover, they receive other sub-stantial benefits through the social laws, including severance pay andmedical care. Even for such workers, however, a substantial part oftheir income goes for food. According to studies made in recent yearsby the Contraloria General of working class budgets in five Colombiancities, 57 to 66 percent of expenditures were devoted to this purpose.This was doubtless partly due to the size of the families, as eachworker in the families studied was supporting four people on theaverage.

There is also a relatively small group of majordomos, or managers,and tractor drivers whose earnings are considerably above either theworkers, tenants or freeholders. No recent studies have been madeof the standard of living of the small but growing middle class ofColombia, although it is obvious that their status is considerablybetter than that of the workers. Finally, there are the large plantationowners, industrialists, importers, bankers, etc., whose numbers arestill small but who have increased considerably in recent years.

It is estimated that in 1947, the earnings of corporations and indi-vidual enterprises, owned by some 80,000 people, amounted to nearlyone-third of the national income.4 Official tax returns, which unques-tionably understate incomes, indicated for 1947 that less than 8,000taxpayers, or 9.5 percent of individuals filing returns, earned abovePs.$10,000 but accounted for 56 percent of the reported incomes.

The relatively lowv standard of living of the majority of the peoplein Colombia is further indicated by the per capita consumption of suchitems as cotton textiles, electric power, and other elemelnts enteringinto the standard of living. For example, it has been estimated that

4 See Chapter III.

10 TIlE BASIS OF A DFVELOPMIENT PROGRANI FOR COLOMBIA

in 1938-1939, the ener-y consumed per day per capita from coal, oiland electricity amotunted to 1.5 horsepoxver in Colombia, 10.7 horse-power in Chile and 37.6 horsepower in the United States.5

Despite the generally low standards of living, health and educationin absolute terms, it must be emphasized that real and substantialprogress has been made in the past twventy-five years. The productionof agricultural crops, including coffee, cotton, tobacco and sugar, hasincreased very substantially; manufacturing output and imports ofboth producer and consumer goods have likewise shown a great ex-pansion. Great public works have been carried through, particularlyin road building. Considerable expansion in electric power productionhas occurred and a tremendous amount of commercial and apartmentbuilding has occurred in the leading cities. Much of this developmenthas been made possible through exports of coffee, petroleum and goldduring the past twenty years. Recorded imports, financed largely bythese products, a-gregated Ps.$4.5 billion in the period 1924-1948.

Colombia has attained an economic status well up in the list ofunderdeveloped countries of the \vorld, and the showing becomesespecially favorable if the comparison is limited to countries in theequatorial belt. Of even greater significance is the strong capacityfor grovth that has been demonstrated. Hoowever, the gains from thisperiod of rapid development have been unequally diffused. At one endof the scale, the returns to owvners of capital have increased morerapidly than returns to agriculturists and general industrial wvorkers.Other classes sharing in the gains have been the emerging middle class,the skilled industrial and transport xvorkers and a relatively smallgroup of people who operate the ne\v agricultural machinery. The bulkof the population has experienced some rise in the standard of living,particularly in consumption of food, beer and tobacco, and in betterliving quarters and community facilities, but the rise has been lowverthan what might have followed from the economic developmentalready achieved.

5Energy Resour-ccs of the World, U. S. Department of State, 1949, Table 42.

CHAPTER II

Factors Accounting for the Standard of Living

Considerable descriptive and analytical material wvill be presentedin this Report bearing on the central problem of the standardof living of the Colombian people. It will be convenient at this pointto summarize in advance the main findings and to indicate how theyrelate more specifically and definitely to the standard of living. Itis also perhaps advisable to rciterate here the schematic structure ofthis Report. It is not our purpose to describe the economic system ofColombia for the sake of description. Neither are we concerned tobalance the good points against the bad or to mingle praise with criti-cism. We have sought at all times to keep before us the single objectof this study--to determine howv the Colombian standard of livingmight be raised. Consequently, the discussion deliberately and ofnecessity has been concentrated on the xveaknesses, the shortcomings,the inefficiencies and the general organization and practices that con-tribute to those xveaknesses which it is felt can be improved or modifiedin such a wvay as to raise the standard of living. In short. Part Iforms the basis for the recommendations of Part II.

Another word of explanation is perhaps in order. It is possibleto treat of the standard of living of a country on different levels ofdiscourse. One very basic level, for example, might concentrate onsuch factors as race, culture and history ; it might develop a theoryas to how it is that one people, inhabiting a rugged inhospitableterrain, may achieve a higher standard than another people occupyingland richly endowved by nature. While a study conducted at such alevel would be both basic and fascinating, it xvould be likely to becomeintertwined with matters of personal judgment and become philo-sophical or merely historical in nature. The approach here, on thecontrary, is pragmatic. The concern is solely with matters of a muchmore imnmediate and practical nature about wvhich something can bedone within a relatively short period. This should not be taken tomean that cultural factors are not felt to be of major importanceor that they have not been considered in connection with the framingof recommendations. The point is rather that cultural factors by theirvery nature are susceptible of little modification in short periods oftime.

WHAT DETERMINES THE STANDARD OF LIVING

The explanation of varying standards of living is the most funda-mental and absorbing problem of economics. It is, therefore. sur-

11

12 THE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOMBIA

prising that so little prior work has been done in this field in Colombia.Indeed, the descriptive material on the standard of living itself ofdifferent classes in different areas is extremely scanty. Recourse wastherefore had to a few spot studies, interpretations of overall statisticscompiled for other purposes, and general impressions derived byAMission members in their travels, studies and interviews.

It should be pointed out that the standard of living is not a preciseconcept susceptible of careful measurement. It corresponds roughlyto a state of well-being in an economic rather than a spiritual sense.However, w*hat constitutes well-being is a matter of judgment anddiffers with different people, and at different times. Some people,for example, will be reluctant to concede that the use of tobacco andthe consumption of alcoholic beverages are substantial elements ofa desirable standard of living. Most people, however, would so regardthem. Similarly, after a certain point is reached, the correspondencebetween increased consumption of goods and services and an increasedsense of well-being becomes tenuous. WVhen, however, we are dealingwith a people whose consumption is very low, this consideration neednot concern us unduly. In other words, we are on safe ground infeeling that essential elements in a standard of living are the con-sumptiotn of food adequate for nutritional purposes, the enjoymentof sufficiently good health to permit a sense of physical well-being,the possession of adequate housing and clothing, and the opportunityfor some leisure and amusement. Beyond these basic things, differentpeople would place different emphasis upon additional types of con-sumption. In this report, however, attention has been concentratedon the possibility of increasing the per capita supply of the elementsbasic in any living standard.

The conclusions presented in Chapter I need not be repeated here,except to say that the standard of living of the bulk of the people,in the terms just described, is distressingly low, particularly in viewof the inherent richness of the country. We are not here concernedwith the high standard of the well-to-do or the apparently tolerablestandard of living of the urban middle class, since their number isrelatively small, and they will in any case benefit from improvementsin the general level. In order to relate more preciselv the discussionpresented in the followving chapters to the low general standard ofliving of the masses, it is perhaps desirable to set forth some veryelementary and yet basic factors determining any living standard.

Broadly speaking, therefore, the standard of living or economicwell-being of any people depends on (a) the productivity per capita;(b) the distribution of the output of goods and services as between

FACTORS ACCOUNTING FOR THE STANDARD OF LIVING 13

consumers' and producers' goods; and (c) the distribution of incomeand consumption among the people.

PRODUCTIVITY PER CAPITA

Production per capita depends on the resources per capita, bothnatural and man-made, the efficiency of workers, the age distributionof the population or the proportion of the population of wvorking age,the efficiency wvith wvhich production is organized, and the foreignmarkets and terms of international trade. It is believed that virtuallyall the important factors affecting productivity per head can be con-veniently treated under these various headings. UnemlIployment is notan important factor in Colombia.

Natural ResourcesWhile the area of Colombia is great, the amoulnt of readily access-

ible and good agricultural land in relation to the population is strictlylimited. The average size of farms is about two hectares, or five acres,and even this average is affected by the inclusion of many large farms.Fortunately, the climate and topography permit the economic utiliza-tion of some steep hillside areas that could not be profitably cultivatedin northern climes. However, the area of level valley land suitablefor intensive crop cultivation is scarce in relation to the demand forsuch land. Consequently, its value is so high as to keep it out ofthe reach of poorer farmcrs.

We shall have frequent occasion to point out the anomaly thatthis limited area of good level land is customarily not put to its mosteconomic use but, for various reasons, is devoted to beef cattle grazing.Given, therefore, the present state of agricultural practices and certainsocial customs that have arisen in connection wvith land oxvning, theevidence is incontestable that population is pressing on land. Again,given these factors, it appears that a continuance of population growthat the present rate, or at an accelerated rate that might result fromibetter health conditions, would result in recourse to poorer land andlower productivity after certain limited additional fertile areas havebeen settled. It is true that wvith every additional mouth there is anadditional pair of hands. Unfortunately, however, wvhen resourcesare limited each additional pair of hands may not produce as muchas previous pairs.

On the other hand, wvith the application of known agriculturaltechniques and the efficient utilization of land resources, the presentarable land area of Colombia would be consistent with a high standardof living for the existing population. Under the present conditions,

14 THE BASIS OF A DEVELOPMENT PROGRA-M FOR COLOMBIA

which are spelled out at some length in the two following chapters,

the productivity of work in agriculture is so Io\v that it takes nearly

63 percent of the working population to growv the food and providethe ag-rictultural raw materials and exports. Only 30 percent areengaged in industry and service occupationis, while 70 percent of thepopulation live in rural areas. In the United States, only 14 percent

of the gainfully employed are engaged in agriculture and 20 percent

live in the country. In order for additional goods and services of

all kinds to be produced in Colombia, it is necessary that a smallerpercentage of the population be engaged in agriculture and that morepeople be engaged in the production of other things. This means, in

turni, that-the productivity of each agricultural worker must be verymuch greater than prevails today. AW'ays and means of achieving- this

increased productivity are of foremost importance.

Of the natural resources in addition to land with wvhich Colombiahas been richly endowved, only txvo, petroleum and gold, have beenutilized to any significanit extent. Existing- knowl\ reserves of petro-

leum, if carefully preserved and wvisely utilized, should meet thecountry's rapidly growing needs over a considerable period. More-over, there is, of course, always the possibility that additional fieldsmay be discovered. Current imports of refined products can be largely

dispensed with when additional refinery capacity is provided.

T o date, negligible use has been made of the country's great timberresources, and very little of the apparently tremendous coal reserves.Very little opportunity has been taken of the country's long coastlineto supplement the excessively starchy diet with fish protein. Thetopography and climate of the country not only permit great diver-sity in agricultural production but also provide considerable hydlro-electric potential. Thus in the basic sources of power-oil, coal andhvdroelectric potential-Colombia is fortunately situated.

While Colombia thus owes much to its topography, this sametopography has raised barriers to the development of the country.

In fact, even ivith good organization, transportation will always remainrelatively expensive, although advances in technology are reducingthe country's disadvantage in this respect. But perhaps the veryproblems and obstacles raised by communications have stimulated

human ingenuity and may account for a level of activity and talentshigher than usually encountered in countries in the equatorial belt.

CapitalDespite the relatively high current rate of capital formation and

the considerable capital formation of the past, capital remains scarcein relation to population and natural resources. Most Colombian labor

FACTORS ACCOUNTING FOR THE STANDARD OF LIVING 15

is unaided by poWver of any kind. The wvorker in industry proper, asdisting.uished from hanldicraft establishments, has on the average theuse of 1.5 horsepowver, wvhich is loxv in comparison wvith industriallyadvanced countries: this figure becomes even more striking Avhen itis remembered that industrial emplovment is still quite small in rela-tion to other occupations. A very substanitial part of the capital hasbeen employed in building railroads and highways and providingfor the rapid growvth of cities. Another substantial portion has goneinto oil exploration and has been provided by foreign companies. Asurprisingly small portion of the capital has gone into electric powverinstallations and industrial and agricultural machinery.

The growving of food and the provision of shelter for most of thepeople are still essentially manual operations Avith very little assistancefrom capital. WVe shall have occasion to point out that for variousreasons a significant portion of capital flowvs into office and commercialbuildings, hotels and apartments, and higher class homes. While theinvestment of capital in all these forms except the last yields highmonetary returns, it is doubtful whether this type of capital forma-tion contributes in any significant way to raising the standard ofliving of the people generally. There are other sectors of the economywhere the flow of capital, as determined by monetary returns, doesnot appear to conform to the most urgent economic needs of thecommunity. For example, special factors in municipalities haveresulted in most inadequate capital investmenlt in the provision ofbasic muLLicipal services such as xvater, light and power. Short- andlong--term credit for agriculture has been chronically scarce as hasalso been capital for low cost housing. In industry, on the otherhand, the criterion of money returns has probably resulted in anappropriate distribution of capital, keeping in mind that the demandior goods is in part a reflection of the distribution of income. Con-siderable capital is absorbed in the mere carrying of invelntories,wvhich, for various reasons, are high relative to current production.

Finally, it may be pointed out that the mere investmiielnt of capitalin no wvay assures a proportionate increase in production orproductivity. Not only is it necessary that the capital be investedin a field wvhere there is urgent need for it, but also that the capitalbe invested in appropriate form and, once invested, be managedproperly. Poor management can nullify the effect of good investment

just as improvements in management can enhance the productivityof capital. For example, there is reason to believe that the countrvis not reaping the full benefit of the relatively large capital sumsinvested in transportation.

16 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMIBIA

Manpower

In many wvays, a country's greatest resource is its manpowver. Astrong, healthy, wvell educated, wvell trained, reliable and industriouspeople have demonstrated again and again the possibility of achieving

a high standard of living in lands and areas not particularly favorablyendowed by nature. An outstanding example is afforded by Switzer-land, which has almost no natural resources except w7ater power andscenery. Due partly to favorable location and historical circumstances,but principally to the character and training of its people, it hasachieved an extraordinarily high standard of living.

Colombia's manpower resources, however, are far from reachingthese standards, though levels of human efficiency and ingenuity areabove those observed in most other countries in the tropical equatorialbelt. The low level of health shows itself not only in a short lifeexpectancy and a high ratio of dependents per worker, but also inthe strength, capacity and desire to wvork of the adult population. Thetoo frequent combination of unbalanced diets and debilitating chronicdiseases results in a diminution of physical strength and ambition.When to these are added widespread illiteracy and little training of atechnical nature, it is not surprising that the productivity of laboris relatively low. These conditions can, of course, be changed. TheColombian worker possesses a quick and ready intelligence and hasshown a capacity to learn rapidly and to work efficiently wvhen he isproperly trained and directed and enjoys an adequate diet and goodhealth. The problem is to make the transition-to get started on therungs of the ascending ladder.

The difficulty and magnitude of this task should not be minimized.We encountered the defeatist attitucde in the feeling that it is hopelessto try to improve the lot of certain groups, as higher pay will onlyresult in less work. Fortunately, Colombia possesses a small buthighly educated and well trained professional and business class.From the ranks of this class excellent leadership is available todevelop the country and enable it to realize its great potentialities.The emerging middle class is still relatively small and is confinedmostly to a fexv cities. But \vith good leadership and training, theColombian worker can undoubtedly progress towvard an ever higherstandard of living.

Organization

In addition to abundant natural resources, plentiful capital andtrained manpover. good organization is also necessary for highproductivity and a consequent high standard of living. The misuse

FACTORS ACCOUNTING FOR THE STANDARD OF LIVING 17

of land resources, for example, on which we lay much stress, is anoutstanding example of unsatisfactory organizatioln in agriculture.Again, in the important field of transportation, it is apparent thatalthough Colombia has had to contend with certain natural difficulties,faulty organization and administration also play a role in the high cost wof transportation and in the retarding effect this has had on theeconomic growth of the country. Improvements in organization inthese fields would unquestionably yield high returns in increasingproductivity.

As a factor in the low standard of living, the inadequacy ofmunicipal services, particularly of xvater, sanitation, electric powerand light, is stressed. Although the adequate provision of such servicesis undoubtedly a costly matter calling for considerable capital outlay,both domestic and foreign, nevertheless the faulty organization ofmunicipal government must bear a substantial part of the blame forthe existing state of affairs. A similar observation is applicable tothe poor general state of health. Admittedly, the conquest of diseaseand the achievement of a high standard of health are expensive. Thereturns, however, are great, especially if the increased availableenergy is utilized. A wise allocation of resources calls for much largerexpenditures in preventive medicine. This is a field where a majorcontinuous effort yields great returns. A smaller effort directed onlyto the alleviation of suffering may be much costlier in the long runand yet make no real improvement in the health of the people.

Improvements in the planning and organization of education wouldalso yield great returns. The present program appears to be makingvery little progress either in reducing illiteracy or in providing ahigher standard of education and training for a significant portion ofthe population. While this is partly a qllestion of the allocation ofavailable resources among many competing needs, it is also in parta question of organization and planning.

Planning and organization in the general fields of public adminis-tration and fiscal, foreign exchange and monetary matters also needimprovement. Inadequate organization in government at all levelscontributes toward a poor allocation of resources and, in certaineconomic fields, lower productivity than might otherwise be obtained.While a substantial part of the inflation that has occurred since 1939was probably unavoidable and arose from conditions beyond internalcontrol, part of it could have been avoided through the pursuit ofdifferent policies. While the continuance of inflation over a periodof time doubtless resulted in hig-her profits and a higher aggregatevolume of saving than wxould otherwise have occurred, it also un-

1S THE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOMBIA

questionably encoutraged xwasteful expenditures, created various dis-tortions in the ecomonic community, and contributed to social unrest.MIoreover, the policy of permitting a greater fall in the internal pur-chasing power of the peso than in its external purchasing powerresulted in recourse to a highly complicated and discretionary systemof exchange control. This in turn \veakened the competitive structureof the Colombian economy and led, in a certain degree, to misallocationof resources and deterred the import of capital.

Throughout this Report, deficiencies and shortcomings in organi-zation are stressed as improvelmients in this field are relatively costlessand yet yield high returns in increased productivity.

International Economic Position

Under the four main headings of natural resources, capital, man-power and organization, all the factors affecting productivity might bediscussed. In Colombia's case, however, there appears to be somethinggailned by singling out two or three factors for separate discussion.One of these revolves around the foreign market for Colombia'sproducts. Since any predominantly agricultural country is de-pendent on foreign resources for a wide variety of manufacturedgoods, both consumers' and producers', it is of the utmost importancethat it be able to export goods that command a ready market abroad,particularly for dollars. In this, Colombia has been fortunate, especiallyin recent years wheni the demand for coffee has been steadily increasingand the price has been rising. To a much lesser degree, Colombia hassecured dollars from royalties on the export of petroleum, from theexpenditures of foreign petroleum companies in Colombia, and fromgold production. This relatively strong dollar position is of greatimportance in making possible one of the fundamental conditions fora rapid increase in industrial and agricultural production.

Over the longer term, it is true, the country is in a somexvhatvulnerable position because of the concentration in one export com-modity. However, for the time being, it is possible for Colombia,mainly through its coffee sales, to secure capital goods of all kindsxvlhich can lead to an expansion of domestic production and thus canreduce the necessity for certain imports in the future, and assist inthe development of newv types of goods for export. In addition, itsexports make possible the importation of certain rawv materials and a\vide variety of consumer goods.

Finally, the relatively lowv ratio of servicing charges on the foreigndebt to total exchange receipts, and the rapid rate of amortization ofthe outstandina foreign debt, place Colombia in a position to increase

FACTORS ACCOUNTING FOR THE STANDARD OF LIVING 19

its borrowvings abroad when it seems prudent to do so, and when itseconomic position is definitely strengtlhened thereby. Despite theshortage of capital and the consequent high return on capital, Colombiahas not attracted much foreign investment except in the petroleumand gold mining fields. For various reasons, foreign capital, by andlarge, has not found the climate congenial.

ALLOCATION OF PRODUCTION BETWEEN PRESENT AND

FUTURE CONSUMPTION

As stated earlier in this chapter, the standard of living dependsnot only on what each worker produces but also on the division ofproduction as betwveen consumers' and producers' goods. Productionimay, be very high but if most of it goes into capital goods that willyield services some time in the future, or into military expenditures,the current supply of consum1rers' goods, and hence the standard ofliving, may be quite low.

Owving to the complexity of modern economic life, the essentialnature of the capital formation process is sometimzes forgotten. Puttingaside foreign capital for the moment, the maintenance and adlditionto the man-made capital equipment of Colombia involve a currentloss of real consumption to the community. The more people whobuild dams, roads, pover plants, factories and so forth, the fewer thepeople who cutrrenetly produce goods for current consumption. Similarly,the more the proceeds of coffee growers' work are expended on im-ported trucks and machinery, for example, the fewer are the possibleimports of foodstuffs and other consumers' goods.

The hope is, of course, that the production of more producers' goodstoday will result in the production of more consumers' goods andservices tomorrow. This is generally the case if the right goods areproduced and are properly utilized. Nevertheless, the cost today tothe wvhole community of diverting labor from the production of con-sumers' goods to prodticers' goods should never be ignored. When thestandard of living is as low as it is in Colombia, the decisiona todivert labor from current to future production is a grave one and shouldbe based on sound and compelling grounds. To embark on a numnberof major undertakings simultaneously may unduly postpone the periodwhen the returns from any or all compensate for presenit sacrifices.Again, if a bad mistake is made, the w hole community loses. A foreignloan uneconomically applied or dissipated must be serviced andrepaid out of future production even thoug,h it may' have in no wvayincreased that productioni.

20 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

These elementary observations are prompted by the thought thatthe use of money often obscures real phenomena and, in a culture asindividualistic as that of Colombia, there is a tendency to overlookthe social implications of private acts.

The allocation of labor and resources as between the production ofconsumers' goods and capital goods is determined partly by the actionof the Government in utilizing savings and taxes to invest in capitalundertakings and partly by the decisions of a relatively small groupof capitalists and bankers. In Colombia in recent years, it appearsthat some 14 percent of the total value of all goods and servicesproduced were composed of capital goods. While this is a relativelylarge proportion, a few percentage points less would have meant verylittle additional current consumption for the bulk of the population.Of more serious concern is the evidence that an unduly large propor-tion of the absolute peso figure of capital formation is composed oftrade profits and transportation costs and represents less real goodsthan might be assumed. Moreover, there are grounds for believing thatthe addition to the capital equipment of the nation has not resulted inas large an increase in the standard of living of the people as mightbe expected or desired.

DISTRIBUTION OF INCOME AND CONSUMPTION

It is obvious that the standard of living of a country will beaffected by ho\v equally the current production of consumers' goodsis distributed. This in turn depends in large part on the distributionof income and the available evidence indicates that it is very unequal.Despite attempts by the Government to raise wages, provide varioussocial benefits, and impose progressive taxation, the more or le,scontinuous process of inflation has resulted in abnormal returns tothe owvners of capital. While much of this was saved, a portion wentinto homes, cars, foreign travel and foreign education for the veryfewv. However, the total production of Colombia is so lowv in relationto population that greater equality of income, xvhile doubtless desir-able, wvould not have measurably increased the standard of living forthe majority of the population.

This chapter is written in very general terms. The remainder ofPart I will spell out more specifically those factors in the low standardof living wvhich may be changed in a relatively short period. Thereis no one simple explanation of the relatively loxv productivity percapita. Many factors must be taken into consideration and conse-quently the attack on the problem must be many sided. While thestandard of living is affected by the proportion of income saved and

FACTORS ACCOUNTING FOR THE STANDARD OF LIVING 21

the equality of distribution of income, the main determinant, however,is productivity. This is emphasized because in some quarters there isa tendency to exaggerate the importance of redistributing income asa means of raising the standard of living. While gross and gctjL ainequalitv is undesirable, its correction should not be allowed todivert attention away from efficiency or productivity. In the longrun, an increase in productivity is the only effective wvay of raisingthe standard of living to any appreciable degree.

CHAPTER III

National Income and Product

A program for improving the econolmiic positioin of a country, if itis to be meaningftul and significant, should l)e conducted in as qiuantita-tive and specific terms as possible. Before \ve can make correctdecisions as to how mticl Nve shall spend and on wvhat, Ave must havethe facts on our incomne, on wvlhat wve are spending currently, and onwhat we wvill probably have available for expendituires on capital goodsand consumer goods in the immediate future. Otherwise we canneither determine the nmagnitucde of the program nor priorities. Theonly sure key to understanding the problem, let alone appraising pro-posed solutions, therefore, is to put proposed programs in quantitativeterms and then assess the magnitude of the effort contemplated in theappropriate context of backgrounlid coniditions and available resotirces.

In this and the following chapters wve wvill attempt to determinethe national income, the sources from which it is derived, its distribu-tion, and the volume of expenditures on consumer and capital goods.National income fig-tires give in summliary form the total value ofgoods and services, classified by the various groups participating inthe productive process at each of its various stages; and the grossnational product ineasures the total value of goods and services pro-duced, classified into such important types of product as consumers'goods and services,. capital formation, and Government expenditures.

i In an underdeveloped country, national income statistics are importantnot only as an indicator of the value of goods and services currentlyavailable but also to indicate increases in productive efficiency. Hence,wvhen the gross national product is adjusted to eliminate the effectsof price changes and expressed in terms of total value per worker, itbecomes simply the broadest kind of measure of the average produc-'tivity of the labor force.

COMPUTATION OF NATIONAL ACCOUNTS FOR COLOMBIA

The national income and product accounits of Colombia have neverbeen studied in detail. An estimate made in 1940, by the NationalBureau of Economic Research (U.S.), set the national income atPs.$1,098 million in that year. Prelimninary estimates by the staffof the International Bank in iMarch 1949, indicated that this figuremight have grown to Ps.$2,327 million in 1945. Conclusions based onsuch fragmentary data. howvever, could easily be misleading. Thougha Colombian committee on national income, using the facilities ofthe Banco de la Republica, has currently undertaken a more thorough

22

NATIONAL INCOMIE AND PRODUCT 23

study of national income, it is doubtful that this investigation wvillbe completed before 1951. For purposes of this program, therefore,the Mission had to make preliminary estimates of national accounts,which obviously may require serious revision in the years to come.

The sources of data for this preliminary analysis were scanty and,in general, unreliable. Altho-ugh efforts -were made to complete orcorrect the official statistical series, it is by no means certain thatthe results were satisfactory. Since more reliable estimates may notbe available until the statistical services of Colombia have been re-organized and considerably strengthened, xve wish at one and thesame time to indicate the provisional nature of the estimates and toutilize them in drawing up and evaluating the scope of the proposedprogram. Lack of many types of statistics normally going intonational income and product data made it necessary to approach thecompilation of national accounts from statistics on the volume andvalue of production of goods and services, with such supplementsand adjustments as other available information indicated to be neces-sary or desirable. Once a reasonable estimate of the total value ofproduction of various types of goods and services was obtained, itbecame necessary to eliminate duplication by deducting raw materialand other values that had been counted at an earlier stage in theproductive process and thus segregating the "value added" by eachgroup of producers.

A discussion of the procedures uised in making the statisticalestimates for each of the major economic fields is found in theAppendix on national income.' By these methods, net national incomexvas computed for each of the years from 1939 through 1947. Thisbasic series provides the foundation upon which all the estimatesrest. It represents the net return to the. c ! -. of productive resourcesparticipating in the productive process. TranslftJoniof net nationalincome into gross national product proved less difficuilt. Gross nationalproduct is greater than national income because it includes not onlydepre iaes but also indirect taxes which are included in theprices of goods but not in the incomes of the producers.

Once the size of the gross national product was determined, thereremained the problem of breakino it inlto its component parts. Mostdifficult to estimate were consumers' expenditures. This is the largestcomponent, and one of the most useful and meaningful items in thetotal of the national accounts, as it is the basic indicator of changesin living standards. The level of consumption in this study has beenestimated by deduction of all other types of expenditures from gross

1 Appendix A.

24 THE BASIS OF A, DEVELOPMENT PROGRAM FOR COLOMBIA

national product l'Government expenditures for goods and services,gross capital formation, and net exports), thus obtainin, consumptionexpenditures as a residual item. This procedure -was followed becauseit appeared more feasible to obtain direct estimates of the capitalcomponents of the gross national product than to attempt a directestimate of the volume of consumer expenditures.

For purposes of economic analysis it is not sufficient, however, tohave a breakdown of the gross national product into the variouscomponent types of expenditure. It is also of interest to trace theflow of income to various participants in the production of the grossnational product and to study the waay in which this income wasdisposed of. Of especial interest in this context is the way in wvhichincome received in production is divided betwveen saving and expelndi-ture on the part of business units and consumer households. Thusa breakdown of the gross national product was also made by incomecomponents. By deducting profits retained by business (and addingtransfer incomes, e.g., interest payments received from the Govern-ment) wve obtain personal income. By deducting income tax paymentswe obtain disposable income of individuals. Since consumption ex-penditures had previously been determined in breaking down the grossnational product between various expenditure categories, personalsavings are then obtained by deducting the former from disposablepersonal income.

The results of these computationis are shown in Table 1. Inappraising the picture thus presented, the reader should keep in mindthat our judgment regarding the level of national income is on thesafest ground. However, the transition from national income to grossnational product does not involve a likelihood of large error. Next,our estimates of the volume of capital formation are fairly wellfounded as are those of government expenditures and foreign trade.The estimates for consumption expenditures, being the residual item,are naturally less reliable. Moving from national income to personalincome, considerable difficulties are involved in obtaining estimatesfor retained earnings on the part of business. As there is no goodground on which these can be separated from personal savings, thefigures for business savings must be considered as highly tentative.Thus, our estimate of personal income is substantially less reliablethan our estimate of national income or gross national product. Theestimate of personal savings, beilng arrived at as a last residual, rankslowest in reliability. However, these figures do not appear unreason-able on the basis of such independent estimates as it was possibleto obtain.

NATIONAL INCOW\E AND PRODUCT 25

GROWTH OF NATIONAL INCOME

Table I shows that the net national income rose sharply and almostcontinuously from 1939 to 1947. From a level of about Ps.$1 billionper year in the immediate prewar period, it rose to over Ps.$3 billionin 1947. This more than threefold advance over this period reflectsthe beginnings of the industrialization and modernizationi of thecountry. A substantial part of this increase, however, was due to aprice rise rather than a growvth of real output.

The 1947 national income of Ps.$3,239 million, thoughl reflectingthe sharp advances during the war and postwar period, was still arelatively Iowv figure in comparison wvith other countries. It amounitedto about Ps.$308 per capita. Converting this to dollars at the 1947exchanie rate ofPs.$1.75pr dollar, the average income for the totalpopulation of Colombia was approximately U.S.$176 per year. Com-parative figures for selected countries follow:

U.S.$

P eru .... .. .......... ... ... .. 98Brazil 140C olom bia . . ... . ..... . .. . ..... .......... .... 176Chile 330United States .1400

AI\ich emphasis should not be placed on these comparative figures, asthey are obtained through conversion of local currency incomes intodollars at official rates of exchange. There is likely to be real disparitybetween estimated income of an underdeveloped country, \where muchlocal productidn and consumption does not enter into domestic mar-kets and even less into foreign trade, and the indicated incomes ofother countries. To obtain a sound comparison it xvould be necessaryto mzake estimates on the equivalent cost of living for each socialgroup in the various countries. Estimates of this kind are not avail-able, but attempts to make allowaance for such differences indicatethat the relative rank of Colombia among the nations listed abovewvould not be changed, though the total range betwveen the top andbottom of the scale \vould be less than those data suggest. Neverthe-less, the basic conclusion derived from the table would be sustained.Per capita income in Colombia is not far from the average for otherSouth Americaln countries. but it still is loxv.

The fact that inconie is low is important for the future because,in conjuinction with the inherent \vealth of the country, it indicates

the tremendous possibilities for growth as yet unexploited. The rapidrate of growvth in the past wvas due in part to the low starting point,and there is still ample room for gro\vth. Every economy at some

TABLE 1

GROSs NATIONAI. PRODUCT AND COMPONENTS, 1939-1N7

(millions)

1939 1940 1941 1942 1943 1944 1945 1946 1947

EXPENDITURE COMPONENTS I.Ps.$1.236.0 Ps.$1,196.5 Ps.$1,239.2 Ps.$1,342.1 Ps.$1,525.1 Ps.$1,878.4 Ps.$2,366.6 Ps.$2,906.2 Ps.$3,673.8

Government expenditures onIgoods and services, current $ 97.0 $ 102.1 $ 88.1 $ 113.6 $ 139.9 $ 162.4 d 154.3 $ 212.2 $ 269.4

Govermnneit expenditures oni

goods and( services, capital 50.8 66.5 65.0 81.() 78.5 76.7 97.7 130.8 165.0Private gross capital formation 102.5 98.2 112.5 75.7 81.3 110.2 203.0 324.2 447.0

Net exports (-) 47.0 -20.0 -36.0 +-66.0 +72.0 +52.0 -35.0 -51.( -193.0Net imports (-1 ...

Consumer expen(litures 1... ..... ... ,032.7 949.7 1,009.6 1,005.8 1,153.4 1,477.1 1,946.6 2,290.0 2,985.4

INCOME COMPONENTS 1,236.0 1,196.5 1,239.2 1,342.1 1,525.1 1,878.4 2,366.6 2,906.2 3,673.8

-Depreciation ................. .. ..... $ 38.1 $ 33.6 $ 33.7 $ 48.5 $ 37.5 $ 38.8 $ 87.1 $ 110.8 $ 128,5-Indirect taxes and profits of gov-

ernisenit enterprises 148.9 129.9 142.5 134.6 148.6 179.6 217.5 258.4 306.3

Nationial inconie . $1,049.0 $1,(33.( $1,063.0 $1,159.0 $1,339.0 $1,660.0 $2,062.0 $2,537.0 $3,239.0-Transfer payments 14.6 21.7 18.4 23.9 28.8 26.2 38.5 39.0 42.0-Retained earnintgs . 10.0 20.0 20.0 20.0 20.0 50.0 50.0 140.0 150.0

Personal income $1,053.6 $1,034.7 $1,061.4 $1,162.9 $1,347.8 $1,636.2 $2,050.5 $2,436.0 $3,131.0-Incomne taxes ........ _ .............. ......... 21.6 24.3 24.7 33.2 49.1 55.3 67.1 87.6 130.1

Disposable income .$1,032.0 $1,010.4 $1,036.7 $1,129.7 $1,298.7 $1,580.9 $1,983.4 $2,348.4 $3,000.9-Consumer expenditures .1,032.7 949.7 1,009.6 1,005.8 1,153.4 1,477.1 1,946.6 2,290.0 2,985.4

Personal savings .... -. 7 60.7 27.1 123.9 N15.3 103.8 36.8 58.4 15.5

NATIONAL INCOME AND PRODUCT 27

time or other reaclhes a point beyond which high rates of improvemnentcannot be sustained; then, although the advance niay continue, newdevelopments will yield proportionately less and less return. Whethersuch a point may be reached by Colombia within a few years is diffi-cult to determine. In the light of present facts, however, we see noinsuperable obstacles to carrying out a program postulating high ratesof increases in productivity and income.

The threefold increase from 1939 to 1947 reflects all the factorsaffecting the value of production, monetary as well as real. A greatpart of the increase was due to the inflation of prices during the warand postwar years. Also important were increases in the workingforce and in productivity, and it is the latter which is of particularsignificance for the economy.

To analyze the advance in terms of real goods and services, it isnecessary to convert the national income into figures in terms of whatit would have been had the value of the peso, i.e., its internial purcllas-ing power, remained constant. Table 2 attempts an adjustment ofthis kind, expressing earlier years in terms of 1947 values. While thenational income tripled in money terms, it approximately doubled as

TABLE 2

NATIONAL INCOAIE AT CURRENT AND 1947 PRICES 1939 - 1947

National Income Cost of National IncomeCurrent Prices Living Index at 1947 Prices

(millions) (1947=100) (millions)

1939 Ps.$1,049 48.0 Ps.$2,1851940 1,033 46.5 2,2221941 . ...... 1,063 46.0 2,3111942 1,159 50.0 2,3181943 ... ...... 1,339 57.5 2,3291944 - 1,660 69.5 2,3881945 2,062 77.0 V2,6781946 .2,537 84.5 1 3,0021947 . . 3,239 100.0 _ 3,239

measured by the cost of living index. To be sure, the cost of livingindex is not the proper measure by which to adjust the national in-come for changes in the value of money. The index of prices of allcommodities entering into the gross national product and weightedproperly might have moved differently from the cost of living index.However, the cost of living index is the only one available. Theimportance of rent expenditures in the cost of living index suggeststhat it understates the actual price rise; on the other hand, the

28 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

importance of agricultural items in the cost of living index mightsuggest that it overstates the price rise. However this may be, useof the cost of living index is the only feasible approach to obtainingan estimate of real income. On this basis, it appears that nationalincome in constant prices rose by approximately 50 percent from 1939to 1947.

If wve wish to measure the increases in standard of living or inproductivity, further allowance must be made for the increase inpopulation and the coordinate expansion of the labor force. Over thisnine-year period, poptulation increased approximately 18 percent andthe labor force grew at about the same rate. Hence, the advance intotal real income per capita, or in productivity per worker, was not50 percent but only 27 percent.

An increase of 27 percent in real per capita income in nine yearsis equivalent to a rate of increase of approximately 3 percent peryear.2 This relatively high rate of advance was madeposs-ible in partby reason of the fact that it started from a very low level of industrial-ization, so that any improvements in technique or additions of equip-ment resulted in a drastic addition to real income. Thus, increasesin output, especially in industry, have exceeded rates which wvouldseem maximal in more developed countries, such as WVestern Europeand the United States.

Countries like Colombia, where some parts of the population havestill remained technologically in the 16th Century (as in agriculture)or in the 19th Century (as in industry), are able to make such rapidstrides because the limited availability of productive implements is ingreat part responsible for the lowv levels of income. The introduction

(of relatively small amounts of the newest types of capital equipment,therefore, can produce tremendous surges of productivity. In this way,the Colombian experience merely repeats the general course of indus-trialization of the modern world, telescoped into a shorter period andhence a more rapid rate of growth.

Use of newer and more productive types of equipment requires,of course, a more highly trained and dependable working force. Tothe necessary degree, an effective labor force had to be created inColombia and it appears, from the available information, that thegrowth in the labor force was not only more than proportionate tothe increase in population, but gained in productivity as an effect ofa redistribution of population toward the centers of industry. Aswill be shown below, labor shifted from activities -where productivity

2 The reader should keep in mind that this is not the same as a measure of changein productivity per man-hour but reflects rather a shift in labor force from agricul-ture to industry, or from less to more productive occupations.

NATIONAL INCONME AND PRODUCT 29

was extremely low and its growth almost nil, such as in certain typesof agriculture, to occupations where productivity was higher and itsgrowth from existing averages was tremendous, such as industriesand public utilities. While the population as a whole advanced ata rate of about 2 percent per year, the population and labor force inurban centers advanced much more rapidly by perhaps 3 or 3'2 per-cent per year.

Accompanying this shift were some improvements affec.ting theefficiency of the individual worker-the beginnings of education andhealth standards of the kind which the proposed program holds tobe essential. However, the fact that most of the population has re-mained in occupations where productivity is low has undoubtedlyretarded the level of industrial productivity as a whole.

SOURCES OF NATIONAL INCOME

All sectors of the Colombian economy contributed to the increasein national income. Table 3 shows the part that each productiveactivity played in the advance, and the relative changes in the im-portance of these activities from 1939 to 1947. These comparisonsare in current prices and do not allow for the fact that prices in someareas, such as agriculture, advanced more rapidly than in others.

Considering, first, the major groupings of activity between ruraland urban, it may be seen that the rural advanced slightly less thanthe threefold increase in total national income, whereas the urbanactivities as a whole advanced at a slightly faster pace. As a result,income from rural activities fell from 42.6 to 40.3 percent of the total,and urban income rose correspondingly.

These major groupings conceal, of course, large differences in ratesof advance within each group. Income originating both from industryand animal husbandry increased 312 percent from 1939 to 1947. In-dustry's share of the total national income rose from 11.4 to 15.3percent over this period, a change attributable both to real increasesin employment and to productivity upsurges. The share of animalhusbandry, on the other hand, increased from 7.0 percent to 9.4 percent,but this reflected mainly speculative and inflationary increases in theprice of beef. Dairy production made almost as rapid an advance-an increase of 308 percent-while its share of the total increased byalmost a third, from 2.2 to 2.9 percent. Others which advanced morerapidly than the average were commerce, construction, government,and services.

At the other extreme, mining increased only 75 percent, and itsshare of the total dropped from 3.8 to 2.2 percent. Both handicraftsand small agricultural industries also lagged substantially-the former

30 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

TABLE 3

SOURCES OF NATIONAL INCOME, 1939, 1947

1939 1947 PercentIncrease

Million Percent Million Percent 1939 topesos of Total pesos of Total 1947

NATIONAL INCOME . 1,049 100.0 3,239 100.0 209

Total "Rural" Activities 448 42.6 1,308 40.3 192

Agricultural crop production 290 27.6 763 23.5 163Animal husbandry . .... 74 7.0 305 9.4 312Small agricultural industries 61 5.8 146 4.5 139Dairy products 23 2.2 94 2.9 308

Total "'Urban" Activities 601 57.4 1,931 59.7 221

Mining . . 40 3.8 70 2.2 75Manufacturing industries 120 11.4 494 15.3 312Handicrafts 50 4.8 113 3.5 126Construction 42 4.0 140 4.3 233Transport 56 5.3 154 4.8 175Commerce 145 13.8 497 15.3 243Government 61 5.8 200 6.2 228Public utilities 13 1.2 29 0.9 123Banking and finance 20 1.9 44 1.3 120Services and others 54 5.2 190 5.9 252

dropped from 4.8 to 3.5 percent of the total and the latter from 5.8to 4.5 percent. The relative inefficiency of these pursuits and thewveakening competitive position of their products suggest that thisdowvntrend will continue. Public utilities and finance lagged for reasonspeculiar to those activities. The share of agricultural crop productionalso fell from 27.6 to 23.5 percent between 1939 and 1947. This declinewvas apparently due not so much to relatively smaller increases inagricultural prices as to a displacement of population from rural tourban areas, which deterred the growth of employment in agriculture.In addition, there was a slowver rate of increase in productivity inagriculture.

Further emphasis on the problem of the distribution of productiveeffort is obtained by comparing national income originating in eachactivity with the labor force engaged in that activity. The only dataavailable for a distribution of the population by activities are thosefrom the 1938 census. These data cannot be considered entirely re-liable but, after some adjustment, provide a working estimate of theacttial distribution. Since many of the workers in agriculture, and to

NATIONAL INCOME AND PRODUCT 31

a lesser extent in handicrafts, are part-time family employees, adjust-ment is necessary to reduce the estimates for each occupation tonumbers of equivalent full-time income earners. For present purposes,the assumption was that the women and children under 15 of a familyare each equivalent to only about one-fifth of a full-time worker.A

Partial information on trends since 1939 provides estimates whichreasonably indicate the number of workers in the major groups ofactivities, and the nature of the shifts in the labor force between 1939and 1947. Table 4 shows the primary distribution of population andlabor force between rural and urban activities for the twlvo years.

TABLE 4

DISTRIBUTION OF POPULATION AND LABOR FORCE, 1939, 1947(000 omitted)

1939 1947

Equiva- Equiva-Total lent Total lentPopu- Total Full-time Popu- Total Full-timelation Employed Workers lation Employed Workers

Total Colombia .... 8,889 4,544 2,416 10,538 5,352 2,879Total rural activities... 6,109 3,380 1,527 7,019 3,880 1,755Total other activities

(mostly urban) . . 2,780 1,164 889 3,519 1,472 1,124

In general, a movement can be observed from the country to the town.In 1939, the rural sector included 69 percent of the population and63X2 percent of the equivalent in full-time workers. This con-trasts with a share in the national income of only 42.6 percent. By1947, rural activities accounted for 66.6 percent of the population, 61percent of equivalent full-time workers, and 40.3 percent of the nationalincome.

These data also bring otnt the relatively lower rates of return tothe agricultural labor force. In 1939, total income of Ps.$450 millionrepresented an average of Ps.$300 for the 1.5 million rural incomeearners, compared with an average of Ps.$667 for urban income earners.By 1947, the gap had widened a little further. The average for ruralworkers was Ps.$745 as against Ps.$1,718 for urban workers, and theratio of urban to rural had risen from 222 to 231 percent.

The movement from farm to industries and other urban activitieswas motivated both by existing higher wages and by the prospects offaster increases in wage rates. The fact that these incentives wereoperative was in itself a manifestation of the existence of a higher

3 The techniques of adjustment are discussed in Appendix A.

32 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

level of productivity in urban activities which in turn was attributablemainly to a higher degree of mechanization. At the same time it leftmore land available per agricultural worker. As shown in Chapter IV,purchases of equipment, and other forms of capital formation between1939-47, occurred mainly outside of the agricultural sector. Thus, therelative advantage of urban activities became greater each year.

Comparison of the sources of national income with those for othercountries, however, emphasizes the underdevelopment of Colombia,even at its present stage, and some of the major problems to be faced.

((The relatively high proportion of income originating in rural activitiesreflects the comparatively low level of industrialization. More thanfour times as large a proportion of total income is obtained fromthe rural sector as is obtained in the United States, and more thantwo and one-half times as large a proportion as in Chile. Less thanone-half as much is obtained from manufacturing and mining as ineither the United States or Chile. Table 5 compares 1947 data forColombia and the United States with Chilean data for 1943, the latestavailable.

TABLE 5RELATIVE IMPORTANCE OF INCOME SOURCES IN THREE COUNTRIES

Percentage of National Income

Colombia USA Chile(1947) (1947) (1943)

RURAL ACTIVITIES:

Agriculture ....... ................ .Animal husbandry .............. ......... 5 16.0Small agricultural industries ..................Dairy products ......... .............. J

URBAN ACTIVITIES:

MIanufacturing industries .......................15.3 30.5 19.8Handicrafts 3 .. 5.................. ..3.5 - -

Construction . .... ........................ .4.3 4.3 2.0Transport 4 .. 8 ....................... 4.8 5.6 5.7Public utilities 0 .9.....__....................... 0.9 2.7 1.4Government 6 .2....................... 6.2 9.2 9.1Commerce 1 5 . ... - 15.3 18.5 13.6Banking 1.. .............................. .3 8.21 4.0

>/ Services and others ............... . .. 5.9 9.5 18.6(M ining ............... : . 2.2 2.0 9.8

Subtotal 5 9 . ............. .59.7 90.5 84.0

This figure includes finance, insurance and real estate.

NATIONAL INCOMIE AND PRODUCT 33

The distribution of the urban labor force in Colombia by activitiesis shown in Table 6. The outstanding increase in industrial employ-ment-almost 50 percent in nine years-is perhaps the most significantindicator of economic development during this period. Closely relatedto this are the relatively rapid increases in transportation and trade.However, some urban activities showed little progress. For example,the maintenance of an almost fixed number of Government employeesmay have resulted from a desire on the part of the Government to re-duce non-capital expenses to a minimum. In the case of construction,it appears likely that increases in productivity were so large that

TABLE 6

DISTRIBUTION OF THE LABOR FORCE, 1939, 1947

EquivalentFull-time Workers Percent

Increase1939 1947 1939 to 1947

(000 omitted)

GRAND TOTAL. .. .. ... 2,417 2,880 18.1

Rural .1,527 1,755 14.9

Total Urban 890 1,125 26.4

Mining .57.5 60 4.5

Manufacturing industries 100 146 46.0

Handicrafts .148 185 25.0

Construction 72.5 96 32.0

Transport 66.5 95 43.0

Commerce 148 194 31.0

Government 95 98 3.0

Services 67 79 18.0

Liberal professions 19.5 25 28.2

Domestic services 110 140 27.2

Other .6 7 17.0

increased employment was not necessary. Improvements in technique

may also account partly for the lag in mining employment; but herethe limitation of resources and the fixed price of gold are specialfactors affecting production and employment.

DISTRIBUTION OF PERSONAL INCOME

The general welfare of the population of any country depends notonly upon the total amount of income it is able to produce, but alsoupon the distribution of that income among the various groups andclasses of the population. In every country there are wide disparities

34 THE BASIS OF A DEVELOPMENT PROGRA-M FOR COLOMIBIA

in income. Some people, by reason of birth, position, or ability, are

able to commanad much larger incomes than the average, wvhereas

many others never rise above substandard incomes. The depressed

condition of the latter not only represents an undesirable social cona-

dition, but affects the ability of the economy to advance. The relatively

low level of consumption possible for those wvith substandard incomes

acts as a drag upon the development of markets, and thereby retards

production and distribution throughout the economy.

Unfortunately, sound data on the distribution of income are not

available. The unreliability of income tax returns makes it difficult

even to estimate income distribution. The fact that separate returns

are made for corporations, the dividends of which are then deducted

from personal income declarations, and the fact that most Colombians,

except the richest, do not file any returns at all, defeat any attempt

to describe the distribution of the Colombian population by income

groups in a scientific manner. Howvever, the Mission has made a very

tentative appraisal of income distributioni for the year 1947.

Scattered estimates indicate that the incomes of small and medium

farrners, colonists, and agricultural workers amounted to slightly

less than Ps.$1.1 billion; the incomes of industrial wvorkers and of

people working for themselves, mostly in handicrafts in urban com-

munities, added up to a similar total. The balance of over Ps. $900

million accrued to managers and large landowvners or, more generally,

to the ow"ner class, either directlv or through corporations in which

they held shares. Holdings of shares in business enterprises are not

wvidely distributed ancd, in fact, holdings of assets of all kinds are

highly concentrated. Thus, the owners of individual enterprises and

the shareholders in corporations are either the same people or members

of the same families. For this reason corporation net profits can be

considered as income accruing to thc high income groups.

Table 7 presents a tentative distribution of income among low,

middle and high income groups. The lowv income group, comprising

seven-eighths of the income earners, obtained less than 60 percent of

the total income ; at the other extreme, less than one-fortieth of the

income earners commanded almost 30 percent of the total income. In

other words, almost 90 percent of the income earners received less

than the average income of Ps.$1,073, wvhereas 2'2 percent of the

income earners received over ten times the average for the country

as a whole.

NATIONAL INCOME AND PRODUCT 35

TABLE 7

ESTIMATED DISTRIBUTION OF PERSONAL INCOME, 1947

Income Earners Personal Income Average

Number Percent Million Percent IncomeIncome Groups (thousainds) of total pesos of total per Earner

TOTAL .................. 2,879 100.0 Ps.$3,089 100.0 Ps.$ 1,073.0

Low INCOAIES

(Under Ps.$1,000) .... .... 2,524 87.7 1,758 56.9 696.5

Rural .................. 1,678 58.3 $1,010 32.7 $ 602.0Urban ..... ....... ...... 846 29.4 748 24.2 884.0

MIDDLE INCOMES

(Ps.$1,000-$2,000) .......... 280 9.7 408 13.2 $ 1,457.0

Rural ............... 58 2.0 $ 83 2.6 $ 1,431.0Urban ... ..... . 222 7.7 325 10.6 1,464.0

HIGH INCOMES

(Over Ps.$2,000) ... 75 2.6 923 29.9 12,307.0

Rural .................. 19 .7 $ 234 7.6 $12,316.0Urban .................. 56 1.9 689 22.3 12,304.0

Needless to say, there are wide variations within these classes.

At least 350 people earned more than Ps.$100,000 per year; other

incomes in the high income group were as low as Ps.$2,000. For

example, coffee growers with at least 3 hectares of land could attain

the national average income; but farmers in depressed agricultural

areas such as Atlantico, Bolivar, Magdalena, Boyaci and Narifio

earned less than Ps.$400 each. Since each income earner wvas in

turn supporting an average of four people, large groups of the popu-

lation had to survive on an average of only Ps.$100, which was

equivalent at the existing exchange rate to less than U.S.$58 per

year. Since our computation of national income includes the value

of all commodities produced by Colombian labor, wvhether or not they

actually left the household economy, this U.S.$58 includes not only

the returns from sales of goods but the total of human effort avail-

able for food, shelter, or clothing. The level of living in these de-

pressed areas is thus extremely lowv and it is therefore not surprising

that malnutrition and epidemics threaten constantly, that a very

high rate of infant mortality prevails, and that the most enterprising

inhabitants migrate to better lands or urban centers.

From these data, it is also clear that although sizable differencesexist between the earnings of the average rural and urban workers

36 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

(the spread being about 1!/2 to 1), the major beneficiaries7 of thedifferences in income yields are not the workers, but the corporationsand the owners or managers of personal enterprises. The estimatedincome of Ps.$92 3 million accruing to the high income group wasthe source of all income taxes and of most personal savings. Theavailable data indicate, however, that the disparities in income de-creased slightly from 1939 to 1947.

The effects of these inequalities are reflected in the relative laggingof consumption during this period: per capita consumption increasedonly by 16 percent. Again, it may be pointed out that not all classesof the population obtained an equal share of this increase. Althoughit cannot be denied that both farmers and workers are better off nowthan they were before the war, the advance did not manifest itselfin a striking improvement in the condition of the working classes.One of the problems to be faced, as will be seen later in the discus-sions of capital formation and the utilization of foreign exchange,4

lies in the relatively heavy expenditures for homes, automobiles, andother luxury goods by the income groups obtaining incomes of asize sufficient to permit nonessential expenditures.

Although these estimates indicate the existence of great socialinequalities, a middle class is making its appearance, and specializedworkers in both rural and urban communities are beginning to enjoyincomes that definitely are above substandard levels.

4 See Chapters IV and XV.

CHAPTER IV

Capital Formation

Although the central objective of increasing productivity must beworked for along many lines, it is evident that capital formation-using this term in the narrow sense of plant, equipment and con-struction expenditures-is one of its major means of implementation.A-positive program for capital formation will, therefore, be consideredin Part II, but it is important at the outset of our discussion toobtain as clear a picture as possible of capital formation during recentyears. This is the purpose of the present chapter.

Capital formation, as usually defined in national income statistics,includes expenditures on plant and equipment as well as on residentialand business construction, and changes in inventory holdings. Itexcludes all investments in human resources, such as improved healthor education, and a large group of durable consumer goods, such asautomobiles, which are largely used for consumption. In an under-developed economy, such as Colombia, there is apt to be an inter-mingling of business and consumption uses of durable consumergoods. Also, there is good reason to regard as capital formation

'the acquisition of durable consumer goods which contribute to thefuture productivity of the Colombian worker by rendering a con-tinuous contribution to his standard of living. For this reason, majoritems of durable consumer goods, such as automobiles, are includedin capital formation here. Changes in the value of business inven-tories, however, are excluded.

The concept of capital formation as here used thus correspondsgenerally to the usage of the term in American or British incomestatistics with those important differences. As is usual, distinctionis made between gross and net capital formation, the difference beingequal to depreciation allowance.

The acquisition of capital goods is but one part of capital forma-tion in the very basic sense of expenditures made to increase theoutput per worker. In an underdeveloped economy, it is very doubt-ful, indeed, whether it is the most important item. At some stageof economic development, improvement of health and education maywell be prerequisite to, or at least may have to be developed con-currently with, the accumulation of capital goods. The readershould bear in mind, therefore, that on the one hand, estimates ofcapital formation presented here include luxurious homes and pas-senger automobiles, while, on the other hand, they exclude investments

37

38 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

in workers' health and education other than those represented byexpenditures on schools, hospitals and health centers. Hence, ourestimates of capital fornlation are not synonymous with expendituresdesigned to increase productivity.

The estimates of capital formation involved serious difficulties.A number of assumptions of varying degrees of validity had to bemade regarding the profit margins and internal transport costs onimported equipment and domestically produced capital goods, re-garding domestic production of capital goods and materials, and soforth. The technical exposition of the methodology involved is avail-able as Appendix A. It is of interest to note, however, that markupsand internal transport costs are estimated at 50 percent of the c.i.f.price of imported equipment and at 25 percent of the cost of domes-tically produced capital goods.

STRUCTURE OF CAPITAL FORMATION

W,Vhile the overall picture of capital formation in Colombia isavailable for the vears from 1939 to 1947, 1939 and 1947 are the onlyyears for which a detailed set of estimates could be prepared. Thiswill permit a general comparison of developmnents in prewar and post-war capital formation, although it must be kept in mind that 1947 wasabnormal in certain respects because of the resumption of large scaleimports which had been suspended during the war and because ofincreased prices. Ho\vever, the level of imports in 1948 and 1949showed only a sliglht decline and in the current year (1950), it maywxell return to the 1947 volume.

Table 8 showxs that total capital formation practically quadrupledfrom 1939 to 1947, rising from Ps.$ 13.5 million to Ps.$612.2 million.Its gro\vth xvas practically arrested dtring fhe -war years whenimported equipment was difficult to secure. The rise was especiallymarked in the immediate postwar years. Equipment's share in thetotal rose from just under half to almost 55 percent from 1939 to1947. This undoubtedly reflected both increased prices as well asgreater availability of imported equipment in 1947. In the periodas a whole, investment in building construction more than tripledand its share in the total hovered around one-third. Investment inlabor costs, on the other hand, increased steadily in the preNvar period,dropped somewhat between 1942 and 1944, though not to the prewarlevel, and dropped again in 1947 after reaching an all-time high in1946. It likewvise tripled in the period as a whole, but its share of thetotal remained under one-fifth.

CAPITAL FOR-MATION 39

TABLE 8

GROSS CAPITAL FORMATION, 1939-1947

DeliveredCost of Labor

Equipmentl Buildings2 Costs3 Total

(millions)

1939 Ps.$ 72.0 Ps.$ 50.1 Ps.$ 31.4 Ps.$153.51940 70.3 46.5 47.9 164.71941 74.4 51.4 51.7 177.51942 21.3 55.0 80.4 156.71943 44.6 52.4 62.8 159.81944 66.5 64.6 57.8 186.91945 102.1 118.2 80.4 300.71946 183.1 156.0 115.9 455.01947 .332.0 170.0 110.2 612.2

1 This includes the delivered cost of capital and durable equipment, both importedand locally produced. The costs of transportation and markups of importers, whole-salers and distributors are covered. For a detailed statement of items included as capitalimports, see Appendix A.

2 Includes labor and material in all buildings-factories, commercial, residential andgovernmental.

3 Cost of labor engaged in repairs of rolling equipmnent, construction teams on high-ways, bridges, railroads, construction workers installing industrial equipment, andagricultural labor opening new lands.

A more detailed view of capital formation in the years 1939 and1947 is presented in Table 9. In industries and in public works, capi-tal formation in the equipment category increased more than sixfoldfrom 1939 to 1947, while in the remaining sectors of the economy itpractically quadrupled. The increment to total capital formation in in-dustries was likewise about sixfold, but the 1947 total in public workswas little more than three times the 1939 level because governmentalbuilding did not keep pace with the increase in the equipment andlabor costs components of capital formation in public works. Totalcapital formation in agriculture, transport, mining and constructionrose at practically the same rate as the equipment category in thosesectors because there was no great variation in the behavior of thelabor costs component. Total capital formation by residential buildingincreased more than three times, while in commercial building theincrement was more than fivefold. In 1947 public works amounted to22 percent of the total.

Capital Formation and Imports

Imports play an extraordinarily important part in Colombian capi-

tal formation. Thus, out of a total capital formation of Ps.$612.2million in 1947, about Ps.$222 million (after deduction of estimated

40 THE BASIS OF A DEVELOPAIENT PROGRAM FOR COLOMBIA

TABLE 9

GROSS CAPITAL FORMATION BY ECONOMIC SECTORS, 1939, 1947

(millions of pesos)

Equipment Buildingsl Labor Costs2 Total

Economic Sectors 1939 1947 1939 1947 1939 1947 1939 1947

Industries ...... .... 13.8 87.3 1.1 7.5 1.4 8.8 16.3 103.6Agriculture .... ..... 11.6 45.0 . . 3.7 11.5 15.3 56.5Transport .... .. ........ 26.7 117.0 104.... 1 32.0 37.1 149.0Mining . . .. 5.0 19.8 . .5 2.0 5.5 21.8Construction .............. .9 6.0 .1 .6 1.0 6.6

Residential . . . 6.0 123.0 36.0 123.0Commercial . . 2.9 17.2 2.9 17.2

Public Works ........... 14.0 56.9 10.1 22.3 15.3 55.3 39.4 134.5

TOTAL ........ ... 72.0 332.0 50.1 170.0 31.4 110.2 153.5 612.2

1 Includes material and labor costs of buildings.2 Labor costs involved in repairs of rolling equipment, installing industrial equip-

ment, construction teams on highways, bridges, railroads, and opening new lands foragriculture.

increased markups and transport costs), or over one-third, xvas in theform of imported goods and materials. These capital imports in turnamounted to nearly one-third of total merchandise imports. If thematerial and equipment component of gross capital formation is con-sidered by itself, it appears that imports accounted for about 77 per-cent of the total in that year. Table 10 is designed to show the foreignexchange costs of capital formation. It also shows that the relativeimportance of imports has changed little between 1939 and 1947. Theimportance of imports in the material and equipment component fluc-tuates considerably in the various economic sectors. In building, \vherea considerable part of the material was locally produced, e.g., cement,brick, tile, etc., imports constituted little more than half of the ma-terials needed. In sectors where equipment rather than material wasneeded, imports were of much greater importance-in several sectors

from 90 to 100 percent of equipment required.

These data provide a striking demonstration of the strategic im-portance of foreign trade to the future of the Colombian economy.While rapid progress might be made in light manufacturing, especiallyin consumer goods, with domestically produced equipment, it mustbe expected that imports wvill remain the main source of capital equip-ment for many years to come. The availability of foreign exchangeand a wvise use of foreign exchange resources are therefore vital to the

country's economic development.

CAPITAL FORMATION 41

TABLE 10

RELATIVE IMPORTANCE OF IMPORTS IN VARIOUS SECTORS

OF CAPITAL FORMATION, 1939, 1947

(millions of pesos)

Gross Capital PercentageImportsl Formation Imported

Economic Sectors 1939 1947 1939 1947 1939 1947

Industries ................ Ps.$ 8.2 Ps.$ 54.9 Ps.$ 16.3 Ps.$103.6 50.3 53.0Agriculture ... ...... 7.1 27.7 15.3 56.5 46.4 49.0Transport ................ 16.2 71.6 37.1 149.0 43.7 48.0Mining ................. 3.3 13.2 5.5 21.8 60.0 60.5Construction industry. .6 4.0 1.0 6.6 60.0 60.6Residential building.... 6.6 22.9 36.0 123.0 18.3 18.6Commercial building. .5 3.2 2.9 17.2 17.2 18.6Public works .............. 7.3 24.9 39.4 134.5 18.5 \18.5

TOTAL ........... Ps.$49.8 Ps.$222.4 Ps.$153.5 Ps.$612.2 32.4 36.3

1 Cost of imports without internal markups and transport costs.

Capital Formation and End Use

The absolute and percentage distribution of capital formation byend use is shown in Table 11. This presentation differs from that inTables 9 and 10 by the fact that public works are broken down anddistributed functionally. While for certain purposes it is useful topresent public works as a single entity, for other purposes it is moreinteresting to analyze capital-formation by economic end use.

The extreme importance of transport in capital formation be-comes immediately apparent from an inspection of Table 11. In 1947,total expenditures on transport amounted to about Ps.$200 million, orone-third of all gross capital formation. The private sector of thistotal was composed largely of imported transport equipment, vehiclesand materials. While transport equipment as here measured includespassenger automobiles, car purchases which might be classified asbeing wholly for luxury purposes amounted to hardly more than 10percent of total transport equipment purchased. The bulk of the itemswere in the form of cars providing essential passenger traffic and trucksand railroad rolling stock. The 1947 figure may be somewhat abnormalbecause it includes an unusually large volume of car imports.

These data support the emphasis placed throughout this Reportupon the importance of the transport problem in the economic life ofthe country. While total outlays for improvement of transport havebeen substantial, as indicated in the above figures, the planning of

42 THE BASIS OF A DEVELOPMENT PROGRANM FOR COLOMTBIA

transport facilities in the past has left much to be desired. Because ofthis and the great importance of improvement in transportation toeconomic development in Colombia, the Mission has given a good dealof attention to transport improvements.

Next in importance to transport in this classification for 1947 wasresidential construction, comprising Ps.$123 million, or 20 percentof the total. While this represented a substantial share of total capi-tal formation, residential construction during recent years was con-centrated largely on higher priced homes and, as will be noted laterin Chapter XI, there remains an urgent need for the provision oflower and middle class homes in Colombia.

TABLE 11

GROSS CAPITAL FORMATION BY ExoI USE, 19471

Total Total Private Public PercentageInvestment Imports Investment Investment Distribution

(millions)

Industries .Ps.$103.6 U.S.$ 27.5 Ps.$103.6 Ps.$ - 16.9Agriculture 67.8 14.4 56.5 11.3 11.1Transport .............. 199.0 40.5 118.5 80.5 32.6Mining .............. 21.8 6.6 21.8 - 3.6Construction trade ... 6.6 2.0 6.6 - 1.1Housing .............. 123.0 11.5 123.0 - 20.0Buildings (commercial

& Government) 39.5 3.7 17.2 22.3 6.4Municipal facilities &

power .50.9 4.7 - 50.9 8.3

TOTAL . . . Ps.$612.2 U.S.$110.9 Ps.$447.2 Ps.$165.0 100.0

I This table differs from Tables 9 and 10 by the distribution of the public workssector of capital formation into functional classes.

The third large share of capital formation in 1947 took place inindustry. Largely in the form of imported equipment, industry'sportion of capital formation increased sharply from 10.6 percent ofthe total in 1939 to 17 percent of the total in 1947. This reflects therapid expansion of the industrial sector of the Colombian economy,especially since the end of the war.

Agriculture accounted for 11 percent of the total, approximatelythe same as in 1939. Capital formation in mining like-wise appears tohave retained its relative position aggregating 3.6 percent of thetotal.

The fact that only 8 percent of capital formation in 1947 tookplace for the provision of municipal facilities and electric power plants

CAPITAL FORMATION 43

is surprising in view of the relatively rapid rate of growth of muni-cipalities and the practically universal shortage of power. We willhave occasion to discuss this relatively lagging sector at considerablelength in later chapters.

Capital Formation and Types of Assets

Table 12 is a percentage breakdown of capital formation by equip-ment, buildings and other types of assets. It shows that the pattern ofcapital formation in 1947 was similar to that of 1939. In both years,about 50 percent of capital formation went into equipment, about 30percent into buildings, and some 20 percent into maintenance, landimprovement, and so forth. It is important in this connection to notethe heavy item of trade and transport costs which resulted in an almost50 percent addition to th cost of equipment. While more competitiveconditions, especially in the impot trade, should make it possible toreduce the costs arising from trade markups, a large element of trans-portation costs is a rather inevitable result of the country's topography.In this respect, Colombia is at a disadvantage as compared with smallerand more compact countries with closer proximity of populationcenters to ocean ports.

TABLE 12GRoss CAPITAL FORMATION BY TYPE OF ASSET, 1939, 1947

(percentage)

1939 1947

EQ UIPMENT

Imported ......... . 26.7 31.1Domestic .................... ...... ... 5.6 6.0Trade and transport .... ....... 14.8 17.1

TOTAL .... . 47.1 54.2

BUILDINGS

Imported ....... 5.9 5.2Domestic ............... .... ... 5.1 5.1Trade and transport .............. ....... 4.2 3.9Labor ........ ... 17.3 13.6

TOTAL ........ ... . ... . 32.5 27.8

OTHER

Laborl .. .. 20.4 18.0

TOTAL .. ... . 100.0 100.0

Includes maintenanice, installation, land improvemenits.

44 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Importance of Construction Industry

In Table 9, the absorption of new capital equipment into the con-struction industry was considered and found small. However, as shownin Table 13, all construction activity, including public works, was amost important source of capital formation. As shown in that table,nearly one-half of total gross capital formation was in construction,including buildings, highways, railroad construction, etc. The lowerpart of the table shows the distribution of total construction accordingto the most important items. It appears that for 1947 buildings ofvarious kinds comprised 60 percent of total construction, with highwayconstruction and maintenance, 15 percent of the total, as the nextmost important item.

TABLE 13AMOUNT EXPENDED ON CONSTRUCTION IN GROSS CAPITAL FORMATION,

1939 AND 1947(millions of pesos)

1939 1947

Construc- Construc-tion Other Total tion Other Total

Imported material ... 14.6 35.2 49.8 52.2 170.0 222.2Local material 12.5 6.6 19.1 51.5 16.0 67.5Trade aind transport 10.4 18.7 29.1 39.0 89.0 128.0Labor . 41.8 13.5 55.3 139.5 54.8 194.3

Total . 79.3 74.0 153.3 282.2 329.8 612.0

MAJOR ITEMS OF CONSTRUCTION: 19Q9 1947

Housing-urban. 19.1 66.3-rural .16.9 56.7

Offices, schools, churches 14.0 47.0Railroads ............. .. .... ...... ............ 2.7 10.6Rivers and ports .. 1.8 5.0Irrigation and drainage. 5.9 11.3Water and sewers, hydroelectric plants 6.9 50.9Highways .12.0 34.4

Total... ... 79.3 282.2

Public and Private Capital Formation

Table 14 presents a breakdown of capital formation by public andprivate origin. For 1947 the public share in capital formation amountedto little more than one-fourth, as against about one-third in 1939.The declining public share does not reflect an absolute decline inpublic capital formation in peso terms but a much sharper increasein the rate of private, compared wvith public, capital formation. This

CAPITAL FORMATION 45

TABLE 14

PUBLIC AND PRIVATE GROSS CAPITAL FORMATION, 1939-1947

Year Public Private

Amount Per- Amount Per- Total(millions) centage (millions) centage (millions)

1939 ......... Ps.$ 50.9 33.1 Ps.$102.6 66.9 Ps.$153.51940 ...... ... 66.5 40.4 98.2 59.6 164.71941 ......... 65.0 36.6 112.5 63.4 177.51942 ......... 81.0 51.7 75.7 48.3 156.71943 . ...... 78.5 49.1 81.3 50.9 159.81944 . ........ 76.7 41.0 110.2 59.0 186.91945 ......... 97.7 32.5 203.0 67.5 300.71946 . ........ 130.8 28.7 324.2 71.3 455.01947 . ........ 165.1 27.0 447.1 73.0 612.2

suggests that government expenditures have followed rather than ledthe expansion in economic activity during the last decade, an im-

pression borne out by the more detailed analysis of public finance inChapter XIII. As shown by Table 15, in 1947 about one-half of publiccapital formation was in the form of transportation facilities of variouskinds, especially highways and railroads, with agricultural improve-ments amounting to about 7 percent of the total. In 1947 less thanone-half of public capital formation originated from the NationalGovernment, the estimated departmental and municipal shares beingabout 15 percent and 35 percent, respectively.

TABLE 15

MAJOR ITEMS OF PUBLIC CAPITAL FORMATION, 1947

Construction, Equipment and Maintenance

(millions)HIGHWAYS

National ........ Ps.$ 38.3Departm ental .......... ............................................... .............. 9.3

RAILROADS

National ................... .................................................... 22.3Departm ental ....................................................................... 5.6

BUILDINGS

National . 9.0Departmental. .................... ................................................ 8.3

AGRICULTURAL IMPROVEMENTS

N ational .1.................................................................... 8.1D epartm ental ..................... ...... ............. 3.2

PORTS A N D R IVERS ................ ........... ......... ...... ....................... 5.0HYDROELECTRIC PLANTS ............................................... ............. .. . 7.0MUNICIPAL DEVELOPMENT ...................................... .................... 48.9

GRAND TOTAL ... . ... ....... ..... . . Ps.$165.0

46 THIE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Capital Formation and Gross National Product

As shown in Table 16, capital formation- in 1939 amounted to about12 percent of the gross national product. During the prewvar years itincreased steadily, but in the wvar period the relative importance ofcapital formation declined until it reached the nine-year low of 9.9percent in 1944. After the wvar the proportion of the gross nationalproduct going into capital formation rose steadily until in 1947 itreached a peak of 16.7 percent of the total. These rates comparefavorably with those of most underdeveloped countries and, as shownin the preceding chapter, they have accompanied about a doubling ofthe country's real income over the last decade. Unquestionably. the

TABLE 16

GROSS CAPITAL FORMATION COMIPARED WITH GROSS NTATIONAL PRODUCT,

1939-1947

Gross CapitalFormation as

Gross National Gross Capital Percentage of GrossProduct Formation National Product

(millions)1939 Ps.$1236.0 Ps.$153.3 12.41940 1196.5 164.7 13.81941 ...... 1 239.2 177.5 14.31942 1342.1 156.7 11.71943 . 1525.1 159.8 10.31944 .. 1878.4 186.9 9.91945 2366.6 ) , 300.7 12.71946 . 2906.2 t 455.0 15.71947. . .... . 3673.8 612.0 16.7

high rate of capital formation in the postwar period was caused in partby Colombia's favorable international trade position. The procurementof modern equipment in Colombia is directly dependent upon the avail-ability of foreign exchange resources and the prices at which equip-ment can be bought in the foreign market. In the immediate postwaryears, such exchange resources wvere relatively ample, due to thewvartime lack of imports. Moreover, availability of exchange resourceswas combined wvith a rising level of domestic income and prices which,proceeding more rapidly than the price rise abroad, increased theprofitability of inmportin'g capital into Colombia.

While the rate of capital formatioln is relatively high, it must beadmitted that in absolute terms tlIe figure is low. Of the Ps.$612million figure for 1947, an exceptional year, at least Ps.$128 millionrepresented markups and transport costs. The c.i.f. cost of importedequipment in both the industrial and agricultural fields amoounted onlyto Ps.$81 million, or U.S.$46 million.

CAPITAL FORMATION 47

If the addition to the Colombian capital stock were largely in theform of domestically produced items, an estimate could be made ofthe portion of Colombian resources going into the production of capi-tal goods. But, as we have seen, the domestic output of capital goodsis small and limited mainly to construction labor, transportation, andthe installation of imported equipment. New equipment as such isobtained almost wholly from imports and this is made possible bythe diversion of domestic labor and resources into the production ofexport commodities, mainly coffee. Assuming that one-third of thelabor force engaged in agriculture produces coffee and that 50 percentof the coffee production is utilized to produce foreign exchange usedin the import of capital goods, approximately 250XQ00 people areemployed indirectly in the production of imported capital goods. Thiscompares with a total of about 150,000 people employed in industrialproduction proper and this latter group produces about six times thevalue of imported capital equipment. This illustrates a basic difficultyinvolved in the growvth of underdeveloped countries. In order toachieve industrial development and a concomitant increase in produc-tivity, imports of equipment are needed. In order to obtain theseimports, the country must export agricultural products. Yet the agri-cultural sector lags in economic development and thus an inordinatelylarge fraction of the country's labor force is tied up in providing fora relatively small volume of capital imports.

The answer to the problem cannot be found in early developmentof heavy industries at home. Among many other difficulties thatwould arise, it is evident that the domestic market for most productsis still too small to warrant such development. Nor can the answerbe found in reduced emphasis on capital imports. On the contrary,modernization of agriculture, as well as industry, is essential for arising standard of living in Colombia. The only means of solving thedilemma, therefore, lies in assuring the most efficient use of capitalresources. This implies a balanced development of both the industrialand agricultural sectors of the economy. By increasing the efficiencyof agriculture, it wvill be possible to release manpower from the agri-cultural sector for industry and it will then be possible to increaseindustrial output by the reduced real cost of manpower, as well asequipnmenlt.

FINANCIAL ASPECTS OF CAPITAL FORMATION

Capital formation contributes to the country's development byraising productivity throuLgh the provision of more and better equip-ment. Howvever, the production of additional capital goods will comeabout only if the means of finance are provided; and the wvay in which

48 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

capital formation is financed will have important bearing upon thepattern of real capital formation.

To the extent that resources are absorbed in the process of capitalformation (either directly or via the country's foreign trade), theseresources are not available for the production of goods currentlyconsumed. Just as part of the resources are thus diverted into themaking of capital goods, part of the community's effective demand orexpenditure is being directed into the purchase of such goods ratherthan items of current consumption. A simple way of picturing thisprocess is to think of people's savings (i.e., the part of their incomenot spent on consumption) as being used to buy the capital goodswhich are currently produced.

But this is an oversimplification. To be sure, yesterday's moneyincome set aside as savings is an important source for the financingof today's investment, but these two magnitudes need by no meansbe equal. Today's investment may not only draw on savings out ofyesterday's income but it may be financed as well by resort to newbank credit or by drawing on balances which previously had beenunused. Thus, today's investment may well exceed the community'ssavings out of yesterday's income; and if this occurs, total expendi-tures of today wMl exceed those of yesterday. In a situation whereresources are fully employed, this increase in expenditure cannot callforth a rise in total output but can only result in inflation. Investmentbased on new credit creation and the activation of idle balances inthis way permits a larger fraction of real resources to be used forcapital formation than is indicated by the share of the income whichpeople had intended to set aside for savings: people will spend onconsumption the amount of pesos which they had intended to spendin this fashion, but they will find that prices have risen and that theintended outlay is purchasing less real goods and services than theyhad expected. In a period in which intended savings fall short ofthe volume of capital formation, the remainder is thus made up by"forced saving" (lesser real value of current consumption) broughtabout by a rise in prices.

The preceding exposition of the process of capital formation byinflation may seem somewhat theoretical to the reader, but it is by nomeans an academic matter for Colombia. Capital formation duringrecent years has been based to a considerable extent on this verymechanism. Also, it must be understood clearly in order to realize

CAPITAL FORMATION 49

that a high rate of future capital formation will be compatible withprice stability only if people are willing to undertake an equally highrate of saving out of their current incomes and if the community asa whole is willing to impose higher taxes. This will be considered insome detail in Chapter XXX, where the outlines of a future programof capital formation are presented. But it should be made clear at theoutset that the origin and level of savings are of twofold importanceto the process of capital formation: the distribution of savings bytypes of savers will not only have considerable bearing upon the kindof capital formation undertaken, but the rate at which individuals andbusinesses save will also determine the volume of total capital forma-tion which can be undertaken without inflation.

General Sources of Capital Formation

Available data do not permit us to obtain a complete picture ofthe resources of financing upon which the process of capital formationin Colombia has been based. It is possible, however, to derive someinformation in this regard from the national income data presented inChapter III.

In Table 17, the gross national product data for 1947 are rearrangedto show for various sectors of the economy the amount ot expendi-tures made, the sources of funds available out of current income forthe financing of such expenditures and the difference between thetwo-the amount of saving (excess of current income over expendi-tures) or the amount of the dis-saving (excess of current expendituresover income). For purposes of this table, the economy is brokendown into four sectors: consumer, business, foreign trade and govern-ment. The income of consumers in 1947 amounted to Ps.$3000.9million. Since consumer expenditures were only Ps.$2985.4 million,consumer savings equaled Ps.$15.5 million. Current receipts avail-able to the business sector here include retained earnings and deprecia-tion charges and in 1947 equaled Ps.$278.5 million. Businessexpenditures for capital purposes, on the other hand (including new aswell as replacement investment), equaled Ps.$447 million. Thus re-mains an excess of expenditure over receipts of Ps.$168.5 million.'Expenditures of minus Ps.$193 million shown for the foreign tradesector are equal to net imports, which represent net receipts from

1 Following a convention applied in this type of presentation of national incomeaccounts, all expenditures on residential construction are included in the businesssector.

50 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

other sectors of the economy rather than payments to them.2 Theincome showvn for the governmental sector is equal to current taxreceipts of National, departmental and local -overnments which in1947 amounted to Ps.$436.4 million. 'T'otal expenditures of thesegovernments amounted to Ps.$476.4 million, thus leaving- a deficitof Ps.$40 millioni.)

TABLE 17

BUDGET FOR COLOMBIAN Ecoxoacy, 19471

Sectors Income Expenditures Savings

(millions)

Consumer- . . Ps.$3,000.9 Ps.$2,985.4 Ps.$+ 15.5Business3 278.3 447.0 -168.5Foreign trade4

. -193.0 +193.0Government 5 . 436.4 476.4 - 40.0Adjustment

6 .42.0 - 42.0

Total Gross National Product. . Ps.$3,673.8 Ps.$3,673.8 Ps.$ 0

1 All data derived from Table 1, Chapter III.2 Income equals personal income after taxes. Expenditures equal consumer

expenditures.3 Income equals retained earnings plus depreciation charges. Expenditures equal

gross private capital formation.4 Expenditures equal net exports.5 Income equals tax receipts minus deficit of government enterprises. Expenditures

equal total goods and service expenditures plus domestic transfer expenditures.Transfers abroad are excluded. Deficit equals deficit minus transfers abroad.

6 Equals domestic transfer expenditures. This must be deducted since it is not afactor income or a product expeniditure.

The total of expeniditures by all sectors equals the total of currentincome of all sectors, and both these totals equal the economy's grossnational product for that year. Since there is an equality betweenaggregate receipts and expenditures for all sectors combined, it followsthat any excess of savings by any one sector is offset by an excess ofexpenditures in another sector. WVhile the balance shown in this tableis implicit in the natture of the national accounts, this arrangement of

2 Net imports are given a negative signl because aggregate expenditures by othersinclude imported goods and this portion must be deducted in order to obtain the grossnational product; since net imports equal the excess of goods received from abroadover and above domestically produced goods sent abroad, they are not a component ofthe economy's domestic output for that year. In the third column of Table 17, finally,these net imports are treated as savings-that is to say, they constitute a leakage fromthe domestic income stream; expenditures on excess imports are not balanced by ademand for domestic output and thus are equivalent to savings in this sense ofthe term.

3 This does not include expenditures and receipts of government enterprises

CAPITAL FORMATION 51

the data permits us to obtain some impressions regarding the financialside of capital formation. As the table shows, business expenditures,or gross private capital formation, in 1947 amounted to Ps.$44 7 million.At the same time, funds available out of business income during thatyear amounted to only Ps.$278.5 million. However, in addlition therewere Ps.$15.5 million available out of personal savings. This pointsup two characteristics of capital formation in Colombia.

First, it is striking how small a part of the total is provided bywhat may be described as personal savings. In appraising this item,it must be recalled that the estimate for personal savings is highlyconjectural. Since little direct information is available, it has beenarrived at largely as a residual item. It may well be possible, there-fore, that some amount shown here as retained earnings of businessshould be allocated instead to personal saving. The fact that changesin inventories are not included in business expenditures may tend tooverstatement of consumers' expenditures and understatement of theirsavings. Nevertheless, all available evidence indicates that personalsavings in Colombia are low. The bulk of savings out of current incomeare supplied by retained business earnings and reserves of variouskinds.

Secondly, it appears that private domestic investment was con-siderably larger than the total of funds available out of current income.In other words, approximately one-third of private domestic invest-ment depends on external financing. There was also a deficit in Gov-ernment accounts. On the other hand, Table 17 indicates that theinflationary tendencies of domestic capital formation and CGovernmentfinancing were offset in part by the presence of a high level of imports.Because of the availability of an additional supply of goods notproduced at home, the inflationary impact of excessive domestic ex-penditures may have been lessened but, at the same time, availabilityof imports may have stimulated domestic investment and thusaggravated inflation.

Savings and Investment Institutions

The following brief view of the financial structure of the Colombiancapital market reveals a very uneven distribution of funds amongvarious uses. There is an ample supply of short-term credit for com-mercial and industrial purposes, but great scarcity of short-term creditin agriculture. Again there is a relatively ample supply of funds forlong-term investment in high-cost housing but the supply of creditfor middle- and low-cost housing is wholly insufficient, if existent at all.While long-term funds are available in substantial amounts to estab-

52 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

lished companies which may plow back their profits, or to wealthyindividuals who may reinvest their earnings, it is very difficult for theoutsider to secure capital from the market. The credit standing of theGovernment, finally, as reflected by the reluctance to hold public debt,is low. Thus, present channeling of capital results in a tendencytoward overdevelopment in certain areas and neglect in others. Inthe absence of outright Government direction of capital flow, abroadening of the Colombian capital market is essential so that abetter distribution of funds may be brought about by the marketmechanism itself.

Commiiiiercial Banks. The role of commercial banks in the Colombianeconomy is discussed at some length in Chapter XIV and, therefore,is dealt with briefly here. As is pointed out below, Colombian banksprovide an ample amount of funds to industry and trade: However,their participation in providing for agricultural credit is slight. In1948 agricultural loans accounted for only 5 percent of new loansgranted, as against 40 percent for commerce; in addition, little contri-bution is made on the part of commercial banks to the provision offunds for long-term investment. While one of the traditional functionsof the commercial banking system is to provide short-term credit, itappears that the supply of the latter has been too ample relative to thesupply of other funds.

Caia Colomnbiana de Ahorros. Over 80 percent of the Colombiansavings deposits are held with Caja Colombiana de Ahorros becausethe privilege of other banking institutions to carry savings deposits isseverely restricted. 4 At the close of 1949, these amounted to Ps.$77.2million as against Ps.$18.5 million held by other institutions. Thecapital of the Caja is owned by the Government and the board ofdirectors is composed and appointed in a way rather similar to that ofthe Banco de la Reptiblica. It is linked administratively with theCaja de Credito Agrario in that both institutions share the same boardof directors and manager. Investments in the Caja Colombiana deAhorros are almost entirely in public, and very largely national, debt.Interest paid on common savings deposits is 3 percent and interestpaid on deposits held on two-year term is 4 percent.

The increase in savings deposits from 1939 to 1940 amounted toPs.$2 million. During the war years, the annual rate of increase wasconsiderably larger, reaching Ps.$20 million in 1943-44. The increasefrom 1948-49 amounted to Ps.$9 million. Two-thirds of the deposits

4 Savings deposits outside the Caja Colombiana de Ahorros are concentratedalmost wholly in the Banco de Colombia and until recently no new savings departmentscould be opened. However, by recent decree (March 1950) commercial banks arepermitted to open and expand savings departments.

CAPITAL FORMATION 53

were in accounts of over Ps.$1,000 and holdings were concentratedheavily in the departments of Cundinamarca and Antioquia, withabout one-third of the total in the city of Bogota.

It is evident from these figures that the annual supply of fundsfrom savings deposits is of small maanitude, especially if it is con-sidered that inflation during recent years made for a relatively highrate of increase in incomes. This again reflects the fact that personalsavings are small and are largely derived from the higher incomegroups and hence are not likely to be invested in savings deposits. Asnoted in Chapter III, more than one-fourth of the total income in 1947went to the top 1/40th of the nation's income recipients; at the sametime, this small fraction of total income recipients provided perhaps asmuch as three-fourths or more of total savings. With rising incomesand the development of a stronger middle class, the savings patternmay be expected to change so that savings banks should become anincreasingly important link in the process of capital formation.

At the end of 1948, out of total Caja Colombiana de Ahorros assetsof Ps.$107.8 million, about Ps.$58 million were held in the form ofNational Government bonds, including Ps.$10 million of CreditoAgrario. Ps.$4 million of Credito Territorial, and Ps.$44 million ofother National Government obligations. Thus, the Caja acted as anintermediary in the financing of other public credit institutions, aswell as a source of funds for meeting the Government's general needsin covering current deficits.

Notwithstanding earnings on Government securities of well above7 percent, the return paid on saving deposits is but 3 percent. Thisis explained to some extent by the high cost of maintaining a wide-spread network of branch offices which in many small localities arenot profitable on their own account. It may be considered whetherthe cost of the Caja Colombiana de Ahorros might not be reduced bysharing services with the Caja de Credito Agrario. Also, use of a postalsavings system might be considered through which the Caja Colombi-ana de Ahorros facilities might be made available to small communities.

Caja de Crdito Agrario, Industrial y Minero. The Caja de CreditoAgrario is a major source of agricultural credit and in that connectionis discussed in more detail in Chapter V. Like the Caja Colombiana deAhorros, it is a governmental institution and controlled by the sameboard of directors and manager. At the close of 1949, the total fundsof the Caja de Cr6dito Agrario amounted to Ps.$161 million. Of thistotal, two-thirds were derived from the issue of bonds and one-thirdfrom capital subscription. While the capital is held largely by theGovernment, Caja de Credito Agrario bonds are held by the Caja

54 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Colombiana de Ahorros and, mostly on the basis of compulsory hold-ing requirements, by commercial banks, insurance companies andothers.

The Caja de Credito Agrario uses its funds to provide agriculturalcredit on terms ranging from six months to twvelve years with interestrates ranging from 6 to 7'2 percent. Loans to any one borrower arelimited to Ps.$25,000 for short-term, and to Ps.$50,000 for long-term.Cattle raisers with assets in excess of Ps.$200,000 are ineligible forloans from the Caja de Credito Agrario.

The Caja has fourteen branch offices in the different departmentsand a large number of local offices in which, in addition to its ownbusiness, are handled savings deposits for the Caja Colombiana deAhorros. Like the Caja Colombiana de Ahorros, it is subject to highoperating costs. In 1948, about 25 percent of the funds were loanedout in amounts of less than Ps.$500, and 80 percent in amounts ofless than Ps.$5,000. Only 2 percent of the funds were loaned out inamounts exceeding Ps.$50,000. In terms of crops, the largest share-about 30 percent-of the loans granted went into cattle; coffee wasthe next most important item with 16 percent. Much the larger partof the loans was made to oxvners, only 30 percent of the total goingto tenants, settlers, and others.5

Total loans granted by the Caja de Credito Agrario showed a steadyincrease during recent years, but the funds available were by no meanssufficient to meet the needs of Colombian agriculture. Thus in 1948,less than Ps.$100 million of loans were available to finance agricul-tural production valued at over Ps.$1.2 billion, and equipment andother agricultural improvements. The problem here is how to obtainadditional funds needed to provide more adequate working capital aswell as longer-term loans for mechanization of agriculture and thepurchase of small farms. To some extent, it might be possible tomeet this need by securing greater participation in agricultural crediton the part of commercial banks, especially in the short-term fieldand for larger loans. In this -way, some Caja de Credito Agrario fundsmight be freed for use in the smaller and longer-term loan field. Buteven if this ivere done, there remains a need for substantially expandedcapital resources of the Caja de Cr6dito Agrario. Pending the develop-ment of an open market for Caja de Credito Agrario bonds, thisremains a budgetary problem and one which in view of the importanceof agricultural improvement needs to be given high priority.

5 The Banco Agricola Hipotecario, previously entrusted with the provision ofagricultural mortgage credit, is being liquidated and taken over by the Caja deCr6dito Agrario.

CAPITAL FORMATION 55

BaFeco Central Hipotecario. The third major credit institution isthe Banco Central Hipotecario. While the Government participatesin the direction of the Banco Central Hipotecario, four of the sevenboard members are appointed as representatives of commercial banksand only one is appointed by the Government; the remaining twodirectors are appointed by the Banco de la Republica and by privateshareholders, respectively. The capital of the Banco Central Hipote-cario at the close of 1949 amounted to Ps.$15 million and total assetsstood at Ps.$119 million. Other sources of funds were from the saleof bonds in the market-at rates of 6 and 7 percent-arid to someextent, especially in 1948, from Banco de la Republica credit.

The major use of Banco Central Hipotecario funds is for mortgageloans, which at the close of 1949 amounted to about two-thirds oftotal assets. Its loans are made at 8 to 9 percent, or 2 percent abovethe bond rates paid by the Banco Central Hipotecario, with gradualamortization over a twenty-year period. Loans are extended up to50 percent of the property value. Also, the bank makes loans tomunicipalities which are made under the condition that it be givenadministration of the collateral, a technique which has interestingpossibilities for providing more substantial funds to meet the needsof municipalities.

While the Banco Central Hipotecario provides a fairly adequatesupply of mortgage funds for high cost housing, it makes little contri-bution to medium, and no contribution to lower, cost housing. Thusthe only institution which is in a position effectively to raise fundsin the open market and to make longer-term loans in adequate amountsis one which apparently makes social importance secondary to otherinvestment needs. However, the success of the Banco Central Hipote-cario in operating profitably and in being capable of raising its ownfunds without compulsory holding requirements is important in thedevelopment of a broader and more inclusive capital market.

Stock, E.xchaagye. The stock exchange of Bogota, the only Colom-bian stock exchange, is a private corporation supervised by theSuperintendent of Banks. The number of companies registered atthe stock exchange increased from 49 in 1939 to 94 in 1949, and capitaland legal reserves of registered corporations in the same period rosefrom Ps.$140 million to Ps.$600 million. However, only a relativelvsmall part of this expansion, hardly more than 20 percent, was broughtabout through the issuance of new shares. Much the larger part wvasobtained through the retention of earnings. AMoreover, the volume oftransactions is highly concentrated in a small number of companies.In the first half of 1949, for instance, the six most active companies

56 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

accounted for 80 percent of the total transactions; Bavaria aloneaccounted for 50 percent and Coltejer for about 25 percent.

While the stock exchange has been an increasingly importantelement in the Colombian capital market, it has not occupied thecentral position of stock exchanges in more developed countries. Inparticular, the stock exchange in Colombia does not provide accessto the capital market for new companies which are not yet fullyrecognized by the public. People who wish to initiate new venturesmust rely almost, entirely on funds obtained through the retention ofprofits in their own businesses or through personal contact fromfriends. As a result, it is difficult to launch a new venture withoutdirect personal access to capital-a condition which is not conduciveto the development of a competitive and progressive business struc-ture. In this area, too, there is evident need for developing a moreopen capital market.

Insurance Comipanies. Even though small in absolute amounts, theimportance of insurance as a source of funds has rapidly grown duringrecent years. The net premium payments in 1939 amounted to Ps.$3.5million and climbed to Ps.$23 million in 1948. Total investments ofinsurance companies rose from Ps.$36 million in 1946 to Ps.$45 millionin 1947 and Ps.$57 million in 1948. Thus the annual amount of fundsbecoming available is somewhat above that provided through growthof savings deposits. Unlike the Caja Colombiana de Ahorros, insur-ance companies have distributed their funds widely between publicand private investments of various kinds. In 1948, holdings ofGovernment bonds were increased by Ps.$2.2 million, while privateinvestment and loans rose by Ps.$10 million. The latter amountincluded industrial bonds and stocks and a large item of loans topolicyholders. In order to assess the contribution of insurance toavailable funds, this latter amount totalling Ps.$4 million must bededucted from net premium payments.

Industrial Development Institute. The Institute for Industrial De-velopment is a corporation established in 1940. The purpose of theInstitute is to initiate industrial development in areas not easilyaccessible to private enterprise. The board of directors includesGovernment representatives and two members named by the boardof the Banco Central Hipotecario. The capital of the Institute inJune 1948 amounted to Ps.$6 million, one-half of which was subscribedfor by the Government, In addition, -the Institute had issued overPs.$6 million in bonds, these bonds being absorbed by the Banco de laRepuiblica in the Stabilization Fund. Further bond issues up toPs.$50 million are authorized but attempts to place such issues out-side the Government have not been successful.

CAPITAL FORMATION 57

The Institute to date has not been able, therefore, to undertakeindustrial development on a large scale. The Institute has undertakendevelopment projects in a rather wide number of fields, some of whichhave been successful while others have not. Nevertheless, remarkableachievements have been made with a small amount of capital. Failuresin most cases were due to technological rather than financial difficul-ties. A chemical product enterprise, a tanning extract plant, a woolenyarn factory, a lumber enterprise, a window pane plant, a fique plant,a small steel plant in Medellin, a rubber tire plant, a naval construc-tion yard, an edible oil plant, a fishing enterprise, a soda ash plant,and a hotel were sponsored successfully by the Institute, whileplants and enterprises producing or processing sugar, food, milk,yeast, minerals, fats, sulphur, chlorine, zinc, alkaloids and fertilizershad to be liquidated.

It should be said, however, that the speculative nature of suchenterprises was known to the managers of the Development Institutewhen they were initiated and that they were launched only becausetheir production was expected to replace imported goods made unavail-able by shortages. The major endeavor of the Institute in the pastyears has been the organization of the Paz de Rio Steel Mill Corpo-ration analyzed in Chapter XIX.

Institto de Credito Territorial. The general function of theInstituto de Credito Territorial is to develop the construction of housesfor farmers and agricultural workers and to develop low-cost urbanhousing. The board of directors of the Instituto de Credito Territorialincludes three Government representatives, three representatives ofvarious business organizations, one employee and one employerrepresentative. The Instituto de Credito Territorial assets have grownrapidly from Ps.$7.8 million in 1945 to Ps.$45.8 million in 1948; aboutthree-fifths were accounted for by increased capital provided throughthe Government and two-fifths by the issuance of 3 percent bonds.The latter were placed with individuals and businesses under a lawwhich required income tax payers to invest 5 percent of their incomeover Ps.$10,000 in such bonds.6 The bonds may then be sold in themarket, but only at a substantial loss.

The Instituto de Credito Territorial is authorized to make 30-yearmortgage loans for farmers, the value of whose property does notexceed Ps.$30,000. Also, the Instituto may make loans to supportdepartmental or municipal housing projects, housing cooperativesfor farmers or construction of rural houses to be rented to farm

6 According to Decree No. 4051, issued December 20, 1949, the proceeds are nowto be split between the Instituto de Credito Territorial and the Paz de Rio SteelMill Project.

58 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMIBIA

workers. Amounts to be loaned are to be proportionate to the valueof the farm property. Similar provision may be made for the supportof urban houses; only persons whose property does not exceed Ps.$30,000 are eligible. All the loans, urban or rural, require a firstmortgage collateral and adequate income prospects to assure mort-gage payments.

Up to 1948, mortgage payments made by the Insituto de CreditoTerritorial amounted to Ps.$8 million only, wvith other investments,including land purchases and loans to municipalities, nearly threetimes this amount. During 1949, the amount of loans was developedbut total assets -were then divided between loans and investments ata rate of twvo to three. In such lending as has occurred, the Institutoappears to have concentrated its activities on relatively costly homesfor well-to-do-farmers. Little headway has been made in provid-ing credit for low-cost housing, rural or urban, or in providing forsuch housing on a rental basis. Since the Instituto has been madethe special beneficiary of forced investment under the income tax lawvand has thus obtained relatively large funds, it is unfortunate thatmore progress has not been made in achieving its objectives. Amore specific formulation of the functions of the Instituto de CreditoTerritorial directed toward the low-cost housing field may be neces-sary.

Fontdo de Fo;nento Miinnicipal. The M\unicipal Development Fundis in effect not an institution of the capital market but is concernedwith allocation of budget receipts through various public policies.It need not, therefore, be considered at length here. The Fund obtainsits revenues from a number of earmarked excises imposed by theNational Government, with a total yield of Ps.$10 million in 1948.The Fund is attached to the Ministry of Finance and administeredby a Directive Committee composed of the Ministers of Finauce,Education, Industry and Commerce, Labor, Hygiene and PublicW7orks. Of the proceeds, 15 percent is assigned to the city of BogotA,

80 percent is assigned to departments on a per capita basis, and therest is distributed among departments in equal shares. The paymentsare made in support of new wvater facilities, sewvers, schools, etc.,the contribution of the Fund being determined in most cases in theform of a matching percentage grant. While the revenues of theFund have been wholly inadequate to meet municipal investmentneeds, the operation of the Fund is most important as an attemptat systematizing the allocation of national subsidies to municipaland departmental investment, a problem which \vill be consideredmore fully in Chapter X

CAPITAL FORMATION 59

Federation of Coffee Growers. The Federation of Coffee Growershas engaged in providing certain social improvements for the benefitof coffee growers. These improvements are financed out of revenuesobtained from a special 6 per thousand tax on coffee exports and areallotted to departments in proportion to their share in total coffeeexports. The services include vater and soil improvements, as wvellas inexpensive rural housing projects. The total annual budgetamounted to about Ps.$3 million in 1947 and it appears that this sumis invested with a high degree of efficiency.

CAPITAL YIELDS AND INTEREST RATES

In an underdeveloped economy where capital is scarce and theproductivity of additions to capital equipment are high, it stands toreason that the cost of capital as measured by interest rates or shareyields should be high as well. Within certain limits, this is a necessarymeans of putting the scarce supply of capital to the most essential uses.

The structure of share yields, bond yields, and loan rates at com-mercial banks is shown in Table 18, but the picture there representedneeds careful interpretation. While the share yields are bona fide

TABLE 18

YIELDS OF SECURITIES TRADED AT STOCK EXCHANGE OF BOGOTA, 1941-1949

19411 1945i 19492

(Percent)SHARE YIELDS

Beer-Bavaria ....................................... 9.39 7.10 15.92Textiles-Coltejer .- 9.79 10.55Real Estate-La Urbana. - 10.47 15.48Cement-Cemento Diamante ... _ .. _ 9.67 6.20 11.37Commercial Banks-Banco de Colombia 10.06 9.96 13.14

BOND YIELDSNational-Dinu, 6% (1971) ......... .... 6.65 6.67National-Denal, 6% (1972) ........ 6.60 6.45 6.37Antioquia (1950) ........ 8.46 7.22 7.36Caldas (1951/56). ........ 7.84 7.22 9.24Banco Central Hipotecario .... .... 6.01 5.93 8.55

LOAN RATESCommercial Banks, 90-day loans .4 4 4Commercial Banks, 120-day loans ........ 6 6 6Banco Central Hipotecario, Mortgage

Loans .... -. - 9Rate paid on Savings Deposits .....- . - 3Caja de Cr6dito Agrario, 6 months.... - - 6Caja de Cr6dito Agrario, long-term .... -. - 7/2

1 December 31.2 August 31.

60 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

yields obtained in the market, bond yields cannot be interpreted thus,since only a relatively small part of the public debt held outside publicinstitutions is held on a voluntary basis. If there were no holdingrequirements,7 probably discounts would be more substantial andyields considerably higher. At the other end of the scale, the profit-ability of many ventures is substantially higher than indicated bythe share yield of large corporations, which are more or less "safe"investments. In part, this greater profitability of some ventures isreflected in higher profit rates but primarily it is realized in the formof capital gains accruing as a by-product of the inflation process.

Loan rates at banks are relatively low and have not been raisedfor many years. The supply of funds thus is considerably short ofxvhat could be loaned at those rates. The same applies to agriculturalloans, although here the problem is not one of adjusting the ratesto the available supply of funds, but rather of increasing the availablesupply so that the market can be serviced at a lower rate. Mortgagemoney, as provided by the Banco Central Hipotecario, carries acharge of 9 percent and yet there is an excess demand for funds atthis price. In the low-cost housing field, money is not available at9 percent but, even if it were, this rate would be too high to permita low-cost housing program. Thus the maladjustment in the capitalmarket appears to be primarily due to maldistribution of funds avail-able for various purposes, rather than to inordinately high rates ofinterest in certain areas.

7 For a discussion of these requirements, see Chapter XIII.

CHAPTER V

Agriculture

Agriculture is the most important segment of Colombia's economy.This is true in a double sense. First, some two-thirds of the peoplelive in rural areas and are supported by agriculture, and many urbandwellers indirectly receive their incorne from financing, handling orprocessing agricultural commodities. Second, coffee is the main sup-port of Colombia's international trade, and finances the iniport of themany manufactured products and capital goods needed by the country'sexpanding economy.

To understancd Colombian agriculture, it is important to keep inmind the extreme range of climatic conditions, and the fact that inany one place the main difference between the seasons is the amountof rainfall. The mountain ranges are responsible for the variations inboth temperatures and rainfall and they divide agriculture into manysmall "islands," with communication between them both difficult andcostly. The range of climatic and soil conditions provides the physicalbase for raising a great variety of agricultural products, which canafford healthful and interesting diets and various fibers for clothingand industrial uses. But other factors intervene to keep levels ofliving generally low in both rural and urban areas. One of the mosturgent requisites for higher living standards is increased productivityin agriculture, not only to produce more of the essential agriculturalproducts but also to obtain this production with a smaller percentageof the total population so that additional labor will be available forother pursuits important to higher living standards.

', LAND USE AND TENURE

The amount of land in forests is estimated at from 50 to about 70percent of the total land area.' The forests usually consist of mixedspecies of trees, including mangrove swamps along the Pacific andCaribbean Coasts, mixed tropical forests and jungles up to about5,000 feet, and temperate zone trees above this elevation. The non-forested areas are used either for the cultivation of crops, wvhichoccupy 2 percent of the land area and vary with the altitude, or forpastures which are found in the rich level valleys, on the plateaus andmountains above the range of cultivated crops.

I The United States Tariff Commission in Agricultural, Pastoral and Forest In-dtstries in Colombia, Washington, D. C., 1945, estimated about 50 percent. Dr. RuizLanda, Professor of Horticulture and Forestry of the Facultad de Agronomia, Mede-llin, in a communication in October 1949, estimated about 72 percent.

61

62 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

The major crops are coffee, sugar cane, corn, potatoes, rice, wheat,yucca, and platano. Wheat, potatoes and barley are the principalcommercial crops raised at elevations above 7,000 or 8,000 feet, alongwith corn and beans. Lands on the mountain slopes at medium eleva-tions are used principally for coffee, corn, beans, yucca, platano (thecooking banana), some citrus fruits, sugar cane for panela (brownleaf sugar) production, and fique for fiber. Rice, sugar cane, cotton,sesame, cacao, tobacco, and a few citrus fruits for home use, are theprincipal crops at elevations from about 500 to 3,300 feet, includingthe valley of the Cauca River, the upper Magdalena Valley and someother areas. Bananas are raised for export in a small area near theCaribbean Coast. Beef is the principal livestock product, and muchless attention is paid to the production of dairy products, pork,mutton and wool. Cattle are raised almost entirely on pasture, thecorn and small grain crops being used in the main for direct humanconsumption.

According to official estiinates for 1948, crops occupied about 213million hectares while 43 million hectares were devoted to pasture.2

The farms average about 2 hectares of cultivated land. This averageincludes some very large sugar cane, rice and cotton haciendas, sothe acreage on most farms is considerably less. Most coffee farmsare small; 87 percent have less than 5,000 trees and the average isaround 3,000 on about 3 hectares, with some additional land for sub-sistence crops. However, a little more than half of the coffee treesin Colombia are found on the remaining 13 percent of the farms.3

Cattle haciendas generally have little or no cultivated land and as arule are large-scale operations. The mountain ranges and their inter-vening valleys, which together cover only about two-fifths of thenation's geographic area, furnish the homes and livelihood for 95 per-cent or more of the population. Little is known definitely of the soilsor other characteristics of the sparsely settled grassy plains andforested areas east of the Eastern Cordilleras that might influence thefuture development of agriculture there. The small occupied areas ofthis region are used mainly for cattle grazing, with some crops nearthe Eastern Cordilleras.

In the more heavily populated portion of the country, land usefollows an unusual pattern. As a rule, the fertile, level valleys areused mostly for grazing, while the steep mountain slopes are cultivated.The poorer lands in the mountains are overpopulated in relation to landresources, and much of the level land (except for areas planted to rice,

2 Producci6n Agropecuaria de Colo-rmbia, Estimado para 1948, Divisi6n de Econo-mia Rural, Ministerio de Agricultura y Ganaderia, September 1949.

3 Boletin Extraordinaria No. 5, Aijo IT, Vol. 1, Federaci6n Nacional de Cafeterosde Colombia, February 1933.

AGRICULTURE 63

sugar cane,.and cotton) is in pasture, a use in which a given acreagefurnishes a living to comparatively few families. Fear of malaria andother diseases in the lowlands, as wvell as the difficulty of gettingland for farming in the valleys and on the plateaus, may contributeto the density of population in the mountains. At any rate, the cattlefatten on the plains while the people often have to struggle for a bareexistence in the hills.

Even though the returns from pasturing are often very substantial,such use of the land is not the best possible. But the compensationsappear to outweigh economic considerations in the minds of the ownersof the large cattle haciendas. Moreover, these pasture lands, whichare taxed at a very low level, make secure investments. Eventhough the owner may live in a distant city and not supervise theoperation closely, a good cattle ranch has nearly always enabled theowner to live very well. Great lauded estates are also the rule in thepromising new agricultural areas, such as the Sind region. Caseswere cited to the Mission of land sold at Ps.$1200 per hectare whichwas assessed for tax purposes at Ps.$200 to Ps.$300 per hectare, but\vhich actually yielded Ps.$180 per hectare in rent.

Some large-scale farms, particularly producers of sugar cane andrice, appear to be quite efficient and to have gained high laborproductivity through the use of considerable mechanized equipment.It must be recognized, however, that these farnis also have the effectof denying landless families. or families wvith too little land to makea satisfactory living, access to land. Many large-scale farms that mnaybe considered efficient in economic terms are not providing adequateliving standards for the families who live or xvork on them. Forexample, it wvould be quite unusual if the returns from a large farm,occupied by the owner and 24 wvorkers (25 farm families altogether),wvere providing more than two or three of the families with enoughincome to be significant purchasing units or to maintain satisfactorylevels of living. On the other hand, in many areas (for example,Narifno, Santander and Boyaca) the problem of "minifundia," or ex-cessive parcelization of the land into uneconomic patches, preventsefficient land use. Large numbers of farm families are trying to ekeout an existence on too little land, often on slopes of 50 or even 100percent (45 degrees) or more. As a result, they exploit the land veryseverelv, adding to erosion and other problems, and even so are notable to make a decent living. This pattern of land use is one of themost important causes of low labor productivity in agriculture and ofresulting widespread poverty in rural areas.

There are some indications that land policy is changing at thepresent time. In 1948, the Institute for Parcelization and Colonization

64 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMIBIA

of Land was established by the Government. Its purpose is to give tofarm families without land, or with too little to make a decent living,special assistance in obtaining land through credit and other means.The Institute assists these families in settling either on public landor on parcels of large farms that the Institute buys and subdivides.Since this program has barely started, it is too early to know withcertainty whether it will effect a major change in land policy. Sofar it has received such small financial support that it is a purelynominal program. On the other hand, it may indicate a change inpublic opinion, and a trend in Government.land policy toward en-couragement of farm units large enough to maintain a family.

s RURAL POPULATION

If we exclude housewvives, domestic servants, and indefinite cate-gories from the 3,300,000 rural people classified by the 1938 Census,there were in that year about 1,767,000 economically active persons4

on the 700,000 farms and in villages under 1,500. Out of this numberit is roughly estimated that one-third were owner-operators andmanagers of various types; one-sixth xvere tenants, sharecroppers andsquatters; and the remainder, or about half, were hired workers.Assuming that this situation has not changed materially, the propor-tion of tenants is relatively lowv and of hired wvorkers quite high ascompared xvith more developed countries.

In 1948 the population living on farms and in villages under 1,500was estimated at something over 7 million, with about 4 millioneconomically active.5 Apparently some migration of population fromfarms to cities has occurred and is still occurring. A recent estimateshows a small net migration of 350,000 persons from farm to cityduring the seven years from 1938 to 1945.6 The study of Tabio, arural community near Bogota, gives evidence of this trend. Afteranalyzing population movements, the authors of the report conclude:

"In spite of a relativelv high birth rate and considerable naturalincrease, the population of Tabio has been stable for some fortyyears. Migration is carrying off all the increase and may betaking some of the original stock as wvell. The males in theproductive ages are leaving for Bogota and for areas of newvsettlement in Caldas, El Valle, and Tolima; the girls are going

4 The economically active include farm operators and managers of various types,including owner-operators, tenants, sharecroppers, squatters, and several categoriesof hired workers.

5 This figure for the economically active was submitted in a communication ofOctober 4, 1949, from the Division of Rural Economics, University of Agriculture.

6Miguel Fadul, of the National Income Committee of the Banco de la Rep6blica,in correspondence with the Secci6n de Censos Nacionales in February, 1949.

AGRICULTURE 65

almost exclusivelv to Bogota. As a result of these migrations,Tabio is left with the dependent classes and ages of the popula-tion, and it suffers from a severe shortage of productive workers.Most acute is the lack of males aged from 15 to 60, whereas themunicipio has much more than its quota of females and oldpersons."7

Hired farm workers in Colombia are paid nearly as well as urbanworkers. Farm workers receive two to three pesos per day comparedwith around three pesos for common labor in the cities, with smallnumbers of skilled workers receiving more. They also are legallyeligible for the same benefits from labor and social security legislationas urban workers. There are evidences that some workers are climbingthe "agricultural ladder," though the climb is a very strenuous one.The "ladder" has few rungs for tenants, and most of those whonegotiate it pass directly from the status of farm laborers to ownership.The study of Tabio showed that of all the heads of farm householdsforty years of age, 68 percent were farm laborers; of those in the40-49 age group, 44 percent were farm laborers; and of those 60 yearsor over, only 32 percent were in the farm laborer category. It alsoshowed that farm operators (mostly owners) in Tabio averaged 51.6years of age while farm laborers averaged 46.2 years. These differencesindicate some social mobility and passage from the laborer to theowner class.

For example, the owner of a 20-acre farm, visited by a member ofthe Mission, reported that he had worked as a farm laborer for 18years before buying his first farm of a little more than one hectareat the age of 33. Now at the age of 60 he owns an eight-hectare farmwhich he values at Ps.$30,000, but said he would not consider sellingit for that. Another family with ten living children, two having died,had saved for 26 years -and was in the process of buying a smallfarm. They had the Ps.$1,50 0 required for the down payment. Thesecases indicate that some farm laborers reach the status of owners,but that the process is not an easy one. The fact that rclatively fewfarm people own the land they cultivate, and therefore lack theincentive that ownership often gives, may account in part for lowagricultural productivity.

\ STANDARD OF LIVING

The portion of a nation's population required in agricultureserves as a rough index of labor productivity and of its standard ofliving. As we have seen, about two-thirds of the population of

7 Smith, Rodriguez and Garcia, op. cit, p. 5.

66 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLO-MBIA

Colombia live in villages tinder 1,500. The importance of expendituresfor food in the family budget is another commonly used indication ofthe level of living. For example, it is generally assumed that afamily should not have to spend more than 40 percent of its incomefor food. The study of Tabio, however, reported that 56 percent ofthe farm-operator families and 61 percent of the farm-laborer familiesxvere spending more than 50 percent of their income for food; andTabio is better off than many rural communities.

\Vith the exception of the haciendas, it appears that average rurallevels of living are so low that farm families as purchasing units arerelatively unimnportant in the commercial economy of the country.But their stanidards of living may well be higher than their presentlevels of living, and may only awvait higher incomes to be realized.If very limited general observations can be trusted at all, many farm.families have a strong desire to improve their present situation. Onebit of evidence is their persistence over many years in making somesavings out of very low wages in order to make a down payment ona farm, with the hope that through ownership they may attain greatersecurity and higher levels of living.

While few reliable indices are available, an attempt will be madeto describe the levels of living of the farm people in Colombia, interms of education, housing, health and nutrition. The fact thatfarmers are squeezed betwveen low incomes and relatively high pricesfor the things they buy is an important factor tending to hold ruralliving at low levels.

\Rural Education

After traveling about the country and visiting many farm families,one inescapably concludes that general public school education forfarm children is 'grossly inadequate, both in quantity and quality.Apparently only a fexv farm children receive as much as twvo or threeyears of schooling. In Tabio, only 19 percent of the farm operatorsand 8 percent of the farm laborers had received more than threeyears of schooling. This lack of education no doubt contributes toloAv labor productivity and at the same time makes the introductionof new farm practices more difficult. While the human resourcesneeded for expansion of agriculture are available so far as numbersare concerned, their educational attainments are so low as to limitrather materially the rate of expansion, particularly the introductionof new techniques in agriculture.

The Agricultural Education Section of the Ministry of Educationreports that in 1949 there were only 23 agricultural schools in opera-

AGRICULTURE 637

tion, with about 800 students, or an average of 35 per school. Thetotal cost of operating these schools for the year 1949 was Ps.$334,219,including Ps.$15,000 contributed bv one of the departments. Also,the National Federation of Coffee Growers is maintaining abouta dozen two-year vocational schools that are available free of chargeto farm children wvho have completed the public schools. Those inattendance usually devote four hours to inside classes and two hoursto practical work outdoors where they learn how to grow a varietyof garden crops, rabbits, and other foods to improve their usualdiets. They also learn improved methods of coffee culture. TheMinistry of Education supports two agricultural normal schools, oneat Buga and one at Duitama, at a cost in 1949 of Ps.$194,000. Theseschools have an enrollment of about 100, and are contributing in asmall way to training needed agricultural personnel.

Three colleges of agriculture, all affiliated with the National Uni-versity, carry a heavy burden of training personnel for public andprivate agricultural activities. Two of them are general agriculturalcolleges, one in Medellin and one in Palmira, and the other is a collegeof veterinary medicine located in Bogota. In addition, small experi-ment stations demonstrate farm practices. Total enrollment in thethree colleges is usually around 300, and many of those in attendancedo not complete the work and graduate. The schools have had manycompetent professors on their faculties, including at times visitingprofessors from other countries. While these colleges accomplishmuch good work they do not receive enough funds, either public orprivate, to provide greatly needed expansion. Tuition is high andthis tends to hold down enrollment. Under these conditions thecolleges are not able to turn out enough graduates skilled in cropand livestock production, marketing methods, and in research tech-niques in the physical and social sciences, to meet the demand forwell-trained agricultural personnel. The resulting lack of trainedpersonnel handicaps the agencies working with farmers and this inturn retards further advances in labor productivity.

In addition, there is a program of agricultural extension education.which unfortunately is quite inadequate to reach a high percentageof farmers. In 1945, the educational programs in what is now theMinistry of Agriculture were reorganized, and the part pertaining tocrops was lodged in the new Extension Section of the Ministry ofAgriculture. But the extension work in livestock raising, particularlythe educational program of the veterinarians, was kept separate. Thisfailure to provide for all phases of agricultural education in one pro-gram has been a handicap to the work.

68 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

The Extension Section has a good program as far as it goes, andsome very good personnel. In addition to those in Bogota, its staffincludes a Chief of Zone in each department and about 50 T6cnicosat the municipal level. These Extension workers do some very effec-tive work, particularly with respect to crops, including culturalmethods, soil testing, insect and disease control, distribution of gardenseeds, and maintaining farm machinery available to farmers at reason-able rentals. One especially noteworthy piece of work wvas done incooperation with the Caja de Credito Agrario, Industrial y Minero.In this special program, the Extension personnel gave educationalassistance to about 300 small farmers who had borrowed from theCaja. In general, the Extension program has been too small to makemuch of an impact on the quality of Colombian farming in the shorttime it has been in operation.

A limited number of veterinarians in the field, xvho are attachedto the Division of Animal Industry of the Ministry, also do goodeducational work with cattlemen, and perform services with respectto disease control and other livestock problems. Of particular impor-tance are the bull pools that they maintain in all sections of thecountry. Good quality bulls of different breeds, both beef and dairy,are available at these breeding stations to farmers who wish toimprove their livestock.

The separation of the educational work pertaining to crops andlivestock and the lack of a home demonstration program throughwhich farm women might receive assistance with home management,nutrition, food, clothing, and housing problems, make it very difficultto base the program on the needs of the whole farm and farm family,and greatly limits a farm and home management approach. While itis regrettable that more funds have not been made available for thisimportant work, individual Extension employees are doing a goodjob under great handicaps.

<-Rural Housing

Some farm homes in Colombia are commodious and beautiful, butmany are overcrowded, and most of them lack the elemental facilitiesfor health and adequate living. Data are not available with respectto rural housing as a whole, but the study of Tabio shows the badhousing situation in one rural community.8 Observation disclosed thatfarm housing conditions as bad, or even worse, are found in mostparts of the country.

8 See Chapter I, and report on Tabio, previously cited.

AGRICULTURE 69

Already the need for better rural housing is recognized, at leastin principle, and a nominal progam is under way. Some 4,000 newfarm houses have been financed by the Instituto de Credito Territorial.The farm houses in this program cost from Ps.$4,000 to Ps.$8,000each, and usually are of substantial brick construction with steelwindow frames so that maintenance costs are low. Loans at 2 percentare made to farmers with a net worth of less than Ps.$10,000 forhouses to cost not more than Ps.$4,000. About 90 percent of the loansare of this type, according to officials of the agency. Loans not toexceed Ps.$8,000 are made to farmers with a net worth of betweenPs.$10,000 and Ps.$30,000 and loans to farmers with a net worth ofover Ps.$30,000 are made under certain conditions to build housesfor their employees.' A few other types of loans are made, such asthose to rural housing cooperatives and for certain public purposes.9

For the year 1949 about Ps.$12 million were available for both theurban and rural phases of this program, derived from compulsorypurchases of bonds. The agency is compelled to spend 60 percent ofthe funds originating in each department in that department, whichnecessitates operations in all departments each year and adds some-what to overhead costs.

The rural housing program is now geared to finance about 1,000homes a year, a rate somewhat higher than in the past. This accelera-tion is encouraging, but even at this increased rate, it would takeover 1,000 years to reach every farm. While rural families make uptwo-thirds of the population, the rural phase of the housing programnis allotted only one-third of the funds available.

Rural Health and Nutrition

Ill health and inadequate health servic6s appear to be major factorslimiting labor productivity in agriculture. The situation in health andnutrition is described more fully in Chapter IX, but the problem isespecially acute in rural areas-because of especially low incomes,shortages of doctors, nurses, and health facilities and deplorable sani-tary conditions. Observations on farms indicate that large numbersof farm families raise few, if any, vegetables and have no dairyprocucts or eggs for home use. Since incomes are so low that manyfamilies could not buy these products, failure to produce them indi-cates the probability of serious dietary deficiencies.

FARMING SYSTEMS AND PRODUCTION PROBLEMS

In general. Colombian agriculture is characterized by the use of adisproportionately large amount of labor in relation to land, operating

9 1nfornie del Gerente General, 1948, Instituto de Cr6dito Territorial.

70 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

capital, and management, although differences in productivity areenormous. Hand methods, principally use of the machete and the hoe,prevail on some farms but highly mechanized methods of cultivationwith the latest models of tractors, combines and other machinery, areused on others. It is not uncommon to find an irrigated rice farm ina fertile valley using two or three combines of the latest model, and afew miles away a small farmer burning a patch in the timber on amountain side where he will grow crops between the stumps for ayear or twvo before burning another patch. Pack animals-mules,horses, burros or oxen-furnish the main means of transportationfrom the farm to market. The pack animals often are supplementedby trucks and, for short distances, by human beings carrying heavyloads upon their backs or heads. In turn, the pack animals sometimessupplement trucks in emergencies or on unfavorable terrain.

Mechanization is making some progress, however. So far it isquite insignificant in terms of numbers of farms but more importantin terms of total production. One measure of mechanization is the rateof importation of tractors, since none are manufactured in Colombia.Imports since the war are as followvs:

Year Number Value per Unit Total Valuel1

1946 . 616 U.S.$4,079 U.S.$2,512,6641947 . . 920 4,147 3,815,2401948 . . 479 3,701 1,772,779

The same source stated that of 3,821 tractors in use in the countryin 1938, one-half xwere in the three departments of Valle, Tolima, andCundinamarca. The MAinistry of Agriculture owned 191 tractors which,under the management of the Departmental Extension Directors ahdmunicipal agents, were used by farms on a rental basis.

It is the policy of the Government to encourage mechanization ofagricultural production, but in solving some problems mechanizationsometimes creates others. For example, it seems to be intensifying thedifferences betwveen small farmers and large operators, and by reducingcosts for the latter it hampers competition by the small farmer. Theproblems of repair centers, availability of spare parts, and distributionand storage of tractor fuels are receiving attentioln but are not yetsolved.

Because of the high cost of the ingredients, all of them imported,and of transportation, fertilizers are very expensive and are little usedexcept in groNving potatoes and one or two other crops. Insecticides

10 Communication from Raul Varela Martinez, Director, Division of Rural Eco-nomics, Ministry of Agriculture, October 4, 1949.

AGRICULTURE 71

and fungicides also are expensive, and are often not available whenfarmers need them. Another practice which limits productivity is thatof keeping the poorer and unsalable portions of some crops for seed.Some progress is being made in developing better yielding varietiesof crops, particularly those that are more resistant to diseases.Valuable results may be seen, particularly in the case of sugar cane;the work on wheat and some other crops looks very promising, al-though it has not proceeded so far.

One-crop farming is widespread, and a single crop may be foundgrowing year after year on the same land. The value of crop rotationseems to be little understood. While food crops such as corn, yuccaand platano are found on6 most farms-in fact, on many, food cropsfor home use are the principal products-the idea of planning awell-balanced farming operation is seldom encountered, and a welldeveloped unified farm and home plan seems to be almost unknown.All of this makes for inefficient farm operations.

Livestock breeding programs have been effective in improving bothdairy and beef cattle. The time required to grow and fatten a steerfor market has been reduced on some cattle farms, although on thegreat majority it still requires four or five years or more. The bettergrasses are still not used in many pastures. Despite the importantgains that have been made in labor productivity, breeding and pastureimprovement has not increased nearly so much as seems possible.Control of cattle ticks and diseases is increasingly successful, althoughlosses are still substantial.

One of the factors contributing to inefficiency in livestock pro-duction is the lack of cheap transportation, or indeed of any transporta-tion at all in nmany areas. Cattle are driven hundreds of kilometerson foot, and the resultant loss of weight is estimated at 200 or morepounds, not to speak of the deterioration in the quality of the tleat.The cattle sometimes have to be pastured for another year at somepoint nearer the ultimate market before they are ready for slaughter.Thus the production period is prolonged, the cost of production israised, and the returns to livestock operators are reduced.

Lack of modern machinery and tools, failure to use good seed,fertilizer, pesticides, improved farming practices, inadequate creditfacilities lack of general education and of special training, and poordiets and disease all combine to hold down labor productivity inagriculture. The fact that so much of the cultivation is on steepslopes, where farm machinery and implements other than hand toolsusually cannot be used, also reduces production.

72 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

\Soils and Soil ConservationColombian soils range from those among the xvorld's best to very

poor ones; from some that withstand farming on almost unbelievablysteep slopes without serious erosion, to others that are badly erodedand xvasted away even though their slopes are quite moderate.1 ' Theinverse pattern of land use described above has created serious soilerosion problems. The cutting and burning of forests and other coverin miountainous areas for the planting of annual cultivated crops likepotatoes and corn are quite general. If the farmer lives near a cityor toxvn he may sell the lo-s or use them and the larger branches tomake charcoal for sale. Otherwise, he may burn them with the brush.On the steeper grades, "fire-cleared" patches may be farmed for onlyone or two crops, then abandoned and another tract cleared. Thepractice of limiting a tenant's rental period to one or two years on aparticular piece of land, to avoid possible "improvement claims" whichmight accrue through longer terms, has put a premium upon expedientand often destructive types of exploitation that increase erosion.

Most of the larger rivers are heavily burdened with silt, especiallyduring periods of heavy rainfall. It has been estimated that duringthe rainy season the Magdalena River alone carries away 458,000 cubicyards of soil every day, or the equivalent of 1'4 inches of soil froma million acres every year.'2 Sample local area surveys made bythe Instituto Geografico Militar y Catastral give some highlights onsoil erosion. They indicate that intensely eroded zones exist in theHigh Magdalena (Departments of Huila and Tolima down to Purifi-caci6n) where the cultivation of rice in sandy undulating soils hasaggravated and accelerated erosion. Likewise the soils of the OrientalCordillera, the Gtiaduas Formation, particularly in the Boyaca series,are becoming poorer day by day due to severe erosion, which in someparts has caused the almost complete disappearance of soils of thisseries on slopes ranging from 10-75 percent. The lithosols of Santander,which lie over the Giron strata, are very poor soils of sandy andstony phases, with slopes of 50-75 percent suffering from intenseerosion. The plateau of Pasto in Narifno has generally fertile sandyloam soils at an altitude of 2,500 meters, and is closely subdividedinto small intensely cultivated farms. Most of the slopes are gentleon this plateau, but -vhere steep slopes occur there is severe erosion,

Other soils show much slower rates of erosion and fertility exhaus-tion, even xvhere steep slopes are cropped. Certain crops and cultural

11 At the Mission's request, Dr. Jos6 M. Molina of the Inistituto Geografico Military Catastral, prepared a description of the soils of Colombia, from which our infor-mation is derived.

12 Katheryn H. Wylie, The Agriculture of Colombia, Foreign Agriculture BulletinNo. 1, U. S. Department of Agriculture, 1942.

AGRICULTURE 73

practices also help to reduce erosion; perhaps coffee is the bestexample. In the coffee groxving zone of Quindio, Caldas, the deep richsoils of undulating topography do not erode readily when planted tocoffee groxwn under shade, especially if weed growth is controlledby cutting above the surface instead of chopping the ground witha hoe. The soils of the Villeta Formation, which cover a wide areaof a hilly relief on both slopes of the Eastern Cordillera, have argil-laceous shales as their material of origin. Because of the rapiddecomposition of these shales when exposed to weathering, these soilsrenew themselves rapidly. Under these circumstances, erosion maynot seriously reduce the productivity of the soil so long as there isa subsoil supply of thie basic shale. The rich mountainous soils inthe heavily populated coffee growving regions of Cundinamarca appearto be of this type. To date, the Coffee Federation seems to be theonly agency concerned with effective soil conservation methods. Itsprogram for assisting coffee growers in this field is limited but coI-n>mendable. Colombia needs a broader and better rationalized soilconservation program as a basis for sustaining and improving overallagricultural efficiency.

Irrigation, Drainage and Water UtilizationA considerable acreage of land is irrigated, including practically

all the lowland rice area, some pasturage, and some of the landplanted to crops such as bananas, cotton and sugar cane. Almost allthe irrigation is by privately developed systems, usually bv diversioncanals, to bring water from an available stream to one or more largefarms. There are several extensive areas with agricultural potentiali-ties but which lack xvater and now languish as dry pastures or semi-waste areas w ith little or no agricultural return. Certain areas insouthern Tolima and northern Huila are typical. Some other lands-for example, in Valle del Cauca and northern Tolima-produce fairlygood crops in most years, but suffer lowered yields frequently, andcrop failures occasionally, because of drought. Here the problem islargely to supplement fairly adequate rainfall to improve yields andprevent losses in dry years.

The Government has plans for three large irrigation projects xvchichwere to be financed originally by the $10,000,000 Export-ImportBank loan of 1943. The Saldana and Coello projects, both in Tolima,wvill provide water for some 25,000 hectares of land well located withrespect to the Bogota market. The Coello project (approximately10,000 hectares) is about finished but increases in production costshave necessitated finding additional fun'ds. The Saldana project toirrigate 15,000 hectares is alreadv under construction, but the engi-

74 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

neers in charge state that the irrigable area could be expanded to32,000 hectares by inclusion of storage capacity, which is not nowplanned for lack of funds. The Sisga flood control project, also underconstruction, will provide water for pump irrigation of cattle pasture,and possibly other crops, during the dry season.

The Institute of Water Utilization and Electrical Development,created in 1947, has developed preliminary plans for a number ofsmall power and irrigation projects. When it obtains sufficientfinancial resources, the Institute may be expected to promote addi-tional projects like the Recio River Project, begun four years agoand now nearing completion under the Ministry of Industry andCommerce. This project combines water supply for the town ofLerida, a 20 kw. hydroelectric generator, and irrigation for 6,000hectares of land. Besides its planning activities, the Institute of WaterUtilization and Electrical Development is managing the irrigationsystem serving the rice and sugar cane plantations in BugalagrandeValley.

The development of large irrigation projects is almost necessarilya government function, not only because the costs are normally toogreat for private financing but also because the exploitation of anatural resource as important and limited in quantity as water mustbe carefully studied and planned in the general interest. Withoutproper planning and control, private preemption and exploitationof water resources mav result in great benefits to a few priority userswithout regard for the requirements of others. Colombia lacks com-prehensive water-rights laws which are necessary to conserve suppliesof irrigation water, allocate them fairly among different users, estab-lish equitable. use-rates, and assure adequate maintenance of bothprivately and publicly owvned irrigation facilities in the public interest.

Drainage, often an important complementary problem, seems tohave received little attention. Reclamation of swampy lands hasbeen undertaken only to a very limited extent. Drinking water forhumans and livestock is desperately needed in some areas. Severalthousand square miles in the Sincelejo section of Bolivar are reportedto be so dry for several months of the year that range cattle oftendie for lack of xvater and humans survive only by hauling wvater ofdubious quality for great distances on mule back. It is important thatthe value of small facilities, such as wells and catch basins, to providewater for man and beast, and the opportunities for conserving themoisture in soils through proper cultural practices, should not beoverlooked as a result of undue preoccupatior wvith large-scale irri-gation possibilities.

AGRICULTURE 75

IAGRICULTURAL CREDIT FACILITIES

Credit assistance is given to agriculture from several sourcesincluding:

1. Caja de Credito Agrario, Industrial y Minero; this is the mostimportant agency and is discussed in more detail below.

2. National Coffee Growers' Federation, which makes loans tocoffee growers against warehouse receipts for various agriculturalpurposes.

3. Instituto de Parcelaciones, Colonizaci6n y Defensa Forestal,which promotes colonization of public lands and sells small farmssubdivided from large farms, after purchasing the latter from privateowners, on deferred payment terms.

4. Instituto de Credito Territorial, which has both a rural andan urban housing program. Construction is supervised usually undera building contract and credit provided for payment upon completion.

5. Banco Central Hipotecario, the central mortgage bank, whichin the course of carrying on a general secured-loan business makessome loans to coffee growers and other selected agricultural risks.

6. Departmental and private banks supply substantial amountsof credit to the cattle industry and some other stable farming opera-tions.

The major Government agency for agricultural credit is the Cajade Credito Agrario, Industrial y Minero. It was founded in 1931 witha capital of Ps.$2 million. After interim accrual, the capital wasincreased to over Ps.$12 million in 1940, Ps.$27.9 million in 1947 andto Ps.$45 million during the fiscal year ending June 30, 1949. InOctober 1949, a bill was pending in Congress for a further increaseto Ps.$100 million. During the 1949 fiscal year, total loans of theCaja Agraria rose from Ps.$89,667,000 to Ps.$119 million. 13 This rapidgrowth would seem to indicate a firm determination on the part ofthe Government to expand credit to agriculture.

Caja Agraria is authorized to furnish both short- and longer-termcredit to farmers, the latter through its subsidiary, Banco AgricolaHipotecario. Loans are of the following types: (1) production loans,limited to one year, for quick maturing crops; (2) loans of 1-5 yearsfor production of perennial and slower maturing crops, such as yuccaand sugar cane, and for permanent improvements or repairs; (3) creditup to 10 years for planting and bringing into production such latematuring crops as cacao, limited to enterprises with capital under

13 Annual report to the President of the Republic by Caja de Credito Agrario,Industrial y Minero for the year ending June 30, 1949.

76 TIIE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Ps.$200 thousand and to agricultural cooperatives; (4) credit for3 years or less for purchase of breeding cattle; (5) credit for 2 yearsfor ranging or raising cattle; (6) credit up to 1 year for fatteningcattle on pasture; (7) credit for the acquisition of small properties(capital under Ps.$20 thousand) through a 12-year mortgage-securedloan; (8) personal credit or "character" loans, not exceeding Ps.$300,to small farmers without resources, to enable them to produce aparticular crop or crops; (9) credit to cattle raisers for periods upto 5 years for the construction of dipping vats for tick control; (10)special credit up to 18 months to finance the operations of farmersand cattle raisers of established solvency, secured by chattels; (11)open farm mortgage credit to provide current operating capital asneeded for farming operations: (12) open crop mortgage credit ofthe same general character; (13) loans to farmers with well estab-lished credit (obviating need for appraisal of security) specificallyfor cultivation of long-term crops such as coffee; (14) credit for theimportation or domestic purchase of pure-bred cattle for breeding;and (15) credit up to 70 percent of the purchase price for purchaseof farm machinery, with repayment schedules adjusted to type ofcrop income and life of equipment.

The Caja Agraria is also a large-scale distributor of farm machinery,fertilizers, pesticides, seeds, and general farm supplies, imported ordomestically produced. It maintains 130 branch sales offices and asupporting warehouse system for this purpose. Finally, Caja Agrariacarries on a developmental and improvement program, including oper-ation of fertilizer mixinig plants, a rubber propagation project, andthe contracting and supervision of construction for three irrigationprojects.

Through an associated institution, Caja Colombiana de Ahorros,Caja Agraria provides savings bank facilities for snmall depositorsat all of its 130 retail sales offices and some 70 additional sub-offices.There are no minimum deposit requirements and some 450,000 deposi-tors (probably one-lhalf of them small farmers) have active savingsaccounts. In certain localities having no other banking service, CajaColombiana de Ahorros also serves as a bank of deposit for openchecking accounts.

The scope and terms of credit Caja Agraria is authorized to extendappear to give a promising picture, but analysis of its operations re-veals serious deficiencies. For lack of sufficient funds, it has beenpractically confined to short- and intermediate-term loans of less than5 years; almost no 10-year loans have been made. Interest rates are6 percent for one year and 7I/2 percent for longer periods. Although40 percent of Caja Agraria's loans are made to livestock enterprises,

AGRICUL'1 URE 77

cattlemen complain that their requirements are not nearly met; theFondo Ganadero de Antioquia indicates a need for at least Ps.$1million additional capital for loans in that area alone, where cattlecredit is urgently necessary. There also is agitation for a NationalLivestock Bank.

Present financing for farm machinery purchases is inadequate.Small and medium farmers often cannot meet the terms required.The proposed list of power machinery and equipment to be purchasedwvith proceedshflthectcrrent IBRD's $5,000,000 farm machinery loanindicates that the larger farmers will be the major beneficiaries.

There is extensive need for longer-term and lower-interest financ-ing, for land purchases and investment in buildings and other per-manent improvements. Except for the Coffee Federation's loans tocoffee growers against warehouse receipts, practically no commoditycredit is available to farmers. The loan and discount services to agri-cultural cooperatives are inadequate for present needs or futureg, rowth.14

In 1946, the Caja Agraria inaugurated a very limited program ofsupervised loans to small farmers and share-tenants, to enable themto plant and cultivate certain agreed crops. Despite encouragingexperience with relatively small numbers of borrowers during the twosubsequent years, the present policy of Caja Agraria is apparently todiscontinue the making of unsecured loans. There is great need fora combination of credit and technical assistance and supervision forthe poorer small farmers; failure to continue and expand this programwould be most unfortunate.

The existence of numerous credit agencies with overlapping juris-dictions may lead to friction and poorly coordinated services. Constantvigilance is necessary to secure efficient and adequate service underthis pattern.

PRICES AND MARKETING

Farm prices varying widely at different periods of the year andfrom place to place are harmful to both producers and consumers.Inadequate transportation and storage facilities create gluts and lowprices at harvest time and much higher prices during the rest of theyear. This unsatisfactory marketing system is an important factorcontributing to low farm incomes. The services of the 48 offices ofthe Instituto Nacional de Abastecimientos (INA) in purchasing, or

14 It should be noted that Legislative Decree No. 2462 of July 19, 1948, providesauthority for a Bank of Cooperatives. At present the Superintendency of Coopera-tives is in the Ministry of Commerce and Industry.

78 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

standing ready to purchase, at stated minimum prices such farmproducts as rice, corn, wheat, potatoes, sesame, beans, rubber, panelaand cacao help to stabilize prices for these crops. The coffee pricesupport program of the National Coffee Federation is also an importantstabilizing factor. Restrictions on the importation of food crops havetended to hold up the prices of some crops.

The typical open air village markets, held once or twice a week,permit a lot of direct or nearly direct trading without heavy chargesby middlemen, but they are time-consuming and usually very unsani-tary. In the larger cities, produce markets are generally inefficientan(I wasteful as well. Lack of proper grades and standards hamperssatisfactory marketing at every stage. Packaging appears to be aspecial problem. Lack of any adequate market news service alsohandicaps both buyer and seller. Market research, which could guideadjustments in the marketing system, is also lacking, and surveys ofconsumer preferences as to products, quality, packaging, and the like,are practically unknown. There are important exceptions, however.Coffee and bananas, the principal export crops, are marketed quiteefficiently.

Storage

Lack of adequate storage facilities results in heavy losses tofarmers, serious waste of food, and higher costs to consumers. It alsoaggravates the burden on the nation's transportation system at harvesttime, by precluding orderly movement of crops throughout the year.Grain storage facilities are very inadequate, and refrigerated storagefor meats, eggs and dairy products is practically non-existent. On theother hand, storage facilities for coffee appear to be adequate and ofgood quality.

At the Storage and Preservation of Grains Conference held atPalrnira (Valle) in February 1949, under the sponsorship of the Foodand Agriculture Organization of the United Nations, the Colombiandelegation presented data indicating that Ps.$20 million worth ofgrains, especially corn, rice, wheat and beans, were lost annually forlack of storage facilities. This is around 10 percent of total production.

The INA has instituted a storage program, of xvhich the first unit,a steel grain elevator of over 4,000 tons capacity, is nearing completionat BogotA. Officials of INA plan for a wvidespread system of storagefacilities, including large units at Buga and Medellin in addition tothe one at Bogota. rice-drying facilities at a number of points, andterminal elevators at Cartagena and Barranquilla to serve the northernpart of the country and provide a base for exports. A private group,

AGRICULTURE 79

Cooperativa de Colonizacion Tecnica, has also interested itself in thisproblem, and is discussing the possibility of organizing a farmers'cooperative to provide adequate grain storage facilities and to stabilizegrain marketing.

RURAL INDUSTRIES

A number of plants for processing local farm products and manu-facturing farm supplies exist in rural areas and small cities. Theseinclude the powdered milk plant at Bugalagrande, the fertilizer mixingplant at Buga, small flour mills like the one at Libano, coffee process-ing plants throughout the coffee producing areas, and literally thou-sands of "trapiches" (small "panela" mills), where brown sugarbricks are made from the sugar cane juice. The "trapiches" turn outone of the staple articles of food, but they are usually very inefficient;they obtain only around 50 or 60 percent of the juice, as compared tothe 80 or 90 percent extracted by the 15 or more large sugar millsxvhich produce a semi-refined grayish-white granulated sugar.

Except for coffee and sugar, the processing plants in rural areashave been little developed. One packing plant in a rural area slaughterscattle and transports meat to the larger cities daily by airplane, butmodern packing facilities are otherwise lacking. In a country withsuch high transportation costs as Colombia, there is much to be saidfor small food processing plants to convert foods for consumptionin the surrounding area. Units such as the small flour mill at Libanocan contribute substantially to the local economy by providing anearby market for grain and by avoiding high two-way freight chargesin providing flour for local use. Perhaps an even more importantbenefit from the development of rural industries would be the pro-vision of additional employment opportunities in communities wherenon-agricultural employment is generally scarce.

Colombia has taken very little advantage of the opportunity pro-vided by her situation and long coast lines on two oceans to developa salt-water fishing industry to provide additional protein for the diet.Lack of modern fishing boats, refrigerated storage and transportationfacilities, insanitary marketing conditions, and failure to develop fish-ing and canning factories, particularly along the Pacific Coast, appearto be the major factors limiting the development of the fishing indus-try. Little encouragement is apparently given to private fishing ven-tures. It is understood that negotiations are under way between theGovernment-sponsored fishing company (Icopesca) and Swedishinterests to remedy some of these deficiencies.

80 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

"TRANSPORTATION

Transportation problems are discussed in Chapters VII and VIII,but a brief mention of their great importance for agriculture is appro-priate here. That importance can scarcely be exaggerated. Inadequatetransportation aggravates seasonal and geographical variations in theprice of farm products, and makes price stabilization more difficult.Transportation difficulties restrict proper land use by isolating somegood land-from markets and forcing many farm families at a distancefrom good roads into a largely self-sufficient subsistence type ofagriculture.

Transportation problems of special concern to agriculture include:(1) inadequate farm-to-market roads; (2) shortage of suitable wheeledvehicles in lieu of pack animals for transportation on the farm andfrom the farm to market; (3) the high cost and inadequate service ofmajor transport media for moving farm products from local assemblymarkets to large consuming centers or ports; and (4) lack of satis-factory transport for cattle, which necessitates driving them to marketon foot at great sacrifice of wveight and quality.

GOVERNMENTAL POLICY AND PROGRAMS

With the passage of some 10 or 12 laws and decrees setting forththe Government's relationship to agriculture and industry, 1940 markedan important milestone in the development of agricultural policy. Thegeneral effect upon agriculture wvas to strengthen the barriers to agri-cultural imports and to enable the Government to intervene much moreactively in the economic life of the country. In 1944, the Congressadopted a Five-Year Plan for agriculture, part of which has since beenput into effect.

The increased importance accorded to agriculture by the Congresswas indicated by the creation in 1947 of the Ministry of Agricultureand Animal Industry. 1 5 Appropriations for the Ministry of Agri-culture, however, amount to only about 3 percent of the Nationalbudget, although agriculture includes the majority of the population

15 It consists of seven major administrative units as follows: The Office of theMinister; the General Secretariat; the Division of General Administrative Manage-ment; the Division of Agriculture, including sections for Agricultural Investigationsand Experiments, Agricultural Development and Extension, Plant Health, Agricul-tural Engineering, and Meteorology: the Division of Animal Industry, which con-tains sections for Animal Health and Hygiene, Feeding, Breeding, Parasite Control,Milk Development and Control, and Fish and Wildlife; the Division of Lands, withPublic Lands, Colonization and Parcelization, and Forestry sections; the Divisionof Rural Economics, comprising sections for Marketing, Production Estimates andCosts, and Revolving Funds for Economic Development; and an Institute of Inves-tigation and Diagnosis.

AGRICULTURE 81

and accounts for over 80 percent of Colombian exports. Additionalpublic funds for agriculture are available through about twenty publicand semi-public agencies. The result, however, is a great fragmenta-tion of agricultural programs.

The most important of the special organizations and programs foragricultural improvement are the following: (1) the National CoffeeGroxvers' Federation is a strong and well-financed agency concernedwith the problems of coffee growers. The Federation's operations arefinanced through a revolving fund from a tax on coffee exports, atpresent 25 centavos per bag. The Federation's activities include salespromotion, stabilization of export prices throg-h purchases and salesof coffee, contributions to the capital stock of the Caja de CreditoAgrario, loans to growers on the security of warehouse receipts,research in coffee growing practices and soil conservation methods,encouragement and financial assistance to rural housing and sanitationprograms, operation of a few agricultural vocational schools, andfinancial assistance to a model community (Viani) operated by theMinistry of Education, and to the agricultural college at Medellin.(2) The Caja de Credito Agrario, Industrial y Minero has been de-scribed earlier in this Chapter. (3) The Instituto Nacional de Abaste-cimientos (INA) has functions including support of prices, provisionof storage facilities, and importation of food products. (4) The Insti-tuto Nacional de Aprovechamiento de Aguas y Fomento Electricois concerned with irrigation as well as power projects. (5) The Insti-tuto de Parcelaciones, Colonizaci6n y Defensa Forestal has a threefoldprogram of colonizing public lands, buying up large privately ownedtracts and dividing them into small farms for sale to landless culti-vators, and promoting forest conservation. (6) The Instituto deCredito Territorial carries on housing programs in both urban andrural areas. (7) The Instituto de Nutrici6n is concerned with im-proving nutritional standards for the country's population. (8) ADevelopment Fund, to be supported by contributions from thebrewveries, is being established to promote production of barley andhops. (9) A Cacao Revolving Fund in the Ministry of Agriculture,to be supported by contributions from chocolate manufacturers, willbe used to finance cacao experiment stations. (10) The NationalCotton Institute, supported by a tax of 3 centavos per kilogram onimported raw cotton and 6 centavos on cotton yarn, promotes cottonproduction, carries on cotton research, and imports cotton ginningequipment and farm machinery. (11) The Colombian Livestock Asso-ciation is the chief instrumentality for Government aid to the livestockindustry; its pro-ram is partly supported by taxes on exported livecattle and on domestically tanned leather and exported hides. (12)

82 THE BASTS OF A DEVRLOPMENT PROGRAM FOR COLOMBIA

The Instituto Geografico Militar y Catastral is making comprehensivesoil surveys. (13) The Sugar Distributing Company. a monopoly ornear-monopoly in the sugar industry, is the channel through whichthe Government directs all exports and domestic distribution of sugar.(14) The Federation of Panela and Molasses Producers is the agencyfor carrying out a program of development and protection for thisindustry, financed by an assessment of 3 centavos per kilogram ofpanela and molasses used in the manufacture of alcohol and liquors.(15) A Tobacco Development Fund is financed by a 4-centavo taxon tobacco used in the manufacture of cigarettes. (16) A special Fundfor Promoting Wheat Production is provided by an import tax onvheat and xvheat flour. (17) A Wool Development Fund is derived

from a special tax on imported wool and yarn.

All these various agencies and programs are sanctioned by theGovernment and supported wholly or in part by taxes or other publicfunds. Strong centrifugal forces obstruct the rationalization and inte-gration of this complex structure. The result is that there is no mainfocus and little coordination of efforts in the agricultural program.Much attention is paid to protecting, developing, and promotingindividual crops and livestock. But the general problem of farms andfarm families seems to be largely neglected. Concepts of farm andhome management, of individual farm planning, and of rural com-inunity development to improve rural life, seem to be lacking.

Agricultural Self-Sufficiency

Rather strenuous efforts are being made to achieve national self-sufficiency in agricultural products. Decree No. Z06, issued February 4,1949, which is based on Economic La\v 90 of December 1948, lists some60 raw material items of which processors must exhaust the domesticsupplies before the Office of Exchange Control will permit imports.Special processing, import or export taxes have been placed on manyagricultural products, and the proceeds are used to encourage domesticproduction. Agricultural commodities noxv covered by price controls,consumption quotas, or special taxes include coffee, bananas, barley.cacao, cotton, hops, livestock, hides and skins, panela, potatoes, rice,rubber, tanning materials, tobacco, vegetable oil seeds, wheat, wheat

flour, and wool.

Exchange control regulations include in Group III-the lowvest orleast urgent classification, on wvhich a tax of 26 percent is imposed andfor wvhich in practice no exchange is allotted-the followving products:rice, barley, oats, beans, wheat flour, crackers, fresh and dried vege-tables, fresh fruits, sugar, honey, fresh, cured and cannled meats andfish, condensed or processed milk, butter, vegetable shortening, canned

AGRICULTURE 83

goods, and processed tobacco. Group I, however, on which the importtax is only 6 percent, includes some agricultural commodities, andthe Exchange Control is permitted to approve imports in this groupwith the concurrence of the Ministry of Commerce and Industry.These commodities include wheat, malt, copra, some children's foodpreparations, hops, cacao beans, pork, lard, raw cotton, wool, cruderubber, tobacco leaf and agricultural seeds. In addition, certain agri-cultural supplies-fertilizers, insecticides, tractors, and farm machineryand equipment-fall within the same category.

Special efforts are being made to achieve self-sufficiency in cotton,wheat, cacao and oil crops. In some quarters, indeed, there appears tobe an emotional urge to be self-sufficient at any cost. This objectivewas a very natural one during the war, when it was difficult or im-possible to obtain needed products in world markets. But surely anation for which world coffee markets are so important as a sourceof foreign exchange should consider carefully any restriction of inter-national trade. In principle, Colombia stands to gain from world tradeso far as it can obtain agricultural products from abroad cheaper thanit can raise them, although there are other factors that must beconsidered.

Wheat is one crop the production costs of which are generally highin Colombia. Wheat is bringing the equivalent of about U.S.$7.50 perbushel (at the official rate of exchange), while the price in Canada andthe United States is not much over U.S.$2.00. But the high protectedprice of wheat has not provided a satisfactory existence for the wheatgrowers and their families, as is indicated by the deplorable plight ofmany farmers in the mountains of Narifo, Santander, and Bovaca.

A calculation of the comparative advantage of raising or importing,wheat involves a number of questions-e.g., the prospects for increas-ing exports of such products as coffee, bananas and hides, and ofdeveloping new export products; the potential market for such newexports; the relative cost of increasing production of export crops asagainst the production costs of wheat; and the possibility of usingeffectively for other purposes the land and labor resources now engagedin xvheat production. Such questions have important social as well aseconomic implications and involve the interests of both producers andconsumers; they are by no means simple. But an intelligent evaluationof comparative advantages must be made if policy decisions are to beinformed and consistent.

The Cooperative Movement

The cooperative movement has grown steadily during the last 17years. The Government has actively promoted this growth, but while

84 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

authority exists for the establishment of a bank for cooperatives, ithas not yet been created. From 1933 to 1939 the number of co-operatives increased from 4 to 170, while the membership climbed from1,087 to 37,011. During the same period paid-in capital increased fromPs.$46,000 to Ps.$2,545,000.' 6 By 1949 there were 417 cooperatives with120,000 members and the paid-in capital was about Ps.$115 million.17

The continued growth of cooperatives should help to fill importantgaps in Colombia's agricultural economy by providing an increas-ingly effective organization for marketing farm products and purchas-ing farm supplies, and for the joint ownership and use of machineryand equipment. At the same time cooperative buying and sellingshould help substantially to stretch meager incomes to cover moreadequately farm operating and family living requirements.

Taxation

Taxation is dealt with in Chapter XIII, but since tax policies havean important bearing on agriculture some attention must be given thesubject here. The rate of land taxes is very low in comparison withthose in more highly developed countries, although they are apparentlynot low in comparison wvith typical Latin American standards. UnderDecree No. 2473 of 1948, these taxes are set at Ps.$4 per thousandof assessed valuation, and assessments are often much belowv actualvalues. This may be an important factor in encouraging the uneco-nomic land use cited earlier. If the owner of a large area of land hasto pay in taxes only a small part of his return, he can make a fairlygood profit even though not fully utilizing his land. Were his income

substantially reduced by taxes, he might feel impelled to farm moreintensively. The low level of taxation on land also makes it difficultto provide adequate educational and health facilities in rural areas,since land taxes are almost inevitably the principal source of incometo local governments.

It is certainly not inherently antisocial to use land below itscapacity. But when good land is scarce and most of the populationdoes not have enough land to make a satisfactory living, even thoughthey cultivate it very intensively, basic social issues are raised. Suchsituations have stimulated legal efforts in many countries, andrevolutionary programs in others, to effect a more equal and economicredistribution *of land. Since the underutilization of fertile level landcontributes to over-use and consequent erosion and destruction ofsoil on the slopes, the public has a definite interest in the use of private

16 Wylie, op. cit.17 Information from the National Superintendency of Cooperatives.

AGRICULTURE 85

lands, although the problem may not be adequately recognized untilmuch damage is done.

Agricultural Statistics

The persons responsible for the collection and analysis of Colom-bian agricultural statistics are to be commended for the results theyhave achieved with the very meager resources at their disposal. None-theless, agricultural data are very limited in scope and unreliable.They have, therefore, only limited value for the analysis of presentproblems or the planning of future programs in agriculture.

A small nucleus of agricultural statisticians is found in the Divisionof Rural Economics in the Ministry of Agriculture. This group fur-nishes a base upon which much needed expansion can be undertaken.It consists of 8 or 10 professionals and 3 or 4 clerical employees. Itcollects agricultural statistics and makes estimates of the volumeand value of crops each year, and of the numbers of different classesof livestock and livestock products. Considering its limited facilitiesand lack of field staff, it is remarkable that the Division is able tomake any estimates at all. Their unsatisfactory standard of accuracyis wholly understandable. Without substantial expansion of this work,the data necessary for making sound economic analyses and planswill not be available.

Agricultural Research

Social research in agriculture and rural life is almost entirelylacking. The Division of Rural Economics occasionally makesanalyses of marketing and costs of production as do some of theother governmental or semi-public agencies, such as the NationalCoffee Federation and the Caja Agraria. The sociological study ofTabio referred to previously was made by personnel of the Divisionof Lands of the Ministry of Agriculture, in cooperation with others.But in general very little social research is accomplished althoughthere is great need for it.

On the other hand, a considerable amount of technical research inagriculture is under way. A section on Investigations and Experi-ments was recently established in the Agriculture Ministry. It isattempting to coordinate technical research in five agricultural experi-ment stations-Palmira, NIedellin, Armero, Bogota and in Magda-lena-about a dozen substations scattered throughout the country,and in the Biological Institute. In addition some experimental workis privately directed, such as the important work in coffee productionand soil conservation done at the Coffee Experiment Station at Chin-china. Many of the experiment stations and substations have been

86 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

largely demonstration farms rather than places for scientific investi-gation. But in the last few years more and more of the work has beenput on a scientific basis, although there is still room for improvement.

Considerable work has been done in selecting better crop varietiesfor different conditions. A new variety of sugar cane, resistant tocertain diseases, has been found. Work with wheat varieties on some600 plots, to find types resistant to rust, is promising. Developmentof "synthetics" in corn may increase corn yields considerably. TheRockefeller Foundation, in cooperation with the Government, isinitiating a research program in corn breeding. Some 30 legumes, ofaround 500 brought in from all parts of the world, show promise andhave been segregated for further study. Important research is underway in cotton, and in the selection of better strains of cacao byindividual tree cuttings. Fertilizers are being tested under differentconditions. Insect- and disease-control work is under way for bothcrops and livestock.

Livestock breeding work has developed crosses, particularly ofimported Zebu or Brahma and dairy breeds with native cattle, andhas made improvements in native breeds. Development research isunder way to find suitable dairy cattle for the middle altitudes andfor hot portions of the country. Limited research with sheep andhorses is also carried on.

Although the technical research program has been supported moreadequately than statistical work and social research, it still needsexpansion. Lack of continuity has been a problem; often projectshave not been followed through to get results. This may be due inpart to lack of care in selecting projects in the first place. The workof the new Experiments Section may be expected to bring aboutimprovements.

Probably one of the most important difficulties affecting technicalresearch has been the problem of getting the findings to the farmers.The Extension Section of the MIinistry would be the best means toaccomplish this but, as was pointed out earlier in this chapter, it islittle more than a skeleton organization, although fortunately onesusceptible of easy expansion if the necessary funds were made avail-able.

CHAPTER VI

Industry and Fuels

HISTORICAL DEVELOPMENT

Industry in Colombia is of comparatively recent growth. At thebeginning of the century, only 128 industrial establishments existed.They were engaged mainly in the production of beer, processing offoodstuffs and the working of silverware. Exports of coffee, emeralds;gold and bananas supplied foreign exchange needed to meet therequirements for clothing and equipment, and the general require-ments of the small well-to-do class. In the period preceding the firstWorld War, a number of new establishments were created, includingthe first textile and tobacco plants. The scarcities attendant uponWorld War I gave the first real impetus to industrialization. A petro-leum refinery was built and considerable expansion occurred in theprocessing of foodstuffs, miscellaneous chemicals, tobacco and textiles.However, the industrial potential of Colombia was still small in 1921and the growth continued to be very moderate throughout the 1920's.

The next great impetus to industrialization occurred in the period1930-1933. In this period, 842 new industrial establishments werefounded. By 1934, most of the present basic Colombian industries hadbeen launched. The rapid development since that date has beenlargely in their expansion and in the creation of a number of smallermanufacturing plants which brought about a greater diversification ofColombian industry. The only new industries of considerable sizeestablished since 1934 have been fats and oil, rubber tires and thesoda ash and caustic soda plant currently under construction. Themagnitude of expansion may be illustrated by increases from 1934 to1938 of 400 percent in the production of cement, 200 percent in sugarprocessing, and 400 percent in electric power output. New smallerindustries created in this period included steel fabricating plants,printing establishments for books and magazines, and also plants forthe manufacture of canned foodstuffs, jellies, marmalades, sausages,silverware, high quality beer, pigments, paints, containers, vitreousand asbestos tiles, furniture, and miscellaneous chemical drugs andtoilet articles.

CURRENT POSITION OF INDUSTRY

The first industrial census was taken in 1945. It indicated thatat that date industry employed about 115,000 workers and 20,000salaried employees. Nearly half of these workers were engaged in

87

88 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

food processing and in textile plants. Capital and reserves amountedto Ps.$508,200,000. Sixty percent of this amount was invested inplants manufacturing textiles and processing foodstuffs and bever-ages. Geographically, industry was concentrated in and around thefour cities of Qogot6, Medellin, Cali and Barranquilla. We estimatethat in 1944-1945, nearly 70 percent of industrial production wascentered in the four departments containing these four cities. Theconcentration shown by capital investment was even greater, withthe above four departments accounting for some 80 percent of thetotal invested in all manufacturing industries in the country.

This segment of industry, which excludes small workshops andhandicraft establishments, either generated or bought power fromequipment having a capacity of 143,000 h.p., or 1.25 h.p. per worker.On the basis of the 1944-1945 census, we have estimated by methodsdescribed in the Appendix on national accounts the value of produc-tion in 1944-1945, together with a breakdown of the main components.'

According to our estimates, the value of industrial production inplants producing more than Ps.$6,000 of products in the year 1944-1945 increased from Ps.$407 million in 1939 to Ps.$830 million in1944-1945, and Ps.$2.1 billion in 1948. From 1939 to 1948, the increaseof 422 percent in the value of production reflects a rise in prices of215 percent and an increase in the volume of production of 143 per-cent. Since the total value of industrial production includes the valueof raw materials and fuels domestically produced or imported, itoverstates the actual contribution made by industry to the economyof the country.

More relevant in assessing industry's contribution are figures onvalue added or, in other words, the contribution to overall productionrepresented by the value of the work of labor, management andcapital. In 1939 this figure of value added in manufacturing amountedto about Ps.$120 million and grew to Ps.$494 million in 1947. Thesefigures represent respectively 11.5 and 15.3 percent of the total ofthe value added by all economic activities, or the net national income.In terms of gross national product, i.e., the total gross value of allservices produced, value added in manufacturing climbed from 10 to13.5 percent.

Table 19 illustrates the extent to which Colombian production isutilizing locally produced raw materials. In 1944-1945, only 21 per-cent of all raw materials used in manufacturing were imported. Prog-ress in agricultural technology, especially in cotton, wheat and edibleoilseeds, may have reduced this ratio even further since 1945.

I See Appendix A.

INDUSTRY AND FUELS 89

TABLE 19

COMPONENTS OF VALUE OF PRODUCTION (Ex FACTORY) OF

ALL INDUJSTRIAL PRODUCTION, 1944-19451

Value of Itemsin 1944-1945 Percent of

(millions) Total

RAW MATERIALS .............................. .... Ps.$ 484.3 58.4Local agriculture ................... ..... .... (260.0) (31.3)Local others (119.0) (14.4)Imports ..................................... ........... (105.3) (12.7)

WAGES AND SALARIES ...... ......... ........ 97.3 11.7FUELS ................................................. 14.4 1.7DEPRECIATION ................... ............. .... ... 21.5 2.6TAXES (indirect and income) . .. ... 59.8 7.2RETAINED EARNINGS .... . .... ............. 45.7 5.5NET PROFITS ................. ................. 70.5 8.5O THER2 . .......... ... .......... ..... ... .. .......... 36.5 4.4

TOTAL ...................................... .......... PS.$ 830.0 100.0

1 First of July 1944 to June 30, 1945.2 Payments for interest, patents, royalties, selling COsts, etc.

Another indication of the position of industry in Colombia is theextent to which it meets current consumption demands of the economy.It must, of course, be borne in mind that such consumption demandsare in many cases low in terms of basic requirements per capita.Keeping this in mind, the extent to which Colombian industry wassatisfying total consumption demands in 1947 is summarized in Table20. By the close of 1949 probably a somewhat higher percentage ofrequirements was being satisfied locally, as additional capacity hadcome into production since 1947.

In general, Colombia is meeting through domestic fabrication prac-tically all of its current consumption of processed foodstuffs, bever-ages and tobacco, textiles, shoes and fuels. It is fabricating a verysubstantial part of its building material requirements. Since 1947 ithas added to its sulphuric acid capacity and is currently building asoda ash and caustic soda plant which should meet all requirementsin those fields. It has also added to its glass bottle capacity. Themajor classes of fabricated items which are still being importedinclude transportation equipment of all kinds, road building equip-ment, agricultural and industrial machinery, electrical and steelproducts, chemicals and pharmaceuticals, paper products and a widevariety of appliances.

On the whole, the development of industry to date appears to havebeen logical and soundly based. It is natural that the greatest progress

90 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

TABLE 20

DOMESTIC PRODUCTION AS A PERCENTAGE OF CONSUMPTION, 1947

FUELS Coal 100Refined petroleum 86Firewood 100Electricity 100

CONSTRUCTION MATERIALS Steel 7Cement (white and gray) 82Lumber 100Brick 100Vitreous tiles 99Limestone 100Quicklime 72

TEXTILE MANUFACTURES Cotton 93Wool 80Rayon 89

SHOES Leather 99Rubber 82Fabric 85

BEVERAGES AND TOBACCO Beer 100Liquors and wines 96Mineral water and soft drinks 100Cigarettes 94

CHEMICALS Sulphuric acid 56

PROCESSED FOODSTUFFS Sugar 91Salt 100W\Theat and wheat flour 66Lard 80

should have been made in the mass consumption industries, such astextiles, foodstuffs and beverages. It is also apparent that the veryhigh internal transport costs are largely responsible for the localproduction of cement and other bulky building materials. Productionof power and fuels has failed to keep up with the rate that mighthave been expected, considering the growth of the country. Thelag in power output has been complicated by financing difficulties andrate and management problems which are treated in the chapter onelectric power.2 The shortage in refinery capacity in turn has beenassociated -with the peculiar circumstances surrounding the de MaresConcession. Otherwise. it is probable that steps would already havebeen taken to increase the production of refined petroleum productsfor the country. Coal mining has, from a volume and a technicalpoint of view, been a definite laggard. Growth has also been disappoint-ing in the lumbering industry and in the fabrication of forestryproducts.

Recommendations designed to bring about desirable lines ofindustrial development are considered in Chapter XIX.

2 See Chapter X.

INDUSTRY AND FUELS 91

CHARACTERISTICS OF INDUSTRY

TransportationLack of a unified transportation system in Colombia is one of the

main factors contributing to the high cost of manufactured goods.This high cost in turn limits to a large extent the demand for suchgoods. While specific transportation problems are discussed in Chap-ters V[I and VIII, their effect in limiting industrial markets is aprimary characteristic of Colombian industry.

Raw Materials

The second main factor entering into the high cost of Colombianmanufactured goods, and one over which industry can exercise littlecontrol, is the cost of raw materials. This high cost goes back inpart again to the high cost of transportation and in part to the rela-tively low productivity in agriculture.

Closely analogous to the contribution to the high prices of finishedgoods made by raw materials is the high cost of building materialsand of fuel and power. Apart from cement and some types of roofing,most of the building materials are made by hand and are costly.Finished industrial buildings are also costly because constructionlabor is not directed efficiently and excessive time is consumed in thecompletion of structures. Power costs are also high and these againgo back to the high cost of buildings, imported equipment, andtransportation. The extent to which industry can take independentaction to reduce these various costs is limited.

Variation in Efficiency

Another characteristic of Colombian industry today is the greatIvariation in efficiency. Some industries wvhere xvorkshop and handi-jcraft conditions prevail are most inefficient. Others, like the cottontextile industry and some of the more modern cement plants, comparein efficiency wvith average or better than average plants in the mostadvanced industrial nations. This variation, of course, exists in everycountry.

Its prevalence in Colombia is in large part attributable to historicalfactors. Industrialization is a very recent phenomenon. Labor andoften management are still by and large inexpert. Modern methodshave not as yet permeated a large sector of industry and the relativelack of competition, the smallness of the market, the high protectionprovided by tariffs and heavy transportation costs may have postponedtheir introduction. Major obstacles to be surmounted in a swift im-provement in the level of industrial efficiency are described brieflybelow.

92 TilE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

It has been amply demonstrated in numerous modern plants thatColombian labor can, vith proper training, care and supervision, bevery efficient. The worker is, however, greatly handicapped both interms of education and health. For the most part, he lacks any voca-tional or trade-school training and even a good elementary publicschool education. MAoreover, his nutritionl and health are generallynot sufficient to permit him to do heavy wvork for long hours. It ivasfound in one plant that the provision of three good balanced meals aday within the plant enabled wvorkers to handle heavy work whichpreviously they had been incapable of performing.

Labor cannot be efficient or achieve high productivity uniless itis properly supervised. Securilng good supervision has proved to be adifficult problem in Colombia. Because of the very low educationalattainments of the -workers, it has proved difficult to date to recruitgood supervisors from the ranks. On the other hand, college graduatesin Colombia dislike to do the manual work wvhich is necessary intraining good supervisors and, indeed, dislike supervisory work itself.Consequently, the most successful plants in Colombia rely almostvithout exception UponI foreign personnel for adequate supervision.or Colombian personnel wvho have been trained in foreign countriesfor specific jobs.

ManagementConsidering that industry in Colombia has developed only recently,

the level of management of private enterprise is surprisingly good.In plant after plant visited, w-e found management to be alert, inter-ested and informed on the problems of the plant and the industryand awvare of developments in the industry abroad. In general, newVdevelopments involving either new products or capital investmentwere carefully analyzed before being embarked upon. Unfortunately.public enterprise in general cannot at present make positions asattractive for management either as regards pay or other circum-stances. Consequently, \vith a few noteworthy exceptions, the qualityof management in publicly run enterprises does not appear to be ashigh as that in private industry.

One criticism that might fairly be leveled at private management.1in Colombia is that it appears to be animated by a high value-lowvolume complex. This has perhaps risen from, and may even be justi-fied by, the various conditions that circumscribe the market in Colom-bia, such as low buying power and high transport costs. However,even in those cases where there appears to be an opportunity to tapa larger market through reduced prices, there is some reluctance toadopt this course. In case after case, we found price markups and profitmargins at levels that seemed to be excessively high. In one industry,

INDUSTRY AND FUELS 93

for example, production costs wvere only slightly higher than produc-tion costs abroad and vet, by the time the product was fabricatedand sold at retail, its price was twvo or three times higher than theprice of the comparable foreign article.

The scarcity of capital in genieral, the degree of protection affordedby tariffs and by transport costs, the system of allocating foreignexchange and of limiting imports, the fewrness of competing units,and the continuing bias towvard inflation, have all contributed toreduce incentives to improve efficiency and to foster excessive profitmargins.

Limited Markets

The one factor that limits the growvth of large-scale modlerni indus-try in Colombia more than any other is the limited size of the domesticmarket. Not only is it difficult to push specialization and the divisionof labor where the market is small, but in many fields it is actuallyuneconomic to attempt production An example is the manufacture oflight bulbs, which are made very cheaply by highly mechanizedequipment. The capacity of the smallest mechanized plant is such thatthree months' operation would fulfill Colombia's presenlt dlemanldsior a year.

The smallness of the domiestic market is primarily (lue to thelextremely lowv purchasing power of the mass of the people. Although;the population of Colombia is close to that of Canada, \vhich hasdeveloped into a major manufacturing country even wvith great trans-portation handicaps, the buying power and markets of the twvo counI-tries are not in any sense comparable. In addition to the low buyingpoxver, the high cost of transportatioln hlas further restricted themarket for any one plant. Finally, the difficulty of securing ll)ortedmlaterial, the higih cost of domestic raw material, andc the g-enerallyhigih gross profit inar-ins have led to high utiit prices and a Fur-therrestriction of the market. As long as these v arious factors prevail,progress toward the development of mass procluctioni witlh low un litcost and high volume operations wvill be slow.

Handicap of Location

One handicap wvhiclh Colombian industry shares in commlion withindustry in other recently developed countries arises from the remote-ness of one industrial segment from other industrial centers. In morehighly developed countries, industry benefits from the existence ofmass production and intense specialization. It is easy to secure per-sonnel or machinery fitted for almost any type of specialized task and

94 THE BASIS OF A DEVELOPIMENT PROGRAMr FOR COLOMIBIA

inventories may be kept at a relatively lowv level. Every industrialistin Colombia, on the other hanid, must reconcile himself to makingmore repairs in the plant. carrying larger inventories and gettingalong with more general-purpose and less specialized equipment andpersonnel than his counterpart in other industrial nations. Possiblythis remoteness is also an explanation of the lack of research andconcerna Awith quality. Cases wNere cited to the Mission in whichColombian products failed to meet Government specifications neces-sitating the procuremnenit of needed material outside the country.Again, little money and personnel appeared to be devoted to researchin locating and using clomnestic rawv materials or in improving quality.

Capital and Credit

Colombia does not possess a very highly developed capital market.3

Consequently, to an unusually large degree, industry must supplythe funds for its oAwn expansion. Although there are frequent com-plaints of the shortage of capital, it appears that the high profits andinflation of the past ten years have provided adequate capital for theexpansion of existing enterprises. Expansion of such enterprisesappears to be limited more by the lack of demand for their productsin relation to present selling prices than by insufficient capital orcredit. Quite possibly, the difficulty of mobilizing capital ftunds mayhave been more of a deterrent in getting enterprises in new fieldsstartedl. Usually existing enterprises branch out into new fields, per-haps in conjunction xvith foreign enterprises, or with a group ofwvealtlhy individuals putting up the money. 'While we were impressedby the number of opportunities in new fields as yet unexploited, itmust be admitted that such fields require very careful advance studyandl that their opportunities must compete with great profit possi-bilities in older fields wAlhere the problems are relatively well knownand can be more easily handled. Although Colombia suffers in generalfrom a shortage of capital, it appears that industry has not been par-ticularly checketl by this fact, at least in the last ten years.

The shortage of capital has played a decisive role in the publicutility field, but there it has been combined xvith the difficulty ofraising rates. The course of inflation has meant a steady rise in costsfor all utilities. Political considerations, hovwever, have made it diffi-cult to secure promptly a corresponding and offsetting increase inrates. Consequently, the return to capital in this field has been belowthat obtained by capital in intlustry, land, or buildings. Variousadditional factors have made this field increasing,ly less attractive to

3 See Chapter IV for a discussion of capital formation.

INDUSTRY AND FUELS 95

foreign private capital. Therefore, some of the most urgent needsfor community facilities in Colombia today are being held up bylack of capital. It must be kept in mind, however, that this lack ofcapital is closely tied in with other factors which must be alleviatedbefore capital needs can be met.4

Social LegislationAnother factor which may contribute to the difficulties of Colom-

bian industry is the fact that to an unusual degree the Colombianworker receives his remuneration in the form of benefits accordedhim by social legislation. These include retirement pay, severancepay, paid vacations, pay for Sundays, religious and national holidays,schools for children under certain conditions, various benefits for lifeinsurance, accident, illness, death, etc.5 Payment in this form hasobvious implications, both for management and for workers. Formanagement, it poses rather a formidable bookkeeping and record-keeping job, and for a group of leading firms varied in recent yearsfrom 36 to 43 percent of the payroll.

It is argued that this system of social benefits gives greater assur-ance that the wage earner's total remuneration will result in moresecurity for him and his family. While this is doubtless true, theprevailing practice of paying flat wage rates, combined with the factthat an increasing proportion of the remuneration appears to comeas a result of social security laws, may also operate in the directionof lowering wTorker incentive and the cultivation of a feeling ofirresponsibility. Payment by piece-work is almost unknown in Colom-bian industry and hence the worker in some industries can see littledirect relationship between the work he performs and the remunera-tion he receives in various forms. This whole question of worker in-centive requires more attention and study.

Power for Industry

Perhaps the most fundamelntal requisite for industrial developmenton a substantial scale is the provision of cheap and adequate power,principally electricity. This is generally recognized in Colombia, andin recent years great stress has been placed on expanding the country'spower production. The exceptional rate of increase both in produc-tivity per worker in industry (5 percent per year) and in total indus-trial output (10 to 11 percent annually) may be ascribed in large partto the growth in the use of electric energy.

More than three-fourths of the industrial equipment in Colombiain 1944-45, as showvn by the 1945 industrial census, was electrically

4 For a fuller discussion, see Chapter XXIII.5 See Chapter XXII.

96 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

powered, and this proportion has since undoubtedly at least beenmaintained. In addition to its role as thle principal motive force formachinery, electricity is becoming increasingly important also forinidustrial heating andl clhemical processes. The use of electric furnacesin steel productioin. for annealing, and in baking enamel wNork andceramics lhas developed substantially in recent years and offers greatpromise for furtller growvth. An electrolytic process for producinglhydro-en economically in small quantities has made it possible todevelop local prodtuction of vegetable cooking fats to replace formerimports, and simnilar processes may be applied in the future to theproduction of other chemicals,

It is not eas- to obtaini an accurate, comprehensive picture of theindustrial power situation at present. Data from the industrial censusof 1944-45, wvhile not fully satisfactory, are the best available; morerecent information is unreliable.

Accordiwg to the census, in June 1945 the total capacity of facilitiesgeneratinig power of all types in industries was 71,325 hi.p. or, in elec-trical equivalent, about 53,000 kw. The Mission estimates that27,000 kwv. -vere produced by electric generators and 26,000 kxw. byother types of power.6 Industrial consumption of electric power atthe same time was 202 million kwh., of which 67 million kwh. wereg,enerated in the factories themselves and 135 million kwh. iverepurchased from outside sources. The total capacity of industrialequipment driven iby electricity, but not generating current, was80,000 kw. Taking tlhe capacity of machines powered by other meansas the equivalent of 26,000 kxv., the total machine capacity would be106,000 kwv. or abotut 142,COO h.p.-an average of nearly 1 25 hl.p foreach of the 115,000 workers in Colombian industries.7

-Major consuminers of electric pox-er xvere:Percentage

of total consumptionSugar industrv 5.5Beer industry ..... .... 50Cement industry .. .. ... 21.2Cotton textile industry 30.3Rayon industry . ... 3.5Wheat mills . . .... 2.9

6 Derived from the consumption figure of 67 million kwh. from these sources,based oni a factor of utilization of 2500 kwh. per kw. of installed capacity.

7 Data on horsepower availability per capita should be interpreted with greatcaution. For example, according to records of the 1945 power consumption, the avail-able machinery was used, on the average, only 28 percent of the time. If 230,00(0workers had been employed on the same machines, and each machine had been usedtwice as much, the per capita availability of power would have been only 0.62 h.p.,but worker's efficiency and otitpirt lper capita would have been exactly the same. Whatis really significant in this analysis, therefore, is not the horsepower available per manbut the actual work performed in relation to the number of units of machinery andcxpeliditure of man-hours. Howvever, data on the machinle calpacity installed is relevantalso, as indicating the potential availability of machiiies at any one time.

INDUSTRY AND FUELS 97

Since 1944-45 no complete records on the industrial uses of powerhave been kept. Those years were a period of slack economiiic activity.The utilization of available industrial equipnmenat was at a low level,averaging only 28 percent of the theoretical capacity. 8 Under theinfluence of the postwar boom the demand for industrial goods, andconseqtuelntly for powver, climbed sharply; the rate of groxvth for thelatter rose from a normal 9 percent per year to 12 percent annuallyover the past five years. The factor of utilization of capital equipmentialso increased to perhaps 35 percent, since new equipment could not,be installed rapidly enough to keep up with the demand for manu-ifactured goods.

At the same time the commercial and residential demand for elec-tricity has also increased rapidly. Thus, although both public serviceand factory-owvled generating facilities have been considerably ex-panded since 1945, they- are seriously overtaxed in many areas andare almost everyvhere inadequate to serve the needs of a rapidlyexpanding economy.

One significant indication of the unsatisfactory supply of poxver1for industrial use is the relatively large proportion of power generateclby factory-owned facilities. These sources in 1944-45 supplied aboutone-third of the total power used in industry and it is probable,in view of the large number of individual power plants known tohave been installed since the end of the wvar, that this proportionis now even greater. The building of generating plants to supplytindividual factories is uneconomic on several grounds. The capitalcost per kilowatt of capacity is much greater for small plants thanfor large ones, arid the former's operating costs per Unlit of outputare also higher. Individual power plants must have standby capacityproportionately much larger than is necessary for public service facili-ties consisting of several units and serv-ing a varied demanid. Theirload factor will normally be lowver, and the unit cost of power there-fore higher, unless the manufacturing plant they serve is operatingon a continuous two- or three-shift basis. All these elemients con-tribute to a substantial increase in the operating costs of industrieswhich must provide their own power. But perhaps even more im-portant, from the standpoint of indtistrial expansion, is the greatlyincreased initial capital investment imposed by the necessity of estab-lishing separate generating facilities. The nleed to provide a powerplant may well double the cost of a factory, and in view of the limited

S The demand of a machine of 1 kw. capacity, operating for a year without inter-ruption, is 8760 kwh. Actual demand averaged only 2500 kwh. per kw.

2500 - 28 percent.8760

98 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLONIBIA

capital available for investment in manufacturing, this additional ex-pense undoubtedly holds back the establishment of many new enter-prises.

The tendency of Colombian indtustrialists to resort so extensivelyto individual factory-owned power plants seems to be partly theresult of a feeling that they cannot al\vays rely on an adequatesupply of firm poxver from public utility sources, and partly becausepublic utility power is often so expensive as to make individual facili-ties appear economical. Both these factors, in turn* stem not onlyfrom the inadequacy of existing power facilities in many localities,but also from a failure by some of the utility enterprises and rate-fixing authorities to give sufficient encouragment to industrial powvertises, particularly in off-peak periods. This is reflected in the widevariations in daily load experienced by most of Colombia's electricutility systems. A load factor of 50 percent may be regarded assatisfactory. The average in Colombia in 1944-45 was only about 35percent. With the great expansion in demand for poxver since 1945,the average load factor has risen considerably, but in many localitiesthis has resulted in serious overloading of generating facilities anddeterioration in service at peak periods.

Perhaps the most important influence on industrial demand forpowver is the rate structure. It is usually considered a sound practicefor electric utility companies to offer low rates to large users ofpower in off-peak periods-principally industries and electric trans-portation lines-in order to encourage more efficient use of theirgenerating facilities and a better balanced daily load. But in someColombi?an cities the effective rates to industrial users are little orno lower than those to small residential consumers. An extreme caseis that of Medellin.' This tends to encourage residential uses of pow-er(particularly for lighting) as against industrial uses, and thereby to

aggravate the peak loads on the local power systems and reduce thesystem's overall load factor and operating efficiency.

For truly efficient and economical power generation it is necessaryto develop a balanced demanid, in wvhich residential, commercial andindustrial uses complemiient each other so far as possible and thegrowth of this combined market makes possible a progressive reduc-tion of the unit cost of generation. For this reason the availabilityanid requirements of power for industry cannot be treated realisticallyapart from the general power picture. For many years to come,moreover, the major demand for power will be for residential use:it is this residential demand that will in fact largely determine the

9 See Table 71, Chapter X.

INDUSTRY AND FUELS 99

extent to which generating capacity should be expanded and hencethe amount of power available for industrial use. Thus, in order toavoid unnecessary repetition in considering these various factors, thediscussion of power production and use is concentrated mainly inChapters X and XXIII on "Electric Power and Community Facilities."An attempt is made in those chapters to analyze comprehensivelyColombia's power situation, problems and requirements.

CHAPTER VII

Surface Transport

The unique ruggedness of the topography of Colombia makessurface transportation a major economic problem. Although the ter-minal points of the main transportation routes are fixed by politicaland economic considerations, the location of routes and the nature ofthe transport media are dictated wholly by the problems of terrain.The physical barriers that divide Colombia into economic zones alsoset the general pattern of surface traffic. The volume of goods movedbetween zones is quite small and because transport charges are highsuch movements are limited to products of relatively high value. Themountain slopes are steep, shattered and unstable, and the rivercourses are not vet w%orii to permanenit beds. No single mode of trans-portation could surmiount all these varied obstacles. There are noiiidependent railroad, highvay or inland wvaterway systems. Majortraffic flows must use all of theml in combination, with resultant opera-tional and economic inefficiencies.

Navigable rivers. or those which could be made so, wvere the firstarteries of commerce. Railroads were built to connect the river portsand the major Pacific seaport, Buenaventura, with the principal citiesof the densely peopled central highlands, wherever the terrain per-mitted. The capacity of these railroads, however, is very limitedbecause of the steep grades, narrowv gauge, and sharp curves imposedby the rugged contours. In many other locations in the populatedareas railroad constructioni wotild be prohibitively expensive so thathighways, which permit steeper gradients and tighter alignments,have served as an alternative. Pipelines have so far been used mainlyto convey crude oil from fields in the interior to the seaports. Airtransportation has developed rapidly because of its ability to surmountsurface difficulties; it is now one of the principal means for transport-in,g both passengers and freight.'

Figure 2 shows the primary surface transportation routes, includ-in g railways, highwvays, pipelines and inland wvaterways, together with

their principal termini, and indicates how they supplement one another.For example, goods transported from the principal Atlantic ports ofCartagena and Barranquilla to Bogota or -Medellin must go partly byriver and partly by rail or highway; the route from Buenaventura toBogota. combines railroad and highways; and communication betweenBogota and Aledelliin or Cali requires a similar combination of rail

X For a more complete discussion of the air transport system, see Chapter VIII.

100

COLO M B A RIO

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102 TIIE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMIBIA

and highvway service. Serious transfer delays occur not only at theports of entry, but also at variotus points en route-notably at riverports due to the unreliability of the river and the need to shift cargoesto railhvays or trucks-and the gap in the railxvay between Ibagueand Armenia.

The charges imposed for transferring cargo vary widely on differentroutes, but they are a significant factor in the cost of almost everythrough shipment. On hauls from the Caribbean ports to Bogota orMIedellin, these charges make up 10 to 15 percent of the total trans-portation cost. The transfer charge at Buenaventura is Ps.$2.5 perton, and is usually included in the rail-way or highway tariff. Theterminial handling cost at either end of the Ibague-Armenia highwayis similarly included in the overall transportation rate, but it is un-questionably an important factor in making that rate so high. Wherefreight must be transferred between meter- and yard-gauge railways,the transfer charge is about Ps.$1 per ton.

Another commonn problem is the amoutnt of breakage in transit,which is especially serious, of course, -where cargo-nmjust be handledanld -warehoused several times. Excessive breakage not only increasesthe cost of transportation directly, but also imposes added delays, andsometimes a further expenditure of foreign exchange for replacementof the broken goods. Pilferage losses are even more important. Theamounit of pilferage is so great at the Caribbean ports and along the.Magdalena River that insurance rates have risen to an average of

(Ps.$14 per ton, as compared with Ps.$8 per ton for shipments viaBueniaveuitura. The problem was the subject of special investigationby the British Police Mdission in the spring of 1949.

The combination of high transfer charges, insurance rates andlosses from pilferage and breakage have the effect of raising trans-portationa costs perhaps 20 to 25 percent over what might otherwisebe reasonably expected. Correction of these conditions is no lessimportant, therefore, thani improvement of operating facilities andpracti ces.

The distances between the major markets are not great, but themovement of goods is slowv, inefficient and costly, partly because ofthe physical difficulties imposed by the terrain, partly because ofnecessarv transfers from one system to another, and partly because ofunsatisfactory maintenianice and operating practices. These factors,especially the last, are analyzed in more detail in later sections ofthis chapter.

These defects characterize all the various forms of surface trans-portation, and none has a clear-cut advantage over the others as to

SURFACE TRANSPORT 103

cost, types of freight, or markets setved. Inland waterwvays, althoughthe cheapest means of transport, are slow and subject to many otheruncertainties. Railroad transportation is somewlhat more expeditious,but is extremely inefficient from the standpoinit of botl-h cost andservice, and the possibilities of through transportation by rail aloneare quite limited. Highway transportationi is the most fle-xible, but isalso most expensive on a ton-kilometer basis. Transportation delaysare erratic and unpredictable, so that industrial planning- is difficult,excessive inventories must be maintained and problems of financingare aggravated. The resulting high costs and uncertainties have acumulative effect, as they are passed on from manufacturer or importerthrough various middlemen to the ultimate consumer.

The distribution of freight traffic among the various means oftransportation is estimated in Table 21. For lack of reliable statisticaldata on highwvay traffic, it was necessary to base this portion of theestimate on the number of trucks registered, assuming an averageutilization and load factor derived from extensive field research. Trafficconfined to a single urban area is not included. Estimates of airtransport are based on figures obtained from the aviation companies.It should be emphasized that these figures are for 1947, and thatthere has subsequently been a greater relative increase in the capacityof truck and air transport than in that of railroads or wraterways.The proportion carried by the former media \vould, therefore, besomewhat greater now.

TABLE 21

ESTIMATED TOTAL FREIGHT TRAFFIC VOLUMIE BY TYPE OF TRANSPORTATION, 1947

Total FreightTon-Kilometers Percent

(millions) of Total

Railways ... ... .. ...... 584.0 32.5H ighways ............. ..... ........ ..... 642.5 35.8Inland waterways* 511.5 28.5

Airways** ... ....... ...... 56.5 3.2

TOTAL .. 1,794.5 100.0

* Includes 51.3 million ton-kilometers for coastwise traffic.* Adjusted to reflect differences in air and surface kilometrage for the purpose

of comparability.

These figures point up the fact that rates are a muclh less importantfactor in the competition among various means of transportation inColombia than in most other countries. Although truck rates aregenerally higher than those on the railivays, trucks are nowv carryingthe greatest volume of traffic. The same thing is true of air trans-

104 THE BASIS OF A DEVELOI'.ENT P'ROGRAMI FOR COLOMBIA

portation, which has grown at an exceptionally rapid pace. The in-fluence of speed and other service factors on the competitive positionand capacity for development of the various transportation systemshas an important bearing on the conclusions outlined in Chapter XX.

The importance of foreign trade in Colombia's transportationsystem is shown in Table 22. In 1947. import and export commoditiesconstituted an estimated 36.7 percent of total freight traffic inColombia, a very high proportion as compared \vith other LatinAmerican countries. The transportation system has been developed,in fact, lar-ely to serve the requirements of Colombia's foreign trade.But with expansion and diversification of domestic production, andimprovement of transportation facilities, it m ay be expected that theproportion of import-export tonnag-e xvill decline.

TABLE 22

ESTIMA'fED NATIONAL AND INTERNATIONAL TRAFFIC, 19471

Ports Ton-Kilometers Percent of Total

Barranquilla-Cartagena 409,298 344Buenaventura 2....... ... 241,847 5Santa 'Marta . . 4,088Tumaco 1,868 2.3Other ............ 36,715

Total Interniational Traffic. 693,816 36.7

Total National Traffic. . .. 1.196,906 63.3

GRANi) TOTAL 1. . 1890,722 100.0

I Estimates of ton-kilometers for internationial traffic were dlerived by dividingexports and imports passing through each port according to the department, inten-dencia or comisaria from which they came or for which they were destined, andmultiplying the tonnage in each case by the distance from the port to the principalcity of the department or other unit in question. Traffic originating in, or destinedfor Atlantico or Bolivar xwas not included in the totals, since their principal cities arcBarranquilla and Cartagena, respectively. Some of the import tonnage undoubtedlymoves eventually to other cities, however, so the totals are somewhat conservative.Petroleum products exported through Cartagena are also excluded because they aretransported by special pipeline.

RAILWAYS

Description of Railway SystemsThe various railwvays xvere built to connect the Caribbean and

Placific seaports and the Magdalena River ports with the interiorcenters of population and production. Table 23 summarizes thecharacteristics of the 14 lines which now constitute the railroad system.They are grouped into two major systems, with five isolated lines inadditioni.

TABLE 23

RAILWAY NETWORK OF COLOMBIA

Maximum MainCompensated Line

System Operator Principal Segments Grade Kilometers Total Gauge

WEsTERN1. Pacifico .............................. Nationial Railways Bueiiaventura-Cali 4.6% 174

Cali-Armenia 2.5 187Zinzal-Alejatndro Ldpez 1.0 202Cali-Popayan 3.0 159Others - 102 824 Yard

2. Antioquia ............ Department of Antioquia Medellin-Puerto Berrio 4.5 194Medellin-Alejandro L6pez 3.0 144 338 Yar(d

3. Caldas ... Departmiient of Caldas Cartago-Manizales 3.0 111 111 Yarcl

WESTERN SYSTEM TOTAL ..... 1,273

EASTERN

4. Cundinamarca .......... ..... National Railways Bogota-Puerto Salgar 3.8 200 200 Yard5. Norte Section 2 and Stir ..... National Railways La Caro-Barbosa 2.5 193

Bogota-El Salto 3.0 31 224 Meter6. Nordeste ........................... National Railways Bogota-Sogamoso 2.0 253 253 Meter7. Girardot-Tolima-Huila . National Railways Facatativa-Girardot 4.6 132

Girardot-Ibagu6 3.0 77Espinial-Neiva 1.5 159 368 Yard

8. Ambalema-Ibaguc ........ ....... Departmenit of Toliiia Ambalema-Buenosaires 1.7 65 65 Yard9. La Dorada . ...................... Private Ambalema-La Dorada 2.0 111 111 Yard

EASTERN SY-STEMT TOTAL.1,221

ISOLATED LINES10. Cartagena-Calamar .............. National Railways Cartagena-Calanmar 2.5 105 105 Yard11. Magdalena (Santa Marta) National Railways Santa Marta-Fundaci6n 3.0 96 96 Yard12. Narino ...................... National Railways Tumaco-Diviso 1.7 111 111 Yard13. Norte Section 1 ...................... National Railways Puerto Wilches-Sta. Bucaramanga 2.5 117 117 Meter14. Cicuta . ...................... Private Ctcuta-Villamizar 2.25 60 60 Meter

ISOI.ATED LINES TOTAL 489

GRAND TOTAL.2,983

106 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

The Western System. The Western System consists of three roads-the Pacifico, the Antioquia, and the Caldas. The Pacifico, muchthe longest of the three, has 824 kilometers of main line. It crossesthe Western Cordillera from Buenaventura to Cali, operates northand south out of Cali through the Cauca River Valley, and climbsthe Western slopes of the Central Cordillera to several importantinterior cities. The maximum grade on this road is 4.6 percent, onthe stretch between Buenaventura and Cali.

The Antioquia Railroad, operated by the departmenlt of Antioquia,centers its operations in Medellin. It connects this city with theMagdalena River port of Puerto Berrio and extends southward to meetthe Pacifico Railroad at Alejandro Lopez.

The third railroad in the Western System, the Caldas, is also adepartmental railroad operated by the department of Caldas. It ex-tends from Cartago on the Pacifico to Manizales, climbing the xvesternslopes of the Central Cordillera.

All three roads have yard-gauge track and make up an integratedsystem of some 1273 kilometers of main line.

The Easternt Systemt. The Eastern System consists of six roadsoperating generally in the upper Magdalena Valley, climbing thewestern slopes of the Eastern Cordillera and serving plateaus locatedin this range. One line climbs the eastern slopes of the CentralCordillera. Generally speaking, the system centers around Bogota.Four of the six roads are operated by the National Railways (ownedbv the National Government), one by the department of Tolima, andone by a private company. The aggregate length of these six railroadsis about equal to that of the Western System-some 1221 kilometersof main line-but they are not fully integrated. Four roads are thesame yard-gauge as the Western System, but the other two havemeter-gauge right-of-way totaling some 477 kilometers, or about 39percent of the Eastern System.

The Isolated Lines. In addition to the nine roads making up theWestern and Eastern Systems, there are five isolated lines. Four ofthem are part of the National Railways, and the fifth is privatelyoperated. In general, these lines provide connecting links betweenriver, sea and highway transportation. They total some 489 kilometers,approximately 17 percent of the railway network. As shown in Table23, three of them are yard-gauge and two are meter-gauge. Whilethis difference of gauge is not very important so long as these linesare isolated, it becomes significant in any plans for integrating themwvith either of the two major systems.

SURFACE TRANSPORT 107

Railroad Administration

The original Colombian railroads were constructed under a systemof concessions, most of them authorized under Law 104 of 1892. Theseconcessionis carried the right to a monopoly of rail transportationon the various routes involved, and it is argued that this was a majorcause of deficient service, high rates and the lack of integration ofthe present system. Only two railroads are still operating under theterms of the original concessions. The other 12 are operated eitherby the National Government or by the departmental governments,as shown in Table 23. The two private roads are the Cuicuta roadand the La Dorada. Negotiations for Government acquisition of theCuicuta road are already under way, and it will probably be takenover in the near future. As for the La Dorada road, the terms ofthe original concession provide that one part is to revert to theNational Government in 1961 and the rest in 2006, although theGovernment may act to acquire it earlier.

The nationalization of the railroads began in 1912. The NationalGovernment nowv owns eight of the fourteen lines and also operatesthe Cundinamarca Railroad, owned by the department of Cundi-namarca. In addition to taking over the two private lines previouslyreferred to, the National Government also hopes to acquire ownership,or operating rights of the remaining departmental railroads, thuscompleting the nationalization of the entire system.

Manageiment, Strutcture anid Policies. An Administrative Council(Consejo) for the National Railways was created by Law 29 of 1931to administer the roads owned by the National Government. Itsorganization has since undergone several changes; at present theConsejo consists of five members: the Minister of Public Works,as Chairman; the Administrator General of the Railways, appointedby the Governmiienit: a transportation expert appointed by the Govern-ment; a representative of trade nominated by the Chambers of Com-merce and the National Federation of Merchants; and a representa-tive of agriculture nominated by the Society of Agriculturists ofColombia. For each of the latter two posts three names are submitted,from which the President selects one.

Final authority for all railroad management poliev rests with theConsejo. The Administrator General is their executive agent, as wellas being himself a member of the Consejo. Each of the nine railroadsin the National Railways System has a Sectional Administrator re-sponsible to the General Administrator. The Consejo also maintainsunits corresponding to the operating departments of the various roads,which act as general advisers to the latter in bringing about technical

108 TIlE BASIS OF A DElVELOPMENT P'ROGRAMI FOR COLOMBIA

and operational standardization and coordinating other relationshipsamong them.

In practice, however, the Consejo not only acts as a general policy-makin- group, but also is active in day-to-day administration. TheAdministrator General, instead of being broadly responsible for rail-wvay operations within the terms of general policy lines laid downby the Consejo, is rather an agent of quite limited powers, confinedto carrying out instructions of the Consejo with little latitude forindependent decision. Thus the Consejo is itself the active top man-agement of the National Railways, rather than a Board of Directorsin the usual sense.

This system has two miajor defects. First, the Consejo is not soconstituted as to be able to handle detailed management responsi-bilities; and, second, having in effect taken over the prerogatives ofmanagement, the Consejo can hold no one except itself responsiblefor the operation of the railroads. There is little opportunity, there-fore, for continuous, informiied, objective appraisal of the railroadmanagement. This fusion of direction and management, combinedwith the political and constantly changing membership of the Consejo,has resulted in a progressive decline in the railwkvays' operatingefficiency.

Lack of Integration. The present lack of integration of the Colom-bian railway system is the result of two factors: first, the physicalseparation of the various railroads; and second, the existence of twogauges. The resulting necessity for frequent transfers of freight delaysservice, increases handling costs and multiplies opportunities for pil-ferage and breakage. The lack of integration also excludes certainoperating economies, such as reduction in the number of maintenanceshops and better utilization of road equipment.

The easier of these probleiis to remedy is that of different gauges.As showvn in Table 23, there are IIow two meter-gauge railroads inthe Eastern System, the Norte Section No. 2 and Sur and the Nordeste,which have a total of 477 kilometers of main line. The other twometer-gauge roads-the Norte Section No. 1 and the Cuicuta-arepresently isolated lines. The argument usually cited against standard-izing track gauges is that very little traffic is exchanged betweeni thevard- and meter-gauge lines. but better integration wouldi not onlyincrease such exchanges but also improve service and permit greaterconsolidation of terminal and maintenance facilities. -Moreover, if theGovernment connects two of the meter-gauge lines (the Norte Sec-tions I and 2), as is niow planned, the traffic over these lines wouldincrease and the cost of transfers would become more significant.

SURFACE TRANSPORT 109

The most important step toward physical integration is to con-nect the WVestern and Eastern Systems. The Government plans todo this by closing the gap between the Pacifico line at Armenia andthe Girardot-Tolima-Huila road at Ibague. This proposal and alter-native methods of accomplishing the same end are discussed inChapter XX. It may be said here, however, that physical integrationis one of the most important steps required to increase the efficiencyof the existing railway system.

Railroad Operations

Numerous technical investigations have been ma(le of railroadoperations wvith a view to improving their efficiency. One of the mostimportant anld detailed was made by a United States Railway MIissionin 1946.2 This MIission pointed out many ways in which the efficiencyof railroad operations could be improved but, although more thanthree years have elapsed, there is little evidence that their recom-mendations or suggestions have been adopted. The following briefdiscussioin of some of the major operating problems indicates thatmuch can still be done to improve operating efficiency and therebyto lower railroad transportation costs within the framework of theexisting system.

illaintenance of WFay antd Structures. The steep grades and sharpcurves of the mountain railways require heavy expenditures for trackmaintenance, including frequent replacement of rails, ties and ballast.Generally speaking, these mountainous sections are well maintained.AWAhile rail renewals were not kept up to the anllual program duringthe war because of the difficulty of getting rails, this deficiency haslargely been remedied during the past two years. On the PacificoRailway, for example, practically all of the rail on the heavy gradesections between Buenaventura and Cali has recently been renewed.The cuts have been wvidened and serious landslides should not occurin the future. The track is well ballasted, usually with rock ballast.This ballast is mostly hand-crushed, however, and is too large foreconomical handling.

Practically all ties are wood, although there are still some steelties on the meter-gauge lines. Tie renewals have generally beenadequate, especially on curves and in the mountainous sections, but aconsiderable number of broken ties still require replacement. Treatedties are not used. The National Railways have a tie-treating plant atBogota, but have discontinued operations because the high cost of

2 See A Study of Colombian Transportatioa, by the U. S. Railway Mission toColombia, Herman D. Knecht, Chief, and Sherman F. Miller, Mechanical Officer.Rail Transportation Division, Institute of Inter-American Affairs, December 1946.

110 TUE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

creosote delivered at Bogota. made the cost of the treated tie appearexcessive.

The universally approved practice of using inside and outsideguard rails in crossing bridge structures has been neglected in certaininstances.

Equipment. Perhaps the niost important factor contributing tothe excessive cost of rail transportation in Colombia is the low capacityand high maintenance cost of road equipment employed. Steam-typelocomotives are used almost exclusively and, while a substantial num-ber have been purchased since 1944, many old, obsolete types remain.The older equipment is difficult to maintain because spare parts arelacking; practically all replacements and repairs must be hand tooledand specially designed. This problem of equipment is further com-plicated by the use of many different types of locomotives, whichvary in both performance and maintenance characteristics. For ex-ample, a special study of equipment on the two meter-gauge roadsout of Bogota, the Norte Section 2 and the Nordeste, revealed a totalof seventeen different locomotive types in a total fleet of only sixty.The use of such diverse fleets is necessarily expensive and inflexibleand makes for undependable service as well as high-cost operations.Even where new equipment is used, the ton-mile operating costs ofsteam locomotives are high. This is especially true in comparisonwitlh diesel-electric equipment.

The freight-carrying capacity, both of individual cars and ofentire trains, is very low. The newest and largest freight cars em-ployed and on order have a capacity of 35 tons, but the average carcapacity in 1947 was about 23 tons, and this figure has remained con-stant for ten years. The average train load for all freight trains onthe National Railwavs in 1947 wvas only 108 tons, of which 101 tonswere revenue freight. The average number of cars per train was 9.5,of which 3.0 wvere empty. These averages include lines with lowgrades as well as the heavier grade lines over the mountains. Theaverage train load for the Cundinamarca Railroad, which bringsimport freight up the hill from Puerto Salgar on the MIagdalena Riverto Bogota, Awas only 85.5 tons in 1947. The average number of carsper train on this road was 7.2, of which 2.8 were empty. The lightpayload on Colombian railroads results not only from the low tractiveeffort of the steam locomotives, but also from the exceedingly heavyempty weight of the cars. An empty boxcar weighs 28,500 pounds,and the maximum payload is approximately 70,000 pounds.

SURFACE TRANSPORT 1ll

Maintenance of equipmiient on the National Railways is less satis-factory than maintenance of way and structures. The report of theUnited States Railway Mission called attention to the large per-centage of locomotives in unserviceable condition. At the time ofthat Mission's initial inspection in 1946, the percentage of locomotivesactually out of service on the National Railways ranged from 17 to60 percent, as against the Mission's opinion that "Under the stress ofwar times, an unserviceable percentage of between 6 and 10 percentcould be considered permissible."3

The Pacifico Railway operates the most modern and well-tooledlocomotive shop in Colombia at Chipechape in the outskirts of Cali.The situation in these shops vas investigated by the Mission, and itwas found that the percentage of unserviceable locomotives was stillas high as in 1946. Furthermore, the time required for general repairs,which was reported as 118.5 days per locomotive in 1945, had increasedin 1949 to an average of 145.4 days. It also appeared that none ofthe suggestions of the 1946 Mission for improving the serviceabilityof locomotives had been followed. National Railway officials explainedthat while they recognized the value of these suggestions, they didnot have sufficient funds for the small capital expenditures requiredto carry them out. But adoption of the Railway Mission's detailedrecommendations shotd result in savings, through increased efficiencyand shop productivity, out of all proportion to the expenditures re-quired. It should be possible without difficulty to reduce the per-centage of locomotives in unserviceable condition to 10 to 15 percentat most.

The conclusions of the 1946 Railway Mission deserve to be reiter-ated with all possible emphasis:

"Our Mission advocated and have continually striven for moreproduction from their repair shops. Basically it is economicboth from the point of initial investment and from the needfor more motive power. No matter how many new locomotivesare bought, without increased shop production the time willshortly arrive when the only results of the additional purchaseswill be a larger capital investment upon which to pay interest,greater annual depreciation charges and more bad order enginesstanding around awaiting repairs."4

Operating Practices. Certain operating practices also result in lowutilization of equipment and thus contribute to the high cost of railtransportation. In 1947, for example, the average daily utilization

3 Ibid., p. 26.4 Loc. cit.

112 THE BASIS OF A DEVELOPMENT PROGRA-M FOR COLOMBIA

of locomotives on the National Railways was about 100 kilometers.This was due partly to the high percentage of unserviceable locomo-tives mentioned above, and partly to low train speeds. Although theNational Railways do not keep any overall records of the speed oftrains, a special study of the operations of all trains between Buena-ventura and Cali during a 24-hour period, based on the train sheetof July 19, 1949 and other basic records, showed an average speedfor freight trains of 13.8 kilometers, or 8.6 miles per hour. This slowspeed is due partly to the time lost in stations, meeting other freighttrains and the one dailv mixed passenger train in each direction. Thepassenger train averaged 28.2 kilometers (17.5 miles) per hour.

Another factor contributing to these slow speeds was the usualpractice of paying train crews on a time basis, regardless of mileage,with extra rates for overtime after 10 p.m. This apparently led todeliberate delays by the train crews in order to earn overtime. It isreported that a chan-e in the method of payment, to a flat rate pertrip, was instituted late in 1949, but more recent sample time sheetsstill show excessive overtime payments. In any event, the possibilitiesof night operations to catch up with heavy traffic denmands have notbeen adequately exploited.

The practice of double-heading, or helper service, over extremelyheavy grades has not been utilized to any extent. In some cases thiscould double. present train capacities, with a commensurate reductionof both ton-kilometer costs and traffic congestion.

Train operation is by "manual block system" under which therig,ht-of-way to the next station is handed to the conductor by thestation agent, and the block closed to traffic until clearance of theblock is reported by telephone. No time-table, meet orders or mechani-cal signal systems are used. This system, as it is presently operated,is wvholly inadequate and results in many delays.

Productivity and Cost of Labor. The relatively low productivityof labor on the Colombian railroads is compared in Table 24 withthat of Class I railroads in the United States. This table reveals sev-eral interesting facts. In the first place, the Colombian railways employabout twice as many employees per mile of track as United StatesCClass I railwvays and their average productivity, in terms of trainkilometers, is about half as great. The number of passenger-kilometersper employee in Colombia, however, is nearly equal to that in theUnited States, but in freight traffic Colombian productivity is only5 percent of the U.S. average.

SURFACE TRANSPORT 113

TABLE 24

EMPLOYEE PRODUCTIVITY ON COLOMBIAN RAILROADS COMPARED WITHU. S. CLASS I RAILROADS, 1947

Colombian U. S. Class IRailroads Railroads

Average Number of Employees ....... ..... 15,208 1,351,863

Kilometers of Road .......... .... 3,109 366,962Kilometers of Track ... .............. ... .... 3,481 617,198Total Train Kilometers.. 8,969 1,692,297

Revenue Freight-Ton Kilometers . .346,034 956,291,004Revenue Passenger-Kilometers ....... .. 814,322 73,932,127Average Number of Employees per

K ilom eter of Road ......... ....... ............ ........ 4.89 3.68Kilometer of Track ............... .... . ....... .. 4.37 2.19

Train Kilometers per Employee . .............. 59 1,252Revenue Freight-Ton Kilometers per Employee 35,904 707,336Revenue Passenger-Kilometers per Employee..... 53,546 54,685

This lowv average productivity is due in large part, of course,

to factors previously cited-difficulties of terrain, inefficient equip-

ment and maintenanice, low volume operations, etc. Buit it also results

partly from certain management and labor practices. An example isthe general practice of assigning locomotives to individual engineers.

A given locomotive can be operated only by the engineer to wvhom it

has been assigned, unless either the man or the machine is out of

commission for an excessive length of time. No time limit is specified

by general regulations, however, and each situation must apparently

be settled on its individual merits. There are numerous examples of

engineers or locomotives remaining idle for several days before re-

assignment. This practice is defended on the ground that engineers

wvill take better care of locomotives individually assigned to them.

and xvill report the need for repairs more promptly to the Maintenance

Department. But this consideration seems to be far outweighed by

the increased productivity of both equipment and personnel obtain-

able by pooling locomotives for assignment. In August 1949, for

example, the Pacifico Railroad was operating about 51 serviceable

locomotives, but it had 112 engineers on its payroll. Obviously, there

was an uneconomic surplus of engineers.

The same lowv productivity and consequent high cost of labor are

characteristic not only of engine crews but also of maintenance

114 THE BASIS OF A DEVELOP-MENT PROGRAM FOR COLOMBIA

crews, station service staffs, and general office employees as well.

Poor organization and management are an important factor in this

situation. In the maintenance plants, for example, shop layouts are

often inefficient and production controls and scheduling unsatisfactory.Delays and wvaste resulting from diversity of equipment and inade-

quate spare parts invenitories have been cited earlier.

Another elemelnt in the high cost of rail transportation is the pen-

sion system. Manv large groups of employees may retire after 20years of service at any age, receiving up to 80 percent of their last

salary rate. Not only does this increase overhead costs, but it also

deprives the railways of experienced employees-especially skilled

wvorkers and supervisory personnel, who are most needed-just at

the time wvhen many of them should be most productive. It is esti-

mated that 1,148 railway workers are now pensioned, for a yearlytotal of approximately Ps.$1,140,000. Within seven years the number

of pensioners is expected to rise to some 3,500 and the annual cost to

the railroads will be more than Ps.$5 million. This added burden of

overhead inevitably results in lowv wages, high rates and operating

deficits-all of which hamper the country's economic growth.

Railroad Service. The railroads' efforts to develop a larger volume

of traffic have been greatly hampered by the unreliability of their

schedules and the delays in service, especially for freight. It has

been almost impossible for shippers to count on definite dates forrail delivery, and consequently they have resorted increasingly to

highway and airline transport. Transport competition in Colombia

is not essentially a matter of rates, but of service factors which will

become more and more important as industrial activity grows. If

the railways are to be economically successful, therefore, they mustovercome delays and the lack of reliability in service.

The same criticisms apply generally to passenger service. It is

slow and unreliable, and passenger equipment on the whole is poorlymaintained. This is true of first-class as well as third-class service,

although the fares for the former average twice as much as those for

the latter. The only difference is a slightly better seat in first-class

accommodations. Partial exceptions to these conditions are a few auto-rail cars, for first-class passengers only, wvhich give faster, more

comfortable service. One three-car diesel-electric train xvas also pur-

chased in 1949 to improve first-class service between BogotA andIbagu6. This train, unfortunately, wvas a type of diesel-electric com-

SURFACE TRANSPORT 115

pletely unsuited to the operating conditions of the country. Main-tenance difficulties were exaggerated by the lack of a satisfactory

training program to enable local workers to operate and maintain the

equipment efficiently, and the result has been an unwarranted preju-

dice against the use of diesel-electric equipment. Clearly, much canstill be done to develop passenger traffic and revenues, especially

since automobiles and buses are less able to offer satisfactory com-

peting service in Colombia than in many other countries.

High Costs and Rates

The high cost of rail transportation is reflected in every important

segment of the country's economy, and the cost is going up. In 1949

the railwavs were authorized to increase freight rates to a level ofabout six to ten centavos per ton-kilometer, plus a fixed cost per ton

handled. First-class passenger tariffs now approximate 2.5 to 3.5

centavos per kilometer and third-class rates range from 1.3 to 1.5centavos. Present operating costs are estimated at about six to

eight centavos per ton-kilometer. The National Railway System as

a whole shows an operating profit, not allowing for any depreciation

or capital costs, of approximately Ps.$1,300,000 for the first six months

of 1949, but certain lines still operate at a loss. In 1948, although itwas a year of unusually high traffic volume, the National Railways

incurred an overall operating loss of approximately Ps.$1,250,000.

Table 25, which summarizes the financial results of 1948 operations

of the National Railway System, indicates that only the Pacificoand Girardot-Tolima-Huila lines made an operating profit, and that

was primarily because of the diversion of import and export traffic

from the Caribbean ports to Buenaventura as a result of shipping

difficulties on the Magdalena River. At the same time, these roads

were giving adequate service to shippers and travelers.

An increase in freight rates, which are already so high as to consti-

tute a serious burdern on the economy, does not appear to be asatisfactory solution for the National Railways' financial problems.

Other possibilities have been briefly noted in the foregoing analysis.

They will be discussed in more detail in Chapter XX.

S Comparable rates for all railroads itn the United States at the end of 1948 were:for freight 1.251 cents per short toni-mile, and for passengers 2.341 cents per mile.If these rates are converted into peso equivalents at 1.95 they work out at an averageof 1.87 centavos per metric ton-kilometer for freight, and 2.85 centavos per passenger-kilometer.

110 TIIE BASIS OF A DEVELOPMENT PROGRA.M FOR COLOMIBIA

TABLE 25

FINANCIAL O1PERATIN; RESULTS OF NATIONAL RAILWVAYS, 1948

Operat-ing Net N et

Ratio Operating OperatingN.\AI 1Al. Revenues Expenses (per- Income LosslRAILWAYS (pesos) (pesos) cent) (pesos) (pesos)

1. Lincs Operatiiyg at ProfitPacifico . .2 . - 22,898,121 21.417,931 93.5 1,480,190 -

Port of Buenaventura(operated by Pacifico) 6,111,160 5,888,547 96.4 222,613 -

Girardot .. 7.388,300 6,674,803 90.3 713,497 -

Total 36,397,581 33,981,281 93.4 2,416,300 -

2. Liines Operated at tI LossCundiiainarca 4,350,434 4,453,604 102.4 - 103,170Norte Section 2 . 920,838 3,878,178 132.8 - 957,340Nordeste 2,356,574 3,467,131 147.1 - 1,110,557

Total 9,627,846 11,798,913 122.7 2 2,171,067

3. Isolated LiniesNarimio 252,928 753,266 297.8 - 500,338Cartagena-Calamar 286,351 1.063,736 3,1.5 - 777,385Magdalena 2,057,920 2,133,331 103.7 - 75,411Norte Section 1 1,307,696 1,448,648 110.8 - 140,952

Total 3,904,895 5,398,981 138.3 - 1,494,086

GRAND TOTAL . 49,930,322 51,179,175 102.5 - 1,248,853

HIGHWAYS

Hi,ghway transportation in Colombia wvas initiated about a quarterof a century ago and has growvn rapidly in importance. In 1948 therewvere about 11,940 kildmneters of national highways and 8,300 kilometersof departmental roads. Some 784 kilometers, or approxiimately 4 per-cent of the total, are surfaced wvith concrete or bituminous macadam.The rest of the national highways and the most important depart-mental roads are surfaced wvith so-called "vater-bound macadam,"usually local crushed rock wvith a filling of file m1aterial consolidate(dby weather and traffic. Some of the more important highwvays havea width of 9 meters with surfacing 6 meters wide. The major partof the kilometrage, holwever, is through1 mountainous countrv wherethe wvidths average about 6 or 7 meters. the curvature is excessivelvsharp (30-50 meter radius), ancl grades of 8 to 10 percent are oftensustained for many kilometers.

The overall highway achieveniient has been impressive in view ofthe great difficulties of highwav constructioni and maintenanice in such

SURFAC'E TrRANSIIORT 117

a rugged country. As a result, highways are carrying an ever-increas-ing share of the nation's transport burden and contributing to theopening up of many new areas. The reasons for this developmentare easy to identify. First, the highway system, even in its presentstate, reaches many hundreds of commmunities that are not accessibleby other means. Second, it is cheaper and easier to construct highwaysthan railroads through the typical Colombian terrain because invest-ments in highways are reasonably flexible and can be adjusted tolower volumes of traffic. They are thus more suitable for reachingundeveloped markets and sources of supply. Third, highway trans-portation has been able to give faster service than the railroads,especially on short hauls which account for a major share of Colom-bian transport volume. The foundation has been laid; the task remainsto bring the highway system into greater productivity in order toachieve the lowver cost transportation so essential to the economicdevelopment of the country.

The first step in accomplishing this objective is sound planning.In general, highways have been built in response to day-to-day de-mands, without the benefit of adequate studies of traffic or of theneeds for developing commerce and agriculture or opening up unsettledareas. Moreover, undue stress has been placed on the political signifi-cance of local and sectional highway projects. The National Govern-ment, however, has lately incorporated the main existing roads into aplanned system comprising three primary longitudinal trunk highways,traversing the country north and south parallel to the Cordilleras ofthe Andes, and two primary transverse trunk highways crossing theCordilleras and the rivers between them in an east-west direction.Several important links in these highway systems remain to be con-structed.

The WVestern trunk route starts at the Caribbean port of Barran-quilla and extends via Cartagena, Medellin, Manizales, Cali, Popayan,and Pasto to Ipiales on the Ecuadorian border, with a projected branchto the port of Tumaco on the Pacific Coast. The Eastern trunk routestarts at Cucuta on the Venezuelan border and extends south viaPamplona, Duitama, Tunja, Bogota, Neiva, to Florencia; its extensionto the international Putumayo River is projected. The Central trunkroute begins at the Caribbean port of Santa Marta and extends viaFundaci6n, La TMata, Ocafia, Bucaramanga and Barbosa to a junctioniwith the route to the West at Bogota. There is no compelling reasonfor grouping these particular communities together, or for designatingthe highways as trunk routes, except that they conform for the mnostpart to the main north-south drainage systems of the country.

11S TH-IE BASIS OF A DEVELOPMENT PROGRA-M FOR COLO-MBIA

One transverse trunk route is planned to run fronm Puerto Carrenoon the Orinoco River through Villavicencio, Bogota, La Dorada, Son-son, -Medellin, Canlasgordas and Dabeiba to Turbo on the Gulf ofDarien near the Panama border. This route crosses all three Cordi-lleras of the Andes and the rivers between. Its western portion is ex-pected to form part of the Pan American Highway. The long stretchfrom the Orinoco to Villavicencio is little more than a dry-weathertrail, and there are gaps between La Dorada and Sonson and in thefinal 50 kilometers near Turbo. hut the sections already completed linkimportant cities and are heavily travelled. The other transverse trunkroute extends from BogotA througih Girardot, Ibagu6, Armenia, Bugaand Cali to Buenaventura. The direct route from Buga to Buenaven-tura is under construction and not yet opened to traffic. The 100-kilometer Armenia-Ibagu6 section of this transverse trunk route isperhaps the most heav7ily travelled highway in the country, linkingas it does the Eastern and Western railway systems. In addition tothese trunk highwvays, there are many important branch roads.

Maintenance of Highways

The chief deficiency of the existing highway network is not somuch in its conception as in its upkeep. In the past, little attention hasusually been paid to maintenance until a landslide, washout, or othercatastrophe rendered the highway useless. However, the Transporta-tion Act of 1949 (Law 356, March 3, 1949), set aside "the sum that isnecessary to take care of maintenance, additions and betterments,wvhich is considered to be about Ps.$1 thousand for each kilometer inservice." This is an encouraging indication that the Government isaware of the importance of effective, continuing provision for roadmailntelnalnce. An adequate system of maintenance should yield im-portant dividends in the form of lower operating costs and quickerschedules for hig-hwvay transportation, longer life for vehicles, andfewver accidents.

Responsibility for maintenance operations is lodged in a ChiefMaintenance Engineer in the Ministry of Public Works. He hasunder his supervision a number of district offices, each under a chiefengineer, with an assistant engineer, a staff of foremen and mainte-nance crews, and some road machinery in his charge.

Administration of the Highway Program

Highivay development has been a function of both national anddepartmental governments. In addition, a number of hig-hways andconnecting roads have been developed independently by industrial

SURFACE TRANSPORT 119

or transportation enterprises, where their needs were not adequatelyserved by the governmental program. For example, the petroleumcompanies have built extensive highway networks in and around theirconcessions. The National Railways maintain the heavilv traveledIbagu6-Armenia link at a cost of some Ps.$30 thousand per month.The airlines, at several places, have had to build their ownI roads toconnect their airports with the towns they serve.

Until recently there has been little real coordination between thenational and departmental programs. The Transportation Act of 1949marks a considerable advance in this respect, although some difficultiesremain. Responsibility for the national highway program, both con-struction and maintenance, is lodged in the Ministry of Public Works;there is a National Council of Ways of Communication in that Minis-try to provide overall direction. The funds available under Laaw 356should be adequate if they are properly administered. Article I pro-vides that annual appropriations for general road construction andmaintenance purposes shall not be less than 12 percent of the com-mon taxes, and that special appropriations previously in force will becontinued. A portion of the national gasoline tax, for example, isspecifically earmarked for surfacing national highways; in 1949 Ps.$4.8million, of about Ps.$16 million total revenue from this source, wereappropriated for such paving projects. In addition, the income fromcertain special taxes levied on imports is allocated to special projects,such as the Buenaventura-Cali and Cartagena-Medellin highways.Total appropriations for highways in 1949 were Ps.$37,317,000, asshown in Table 26. About half this sUIm was for new highwayconstruction.

TABLE 26

1949 APPROPRIATIONS FOR NATIONAL HIGHWAYS,

MINISTRY OF PUBLIC WORKS

Appropriated Percent ofPurpose 1949 Total

Maintenance and equipment .Ps.$10,900,000 29.2

Paving ... ....... ... 4,800,000 12.9

Construction ....... . ....... ....... 18,473,000 49.5

Department contracts ........ 1,905,000 5.1

Bridges ....... 1,239,000 3.3

Ps.$37,317,000 100.0

120 'ITHE BASIS ()F A DEVELOPMENT PROGRAIM FOR COLOMBIA

The Transportation Act of 1949 spells out the general plan forthe national highway system in considerable detail, Avith prioritiesdefined for both trunk and secondary roads. The Miinister of PublicWorks, ho\vever, is allowved some discretion in administering this plan,in contrast to the previous Congressional practice of tying eachappropriation to a specific project. Unfortunately, this desirableflexibility is considerably limited by a requirement that at least Ps.$600thousand be allocated each year to each department (for this purposeintendenjcias and comisarias, as a group, are counted as two depart-ments). Thus Ps.$10,200,000 (over 55 percent of the 1949 appropria-tion for construction wvork) is automatically tied up in equal depart-mental shares, regardless of a department's relative needs. M\Ioreover,the dlepartments are allowved wide discretion in spending these nationalfunids, and need pay little attention to the priorities set out in theTransportation Act. The result is to encourage the dissipation offunds, machinery and engineering and construction personnel on agreat number of projects, often of purely local significance and con-flicting with the requiremiients of a sound national transportationsystem. There is a pronounced tendency, for example, for each de-partment wvith a strip of seacoast to seek to establish its own portand independelnt mieans of communication fronm the interior, regard-less of the cost or economic disadvantages of suclh an undertaking.

In the appropriations for 1949 there wvere incltuded 101 separatehig-hwvay building projects. But the 'iMinistry of Public WVorks does

not h-ave enough road building machinery for efficient mechanization

of anything like this number of construction jobs, nor a sufficienit

staff to supervise them properly. Available machinery and staff can

only be employed for a short time on any particular project beforeits appropriation runs out and, since heavy machinery is very hard

to transfer for lack of througlh highways, a good deal of expensive

equipment lies idle muchl of the year. The opening of several impor-

tant trtlik highways for through-l transportationi has been long dle-

layed by the slow progress in closing a few crucial gaps. For example.

the cost of finishing the last 123 kilometers on the Cartagena-Medellin

highway, betw,veen Taraza and Planeta Rica, is estimated at abotlt

Ps.$5.5 millionl. But the 1949 appropriation for this purpose wvas only

Ps.$600 thousand. At that rate it wvould take ten years to complete

this important linl, assuming that the efficiency of construction wvouldnot suffer from the many interruptions during wvhich time no benefit

would be gained from the investment already made. This situation

is duplicated many times all over the country.

SURFACE TRANSPORT 121

As in the case of the railroads, the inefficiency of highway con-struction and maintenance arises not only from a lack of machineryand the type of machinery employed, but also from its inefficient use.Much road building machinery is idle because of the lack of skilledlabor to operate and maintaini it. This lack cannot be overemphasized.especially when it is realized that in the postwar years imports ofroad building machinery are estimated to have been three to fivetimes those of the immediate prewar years. This increase in equip-ment has not been accompanied by a commensurate increase in trainedmaintenance and operating personnel, and thus in some cases equip-ment has been idle or inefficiently tutilized. The major obstacle inthe wvay of the highway program is not, therefore, a lack of appropri-ations and equipment, but rather the wiay in which funds are admin-istered and equipment utilized.

Highway Operations

Because of the great number of separate truck and bus lines in-volved, and the lack of reliable statistical data, it is difficult to esti-mate the total volume of highway traffic. The records availableindicate, however, that in recent years highway transportation hasassumed first place among surface transportation media in bothnumber of passengers and tonnage of freight. Table 27 showvs thenumber of bus and truck registrations in the years 1946-1948, andindicates howv rapidly highway transport is expanding. T ruck regis-trations increased by 24 percent from 1946 to 1948, and the numberof buses by 28 percent, Moreover, the newAer equipment has generallybeen larger in capacity and productivity than that wvhich it replaced.

TABIE 27

TRUCK AND Bus REGISTRATIONS, 1946-1948

1946 1947 1948

Trucks ..... 13,769 14,725 17,038Buses . . 4,345 4,351 5,550

TOTAL .. 18,114 19,076 22,588

Source: Ministry of Public Works.

Rough estimates have been made, howvever, on the basis of numberof trucks per department, gasoline consumption, average distancescovered by long-distance trucking operations, etc., to show the 1946volume of truck traffic. As Figure 3 and Table 28 indicate, truck

122 THE BASIS OF A DEVELOPMIENT PROGRAMI FOR COLOMIBIA

traffic is heaviest in the department of Cundinamarca with a total ofsome 218 million ton-kilometers. Antioquia and Valle del Cauca ranknext with 95 and 79 million ton-kilometers, respectively. Figure 3depicts -raphicallv the concentration of traffic around the cities ofBogot6a, Miedellin, Cali and Barranquilla, and the scanty traffic be-twreen the zones. The one exception is the Ibague-Armenia road whichhandles a considerable volume of imports from Buenaventura wvhich,for the rest of the way, move by railroad. The value of up-to-dateinformation of the type presented in Figure 3 and Table 28 is apparent.

TABLE 28

TRUCK TRAFFIC FLOW, 1946

No. of Net Tons Estimated TrafficTrucks Carriedl (Million Ton-Km)

Antioquia 1,523 3,863 C2 24.67F3 28.29L4 42.29TS 95.25

Atlantico . .. .......... .... ... 974 1,855 C 11.84F 13.58L. 20.31T 45.73

Bolivar 600 1,547 C 9.88F 11.33L 16.93T 38.14

Boyaca ............ .... 488 1,236 C 7.89F 9.05L 13.53T 30.47

Caldas . 979 3,162 C 20.19F 23.16L 34.62T 77.97

Cauca 225 615 C 3.92F 2.30L 6.73T 12.95

Cundinamarca 3,968 8,854 C 56.55F 64.85L 96.95T 218.35

Huila ... 161 457 C 2.91F 2.98L 5.00T 10.89

Magdalena .. 356 776 C 4.95F 5.68L 8.49T 19.12

TRUCK TRAFFIC FLOW, 1946SaNTA MARTA

LEGEND BARRANOUILLA

Existing roads ni.

Roods In construct,on /

Distance between tfo points on rood

in ionneters CARTAGENA'

IDistonce between intersection and M A G D L-villoge in kdometers MAGOAL

One thickness teons 10,000 tons

yper peo over stretch of rood-or

obout 5 tnrucks per doy

Golombi.n borders

Long distance transport roods

Lmiti of deportrents

/0 GO L V .R Fw~ D~N 0 R T

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SURFACE TRANSPORT 123

TRUCK TRAFFIC FLOW , 1946 (Cont'd)

Trucks Net Tons Estimated TrafficNo. of Carriedl (Million Ton-Km)

Narinio . .. ... .......... .. 396 1,584 C 10.11F 11.60L 17.34T 39.05

Norte de Santander. ...... 641 1,659 C 10.59F 12.10L 18.16T 40.85

Santander ...... ......... 969 2,024 C 12.92F 14.82L 22.16T 49.90

Tolima ............ ....... .. .. 604 1,857 C 11.86F 13.60L 20.33T 45.79

Valle del Cauca ... .......... 1,350 3,214 C 20.52F 23.54L 35.19T 79.25

Meta . . . .. . ..... ... 454 1,396 C 8 91*F 10.22*L 15.28*T 34.41*

Other 64 187 C 1.19*F 1.36*L 2.04*T 4.59*

Total 13,769 34,288 C 218.90

L 375.35 T 842.71

1 The average net weight carried by one truck is 2.5 tons; average utilization isassumed to be 80 percent.

2 C=50 percent of the trucks assumed to be engaged in urban or industrial trafficand to cover about 35 kilometers per day.

3 F=25 percent of the trucks engaged in farm-to-market traffic which cover about80 kilometers per day.

4 L=25 percent of the trucks engaged in long-distance traffic which cover about120 kilometers per day.

5 T=Total.* No graphic analysis made.Basis for traffic calculation: (1) information from trucking companies, (2)

number of trucks per department, (3) gasoline consumption per department, (4)average distances covered by long-distance trucking operations, (5) length of road,(6) total consumption of urban centers minus railroad traffic, and (7) personalobservation of traffic intensity.

Source: Anuario General de Estadistica, Industrial Census.

124 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMIBIA

One cannot hope to secure intelligent allocation of funds for newhighway construction and maintenance without such data.

A comprehensive system of licensing and regulation for highwaytransportation is outlined in Decree No. 2313 of November 26, 1943,and very detailed regulations have been issued under the authority ofthis Decree by the Division of Transportation and Tariffs of theMinistry of Public Works. The provisions for rate regulation and forcollection and organization of statistical and financial data appear,however, to be largely inoperative. The licensing provisions apparentlyare effective in limiting the number of trucking concerns and vehiclesto the requirements of traffic on various routes. This latter type ofregulation, in fact, is probably too stringent in practice; its maineffect appears to be to restrict competition and protect the vestedinterests of existing trucking companies. It is asserted that individualfarmers and businessmen are prevented from transporting their ownequipment and supplies from ports or commercial centers to theirfarms or places of business. In an industry like highway transport-where the major investment is made by the state in construction ofroads, where operating capital requirements are relatively small, andwhere rapid growth is normal and desirable-less rigid control, whichwould provide maximum opportunity for aggressive, efficient indi-viduals and concerns to participate, would be appropriate.

Highway Equipment

Heavy truck equipment is not used. The steep grades, sharpcurves and low capacity of bridge structures in most areas strictlylimit the size of trucks. Moreover, heavy equipment requires moreskilled and responsible drivers and involves special difficulties of main-tenance and obtaining spare parts. The truck typically used formedium- and long-distance operations, therefore, is a single unit witha gross wveight of 15,000 to 16,000 pounds and 3' 2-ton capacity.Some 5-ton trucks are also employed, but use of trailer types is ex-cluded by operating conditions in most areas.

The original cost of present equipment is high. One typical com-pany is now paying the following prices: light "pickup" truck,Ps.$7,800; 1' 2-ton truck, Ps.$8,600; 3' 2 -ton truck, Ps.$10,000; 5-tontruck, Ps.$12,500. These high prices per ton of capacity result, ofcourse, in higher cost for highway transportation. Moreover, the utili-zation of truck equipment is normally quite low for several reasons.First, the sharp curves, steep grades and poor paving of most high-ways impose very low average speeds. Then, a substantial part ofevery truck fleet is constantly out of operation for repairs or because

SURFACE TRANSPORT 125

of difficulty in employing skilled mechanics and getting spare parts;and the problem of maintenance is aggravated by the excessive wearand tear from poor highway conditions. A third factor is the veryhigh accident rate, caused by the combination of unskilled drivers andpoor roads. The high accident rate is an important factor in the useof lighter equipment, since the cost of repairs and the overhead costfor laid-up equipment is less for small trucks.

These operating conditions greatly reduce the life of highway equip-ment, which increases the depreciation on an already high original costand adds further to the cost of truck transportation. The records ofone efficient operator of truck fleets in both the United States andColombia indicate that the life of similar truck types in Utah, amountainous state with highway problems comparable to Colombia's,was two to three years longer.

Operating Costs and Rates

There is a great variation in truck operating costs, depending onthe highway used, the efficiency of the companv, the kind of cargo,and many other factors. It may be useful, however, to undertake ageneral examination of the costs of truck operation, from the stand-point of their influence on rates. Extensive field investigations showedmotor truck costs ranging from about 10 centavos per ton-kilometerto a maximum of approximately 22 centavos per ton-kilometer; thisrange is for terminal-to-terminal trips over 20 kilometers, and doesnot include the more expensive pick-up and delivery service. In gen-eral, costs decrease with the length of haul. In the case of one largefleet operator, the unit cost for a 250-kilometer haul was approximately20 percent less, and for one of 500 kilometers about 30 percent less,than that for a 50-kilometer haul.

Adverse operating conditions affect almost every item of expense.The high costs of original purchase, depreciation and maintenance havealready been noted. The mileage obtainable from gas, oil and tires islow because of the heavy grades and poor highway corditions. Theresult is that, according to the company records mentioned above,truck operating costs in Colombia, leaving capital charges out ofaccount, are almost three times those in Utah. Total operating ex-penses per mile, including capital charges, would be considerably morethan three times as high in Colombia as in the United States.

126 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

Table 29 shows typical motor truck rates between various cities.The non-compensated rates-i.e., rates not designed to attract returnloads on routes with a heavy one-way traffic-average from 10 to15 centavos per ton-kilometer. It should be pointed out that rates oftenvary according to the commodity transported. Moreover, despite pro-visions for the Government's regulatory machinery, highway rates inpractice are based on what the traffic will bear. Competition among

TABLE 29

TYPICAL MOTOR TRUCK RATES FOR GENERAL MERCHANDISE, 1949

Rate per Ton-Rate Kilometer

From To per Ton Kilometers (centavos)

Bogota Bucaramanga Ps.$ 60.00 479 12.5Buenaventura* 45.00 663 6.8Cali* 40.00 521 7.7C6cuta 70.00 615 11.4Girardot 15.00 134 11.2Medellin* 55.00 573 9.6Pereira 40.00 362 11.0

Buenaventura Armenia 50.00 376 13.3Bogot6 100.00 663 15.1Cali 25.00 142 17.6Medellin 90.00 614 14.7

Cali Armenia 30.00 211 14.2Buenaventura* 13.00 142 9.2Pasto 55.00 451 12.2

Medellin Bogota 85.00 573 14.8Cali 50.00 472 10.6Cucuta 130.00 1188 10.9Girardot 70.00 521 13.4Xlanizales 40.00 264 15.2Pereira 40.00 293 13.7

(*) Rates compensated to attract return loads on heavy one-way traffic routes.

various alternative means of transportation is often based less onrates than on speed, the incidence of breakage, pilferage or other losses,and other service factors. Therefore, even though the average freightcharges on the highways exceed those for water or rail transportation,a strong preference has grown up in recent years for through motor-truck transportation rather than combined hauls by boat, rail and truck.The construction of an integrated network of through highways wouldgreatly increase the contribution which this form of transDort canmake to economic development in Colombia.

SURFACE TRANSPORT 127

PORT AND WATER TRANSPORT FACILITIES

Maritime service between Colombian and foreign ports is adequateand fairly direct. Foreign flag shipping has recently been supple-mented, and to some extent supplanted, by the Greater ColombianMerchant Fleet, jointly organized and operated by the Governments ofColombia, Venezuela and Ecuador. There is currently a project underway for the Gran Colombiana Line to acquire more ships and to ex-tend service to Europe. While the initial venture was defended on tl-hegrounds that the possession of a few ships afforded protection toColombia against exorbitant freight charges on its imports and ex-ports, this argument hardly applies to a further extension of opera-tions. This traditionally is a competitive field in which returns havebeen low. It would appear that Colombia could realize greater returnsfrom its savings by investing them in internal developments than byan extension of activities in ocean shipping.

The Colombian Government has recently attempted, through itsimport and export licensing, to control the routing of vessels todistribute traffic among the ports in accordance with their respectivecargo-handling capacities. A fair evaluation of this attempt has notbeen possible, however, because of the exceptional congestion in thepostwar period.

Port Facilities

The principal seaports of Colombia are Barranquilla, Cartagenaanid Santa Marta on the Caribbean Sea, and Buenaventura and Tumacoon the Pacific Coast. The operation of port and waterway facilities atBarranquilla and Cartagena is under the control of the Directorate oiNavigation, Ministry of Public Works. Table 30 shows the volume offreight handled through each of these ports annually for the five yearsending with 1947.

Barranquilla is situated 12 kilometers above the mouth of theMagdalelna River and is dependent upon that waterway for accessboth to the ocean and to inland areas. It has grown rapidly as aprocessing center for raw materials received by water. A jettied en-trance channel, known as Bocas de Ceniza, completed in 1936, wasexpected to secure a depth of 33 feet, but the dependable minimumdepth has so far not exceeded 18 feet. Large vessels seeking to enterthe port must unload or "top-off" cargoes at Cartagena or Santa Marta.Contraction works and dredging to increase the depths through Bocasde Ceniza are in progress, and maintenance of the channel costs aboutPs.$2 million annually. A marginal quay provides berthage for 7ocean steamers at a time, and a paved wharf with 8 concrete ware-

TABLE 30

ANNUAL VOLUME OF COMMERCE THROUGH TIIE PRINCIPAL SEAPORTS, 1943-1947(nmetric tons)

IMPORTS EXPORTS

Santa Carta- Santa Carta-Year Marta B3arranquilla gena Buenaventutra Tumaco Marta Barranquilla gena' B3uenaventura Tumaco

1943 ....... .... 692 85,852 27,862 118,082 1,148 1,228 119,013 83,875 199,677 1,739

1944 -...... 2,098 122,757 105,842 121,822 1,304 13,143 123,239 60,072 174,939 2,811

1945 . . 6,729 198,693 130,783 182,331 1,802 31,878 119,044 76,815 156,221 2,856

1946 .. . 8,595 259,002 103,366 263,360 2,668 48,813 112,090 30,645 216,460 1,876

1947 . . . 13,097 411,446 145,239 348,662 3,559 65,516 97,243 21,544 211,478 2,688

TOTAL . 31,211 1,077,750 513,092 1,034,257 10,481 160,578 570,629 272,951 958,775 11,970

gEARLY AVERAGE . 6,242 215,550 102,618 206,851 2,096 32,116 114,126 54,590 191,755 2,394

* Excludes exports of petroleum.

SURFACE TRANSPORT 129

houses and ample river frontage affords adequate space for transferof cargo between seagoing and river vessels.

Cartagena has one of the best natural harbors of South America,with a protected roadstead of 35-foot minimum depth, adequate for afleet of modern ships and tankers many times as large as that nowusing the anchorage. The modern quay and piers, equipped with 6concrete warehouses and suitable mechanical facilities, can accommo-date 5 ocean vessels and handle as much as 500,000 tons of cargo ayear. The Tropical Oil Company has established a crude-oil loadingpier at Mamonal, in the outer harbor, capable -of loading 9,000 barrelsan hour into deep-sea tankers by two pipelines from the interior.Like Barranquilla, Cartagena depends on the Magdalena River forcommunication with the more densely settled districts in the centralhighlands. It is connected with the river port of Calamar by a 105-kilometer railroad and by the 142-kilometer Canal del Dique which iscapable, if properly maintained, of carrying all of the shallow-draftcommerce of the port in Magdalena-type river boats.

The northernmost port, Santa Marta, has a commodious, protectedharbor of 25-foot minimum depth, with a modern dock mechanicallyequipped for loading bananas. Its communications with interior com-mercial centers, and even with its own extensive and potentially pro-ductive hinterland, are poor and roundabout.

Buenaventura is located 16 kilometers up Buenaventura Bay fromthe Pacific Ocean. Minimum depth over the entrance bar is only 24feet, but a 13-foot tidal range permits the entry and clearance ofvessels of modern draft. The port's terminal facilities are now beingextended and modernized and, when completed, should be adequatefor the expected future freight volume. Buenaventura is linked to theinterior by both railroad and highway, but the capacity of these routesis overtaxed by the freight diverted from Caribbean ports. The ter-minal lacks facilities for transfer between ships and motor trucks,which tends to aggravate the congestion that has plagued this portfor the past several years. The division of responsibility for operationof the port-its facilities are under the control of the Railroad Adminis-trative Council while release of cargo is independently controlled bythe customs authorities-adds to the confusion.

Tumaco, situated on the Pacific Ocean near the southern boundaryof the Republic, functions largely as a local port for the Pasto-Ipialesarea of Narifno, and has little importance in the foreign commerce ofthe country at large. The old port was destroyed by fire in 1947, andthe National Government is constructing a modern concrete quay andcommunity settlement on the adjacent island of El Morro. The

130 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

current dredging program will provide 33 feet at favorable tide stages.Air service connects Tumaco with the interior, and a 108-kilometerrailroad connects it with the national highvvay system.

Although the ports of Colombia are adequate, or capable of beingmade so from the standpoint of marine facilities, two allied problemsremain to be solved-namely, terminal handling and transportation tothe interior. The latter problem tends to aggravate the former. Forexample, the increasing deterioration of the Magdalena Channel duringthe dry seasons has contributed to the diversion of foreign commercefrom Barranquilla and Cartagena to Buenaventura. The added trafficthrough the latter port has, in turn, contributed to the breakdown ofits transportation facilities to the interior, and its terminal handlingfacilities and administration.

Numerous detailed studies have been made of the very slow un-loading of ships at Buenaventura, but the facilities, labor practicesand other methods in use are not yet adequate for the present volumeof cargo. Reports of traffic handling made by W. R. Grace & Companyover the past five years reveal that the same difficulties persist, andthis port has come to be known as the slowest and most expelnsive porton the West Coast of South America. Much of this difficulty stems,of coturse, from the inadequacy of transport out of the port. Table31 shows the cargo in the port of Buenaventura during 12 months of

TABLE 31

AVERAGE DAILY CARGO IN PORT OF BUENAVENTURA, 1948-49

(tons)

Average TotalAverage Average Daily Average

Daily Daily Cargo DailyCargo on Cargo in Aboard Cargo

Mlonth Year Wharves Warehouse Ships in Port

October 1948 6,317 13,247 1,357 20,921November 1948 7,416 16,046 2,245 25,707December 1948 8,332 13,493 2,546 24,371January 1949 10,185 12,393 3,737 26,315February 1949 13,344 12,883 3,967 30,194March 1949 19,271 13,333 3,902 36,506April 1949 26,967 16,235 7,194 50,396May 1949 22,311 20,474 4,572 47,357June 1949 20,002 22,963 3,445 46,410July 1949 16,793 25,335 2,644 44,772August 1949 13,928 25,957 1,164 41,049September 1949 7,548 17,044 1,419 26,011

Monthly Average 14,368 17,450 3,183 35,001

Source: Computed from records of Traffic Department of National Railways.

SURFACE TRANSPORT 131

1948-1949, and Table 32 the rate at which it was moving out of theport by rail and highway. It is estimated that at present the railroadhandles about 75 percent of this traffic and the highway about 25 per-cent. The former is handicapped by inadequate equipment and poorutilization of that available. Highway service has been constantly im-peded by landslides and washouts and is limited by the small capacityof the trucks employed.

TABLE 32

AVERAGE DAILY CARGO MOVING FROm BUEINAVENTURA, 1948-49(tons)

Month Year By Railway By Highway Total

October .................... 1948 1,020 188 1,208November .................... 1948 1,057 166 1,223December .................... 1948 939 114 1,053January .................... 1949 1,015 122 1,137February .................... 1949 1,024 147 1,171March ............ ........ 1949 952 173 1,125April .................... 1949 977 191 1,168May .................... 1949 904 181 1,085June .......... .......... 1949 900 179 1,079July .................... 1949 911 173 1,084August .................... 1949 939 182 1,121September .................... 1949 964 182 1,146

Monthly Average 967 166 1,133

Source: Computed from records of Traffic Department of National Railways.

Coastwise TransportationThe interchange of commerce among the various Colombian sea-

ports, large and small, is accomplished wvith a wide variety of typesand sizes of vessels. They range from large units of the ocean-goillgfleet customarily making more than one domestic port-of-call pervoyage to the smallest motor-driven packets capable of navigatingopen coastal waters between nearby ports in favorable weather. Someportion of this coastwise freigllt is transported in light-draft vesselswhich also ply rivers such as the Sinu and the Atrato. At the presenttime, the Government-sponsored National Navigation Companyoperates a 350-ton seagoing motor vessel along both coasts whichalso serves for transfer of freight to and from river vessels on theColombian tributaries of the Orinoco and Amazon Rivers. Thetraffic consists principally of petroleum products, lumber, livestock,agricultural products, ores and building material. Table 33 givesthe average annual tonnage interchanged, by ports, for the lastseven years of record.

132 THE BASIS OF A DEVELOPMENT PROGRANM FOR COLOMBIA

TABLE 33

AVERAGE ANNUAL COASTWISE FREIGHT MIOVEMENTS, 1940-1946(metric tons)

Port Receipts Shipments

Barranquilla . 26,260 41,890

Buenaventura 20,604 6,806Cartagena 34,252 27,805Rio Hacha .... 3,486 2,261San Andres and Providencia Islands 1,130 3,406Santa Marta 8,370 11,067Tumaco 5,170 3,647Turbo 10,115 13,161Smaller ports . ....... 5,350 4,694

TOTAL .................................... 114,737 114,737

Inland Waterway Transportation

The Magdalena River and its principal tributary, the Cauca River,have for centuries formed the backbone of the inland transport sys-tem, connecting the Caribbean seaports and lowlands with the moun-tainous interior. In addition, there is a small amount of commercialnavigation on the Sindi and Atrato Rivers flowving into the CaribbeanSea, and on the Arauca and Meta Rivers flowing into the Orinoco.The Government-sponsored National Navigation Company alsomaintains a token service on the Guaviare, Caqueta and PutumayoRivers, which affords practically the only communication, exceptby air, with the vast Ilanos region.

The average annual volume of commercial traffic on these rivers.in the last five years for which statistics are available, is showvn inTable 34.

TABLE 34

AVERAGE ANNUAL COM-MERCIAL INLAND WVATERWAY TRAFFIC, 1943-1947

Percent Percentof Ton- of

River Metric Tons* Total Kilometers Total

Magdalena . 1,167,800 94.7 582,054,000 94.9

Cauca 25,200 2.1 12,095,000 2.0Sinu 25,507 2.1 9,693,000 1.6Atrato 4,788 .4 2,394,000 .4

Arauca . . 1,422 .1 988,000 .2

Mleta .5,243 .4 3,827,000 .6Tributaries of the Amazon 2,857 .2 2,149,000 .3

TOTAL . . 1,232,817 100.0 613,200,000 100.0

(*) Does not include duplications or Ci6naga Canal traffic.

SURFACE TRANSPORT 133

The Magdalena River. The Magdalena River drains the broadvalley lying between the Central and Eastern Cordilleras of the Andes.Both historically and practically, despite the lack of year-round dle-pendability of its upper reaches, it is a major and essential artery ofcommerce, forming with its railway and highway feeders the onlysurface connection betveen the Caribbean ports and the importantinland areas around Medellin, Bogota and Bucaramanga. The annualfreight traffic moved by river craft on the Magdalena for the pastfive years averaged 1,167,800 metric tons. Table 35 shows the divisionof this total among the several river ports where freight is trans-shipped inland.

The upper river has a marked tendency to meander in separate,unstable, shallow channels over a broad flood plain, and to formshifting gravel bars after each high water season. Consequently,during the twvo annual dry seasons of approximately three monthseach, navigation of the 333 kilometers above Puerto Wilches is verytlifficult and tuncertain. Sporadic measures over many vears to blast

TABLE 35

AVNRAGE AN Nt A\. IA(GDALEN A Riv}.R TRAFFic, 1943-1947

Kilometers Metric Tonsabove

Port mouth ON OFF

Barrancluilla 12 202,094 314,749(Cartagena - 32,309 48,634Calamar .. 103 52,434 60,001Magangu6 .......... . 250 15,262 45,379El Banco 391 9,834 16,154(Gamarra . 485 12,764 9,948Puerto Wilches 609 27,744 58,801Barrancabermeja . . . 643 437,187 28,113Puerto Berrio .742 63,368 197,793Puerto Salgar 898 48,425 104,224La Dorada 899 79,269 166,969Honda . . . 942 19,354 4,959Intermediate Ports 167,756 112,076

TOTAL 1,167,800 1,167,800

out the gravel bars and confine the current to the main channels bytraining dykes and contraction works have not produced visiblepermanent benefits above Puerto Wilches. Whether this failure isdue to lack of a coordinated, continuously prosecuted plan of better-

134 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

ment, or to inherent difficulties of that section of the river, cannotbe definitely stated. A Ps.$2 million project for stabilizing the channelat Puerto Wilches by means of bulkheads, spur dykes, and bankrevetment is being carried on actively by the National Government,and two short critical sections below this point will probably haveto be similarly dyked and protected (at an estimated cost of Ps.$1million) to maintain the existing channel. It is also believed thatperiodic dredging costing about Ps.$1 million annually must be car-ried on in this reach if navigation is to proceed unimpeded fromBarranquilla to Puerto Wilches.

Canal del Diquie. This canal, 142 kilometers long, with a projectdepth of 8 feet and a project bottom width of 147Y2 feet, affords anavig,able connection between the harbor of Cartagena and theMagdalena River at Calamar, 124 kilometers above the mouth. Navi-gation on the Canal del Dique dates far back into the colonial period.There have been several progressive enlargements and much moneyhas been spent to dredge the channel at irregular intervals, but it issubject to the deposit of sediment from the river at flood stages, andneeds more or less constant maintenance to preserve navigable depthsthroughout. About 50 kilometers of the seaward section are badlyshoaled and encroached upon by aquatic growth at present. Approxi-mately 50,000 tons of freight per year are currently transported overthis route in each direction at the regular river rate of 4 centavosinbound and 2 centavos outbound per ton-kilometer. The balanceof the traffic betveen Cartagena and the river, about the same volume,is carried by the railroad to and from Calamar. When properlymaintained, the canal has ample capacity for all the freight available.Its effective maintenance is estimated at Ps.$2 8 0 thousand a year.

Equipment anzd Operationzs. Boats and barges of various sizes andmeans of propulsion compose the river fleet. Table 36 shows thesize of the major fleet operated in public service, and its growth incapacity from 1941 to 1948, which wvas due in part to the additionof modern diesel-powered propeller-type towboats.

TABLE 36

MAGDALENA RIVER PUBLIC SERVIcE FLEET, 1941, 1948

Item 1941 1948 Increase

Number of towboats .................... 65 128 63Freight capacity in tons ..................... 20,980 49,100 28,120Number of barges. ......................... 156 176 20Freight capacity in tons ................... ... 26,100 43,500 17,400

SURFACE TRANSPORT 135

In addition to this public service fleet there are 28 self-propelledvessels and 96 barges in the private petroleum trade, with a totalcapacity of 60,828 metric tons. There are also 16 towboats and 25barges in various private industrial services on1 the river with a totalof 13,111 tons capacity. Forty-seven of the larger towboats and the 4larger passenger "express boats" are of the obsolete stern paddle-wheel type. Their operation under existing handicaps is inefficientand unprofitable, and about 30 of these vessels are now out of serviceat Barranquilla. There are 16 fairly new diesel-powered propeller-type towboats and 40-odd new barges now in public service, whichare much more efficient in their operation. These towvboats are morepowerful than the sternwheel type and, because they draw lesswater, burn less fuel and employ a smaller crew, their annual opera-tion is more productive and profitable.

The practice of assigning cargoes to the vessels according to thesequence of their arrival-the so-called "turn" system-is a handi-cap to efficient operation of river transport. Under this system, thefirst vessel to discharge cargo at a port has a prior right to load anyavailable cargo and depart, regardless of the suitability of the vesselfor the cargo in question or its comparative ability to navigate theriver successfully under the conditions then obtaining. This prac-tice frequently results in long delays, both for vessels running agroundwith their cargo and for others awaiting clearance of less efficientboats before they can secure freight. It is not possible to estimate thevalue of time lost in monetary terms per ton, but the loss is real andoften conclusive in influencing the shipper's choice of other routesand modes of transportation because, in effect, he has to gambleon the type of ship to which his cargo will be assigned. Moreover,there is no difference in rates for different commodities, types of ves-sel or qualities of service.

Operatinzg Costs and Rates. The comparative operating characteris-tics of the two principal types of river carrier on the existing Magda-lena waterway are shown in Table 37, calculated from records of 3typical round trips for each of the two types.

The modern, diesel-powered, propeller-type toxvboats are muchmore efficient and economical in the lower reaches of the Magda-lena River, but they also encounter difficulties in navigating theupper 333 kilometers during the semi-annual dry seasons. Evenwhen their lighter draft permits passage over the shoals of that sec-tion, the propeller-type boats show an incurable tendency to losesteerage way in the shallow reaches of the channel and to groundtheir barges against the banks. The improvement program now

13(0 lTe BASIS ()F A D)EVEJI.01'1ENT PROGRAM FOR COLOMBIA

TABLE 37

CO-MPARATIVE OPERATING CT,TS \-f S lT\TISTICl FOR STERN WHEEL AND

PROPELLER-TYPE VESSELS BASED ON ROUND TRIP BETWEEN

BARRANQuILLA AND LA DORADA

Sternwheel PropellerItem Type Type

Rated horsepower 480 600D raft in feet ................... .......... 4.5 3.5Average upstream cargo (tons) ... ... 632 1,400Average downstrealm cargo (tonis) ...... 330 330Running time betweeti Barranquilla and Wilches

(days) ..................... . 11 9Standby time between Barranquilla and Witches

(days) .....................-.. 6 6Running time between Wilches and Dorada (days) . 23 20Standby time between Wilches and Dorada (days) 21 9Fuel and lubricants between Barranquilla and Wilches Ps.$2,135 I's.$1, 765Fuel and lubricants between Wilches and Dorada .. Ps.$4,448 Ps.$3,883Wages, food, costs of social legislation between

Barranquilla and Wilches.... . . Ps.$7,544 Ps.$4 .180Wilches and Dorada . . ..... . Ps.$17,705 Ps.$8,080

Initerest and amortization (including barges)(a) between Barranquilla and Wilches... . Ps.$2,620 Ps.$2,760(b) between Wilches and Dorada ..... ..... .. Ps.$6,780 Ps.$5,340

Cost per ton-kilometer betweenBarranquilla and W"ilches Ps.$ 0.0213 Ps.$ 0.0083Wilches and Dorada Ps.$ 0.1037 Ps.$ 0.0345

under way can be expected to afford dependable depths at all sea-

sons for existing vessels of the major fleet with maximum draft of4Y2 feet only as far south as Puerto MVilches, 609 kilometers abovethe river mouth. If the present improvements do not succeed in sta-bilizing the channel between Puerto Wilches and Bocas del Rosario.50 kilometers dowinstream, the limit of certain navigability at all

river stages might be contracted still farther. Full benefit of theeconomies possible from use of diesel-type propeller equipment, with

fewer crew members than are needed on the older. steam-propelled,sternwhlieel vessels is not possible, however, because certain laboragreements require the employmenit of larger crews thani are neces-sarv, or 'crewv featherbedding," and to that extent the capital invest-menit in this more efficient eqcuipment has been wasted.

Alagdalena River freight charges are based on a scale of 4 centa-vos per ton-kilometer upstream and 2 centavos per ton-kilometerdownstream, irrespective of the type of vessel used. Green coffee in

bags is giveni a 1 percent discount under the base rate. In addition,stevedore organizations at the river ports impose a flat charge of

SURFACE TRANSPORT 137

Ps.$9 per ton, "on and off", (i.e., Ps.$4.50 from warehouse to boat atpoint of origin and Ps.$4.50 from boat to warehouse at the transship-ment point). This high charge results from contracts with the steve-(lores' organization which exclude boat crew members from assistingin loading and unloading operations at the Mlagdalena River ports,and call for very strict rules as to hours, overtime pay, and pay formanual labor displaced by mechanical loading and unloading devices.This is several times the rate of Ps.$1.40 per ton charged, for example,by railroad employees for comparable services, and greatlv increasesthe cost of river transportation and reduces its ability to compete\vith alternative transport media. On an upstream haul from Ba-rranquilla to Puerto Wilches (597 kilometers), the transportationcharge would be Ps.$23.88 per ton; a Ps.$9 loading and unloadingcharge would therefore represent about 28 percent of the total cost()f shipment. For shorter hauls the importance of this item wouldrise proportionately and, for downstream traffic, where the freightrate per ton-kilometer is halved, its relative significance is sharplyincreased. This charge was reduced to Ps.$5 at the end of 1949apparently in an attempt to recapture some of the traffic lost to othermeans of transport, but there is no indication as yet as to the effect,if any, of this change. The new rate is still high in relation to the costof similar services on other routes and to the overall value of theproducts transported. This high rate, coupled with careless handlingand widespread pilferage, has been an important factor in the diver-sion of traffic from the river to the overland route from Buena-ventura.

The flat charge for loading and unloading is imposed, moreover,without regard to the nature or value of the cargo. As the develop-iment of Colombia proceeds, the river should more and more becomethe artery for moving heavy goods, machinery, and raw materials,as distinguished from the higher value general merchandise whiclhnIow formns so much of its traffic and which will probablv be carriedto an increasing extent by the railway, highway and airway systems.Thus the impact of this flat charge is likely to become increasinglyserious, and might offset any potential improvements in the utilityof the river.

The ports of Calamar, Puerto Wilches, Barrancabermeja, Puertolierrio, Puerto Salgar. La Dorada and Honda all have modern ware-hoouses. which appear to be of ample capacity for storage and( trans-fer of freight betweeln the river and the connectinig railroads. How-ever, the fluctuations of freight volume with the seasons results inextreme congestion at certain periods, with consequent costly delays.Handling costs are high, for although the ports are equipped with

138 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

varied loading and unloading apparatus, labor agreements requirepayment on a manpower basis for all transshipments handled bymechanical means. The ports are not closely supervised nor heldfinancially responsible for loss and breakage of cargo; hence thepilferage and damage rates are scandalously high.

The effect of these various factors is indicated by a comparisonof transportation and related costs for general merchandise fromBarranquilla to various inland centers with those from Buenaventttra,and the comparative costs for export of coffee. (Table 38) Strictlyon a cost basis, without considering differences in quality of service,Barranquilla compares unfavorably with Buenaventura in many cases.The latter's advantage is strengthened by the seasonal disability ofthe Magdalena River route.

Barranquilla can continue to compete for the coffee export trafficonly through special rates for volume contracts. For example, thecost under regular tariffs from Manizales via Barranquilla wasPs.$54.79 per ton, but a special contract tariff brought it down toPs.$46.95, somewhat under the Buenaventura rate. Similar dis-counts are offered to other coffee-producing centers to meet thecompetition of the overland route.

PIPELINES

Pipelines are currently handling approximately one-half of thetotal ton-kilometers of freight transported in Colombia.6 For thisreason, they constitute one of the most important agencies of trans-portation. In the past most of this tonnage has been crude petroleumfor export. As the demands of the Colombian economy for petroleumproducts increase and the supplies of crude petroleum diminish, whichis the pattern of future development, the transport problem will be-come increasingly one of internal distribution to major consumingcenters from the refinery facilities.

There is little doubt that pipelines afford the most economicalmeans of transportation for some petroleum products under certainspecified conditions. In the first place they require substantial andsteady volumes to insure utilization of the investment. As a matterof principle, it does not pay to construct small capacity lines since theoriginal cost is not proportionately lower than higher capacity, andhence more economical, lines. For this reason it is sound to buildpipelines only to the few major consuming centers; thereafter dis-

6 Pipelines were transporting approximately 45 percent of the total freight ton-kilometers in 1947, which was before the inauguration of service through the linebetween Barrancabermeja and Cantimplora-Puerto Berrio, one of the most productivein the system. See Figure 2 for location of present pipelines.

SURFACE TRANSPORT 139

TABLE 38

COMPARATIVE TRANSPORTATION RATES PER TON FOR IMNPORTS AND

COFFEE EXPORTS, APRIL AND MAY, 19491

Trans-portation Warehouse Other Local TotalCharges Charges2 Charges Hauling Rates

General Imports via(a) Barranquilla to:

Bogota ............... Ps.$56.80 Ps.$1.50 Ps.$33.313 Ps.$ - Ps.$ 91.61Ibague ................ 58.01 .50 33.31 - 91.82Girardot .............. 63.09 .50 33.31 - 96.90Manizales .......... 52.51 .50 33.31 - 86.32Medellin ... .......... 52.33 1.50 33.31 - 87.14Neiva .......... ..... 73.54 .50 33.31 - 107.35

(b) Buenaventura to:Bogota ............. 75.82 - 18.004 - 93.82Ibague ..............d 51.35 - 18.00 - 69.35Girardot ... .......... 60.16 - 18.00 - 78.16Manizales ... .... . 42.84 - 18.00 - 60.84Medellin ...... 55.29 - 18.00 - 73.29Neiva .................. 71.72 - 18.00 - 89.72

Export of Coffee via(a) Barranquilla from:

Fredonia ... ......... 34.46 1.50 20.975 3.20 60.13Girardot ...... .... . 34.28 .50 20.97 1.84 57.59Armenia ........- 46.66 .50 20.97 1.40 69.53Manizales .... ... 32.48 .50 20.97 .84 54.79Medellin ..... ..... . 35.16 1.50 20.97 1.43 59.06Ibague .............. 34.17 .50 20.97 1.50 57.14

(b) Buenaventura from :6Fredonia .. ...... - . 42.45 - 9.077 3.20 54.72Girardot ....... ... 42.72 - 9.07 1.84 53.63Armenia .............. 31.55 - 9.07 1.40 42.02Manizales 39.06 - 9.07 .84 48.97Medellin . ............ 53.27 - 9.07 1.43 63.77Ibague ........... _ 36.46 - 9.07 - 45.53

l Rates for imports, April 1949; for exports, May 1949.2 Includes Ps.$0.50 per ton for receipt and redispatch of shipment.3 Includes Ps.$10.31 for import taxes, Ps.$14.00 for insurance, and Ps. $9.00 for

loading and unloading charges.4 Includes Ps.$10.00 for import taxes and Ps.$8.00 for insurance.5 Includes Ps.$7.97 for export charges, Ps.$4.00 for insurance, and Ps.$9.00 for

loading and unloading charges.6 At Buenaventura insurance, loading and unloading and wharfage charges are

included in transportation charges.7 Represents export charges only.Source: Boletins de Estadistica de la Federacifn Naciontal de Cafeteros.

140 THl-F BASIS OF A DEVELOPMENT PROGRAM FOR COLOMNIBiA

tribution is best handled by other means of transport-railroads andtrucks-which can reach ultimate consutimers. Finally, pipelines solveonly a part of the problem of petroleum products transportation. Forexample, a so-called "vhite products" line cannot carry aviation gaso-line because of the contamination from the other products whichutilize the line.7 Similarly, a crude-oil line cannot be used for thetransportation of gasoline and many other refined products.

One other economiiic consideration is wvorthy of note in the caseof pipelines. They do divert traffic from other means of transporta-tioII and, although the transportation of petroleum products per seby pipeline may be cheaper, it is not necessarily a saving to theeconomy as a whole. This is especially true if the added traffic tothe railroads, for example. w,vouldl allown more profitable operations ofthis means of transport. In some cases of this type, it might be eco-ionliciC for the alternate means of transport to meet the pipeline rate.

Since it is felt that the present pipeline systemn, wvith minor modi-fications, is adequate to handle the crude petroleum for export, barringany unforeseen discoveries of neew oil fields, this Report deals pri-marily with the pattern of pipelines to handle present and futuredistribution of internal requirements. At the present time Colombiaimports a part of its requirements for refined petroleum productsprimarily through the ports of Barranquilla and Buenaventura. Thebalance of its requirements are produced at the refinery at Barran-cabermeja. 5 If it is assumed that the latter refinery will be equippedto furnish the needs of the large interior markets for most refinedproducts, the transportation problem will focus on this point. Twvomajor deficiencies exist in transportation from Barranca to these mar-kets. In the hirst place. B3ogotci and the suirroutindinig area of Ctuldina-imarca, one of the largest markets, must now rely in part on a pipelinefrom Barranca south to Puerto Olaya. river bar-e from there toluerto Salgar and railroad to Bogota. During the drry season trucksare titilized from Puerto Olaya to Barbosa anid railroad from thereto BogotA." The amouiit of handling and storage required in thesemovements is expensive andI inefficient when the size of presentand potential deemalds for petroleum prodlticts from this area areconisidered.

Thle other deficiencv involves movement of petroleum lproductsfrom Barranca to Medellin and the markets of Antioquia, Caldas and\T alle del Cauca. This transportation involves pipeline from Barranca

7 "Whlite products" include such items as gasoline, kerosene and diesel fuels.8 The refinery at La Petr6lea supplies a small local area in Norte de Santander.9 These routes can be located on Figure 2.

SURFACE TRANSPORT 141

to Puerto Olaya and railroad to Medellin, an(l theuice by rail or truickto the ultimate consumer. Because of the inability of the AntioquiaRailroad to handle the volume to M\edellin from Puerto Olaya, thishas presented a real problem.

As noted above, certain products will probably have to be in-ported, such as highl-octane aviation gasoline, and still other goodswill have to move by means other than pipeline. This wvill requireadequate transportation betveen Buenaventura and Cali. The needfor such products in the Barranquilla-Cartagena area can be handledby direct import to those points.

Recommended solutions for these petroleuim transport problemswill be presented in Chapter XX.

CHAPTER VIII

Air Transport

When the country's extraordinarily difficult terrain and widelyseparated centers of population are considered, it is not surprisingthat Colombia has the oldest commercial airline in America, organizedin 1919. In the ensuing thirty years, commercial aviation in Colombiahas growvn steadily and rapidly, and is nowv a very important partof the transportation system for both passeng,ers and freig,ht. Sincethe war the rate of groNvth has been acceleratcd; in 1948, for example,

the numuber of passengers carried by air w,as more than four times,

and the amount of freight over twvelve times, as great as in 1945.

This outstandin- growth resulted from (1) the availability of war

surplus aircraft from the United States, and (2) the establishment

in Colombia of several new airlines. The airlines in 1948 accounted

for more than twvice as nmany passenger-kilometers as first-class

railroad traffic, and are overwhelmingly the principal carrier for such

travel over distances exceeding 50 kilometers. In that year, it is

estinmated the airlines also carried about 10 percent as much freight

traffic, in ton-kilometers, as the railroads and highwvays.

Until the postwar period, wvith a few minor exceptions, the

original SCADTA line, and its successor company, AVIANCA5 hada monopoly of commercial air transport in Colombia. As cheap

surplus aircraft became available, a total of sixteen newv airlines

wvas established and nine are still operating. However, AVIANCA

and four other companies2 now carry about 97 percent of all com-

mercial traffic, as shown in Table 39.

I These abbreviations will be used to designate the companies:

SCADTA-Sociedad Colombo-Alemana de Transportes Acreo.

AVIANCA-Aerovias Nacionales de Colombia.

2 These companies and their designations are as follows:

(1) LANSA-Lineas Aereas Nacionales, S.A.

(2) SAMI-Sociedad Aeronautica Medelliln, S.A.

(3) SAETA-Sociedad Aerea de Tolima, S.A.

(4) LATCO-Lineas Aereas Transatlanticas Colombianas, Ltd.

142

AIR TRANSPORT 143

TABLE 39

ESTIMATED DISTRIBUTION OF COMMERCIAM AIR TRAFFIC

JANUARY-JUNE, 1949

No. of Kilos ofPassengers Cargo

(percentage)

AVIANCAI ....... ... ...... ..... 66.2 27.2

LANSA 27.9 21.3

SAM - 31.1

SAETA 4.2 7.7

LATCO - . 9.1

Sub-Total ... 98.3 96.4

OTHERS 1. .7 3.6

Industry Grand Total... 100.0 100.0

l Includes wholly owned subsidiary, Aerotaxi.Source: Based on records of Aeronautica Civil and companies.

Table 40 shows that air passenger traffic is now concentrated inrelatively few markets. The twenty routes shown account for nearly

60 percent of the total passenger revenues for the industry, and

involve operations into only thirteen cities; ten of these routes,

involving eight cities, provide nearly half the passenger revenues.

In part, this reflects the concentration of economic activity in

Colombia, but it results partly from inadequate attention to other

potential markets. In any event, the possibilities for further develop-

ment of passenger traffic appear substantial. In the next five years,

it can probably be doubled without any change in the general char-

acter of the service. If, however, the airlines are able to provide alower class of service, competing to some extent with third-class

surface travel, a total expansion of 300 percent might be expected.

This "tourist class" service is a definite possibility being seriously

considered by the airlines, but no definite action has been takento date.3

3 Although AVIANCA operated a two-class service on an experimental basisduring the postwar period, the "tourist class" was not priced low enough to attracta sufficient volume of traffic and was abandoned.

144 M-FE BASIS OF A DEVELOPMENT l'ROGR.ANI FOR COLOMBIA

TABLE 40

TN1'ENTY MN1AJOR PASSENGER REVENUE MARKETS. JutLY 1949

Estimated Percent ofTotal Industry in

MIarket Passenger-Kilometers

1. Bogota-Barranquilla 12.52. Bogota-Cali . 8.73. Bogota-Medellin . 6.54. Barranquilla-Medellin . 5.9S. Bogota-Cartagena . 3.96. Cali-M edellin ............. . 3.47. Bogota-Bucaramanga 2.8S. Bogota-C6cuta 2.49. Cartagena-Medellin . 1.7

10. Bogota-Neiva 1.711. Cali-Ipiales 1.612. Bogota-Pereira . . 1.213. Barranquilla-Cartagena 1.214. Bogota-Manizales 1.115. Barranquilla-Pereira .816. Barranquilla-Bucaramanga .817. Barranquilla-Santa Marta .. . .718. Bucaramanga-Medellint .719. Bucaramanga-Ciicuta .620. Bogota-Villavicencio .6

58.8

Air freight traffic is even more concentrated in major markets,as shown in Table 41. Nearly 70 percent of the total freight ton-kilometers are generated on 20 routes involving only 12 cities, andtwo markets, Barranquilla-Bogota and Barranquilla-Medellin, aloneaccount for more than 34 percent of the total. Freight rates arealready lower than woould normally be expected for DC-3 operationson a fully allocated cost basis. Thus freight traffic development willdepend upon the extension of present service into new markets, themore intensive development of present markets, and eventually theuse of essentially lower cost equipment. Because the potentialitiesof air freight have not so far been developed as much as those ofpassenger traffic, it is estimated that freight volume may quadrupleover the next five years. This is based on the assumption that theairport system wvill be improved to handle a greater volume of DC-4and C-46 traffic and night flying.

Colombia is one of the few nations where commercial aviationhas been largely developed by private capital. There have been, of

AIR TRANSPORTI 145

course, some public subsidies-gifts of land to the companies for-airports, ,overnment construction of airports, and particuilarly thecontract for carrying air mail, which has been an AVIANCAmonopoly. Nevertheless, the major burden of development-incluld-ing the construction, maintenance and operationi of numerouis airports,and some airport-to-city highways, and the provision of comimunica-tions and air navigation facilities, as well as airline operationsin the narrow,er sense-has been borne by the private compainies.

TABLE 41

TWENTY MAJ OR FRs IGHT-PRODUCING MASRKETS, JULY 1949

Estimated Percent ofMvarket Total Ton-Kilometers

1. Barranquilla-BogotA . ...... . .. ............ 17.12. Barranquilla-Medellin ..... .... 17.13. Bogot~-Cartagena . .. .....-.. 6.24. Cartagena-Medellin . .... 4.15. Barranquilla-Cali .... .... 3.76. Bogot:1-Medellin ........ 3.67. Medellin-Planeta Rica 3.68. BogotA-Cali ~ ......... .. .. ....... . .. 3.39. Bucaramanga-INede]lin . -..... 2.2

10. Barranquilla-Bucaramanga 1.311. BogotA-Planeta Rica . .... ............ 1.312. Cali-Miedellin ... -.... . . .. ...... - 1.213. M edellin-M onteria .. _ ....... ... ....... ... 814. 13ogotfA-Bucaramanga . ........... 715. Barrancabermeja-Planeta Rica .616. BogotA-C6cuta .517. Barraiiquilla-C6icuta .418. Barranquilla-Mlanizales .3

19. Arauca-Cilcuta ..20. Jiarranquilla-Mfagangu6 ... 2

68.4

The development of air transportation under these conditions wvassomewhat retarded. Flight and ground equipment was generallyhanded down from more highly developed countries, such as theUnited States, where the aviation industry has benefitted fromlgreater public subsidies. Operations were largely restricted to tihefew localities where the demand for service was strongest. Theselimitations were greatly eased by the special circuimstances whichprevailed just after the war, but the sudden expansion of air transportduring this period produced new problems which must be solvedif this essential service is to realize its potentialities.

146 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMIBIA

THE GOVERNMENT AND AIR TRANSPORTATION

Law No. 89 of 1938 is the basic lawv governing the relationshipof the government to the air transportation industry in Colombia. Itprovides in general for control and exploitation of the nationalatmospheric space and for registration of aircraft; regulates theownership of aircraft engaged in public air transportation; definesair navigation services as public utilities; specifies the ability ofthe government to ownI, operate or invest in air transport companiesunder certain conditions; and governs the supervision of airports,the licensing and training of personnel, and the organization of theDireccion General de Aeronautica Civil, the government regulatoryagency.

Aeronautica CivilThe Direcci6n General de Aeronautica Civil is part of the Ministry

of War. All other forms of transportation-railroads, highways andwvaterways-are under the general jurisdiction of the Minister ofPublic Works. Aeronautica Civil, although created by the law of1938, did not really become active until after the war when it wasreorganized by Decree No. 969 of 1947. The reorganization had manygood results, but three factors have impeded the agency's effectivefunctioning.

First, as part of the Ministry of War, it is subject to overridingmilitary influence, although the employees of Aeronautica Civilitself are mainly civilians. While civil aviation certainly is importantto national defense, it is necessary also to take account of economicobjectives which do not necessarily coincide with military priorities.For example, the location and planning of an airport with a viewto military use is not always consistent with its maximum commercialutility, but the final authority on investment of funds in nationalairfields rests with the Ministry of War. The development of com-mercial aviation in Colombia has gone far enough, and the possibilitiesfor its future development are sufficiently great, to require a morebalanced consideration of its needs. The fact that the law of 1938was not implemented for almost ten years indicates the secondaryinterest of the military in civil aviation.

Second, Aeronautica Civil's ability to achieve the purposes of thelaxv has been hampered by budget limitations, aggravated by thefact that the allocation of revenues specified by law does not conformto the most important needs of the industry. Aeronautica Civil hasbeen given responsibilities for the management and improvement ofseveral airports which it cannot carry out properly with its presentfunds.

AIR TRANSPORT 147

Third, with few exceptions, Aeronautica Civil has lacked trainedpersonnel of the calibre necessary to accomplish its purposes. Thisis due partly to low salary levels, partly to its status as an appendageof the Ministry of War, and partly to an insufficiency of personstrained and experienced in these fields in Colombia.

This organization has not, therefore, been able to function withfull effectiveness as a national regulatory agency-for example, toset up a system of airways for the nation, or to prepare and enforceappropriate regulations governing airline operating and maintenancestandards, the licensing of personnel, and the direction of airportsand air navigation and traffic control systems.

With regard to the granting of route franchises, the basic airlaw made very general provision in Article 44, as follows:

"In order for an enterprise which has complied with Article40 to be able to establish a regular air service in Colombia,within its boundaries or in transit to other countries, it isrequired that the project be submitted for consideration by theGovernment, which will study the possibilities and the advan-tages as they affect public security and the economic interestsof the National Industry of Air Transportation. According tothe results of this study, the corresponding permit will begranted or denied. These permits must be subject to periodicrenewal."

As used in Article 22, "regular air service" is understood to be anyexploitation of the national atmospheric space which is subject totariffs and schedules published by the company. This provision, how-ever, like many others, has never been effectively implemented. Atpresent, two companies, AVIANCA and LANSA, have more or lessblanket permits to operate into any city in Colombia, over virtuallyany route, carrying either passengers or cargo. Aeronautica Civilhas never found it politically expedient to refuse permission tooperate to any company that indicated a desire and reasonable proofof ability to do so. Thus, as has been indicated earlier, many airtransport companies have come and gone in the postwar period, andno precedent exists for Aeronautica Civil to limit a company's opera-tions to any specific routes or to any particular kind of service. As aresult, the companies have not had security from uneconomic compe-tition nor encouragement to develop the full potentialities of theroute structure.

The subject of rate regulation is not mentioned in the basic airlaw but is left up to the Division of Transportation in the Ministryof Public Works. In reality, there has been no real regulation of ratesexcept through inter-company agreements. This has produced cha-

148 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

otic competitive conditions and the danger of restrictive agreementsagainst the public interest.

The present problems -with regard to regulation of communica-tions, air traffic control, air navigation and airports are treatedbelow. Technical regulation is exercised in two other importantfields-in setting standards and granting licenses for flight personnel,and in setting and enforcing maintenance standards for the com-mon carrier airlines. The present organization of Aeronautica Civilprovides for these functions, but their practical implementation hasbeen hampered by lack of personnel and funds.

The basic air law does not provide for a hearings procedure foreither economic or technical regulation of the industry. The powerto make decisions is vested in the Director of Aeronautica Civil alone.There is no process of hcarings or appeal to which an interestedparty may resort, except through a review by the civil courts whichis normally too complex and lengthy to offer practical relief. Lackof sufficient administrative safeguards is a substantial defect in therelationship between the Government and the air transportationindustry.

Government Air Services

Law No. 89 of 1938 aiso provides that the Government may itselfinvest and engage in air services if private capital is not fulfillingthe needs. Article 45 provides:

"When the needs of territorial exploitation demand it orthe financial revenue of the routes prevents the establishmentof civilian air services by private enterprises, the governmentis hereby authorized to: (a) participate as stockholder inprivate air transport enterprises in the manner of a subsidy.(b) In this case the government may demand the yield of thestock in stocks of the same enterprise; and, (c) establish itsown transportation services. In this case these services willdepend directly from the Direcci6n General de AeronauticaCivil."

In addition. Article 46 provides that "The government is hereby like-wvise authorized to participate as stockholder in international airtransport enterprises.

Thus far Aeronautica Civil has not engaged directly in air trans-

portation services. It does, however, own approximately 4 percentof the capital stock of AVIANCA. In addition, the Army has engagedin air services in those areas where the commercial airlines operateonly infrequently, especially in the Ilanos and the country south of

AIR TRANSPORT 149

Bogota. The Air Force operations are defined in Decree No. 2639of 1949 and Resolution No. 1810 of August 23, 1949: to provide trans-portation to the inhabitants of the regions of the South, the islandsof San Andres and Providencia, the eastern l1anos, La Guajira andwhatever other locations require the service for subsistence, develop-ment of the national economy or to foster colonization. Although theparticipation of the Government in air transportation, through Aero-nautica Civil and the Army Air Force, has so far been quite limited,the present law leaves considerable leeway for possible uneconomiccompetition by the Government with the commercial carriers.

Air Mail Service

Air mail service in Colombia is at present an AVIANCA mnonop-oly, established by contract with the Government. AVIANCAhandles the entire operation, including the sale of air mail stampsand the pickup and delivery of mail. The actual contract expired inDecember 1942, but the arrangement has been continued on a day-to-day basis and gives AVIANCA an annual subsidy of more thanPs.$1.5 million.

Table 42 shows the estimated revenue per ton-kilometer receivedby AVIANCA for the carriage of mail in the years 1945-1949. Dur-ing this period these payments, after deducting the cost of groundhandling, averaged Ps.$13.64 per ton-kilometer. In the same period,the company's revenue from passenger service averaged 88 centavosper ton-kilometer, and for freight and express service 65 centavos.Thus AVIANCA's mail revenue per ton-kilometer is 15 and 20 timesits passenger and air cargo revenues, respectively. In other countries,however, mail revenue generally runs from 112 to 3 times the pas-senger-cargo revenues per ton-mile.

During 1949, AVIANCA will receive approximately Ps.$2 millionfor the handling of air mail, an average of about Ps.$9 per ton-kilometer. The prevailing rates for other air services are approxi-mately Ps.$1.25 per ton-kilometer for passengers, Ps.$1 per ton-kilometer for air express, and 40 centavos per ton-kilometer for airfreight. Since very few, if any, air mail flights are operated withoutsome other revenue as well, it is reasonable to assume that a subsidyof Ps.$2 per ton-kilometer wvould be more than adequate to coverexpenses for the flight handling of mail, plus a reasonable profit. If acompetitive system of air transportation is to be maintained in Colom-bia, it would appear desirable to make this subsidy available on anequitable basis to other companies by permitting them to participatein the air mail, perhaps on the basis of route franchises.

150 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

TABLE 42

AVIANCA-

ESTIMATED REVENUE PER TON-KILOMETER: MAIL, PASSENGER,

EXPRESS AND FREIGHT, 1945-1949

Express andMail1 Passenger Freight

1945 .. .. . ...... Ps.$20.S4 Ps.$1.10 Ps.$1.171946 ...... 17.12 .90 .701947 ....... 14.58 .76 .591948 .. . . . 11.43 .83 .601949 (6 mos.) . . 9.18 .97 .53

Average ..... Ps.$13.64 Ps.$ .88 Ps.$ .65

1 Mail revenue includes the subsidy from the Government as well as the proceedsfrom the sale of stamps less total cost of operating ADELCA, the ground serviceorganization for handling the mail.

THE AIRLINE ROUTE SYSTEM

The first requisite for healthy Idevelopment of air transport is asatisfactory route system. In Colombia, the present route structure 4

has grown up in response to a variety of economic and political influ-ences. The most obvious needs have been filled, but the air routestructure has growvn haphazardly. Both AVIANCA and LANSA,however, are now operating fairly extensive systems, which includea number of small, marginal markets largely developmental in nature.The principal all-cargo carrier, SAMI, is also operating into severalsuch markets, and is providing a reasonably diversified cargo serv-ice to the major cities. SAETA runs a passenger service only fromBogota to Girardot and Ibague, and its cargo services have genierallybeen concentrated in the major markets, duplicating the servicesrendered bv AVIANCA, LANSA and SAMI. The same is true ofLATCO, the last of the five significant surviving airlines.

The only assurance against unreasonable competition is the factthat the capital requirements for airline operation are relatively high,as compared witth the probable returns. On the other hand, no com-munity can obtain air service unless the various companies considerits profit potentialities high enough to make it worth their while.The result tends to be over-competition for the more lucrativeroutes and types of service amid a general reluctance to assume therisks of developing new markets. The system is uneconomic in manyrespects and does not derive from any clearly defined public policy.

4 See Figure 4.

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opAYA IGREN

152 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

A basic policy question is whether the air transport system willbe directed toward monopoly or competition. Colombia has hadexperience with both-a practical monopoly before the war andactive competition since. In principle, a competitive system may beexpected to result in better service and lower rates, and thereby todevelop a greater volume of traffic. Colombian experience seems tobear out this expectation. Since the war, rates for passengers andcargo have been much reduced, flights made more frequent, andequipment improved. Traffic volume, especially of cargo, has greatlyincreased and new markets have been opened tlip.

To some extent, of course, these improvements are attributableto the availability of relatively low-priced war surplus equipment,quite apart from competition, but there are numerous examples offavorable results stemming clearly from the latter factor. To citeonly one case, the city of Cucuta could not receive competitive serviceuntil 1949 since the only airport was owned by AVIANCA. Thestandard of service it received was very low compared wvith cities ofcomparable importance. However, when LANSA competition wvasintroduced, as a result of the building of a new airport in October1949, AVIANCA immediately undertook to enlarge its airport facili-ties to allow service with four-engine equipment, and to provide abroader range of both cargo and passenger flights. Similar examplesare plentiful in the short history of airline competition in Colombia.

The results of competition have been equally impressive in termsof traffic development. For example, the all-cargo carrier, SAM, isequaling or slightly bettering AVIANCA's cargo volumes despite thelatter's 27-year head start. The reason is obvious. Since cargo pre-sented the least profitable traffic, especially in the early years, AVI-ANCA did relatively little to promote this business, but concen-trated on the more lucrative passenger traffic.

Competition, therefore, has been a desirable force in Colombianair transportation. On the other hand, the amount of competitionwas undoubtedly excessive for a time, as is shown by the highmortality rate for airlines. At one time Colombia had seventeen com-mercial airlines; the number has now been reduced to five, for allpractical purposes, of which three carry about 90 percent of thetraffic. Destructive rate wars and additional services offered by vari-ous companies to attract business characterized the period of peakcompetition. They resulted in temporary benefits to shippers andtravelers, but the consequent instability of rates and services is un-favorable to sound long-range development of the industry and tothe general economic interests of Colombia.

AIR TRANSPORT 153

RATES AND REGULATION

Airline rates for passengers and cargo have an important bearingon the development of the Colombian economy, as well as on thefinancial position and growth of the airlines themselves. Before thepostwar competitive period, rates were determined largely by whatthe traffic would bear, taking into account the slowness and inade-quacies of the competing surface transportation.

Passenger Fares

During the period from 1938 to 1945, passenger fares increasedand the average rates were high. The competitive struggles of 1946-1949 brought about widespread fare cuts to less than half the 1945rate in some cases. For the twenty major markets, the average fareper kilometer in July 1949 was about one-third less than in 1945, asshown in Table 43. Considering the very substantial increase inother prices over the same period, this decline is the more notable.

At the time of the lowest average rates, in November 1946,AVIANCA was operating a luxury service and a tourist service, thefare depending on the type of equipment used. LANSA was gener-ally meeting and in some cases beating the lowest AVIANCAfares. In addition, there were reductions of 20 percent for round-trippassage, group rates and other special discounts, and many otherpromotional and discriminatory pricing practices wvhich normallyaccompany cut-throat competition.

TABLE 43

PASSENGER FARES IN TWENTY PRINCIPAL MIARKETS, 1938-491

Nov. July August1938 1945 1946 1949 1949

Average ................ 12.4 14.8 8.9 10.0 13.3(Centavos/Kilometer)

Average ......... ....... 19.9 23.8 14.3 16.1 21.4(Centavos/Mile)

Average ................ 11.1 13.6 8.2 8.2 11.0(U.S. Cents/Mile) 2

1 These markets generate about 60 percent of the total industry passenger revenues.2 Converted at official rate:

Ps.$1.75=U.S. $1.00 (1938, 1945, 1946)Ps.$1.95=U.S. $1.00 (1949)

Source: Computed from company records.

154 THE BASIS OF A DEVELOPMENI' PROGRAM FOR COLOMBIA

Recognizing the danger of this situation to their own interests,the two main competitors for passenger traffic, AVIANCA andLANSA, signed an agreement effective in August 1949, which raisedfares by an average of 33 percent for the twenty major markets listedin Table 40. The new fares were based on a formula recognizingdistance, surface competition, terrain and other pertinent factors.This agreement was made under the auspices of Aeronautica Civil, thegovernment regulatory agency. However, the basic Aviation Lawprovides no legal authority for Aeronautica Civil to regulate rates.It can merely act as a voluntary referee and, through its membershipon the National Council of Transportation, intercede with that bodyfor a review of the equity of rates in the light of industrial and agri-cultural interests, as well as those of the airline operators. Theseprocedures, however, are quite unsatisfactory for securing effectiverate regulation and enforcement. In effect, unless the companiesagree among themselves, regulation is non-existent. The history ofair freight rates furnishes an example.

Air Cargo Rates

There have been extended discussions of air cargo rates amongthe companies but no agreement had been reached as of October 15,1949. Freight tariffs are much more complex than those for pas-sengers. Moreover, so long as public policy toward air competitionhas not been determined, the activities of the stronger companies arelikely to be dominated by the question whether it would be possibleto beat the competition to its knees in a rate war and thus eliminateit and, if so, whether it would be worth the cost. For the companiesthat derive a large share of their revenue from passenger traffic, thereis a strong temptation to approach the hauling of cargo on an added,rather than a fully allocated, cost basis. If this is done with a viewrto better utilization of available space, or in anticipation of the moreefficient cargo planes of the future, the reasoning is sound. Butoperations at or below cost are often motivated chiefly by a desire toeliminate competition. Such cut-throat tactics may favor the shipperin the short run, but they lead almost inevitably to chaotic, rapidlychanging rates, widespread discrimination and unsatisfactory service.

Table 44, which shows an estimated breakdown of current freighttraffic by commodities, indicates that even at present rates air freightin Colombia is by no means restricted to the movement of high-value, light-weight cargo. For example, an estimated 25 percent ofthe total air freight movement consists of fruits, vegetables, meat,seafoods and other perishables. Most of these products, however,move at or near "compensation rates", which are rates calculated to

AIR TRANSPORT 155

cover only direct operating costs for the normally light traffic returnflights from inland centers to the port cities. (A similar practice isfollowed by the highway carriers, as has been noted in ChapterVII.) For example, the rate from Barranquilla or Cartagena toBogota approximates Ps.$300 per ton, while the compensation ratein the reverse direction is Ps.$150 per ton. As a result, perishablesand foods account for upwards of 60) percent of the air freight ton-nage carried from Bogota to Barranquilla and Cartagena. Compensa-tion rates have two desirable results: first, they provide new marketoutlets for meat, vegetables, fruits and other foodstuffs, permitting agreater specialization and efficiency in agricultural production; andsecond, they provide compensatory traffic to help support other air-line operations. As airline operating costs are reduced by use ofmore efficient equipment and operating methods, this traffic may beexpected to increase.

TABLE 44

AIR FREIGHT TRAFFIC BY COMNIODITY GROUPS, JULY 1949

Percent ofCommodities Total

Manufactured merchandise .. ................................................ 30Perishable foods ................................................. 25Textiles . .20...................... ................. . 20N ew spapers and periodicals ......................................... ........ 10D rugs and pharm aceuticals .................................. ............... 7Tobacco ................................................. 5Leather .................................................. 3

100

This brief discussion indicates the complexity of the factorsinvolved in the fixing of economically sound rates, and the necessityfor a stable structure which, with all factors considered, will allowthe carriers a reasonable profit margin and will move the variouscommodities for which airplanes are an economic means of transport.The uncontrolled rate war has consistently violated these basiceconomic principles. A more satisfactory system of rate regulationseems essential to protect the public interest and to permit the healthyexpansion of the aviation industry in Colombia.

156 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

COMMUNICATIONS, AIR TRAFFIC CONTROL,

NAVIGATION AND AIRPORT SYSTEMS

Various technical, administrative and financial problems beset thepresent communications, air traffic control, navigation and airportsystems in Colombia. Technical adequacy in these systems is vitalto safe airline operations. However, as the capital requirements andoperational complexity of these systems have increased in line withtechnical advances, and as the volume of traffic has grown, the airlineshave found it more and more difficult to carry the burden.

In the early period of development the airports, air navigationaids and other facilities maintained by the Government were whollyinadequate for SCADTA's expanding operations. It was necessaryfor the company to provide them itself. At first, the financial require-ments for this purpose were not great, but by December 1948, 22percent of AVIANCA's total assets, and 43 percent of its fixedassets, were in land, buildings, improvements and construction, prin-cipally airports. And despite this large investment, AVIANCA'ssystems of communications, air navigation, air traffic control andairports are insufficient for its present operations and certainly cannotprovide adequately for future expansion.

The creation of new airlines since the war, and the concurrentincrease in private and military flying, have aggravated the problem.Since all the communications and air navigation systems and manyof the most important airports are owned and operated by AVIAN CA,the safety of all flight operations depends on a single company whichis in commercial competition with the others. AVIANCA, in fact,has regarded its ownership of these facilities as a basis for monopolyof commercial flying in Colombia, but while this attitude has beensubstantially changed, present arrangements cannot be consideredsatisfactory for sound development of commercial aviation.

Air Traffic Control and Air-Ground CommunicationsAll the air-ground communications facilities for controlling the

movement of aircraft in Colombia are currently owned and operatedby AVIANCA. After the war, the inauguration of service by severalother airlines made necessary some agreement between them andAVI'ANCA for use of these facilities, since it was technically andfinancially impossible for the various companies to operate separatesystems of flight control. The agreement finally reached in 1946provides, briefly, that the other companies pay AVIANCA a blanketfee of Ps.$7.50 per flying hour per plane for furnishing air-groundcommunications, air traffic advisory service, local meteorologicalobservations at airports and air navigation aids.

AIR TRANSPORT 157

This was the only solution possible at the time, since the Govern-ment did not have either the capital or the personnel necessary totake over the AVIANCA system or to establish one of its own.But there are important administrative defects aside from the ques-tion of technical adequacy. In the first place, in controlling trafficAVIANCA avoids assigning specific altitudes and approach sequencenumbers, or taking other positive actions usually associated withan orderly system of air traffic control. This is wholly understand-able, for such action would entail a degree of responsibility for theoperations of other companies which no operating airline could affordto assume. In the second place, the competing companies inevitablycriticize the service they receive and allege that preferential treatmentis given to AVIANCA aircraft. On the other hand, AVIANCAinsists that the arrangement is unprofitable and is reluctant to makeimprovements in procedures or facilities.

Hence, the present system is more a traffic advisory service than asystem of air traffic control. In other words, position reports of otheraircraft are made available to each plane, but subsequent decisionsare generally left up to the individual captains rather than to thecontrol center. With several aircraft making independent decisionson altitude, approaches, holding points and the countless otherelements invblved, the margin of safety in flight operations is seri-ously reduced. This is especially true at major airports, wheretraffic density is such as to warrant much more positive controls.

Table 45 shows the estimated average number of landings andtakeoffs per day during 1949 at principal airports. In interpretingthese figures several points should be borne in mind. First, all trafficis concentrated in daylight hours, from approximately 6 A.M. to 5P.M. Second, traffic demand further concentrates the flights atcertain peak hours. Third, there is no comimon system of airwaysand check points for all aircraft. Fourth, certain airports (forexample, the Cali military training field, which is used by two com-mercial companies) are also used by numerous other aircraft, some-times flying without radio and under no control. Fifth, these areaverage figures and do not show peak days or peak months. Theseestimates, therefore, give a very conservative picture of current opera-tions, and are much below the volumes that may be anticipated inthe future. For safe operations under these traffic conditions, abetter system of approach control at the major airports is clearlyrequired. There is also need for effective control of aircraft enroute between airports, although it is less urgent than approachcontrol. There are no minimum altitudes for various conditions offlight and no assigned altitudes for specific flights. This lack of

158 THE BASIS OF A DEVELOPMENT PROGRA'M FOR COLOMBIA

route control again leaves too much responsibility to the individualcaptains.

TABLE 45

AVERAGE NUMBER OF DAILY COMIMERCIAL AIRLINE LANDINGS AND TAKEOFFS

AT PRINCIPAL AIRPORTS, 1949

Daily Average

1. Bogota ..... ........ . _ . .......... .... .......... 1202. Barranquilla .. ................... .......... .............. 1013. Medellin .. ............ _ _ ......... ................... 1004. Cali ................................. 54.......... .... 545. Cartagena ................. ...... ............................. 486. Manizales, Pereira and Armenia Area ......... ........ ........ . 477. Barrancabermeja .. ............................. ............... 288. Bucaramanga ......... ................ ................... 20

Soturce: C.A.A. Mission to Colombia. Based on company records of AVIANCA,LANSA, SAM, SAETA and LATCO.

One favorable aspect of the problem of control of aircraft opera-tions in Colombia is that because of the mountainous terrain thereis no frontal weather. There is some morning ground fog at thecoastal cities, especially Buenaventura, and on the northern coastalplain along the MVlagdalena River. During the so-called "smokyseason" in the early months of the year, especially February andMarch, operations are often hampered at various individual airports.The smoke results from burning over land to make way for newplanting and severely limits lateral visibility. None of this "veather,"however, presents very difficult problems of traffic control or neces-sitates expensive equipment or complicated procedures.

The Airport System

The pattern of ownership and operation of airports in Colombiais a complex one. According to a recent survey made by the DireccionGeneral de Aeronautica Civil in Mlay 1949, there wvere 198 air fieldsowned as follows:

No. of PercentAirports of Total

Airlines .... ....... . .... 60 30.3National Government .... .. 35 17.7Municipal Governments . ...... . 8 4.0Air Force .7 3.5Private individuals and corporations .88 44.5

198 100.0

AIR TRANSPORT 159

The most important municipal airport is that of Medellin, which

ranks with Bogota and Barranquilla in volume of traffic. Of the

other seven municipal fields, the most important are at Armenia,

Pereira and Tulua. The military field of most significance from acommercial standpoint is at Cali; it is used by LANSA and SAM.

Before the failure of one of the larger airlines (TACA de COLOMBIA)

and the construction of a new field by LANSA, the military field

near BogotA (Madrid) had a large volume of commercial traffic. Its

distance from the city, however, reduced its utility. Villavicenciois now the military field of second importance for commercial pur-

poses. Few of the private fields are used by commercial airlines.

The one at Cartagena is of some importance, however, and AVIANCA

also owns an airport at that city.

About three-fourths of the airline-owned fields belong to

AVIANCA, including the two most important in Colombia at

Barranquilla and Bogota. LANSA has duplicate airports at both

these cities and fields at other less important localities, some of whichduplicate AVIANCA facilities. SAETA has two ficlds, at Girardot

and Ibague. Ownership of the principal fields by the airlines hasbeen used by them, especially by AVIANCA, to restrict competition.

In the immediate postwar period, AVIANCA refused to open its

airports and other facilities to competing companies, arguing thatit had had to build its owin fields in order to engage in the business

of air transportation, and that a similar obligation should be assumedby other companies. Various governmental airports were open to

the competing companies, however, so that they were able to geta toehold. As soon as possible, LANSA began to build facilitiesat the main traffic centers from which it had been blocked by

AVIANCA. These new airports were made public upon completion.Faced with the reality of competition on the one hand and the loss

of potential revenue on the other, AVIANCA opened up some ofits fields to public use but, with minor exceptions, only where there

were duplicate facilities. In general, AVIANCA's policy has beento keep its airports closed wherever it could gain a competitive

advantage thereby.

Inevitably the development of airports in this way has resultedin unecouomic duplication of facilities at numerous localities. There

is not now, and will not be in the foreseeable future, any city in

Colombia with a traffic volume requiring more than one adequiateairport. The word adequate is emphasized, because in many cases

160 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

two or even more inadequate fields have been constructed at a costequal to or exceeding that required for a single airport. Table 46showvs the principal duplications, wvith the average daily takeoffsand landings at each field. Even at the two largest cities, Bogotaand Barranquilla, the number of planes is not sufficient to tax thecapacity of one properly constructed field with a satisfactory systemof air traffic control, especially in view of the favorable weatherconditions. Depending on the season, the two airports at Bogotahandle 1,000 to 1,500 passengers and 40 to 50 tons of cargo per day,which could easily be handled at one field.

The investment in duplicate facilities at the four cities of BogotA,Barranquilla, Cartagena and Cucuta is over Ps.$3,500,000; and thecapital requirements for maintenance, improvement and expansionwill greatly increase this amount in the future. In the light of theanticipated need for heavy investments in new aircraft, maintenanceplant and equipment, and the importance of reducing the cost oftransportation, it seems apparent that the possibility of eliminatingthis unproductive overhead cost should be carefully explored.

TABLE 46ESTIMATED AVERAGE DAILY LANDINGS AND TAKEOFFS IN

LOCALITIES WITH DUPLICATE AIRPORTS, 1949

Landings andCity Airport Owner Takeoffs

Bogota Techo Avianca 98St. Cecilia Lansa 22

Barranquilla Soledad Avianca 65Las Nievas Lansa 36

Cartagena Manizales Avianca 32Lopez Privatel 16

Cucuta - Avianca 16San Luis Private2 3

Gamarra Totunal Avianca 4Acarutana Lansa 2

Magangue Avianca 20- Lansa 10

Nortelibano Avianca -El Pindo Lansa 4

San Marcos - Avianca 5Lansa 4

Sucre - Avianca -Malvarez Lansa 2

1 Constructed by TACA DE COLOMBIA before it failed.2 LANSA has a 25 percent capital interest.Source: Aeronautica Civil and C.A.A. Mission Records.

AIR TRANSPORT 161

The competing companies readily accept this reasoning in theory,but in practice they are most unwilling to alter their policy. Theyargue that: (1) construction of duplicate airfields enabled them toget into business; (2) they could not count on the continued avail-ability of other fields so long as they are owned by a competitor;and (3) ownership of an airport is actually a sound investment,especially when landing fees are considered. In any event, the factthat Colombian airlines have been able to provide for themselvesboth airport and communications facilities without going to the wallis an indication of the strong demand for air transportation.

The National Government, through Aeronautica Civil, operatesabout 35 airports, which can be used to a greater or less extent forcommercial service. During 1947, Aeronautica Civil also had chargeof the commercial use of military fields; since 1948, however, theArmy has had responsibility for administration of the latter. Only16 of the national fields produced revenue during the first ninemonths of 1949, since many of them do not currently have commercialoperations, and the Government exempts from landing fees anycarrier making less than eleven landings per month. The mostimportant national field is at Bucaramanga, followed by Popayan,Neiva, Santa Marta and Ipiales. Of these, only Bucaramanga ranksamong the top ten airports for commercial volume.

National airports are now constructed, maintained anid operatedunder Law 73 of December 6, 1948, which created a National AirportFund cffective as of January 1, 1949. This Fund consists of proceedsfrom the aviation gasoline tax, the landing fees at National airports,any other airport revenues, (e.g., rents, franchises, etc.), and anyspecial appropriations that may be made. Sixty percent of theFund is to be allocated to build airports at the capitals of depart-ments now without such facilities and 40 percent to construction,expansion, improvement, or maintenance of other National fields.Estimated revenue in 1949 was about Ps.$1,000,000 from the gasolinetax and Ps.$400,000 from landing fees. The revenue from landingfees should increase in the future, since some of the fields were com-pleted during 1949 and others were inoperative for long periods.Revenues from commercial use of military fields, however, go into thegeneral Air Force funds, and are not specifically available for main-tenance and improvement even of the military airports.

The arbitrary requirement that 60 percent of the Airport Fundbe spent on facilities for departmental capitals, together with thelack of any overall policy or plan for development of other airfields,has made it difficult for Aeronautica Civil to spend the available fundswith full effectiveness or adequate weighing of the economic or

162 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLONIBIA

operational necessity of alternative projects. That agency has appar-ently been in some difficulty also in obtaining from the Treasury theentire revenue from the gasoline tax and landing fees.

In August 1947, the National Government announced a scale oflanding fees for all aircraft at public airports, based on .0037 centavosper kilo of gross weight. There was an added provision that thefirst ten landings per month would be free and the next twenty wouldobtain discounts of 25 to 50 percent from the standard fee, in orderto encourage service to cities whose traffic potential was not large.Under this formula, the landing fee for a DC-3 (without discount)would be about Ps.$42 per landing and for a DC-4 about Ps.$120 perlanding. 5 These rates apply to all National airports without regardto type, location or services available; and they have served as ageneral standard for determining charges at fields oxvned by theairlines, municipalities and private persons. They are far above theaverage for most countries which provide a superior type of facilities,and must be a severe strain on Colombian airlines. Airline manage-ments reason that it is often cheaper in the long run to own fields atheavy traffic points, especially if they can count on revenue fromother airport users at these rates. There is now active competitionbetween the two major companies for the airport business of thirdparties. For example. SAAM, which owns no airports, initially usedthe facilities of LANSA, but later found it possible to make a betterarrangement with AVIANCA.

Aeronautica Civil does not at present have adequate personnelor facilities for airport inspection. In view, of the importance of safeoperations, some better provision for establishing and enforcingstandards seems desirable.

FLIGHT EQUIPMENT

The flight equipment used for commercial air transport in Colom-bia was first developed and used in other countries. Until the endof the war many types were used. For instance, in 1945 AVIANCAscheduled service with six basic types of equipment: Ford Trimotor,Junkers U-34, Boeing 247, Consolidated PBY, Douglas DC-2 andDouglas DC-3. Such a heterogeneous fleet was expensive to operateand maintain, but since replacement equipment was difficult to obtainand costly, the company continued to use what it had, assigning thevarious aircraft on the routes best adapted for their use in each case.

The availability of more efficient war surplus aircraft from theUnited States brought about practical standardization of operations

5 See Decree No. 2670 of August 6, 1947.

AIR TRANSPORT 163

around two types of equipment, the Douglas DC-3 and DC-4. Bothtypes were available in large numbers after the war; the DC-3 (orthe C-47 as the military cargo version was called) could be obtainedfor about U.S.$25,000, and the DC-4 for about U.S.$100,000. Depend-ing on whether the plane was to be used for cargo or passengerservice, conversion costs varied from about 50 to 100 percent of thisoriginal cost. Even after the most expensive conversions, the totalprice was less than half what the aircraft had cost originally, andoften they were practically new. Spare parts and engines, mainte-nance and radio equipment, and all other materials needed for acomplete airline operation were available at similarly attractive prices.

Table 47 lists the aircraft owned by the five largest airlines inColombia as of October 1949, and their capacity at current levelsof utilization. The overall utilization averages about four hours perplane per day. This low figure is the result of three factors: first,all flight operations are restricted to the daylight hours from approxi-mately 6 A.M. to 5 P.M.; second, airline distances are very short,involving many landings and takeoffs per hour of flight; and, third,the lack of reserve coverage, inefficient maintenance practices, andan inadequate inventory of spare parts make it necessary for thecompanies to have much of their maintenance work done in the UnitedStates. Some of these factors are remediable, but certain operationaland economic limitations are inherent in Colombian conditions.

TABLE 47

ESTIMATED PRODUCTIVE CAPACITY OF COMMERCIAL AIRLINES, OCTOI.ER 1949

Estimated Ton- EstimatedAircraft Number of Kilometer Capacity Percent of

Company Type Aircraft Daily Annual Industry

AVIANCA Douglas DC-3 23 75,268 27,472,820Douglas DC-4 81 111,920 40,850,800Consolidated PBY 2 902 329,230

TOTAL AVIANCA 33 188,090 68,652,850 60.2LANSA Douglas DC-3 19 55,237 20,161,505 17.7SAM Douglas DC-3 11 38,500 14,052,500 12.3SAETA Douglas DC-3 3 7,560 2,759,400 2.4LATCO Curtiss C-46 4 11,550 4,215,750 3.7

SUBTOTAL 70 300,937 109,842,005 96.3ESTIMATED OTHER COMPANIES - 11,563 4,220,495 3.7

ESTIMATED INDUSTRY TOTAL 70 312,500 114,062,500 100.0

1 Includes 2 planes of this type on order to be delivered in November 1949.Source: Company records.

164 THE BASIS OF A DEVELOPAIENT PROGRAM FOR COLOMBIA

Only four Colombian airports are operationally adequate at presentto handle four-engined DC-4 equipment; these are the AVIANCAairports at Bogota, Barranquilla and Cali and the Medellin municipalfield. Even at these airports, except Barranquilla, restrictions inpayload are imposed by the length of the runways or the altitudeof the fields. Thus, it is impossible to operate a DC-4 on any schedulein Colombia without some payload restriction; such restrictionspresently range from about 10 percent to as high as 40 percent ofmaximum payload. Similar payload limitations, also varying fromabout 10 to 40 percent, apply to the operation of DC-3's at variousairports. Even with these restrictions, operational standards inColombia are lower than those in the United States, and the marginof safety is correspondingly reduced.

Operating Costs and Rates

The best estimate of overall operating costs of DC-3's in Colombiais approximately Ps.$300 per hour. This is an average figure forboth cargo and passenger type aircraft, including indirect expensesas well as direct flight costs. Both direct and indirect costs, especiallythe latter, are somewhat higher for passenger than for cargo opera-tions, but the average figure illustrates the general economic limita-tions of this type of aircraft.

Under average operating conditions in Colombia, the DC-3 willproduce approximately P75 ton-kilometers per hour. Thus, as ageneral rule the break-even point for operations with DC-3 equipmentis approximately 34 centavos per ton-kilometer. Air freight ratesnow average about 39 centavos per ton-kilometer. This is only 4centavos above the fully allocated cost for efficient DC-3 operationsunder present conditions, and about 10 centavos above that for C-54aircraft. The profit margin for DC-3's is not enough to permitaccumulation of the reserves necessary for re-equipment or othercontingencies, nor are present rates low enough to attract manykinds of potential air freight.

Nevertheless, cargo carriers using DC-3 type aircraft have beenable to compete sucessfully with surface transportation, althoughsurface rates are only 6 to 15 centavos per ton-kilometer. For onething, air distances are generally very much shorter than surfaceroutes. For example, from Bogota to Medellin by air is only 238kilometers, whereas by highway it is 573 and by rail 757 kilometers.The actual cost of air transport between the two points is much lower,therefore, in relation to surface transportation than present rateswould indicate. In August 1949 the Bogota-Medellin air freightcharge was approximately Ps.$100 per ton, while the highway rate

AIR TRANSPORT 165

was about Ps.$85 per ton. Moreover, air freight offers great savingsin time, in cost of packaging and in pilferage and breakage. Withthese natural competitive advantages the airlines have been able,even with the essentially uneconomic DC-3 aircraft, to make impres-sive penetrations into many freight markets.

Under the present rate structure, the DC-3 is much more eco-nomical as a passenger than as a cargo aircraft. Before the lastfare increase, effective August 1, 1949, the average fare per ton-kilometer for passengers and baggage was about Ps.$1. The newrate averages approximately Ps.$1.25 per ton-kilometer. Thus therevenue per ton-mile from passenger service is over three times thatfor carrying cargo. There are, of course, several compensating factorsthat enter into the comparison. There is a loss of some 5 percentin the payload of a passenger airplane as against a cargo plane; theprovision of passenger service involves greater indirect costs; andit is normally easier to obtain a high load factor in freight service,especially since it is usually operated on a non-scheduled basis.Considering all these factors, it is a fair assumption that the DC-3produces 10 to 15 percent more revenue at present rates in passengerservice than as a cargo carrier, and hence provides a satisfactoryprofit margin for an efficient operator, even though he must furnisha substantial share of air traffic control, navigation, communicationsand airport services. Substantially lower rates cannot be anticipated,however, until much more economical types of equipment are broughtinto use. Moreover, the profit margin on passenger service at presentrates enables the passenger carriers to haul freight on an added-costbasis to build up cargo volume and revenues. For these reasons,the present passenger tariffs can be considered fairly stable for thenear future.

But despite its low cost, the DC-3 is not a very economicaloperating unit. It must be remembered that the basic design ofthe DC-3 is over thirteen years old, and that it did not contemplatethe kind of service for which it is now being used in countries likeColombia. The best estimate now available of average DC-4 oper-ating costs in Colombia is about 29 centavos per ton-kilometer,approximately 15 percent less than the costs for DC-3 equipment.However, the use of DC-4's is restricted to a very few airports andto those times of day when relatively large traffic volumes are avail-able. These limitations are especially serious in the carriage of aircargo, since the DC-4 cannot provide the flexible multi-airport servicerequired in the cargo field. If, however, airport facilities were im-proved to make unnecessary the payload restrictions which now

166 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

prevail and open such cities as Cucuta, Buenaventura and Bucara-manga to C-54's, a larger proportion of freight tonnage could beflown with the latter aircraft and overall production costs substan-tially lowered. Inauguration of night flying at principal airportswould also help to lower the cost of freight carriage, through betterutilization of cargo equipment and the attraction of a greater volumeof traffic by providing overnight service.

One other type of aircraft has been used to some extent forcommercial operations in Colombia-the Curtiss C-46. This is atwin-engine plane, presently licensed by Aeronautica Civil only forcargo service; its payload in this service has averaged about 5.5 metrictons, or approximately 36 percent more than a DC-3 cargo plane.The only company to use the C-46 has been LATCO, and it has nothad a sufficient period of continuous operations to provide accuratecost information. Based on experience in the United States, however,the operating costs of this type of aircraft normally run about 10 to15 percent higher than those for the DC-3; with a 36 percent greaterpayload, it is thus substantially more economical. A number of C-46planes, together with spare parts, engines, and maintenance equip-ment, are available from war surplus. More extensive employmentof the C-46 for cargo service may thus provide a partial solution tothe problem of high operating costs. So far, however, two factorshave limited its use in Colombia. In the first place, the companiesoperating DC-3 fleets have hesitated to acquire another type becauseof the problems of personnel training, maintenance and operationalinflexibility. In the second place, unusually severe payload limitationshave been imposed on the C-46 until its performance at Colombia'shigh altitudes and in and out of certain airports is fully established.

It is believed that an efficient carrier using DC-3 equipment forone-third of its cargo traffic and DC-4's for the remainder, wxhichwould be entirely possible with a modestly expanded airport system,could reduce production costs to 25 centavos per ton-kilometer. Thisestimate is based on out-of-pocket rather than fully allocated costs,so that it could be attained only by a company engaged in bothpassenger and cargo service. It is difficult to estimate what levelof costs might ultimately be attainable, since there is no basis ofexperience with other types of aircraft. From an euginieering stand-point alone, however, a production cost of 15 centavos per ton-kilo-meter within five years appears entirely feasible. In any case a costof 25 centavos per ton-mile would enable the airplane to competewith surface transport media in most of the important markets ofColombia for many kinds of traffic. The future of air freight trans-portation in Colombia can, therefore, be regarded very optimistically.

AIR TRANSPORT 167

Future Equipment Possibilities

There is no aircraft now available which is particutlarly suitedto Colombian operational conditions. The new aircraft being usedin commercial service in the United States, such as the Convair-240,Douglas DC-6, Lockheed Constellation, and Martin 202, are largerand faster equipment which require better airport facilities, greatertraffic demands, and generally longer hauls than exist in Colombia.

Two new types have been considered for use in Colombia-theDouglas Super DC-3 and the Fairchild Packet. The Super DC-3 isa modified version of the older DC-3, with higher performance char-acteristics, primarily speed and increased payload. Because of theshort-haul nature of most Colombian air traffic, higher speeds arenot of major importance; an average passenger trip is about 350 kilo-meters, or less than an hour and a half of flight time in a DC-3, andthe average freight haul is about 450 kilometers. Thus, the loss ofpayload to obtain higher speeds is not economically justified. Besides,the present price of the Super DC-3 is approximately U.S.$325,000,which would be a large expenditure to write off if an aircraft moresuitable to operating conditions in Colombia is developed later.

The Fairchild Packet, on the other hand, is so far strictly a militaryplane, and the company has indicated no desire to place it in com-mercial service. The commercial operating costs, therefore, are notaccurately known, and its purchase price would probably exceed U.S.$500,000. This plane does not for the present, therefore, offer anypractical alternative to existing equipment.

In all probability, however, an aircraft could be developed toserve the needs of countries like Colombia without great difficultyif the manufacturer could be assured of sufficient sales to recover thedevelopment costs; and there are many countries, particularly inLatin America, faced with similar operating problems. This pos-sibility, however, will take time to develop, and plans for the immediatefuture should emphasize more efficient utilization of presently avail-able types. In fact, with improved utilization, the present capacityof the commercial airline fleet will be sufficient to meet a substantialportion of Colombia's transport requirements during the next threeto five years.

CHAPTER IX

Health and Welfare

Health is probably the most important single component of astandard of living. At the same time it provides one of the mostimportant determinants of that standard. Poor health status meansnot only failure to reach maximum productivity, but also a directdrain on wealth and resoturces. Low levels of health result in manydirect and indirect costs, diverting funds and facilities which shouldbe used to strengthen and build the economy. Poor health is expen-sive in terms of time lost at the farm or the work bench, in termsof the vast needs for more hospitals and facilities of all kinds, in termsof increased costs of welfare, insurance, and sickness and accidentpayments. For these various reasons the Mission considered healthand sanitation an integral part of its survey of Colombia's economyand resources.

PHYSICAL FACTORS AFFECTING HEALTH

General sanitation, including the purification of water and milksupplies, proper disposal of sewage and wastes, and the eradicationof disease-bearing insects and rodents, are the first steps toward elim-inating the acute infectious diseases. Other environmental factorswhich have a direct or indirect bearing on health must also be con-sidered. These include climate, natural resources, the nature and fer-tility of the soil, housing, and general working conditions.

The climate of Colombia ranges from tropical to temperate andeven cold in different areas. This means that Colombia is subject notonly to all the diseases that threaten health in other countries of theWestern Hemisphere, but also to conditions arising from or aggra-vated by tropical climate. Thus, while the incidence of such diseasesas malaria, yaws, and leprosy is negligible in the United States, theythrive under Colombia's environmental conditions. Climate affectshealth in many other ways. In combination with the terrain, for in-stance, it limits the kinds, amounts and varieties of food that can begrown. Limited production and poor transportation of essential foodsmake for inadequate diet, which produces malnutrition and aggravatesother disease conditions. In tropical climates greater precautions arenecessary to preserve food and to prevent contamination and spoilage.

The availability of natural resources-for example, fuels, water,soil and minerals-and the extent of their development may also havea decided effect on health status and on the kind and quality of healthprotection.

168

HEALTH AND WELFARE 169

Water Supply and Waste Disposal

Colombia almost completely lacks elemental sanitary facilities,as is shown in Chapter X. Unsatisfactory water conditions consti-tute a menace to health even in the largest cities. For example, aninvestigation of a typhoid epidemic in Medellin showed that the publicwater supply was largely responsible for the outbreak and for the con-tinued high incidence of the disease. Since 1943, Medellin has averagednot less than 1,000 cases of typhoid per year; from January to May1949, the period of the outbreak, there were 1,282 cases of typhoid.Water supply in rural areas is even less satisfactory. Only a few haveadequate wells and pumps. A great number are supplied from irriga-tion ditches, brooks, rivers and, especially in the Atlantic Coast area,from ponds.

The general lack of adequate sewage and waste disposal systemsin Colombia undoubtedly accounts, to a great extent, for the highincidence of intestinal diseases. Sewage disposal facilities are in aneven worse state than water supply and, while the individual can takesome precautionary measures by boiling water of poor quality, propersewage disposal must be largely a community responsibility, with theindividual comparatively helpless to raise sanitary standards. Thefinal disposition of garbage and waste is very unsatisfactory in mostlocalities. This is one of the most important reasons for the prevalenceof mice, rats, insects, and other pests.

Housing

The great majority of people in Colombia live in dwellings thatare inferior when measured by standards of space, sanitation, com-fort, or the ordinary amenities of life.' Although less obvious anddramatic, rural housing is probably worse than housing in urbanareas. Even the better homes afford little protection against flies ormosquitoes; moreover, thatched roofs or sides provide ready har-borage for rodents, fleas and other vermin that may be instrumentalin the transmission of disease.

Serious overcrowding is common, especially in sleeping quarters.Inadequacy of floor area, lack of space heating facilities and seriousshortages of beds and bedding contribute to the inconveniences andhealth hazards in housing. Other characteristics are the absenceof modern household appliances, running water and sewerage. Ruraldwellings in particular provide only limited protection against theelements.

I For fuller discussion see Chapter XI.

170 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMIBIA

Milk and Food

In Colombia only minimum measures are taken to assure sanitaryfood and milk. For many generations the practice has been to boilall milk consumed whole, which has proved to be a wise precaution.Over a period of approximately 25 years, attempts have been madeto promote the use of pasteurized milk, but they have had onlylimited success. Some of the pasteurization plants were visitedby the Mission and, in general, the equipment was of obsolete design,often in poor repair, and as far as could be determined from dailyrecords, rather poorly operated. Because of faulty practices on pro-ducing farms and delays in transportation, much of the milk arrivesin bad condition. In one or two of the plants visited, the equipmentfor sterilizing the bottles had apparently not been used for severaldays. In one instance, this may have been due to the small quantityof water available in the area.

In a large number of the public markets visited, particularly inthe tropical areas, food was displayed out in the open, unprotectedfrom flies, insects and human contamination. For the most part, themarket areas were small, congested and ill-kept. The amount of foodlost through spoilage is appalling, constituting a serious drain onthe overall food supply.

Meat is not believed to be a great sanitary hazard, although muchof the meat processing system could be improved. All meat must bebutchered at the municipal slaughterhouses; these, however, areessentially just floors for killing. All meat is sold to the meat marketsand processing plants before noon of the dcay on which it is killed.There is practically no refrigeration except that available in thebetter homes. In the markets, sea fish is refrigerated but river fishis not.

Insects and Rodents

Modern methods of controlling infectious diseases stress elimina-tion of disease-carriers such as flies, fleas, mosquitoes and rats, andtheir parasites and breeding places as well. For instance, in wipingout the foci of murine typhus fever, which is spread from rats tohuman beings by the bite of the rat flea, it is important to eradicatethe fleas, the rats and their lairs. In Colombia, where sanitary con-ditions in general are extremely poor, insects and rodents known

HEALTH AND WELFARE 171

to be carriers of many highly infectious diseases are abundant. Forinstance, there are said to be eight mosquito vectors of malaria inColombia, three of which were discovered recently. Against one ofthese, Anopheles Eiseni, DDT residual spray is not effective becausethese mosquitoes bite during the day outdoors. It is one 6f the chiefvectors in the coffee-producing areas, since it breeds in the waterof the moats around recently planted coffee trees, and has been foundbreeding from sea level up to an altitude of about 1,800 meters.Another specie, Anzopheles Albananus, is the principal vector alongthe two coasts. The mosquito Anopheles Darlinigi is the principal vectorin the Ilanos and the lower Magdalena River valley.

HEALTH STATUS

Several indices may be used to appraise health and health re-sources: life expectancy, birth and death rates, the incidence ofillness, physical and nutritional status, and records of work absencesdue to illness or disability. Taken together, they provide a usefulyardstick to measure Colombia's health status at the present time.

Life Expectancy

According to official statistics, the mean expectation of life of theaverage Colombian is 46.3 years. It is doubtful, however, that thisfigure is reliable. It is based on national vital statistics which arenot supported by local spot checks. It seems that a more realisticfigure would be around 40 years. This is similar to most SouthAmerican countries though well below the U. S. or Canadian average.This relatively short expectation of life results from a high deathrate, especially in infancy. Had the death rate been reduced to levelsprevailing in some countries in the past twenty years, populationmight have attained 14 million, instead of 11 million, in 1949.

Birth Rate

The population of Colombia has grown rapidly in spite of thehigh death rate. During the census periods from 1900 to 1938, thepopulation increased from 3,878,000 to 8,700,000 and is estimatedto have reached 10,545,000 in 1947, more than doubling its populationin this period. Although the rate of increase is considerably higherthan that of Chile, Mexico, and the United States, as shown inTable 48, it is far below the rates of Argentina and Brazil.

172 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

TABLE 48

ESTIMATED POPULATION OF SEVERAL AMERICAN COUNTRIES, 1900 AND 1947

Estimated Population

PercentageCountry 19001 19472 Increase

(thousands)

Argentina ............... ........... 3,955 16,109 307

Brazil .............................. 14,434 47,550 229

Colombia ........ ..... ............. 3,879 10,545 172

Chile ...................... ........ 2,712 5,526 104

United States ......... ............ ...... 75,621 144,034 90

Mexico ....... .... .................. 12,492 23,434 88

Peru ...... ........................ 4,610 7,922 72

I l¢ter-American Statistical Yearbook, 1942, Raul C. Migone, Marcelo F. Aberas-tury, Emilio Fuente, and Jorge E. Iturraspe. Macmillan Company, New York.

2 Demographic Yearbook, 1948, prepared by the statistical office of the UnitedNations in collaboration with the Department of Social Affairs. Lake Success. NewYork, 1949.

Since there has been little recent immigration to Colombia, the

increase in population may be regarded as largely internal. The

birth rate reported officially (Contraloria General) usually ranges

from 30.2 to 33.8 per 1,000 population. This figure may rest on

faulty statistics since it is likely that a number of births, especially

in rural communities, are not reported. In fact, these figures are

inconsistent with data provided by the Contraloria on the rate of

increase of the population (indicated rate is 20.3 per thousand, while

the difference between birth and death rates also reported officially

is 17.4 per thousand). Moreover, it is not confirmed by spot checks

made in urban centers by the "Direcciones Seccionales de Estadistica",

which report the following:

Birth Rateper Thousand

M anizales ... .... ...... .. 38.3

Barranquilla 43.1

BogotA 31.4

Medellin ....... 41.7

Average .. 38.6

HEALTH AND WELFARE 173

It is likely that the last figure, or even a slightly higher rate (38.8per thousand) reflects reasonably accurately the secular trend inbirths. It compares with the highest rates prevalent in the northernpart of Latin America:

Birth Rateper Thousand2

Colombia . ... . . 38.8Mexico :. . . .. .... . 43.7Costa Rica .. . 42.4Salvador ........ . .... .. ... 36.1Venezuela . . . . 38.4

In the United States, the birth rate is not much over half that indi-cated for Colombia.

Death Rate

Although gross death rates have only a limited validity, theyare of some value in comparing the state of health in several nations,and as a rough measurement of the relative effectiveness of publichealth programs. A nation with a low general death rate is likely tohave preventable diseases under good control. Judged by this cri-terion, Colombia, although surpassing some of the countries listedin Table 49, falls well below the health level of the United States.It should be pointed out in extenuation, however, that most of thepreventable diseases find a favorable environment in the tropicswhere they are more difficult to control than in colder climates.Colombia's official figures on death rate have fluctuated between 17.3and 15.6 per 1,000 population during the period 1938 to 1946. Deathrates based on studies made by the Mission in selected urban centers

show higher rates, however, as follows:

Death Rateper Thousand

Manizales . . . .. ... . ... . 19.3

Barranquilla . . . .. .... . 14.83Bogota . .......... . . . . 19.6Medellin . . ........ ........... 20.4Average .......... . .... ....... ....... 18.5

2 Colombia, 1947 figures; others, 1946.3 Reported figure for Barranquilla also seems questionable; it is more likely to be

about 20 per thousand.

174 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

TABLE 49

DEATH RATES OF SEVERAL ANIERICAN COUNTRIES, 1938-46

Number of deaths per 1,000 populationil

Country 1938 1940 1942 1944 1946

Mexico . 22.9 23.2 22.8 20.6 19.4

Guatemala ......... ........ . 20.1 19.0 20.9 18.4 17.2

Chile . . ..... 23.5 21.6 20.3 19.5 17.2

Colombia . . 17.3 15.2 16.0 16.4 15.6

Venezuela ... ......... 18.3 16.6 16.3 17.2 15.0

United States .. 10.6 10.7 10.4 10.6 10.0

Argentina .12.4 11.3 10.9 10.4 9.4

1 Demiiographic Yearbook, 1948, prepared by the statistical office of the UnitedNations in collaboration with the Department of Social Affairs. Lake Success, NewYork, 1949. Table 20, p. 312.

Since health programs are designed to conserve life and increasethe useful span of human existence, mortality rates of different age.groups may be taken as a fairly critical measure of their effectiveness.The age periods shown in Table 50 for Colombia, Venezuela, Alexicoand the United States are not strictly comparable, but the data arerevealing. Again it is shown that Colombians tend to die young,with the death rate for children under one year of age-a rate whichcould be expected to drop with effective health measures-actuallyshowing an increase since 1938. Only the rates for persons of advanc-ing years compare favorably with those of other countries. One ofthe consequences of the high birth rate and the short life expectancyis the high ratio of four dependents per adult worker which, ofcourse, reduces the productivity per capita.

Data on mortality classified by cause may have value in judging

health status. This is probably true even for Colombia, althoughtwo-thirds of the deaths are not certified as to cause by a physician.Except for data on tuberculosis, the figures shown in Table 51 seemto corroborate prevailing impressions and spot studies made by health

agencies. An important characteristic of Colombia's mortality pictureis the very high proportion of deaths attributed to causes amenableto known methods of control. Among these in order of frequencyare: the intestinal infections, including diarrhea, enteritis, typhoid

TABLE 50

DFATH RATES BY AGE GROUIS FOR DESIGNATED AAIERICAN COUNTRIES FOR SPECIFIED YEARS

Number of deaths per 1.000 population by agel

All Under 60 andCountry Year Ages 1 Yr. 1-4 5-9 10-14 15-19 20-24 25-29) 30-34 35-39 40-44 45-49 50-54 55-59 Over

Venezuela .................. 1945 15.3 97.7 21.4 5.3 3.5 6.9 10.8-- -- 13.7 22.2 63.5

Colombia . . .. ....... 1938 17.3 150.5 28.5 -4.5- -5.3- 7.7- 9.7 12.7 18.8 57.9

Colombia2 1946 15.6 163.0 26.0 4.0 4.2 5.8 8.4 12.7 50.7

United States . 1946 10.0 45.3 1.8 0.8 1.7 2.3 3.7 11.3 51.0

Chile . . 1940 21.5 239.9 31.5 3.1 7.9 9.8 11.8 19.8 68.0

Mexico ....... ..... 1940 23.3 205.3 48.2 6.1 7.3 10.7 14.1 21.4 75.8

1 Dem1ofgraphic Yearbook, 1948, prepared by the statistical office of the United Nations, in collaboration with the Department of Social Affairs.Lake Success, New York, 1949, Table 22, pp. 386-387.

2 Anitario General de Estadistica. Contraloria General de la Rep6blica, 1946.

TABLE 51

DEATHS AND DEATHi RATES FOR SELECTED CAUSES IN DESIGNATED AMERICAN COUNTRIES

Colombial j United States Mexico Veniezuela10000 No.pe

No. per No. per No.00 perpeTotal 100,000 Total 100,000 Population Total 100,000

Selected Causes of Death 1946 Population 1946 Population 1940 1938 Population

All Causes. 160,460 1,555.1 1,395,617 1,060.7 2,282 64,009 1,865.6Typhoid anid Paratyplhoid Fever.,...... 2,077 20.1 407 0.1 31 313 9.1Dysentery ... 1,270 9.1 952 0.3 5 4 397 11.5Whooping Coughi. . .......... 3,309 32.0 1,241 0.6 4 1 154 4.4Diphtheria ., .... ..... . . 544 5.3 1,259 0.5 - 79 2.3Tuberculosis (all forms) 4,480 43.5 50,911 36.3 56 3,349 97.6Malaria . ...... .... .... . . ... 4,976 48.2 341 2 119 1,394 40.6Syphilis ....... 744 7.5 12,955 8.4 7 323 9.4Smallpox 396 3.8 - - - 256 7.4Measles .......... 2,232 21.6 --- 280 8.1Typhus .... 1,149 11.1 - - - - -Cancer (all forms) ...... 3,409 33.0 182,005 157.4 23 814 23.7Diabetes Mellituis .242 2.3 34,731 33.1 65 1.8Intracranial Lesions of Vascular Origini .. . 2,072 20.1 125,646 88.6 19 347 10.1Diseases of Heart (all forms) ...... 5,835 56.5 429,230 374,3 54 1,621 47.2Pnieumonia anid Bronchopneunionja 10,657 103.2 53,541 36.5 348 1,691 49.2Bronchitis.9,166 - - - - -Diarrhea, enteritis, etc . ..... 19,761 191.0 8,090 4.3 480 3,452 100.6Appenidicitis.216 2.1 5,285 3.6 - 59 1.7Cirrhosis of the Liver.3..... ...... 4 3,3 13,451 11.9 25 397 11.5Nephritis ........- ..... ... 4,579 44.3 81,701 52.6 24 918 26.7Diseases of Pregnanicy, Childbirth anid Puerperium 1,873 18.1 5,153 2.7 23 377 10.9Puerperal Septicetmia.264 2.5 1,771 1.0 141 4.1Congenital Mallormnations anid Premnature Birth ... 14,201 137.8 57,667 39.3 56 1,172 34.1Suicide ........ .........- I...- 234 2.2 16,152 12.0 1 142 4.1H-omiicide........ . ....... 1,184 11.5 8,784 3.1 67 279 8.7Motor Vehiicle Accidents ........ 352 3.4 33,411 18.1 1 Other Accidents 3,516 34.2 64,622 43.9 5 1,019 29.6Uinspccified or Ln'nTown Causes ..... 29,4923 285.8 - 39,524 61.4

I About 58,209 deathi certificates (36 percent of total) were signied by a physician. About 102,251 dIeatlh certificates (64 percenit of total) were niotsigncd by a phbysician. About 12 plague dleath certificates wvere not signed by a phiysiciani.

2 Less than .05S.3This figure is 18 percenit of the total number of deaths.Sources: For Colombia Anuiario G;eneral de JUtadist i-a. Cointraloria Genieral de la Repbiblica, 1946.

For United States : Statistical Albstract of the United States, 1948.15,-, V- -I . d- T,';t,1 103R Vini~prrmn,l S~ qnicid v Aqiittpnir Social. Ca-nrics.

HEALTEI AND WELFARE 177

and paratyphoid fevers, and dysentery, malaria, and the acute infec-tious diseases, such as whooping cough and measles. Childbirth inColombia seems to be particularly hazardous, both to mothers andinfants. In the United States, on the other hand, degenerative andchronic diseases-such as diseases of the heart, kidneys and bloodvessels, cancer, and diabetes-account for most of the deaths.

The reported mortality from tuberculosis in Colombia does notcorrespond to the general impression, which is supported by otherevidence, of its allegedly high prevalence. One possible explanationis that some of the tuberculosis deaths may be included under"bronchitis", because of the similarity of symptoms. A final itemwhich makes mortality data in Colombia of doubtful value is that18 percent of deaths is attributed to "unspecified or unknown causes".

Incidence of Illness

No nation has yet devised a satisfactory method of assemblingcurrent data on illness for the entire population. In Colombia it isespecially difficult to gather such data since an unusually high pro-portion of its citizens, even those who are seriously ill, are not at-tended by a physician. There are, however, indirect methods forestimating the character and extent of illness.

During the calendar year 1948, the C'olombian Ministry of Hygienereceived reports regularly from 209 of the 815 municipalities of thecountry; the reported incidence of disease in these municipalities isshown in Table 52. The reporting municipalities have a combinedpopulation of 5,420,010, about one-half of the national total, and arefairly representative of the entire country. It should be noted,however, that the data include only those cases reported by practicingphysicians or discovered in public clinics. Despite obvious limitations,these data have value since they point to the high incidence ofmalaria, intestinal parasites and tropical anemias (probably relatedconditions), amoebic dysentery, and other diarrheal disorders. Suchconditions as relapsing fever, yaws, pinta, and typhus fever deservespecial mention because of their frequent occurrence and their publichealth importance. Although they are easily preventable by immuni-zation, such diseases as diphtheria, smallpox, and whooping coughare still problems of some magnitude. Figures on syphilis representnew clinical cases. Similarly, the reported cases of tuberculosis donot portray the total prevalence of the disease since they are limitedto cases discovered during the year.

These data, although inadequate in many respects, are by them-selves sufficient proof that illness among the people of Colombia

178 THE BASIS OF A DEVELOPMENT PROGRA-M FOR COLOMBIA

TABLE 52INCIDENCE OF SELECTED REPORTED ILLNESSES IN COLOMBIA, 19481

Number of RateDisease Cases2 per 100,0003

TOTAL ................ ............. .... 504,618Malaria ......................... ........ .... 89,727 1655Influenza ........ ... . .... ... 75,756 1398Intestinal Parasites ...... . .. ..... 72,421 1336Hookworm Infestation 40,228 742Amoebic Dysentery 38.395 708Gonorrhea ..... . .... . .... ...... ....... 29,614 960Syphilis .. 27,158 501Whooping Cough ........ ..... .... .. 20,057 859Typhoid and Paratyphoid Fevers ... ............................ 11,207 207Measles .. 11,169 478Scabies . . ...... ................................. 10,273 189Tuberculosis of the Lungs . . .... .... 8,667 160Pneumonia .. ...... .... .... 8,599 158Chancroid .. ....- 7,802 253Smallpox .. ........................................... 7,356 71Diarrhea and Enteritis (under 2 years of age) 6,875 1459Erysipelas ...... ..... ..... 5,255 97.Mycosis . .. ... .. ... .... .. .. . .. . 3,883 71Typhus ............................ 3,471 90Pinta . .. . ...... 3,395 62Relapsing Fever 3,085 57Chickenpox ' 2,954 54Mumps . ..... 2,790 51Yaws ....... 2,357 43Diphtheria 2,238 96Impetigo Contagioso 2,126 39Ophthalmia Purulent 1,940 36Lymphogranuloma 1,517 49Granuloma Inguinal ... 8... . 8 2 7 .... 822 27Puerperal Fever ... ..... -1 .. 813 77Infectious Hepatitis .............................. ........... 640 12Bacillary Dysentery ..-... ..... . 445 445 8Tuberculosis (other forms) .. . ... .. 416 7Tetanus Infantile . . 301 171Rubella . .... 8 . .. .... 2 7 13Leishmaniasis 0.. .... 270 Dengue 95 2Poliomyelitis 67..... . 6 7 .. .67 3Filariasis ........ ... 5 J9 1Epidemic MNeningitis 24 .4Bartonellosis 25 .5Scarlet Fever .... 23 .4Trichinosis .. 12 .2Undulant Fever ....................... .................. 4 .07

1 Total number of municipalities in Colombia, 815; municipalities reporting, 209.Total population of the country estimated as of July 5, 1948: 10,998,920.Population in reporting areas: 5,420,010.Classification of the covered population: Under I year of age, 175,696; 1 to 2

years of age, 295,344; 3 to 14 years of age, 1,863,703; Adults, 3,085,264; Women(14-45 years), 1,051,151.

Total number of cases reported, 510,160 (refers to 57 diseases).The cases of the 44 diseases listed above are 99 percent of all reported cases.

2 This column shows the number of new cases reported within the year.3 The population of over 14 years of age was taken for the computation of rates

for gonorrhea, chancroid, lymphogranuloma and g-ranuloma ing-uinal. For puerperalfever the female population between 14 and 45 years of age was taken. For whoopingcough, measles, diphtheria, poliomyelitis, etc., the population under 14 years of agewas taken. For diarrhea and enteritis the population under 2 years of age was taken.For tetanus infantile the population under 1 year of age was taken.

Source: Second Annual Epide;niological Report. 1948.Ministry of Hygiene Biostatistics Division.

HEALTH AND WELFARE 179

is a serious drain on the country's economy. It seems clear thatColombia suffers not only from a high incidence of communicablediseases common to temperate zones, but is also confronted with allthe diseases found in tropical and subtropical climates. Impressionsgained from field observations, as well as opinions expressed bypracticing physicians and health officers, substantially confirm thestatistics. Health officers in various localities differ with respectto the order of importance of their health problems, but the follow-ing diseases appear in almost every list: malaria, intestinal parasitesand intestinal infections, tuberculosis, venereal diseases, and mal-nutrition.

Malaria. The seriousness of the malaria problem is shown in partby the deaths attributed to this disease. These are listed by Depart-ment in Table 53. It should be recalled, however, that relatively fewpeople who contract malaria die from it; thus the actual prevalenceof the disease is far greater than the death reports indicate. Generally,malaria is widely distributed up to an altitude of about 1,000 meters.Above that elevation the distribution is spotty. The disease is mostprevalent in the lower valley of the Magdalena and Cauca rivers,in the llanos and along both the Pacific and the Caribbean coasts.

Inatestinal Infections. For the nation as a whole, intestinal dis-orders rank with malaria as a major health problem. TIn many sectionsof the country, the former are even more significant from the stand-point of incidence and public health implications. Included in thisbroad grouping are intestinal parasites, typhoid and paratyphoidfevers, the dysenteries and diarrheas from other causes. Most of theColombian people are afflicted by one or another of these conditionsduring the course of a year. Children are affected with particularseverity. Practically all children, especially those in rural areas,harbor one or more species of intestinal parasites, and a very largeproportion of deaths among infants and young children is attribut-able to intestinal disorders. Moreover, the condition commonlydiagnosed as tropical anemia, which also hits hard at Colombianchildren, is very often only a manifestation of heavy parasiticinfestation.

Basically, the problem of intestinal infections and infestationsarises from three broad sources-improper disposal of human waste,pollution of the water supply, and contamination or spoilage of thefood supply. The situation with respect to sanitation facilities is

TABLE 53

NUMIsBER OF DEATHS FROMr ALL CAUSES, FROM MALARIA, AND RATES PER 100,000, 1939-1943

Deaths from All Causes Deaths from MalariaPercent

Number Per Number Per MalariaPopulation 100,000 100,000 Deaths of

Department 1938 Census Total Population Population Total All Deaths

TOTAL ....... ..... . 8,500,319 148,060.7 17,418.3 82.8 7,039.6 4.8Antioquia .................................... . ... ... .... 1,188,587 21,769.8 18,315.7 63.6 756.0 3.5Atlantico .................................................. 268,409 4,507.6 16,793.8 67.0 179.8 4.0Bolivar ............ ................ 765,194 7,232.0 9,451.2 136.7 1,045.7 14.5Boyaca ... ............... ..... ................. ........... 737,368 12,394.6 16,809.2 29.3 216.2 1.7Caldas ........... ...................... 769,968 15,729.6 20,428.9 45.9 353.4 2.2Caucal .. . .. 346,583 6,381.2 18,411.8 183.7 636.6 10.0Cundinamarca ................................. 1,174,607 21,076.8 17,943.5 27.5 323.0 1.5Clhoco .. ............................... 111,216 1,423.0 12,794.9 92.4 102.8 7.2Huila 2 2. . .. .................. 216,676 3,638.7 16,793.3 32.4 70.2 1.9Magdalena . ................................ 342,322 4,748.0 13,870.0 238.9 817.7 17.2Narinio ......... ........................ 465,868 9,037.0 19,398.2 177.3 826.2 9.1Santanider del Norte 3

................ ........ 3 36 ,8 0 3 6 ,58 5 .8 19 ,5 5 3 .0 1 33 .9 4 5 1 .0 6 .8

Santander del Sur ............... .................. 615,710 11,749.8 19,083.3 64.0 393.8 3.4Tolima4 ........... ...................... 483,162 8,248.2 17,071.3 43.9 212.1 2.6Valle del Cauca . ........................ 613,230 12,650.6 20,627.5 77.3 473.9 3.7Intendencia del Meta .-......................... 51,674 796.0 15,404.3 328.2 169 6 21.3Iitenidenicia de San Andres y Providenlcia 6,528 74.0 11,335.8 134.8 8.8 11.9Intendencia del Amazonas . .... .... .. 6,414 18.( 2,806.4 43.7 2.8 15.6

The following municipios were not included as mortality data were not available:1 The Municipio of L6pez.2 The Municipio of Toa.3 Municipio of Villa Caro.4 Municipios of Alpujarra, Alvarado, Carmen de Apicala, Casablanca, Falan, Santa Isabel, Suarez and Villahermosa.Source: Ministry of Hygiene. S.C.I.S.P., Division of Malaria, Colombia.

HEALTH AND WELFARE 181

examined elsewhere ;4 however, it is worthy of emphasis here thatfacilities meeting any reasonable standards are almost wholly lacking,especially in rural areas.

Tuberculosis. Although the figures for deaths attributed to tuber-culosis in 1946 (3,966 to pulmonary tuberculosis and 514 to otherforms) may give the impression that this disease is not an out-standing health problem, practicing physicians and health officersare convinced that the contrary is true. This opinion, based oneveryday experience, is borne out by other more concrete evidence.During the four-year period from 1944 to 1948 health agenciesexamined, usually with the aid of X-ray, 1,348,365 persons. Some51,100 new cases of tuberculosis were found in this group, and 80percent of these cases needed active treatment. Among those ex-amined were individuals actually sick and coming to clinics andpersons who required a physical examination as a condition foremployment or for entrance into the army or schools. Except forthe age distribution, the group examined was considered fairly repre-sentative of the total population. Thus, it is reasonable to assumethat the actual number of tuberculosis cases among Colombia'stotal population is several times the number discovered in thesesurveys, and the disease is a far more serious problem than mortalityfigures would indicate.

Venereal Diseases. From all accounts it appears that venerealdiseases are very prevalent in Colombia. One measure of proof isthe fact that of a group of 113,620 persons admitted to public clinicsin various parts of the country for general diagnosis and care or forphysical examinations for work certificates, 19,209 showed positivefindings for syphilis, 16,311 for gonorrhea, and 10,813 for othervenereal diseases. These figures need qualification-the number ofcases does not always correspond to the number of persons sincemultiple infections may occur in the same individual. Moreover, thediagnosis of syphilis is based, for the most part, solely on bloodtests, which may be misleading because of faulty technique or becauseof the presence of other diseases which give similar and confusingreactions.

The percentage showing positive serological reaction for syphilis(16 percent), although high, is smaller than other surveys have indi-cated for selected groups and selected areas. One departmental healthofficer, for example, reported a positive reaction of 25 percent in a

4 Chapter X.

182 THE BASIS OF A DEVELOPFIENT PROGRAAI FOR COLOMIBIA

sample of 3,000 individuals said to be representative of the generalpopulation. Another health officer reported the occurrence of syphilisin epidemic proportions, much of which was believed to be trans-mitted by non-venereal contact. Yaws, a disease closely related tosyphilis both clinically and serologically, is found in many partsof Colombia. It is most prevalent along the Pacific Coast and is alsofound along the Caribbean coast and the major rivers.

Prostitution is common throughout Colombia, even in thesmaller towns. Just what part prostitutes take in the transmissionof venereal diseases has not been determined, since little effort ismade to trace sources of infection. Health officers assume thatclandestine operators are more important in the spread of infectionthan registered public women. This opinion, which is undoubt-edly based on the system of licensure with its examination andtreatment, is not borne out by the record. In a sample study of9,703 public women, 8,349 were found to have gonorrhea, 4,686 hadsyphilis, 2,337 chancroid, and 374 climatic bubo (presumably lympho-granuloma). Moreover, in one large city where the registration pro-gram was said to be operating particularly well, only 889 of the1,703 registered prostitutes were reporting regularly to the controlclinics.

Leprosy. Leprosy is mentioned as a special problem in Colombia,not so much for its epidemiological importance as for the drainwhich this disease imposes on the budget of the Ministry of Hygiene,and thereby on the national economy. For 1949 a total of Ps.$18,823,331wvas appropriated for the Ministry of Hygiene; of this sum,Ps.$4,825,860, or more than one-fourth of the total, was devoted toleprosy control and care of well children of leprous parents. Thenumber of persons afflicted with the disease, however, is compara-tively small; local surveys in 1938 placed the number of leprouspersons at about 17,000. The director of the national leprosy pro-gram believes that leprosy has lost its expansive force and that theincrease in leprosy since 1938 has been proportionately less than theincrease of the general population. The present program centersaround segregation of infected persons and separation of presumablywell children from leprous parents. Individuals with leprosy aregranted a subsistence allowance of Ps.$1.10 per day. The Ministryoperates three leprosaria which accommodate 6,555 patients and1,570 well children of leprous parents.

HEALTH AND WELFARE 183

Nutrition

Not only are nutritional deficiencies the direct and indirect causeof many diseases, but the state of nutrition itself provides a measureof health status. Poor nutrition is characteristic of a large proportionof the people in Colombia. It is manifested in various ways, suchas altered height, weight, and body measurements, lowered wvorkcapacity, and the presence of specific clinical findings. The immediatecause of nutritional deficiencies is a diet proportionately low inproteins, fats, vitamins, and essential minerals. For many individualsthe problem is aggravated by the presence of debilitating diseasesand parasitic infestations. Health authorities in Colombia ratethe factors underlying maalnutrition as lack of popular understanding.economic considerations, and dietary habits-in that order.

Through studies made by the National Institute of Nutrition, ithas been found that the chemical composition of foods varies amongregions and that the values are not in agreement with those reportedby other countries. Through its studies of diets in certain areas theInstitute has found that agricultural workers have a total caloricintake of 1800 to 2000 calories per day. Not only is this insufficientfor persons doing active physical work, but the caloric sources areinappropriate. For balanced nutrition, 10 to 15 percent of the totalcalories should be obtained from protein, 25 to 30 percent from fat,and 60 to 65 percent from carbohydrates. Among the group studiedin Colombia, however, 8 percent of the caloric intake came fromprotein, 12 percent from fat, and 80 percent from carbohydrates.

As expenditures for food represent from 60 to 80 percent of thetotal budget of the great majority of Colombian families and as thestatus of nutrition has a direct bearing on the planning of agriculturalproduction, a more complete treatment of the whole problem wasdeemed necessary. This will be found in the appendix on nutrition.5

People along the coastal areas depend mainly upon rice, which issupplemented by coconut, seafood and bananas. In the coffee areas.corn is the basic food staple, but the diet also includes browvn sugiar(panela), platano and yucca. People in the mountainous regions,especially in Antioquia and Caldas, prefer corn and beans supple-menited by platano and yucca. The poorer classes in the colder areasrely mainly on potatoes and to a lesser extent corn. Notwithstandingthese differences, similar dietary deficiencies based on a universalscarcity of meat, fish, milk, dairy products, vegetables and fruits arenoticeable everyxvhere to a greater or lesser extent.

S Appendix B.

184 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Among the specific nutritional disorders revealed through sur-veys made by the Institute, the following are the most important,:simple goiter; anemia, which was found in more than 70 percent ofthe children examined; nutritional edema, attributable to the lowintake of protein; dental caries, presumably caused by a fluoride de-ficiency; scurvy, which was discovered most frequently along thecoastal areas; some pellagra; and both skin and eye manifestationsof Vitamin A deficiency.

Because of its peculiar implication, simple goiter merits considera-tion apart from the other general nutritional disorders. This condi-tion is extremely prevalent throughout Colombia. A study of165,600 school children selected as representative of twelve depart-ments disclosed perceptible enlargement of the thyroid gland in 55.4percent of the children examined. The lowest percentage of positiveresults (27.8 percent) was found in the highly urbanized and coastalDepartment of Atlantico; other departments ranged from about 40to 80 percent positive.

HEALTH FACILITIES AND RESOURCES

Essentially, a nation's health services fall into three major cate-gories: (1) its public health organization; (2) its facilities for medicalcare, such as hospitals, clinics, health centers, nursing homes, and thelike; and (3) its professional and scientific personnel, who promotepreventive health measures and minister to the sick and injured.Supporting the work of these main groupings are professional andvoluntary organizations, advisory groups, independent research andrelated institutions, and the public welfare structure. Each of thethree major groupings will be examined in turn.

Public Health Services

The Ministry of Hygiene is the principal health agency. It isresponsible for administering a program of preventive health services,medical care and public welfare for the National Government. At thelower governmental levels, i.e., the departments and municipalities,the administration of health services is apt to be divided between thelocal health authorities and the "Beneficencia" (which is described ingreater detail below). The organizational structure of the Ministryis shown in Figure 5; the functions of the Ministry and the otherpublic health organizations, as well as the relationship and flow ofservices between each, are depicted in Figure 6.

In general, the Ministry sets standards, gives financial aid andconsultation to the other health agencies, and carries on some direct

Centra I Board ofIdi | Medical Diplomas. Etc.

O __ National Council ofFood and Nutrition

_ ;° uv National Council of fltZ _ the Protection

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186 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

FIGURE 6

FUNCTIONS OF MINISTRY OF HYGIENE AND OTHER HEALTH AGENCIES

ADVISORY COUNCILS MTNISTRY OF INTERNATIONAL

Sanitation HYGIENE BODIES

Infant hygiene Development of stand- S.C.I.S.P.Institutions ards UNICEFFood & nutrition Financial stipport- Pan American Sani-

grants, contracts, in- tarv Bureausnection and control Rockefeller Foundation

Consultatory services I

Direct operations-in-stitutions, laborator-ies, field services

DEPARTMENT HEALTH DEPARTMENT BENEFICENCIA

AUTHORITY Financial supportFiancial supportInspection & control Inspection and controlConsultatory service Direct operations - general

Direct operations-mobile health hospitals, asylums, treatmentunits, special clinics, labora- clinicstories, law enforcement.

MUNICIPAL HEALTH MUNICIPAL BENEFICENCIACENTER General hospitals

Preventive clinics . .Immunization ______ Treatment clincsSchool health service Public assistanceHome nursing & midwiferySanitation

operations. Both the departmental health authorities and the Bene-ficencia also give support to lower level groups and offer many directservices, while the municipal health organizations and Beneficencia

together operate local preventive treatment and public assistance pro-grams. There are no consistent working agreements among the threelevels, but some coordination is achieved through various administra-tive devices. These include interlocking budgets, joint housing anduse of personnel, cross-referral of clientele and overlapping mem-bership on directing boards or advisory councils.

Departures from the general pattern shown in Figure 6 are numer-ous. Variations occur among the several service programs and at all

three administrative levels. For example, the Ministry of Hygiene

HEALTH AND WVELFARE 187

now operates directly the public health services in the departments ofBoyacat, Narino, Santander, and Tolima, all of which were formerlyindependent. As another illustration, a stlum of about Ps.$2,500,000 ismade available to the Alinistry annually to be used in areas where theneeds and opportunities are greatest. Somie of these funds are dis-tributed as grants, some under contract, and some may be used todefray in part the costs of services provided by the Ministry in lieuof funds. Certain special programs concducted by the Ministry, suchas control of malaria, venereal diseases and tuberculosis, and maternaland child health, are set up under similar arrangements. Moreover,there does not seem to be any uniform pattern for operation of any ofthese arrangements.

With the departments, the system is equally varied and ill-defined.Departments show an even more marked tendency to perform jobs

vhich, in theory at least, should be administered by local authorities.Lack of interest on the part of local officials, as well as inadequatelocal revenues, seems to invite greater financial and administrativeparticipation by units higher up on the governmental ladder. In gen-eral, the wealthier departments and municipalities tend to exercisegreater autonomy than the poorer ones, but there are many exceptionsto this rule.

Analysis of the budget and program of the Ministry of Hygienefor 1949 (Table 54) reveals that a total of Ps.$8,084,054 is allocatedessentially for curative and custodial services ;6 and Ps.$2,180,050 ofthe sum shown under the budget item for "Sanitary Engineering" areused for construction of sanitary facilities, and should therefore beclassified as a capital outlay. That leaves Ps.$8,559,227, or an expendi-ture of 79 centavos per capita, available to the Ministry of Hygienefor commonly accepted preventive and public health services.

The detailed budget breakdown contains other items which areconfusing or not adequately defined. For instance, the broad category"Administration" includes such diverse functions as biostatistics, sup-plies, transportation and other staff and housekeeping services. Sim-ilarly, such activities as health education, nutrition, malaria controland the operation of selected health centers are, to a great extent,provided for under the item "Cooperation with S.C.I.S.P. and Rocke-feller Foundation."

Because of its peculiar setting in the Ministry of Hygiene, theServicio Cooperativo Inter-Americano de Salud Publica (S.C.I.S.P)

6 This sum is made up of Ps.$3,258.194 for "Public Assistance", Ps.$4,407,860 for"Control of Leprosy", and Ps.$418,000 from the budget item "Mlaternal and ChildHealth' for the care of well children of leprous parents.

188 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

TABLE 54

BUDGET OF THE MINISTRY OF HYGIENE, 1947-1949

Fiscal Year

Item 1947 1948 1949

Administration ................ Ps.$ 1,652,980 Ps.$ 1,917,780 Ps.$ 1,959,180Control of:

Bartonellosis . ... ............... 30,000 8,080 15,000Yaws . .50,000 55,160 70,000Epidemic Diseases, and Disaster Relief 50,000 13,780 20,000Venereal Diseases 80,000 121,140 200,000Narcotics . .20,000 13,460 30,000Malaria . .50,000 50,000 250,917Tuberculosis.. 440,000 390,280 700,680

National Institute of Nutrition - - 100,000Cooperation with Departments and other

local governments . .2,500,000 4,495,780 2,856,000Schools of Hygiene and Nursing ... - 75,000 200,000Cooperation with S.C.I.S.P. and Rocke-

feller Foundation . .1,090,000 1,090,000 1,175,000Port Sanitation .45,000 16,650 90,000Maternal and Child Healthl ... 1,365,120 1,351,850 753,760Sanitary Engineering 2 . . 3,334,360 3,439,292 2,736,740Public Assistance . ... ................. 3,301,794 2,782,231 3,258,194Control of Leprosy. . 3,834,260 3,765,060 4,407,860

TOTAL . .. ........... ... _.. .. Ps.$17,843,514 Ps.$19,585,543 Ps.$18,823.331

l Including amounts for care of wellchildren of leprous parents No data 393,548 418,000

2 Transfer from Fomento Municipalfor Construction. ... No data 2,850,982 2,180,050

merits separate consideration. This organization is a local unit of theInstitute of Inter-American Affairs, under the administration of theDepartment of State of the United States. The basis of the Servicio'soperations is an annual arrangement worked out with the appropriateministry. In the past, the Institute of Inter-American Affairs hasgiven assistance in the construction of several health facilities inColombia, including the National School of Nursing, xvater treatmentplants, and health centers. The value of current budgets for healthpurposes for this program is estimated at Ps.$1,960,000, of whichamount S.C.I.S.P. contributes Ps.$190,000, or approximately 10 per-cent. The remainder is provided either in the form of funds or servicesfrom sources within Colombia. In addition to its monetary contribu-tion the Institute of Inter-American Affairs supplies the director andsome of the technical personnel for the projects it handles. However,financial support, as well as the management of a number of theseprojects, is gradually being taken over by the Ministry or local

authorities.

HEALTH AND WELFARE 189

The Rockefeller Foundation formerly matched Colombian Govern-ment funds to finance a yellow fever campaign. It was also largelyresponsible for the construction of the Carlos Finlay Institute inBogota and the Roberto Franco Institute in Villavicencia, both ofwhich are now supported almost entirely by the Ministry. The Foun-dation has now virtually terminated its support of the yellow feverprogram. It is, however, making substantial contributions to thesupport of the National School of Nursing and the National Schoolof Hygiene now being organized.

A complete listing of all persons engaged in public health workin Colombia was not obtainable. Table 55, however, shows the numberof professional personnel, in selected categories, employed by theMinistry of Hygiene, and those employed jointly by the Ministryand the departments and municipalities. This table will serve toillustrate the group usually included on public health staffs and theirproportionate representation.

TABLE 55

PERSONNEL EMPLOYED IN THE MINISTRY OF HYGIENE AND UNDER

CONTRACTS BETWEEN MINISTRY, DEPARTMENTS AND MUNICIPALITIES

Employing Agency

JointGroup Ministry Contract Total

TOTAL ................. .... ... 1,508 1,274 2,782Physicians ............................................ 209 190 399Dentists ............................................ 25 88 113Nurses ............................................ 344 247 591Sanitary Engineers ......................... ..... 371 3 40Sanitary Inspectors .... ........................ 120 452 572Other ................. ........................ 773 294 1,067

l Of this group, 23 are employed by Fomento Municipal.Source: Ministry of Hygiene, Colombia.

Except for a very few large cities, the municipality is a weakunit of public health administration. Some fifteen years ago, in aneffort to coordinate and augment local activities, the health centermovement -was launched and soon became quite extensive in coverage.Many of the health centers, however, were poorly staffed and housedin quarters unsuited to their purposes. Because of these and otherfactors, most of the early centers soon passed out of existence andan itinerant health service provided by the departments was the onlysubstitute. An effort is now being made to reestablish these centers,or some other facilities to serve similar purposes, either by the muni-cipality alone or in conjunction with the local Beneficencia. Some of

190 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLONIBIA

the existing centers are for a single purpose, such as child health.while some may undertake a combination of functions. For reasonssimilar to those given above, the schemes of financial support areoften confusing.

Although an attempt is made here to describe the work of thepublic health agencies and the Beneficencia separately, the tvo shouldbe thought of as closely related, especially at the municipal level.They are intimately linked also with their departmental counterpartsand, to a somewhat lesser extent, to those of the National Government.

The public health organization in the department of Narifio willserve to illustrate the organization in one very poor department inwlhiclh the National Government is especially concerned. Narifio isessentially a rural department with less than average resources inrelation to its current estimated population of 528,950. The budgetavailable for all public health work in 1949 was Ps.$306,5 50, or Ps.$0.571 per capita. Of this total Ps.$171,614 was contributed by theNational Government, Ps.$102,000 by the department. and Ps.$32,936by the municipalities-or 56, 33.3, and 10.7 percent, respectively. Allexcept two of the 49 municipalities made some contribution, but 12of them contributed less than Ps.$500 each. A number of the munici-palities also provide space and some supplies for clinical and otheractivities, but these are not assigned any monetary value in the budget.The public health staff of Narifno consists of 7 physicians, 2 dentists,14 inspectors, 15 nurses, 3 laboratory technicians, and 14 administra-tive, clerical and custodial employees.

Figure 7 shows the general structure of the health organization inNarifio and the functions assigned to each of its administrative units.According to this chart, the program is directed primarily towardpublic health work; in certain municipalities, however, the programis combined with the activities of the Beneficencia. Although thehealth centers are shown at specific locations, each center also servesa number of adjacent municipalities. In addition, the more remoteareas of the department are reached regularly by mobile units mannedby health personnel and carrying clinical equipment, which operateout of the departmental health office.

All the health problems common to other parts of Colombia existit, Narifo, where they are agaravated by poverty and a climatewhich ranges from hot along the Pacific Coast to cold in the highlands.Tuberculosis, venereal diseases, and the disorders of early childhoodoccur here with considerably more than average severity. Malnutri-tion is widespread. Moreover, in recent years the people of Narifnohave been exposed to major outbreaks of bartonellosis and louse-borne

VI'IsUKMX /

HEALTJI ORGANIZATION AND FUNCTIONS--DEPARTMENT OF NARINO

DIRECTOR OF PROGRAM AND LABORATORIES

SECRETARY GENERAL

TECHNICAL SECTIONS |

LABORATORY MOBILE HEALTII STATISTICS HEALTII CENTER REGIONAL REGIONAL SECONDARY HEALTH CENTER

UNITS AND HEALTHI PASTO HEALTH HEALTH HEALTH BARBACOAS

EDUCATION CENTER-IPIALES CENTER- CENTER-

TUQUERRES SAMANEIGO

Epidemiology Epidemiology Sanitary map- Preventable Preventable dis- Preventable dis- Preventable dis- Preventable dis-Public hygiene Health piIng disease control ease control ease control ease control ease controlInvestigations education Census and Tuberculosis Venereal dis- Venereal dis- General GeneralDiagnostic Vaccination surveys control ease control ease control sanitation sanitation

service Insect control Report analysis Venereal dis- Maternal & child Maternal & child Health education Yaws controlControl of water Communicable Preparation of ease control hygiene hygiene Malaria control Venereal dis-

and foods disease control technical Maternal & child Dental hygiene Dental hygiene ease controlStorage of bio- Sanitation bulletins hygiene Port sanitation General

logicals & Special problems Publications Dental hygiene General sanitation sanitationvaccines Preparation of General Health education Health education

Special problems graphs & charts sanitationHealtlh education

|ADMINISTRATON SECTION

_ _ _ _ I _ _ I_ _ _ i I

ACCOUNTING STORES ARCHIVES INVENTORY

Budgets Purchases Files Property control ofFund control Storage Books Central OfficeBalanice and financial Distribution Maps Laboratories

statements Other Health centersMonthly account report Mobile units

192 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

typhus fever. Confronted with such problems of disease against abackground of great poverty, the staff of 41 professional and technicalpublic health workers is completely overwhelmed. Obviously, theycan expect to make little headway with the disease and ill-health ofNariflo.

Hospitals, Clinics and Related Facilities

Colombia's need for general hospital facilities undoubtedly exceedsthat of the United States, because of the greater prevalence of illnessand the lack of suitable home care facilities. During recent years,hospitals and related facilities have been expanded considerably inattempts to meet this need. However, the number and adequacy ofthese facilities still fall substantially below the standards set in morehighly developed countries. There are now about two hospital bedsper thousand population, a little more than half the ratio prevailingin the United States. However, there is a wide variation in this ratio(0.6 to 3.6) among the departments, and 540 municipalities lack anyhospital facilities whatever.

Many of the existing general hospitals are seriously inadequate bymodern standards. The Social Security Institute, in a 1947 study of253 hospitals, found only 125 equipped for surgery, and only 153 withmaternity, 63 with laboratory, and 22 with X-ray, facilities. Of the20,200 beds then recorded, admittedly optimistic estimates made bythe Institute placed not more than 10,000 beds in facilities meetingreasonable standards for active hospital care.

Disregarding these qualitative deficiencies, Table 56 gives a sum-mary by departments of the number and capacity of existing hospitalsand related facilities and of the estimated requirements, accordingto official data. The total number of beds available is an approximationonly and is probably somewhat low. The information available fromofficial sources on the number of beds in private hospitals is quitefragmentary; unofficial estimates put the total for private hospitalsand clinics at some 3,000 beds. This includes about 26 private generalhospitals and 12 hospitals operated by industrial firms largely fortheir own employees. The figures in Table 56 do not include hospitalsunder construction, some of which are completed but unused. In Cali,for example, a 1,500-bed departmental hospital was substantiallycompleted at least two years ago but remains idle because of lack offunds for furnishings and equipment. A similar situation exists inother localities as well.

Table 57 shows the total number of units and beds for generaland specialized hospital facilities in Colombia. Some qualificationsshould be made as to the figures in this table. For instance, facilities

TABLFE 56

NUMBER OF BEDS AVAILABLE AND REQUIRED IN GENERAL AND ALLIED SPECIAL HOSPITALS

Beds Available Bed Requirements Bed Estimated Construction Costl

Department Population Per 1000 Per 1000 Defici-1948 Total Population Matcrnal General Total Population encies Total Per Year

(thousands)TOTAL ......... 10,777,278 20,212 1.87 8,843 49,023 57,866 5.37 37,654 Ps.$188,270 Ps.$51,405,992

Antioquia ............ ........... 1,431,920 3,648 2.54 1,627 6,962 8,589 5.99 4,941 24,755 6,719,760Atlantico .... . .. 379,350 461 1.21 351 1,632 1,983 5.22 1,522 7,610 2,069,920Bolivar.......... ......... 993,940 656 0.65 518 2,976 3,494 3.51 2,838 14,190 3,859,680Boyaca ........... ......... 782,050 949 1.21 522 3,716 4,238 5.41 3,289 16,445 4,473,040Caldas ........... ......... 1,036,790 2,385 2.30 1,015 4,739 5,754 5.54 3,369 16,845 4,581,840Cauca .......... .......... 436,140 258 0.59 385 2,175 2,560 5.86 2,302 11,510 3,130,072Cundinamarca .................... 1,416,470 4,659 3.28 1,014 6,715 7,729 5.45 3,070 15,350 4,250,000Choc6. ... ........... 112,220 137 1.22 36 250 286 2.54 149 745 202,640Huila ......... .......... 235,820 473 2.00 216 1,383 1,599 6.78 1,126 5,630 1,531,360Magdalena ................... 436,920 496 1.13 230 1,257 1,487 3.40 991 4,955 1,347,760Narifio ... ....... ............. . 546,010 551 1.00 470 2,568 3,038 5.72 2,487 12,885 3,504,720Norte de Santander .......... 417,470 740 1.77 327 2,167 2,494 5.97 1,754 8,770 2,385,440Santander .................... 730,920 2,184 2.98 593 4,214 4,807 6.57 2,623 13,115 3,567,280Tolima ........... ......... 709,480 906 1.27 525 3,100 3,625 5.10 2,719 13,595 3,697,840Valle del Cauca .927,120 1,436 1.54 929 4,674 5,603 6.04 4,167 20,880 5,667,120Intendencias and

Comisarias .................. 184,658 273 1.47 85 495 580 3.14 307 1,535 417,520

1 Construction cost estimated at Ps.$5,000 per bed.

Source: Servicio Hospitaloria en Colombia de Acuerdo con la Natalidad y la Mortalidad.

194 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

for the care of children should probablv be combined with the generalhospitals, since these facilities differ only xvith respect to the agegroups they serve. General hospitals also contain beds for the careof children, maternity cases, tuberculous patients and other patientswvith various ailments. There are about 1,600 beds available fortuberculosis patients in general and special hospitals throtughlout the

TABLE 57TOTAL UNITS AND BED CAPACITY OF HOSPITALS AND RELATED INSTITUTIONS

Type Charity Private Total

Units Beds Ulnits Beds Units Beds

TOTAL ................... 330 38,530 18 1,0611 348 39,591General ................... 222 17,131 18 1,0611 240 18,192Children ................... 9 1,003 - - 9 1,003Tuberculosis .................... 7 860 - - 7 860Mental ................... 5 3,761 - - 5 3,761Homes for Aged ............ .. 50 5,388 - - 50 5,388Homes for Orphans .., . 34 3,832 - - 34 3,832Leprosaria ................. 3 6,555 - - 3 6,555

1 This figure is underestimated. It may be as high as 3,000.Source: Report of Miinistry of Hygiene.

country. Some patients in mental hospitals undergo active therapy,but the great majority simply receive custodial care. Homes for theaged and, to a lesser extent, orphanages contain infirmary units vherethe occupants can obtain treatment wvhen they are ill.

Private hospitals provide only a minor part of all general hospitalaccommodations and have scarcely any significance in other fields,but they furnish most of the care for high income groups and forthe employees of certain industries. Hoxvever, many of the so-calledcharity hospitals make substantial collections from patients: nearly17 percent of the approximately 20,000 beds devoted to general andallied special care were supported at least in part from fees paidby or on behalf of the occupants.

The available data did not permit a separation of the cost ofgeneral hospitals from the cost of other institutions, or a tabulationof the amounts by source. Hovever, the figures shown in Table 58,which were obtained for all public hospitals and institutions, exclusiveof leprosaria, showv expenditures for these institutions. An estimateof the total cost of operating the public general hospitals may beobtained by multiplying the average annual maintenance cost perbed, Ps.$717.2, by the 20,212 beds available. This yields a figure ofPs.$14,496,046 as the approximate annual cost of operation for thepublic general hospitals.

HEALTH AND WELFARE 195

TABLE 58

EXPFNDITURES OF PUIBLIC HOSPITALS AND INSTITUTIONS EXCLUSIVE OF LEPROSARIA

PercentCategory Amount of total

Administration, including salaries .......................... ... Ps.$ 5,355,712 24.6Food ..................... .................... 5,633,231 25.9Drugs and other therapeutic agents . ............... 1,717,554 7.9Utilities .................................. . ..... 1,174,070 5.4Clothing ......................................... 491,237 2.2Debts ................. ........................ 285,394 1.3Construction and repairs ...................... .................. 3,380,265 15.5Other ............. .............. ............. 3,754,010 17.2

TOTAL . Ps.$21,791,4 7 3 100.0

Source: Ministry of Hygiene, Colombia.

Studies made by the Social Security Institute, covering 187 gen-eral and 4 tuberculosis hospitals. revealed the following informationon costs and operations:

General TuberculosisHospitals Hospitals

Average annual cost per bed . . Ps.$717 .2 Ps.$845.6Average duration of patient's stay (days) .......... 18.0 134.3Average cost per patient ..... . Ps.$ 37.36 Ps.$291.46Average cost per patient day . ....... Ps.$ 2.07 Ps.$ 2.17

Thus the average cost per day of patient care, and the average

annual maintenance cost per bed, are less in general hospitals than

they are in tuberculosis hospitals. Since bed rest is an important

element in the treatment of tuberculosis, the relatively lower costs

in general hospitals wvould indicate that many of their patients are

not undergoing active therapy; this observation wvas confirmed by

visits in the field. Further substantiation is given by the long aver-

age stay per patient-18 days, as contrasted, for example, with 11.44

in the United States. On the other hand, the average stay of 134.3

days for tuberculosis patients in Colombia is usually too short a

period to expect much improvement. Actually, isolation seems to

be the main objective in the hospitalization of the tuberculous; this

is borne out by the fact that 53.5 percent of the patients die in

institutions.

Professional and Technical Personnel

Perhaps the most important elemelnt in maintaining a high na-

tional level of health is personnel with the scientific training and

technical competence necessary to apply preventive health measures

and to provide proper medical care. Both the organization and the

196 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

physical facilities are mere shells in the absence of qualified staff.Although the physician may be the central figure in the actual per-formance of medical care, a comprehensive program of health servicedraws upon personnel of diverse interests and technical backgrounds.An effort was made, therefore, to determine not only the individualswho are actually engaged in activities identifiable with health servicein Colombia, but to determine the reservoirs of talent that might beavailable for an expanded program.

There is no register of scientific and technical personnel in Colom-bia. In its absence, such information as could be obtained was piecedtogether to give a picture of Colombia's medical and professionalpersonnel. The following census figures represent only an approxi-mation of the number of personnel in active practice for the threespecialized groups of particular interest from the standpoint of pub-lic health:

Type of Personnel Number

Physicians ......................... - 3,327Dentists, Graduates .... .... . .. ........ ......... . 1,000Dentists, Licensed .. ......... ...... ... 600Nurses, General 400Nurses, Midwives ... ... 200Health Visitors 200

These data require several qualifications. For example, the countof physicians probably is an overstatement since it undoubtedly in-cludes physicians who have retired. The figures for both classifica-tions of dentists are admittedly very rough estimates. Licenseddentists in Colombia are practical dentists with varying amounts oftraining, who were blanketed into the profession when the DentalPractice Act became effective. Figures given for nurses of variousdesignations and for health visitors represent an estimate of thenumber who probably meet the requirements for their respectivegrades.

Some additional data shown in Table 59 indicate the distributionof physicians by location and professional interests. This table revealsthat there is one physician in Colombia for every 3,310 populationas contrasted with one physician per 730 population in the UnitedStates in 1949. This general ratio for the whole of Colombia maskssuch wide variations as 10,877 persons per physician in Narifno and1,511 persons per physician in Cundinamarca. The ratios for theintendencias and comisarias are close to the national average, butthese figures fail to take account of the large areas and sparse popu-

TABLE 59

DISTRIBUTION OF PHYSICIANs ACCORDING TO POPULATION;, INTERESTS AND LOCATION

Plhysicians Location of Physicians NUmber of Municipalities

PublicPopulation General Health Clinical With Without

Population per Prac- Special- Special- In In Other Physi- Physi-Departments (1949) Physician Total titioners ists ists Capitals Communities Total cians cians

TOTAL .. 11,015,210 3,310 3,327 2,539 15 773 2,065 1,262 817 379 438AlntiOquia . ... . 1,458,850 2,455 594 422 3 169 392 202 100 72 28Atlantico .392,700 2,169 181 113 - 68 164 17 20 7 13Bolivar .. 1,020,280 3,807 268 236 _ 32 114 154 60 40 20BoyaC6 . . ... 786,660 8,644 91 83 - 8 25 66 125 26 99Caldas. . . . 1,068,090 4,092 261 1711 1 89 59 202 43 43 0Cauca ............. ...... 445,080 10,350 43 36 1 6 30 13 33 9 24Cundinamarca . ... 1,443,240 1,511 955 662 9 284 812 143 112 47 65Choc6 . ......... ...-. 112,320 6,240 18 17 - 1 8 10 11 6 5Huila . . . . . . 237,820 6,606 36 33 - 3 19 17 31 7 24Magdalena ..... ... ...-. 447,710 4,762 94 76 - 18 30 64 33 25 8Nario . . . . 554,750 10,877 51 50 - 1 31 20 49 8 41Norte de Santander . . 425,35(0 5,004 85 66 - 19 54 31 34 8 26Santander . . ... 743,500 4,200 177 154 - 23 67 110 73 22 51Tolima . . . 728,070 8,273 88 72 - 16 40 48 41 19 22Valle del Cauca . 966,240 2,867 337 306 - 31 178 159 38 28 10

Comisarias .. 125,350 . 5 3,844 48 42 1 5 42 6 14 12 2

1 1946 figures.

Source: Report of the Ministry of Hygiene of September 23, 1949.

198 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

lation in these districts. Almost two-thirds of the physicians arelocated in departmental capitals which, with their surrounding muni-cipalities, contain about 12 percent of the population. Slightly morethan one-half of the municipalities have no physicians. Of particularsignificance for public health and preventive medicine in Colombiais the small number of physicians who claim public health as a spe-cialty. Few of those who list themselves as public health specialistshave had formal training in public health or engage in this specialtyexclusively.

Several noteworthy steps have been taken to develop reservoirsof technical competence in the public health professions. The NationalSchool of Nursing, supported jointly by the Ministry of Hygiene andthe Institute of Inter-American Affairs, is taking an active part intraining nurses for teaching and higher staff positions. The Ministryof Hygiene, through its Maternal and Child Health Division, ishelping to organize and support courses for auxiliary nurses, nurse-midwives, and health visitors. In cooperation with the NationalUniversity and the BogotA Public Water Supply, the SanitaryEngineering Division of the Ministry of Hygiene has org-anized ashort practical course for water plant operators. Perhaps most sig-nificant from the standpoint of public health is the recent establish-inent of the National School of Hygienc as a cooperative endeavor

bet\veen the Ministry of Hygiene and the Rockefeller Foundation.Although this school is nexw and, at the time this survey xvas made,had graduated no health vNorkers, great hopes are held for it. Coursesfor physicians who would be trained to take administrative responsi-bility for public health activities at all levels were expected to startin December 1949. It is anticipated that training will also be givento laboratory technicians and eventually to other groups of publichealth \vorkers.

The nursing situation in Colombia is in a state of flux. Untilrecently nursing as it is knowvn in the United States was practicallynon-existent in Colombia. It was common practice for a hospitalor a physician to certify a girl as capable of performing the dutiesof a nurse after varying periods of employment in either a hospitalor a physician's office. Most of the girls had little formal education.There are now perhaps a half dozen institutions in Colombia wvhichcall themselves "schools of nursing" but except for the nationalschool they are not recognized by the National Government, mainlybecause of poorly organized teaching programs and inadequate facili-ties for practical instruction. The Nursing Practice Act, passed in1946, set up the following four groups of nurses, plus a classification

HEALTH AND WELFARE 199

of health visitor, according to the amount of education and experi-ence required:

1. Nurse, General-Completion of secondary school, threeyears of instruction and training in the NationalSchool of Nursing or a school of similar status, twoyears of practice, and registration.

2. Nurse, Hospital-Four or more years of secondaryschool, three years of training in a recognized hospi-tal, and registration.

3. Nurse, Auxiliary-Four years of secondary school, oneyear of training in a general hospital, and regis-tration.

4. Nurse, Midwife-Four years of secondary school, oneyear of training in a maternity hospital, and re-is-tration.

5. Health Visitor-Three years of secondary school, sixmonths of training in a health center, two vears ofpractice, and registration.

In the field of sanitation, little progress has been made towardthe classification of engineers, entomologists, sanitary inspectors,operators of sanitary utilities, and similar specialists. Few of the14 engineers employed by health agencies and the 23 employed bythe Municipal Development Fund have had any specialized train-ing in sanitary engineering. As a group, inspectors get little or noformal education in the sanitary sciences but must depend on whatthey can learn by experience. Frequent turnover of personnel, espe-cially among inspectors, adds to the difficulties of building up ade-quate professional staffs.

The problem of developing a competent staff for public healthservices is made exceedingly difficult in Colombia by two veryserious handicaps: (1) a low salary scale for public employees, and(2) very poor personnel practices and policies. These conditions arenot peculiar to the public health agencies but are characteristic ofthe entire structure of government; there are few, if any, local excep-tions to this rule in the health field worthy of mention. Staffingproblems would be encountered with either low salaries or insecurityof tenure, but the two in combination make it utterly impossible toattract and retain a sufficient number of qualified people to staffeven the authorized positions. The inadequacy of salaries for publichealth personnel becomes obvious when the figures given in Tables60 and 61 are contrasted with the cost of living and general incomedata. Although those tables give only selected and fragmentary data,they point to the extreme inadequacy of salary levels for professionaland responsible health workers.

200 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

TABLE 60NUMBER OF PERSONS EMPLOYED BY SELECTED DEPARTMENTS AND MUNICIPALITIES,

ACCORDING TO SALARY LEVELS

Monthly SalaryLevels In- Laboratory

(in pesos) Physicians Dentists Nurses spectors Technicians Total

TOTAL ............. 146 50 188 328 17 729Below 100 ............. - - 15 1 - 16100-149 .......................- - 45 116 1 162150-249 ....................... 1 1 124 209 2 337250-349 ..................... 22 20 4 - 7 53350-449 ................... 36 29 - - 5 70450-699 ............... 60 - - 1 2 63700-999 .................... 25 - - 1 - 26

1,000 and over ............. 2 - - - - 2

Source: NMinistry of Hygienie, Colombia.

To consider physicians in greater detail, those showvn in the verylow salary intervals may be disregarded since it can be assumedthat they are part-time public health workers and devote only a smallportion of their time to official duties. On the other hand, all the

physicians appearing near the top of the scale are departmentalhealth officers or chiefs of divisions in the Mlinistry of Hygieneor in the departments. Very few salaries are in the neighborhoodof Ps.$1,000 a month; none are above. According to physicians inprivate practice and industrial firms which employ physicians on

salary, even recent graduates from medical school are not attractedto full-time positions which pay less than Ps.$1,000 per month. Thus,very few competent young physicians look forwvard to a career inpublic health, especially in view of the insecurity of tenure character-istic of such a career. If a physician does not possess independentmeans, he cannot afford to adopt public health as a specialty unlesshe supplements his income in some manner, usually through privatepractice.

There are very few standards or job qualifications established forthe public health professions in Colombia. Job descriptions are usu-ally limited to the broad requirement that a position is to be filledby a physician, a dentist, or the appropriate technician. Appointmentsare made without objective examination to determine the applicant'sfitness; moreover, promotions and transfers are purely at the dis-cretion of the appointing authority. All appointments are made, infact, by the Chief Executive of the Nation, the department or themunicipality, and all are subject to the will of the executive. Underthese circumstances, frequent turnover of personnel, without any

HEALTH AND WELFARE 201

TABLE 61

NUMBER OF EMPLOYEES ACCORDING TO TYPE OF POSITION AND SALARY LEVELS,

MINISTRY OF HYGIENE1

Salaryper Month Number of

Position (pesos) Employees Total

Physicians .......... ....................... 851-1000 18Physicians .......... ....................... 501- 850 123Physicians .......... ....................... 201- 500 137 278

Dentists ........ ......................... 301- 500 25Dentists ........ ......................... 1- 300 76 101

Supervising Health Nurses .. .......................... 301- 500 3Public Health Visitors .................................. 1- 300 65Public Health Nurses .................................. 1- 300 36General Nurses .......... ... ............ 1- 300 296 400

General Male Nurses ................................. 1- 200 70Male Nurse Vaccinators ................................. 1- 200 41 111

Sanitary Engineers. ................................. 850-1000 3Engineers ................... .............. 500- 850 16Surveyors ......... ........................ 301- 500 3Architects . .................................. 301- 500 2Sanitary Draftsmen .................................. 301- 500 4 28

Supervising Sanitarians ................................. 301- 500 4Supervising Sanitarians .................................. 1- 300 32 36

Sanitary Inspectors ........................... ...... 1- 250 528 528

Laboratory Workers .................................. 300- 500 4Laboratory Workers .................................. 1- 300 24 28

Fumigation Officials ................................. 301- 500 1Fumigation Officials ................................. 1- 300 20 21

Pharmacists ... ............................... 1- 300 32 32

Administrative Employees ................. ............ 850-1000 1Employees .................................. 500- 850 7Employees ................................. 301- 500 40Employees ................................. 1- 300 875 923

1 The salary of the Minister has been increased to Ps.$1600 per month.Source: Ministry of Hygiene, Colombia.

202 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

right of appeal by the employee, is to be expected. This, in fact, isthe rule.

Although no data were available on the volume of turnover at thetime of writing, there is ample evidence to support the statement thatexcessive employee changes take place throughout the country andin all agencies. One city health officer reported that during the courseof one year the equivalent of two-thirds of his staff had changed ap-proximately every four months. It was said that between 50 and 55percent of the employees of the Ministry of Hygiene were replacedduring 1948. Health officials and other employees who were inter-viewed gave general insecurity and arbitrary handling of personnel byhigher authorities as their most common complaints. Many qualifiedpersons now in private work stated they had been dismissed withoutcause or had left public employment becatuse of the fear of arbitrarydismissal.

Recently, attempts have been made to improve this situation, eitherthrough the institution of a comprehensive civil service or merit sys-tem. but these have generally been limited to certain specific groups.Moreover, the effectiveness of these programs is as yet undetermined.Only 1,155 employees are now under the Administrative Career initi-ated in 1940, almost ten years ago; of these, only 53 are in the Mlinistryof Hygiene.

PUBLIC WELFARE

Public welfare and social security systems are closely related topublic health activities. In many countries, these programs are ad-ministered by the same governmental agency. Public health is anorganized community effort to promote high standards of health:public welfare may be termed an organized community effort to in-sure the necessary social conditions to make good health and betterliving conditions possible. Under public welfare are included all themeasures to provide social, disability and other forms of insurance, tosafeguard vulnerable groups in the population, and to provide assis-tance to the needy and aged.

In Colombia the public welfare system, like the public healthstructure, is poorly organized and only partially effective. Hamperedby a lack of trained social workers and other professional personnel,these programs in many places fail to reach all the people who needassistance. Moreover, the system is characterized by duplication andoverlapping in some places and by important gaps in others.

Public welfare services are provided by the public health agenciesat all governmenital levels, by private industry and by the Bene-

HEALTH AND WELFARE 203

ficencia system, which operates mainly at departmental and locallevels. Since the latter is the most important single agency operatingin this field, it will be examined in some detail.

Beneficencia

The Beneficencia system corresponds generally to what are termedpublic welfare services in the United States. The major differencebetween the two countries is that in Colombia almost the entirebudget is devoted to the operation of various institutions, includinggeneral hospitals, whereas in the United States a substantial part ofthe budget is provided in the form of funds and supplies for individualor family relief and for the protection of children not in institutions.Another point of difference is the source of funds. Beneficencia issupported principally by departmental lotteries and earmarked taxes(usually on amusements) while in the United States public welfarefunds are appropriated out of general revenues.

In general, Beneficencia is a departmental responsibility, both asto administration and financial support, with the National Governmentsupplying only general supervision and limited funds. Beneficenciaprograms shoxv great variations among departments, reflecting dif-ferences in resources and problems. The administrative scheme alsoshows minor variations from the typical pattern, which is character-ized by a central board of authority, or "junta". Administrativeauthority is vested in this board, which contains representation fromthe Ministry of Hygiene, the department, civic and professional in-terests, and usually the Church. The junta employs a manager and apaid staff to administer the program.

Funds are also allocated by the department among the municipali-ties for the support of local programs. Local boards exercise generalauthority in the municipalities and employ an executive, usually ona part-time basis, to operate the continuing program. In some depart-ments, the central Beneficencia is said to do little more than apportionfunds among the municipalities, but in others it operates many facili-ties directly and exerts a strong influence over the local juntas. Boththe national and departmental governments are represented on themunicipal junta which operates withiln broad regulations set by thehigher governmental authorities.

The Beneficencia of Cundinamarca, although not wholly typicalsince its resources and services probably exceed those of other de-partments, may nonetheless be used to illustrate the program and finan-cial structure of the Beneficencia in broad outline. The Beneficencia

204 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

of Cundinamarca, like its counterparts in other departments, receivesfunds from a variety of sources-lotteries, earmarked taxes, revenuefrom real estate and other holdings, and gifts. In 1949 this Bene-ficencia reported expenditures of Ps.$5,855,418 for its general hospitaland institutional care program and for services of a recurring nature.It also spent Ps.$3,677,842 for construction purposes, including theconstruction of a commercial building owned directly by the Bene-ficencia, as well as construction and repair of its hospitals and cus-todial institutions. The major item in this section of the budget wasdevoted to a new surgical unit of 750 beds at the San Juan de Diosgeneral hospital. Finally, the Beneficencia allocated Ps.$984,012 fordistribution to the 15 district and 12 municipal hospitals in the outlyingareas of the department. Slightly less than half of this sum wasbudgeted for routine operations, and slightly more than half forconstruction.

In Cundinamarca, as elsewhere in Colombia, the Beneficencia pro-gram is limited almost entirely to institutional care, with only some1,000 families given direct relief each year, in amounts varying fromPs.$2.5 to Ps.$20 per month. The vast majority of children supportedby the Beneficencia spend their entire childhood in an institutionalenvironmnent. A few of the more gifted children are given scholarshipsin secondary schools but most of them get only elementary educationand some vocational training. In 1948 some twenty children were sentout for adoption but in 1946, according to official records, the numberwas somewhat higher.

Most of the institutions listed in Table 62 are old, butt in generalthey are in reasonably satisfactory condition and are meeting thenormal physical needs of the inmates. This table, derived from theCundinamarca Beneficencia report for 1947, gives the census figuresand movement of inmates for the various institutions under the directmanagement of the Beneficencia, and is the closest approach possibleto a picture of its volume of services. However, the current volumeof activities is somewhat greater than the amount shown in the table.Furthermore, the data do not include figures for the out-patient de-partment of the San Juan de Dios hospital, which had some 122,000visits in 1946.

Besides the age and quantitative deficiencies of the institutionsoperated by the Beneficencia, there are serious gaps in service. Mostof the facilities are overcrowded, especially the institutions for childrenand the mental hospitals. There is little opportunity to segregatepatients by type, and the professional staff is not adequate enough toprovide active therapy for the patients who require such care.

TABLE 62MOVEMENT oF PERSONNEL ASSISTED IN THE ESTABLISHMENTS 'UNDER THE

GENERAL JUNTA BENEFICENCIA OF CUNDINANIARCA, 1946

Departures

.Re- T rans -Ceosus Entries turned ferred to Cured Census

Dec. 31, during to Other ]i- or Im- Other Dec. 31,Establishment 1945 Year Total Death Family stitutions proved Escaped Causes Total 1946 Averagel

TOTAL .7,5 .... 7,356 20,981 28,337 1,828 514 754 14,355 347 2,133 21,190 7,147 -

1. Hospital, San Juan de Dios . 1,081 16,455 17,536 943 - 318 13,414 25 1,828 16,528 1,008 1,044

2. Hospice, Bogota-Sibate (boysand girls). 6 2 7 . 6217 197 824 2 45 104 - 1 10 162 662 644

3. Hospice, East Section (boysand girls) .. . ... . .. 952 41 993 20 1 59 - 15 144 239 754 853

4. Hospice, School of DomesticWork (girls) . .. 407 62 469 - 42 50 40 - _ 132 337 372

5. Hospice Sala-Cuna. . . 26 241 267 14 13 192 - - 9 228 39 33

6. Hospice, San Jose TradeSchool (boys) 216 142 358 1 10 - _ 41 50 102 256 236

7. Dormitory, wayward boys 93 797 890 _ - - - - 839 51 72

8. Boarding School, AgricultureNo. 1 (boys) . ... 160 112 272 _ _ _ _ _ 113 159 159

9. Boarding School, AgricultureNo. 2 (boys) .1 3 ... 139 101 240 _ _ _ _ _ _ 128 112 126

10. Boarding School, AgricultureNo. 4 (boys) . ......... . ...... 35 59 ._ _ _ _ _ 10 49 36

11. Observation Center (girls) ... 25 144 169 _ _ _ _ _ 169 - 25

12. Asylum, insane men .. ......... 904 986 1,890 213 105 2 388 233 6 947 943 924

13. Asylum, insane woomen .. 1,048 884 1,932 276 137 - 469 14 - 896 1,036 1,042

14. Asylum, indigent men ......... .. 806 487 1,293 152 73 24 44 16 80 389 904 855

15. Asylum, indigent women .... 848 297 1,145 207 88 5 - 2 6 308 837 842

'Average nuosiber of persons in designated institutionis at the end of theyears 1945 and 1946.

Source: Cundiniamarca Beneficencia Report, 1947.

206 THE BASIS OF A DEVELOPAMENT PROGRAMI FOR COLOMBIA

Social SecurityIn the preceding discussion we have been concerned with public

health services which are financed out of the public budget and under-taken according to particular needs. In addition, the Colombian lawprovides for social security legislation of various kinds. This legis-lation includes a set of requirements imposed upon employers underLaw 10 of 1934, Law 53 of 1938 and Law 6 of 1945. In addition,Colombia initiated an ambitious program of social insurance underthe Social Security Act of 1946.

The older social security provisions cover a comprehensive rangeof programs, including severance pay, paid vacations, occupationalillness and accident, maternity and old age benefits, etc. Though com-prehensive where applicable, the coverage under these provisions ismostly limiUted to persons employed in the larger establishments. Thepayments, which are financed entirely by the employer, are dependentupon the size of the enterprise and on the whole only a very smallpart of the population is covered by these provisions. Workers cov-ered tend to belong to the relatively high wage group.

The Social Security Act of 1946 marks the beginning of a far-flungsocial security program looking towards a combined scheme of health,disability and retirement insurance. The Act established the Colom-bian Institute of Social Security to administer the program. TheInstitute is set up as a quasi-public body and is designed to operateoutside the pressure of politics. Its Board of Directors is composedof four representatives of the National Government and three repre-sentatives each of the medical profession, industry and employeeorganizations. Each representative is appointed by the Presidentfor a term of three years, and upon recommendation of the Boardthe President also appoints the General Manager of the Institute,wvho serves a five-year term. The law directs the Board to givepriority to the introduction of health and maternity benefits butbeyond this the Board retains wide discretion in determining thespeed and direction in which the program is to be developed. Therange of benefits to be provided is comprehensive. In time it is ex-pected to replace many of the functions now performed by budgetarywelfare provisions, the Beneficencia and by industrial services ren-dered under the older social security laws. The program includesgeneral health and maternity insurance, occupational illness and wvorkaccident insurance as well as invalidism, old age and death benefits.The envisaged program, therefore, is all-inclusive except for unem-ploynment insurance and general relief to low-income families. Thecoverage is to extend eventually over the entire population, includingagricultural workers and self-employed persons.

HEALTH AND WELFARE 207

The Board is entitled with Presidential approval to impose payrolltaxes for the financing of the program, but the intention is to proceedslowly. Thus far some of the services envisioned under the law, havebeen instituted in Bogota where medical, maternity and some dis-ability benefits are now provided for approximately 50,000 workers.The system is financed by the imposition of a tax equivalent to gpercent of the payroll, toward which the employer pays 4 percent,the employee 2 percent and the Government 2 percent. The annualyield is estimated at about Ps.$6,400,000. The Institute is now con-ducting studies in Medellin and Pereira with a view to determining thefeasibility of setting up social insurance programs in those localities.

The Institute recognizes that a widespread extension of medicalbenefits would call for an enormous increase in hospital facilities,wvhich in turn would require large construction funds. To meet thisdifficulty the Institute plans to proceed with the introduction of theold age insurance program at an early date, to finance this programon a reserve basis and to use part of the excess of X itributions overbenefit payments in the early years to defray the cost of additionalhospitals. The present plan for old age insurance provides for a4 percent payroll tax, benefit payments ranging from a maximum ofabout 60 percent of income earned on the average over the yearsof coverage for those who contributed 40 years, to a minimum of33 percent for those who contributed five years, with benefit paymentsto begin at age 60 or 65. Looking beyond old age insurance, it isestimated that the cost of the entire program may eventually entailan outlay equal to 24 percent of payroll. According to tentative plans,S percent would go for health and maternity, 4 percent for old age,4 percent for invalidism, 4 percent for survival and 4 percent for workaccident insurance. The cost would be borne by joint employer, em-ployee anld Goverinmental contribuitions.

CHAPTER X

Electric Power and Community Facilities

In recent years Colombian towns and cities have grown sub-stantially faster than the general population. The census of 1938showed an urban population, i.e., in centers of over 1,500, of 2,533,680,or 29.1 percent of the total. Recent studies indicate that by 1948 theurban portion of the population had increased to about 34 percent, orabout 3.66 million out of an estimated population of 10,765,000 in thatyear. Table 63, showing the estimated growth rates and 1950 popu-lation of various municipalities,' indicates how rapid has been theincrease.

TABLE 63ESTIMATED GROWTH OF VARIOUS MUNICIPALITIES, 1938-50

Estimated Annual Estimated1938 Increase 1950

Municipality Population (Rate per 1000) Population

Bogota . ..................... 330,312 42.39 543,590Medellin ...................... 168,266 38.43 264,570Barranquilla ...................... 152,348 43.88 255,050Cali ...... ................ 101,883 41.10 165,200Manizales ....... .............. 86,027 33.04 130,060Monteria 64,192 52.06 118,010Cartagena ...................... 84,937 25.45 114,830Pereira ...................... 60,492 45.72 103,405Armenia ...................... 50,838 55.05 96,710lbagu6 .................... .. 61,447 36.06 94,000CUcuta ........................ 57,248 33.72 85,240Bucaramanga ...................... 51,283 36.76 79,070Cienaga .......... ............ 47,333 33.04 69,920Pasto ......... . 49,644 27.18 68,490Palmira .......... ............ 44,788 25.57 60,630Calarca .......... ............ 35,230 30.59 50,580Santa Marta ...................... 33,245 31.04 47,970Buenaventura ...................... 27,777 42.03 45,520Girardot ....................... 25,307 32.26 37,040Tunja ....... ............... 20,236 32.47 29,690All Colombia ...................... 8,701,816 21.53 11,236,200

Source: Contraloria General de la Republica, Censos Nacioniales.

The growth of the strictly urban population has, in fact, probablybeen even more rapid than is indicated by Table 63, which includessubstantial rural populations in most municipalities. An attempthas been made in Table 64 to break down the population estimates

l The word "municipio" (municipality) as it is used in Colombia does not neces-sarily refer to a city or village but to the local administrative entity which may bepartially or entirely rural in character. In fact, all the municipalities have some ruralpopulation.

208

ELECTRIC POWER AND COMMUNITY FACILITIES 209

for the country as a whole (excluding intendencias and comisarias)according to the size of the principal urban center in each municipality.

TABLE 64ESTIMATED URBAN AND RURAL POPULATION OF MUNICIPALITIES

BY SIZE OF URBAN CENTERS, 19501

Numberof Muni- Estimated Population

Population of cipalitiesUrban Centers in Group Urban Percent Rural Percent Total

Over 100,000 ............ 5 1,325,778 98.7 17,462 1.3 1,343,24050,000-100,000 5......... 346,140 70.0 148,345 30.0 494,48520,000- 50,000 ...... 15 519,282 61.6 323,708 38.4 842,99010,000- 20,000 ......... 31 458,460 51.2 436,970 48.8 895,4305,000- 10,000 ...... 91 657,860 36.6 1,138,165 63.3 1,796,0252,000- 5,000 188. 188 698,152 28.3 1,768,613 71.7 2,466,765

Under 2,0(02 461 - - - - 3,358,000

TOTAL ........ 796 11,196,935

1 Intendencias and comisarias excluded.2 No estimate of the urban population of this group has been attempted, since it is

impossible to determine from available statistics how many villages of less than 1,500population in 1938 may have grown sufficiently to be classed as "urban" in 1950.

Source: Estimates of Contraloria General de la Repiiblica, Censos Naciontales,adjusted for the estimated rise in the proportion of urban population.

NEED FOR COMMUNITY FACILITIES

Although Colombia has made great strides in the past 20 or 30years in developing such facilities as electricity, water supply andsewer systems, schools, hospitals and the like, the need for them hasalmost everywhere outrun their availability. Many of the facilitiesbuilt in the 1920's and 1930's are obsolete, or have become whollyinadequate for the populations they now serve. In some cases poorniaintenance, resulting partly from the difficulty of importing spareparts and materials in the war and postwar years, has greatly im-paired their efficiency. And the majority of Colombian municipalities,including some that have grown into sizable towns, are alnmost whollywithout modern utilities and sanitary services.

Establishment or improvement of these facilities is a major aspectof economic development in Colombia. Electric pouer, of course,is the basis of modern industrial growth. Proper water supply andwaste disposal facilities are almost equally necessary for certainindustries. Other types of community services are less directly con-nected with production, but their importance should not be under-estimated. Improvement of health and educational standards isfundamental to all progress; and in countries where economic devel-opment is most advanced the value of better housing, sanitation,

210 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLO-MBIA

and other basic amenities of life has been increasingly recognized,not only for their humanitarian benefits but also as practical aids tohigher productivity.

It is difficult to get a complete and accurate picture of existingcommunity facilities in Colombia. Available statistics usually laymajor stress on the financial position of municipal services ratherthan their physical capacity or condition. Therefore, while theMission could not make a detailed study of conditions in all com-munities, it did undertake to obtain in some detail specific informationfrom a number of the principal cities to supplement the more generaldata available from National Government agencies. Inevitably, muchof the data obtained from both national and local sources is fragmen-tary and does not adequately reflect qualitative differences; butthese data do afford some basis for measuring, in aggregate terms,the capacity and requirements of some of the most important com-munity facilities in Colombia.

ELECTRIC POWER FACILITIES

Installed generating capacity of Colombian power plants in 1950has been estimated by the Mission at about 270,000 kw., or 24 watts percapita. "Public service" plants account for 241,000 kw. of this capacity,and the remainder consists of generators used only by the factories inwhich they are installed. Industrial uses apparently absorb some 30percent of the power produced by public service facilities and 38percent of the country's total power output. About 26 percent ofthe public service plants are privately owned and the rest are mostlhunder municipal ownership. Twelve major centers2 account for three-fourths of the total power output. Although data on power productionand consumption are inadequate, it is estimated that demand increased9 percent per year in the last decade, a rate approximately in linewith the rate of growth in industrial production and in the demandfor fuels.

About one-fourth of the capacity installed is thermal, and thebalance hydroelectric. The choice of the type of power generator usedhas been determined, of course, by geophysical conditions, or theavailability of coal or oil. Thus, all the plants in Atlantico, Bolivar,Magdalena and the Choc6 are thermal, and so are more than half theplants in the Santanders and about one-third of those in the Valle delCauca. About half the privately owned public service plants arethermal, the most important among them having been installed bya subsidiary of American and Foreign Power in Cali and Barranquilla.

2 Bogota, Medellin, Barranquilla, Cali, Cartagena, Manizales, Bucaramnanga, Arme-nia, Popayan, Girardot. Neiva and Santa Marta.

ELECTRIC POWER AND COMMUNITY FACILITIES 211

General Use of Power

Table 65 summarizes the existing public service facilities forpower generation in Colombia. (It does not include private powverplants installed by some industrial and commercial establishments,wvhich are estimated to have aggregate capacity of 30,000 kw. more.)It indicates an average of 21.5 watts per capita of installed public

TABLE 65

ESTIMATED PUBLIC SERVICE GENlERATING FACILITIES BY SIZE OF

URBAN CENTERS SERVED, 19501

Avail-Installed able

Generating WattsSize of Urban Popula- Capacity per

Centers tion2

(kw.) Capita Remarks

Over 100,000 .. ..... .. 1,426,394 170,756 120 Also serves various ruralcommunities, whose popula-tions are not included.

50,000-100,000 ......... 370,009 20,566 55.6

20,000- 50,000 ........... 496.350 15,074 30.4 Also serves various ruralcorimmunities, not included.

10,000- 20,000 ........... 429,771 15,132 35.2 Generating capacity includes(1Minus Barranca- 7,500 kw. for oil fields at

bermeja) ............ (417,816) (7,632) (18.3) Barrancabermeja.

5,000- 10,000 632,916 7,285 11.5 20 of 91 towns in this classapparently have no powersupply. Existing capacityalso serves various ruralcommunities, not included.

2,000- 5,000 639,668 8,628 13.5 Generating capacity includes(MXiinus Condoto) . (636,772) (6,128) (9.6) 2,500 kw. for gold mines at

Condoto (Choc6). 70 of188 towns in this class ap-parently have no powersupply.

Under 2,000 and rural 7,241,0923 3,795 0.5 159 plants for 461 munici-palities.

Total 11,236,200 241,236

Average for country . . 21.5

Average for urban centers . . 60.2

l Does niot iinclude intendencias alnd coinisarias.2 Population figures for different classes of cities differ from those in Table 64

because the power plants in major urban centers usually serve a number of smallerlocalities as well; in such cases the urban populations of the latter have beenadded to those of the distributing centers, and deducted from the class to which theynormally belong. -Urban generating facilities also frequently serve part of the adja-cent rural area, but the latter are not included in the population figures or per capitaavailability of power, except for the "under 2000" class.

3 Largely rural population.Source: National Institute of Water Utilization and Electrical Development and

individual municipalities and power companies.

212 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

service capacity. The comparable figure for the United States at theend of 1947 was 359 watts; for Uruguay in 1948 it was some 72 watts;and for Chile about 63 watts per capita. Even this relatively low figureof installed capacity in Colombia probably presents too favorable apicture, for the following reasons:

1. Some units which were in the later stages of constructionin 1949 are included, although they will not be in operation until theend of 1950 or even later.

2. Installed units are rated at their theoretical capacity, al-though the poor condition of some generation and distribution systemssubstantially reduces actual output. Some units are operated onlyinfrequently.

3. Hydroelectric installations frequently cannot operate at fullcapacity throughout the year. In Table 65 the peak capacity of hydro-electric plants is used, and standby thermal plants are included as well.

These overall statistics also conceal very wide variations amongindividual localities. Table 66 shows a breakdown by departments.In the country's five largest cities, generating capacity ranges froman estimated 32 watts per head in Cartagena to 194 in Medellin,3 andannual consumption from about 100 to 800 kwh. per capita. The differ-ences in the various power systems result from variations not onlyin generating capacity and condition of equipment, but also in ratestructures and consumption patterns. In Medellin the residential rateis lower than the industrial rate and much lower than that chargedin other cities; moreover, the rate per unit is lowest for the smallestresidential users. This factor may account in part for a comparativelylavish residential power consumption in Medellin and a slower rateof growth in the use of industrial power than has prevailed in Bogotaand other cities during the past five years. Apparently, moreover, therelatively high rates charged by the Medellin company for industrialpower, as well as the shortages in power resulting in part from thehigh residential use, have influenced several large industrial consumersto install their own generating facilities.

During the past five years of rapid economic expansion the demandfor power-for industrial, commercial and residential uses alike-has climbed considerably faster than the rate of expansion in gener-ating facilities. This has led in some areas to serious power shortages,which in turn have restricted the installation of additional power-using facilities and have undoubtedly significantly hampered more

3 These figures, unlike those in Table 65, include the entire population of themunicipality, not just the urban portion. The population of the largest cities, however,is almost wholly urban. For more complete information on power facilities of prin-cipal cities, see Appendix C.

ELECTRIC POWER AND COMMUNITY FACILITIES 213

TABLE 66

PUBLIC SERVICE GENERATING FACILITIES, BY DEPARTMENTS, 1950

Generating GeneratingCapacity Capacity (watts)

Department (kw.) per Capital

Antioquia ........................................................ 59,074 39.7Atlantico ................................ _............................ 32,019 78.8Bolivar ................................ ... 5,118 4.9Boyaci ... . 2,131 2.8Caldas ................. .................. 19,582 17.8Cauca ......... ........................... 2,773 6.1Cundinamarca .................................... 72,016 49.0Choco ..... ............................... 2,9242 23.3Huila ...................... ............. 1,575 6.6Magdalena .................................... 3,122 6.8Narino ...... .......................... ... 2,125 3.9N orte de Santander .................................... 4,390 10.1Santander . ................................... 10,7193 14.2Tolima .................................... 4,082 5.5V alle del Cauca .................................... 19,586 19.5

I Based on population estimates for 1950 of Censos Nacionales, Contraloria Gen-eral de la Republica.

2 Includes 2500 kw. for mining operations at Condoto.3 Includes 7500 kw. at Barrancabermeja.

rapid economic development. The overall utilization of power gener-ating capacity has apparently increased substantially since the endof the war. The average loaLfactQr throughout the country, whichwas about 3,000 kwh. per kilowatt of generating capacity (34 percent)in 1944s/45, is probably well above 40 percent at present. But by farthe largest part of the load is residental consumption, mainly lighting,which produces very sharp daily peaks; the higher load factor in manycases has been achieved partly at the expense of a serious fall involtages under peak loads. In some localities the supply of electricityhas to be cut off entirely from part of the distribution area duringpeak periods in order to maintain service in the rest of the system.

Thus it is clear that the generating capacity in Colombia isseriously inadequate either to make possible rapid economic develop-ment or to meet a minimum standard of residential consumption. Itis not difficult to identify the principal reason why the developmentof power facilities has failed to keep pace with the demand. A decadeago the installation of local units which could meet forecast demandsinvolved only a small investment. Now the economics of powerdevelopment require the construction of huge plants which can pro-duce power at lower unit cost but which involve initial capital outlaystoo large to be undertaken by most private or municipal concerns.

214 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Mioreover, wvith the extension of power service over wider geographicareas, the traditional local administrative and regulatory mechanismsare proving inadequate.

This situation, common in Latin America, calls for a differentapproach to the planning and financing of poxver enterprises to enablethem to meet a broader, longer range demand. A National Instituteof Water Utilization and Electrical Development was established in1946 in an attempt to meet this problem. The Institute is chargedwith responsibility for formulating a comprehensive national planof power developrnent. It also holds the National Governmnent'sshares in various hydroelectric "centrales", which are mixed enter-prises (usually involving participation by national, departmentaland local governments) for the generation and transmission of power.A few of the largest of these projects planned or in construction underthe sponsorship of the Institute of Water Utilization-together withone or two independent enterprises such as the mixed municipal-private Bogota . Power Company-may form the nucleus for aneventual integrated national power network. At present, however,inadequacy of funds and technical personnel seriously restricts thework of the Institute on projects already under way and in makingplans and setting priorities to meet the nation's future power needs.

The Institute has estimated Colombia's overall power require-ments, based principally on residential nceds, at 1,800,000 kilowattsof generating capacity, which would be nearly seven times the presenttotal. Clearly, achievement of this level will be a long and costlyprocess. An attempt is made in Chapter XXIII to estimate the mosturgent needs and the amount of expansion realistically possible overthe next five years. A considerable program of power developmentis already under way. According to a report submitted by the Instituteto the Mission,

4 the following large projects have been started:Projected InvestmentUltimate Made orCapacity Capital

Area Project (kw.) AvailableBogota El Salto Nuevo 30,000 Ps.$10,825,000Medellin Rio Grande 75,000 20,620,0005Cali Anchicaya 70,000 5,710,0006Bucaramanga Lebrija 18,000 2,115,0005Manizales Caldas 30,000 5,475,0005

Ps.$44,745,000T'he investmiients so far made in these projects constitute in mostcases only a minor part of the total necessary for their ultimate

4 In!forine Sobre Electrificaci6n y Irrigaciin del Pais, 1949, pp. 21-24.5 Up to January 1949.6 Up to July 1948.

ELECTRIC POWER AND COMMUNITY FACILITIES 215

capacity. While they will find their principal markets in the majorcenters shown, they will also serve many smaller communities andrural districts. A number of smaller local plants, with total capacityof some 10,000 kw., are also being constructed with assistance fromthe Institute and the Municipal Development Fund (Fondo deFomento Municipal).

WATER SUPPLY AND SEWERAGE

A good supply of pure water and a satisfactory means of disposingof human excrement are essential to the health and welfare of everycommunity. The present inadequacy of water and sewer facilities inColombia is a serious hazard to public health, and it is likely tobecome more so as urbanization and industrial development continue.Therefore, the provision of such facilities deserves a place of highpriority in the health and sanitation program for Colombia.

At present, as is shown in Table 67, most of the large cities ofColombia have some public water supply, but in many the volumeor purity of the water is unsatisfactory. Most small communitiesand a number of large towns have no public supply at all; their wateris drawn from polluted wells and rivers, often quite a distance away;and in some villages the people have to depend on peddlers who bringwvater in carts or drums and sell it in the street. Apart from thehealth hazard, these primitive means of obtaining water are extremelyinefficient.

TABLE 67WATER SUPPLY FACILITIES BY SIZE OF URBAN CENTERS, AUTUMN OF 19491

water Conductioli and Distribution Purifica-Number Systems tion

of Plants inPopulation of Munici- In In Con- Definitely Exist-Urban Centers palities Existence struction Planned2 ence3

Over 100,000 ..... .... . 5 5 550,000-100,000 . 5 _ _ 420,000- 50,000 15 14 - - 1110,000- 20,000 ... ........ . 31 8 13 1 55,000- 10,000 91 10 24 11 42,000- 5,000 .188 29 47 13 3

Under 2,000 and rural4 . 461 445 47 33 1

1 Departments only.2 Projects for which plans are complete and materials fully procured or on order.3 In addition, some 15 municipalities have water supplies whose physical and

chemical condition is acceptable without purification.4 Includes three localities which could not be definitely identified.5 In addition, some twenty wells have been drilled in rural areas.Source: Sanitary Engineering Division, Ministry of Hygiene, and individual

municipalities.

216 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

There is a similar lack of modern sewerage facilities. No city inColombia has a sewer system covering the whole urban area; Carta-gena and several other cities and large towns have none at all (Table68). There are no sewage treatment plants. Moreover, in mostplaces which have sewers, street drainage and sewage are handledthrough the same system; true sanitary sewers are almost non-existent.

TABLE 68

SEWER FACILITIES BY SIZE OF URBAN CENTERS, AUTUMN OF 19491

NumberPopulation of Number of Having Sewer Number inUrban Centers Municipalities Systems Construction

Over 100,000. . . .. 5 4 0

50,000-100,000 ... ... 5 3 2

20,000- 50,000 . ... 15 9 3

10,000- 20,000 . ... 3 110 6

5,000- 10,000 ......... ...... 91 26 24

2,000- 5,000 ... .. .... 188 37 32

Under 2,0002 .. . 461 622 39

TOTAL . .. .... 796 151 106

1 Departments only.2 Includes one unidentified locality.Source: Sanitary Engineering Division, Ministry of Hygiene, and individual

municipalities.

There are wide variations in the adequacy of water and sewagedisposal facilities in different regions and cities.7 The Atlantic Coastdepartments are least adequately provided for; facilities of both typesare almost wholly lacking outside the capitals of departments andthe number of projects now under construction or definitely plannedfor this region is very small.

The National Ministry of Hygiene has outlined an ambitious con-struction program for water supply and sewer facilities, to be financedin large part through the Municipal Development Fund. During theperiod from April 1, 1040, when the Municipal Development Fundstarted operations, and December 31, 1948, 79 water supply and 98sewer projects were completed, and at the end of 1948 a further 276water supply and 150 sewer projects were in construction; many ofthe latter have since been completed. There were still in construction,in the latter half of 1949, some 130 water supply systems; 60 more

7 See Appendix D.

ELECTRIC POWER AND COMMUNITY FACILITIES 217

were ready to be started when sufficient materials arrived, and planshad been drawn up for nearly 100. Over 100 sewer projects were alsounder way in the autumn of 1949. Most of these projects are in smalland medium-sized towns, and a surprising number are in communi-ties which were classified as wholly rural (having no community of asmuch as 1,500 population) in the 1938 census. Some expansions ofwater and sewage systems in the larger cities are also being made orprojected, but are proceeding less rapidly; such works involve morecomplex plans and larger expenditures, and receive proportionatelyless help from the Municipal Development Fund.

The construction plans of the Ministry of Hygiene contemplateequipping all the municipalities in the nation and 200 "corregimientos"(subsidiary communities within the municipality) with a sewer sys-tem and a water supply planned for 70 gallons per capita per day, con-nected to each house. The financial estimates of the Ministry for thewater supply portion of this program follow:

Facilities in construction or projected for 1949-1950 .............. Ps.$ 26,000,000Filtration plants for existing systems and those to be built

in 1949-1950 ............................................... 30,000,000700 new systems, with necessary filtration plants .................. 130,000,000Improvement of existing systems ................................................ 84,000,000

Total ............. ................... . ............. Ps.$27 0,000,000

Perhaps 60 to 65 percent of this amount would be in foreign exchange

-about U.S.$87,000,000.

The estimates for the sewer construction program are:

Projects in construction or planned for 1949-1950 ................ Ps.$ 15,000,000750 new sewers .. .................................... . ....... 120,000,000

Extension of existing sewers ................................................ 25,000,000Sewage treatm ent plants ............................................... 20,000,000

Total .................. ............................. Ps.$180,000,000

The progress made during the past few years is encouraging, and theconstruction program outlined for the future is even more ambitiousand costly. This program. however, seems to lay undue emphasis onrather elaborate facilities for a great number of small communities-where the per capita cost is several times greater than for medium-sized towns, where the financial resources and technical skills avail-able for upkeep of complex systems are small, and where only a fewhouses have interior plumbing. It should be possible to meet themost urgent needs more quickly and at less cost by giving priority to

relatively simple facilities as suggested in Chapter XXIII.

218 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

TELEPHONES

In 1948, the number of telephones connected in Colombia was some-thing, less than 70,000. (See Table 69). This is about 7 telephones perthousand population, compared with 14 per thousand for SouthAmerica as a whole and 242 per thousand in the United States. Sub-stantially all telephones are in cities over 20,000, and there is norural service at all. The number of telephones in the ten largestcities, all of wvhich have local telephone networks, averages a littlemore than 41 per thousand.

TABLE 69

TELEPHONES IN SERVICE, BY SIZE OF URBAN COMMUNITIES, 1946-19481

Number per

Populationl of Number of Telephones on Dec. 31 1.000 UrbaliUrban Centers 1946 1947 1948 (1948 estimate)

Over 100,000 .42,62 ..... 42,628 45,532 49,342 40.6

50,000-100,000 10,742 12,852 14,0082 44.4

20,000- 50,0003 2,401 3,006 3,40724 7.7

10,000- 20,000 ..... 672 682 876 2.0

5,000- 10,0005 367 40S 4092 0.7

2,000- 5,OO0 16 20 202 0.03

Total . .... 56,826 62,500 68,062

Average for urban ceniters over 2,0003 . 18.7

1 Departments only.2 Partly 1947 data.ENot including Girardot. for which data are not available.4 Includes Neiva, where service was initiated in January 1949.S Only 1945 data available for Quibd6.

Source: Contraloria General de la Republica. supplemented bv data fromn indi-vidual cities.

Each local system is independent. MIost are municipally owned,

but a few are in private hands. In addition, hoxvever, departmentaltelephone systemls have been established in most of the country, wvhichlink up public systems in the principal towns of each department.Lon,g distance service is provided by agreement among the variouslocal and departmental systems.

In view of the cost of the facilities and the generally low levelof agricultural incomes, there is little prospect of initiating any ex-

tensive rural telephone service in the near future; while the depart-mental systems may be expanded somewhat, they will probably still

ELECTRIC POWER AND COMMUNITY FACILITIES 219

be confined to a few public telephones in urban communities. Butthere is apparently a strong demand for increased service in the prin-cipal cities. During the five years 1944-1949, according to informationgiven to the Mission by the various telephone enterprises, the num-ber of connections in Barranquilla has increased by about 25 percent;in Bogota by nearly 40 percent; in Medellin by about 50 percent; inBucaramanga (where the telephone company is privately owned) by80 percent; in Armenia by nearly 100 percent; and in Cali by 110 per-cent. Proposed increases were still hampered during part of thisperiod by the war-created shortage of equipment, and the variouslocal companies have ambitious plans for further expansion and im-provement of their facilities during the next five years. Bogota pro-poses a further increase of about 120 percent, Bucaramanga of nearly100 percent, and Cali, Medellin and Barranquilla of about 70 percent.

SCHOOLS, HOSPITALS AND RELATED INSTITUTIONS

Chapters IX and XII contain an analysis of the adequacy of hos-pitals and related facilities and of schools in Colombia.

PUBLIC MARKETS AND SLAUGHTERHOUSES

The food distribution system typical in Colombia, in which publicmarkets serve both wholesale and retail functions, seems to be gradu-ally changing. Bogota, for example, is planning to establish a singlelarge wholesale market near the railway station, and to eliminate theseveral public markets now scattered about the city. The new marketwould be financed largely by the sale of the public markets whichwould be replaced by private retail shops. Manizales has a newPs.$2 million market in construction; Bucaramanga is planning one ofsimilar size; Barranquilla is projecting new buildings to costPs.$600,000; Mledellin plans several satellite markets in the city at anestimated cost of Ps.$1 million; Cali and Popayain plan new marketsat Ps.$400,000 and Ps.$200,000, respectively; and Armenia proposesto refurbish its present facilities at a cost of Ps.$200,000. Part of theseestimated costs is for land, and so does not really represent new in-vestment, but the proposed expenditures for new construction aresubstantial. In most localities, however, the present pattern is likelyto persist for some time. Many of the existing public markets are asanitary hazard, with serious overcrowding, high food spoilage, andinadequate waste disposal and water facilities.

The usual method of handling meat is for cattle and other ani-mals to be brought, usually on foot, to the local cattle market

220 THE BASIS OF A DEVELOPMENT PROGRAiM FOR COLOMBIA

adjacent to the public slaughterhouse, and there to be sold to meatwholesalers or retailers who pay a fee to have them butchered.These low-volume operations do not require elaborate facilities, butthe slaughterhouses in a number of towns need to be expanded tokeep up with population growth. Several cities have informed theMission that they have definite plans for such expansion: Medellinand Barranquilla propose to build new slaughterhouses; the formeris to cost an estimated Ps.$1,400,000, while the latter's cost is unspe-cified; Popayan plans a Ps.$200,000 project to provide the city withproper slaughtering facilities for the first time; Cali and Manizalesplan expansions to cost Ps.$500,000 each; and Bucaramanga isinstalling cold storage facilities at an estimated cost of Ps.$60,000.

Probably, however, the growing demand for meat will be metto some extent by locating modern slaughtering and packing plantsclose to the principal sources of supply and transporting meat,rather than live cattle, to urban centers. This should result in moreefficient handling, better quality meat, and less waste and spoilage.The major need for community facilities in this field is for coldstorage facilities to reduce waste and the danger of contaminationand to permit better organized slaughtering and marketing. Atpresent, cattle are usually butchered at night for the following day'ssales and a surplus cannot be kept over from day to day. Adequatecold storage space at wholesale and retail distribution centers is anecessary part of a system of centralized slaughtering and packing.

OTHER SERVICES

Other municipal services, such as street paving, street cleaning,and garbage and waste collection, are hardly less important thanthose discussed. Information about their present extent and qualityand about the capital required to provide them on an adequatescale is, however, very fragmentary.

Various cities indicated to the Mission their general plans forextension of streets and improvement of street cleaning and wasteand garbage collection. These plans are summarized in Table 70.The extent to which these plans are actually put into effect willdepend, of course, on the availability of funds from year to year,but they suggest the order of magnitude of capital outlays plannedfor these purposes. The seven cities shown contemplate expendituresfor street paving of some Ps.$38,000,000 over the five years to come;and foreign exchange expenditures of nearly U.S.$800,000 for streetcleaning and waste collection equipment, assuming that unit costsgiven by some cities will apply to others as well.

TABLE 70

PROJECTED EXPENDITURES OF VARIOUS CITIES FOR STREET PAVING, STREET CLEANING AND WASTE COLLECTION, 1949-1954

Paving of Streets Street Cleaning and Waste Collection

Total Total Planned 1949-54 Additional VehiclesKm. of Km. Km. Paved Cost Present Present 1949-54

City Streets Paved 1944-49 Km. (millions) Vehicles Workers No. Estimated Cost

Bogota ................................................... n.a. n.a. n.a. 1000 Ps.$25.0 44 813 None plannedMedellin 3........................... 369 185 70 2351 6.6 13 328 6 n.a.Barranquilla . 5 00........................ 500 130 12 21.2 2.382 21 130 50 U.S.$500,000Cartagena ........................... . 142 42 1 25 1.25 73 78 8 60,000Manizales .. .. ... n.a. 404 64 5 n.a. 4 120 4 n.a.Bucaramanga .1 36........................ 136 56 26 75 2.5 4 98 10 n.a.Arnenia .... ............... .... 33 10 - 5 .2 4 50 2 20,000

1 100 Km. of paving and 135 Km. of repairing.2 The unit cost of paving is greater in Barranquilla than in most other locations because concrete is used rather than asphalt.3 Privately owned, employed on contract basis.4 Estimated.5 Plans are indefinite but it is proposed to increase the rate of paving over that of the last five years.

Source: Municipal authorities.

222 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

UTILITY RATES

It has not been possible to make any comprehensive analysis ofthe financial position and rate structure of Colombian utility enter-prises. However, present rates for electric light and power forseveral cities are shown in simplified form in Table 71. They varyconsiderably from city to city, both in their amount and in componentfactors. Industrial rates are generally a combined figure, based partlyon the connected load and partly on actual power consumption.The level of average effective rates for industrial power is not knownfor all the cities listed, but those shown range from a little over twoto nearly six centavos per kilowatt-hour. As regards residential rates,their average levels vary even more widely; combined rates are lesscommon, although in Medellin and Manizales the charge for electricityconsumed is additional to a flat monthly payment; and a much largershare of the total consumption is unmetered.

Water rates have a somewhat more uniform general structure inthe four cities-Bogota, Medellin, Barranquilla and Cali-for whichup-to-date information is at hand. In each case there is a fixedmonthly charge, on a sliding scale rising with the assessed valuationof the property, which entitles the subscriber to use a limited quan-tity of water per month. Where meters are installed, principally inindustrial and commercial establishments and the more expensivehouses, an additional charge is made for each cubic meter used; inCali this rate also varies directly with the value of the property,in Barranquilla it varies inversely with the amount used, and inMedellin there is a flat charge per unit of excess consumption.

It is clear from the differences in local rate structures that uni-form rate-fixing policies and standards have not yet been definedfor the country as a wlhole. The several municipalities apply quitedifferent criteria, and the requirement that their decisions be ap-proved by the Ministry of Commerce and Industry has not produceda consistent pattern. In the field of electricity, where the divergenciesare greatest, their continuance might handicap the development of anefficient nationwide power network.

In some cases the rates are apparently designed to subsidize or taxcertain economic groups, rather than to encourage efficient opera-tion and healthy growth of the utility systems. For instance, electricrates to small residential consumers are often lower than to largeindustrial users, although the unit cost of service is greater for theformer than for the latter. In Medellin the effective rate for indus-trial power is higher than the residential rate. Such policies do notpromote industrial growth or efficient and balanced use of generating

TABLE 71

RATES FOR ELECTRICITY IN CERTAIN CITIES, 1949

INDUSTRIAL RESIDENTIALFlat Rate Flat Rate

(per HP Connected Metered Rate Average (Per Watt Metered Rate Averageper month) (per KWH) (per KWH) Per Month) (per KWH) (per KWH)

Bogota Ps.$1.00 plus Ps.$0.015-.03 Ps.$0.03439 Ps.$0.021 Ps.$0.03-.09 (light) Ps.$0.05880.01-03 (heating)

Medellin 0.752 plus 0.016-.02 0.0215 _ 0.30 per Ps.$1000 0.01853valuation plus

0.007/KWHBarranquilla 2.60-3.254 plus 0.026-039 - - 0.325-.156 lCali 2.0-2.504 plus 0.031-041 0.0.79 - 0.035-12 0.0696Cartagena 0.9755 plus 0.026 _ 0.02 0.065- 146Manizales6 1.0 plus 0.012-025 - 0.02 3.60-9.507 plus -

0.015-.02/KWHCucuta -_ 0.0478 - _ 0.0478Bucaramanga _ 0.046 - 0.059Armenia 2.50 -_ 0.01-.03 (light) -

0.003 (heating) -Neiva _ 0.05 0.05 0.01 (light) 0.10

0.005 (heating) _Popayan 2.00 0.015-03 - 0.025 0.03-.05

I For "barrios abreros" there is a special rate of Ps.$1 for 100 watts connected.2 Ps.$1 per kilowatt connected.3 Average is Ps.$0.012/kwh for property valued at Ps.$200; Ps.$0.042/kwh for valuation of Ps.$200,000.4 For establishments having several motors a discount of 10-30 percent is made in the flat rate charge.5 Ps.$3.90 for first HP, Ps.$0.975 for subsequent.6 Those rates, representing a substantial increase from previous levels, have been authorized by the Manizales Municipal Council and are awaiting

approval by the National Government.7 Depending on connected load.8 Average for all sales to metered consumers in first six months of 1949.Source: Individual municipalities or power companies.

224 THE BASIS OF A DEVELOPAMENT PROGRAM FOR COLOMBIA

capacity, and in the long run they may actually increase the burdenon small consumers by making it profitable for industries to installtheir own generating plants.

Another difficulty is that a large proportion of sales of water,and to a lesser extent of electricity, is still unmetered. This tendsnot only to reduce the revenues of the utility enterprises, but alsoto encourage wasteful consumption, especially by residential users.In general, the desirability of installing meters seems to be recog-nized by the utilities, but foreign exchange restrictions have retardedtheir efforts in this direction.

ADMINISTRATION AND FINANCING

Public utility enterprises in Colombia were established at firstby private capital. Some private companies have been taken over bylocal governments; others still remain. But the prospects for furtherlarge-scale private investment in these fields appear dubious. Thereare several reasons for this: (1) Colombian Government policy hasgenerally been to encourage public development of these facilities;(2) existinig private companies have found it increasingly hard toobtain satisfactory rate changes, expropriation settlements and otherfinancial arrangements from public agencies; (3) exchange restric-tions have made foreign capital wary of investment in fields whereexpenditures must be largely in foreign exchange and revenues areentirely in local currency; and (4) Colombian investors are notattracted by the relatively low returns to which public utilities arenormally held. The probability, then, is that future development ofcommunity facilities in Colombia will be mainly under public auspices.Substantially all proposed new enterprises of this kind are to befinanced largely or wholly from public funds.

But the assumption of this responsibility by governmental agen-cies has not greatly altered the basic administrative or financialproblems involved in development of community facilities. It is stillnecessary to set proper rates for utility services, wlhether the enter-prises are publicly or privately owned; to secure adequate publicrevenues to support services, such as schools or sewers, which arenot financially self-sustaining; and to provide for competent manage-ment for both types of services.

The fiscal resources of local governments, which must be theprincipal source of financing non-revenue-producing facilities, areanalyzed in Chapter XIII. The fundamental problems affecting theestablishment and administration of modern community services are

ELECTRIC POWER AND COMMUNITY FACILITIES 225

the extreme weakness and poverty of most Colombian municipali-ties. In 1946, 450 of them-nearly three-fifths of the number forwhich detailed statistics were available, and which contained 32.5percent of the total population-had revenues of less than Ps.$25,000each; the average income for this group was less than Ps.$11,000. Anadditional 147 municipalities had revenues of Ps.$25,000 to Ps.$50,000,with an average of Ps.$35 ,000. These figures included substantial helpfrom the national and departmental governments, amounting toabout 40 percent of the total.8

Finally, it is essential that the municipal authorities be equippedto deal efficiently with their growing responsibilities-and the adminis-trative mechanisms and techniques required are likely to be quitedifferent from those devised to carry on traditional local governmentfunctions. The separation of powers which generally characterizesthe Government of Colombia is carried down to the local level.Municipal councils are popularly elected, but mayors are appointedby the departmental Governors, who in turn are appointed by thePresident. The executive branch of the local government is thus underthe general supervision of the national administration. This systemhelps to coordinate executive policy at all levels, but it may sometimeshamper cooperation between the mayors and local councils, especiallyin periods of active partisan controversy.

An attempt has been made in most of the larger municipalitieswhere community facilities are publicly owned to insulate them tosome extent from politics, and to provide for continuity of manage-ment by establishing the "empresas municipales" on a more or lessautonomous basis. The generailpattern -isquite typical, but thereare considerable differences in detail. The most elaborate setup isthat of Medellin, wvhere the Empresas Municipales are divided intothree sections: (1) the electric power company; (2) the telephones,buses and streetcars, and water supply system; and (3) the slaughter-house, public markets, cattle markets, milk treatment plant, pawn-shop, pipe and tile factories, experimental farm, and gravel pit. InBogotA, each of the several municipal enterprises is operated as anindependent entity. In other localities their composition, directionand degree of administrative and financial autonomy vary consider-ably. Where the establishment of the major municipal services hasbeen financed in large part by loans, the lending authority.has some-times insisted on appointing one or more members of the board ofdirectors of the "empresas", with a preponderant voice in their poli-cies and management. In several such cases the lender has been the

8 See Appendix E.

226 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Banco Central Hipotecario; in Cartagena, the National Governmentitself; in Barranqeuilla, a Chicago bank, etc. Local interests are usuallyrepresented by including an appointee of the Municipal Council, orsometimes of local business or banking groups, on the board of di-rectors.

This general pattern of "empresas muniicipales" has worked quitewell in a number of cities, less so in others. Perhaps the most impor-tant determinant of success has been the extent to which the "em-presas" have been truly autonomous. This type of administrative ar-rangement does not, however, solve the problems of the great numberof municipalities with very small populations and financial resources.Their legal position is theoretically the same as that of the largestcities, but they are clearly quite incapable of assuming correspondingresponsibilities for the administration of essential community serv-ices. Aid now given them by the national and departmental gov-ernments is confined almost entirely to financing and even that isinadequate.

National assistance and supervision are generally limited to theperiod of construction. Although other agencies are supposed toprovide help in the maintenance and operation of community facili-ties-e.g., the Ministrv of Hygiene for sanitation services and theInstitute of Water Utilization and Electrical Development for powerplants-their personnel is very limited and they have no means of en-forcing satisfactory standards of performance. The Ministry of Hy-giene has a program for bringing prospective operators of new watersystems into Bogota for a period of training, but it has no effectivevoice in the selection of the trainee or in whether he gets or keepsthe job when he returns home.

Fondo de Fornento Municipal (FFM)

As a means of promoting the development of improved communityfacilities, the Fondo de Fomento Municipal (Municipal DevelopmentFund) was established by Decree No. 503 of March 8, 1940. It isattached to the Ministry of Finance and administered by a DirectiveCommittee comprising the Ministers of Finance, Education, Industryand Commerce, Labor, Hvgiene and Public Works. It has a centralsecretariat and a very small procurement and engineering staff. Mostof the work of reviewing projects and plans is delegated to the con-struction divisions of other Ministries-the Ministry of Hygiene forwater supply systems, sewers and hospitals, Education for schools, andIndustry and Commerce for power projects.

ELECTRIC POWER AND COMMtUNITY FACILITIES 227

The FFM is authorized to make grants of not more than thefollowing amounts for the construction and expansion of essentialmunicipal services:

Water Suipply -60 percent of the cost, up to limits scaled accordingto population, with a maximum of Ps.$200,000 forany municipality. The contribution may be in-creased up to 90 percent for municipalities havingless than Ps.$12,000 annual revenues, up to 80 per-cent for those with less than Ps.$50CCOO income, andup to 70 percent for those with revenues underPs.$80,000.

Sewer Systems -60 percent of the cost, up to limits based on popula-tion, with a maximum of Ps.$150,000. The contri-bution may be increased to 70 percent or 80 percentfor municipalities with annual revenues of less thanPs.$50,000 or Ps.$12 ,000, respectively.

Electric Plants -Maximum contributions range from 20 to 50 percentof the cost of a plant, the larger percentage formunicipalities with the smallest revenues, and xvitha top limit of Ps.$250,000 for any one project.

Schools -No maximum limit, but an effort is made to obtainas large a local contribution as possible.

Hospitals -No fixed limit.

At present FFM confines its assistance mainly to construction ofwater and sewer systems and schools. The projects completed andin progress with the help of FFM, up to the end of 1948, are shown inTable 72. While the FFM helps with construction costs, the poorestmunicipalities may find it impossible to finance even 10 percent of anexpensive project out of funds in hand. But it is certainly desirablefor even the poorest municipalities to make some financial contri-bution to their owvn development.

Revenues earmarked for aid to municipal development through theFFM yielded Ps.$9,629.562 in 1948 and are estimated at Ps.$9,315,000in the 1950 budget. In addition, in recent years Ps.$700.C00 a yearfrom the National School Fund of the Ministry of Education have beenallocated through the FFM for school construction. Table 73 showsthe revenues received and expected by the FFMI up to the end of1949, the purposes for which they have been expended or committed,and the contributions made by departments and municipalities to

TABLE 72

WORK~S COMPLETED AND IN PROGRESS UNDER AUSPICES OF FONDO DE FoMENTO MUNICIPAL, DECEMBER 31, 1948.

PROJECTS COMPLETED PROJECTS IN CONSTRUCTION PROJECTS UTNDER STUD)Y

Water Elec. -lospi- Water Flec. Htos'i. Water Elec. GrandDEPARTMENT SLupply Sewer P'ower tals Schools Total Supply Sewer Power tal s Schiools Total Sup'ply Sewer Power Total Total

Antioquia ....... ... 28 7 16 1 73 125 20 31 10 2 110 173 12 7 0 19 317Atlantico ..... 0 1 2 5 42 50 2 0 0 1 23 26 12 3 2 17 93Bolivar ... .... . . . 0 0 2 6 61 69 14 0 3 8 33 58 14 2 0 16 143BoyacA .. .... 14 21 0 0 45 80 29 10 5 4 80 128 1 1 21 4 36 244Caldas .......... 12 8 3 0 1 8 4 1 33 1 4 2 0 121 170 6 2 2 1 0 221Cauca.0 7 0 0 86 93 16 11 1 2 84 114 15 13 1 29 236Cundinaniarcal . 10 19 3 0 50 82 26 35 6 0 88 155 23 32 0 55 292Choc6.1........ .... 0 4 0 25 30 6 0 0 2 11 19 1 2 9 12 61Huila.-..... . .. . .. 0 1 0 0 41 42 10 5 1 1 24 41 6 8 1 15 ~Magdalcnia .... .. ... 0 0 0 6 50 56 7 2 4 1 24 38 14 4 1 19 113Narifio ... ....... .... 0 0 0 2 28 30 20 8 2 1 81 112 11 21 0 32 174Norte de Sanitander..... 0 1 0 2 36 39 20 7 0 2 49 78 10 12 0 22 139Santander ....... ... . 6 9 0 2 77 94 25 8 4 7 46 90 16 23 0 39 223Tolimna... . . .. ...... 5 10 1 2 87 105 13 4 7 1 65 90 11 15 0 26 221Valle del Cauca ........ 2 12 1 1 24 40 28 11 6 1 106 152 4 7 0 i1 203Intendencias & Corniisarias 1 2 7 4 37 51 7 4 6 4 66 87 3 3 0 6 144

TOTAL .... ... 79 98 39 31 780 1,027 276 150 57 37 1,011 1,531 169 175 20 364 2,922

1 Not iiicluding Bogot6.

TABLE 73

FINANCIAL OPERATIONS OF FONDO DE FoaMENTO MUNICIPAL, 1940-1949

National Govt. Sharel Local ContributionslTotal Funds

Revenues Purposes Committed Expended Departments Miunicipalities Total Committedl

RECEIVED TO 9/30/49, FROM Slhare of City of

Ministry of Finance Ps.$44,952,515 Bogota Ps.$ 9,307,418 Ps.$ 9,094,198 Ps.$ - Ps.$ - Ps.$ - Ps.$ 9,307,418

IVMinistry of Education(National School Funid) 2,892,376 Water systems 16,245,353 11,143,002 7,738,048 2,243,550 9,981,598 26,226,951

Sewers 9,271,184 7,463,081 4,170,412 1,014,361 5,184,773 14,455,957

Total Ps.$47,844,891 Electric plants 2,387,660 1,921,261 1,295,659 1,734,310 3,029,969 5,417,629

Hospitals 2,220,289 1,979,312 1,629,051 129,576 1,758,627 3,978,916

Schools 11,703,901 8,896,814 4,519,640 2,798,616 7,318,256 19,022,157

PROSPECTIVE RECEIPITS, FROMT Sanitary eiigilieer-ing offices 859,671 328,344 195,283 11,400 206,683 1,066,354

Balance from 1948 6,008,153 Vehicles 61,280 61,280 - - - 61,280

Proceeds of ear- Bond service 2,030,645 2,015,944 - - - 2.030,645marked revenuesJan.-Aug. 1949 7,085,886 Technical control 362,000 307,929 - - - 362,000

Expected proceeds Administration 378,000 3,933 - - - 378,000

Sept. -Dec. 1949 2,914,114 Expense of taxExpected share of collection 311,580 257,940 - - - 311,580

National School Fund 700,000 Shop materials - 2,827,547 - - _

Total Ps.$16,708,153 General expenses _ 44,962 - - -

Furnishings, etc. 10,243 - - -

Total Budget, .__1940-1949 Ps.$64,553,044 Total Ps.$55,138,981 Ps.$46,355,790 Ps.$19,548,093 Ps.$7,931,813 Ps.$27,479,906 Ps.$82,618,887

I Includes national contributions to September 30, 1949; local contributions to end of 1948 only.

230 TIlE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

these purposes. As of September 30, 1949, Ps.$55,138,981 of NationalGovernment money had been committed, and Ps.$46,355,790 actuallyexpended. About Ps.$9.4 million of the funds budgeted for 1949 re-mained to be committed.

In addition, the FFM has issued bonds totaling about Ps.$21.3million, which have been turned over to various municipalities under-taking expensive long-term projects. The intent was to provide as-surance that money would be available to complete these projects,and future allocations due from FFM to the cities concerned are com-mitted for bond service. However, apparently only a small part ofthe bonds has been sold by the receiving cities, or pledged as securityfor loans to nndertake the approved projects, as the investment markethas not been receptive to them.

Annual revenues of the FFM are divided as follows: 15 percentfor the city of Bogota; 17 percent in equal shares to each depart-ment; and the remaining 68 percent to the departments in propor-tion to their population. Thirty percent of the shares distributed tothe departments, in addition to the money derived from the NationalSchool Fund, are earmarked for school construction and the rest isdevoted mainly to water supply and sewer systems. Specific pro-jects are submitted by the departmental governors; they are reviewedby the appropriate agencies of the National Government and, if theyare found meritorious, are submitted for final approval to the Direc-tive Committee of the FFM. The size of local contributions to matchthe national grants, beyond the minimum required by law, is negoti-ated with the departmental governments, which in turn work outwhatever arrangements they can with the municipalities concerned.

Other National Government Aid

In some cases, the National Congress authorizes a special grantto supplement the FFM contribution for a particular project-i.e.,part or all of the "municipal contribution" specified by law isactually provided from the National Treasury. There are no generalrules or established criteria for such special laws; their introductionand passage appear to be based mainly on political considerations.Grants from the National Treasury to finance municipal public worksare frequently made also in recognition of historic occasions (e.g.,the anniversary of the founding of a city) or at the time of otherevents of extraordinary local significance.

Other ad hoc arrangements have been made for national aid tospecific cities or projects. In Cartagena, by a special act of Congressand an agreement between the National Government and the muni-

ELECTRIC POWER AND COMNIUNITY FACILITIES 231

cipality, the former has taken over full responsibility for constructingor improving a number of public works in and around the city,including water supply, sewers, street widening and paving, a stadium,schools, a new slaughterhouse, parks, incinerators, privies, nearbyhighway and water transport facilities, etc. So far, however, littlework has actually been done. In return the municipality transferredto the nation several of its existing public works and utilities-thepublic markets, slaughterhouse, water supply system and power plant-and the revenues of certain specified local taxes. The administrationof these properties and taxes, and of the facilities to be built, wasturned over to an independent board designated in effect by theNational Governrment. Similar arrangements, though less far-reaching,apparently prevail in other cities.

Finally, various agencies of the National Government are carryingon programs for improvement of community services in various fields,parallel in some cases to the normal municipal functions. The NationalMinistries of Hygiene and Education are making substantial outlaysfor the construction and support of schools and health centers andthe conduct of sanitation campaigns. As mentioned above, theNational Institute for Water Utilization and Electric Developmentwas established recently to study Colombia's potentialities for hydro-electric power development and to assist in the planning, constructionand financing of specific projects. But real improvement of communityfacilities in Colombia-particularly in the smaller municipalities whichare now least adequately served-requires the establishment of moreeffective machinery to guide the development of such facilities alongpractical lines, to reinforce or supplement local financial resourceswhere necessary, and to provide technical training, help and super-vision in both the construction and operational phases. Some sug-gestions as to the general character of such new machinery may befound in Chapter XXIlI.

CHAPTER XI

Housing

Statistical data on building in Colombia are quite inadequate sincethe last complete census was made in 1938. However, estimates havebeen made by Colombian experts which demonstrate that despitean increased number of units, no improvement has taken place inthe housing situation between 1938 and 1948. As Table 74 shows, thedensity of occupation per house has risen to 6.4 persons per dwelling.This in part may be attributable to a change in the nature of thedwellings, since apartment buildings are being introduced rapidly,but it results mainly from a lag of dwelling construction behind therate of population increase. Indeed, population grew 23'2 percentbetween 1938 and 1948, but the number of dwelling units increasedby about 15 percent. Buildings, on the other hand, increased by almost20 percent.

TABLE 74ESTIMIATED NUMBER OF BUILDINGS AND DWELLINGS, 1938 AND 1948

1938 1948(thousands)

Buildings .................. ....... ...... 156.0 185.2

Urban dwellings ................................ 379.6 435.2Rural dwellings .......................... 1,074.7 1,232.1

Total dwellings .......................... 1,454.3 1,667.3

Persons per dwelling .......................... 6 6.4

In spite of the relatively modest increase indicated by these figures,many Colombian towns seem to have expanded tremendously in thepast decade or so. This is explicable by the type of building construc-tion in recent years. Large investments have been made in modernoffice buildings, large factories, and high quality apartment houses.Wealthy Colombians have built an impressive number of large modernhomes and helped finance clubs and movies. But little, relativelyspeaking, has been done in the field of small, low-cost urban or ruraldwellings.

Table 75 presents estimates of investment in buildings by typesin 1939 and 1947. While overall investment more than tripled in thisnine-year period, investment in commercial buildings increased more

232

HOUSING 233

than fivefold and that in factories by almost sevenfold. Their relativeimportance in the total practically doubled, while the percentage in-vested in both rural and urban dwellings remained about the same.

TABLE 75INVESTMENT IN BUILDINGS BY CATEGORY

1939 1947Million Percent Million PercentPesos of Total Pesos of Total

Dwellings-rural . ... 16.9 33.8 56.7 33.4-urban .... . .... 19.1 38.2 66.3 39.0

Commercial buildings . . 2.8 5.6 17.2 10.1Factories ..... . .. . 1.1 2.2 7.5 4.4Government buildings . . . 11.1 22.2 22.3 13.1

Total .50.0 100.0 170.0 100.0

Building construction in 1947 contributed about 2.5 percent of thetotal national income in Colombia. At the same time it was an impor-tant component of capital formation amounting to Ps.$170 million, orabout 28 percent of gross capital formation. The building trade hasalso an important influence on the balance of payments, since al-most 20 percent of materials entering into building construction areimported.

HOUSING CONDITIONS

Although there are some 100,000 Colombian houses which comparewith the most acceptable and comfortable abodes in any part of theworld, the great majority of the population live in dwellings thatare inferior when measured by standards of space, sanitation, comfort,or ordinary amenities of life. Although less apparent, rural housingis probably worse than housing in urban areas. Houses are con-structed of four general types of materials used in varying combina-tions:

(a) Brick or concrete with tile roof. This type in general isoccupied by the very wealthy and upper income groups.

(b) Adobe w-ith tile roof. These may be quite satisfactory andare used predominantly by the middle class throughout Colombia.

(c) Wattle and mud wall with tile or sheet-metal roof. Thistype is used by a very large proportion of the low income groups,both urban and rural.

(d) Bamboo or similar frame with thatched roof and siding ofpalm leaves or straw. Such dwellings are found most frequently inrural sections where the climate is hot.

234 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLONIBIA

Floors of houses occupied by the lower income groups, especiallyin rural areas, are of natural earth but occasionally of brick. Higherup the economic scale one finds concrete or tile but seldom wood exceptin multi-story dwellings, which are not numerous. Climate seems tohave little influtence on architecture or building materials; these arerelated almost entirely to income. Even the better dwellings affordlittle protection against flies or mosquitoes. Moreover, thatched roofsor sides provide nesting places for various vermin. Especially in ruralareas, and in smaller towns wvhere space is available, it is commonpractice to cook, wash and perform similar household activities inthe open or under a lean-to which is not part of the house proper.Not only is additional space thereby made available for other purposes,but disagreeable odors arising from such operations are preventedfrom entering the living quarters. During the day and early partof the evening families tend to live outdoors, thus relieving congestionin the home; nevertheless serious overcrowding does occur andespecially in sleeping quarters. Floor area is only one factor; spaceheating is seldom available and there are serious shortages of bedsand bedding. No provisions are made for the thermal insulation ofdwellings, though in higher altitudes the temperature frequentlyapproaches, and occasionally falls below, the freezing point. Othercharacteristics of many houses are lack of household appliances, run-ning water and sewerage, and only limited protection from the ele-ments. Both quantitatively and qualitatively housing is inadequate.The average dwelling of about 20 square meters (10 feet by 20 feet)shelters 6.4 people. Some 200,000 shelters are estimated to be under12 square meters (9 feet by 12 feet), an indication of shocking over-crowding.

ABILITY TO PAY FOR HousINGIn general terms, six different and important family income levels'

have been estimated in Colombia, as shown in Table 76. Only a small

TABLE 76INCOME LEVELS, 1947, 1950

Number Averageof Income Annual

Average Average Earners Family IncomeIncome Income per at Current(1947) (1950) Family Prices

A. Farmer, depressed area Ps.$ 400 Ps.$ 540 1 V2 Ps.$ 810B. Average farmer ...... .... 600 810 1X2 1,215C. Average urban worker.... 885 1,192 1.9 2,264D. Skilled urban worker ... 1,455 1,964 1.9 3,732E. White collar employee - 2,000 1 X2 3,000F. Wealthy ... - - - over 4,000

HOUSING 235

fraction of total income is available for expenditures on housing.While in more developed countries the ratio between outlays on rentor mortgage payments and total income reaches 20 percent on theaverage, it is believed that only 10 percent of the Colombian familiescan afford such a ratio. The average Colombian farmer, urban laborer,and white collar worker cannot use more than 10 to 15 percent of hisearnings for housing.

Assuming that either the credit for the purchase of dwellings orthe value of their rentals would be calculated on the basis of 20- to30-year loans bearing interest at 5 percent, the value of houses whichvarious income classes can afford is calculated in Table 77. It will

TABLE 77AVERAGE VALUE OF DWELLING FOR VARIOUS INCOME GROUPS

Percent-Annual age of AmountFamily Income of Rent or Approxi-Income Available Mortgage mate(Current for Payable Value of

Groups Prices) Housing Per Year Terms Dwelling

A. Farmer, depressedarea ................ Ps.$ 810 10 81 5%6-20 yrs. Ps.$1,000

B. Average farmer.... 1,215 10 121 5%-20 yrs. 1,600

C. Average urbanworker ....... ...... 2,264 15 339 5%-20 yrs. 4,000

D. Skilled urbanworker ....... ... 3,732 20 746 5%-20 yrs. 8,000

E. White-collarworker .............. 3,000 15 450 5%-30 yrs. 6,000

F. Wealthy ........ ... over 4,000 20 over 800 Variable over 8,000

be noted that better terms are assumed for the white-collar workerthan for others. This is justified, as he can be relied upon to takebetter care of his dwelling; further, it is desirable because he isamong the least privileged of income earners. Major housing prob-lems concerin income groups A, B, C and E, which can afford dwellingsonly from Ps.$1000 to Ps.$8000, since commercial and mortgage banksapparently can finance homes valued at or above Ps.$8000 withoutmajor difficulties or structural changes.

FINANCING OF HOUSING

Some attempt has been made to overcome the inability of lowincome groups to finance their own housing through the provision ofeasy housing credit. Adequate planning of housing and the introduc-

236 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

tion of better and cheaper techniques in dwelling construction wvillalso be of assistance but thus far their success has been limited.The two agencies most prominent in fostering low and medium costhousing are the Instituto de Credito Territorial (ICT) and theFederaci6n Nacional de Cafeteros.

Instituto de Cr6dito Territorial

The statutory function of this organization, founded in 1939 witha capital of Ps.$3,500,000, is to promote the construction of low andmedium cost dwellings in cooperation with all official and privateentities working toward the same aims.

The Instituto is authorized to loan not more than Ps.$4,000 at2 percent interest to low income farmers whose patrimony does notexceed Ps.$10,000; a maximum of Ps.$8,000 to well-to-do farmerswhose patrimony exceeds Ps.$10,000 but not Ps.$30,000; and tohacienda owners whose patrimony exceeds Ps.$30,000 for housingof employees. In addition, it makes loans to welfare agencies; tothe Government or to contractors for houses for highway workers;to the National Governrment or the Caja Agraria for farmers' housesin certain development areas; to departments and municipalities forsmall rural dwellings; and to housing cooperatives constructing ruraldwellings, provided they sell houses under the minimum establishedby the Instituto. Also, the Instituto may construct rural dwellingson property acquired by it to rent to farm laborers who are not landowners. The annual rent of these dwellings may not exceed 3 percentof their value plus 1 percent for maintenance.

For urban housing, the Instituto may make loans to the Govern-ment, the departments and municipalities; to employees and workerswhose patrimony is less than Ps.$30,000; to any one who, thoughnot an employee or worker, derives his principal income from hisown work and whose patrimony does not exceed Ps.$30,000; tohousing cooperatives, and to workers' or employees' associations, toCajas de Protecci6n or Prevision Social for the purpose of housingfor their members. Also, the Instituto may itself construct largeapartment units and popular housing developments to sell or renttc w orkers or middle class persons.

The powers of the Instituto are thus very broad, but its sourcesof income have not been correspondingly large. Consequently, itsrelatively small-scale and scattered operations have made littleimpact on the housing problem. The balance sheet of the I.C.T.shows that in June 1949, its loans and investments outstandingamounted to Ps.$17 and Ps.$33 million, respectively, while the total

HOUSING 237

of all its new loans and investments since 1939 was only very slightlyhigher. While the actual number of dwellings built with these fundsis not known, estimates indicate that it could not have exceeded10,000 and was probably less. In comparison, in the period 1939 to1949 at least 190,000 new dwellings were built, and at least 80 percentof them would have been eligible for I.C.T. financing.

In part, this deficiency is explained by the inadequacy of thefunds available. Obviously, the Colombian public is not ready tosubscribe to bonds yielding 3 percent. Therefore, the I.C.T. had touse its small capital from 1939 to 1946 until a law forced certaincategories of taxpayers to invest 5 percent of their incomes abovePs.$10,000 per year in these instruments. Since then, about Ps.$6million per year have become available to the Instituto. Recently,however, it was decided that the Instituto had to share the fundsprovided by this surtax with the steel plant at Paz de Rio. Whilethe yield of the 2Y2 percent surtax now accruing to the I.C.T. maygrow rapidly, the funds are still insignificant in terms of the needsfor housing. But also it seems that a considerable portion of thefunds were not applied to dwellings. The Instituto attempted toengage by itself in the construction of dwellings at excessive costand, in addition, the choice of the size of typical units was unfor-tunate. Thus I.C.T. funds benefited much more the well-to-dofarmer or worker than those wvho needed housing most-the lowestcategory of urban and rural income earners. The price of I.C.T.housing was exorbitant since the average cost of their dwelling-construction in 1948 was Ps.$4,800 to Ps.$4,900 for rural workers andsmall farmers; Ps.$8,000 to Ps.$10,000 for urban workers; andPs.$18,000 to Ps.$30,000 for salaried employees. In comparison,small farm dwellings in Tolima were built for Ps.$1,000 and theCoffee Federation built some homes for coffee growers for Ps.$1,600.

Federaci6n Nacional de Cafeteros

The Rural Hygiene Campaign of the Coffee Federation was or-ganized by law in 1942. For its purposes, the yield of a 6 per thousandexport tax on coffee is turned over to the Federation. The tax isp;aid half in nmoney and half in coffee which is then sold on the market.Funds are distributed on the basis of coffee production in the variousdepartments over a three-year period. In twelve departments, de-partmental committees administer these funds. One part of the RuralHygiene Campaign concerns rural housing, which is concerned with(1) construction of new housing; (2) sanitation of existing houses;and (3) fumigation of houses wvith DDT.

238 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

The types of houses to be constructed with Coffee Federationfunds have been carefully studied. They are as follows:

"A"-Small capacity, for family up to 5 persons. Consists ofdining area, bedroom, dormitory, kitchen, tool room, andoutdoor latrine. Total area: 72 square meters.

"B"-Same capacity and number of rooms as "A" but with insidetoilet and bath. Total area: 81 square meters.

"C"-Medium capacity, for family up to 8 persons. Consists ofdining area, bedroom, double dormitory, kitchen, storeroom,tool room, and outdoor latrine. Total area: 87 squaremeters.

"D"-Same capacity and distribution as "C" but the storeroomspace is used for toilet and bath. Total area: 87 squaremeters.

"E"-Large capacity, for family up to 12 persons. Consists ofdining area, 2 bedrooms, dormitory, kitchen, tool room, andoutdoor latrine. Total area: 91 square meters.

`F"-Same capacity and number of rooms as "E", but with insidetoilet and bath. Total area: 101 square meters.

Table 78 sho-ws the cost and area by type of the 388 houses con-structed in 1948 by the Coffee Federation.

TABLE 78

COST AND AREA OF DWELLINGS CONSTRUCTED BY COFFEE FEDERATION, 1948

Area Average Cost(Square

Type Number Meters) Per Dwelling Per Square Meter

"A" . 158 72 Ps.$1,600.50 Ps.$22.23" ......................... . ..... 572P .16 0 0Ps 22 3

"B" ................ 149 81 1,877.80 23.18"C" 32 87 2,245.98 25.82

"D" ~~~~21 .......87 3,076.99 35.37D .. ...................... ........... 2 730 69 53

"El, ......... ...... _. 3 91 2,644.52 29.06"F'' .......... ...... 25 101 3,567.13 35.32

Small coffee growers may receive aid from the Coffee Federationin home construction if (a) they owvn the property on which the

HOUSING 239

house is to be constructed; (b) the production of the finca does notexceed 1,000 arrobas a year; (c) they possess a total liquid patrimonynot greater than Ps.$30,000, at least 60 percent of which is connectedvith coffee production; and (d) they make a cash contribution tocover part of the total cost, the proportion determined by a setscale according to their coffee production and economic situation.Preference is given to fathers of large families and to those whodevote at least 25 percent of their land to the growth of foodstuffson a permanent basis. The house must be used as a home and notfor business or other purposes which would take the farmer fromcultivation of his land.

Technical assistance and the procurement of building materialsat cost are services furnished large coffee growers. The Federationbuys any available materials from the landowner himself and con-tracts with and supervises a builder who carries out the work. Theoperations of the Coffee Growers' Federation have so far been suc-cessful and realistic. They have, however, been kept on a small scale.Also, since they have been limited to the relatively well-to-docoffee farmers, they have failed to reach the really needy groups. Thefoundations have been laid, however, for a sound rural housing policy.

Other Forms of Housing Promotion

Enterprises of specified capitalization and payroll are authorizedto use as tax offset sums devoted to housing for workers and salariedemployees. Excess expenditures for this purpose during any oneyear may be carried over or credited in succeeding years. Reportsindicate that during 1947-48, 1,527 dwellings were built under thisprovision, 1,224 for workers and 303 for salaried employees, at anestimated cost of Ps.$4,910 for the former group and Ps.$13,000 forthe latter. It is estimated that enterprises spend about Ps.$2,500,000annually for dwelling construction.

Municipalities having tax receipts of Ps.$25,000 and over arerequired by law to devote to home construction the folloWing propor-tions of these receipts:

Percentage of ReceiptsTax Receipts Earmarked for Housing

Ps.$ 25,000- 50,000 .......................... 3 percent per annumPs.$ 50,000-100,000 . . ... . ... 4 percent per annum

Ps.$100,000-and over ............ ........... ..... 5 percent per annum

240 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

It was not possible to secure full data on housing operations by muni-cipalities. Three such projects, however, w\Aere visited and the follow-ing information obtained:

Sevilla -24 dwellings had been completed over the past severalyears and 6 were under construction at the time of thevisit. The latter were of brick with tile roof, 6 rooms (ex-clusive of toilet and bath) with connections to city watersupply and sewer. Construction cost was Ps.$3,000 andrent was Ps.$15 per month. At the end of 20 years fullownership would be achieved.

Armenia -35 houses under construction, mostly for middle incomeclass and above. Typical house visited contained 10 rooms;construction cost Ps.$16,000, plus land estimated at Ps.$4,000 furnished by the purchaser. Down payment equalto 20 percent of construction cost, monthly rental Ps.$90for 20 years, at expiration of which time full ownershipis acquired.

Medellin -Some 20 homes were built in this workers' borough. Atypical unit consists of 2 bedrooms, living-room, dining-room, kitchen, plus toilet and shower. House has waterand sewer connections. Both monthly rental and construc-tion cost are less than half those in Armenia.

According to the Superintendencia de Cooperativas, there are 28cooperatives in the country dedicated exclusively to the building ofresidences for their members and 123 which, in addition to otheractivities, devote some of their resources to housing. The Institutode Credito Territorial is required by law to assign not less than 20percent of its available funds to cooperatives. The exact number ofdwellings built by the cooperatives was not obtained but the costper house wvas reported to range from Ps.$4,500 to Ps.$30,000. Thus,though the cooperatives seem to have an adequate institutional set-up for the promotion of low cost housing, their performance to datehas not been impressive since too much emphasis has been given towvhat actually is high cost housing.

It has long been the custom for thc military to construct houseswhich the Government continues to own but rents to its officerpersonnel. Recently a cooperative was organized to undertake theprovision of houses for the military residing in Bogota. The currentproject calls for ten dwellings. If successful, further expansion of thismethod is contemplated.

CHAPTER XII

Education and Training

Education, like health, is both a criterion and a component of thestandard of living. It has a direct bearing on the level of productivityand at the same time contributes to the appreciation and enjoymentof life. The extension of education to all the people should undoubtedlybe an integral part of any program of development in Colombia.While a great deal has been done to extend educational facilities inrecent years, especially through the efforts of the Ministry of Educa-tion and the Church, much still remains to be accomplished. Onemeasure of the inadequacy of education is the prevalence of illiteracy.The following figures' show the number of illiterate adults andchildren in 1937 and 1947.

Adults: 1937 1947

Men ........ ...................... 1,048,501 1,265,360

Women . ....... 1,253,960 1,476,253

2,302,461 2,741,613

Children 7 to 14 years of age:

Boys ............................ ..... 499,972 601,046

Girls ......... ............. ....... 473,712 569,412

973,684 1,170,458

Total illiterates ............ .................... 3,276,145 3,912,071

Total population . 10,5 14,670

The population above seven years of age in 1947 was about8,818,000; of this number apparently about 44 percent were illiterate, Jthough there is doubtless considerable variation between differentsections of the country. The Government has taken a number ofmeasures to provide for adult instruction, but it is in the field ofprimary education that the real challenge lies. This fact is demon-strated by the above figures which show that in 1947, in spite ofefforts to expand school facilities, the total number of illiterate childrenof school age was greater than it was ten years earlier.

1 The statistics set forth in this chapter were supplied by the Contraloria Generalde )a Rep6blica, or the Colombian Ministry of Education. Though they may varysomewhat from other data, they are believed best to represent the true situation. Ineach instance, the year used is the last year for which adequate statistics are available.Statistics for private education are doubtless incomplete in some instances becauseprivate schools often fail to report desired information.

241

242 THE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOAIBIA

PRIMARY EDUCATION

In any effort to overcome widespread illiteracy, primary educa-tion is most important, but the most serious deficiency in Colombianeducation at present is in primary education. Under Law No. 56 of1927, parents or guardiaus are obligated to see that their childrenreceive ali adequate primary education, either by sending them toschool or by obtaining satisfactory home instruction for them. Be-tween the ages of 11 and 13, all children are to take tests to determinewhether this requirement has been fulfilled.

Statistics on school enrollments, however, indicate that the stand-ards cstablished by law are very imperfectly complied writh. About46 percent of the number of children estimated to be between 7 and11 years *of age in 1948 were in public primary schools, and another3 percent probably were in private schools, principally in the cities.Table 79 conmpares primary school enrollmenit in 1948 with the esti-mated nuimber of children of primary school age.

TABLE 79ESTIMXATED NUMBER OF CHILDREN OF PRIMARY SCHOOL AGE COMPARED

WITH ENROLLMENT IN PUBLIC SCHOOLS, 1948

Percentage Number Averageof Children of Nulmiber

Number of 7-11 years Public ofSize of Children Number of in Public School Pupils

Urban Centers 7-11 yrs.1 Pupils2 Schools Rooms per Room

Over 100,0003 ........... 165,240 58,392 35.3 1,330 43.950,000-100,000 ......... .. 42,926 16,957 39.5 280 60.620,000- 50,000 ........... 65,003 26,329 40.5 509 51.710,000- 20,000 .......... 58,468 25,497 43.6 510 50.05,000- 10,000 ........... 83,274 49,449 59.4 969 51.02,000- 5,000 ............. 88,407 60,628 68.6 1,399 43.3

tUnder 2,000 and rural3 953,768 437,196 44.8 10,458 41.8

TOTAL . 1,45/,086 674,4,84 4J.O 15,455 43.6

1 Estimated.2 Data for Antioquia, Boyaca, Caldas, Cauca, Choc6, Magdalena and Norte de

Saintander are for 1947.3 Private school enrollment partly accounts for the low percentage of public school

enrollment in the largest urban centers. Also the figures, except for the "under 2000"category, include only schools classed as "urban" by the Ministry of Education. All"rural schools', whatever the size of the municipality, are included in the last group.In the case of urban centers over 100,000, the percentage of pupils in "urban schools"is 90.8 percent of the total public primary school population of the five municipalitiesinvolved, whereas their estimated urban population is 98.7 percent of the total (seeTable 64, Chapter X). The presumption is that some schools in districts which havebecome urbanized in recent years are still classed as "rural" in the education statistics.For smaller cities and towns there is less discrepancy between the urban percentagein the school population and that in the population as a whole (except for the 2000-5000group), and in all cases the former is the larger, as would be expected.

4 In addition, there were an estimated 43,660 pupils in private primary schools,mostly in the larger centers.

EDUCATION AND TRAINING 243

Table 80 shows the school facilities and number of pupils in thevarious departments, and compares the percentage of the publicschool enrollment in each with its approximate share of the nationalpopulation. This percentage comparison is only indicative, since theage distribution of the population in the different departments is notidentical, and since the estimated number of private school pupilsis not included. Thus the higher proportion of primary school pupilsin Antioquia may be due in part to the prevalence of large familiesin that region, and the relatively low ratios in Atlantico and Cundi-namarca may result partly from the preponderant weight of Barran-quilla and Bogota, whlere private schools are a significant factor.

The low ratio of pupils to school rooms in Atlantico and Cundi-namarca-as compared, for example, with Antioquia-apparently indi-cates that the low level of school enrollments in the former depart-ments is not primarily due to a shortage of facilities. Nevertheless,in many areas adequate school facilities are lacking. In general, thenumber of pupils per room is quite high: the national average is 43.6;for the fast-growing cities of 50,000-100,000 population the averageis over 60 per room; and in some instances, of course, the number issubstantially higher. Although estimates from official sources varyconsiderably, apparently at least 600,000 children are without pri-mary school facilities and, without taking into account the steadyincrease in the population, this number may be considered the mini-mum for whom facilities should be provided in the coming years.

The resources available for school construction in the fiscal year1948-49 are shown in Table 81. The National Government is in aposition to make grants, through the Municipal Development Fundand the National School Fund, of a little over Ps.$4 million annually.2

These funds are divided among the departments according to aformula based partly on population and partly on equal shares toeach department. Contributions are sought from the municipalgovernments to supplement the national grants, but there are widediscrepancies in the proportion contributed by the various municipali-ties. The total estimated cost of construction for the fiscal year1948-49 was about Ps.$5.3 million.

In addition to the shortage of school facilities, primary educationhas long suffered from a shortage of teachers of adequate caliber andtraining. Colombia has made progress in recent years in meetingthis problem but the total number of teachers is not yet adequatefor present school facilities. In 1946 there were 16,650 primary schoolteachers in Colombia of which 4,150, or about 25 percent, were men

2 See Chapter XIII. for discussion of activities of Municipal Development Fund.

TABLE 80

SIZE AND ENROLLMENT OF PUBLIC PRIMARY SCHOOLS, BY DEPARTMENTS, 19481

Urban SChOOlS2 Rural SChOolS2 Approxinmate1 Pupils Total Percentage

Pupils PUPI S Total Percentage of NatioInalDepartments Pupils RooinS per room Pupils Rooms per room Pupils of Total Population

Antioquia ..... .................... 60,896 1,137 53.6 63,510 1,128 56.3 124,406 18.5 13.5Atlalltico ..... ..... ... 10,686 277 38.6 2,150 96 22.4 12,836 1.9 3.6Bolivar ................... 21,695 451 48.1 29,969 760 39.4 51,664 7.5 9.4Boyaca ......... .......... 19,568 458 42.7 25,347 548 46.6 44,915 6.7 7.4Caldas ........... ........ 34,029 571 59.6 39,775 788 48.9 73,804 10.9 9.8Cauca ................... 8,022 202 39.7 19,212 450 42.6 27,234 4.4 4.1Cundinamarca . ......... 40,338 1,153 35.0 28,258 1,040 27.2 68,596 10.2 13.4Choc6 .. .. 3,323 79 42.1 5,052 149 34.0 8,375 1.2 1.1Huila ................... 7,797 143 54.5 10,536 210 48.0 18,333 2.7 2.2Magdalena ...... ....... 9,949 237 42.0 17,330 469 36.6 27,279 4.0 4.1Narifio ......... .......... 14,458 326 44.3 20,464 401 51.3 34,922 5.2 5.1Norte de Santander .... .... 9,319 279 33.4 14,812 418 35.6 24,131 3.6 3.9Santander .. ....................... 17,747 415 42.8 21,210 473 44.5 38,957 5.8 6.9Tolima ................... 18,107 381 47.5 26,276 532 49.2 44,383 6.6 6.7Valle del Cauca ............ .... 40,462 884 45.8 34,151 1,000 34.2 74,613 11.1 8.8

TOTAL .................. 316,396 6,993 45.4 358,052 8,462 42.3 674,448 100.0 100.0

I Data for Antioquia, BovacA, Caldas, Cauca, Choc6, Magdalena and Norte de Santander are for 1947.2 Schools classed as urban and rural, respectively, by Ministry of Education; totals differ from Table 79 because numerous schools in communities

under 2,000 population are classed as urban.

TABLE 81

NATIONAL PRIMARY SCHOOL CONSTRUCTION PROGRAM FOR THE FISCAL YEAR 1948-1949

Quotas ofNational Number of Projects Estimated CostsSchool

Building Still in National LocalDepartments Funds Completed Construction Share Share Total

Antioquia .......... ................... Ps.$ 534,266 7 29 Ps.$ 372,445 Ps.$ 87,750 Ps.$ 460,195Atlantico ..... .............................. 152,248 2 8 278,013 94,000 372,013Bolivar ..... .......... .......... 358,492 1 5 41,500 21,895 63,395Boyaca .......... ........................ 346,939 7 53 442,892 176,610 619,502Caldas .................................. 360,474 3 20 360,474 185,000 545,474Caucas ....... .............................................. .......... 188,628 16 38 335,056 143,866 478,922Cundinamarca ....... ........................... 391,331 - 14 72,696 - 72,696Choc6 ....... ........................... 86,988 7 20 185,104 56,701 241,805Huila . ............................................................ 130,771 4 17 107,742 48,236 155,978Magdalena .................................. 182,993 - 10 151,518 67,348 218,866Nariiio ............ ...................... 234,224 - - _ _Norte de Santander . ................................. 184,535 10 27 337,398 236,165 573,563Santander . . ............... 296,432 11 55 526,742 158,162 684,904Tolima ....................... ........... 268,238 8 20 178,107 59,393 237,500Valle del Cauca . ............................... .. 295,403 6 22 236,000 220,000 456,000Intendencias and comisarias .......................... 157,458 2 24 99,695 30,000 129,695

TOTAL .................................. s......... Ps.$4,169,420 84 362 Ps.$3,725,382 Ps.$1,585,126 Ps.$5,310,508

246 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

teachers. About 53 percent of the total were teachers in urban schools.Many of the primary school teachers were untrained, as indicatedby Table 82. These figures include teachers in private primary schools,where a large proportion of the trained teachers in urban schools islocated. Even including the private school group, only about 30percent of the teachers of the country have been trained.3

TABLE 82TRAINING OF PRIMARY SCHOOL TEACHERS, 1946

Elementary SuperiorWithout Bachelor Normal Normaldegree degree School School Total

Urban .4,196 678 816 3,112 8,802Rural ..... ... 6,399 144 616 689 7,848

TOTAL ......... 10,595 822 1,432 3,801 16,650

The present low level of salaries paid to teachers accounts forthe failure to attract more persons of desirable caliber to teachingand the loss of many of the best qualified who often leave teachingfor more remunerative fields. Under the present system, the munic-ipality provides the school building, the nation supplies books andequipment, and the department generally pays the salaries of pri-mary school teachers, with the result that salaries vary from onedepartment to another, according to the financial status of the de-partment. At best, the remuneration received by primary schoolteachers is not in line with that of other professions and in depart-ments which confront difficult financial situations, teachers are evenmore at a disadvantage.

The latest available figures indicate that the average salary of publicprimary school teachers in urban and rural schools is Ps.$124.09 permonth. Table 83 gives a breakdowvn of salaries received in 1946 andshows a very wide range, despite supposed minima set by law.

SECONDARY EDUCATION

In Colombia, four years of primary school must be completed foradmittance to secondary school, The following figures indicate thenumber of secondary schools, as well as the number of pupils andteachers in 1946:

Pupils TeachersSchools Total Boys Girls Total Men Women

Public . . 146 19,324 15,706 3,618 1,576 1,277 299Private . 491 26,354 13,691 12,663 2,524 1,478 1,046

Total 637 45,678 29,397 16,281 4,100 2,755 1.345

3 See the section on normal school education for a further discussion of teachertraining.

EDUCATION AND TRAINING 247

TABLE 83

MONTHLY SALARIES OF PUBLIC PRIMARY SCHOOL TEACHERS,

URBAN AND RURAL, 1946

Salary Level

No. of Up to Ps.$31 Ps.$51 Ps.$71 Ps.$91 OverDepartments Teachers Ps.$30 to 50 to 70 to 90 to 100 Ps.$100

TOTAL URBAN ..... 7,389 4 323 1,298 1,921 817 3,026

Antioquia .1,290 - 1 6 139 106 1,038Atlantico .347 - 2 - 21 15 309Bolivar .493 - 10 202 244 37 -

Boyaca .430 - - 34 104 209 83Caldas .698 - 3 6 38 157 494Cauca .255 1 90 70 91 - 3Cundinamarca 968 - - 19 77 27 845Huila .169 - - 39 80 31 19Magdalena .222 1 24 108 41 - 48Narifno .252 - 184 62 - 5 1Norte de Santander 315 2 - 300 11 - 2Santander .406 - 1 20 324 16 45Tolima .367 - 1 60 253 - 53Valle del Cauca 999 - 7 296 433 188 75Intendencias 121 - - 27 64 20 10Comisarias 57 - - 49 1 6 1

TOTAL RURAL ........ . 7,796 39 868 2,985 2,578 352 974

Antioquia .1,113 2 13 32 831 1 234Atlantico .77 - - - 21 5 51

Bolivar .696 - 1 565 129 1 -

Boyaca .. 524 - 112 367 45 - -

Caldas .. ......... 757 3 9 58 440 204 43Cauca .454 18 310 116 10 - -

Cundinamarca . 1,045 3 31 89 244 81 597Huila .175 - 2 79 89 5 -

Magdalena ...... 342 - 35 255 38 - 14Narino .299 3 281 15 - - -

Norte de Santander. 379 2 - 370 7 - -

Santander .386 8 4 42 301 24 7Tolima .446 - 3 239 190 - 14

Valle del Cauca . 916 - 61 629 198 23 5

Intendencias .139 - 2 92 32 7 6

Comisarias .48 - 4 37 3 1 3

Roughly perhaps a little more than half those who complete

primary school each year enter secondary schools. Table 84 shows

the comparative size of the various secondary school classes in 1946.

248 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

TABLE 84

SECONDARY SCHOOL ENROLLMENT BY GRADE, 1946

Prepara-torv Ist 2nd 3rd 4th 5th 6th

Total Gracde Year Year Year Year Year Year

Public:

Boys 15,706 2,117 4,499 3,050 2,188 1.562 1,257 1,033

Girls ... 3,618 761 1,427 641 447 177 98 67

Private:

Boys 13,691 2,162 3,215 2,708 2,126 1,523 1,129 828

Girls ... 12,663 1,897 3,652 2,901 1,860 1,204 599 550

Total 45,678 6,937 12,793 9,300 6,621 4,466 3,083 2,4781

1 The total graduating from secondary schools reached 3,046 in 1948.

As indicated, the full secondary school course is completed byfew except those who plan to go on to university studies, for thenumber enrolled in first-year university courses is approximately equalto the number graduated from secondary schools. The total number ofstudents who graduate from secondary schools each year is strikinglysmall for a country of some 11 million population, especially when itis considered that the secondary schools should be a primary sourcefor the great numbers of technicians, clerks and supervisors needed inColombia's developing economy. Some additional students, of course,graduate from foreign preparatory schools.

Public secondary schools are supposed to be the responsibility ofthe National Government, but actually some are supported by thedepartments and municipalities. In general, the Government tries tostimulate private education in the secondary field in line with theprogram of the Ministry of Education and, as shown by the abovctables, both the number of private schools and their enrollment exceedsthose of public secondary schools. Many of the private schools receivea subsidy from the Ministry of Education, which inspects the schoolsto see that requirements established by law are met. Standardsfor graduation are controlled, for example, through the issuing of alldiplomas by the Ministry of Education.

Although there is no widespread shortage of secondary educationalfacilities, such as is found in primary education, facilities in manyinstances need improvement. The very limited number who have thebenefit of secondary education is regrettable and indicates clearly theneed for extension. The superior Normal School at Bogota trainsteachers for secondary schools, but there are still a great many second-ary school teachers without the desired training.

EDUCATION AND TRAINING 249

NORMAL SCHOOL EDUCATION

It has been pointed out that an acute shortage of teachers trainedfor primary education exists and that many of those who enter theteaching field leave because of low salaries. In secondary educationthe situation is better, but more trained teachers are neverthelessneeded. To meet the shortage of teachers, the Government has madea real effort to expand normal school facilities. Students who enternormal schools must have completed primary school; a large propor-tion of the students is selected and appointed *on scholarships whichcover tuition, board and room. Although the curriculum has beenchanged frequently, at present the first four years of regular normalschool are the same as the first four years of secondary school. Duringthe last two years of their schooling the future teachers receive specialtraining. The number of normal schools in 1946, as well as the numberof pupils and teachers, is shown below.

Pupils Teachers

Schools Total Boys Girls Total Men Women

Public .. . 48 5,667 1,721 3,946 689 359 330

Private ... 23 765 12 753 146 50 96

TOTAL4 .. . 71 6,432 1,733 4,699 835 409 426

The heavy turnover among students generally found in Colombianschools is also encountered in normal schools. In fact, the totalnumber of graduate teachers produced by all existing training facilitiesseldom reaches 800 per year. This figure is distressingly small in viewof the tremendous need for trained teachers throughout the country.Another serious factor is the loss of graduate teachers to other pro-fessions. In fact, only about 30 percent of those who graduate actuallybecome teachers, which means that the funds spent on normal schoolsare only producing about a third of the results possible. Because of theurgent need for more teachers, the rural normal schools give a shortercourse than the regular normal schools-a three-year course insteadof five-but most of the rural normal school graduates actually go tothe urban schools if they go into teaching.

Normal schools, like others in Colombia, are short of adequatefacilities. Some of the public normal schools are supported by theNational Government, some by the departments, and some by themunicipalities. Certain funds of the National School Fund go eachyear to normal school construction, but progress is very slow.

4 All of the schools are not devoted exclusively to normal training.

250 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

VOCATIONAL EDUCATION

The development of a system of vocational schools has long beenan objective of prime importance in Colombia and has received parti-cular attention during recent years. Lack of funds has restricted theaccomplishment of a program of the magnitude desired, but a numberof schools have been established under a program intended to coverthe particular needs of the various sections of the country.

Industrial and Arts and Trades Training

The figures below indicate the number of industrial and arts andtrades schools in 1946, together with the number of pupils and teachers.

Schools Pupils Teachers

For ForTotal Boys Girls Mixed Total Boys Girls Total Men Women

Public . 45 21 20 4 3,775 2,115 1,660 412 310 102

Private . 17 9 8 - 478 378 100 55 45 10

TOTAL .. 62 30 28 4 4,253 2,493 1,760 467 355 112

The relatively small number of pupils in technical schools is duelargely to the limited facilities available. Technical schools are sup-ported by the National Government, the departments, municipalities,and by private funds. In addition to the schools included in the abovetabulation, there were in 1946 some 157 public and 52 private "comple-mentary schools" ("escuelas complementarias") with enrollment of9,514 and 1,103 pupils, respectively. These schools supplement primaryschools with two years' schooling which gives major emphasis togeneral education but also includes some technical or manual training.

Among the more important courses offered by industrial and artsand trades schools at present are those in the following specialties:mechanics, foundry, forging and welding, electricity, motors, metalworking and electrotyping, carpentry and cabinetmaking, tailoring,shoemaking and saddlery, tanning, jewelry making, typography,ceramics, and industrial drawing. The Ministry of Education plans toexpand the vocational education program to include additional indus-tries but funds have not yet been obtained. Plans call for the establish-ment of a number of additional schools as soon as possible. Althoughthis type of school is expensive, specialized training will doubtlessbecome increasingly important as the industrialization of the countryproceeds. As a matter of fact, the courses at present offered do notnearly satisfy the current demand for trained persons in various fields.

EDUCATION AND TRAINING 251

Agricultural Training

Agriculture in Colombia is of stich basic importance that the extentof agricultural education is likewise of great significance. Resourcesare available for expansion of Colombia's agriculture but the educa-tional attainments of the rural people are so low as to retard thatexpansion. The study of Tabio made in 1945 gives some informationon the level of education in one rural community in Colombia.5 Thiscommunity is located near Bogota in an area probably somewhatabove the average in income and level of living for rural communitiesin Colombia, and probably also above the average as to educationavailable.

The study shows that men have more years of education thanwomen, farm operators than farm laborers, and villagers engaged innon-agricultural pursuits more education than those engaged in agri-culture. Three-fifths of the population over ten years of age are ableto read and write. The amount of schooling the male heads of house-holds in Tabio have is indicated below.

Farm Operators Farm Laborers Others TotalYears ofSchool- Nutn- Per- Num- Per- N um- Per- Num- Per-

ing ber cent ber cent ber cent ber cent

0 58 33.0 67 45.9 8 17.4 133 36.11 16 9.1 16 11.0 4 8.7 36 9.82 29 16.5 22 15.1 6 13.0 57 15.53 .39 22.2 29 19.9 14 30.4 82 22.34 21 11.9 11 7.5 7 15.2 39 10.75 4 2.3 1 0.6 4 8.8 9 2.46 7 3.9 0 0.0 2 4.3 9 2.47 0 0.0 0 0.0 1 2.2 1 0.3S 2 1.1 0 0.0 0 0 0 2 0.5

Total 176 100.0 146 100.0 46 100.0 368 100.0

Lack of education no doubt contributes to low labor productivityon farms and at the same time makes more difficult the introductionlof newv farming practices. Modern and improved agricultural methodsare essential to improved -productivity in a-riculture. Colombia hasrealized that much can be accomplished through agricultural educa-tion, but thus far the measures taken have been only a modest begin-ning in a field which warrants much attention and future development.NVhen the agrictiltural vocational school system was initiated in 1941,based largely on recommendations of a Puerto Rican Mission, theplan was too ambitious. It later became necessary to reduce theschools in operation to a more practical number and to concentrate

5 Smith et al., op. cit.

252 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

on improving those remaining. In 1949 there were 23 agriculturalvocational schools in operation, with about 800 students, although theattendance figures vary considerably from time to time.

There are tAvo agricultural normal schools, one for cold climatetraining and the other for hot climate training. These schools, whichhave a combined enrollment of about 150, are contributing in a smallway to training needed agricultural personnel and to providing trainedteachers for the agricultural vocational schools.

The National Coffee Growers' Federation maintains about a dozentwo-year vocational schools available free of charge to farm childrenwho have comapleted a certain amount of public schooling. Those inattendance devote part time to indoor classes and part time to practicalivork outdoors where, in addition to learning improved methods ofcoffee culture, they are taught how to growv a variety of foods thatxvill improve the usual diets of farm families.

There are two -eneral agricultural colleges, one at Niedellin andthe other at Cali, and a college of Veterinary -Medicine at Bogota.Total enrollment in the three colleges is about 300, xvhich means thatthey graduate but a small number of personnel trained in such im-portant subjects as crop and livestock production, marketing methodsand research techniques. In addition to the agricultural schoolsmentioned, educational wvork in agriculture is supplemented to somedegree by an Agricultural Extension Program6 and by an educationalprogram for veterinarians, particularly among cattlemen.

Commercial TrainingAs showvn by the figures beloxv, there are 188 schools for com-

mercial education in Colombia. and more than five-sixths of them areprivate. Commercial education also suffers from the shortage of facili-ties found elsewvhere. Private education in this field is probably moreextensive than the figures suggest, since many private institutionshave admittedly failed to report statistics. Until lately, the Ministryof Education has made little effort to organize commercial training,but recently extensive plans have been made for basic commercialtraining programs. As of 1946, the number of commercial educationschools, pupils and teachers wvere as follows:

Pupils TeachersSchools Total Boys Girls Total Men Women

Public 26 1,995 716 1,279 265 153 112Private ... 162 4,532 1,233 3,299 551 252 299

Total 188 6 527 1,949 4,578 816 405 411

6 See Chapter V for discussion of the Extension Program.

EDUCATION AND TRAINING 253

HIGHER EDUCATION

In the realm of higher education, the National University at Bogotais the leading public institntion, and in general its courses of studyserve as a pattern for other public institutions. There are also severaldepartmental and several private universities, as well as a few otherinstitutions offering advanced courses. Below are shown the numberof schools of higher learning, the number of students enrolled andthe number of teachers in 1946.

Pupils Teachers

Sclhools Total Boys Girls Total Men Women

Public ..... 35 5,422 5,010 412 818 803 15

Private ... 17 1,915 1,748 167 382 373 9

Total . .... 52 7,337 6,758 579 1,200 1,176 24

As indicated, the number of Colombians taking advanced training isnot very large, and those who graduate from institutions of higherlearning are, of course, even fewer in number.

EXPENDITURES FOR EDUCATION

Table 85 shows total municipal, departmental and National Govern-ment expenditures for 1948, together xvith the amounts devoted toeducation. Five percent of total national expenditures were for edu-cation, while from 2.1 to 10.8 percent of municipal expenditures werefor education. Much higher proportions of departmental expenditures-from 14.6 to 27.8 percent-were for education. Total per capitaexpenditure in 1948 for education was Ps.$5.5, excluding Choc6 andthe comisarias and intendencias. It is estimated that about 1,531,000persons xvere in school in 1948; thus the expenditure per pupil wasapproximately Ps.$37.4.

TABLE 85

MUNICIPAL, DEPARTMENTAL AND NATIONAL EXPENDITURES-TOTAL AND FOR EDUCATION, 1948

Municipal Expenditures Departmental Expenditures Natio al Expenditures

Per- Per- Per-centage centage centage

for for forFor Edu- For Edu- For Edu-

Departments Total Education cation Total Education cation Total Education cation

Antioquia ...... Ps.$ 38,546,102 Ps.$1,257,881 3.3 Ps.$ 25,992,011 Ps.$ 5.254,927 20.2Atlantico ... 6,381,515 134,986 2.1 9,153,443 1,996,694 21.8Bolivar] ................ 4,338,879 189,409 4.4 7,891,111 1,810,192 22.9Boyacal ....... . .......... 2,317,963 207,817 9.0 6,054,294 882,960 14.6Caldas .................. 10,252,862 623,411 6.1 15,261,056 2,799,120 18.3Cauca .................. 1,309,189 131,231 10.0 3,858,714 818,150 21.2Cundinamarcal ................ 33,250,166 2,139,242 6.4 20,155,533 3,843,390 19.1Huila .................. 1,528,354 106,714 7.0 3,207,237 511,355 15.9Magdalenal ..... .. ........ 1,690,878 126,788 7.5 7,620,000 1,646,850 21.6Nariilo ....... ......... 803,878 86,785 10.8 3,594,136 825,317 23.0Norte de Santander ........ 2,960,308 185,054 6.3 5,052,237 1,405,250 27.8Santander .................. 3,837,542 216,805 5.6 9,605,530 1,725,678 17.9Tolima .................. 4,758,247 366,472 7.7 7,888,908 1,515,536 19.2Valle del Cauca ............... 18,293,065 866,146 4.7 20,638,081 4,801,033 23.3

TOTAL ...... ............ Ps.$130,268,948 Ps.$6,638,741 5.1 Ps.$145,972,291 Ps.$29,836,452 20.4 Ps.$414,600,000 Ps.$20,800,000 5.0

1 Data supplemenited witlh data for previous years.

CHAPTER XIII

Public Finance

Fiscal developments in Colombia, as elsewhere, have tended towardincreasilng importance of the national vis-a-vis departmental and localfinances. The national budget, which before the war accounted forless than half of total public expenditures, now accounts for about60 percent. Moreover, the finances of the departments and munici-palities are regulated to a large measure by national legislation. Thisis but another expression of Colombia's highly centralized form ofgovernment.

REVENUES AND EXPENDITURES OF THE NATIONAL GOVERNMENT

Expenditures

The expenditures of the National Government tripled during the1940's, but so did the level of national income. The share of thenational budget in the nation's income apparently increased onlyslightly. The rising level of governmental expenditures, like therising level of national income, reflects primarily increased prices;the provision of more services accounts for only the smaller part ofthe increase.

The composition of budget expenditures for 1940, 1945 and 1947is shown in Table 86. Nearly all budget categories shared in the up-ward trend, while the composition of expenditures remained relativelystable. The most significant increase was in outlays for public worksof various kinds. Such outlays represented 15 percent of prewarbudget expenditures but now absorb about 25 percent. Militaryexpenditures similarly increased from 13 to 18 percent of the budgettotal, an increase which has been largelv a postwar and not a wartimedevelopment. Administrative expenses for general governmlient roseat a slower rate than did the budget total. Outlays on debt serviceremained nearly unchanged in peso terms and thus declined in rela-tive importance. Interest payments on public debt now absorb about6 percent of budget expenditures, compared with 15 percent in thebudget of the United States.

The total contribution of lnational finances to capital formationis larger than indicated by public works expenditures alone. Somecapital investments, such as buildings, are included under categoriesother than public works; other items, such as iniprovements in thenational railroads, remain altogether outside of the budget. Roadconstruction and maintenance, which amounted to one-half of public

255.

256 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

TABLE 86

EXPENDITURES OF NTATIOi\TAL GOVERNMENT, 1940-471

Millions of Pesos Percent of TotalFunctions 1940 1945 1947 1940 1945 1947

General Government 12.9 23.6 18.7 11.5 12.7 5.5Foreign Relations 1.8 2.5 10.7 1.6 1.3 3.3Justice and Police . - - 18.2 - - 5.4

Fiscal Administration . 420 29.7 54.7 37.3 15.9 16.2Interest on Public Debt. 42. 15.3 21.1 8.2 6.3Military Establishment . . . 14.8 26.2 48.0 13.2 14.1 14.2Public Works . . 17.3 44.6 89.9 15.4 23.9 26.6Education ... 7.7 12.1 19.9 6.8 6.5 (5Mail and Telegraph 5.3 10.2 16.4 4.7 5.5 4.9Public Health .- - 16.2 - - 4.8

Agriculture . . . 3.2 6.3 11.8 2.8 3.4 3.5Commerce .... ... ....lMines and Petroleum .3 .7 1.1 .3 .4 .3Other . . .. .. 7.2 15.1 10.9 6.4 8.1 3.2

TOTAL .112.5 186.4 337.4 100.0 100.0 100.0

Debt Anmortization . . . 19.5 26.1 31.1 - - -

Total, including Debt Amorti-zation .132.0 212.5 368.5 _ _

1 1940-47 from Informe Fisanciero de la Contraloria. For details see Appendix F.Fiscal year for national government coincides with calendar year.

capital expenditures prior to the war, accounted for nearly two-thirdsin 1947. Construction of public buildings is the next important item.

In 1947, public wage and salary payments amounted to Ps.$73million, or somewhat less than one-quarter of the budget total, exclu-sive of debt service. Compared with budgets of more developedcountries, this is a rather low ratio. It reflects in part a difference inthe composition of public services and in part the low wage andsalary scale of public employees in Colombia. The average monthlywage of National Government employees in 1948 was only Ps.$173,while 60 percent of public employees received monthly wages of lessthan Ps.$150. This is considerably above the average income for thepopulation as a whole, but it is low compared with salaries paid forsimilar services in private employment, especially in the more skilledpositions.

General Revenue Structure

Like other countries, Colombia has come to rely increasingly uponincome taxation. While direct taxes provided about one-third ofnational tax revenue before the war, these revenue sources now pro-

PUBLIC FINANCE 257

vide over one-half of the total yield. Indeed, the rise in income taxyield from Ps.$12 million in 1940 to an estimated Ps.$164.5 millionfor 1950 provided one-half of the total revenue gain over this period.However, the term "income tax" as used in Colombia is somewhatunusual. In effect it covers a group of taxes including (a) a tax onnet income, (b) a tax on excess profits, and (c) a rather general prop-erty or patrimony tax. Of the total income tax yield estimated for1950 about Ps.$110 million come from the tax on net income, Ps.$18million from the tax on excess profits, and about Ps.$38 million fromthe patrimony tax. All three taxes apply to both natural personsand corporations.

The income tax proper provides for specific exemptions ofPs.$1,000 for single and Ps.$2,000 for married taxpayers, plus an allow-ance of Ps.$500 per dependent. For taxpayers with incomes of lessthan Ps.$10,000, exemptions are double this amount. The rate sched-ule begins with 1 percent applicable to the first Ps.$2,000 of taxableincome, reaches a bracket rate of 14 percent at Ps.$25,000, 27 percentat Ps.$100,000 and rises to a top bracket rate of 45 percent applicableto incomes in excess of Ps.$5,000,000.1

The exemptions apply to natural persons and corporations alike,as do the basic income tax rates of 1944 and the 35 percent additionof 1946. However, the special rates applicable to high incomes,enacted in 1948, do not apply to companies. The rate applicable tocompanies, therefore, reaches a maximum of about 30 percent onincomes of Ps.$5 million. To avoid duplicate coverage, dividendsfrom shares in corporations taxable in Colombia are excluded fromthe shareholder's taxable income.2 Moreover, the Colombian law pro-vides for an interesting extension of this principle to other than divi-dend payments. The amount of salary paid each employee whichcorporations may deduct as costs is limited to Ps.$10,000 or, in thecase of execuitives, to Ps.$15,000. The employee in turn includes inhis taxable income only the first Ps.$10,000 (or Ps.$15,000) of hissalary. Thus, an executive receiving a net salary income of Ps.$17,000(and claiming marital and dependency credits of Ps.$2,000) wouldpay the same basic income tax as another executive with a salary ofPs.$50,000. 3

I The rates quoted include the basic income tax provided for under the law of1944, the 35 percent addition to this basic liability as provided for in 1946, and thespecial rates applicable to large incomes provided for in the 1948 law.

2 This exclusion, however, refers to the basic income tax rates only. The specialrates applicable to high incomes (Act of 1948) apply to income from dividends.

3 Again this provision does not apply for the special 1948 rates on high incomeswhich are assessed on total salary income. The total tax liability of the Ps.$50thousand executive, therefore, would be higher.

258 THE BASIS OF A DEVELOPMIENT PROGRAMI FOR COLOMBIA

The property (patrimony) tax likewise applies to both corporationsand natural persons. It is assessed on the taxpayer's net assets as ofthe end of the year. Government security holdings, reserves otherthan depreciation reserves, and debts may be deducted. Also excludedare holdings of shares in corporations taxable in Colombia, such equitybeing taxed directlv as part of the corporation's property. Goodwillis assessed for tax purposes and included in the patrimony. iNaturalpersons may exclude furniture and clothing and other items of per-sonal property. The first Ps.$20,000 of patrimony are tax exempt.Rates range from Ps.$1.35 per thousand on1 the first Ps.$10,000 oftaxable property to Ps.$4.05 on taxable property between Ps.$100,000and Ps.$150,000, Up to Ps.$14.85 on taxable property in excess ofPs.$1 million.4

The excess profits tax is based upon the rate of earnings on1 investedcapital. To determine invested capital, certain items are added totaxable property as declared for property tax purposes, includingholdings of government bonds and of corporate shares. To computeexcess profits, all earned income (waages, salaries, professional fees,etc.) is deducted from net income as declared for income tax purposes.Also deducted are income tax and property tax paid. Excess-profitsnet income thus defined is taxed at rising rates depending upon theratio of excess-profits net income to invested capital. Excess-profitsnet income equal to 12 percent of invested capital is tax exempt;profits from 12 to 15 percent of invested capital are subject to a taxof 18 percent; profits from 25 to 35 percent of invested capital aretaxed at a rate of 34 percent; and the peak rate of 51 percent appliesto profits in excess of 50 percent of invested capital.5 Taxpayerswhose patrimony does not exceed Ps.$25,000 at the beginningof the year do not pay excess profits tax.

In the field of indirect taxes, custom duties are still the mostimportant source of revenue even though their relative importancehas declined sharply since prewar days. The revenue showvn inTable 87 under consumption taxes is derived very largely from thetaxation of gasoline. Taxes on matches and playing cards are alsoof some importance. Eight percent of the yield shown under otherindirect taxes is derived from levies on the purchase of exchange and

4 Includes 35 percelnt addition as -well as basic rates-5 These rates include the basic rates of the 1944 law, the 35 percent added in

1946 and the 20 percent added in 1948.

PUBLIC FINANCE 259

TABLE 87

REVENUES OF NATIONAL GOVERNAIENT, 1940-47

(millions of pesos)

1940 1945 1947

DIRECT TAXES:

Income Tax Total.. . ... ... ... 11.9 59.2 114.3

Basic Taxes, Personal and Corporation Income 3.9 44.8 54.2

Patrimony (Property) Tax ....................... 5.5 10.6 20.8

Excess Profits Tax .. ............ , 2.5 3.8 8.5

Surchargesl ........ .. ..... - - 30.8

Inheritance and Donations ........................ ................ 1.8 4.6 9.7

Military Service Revenue ..................... ...... .3 .4 .8

T ax on M ines ......................................... .1 .1 .1

R eal E state T ax ............ ....... ...................... - 1.1 1.6

O ther D irect Taxes ... ...... ..... ....... ............ .9 1.7 3.6

Subtotal .................. ....................... 25.0 67.1 130.1

INDIRECT TAXES:

Custom Duties ............ ............................. 27.7 41.3 65.7

Consumption Taxes .......... ..... ... ................ 6.4 8.6 19.2

Stamp Tax ........ .... .......................... ......... 4.8 8.3 14.6

Export Taxes ............ .................. 1.1 1.2 1.5

Other Indirect Taxes ...... .. .. .............. 5.7 16.5 22.6

Subtotal ... ..... .......... 45.7 75.9 123.6

OTHER REVENUE .... .. 13.6 24.2 51.3

TOTAL ....... ...... ........ 84.3 167.2 305.0

I Includes surcharges of 35 percent of liability under basic income and patrimonytax plus 55 percent of liability under excess profits tax.

Source: Estadistica Fiscal y Admiinistrativca. 1947.

on exchange remittances provided. The item "other revenule" coversproceeds from public property, national services and governmentalparticipation in various enterprises, including the oil companies.

Distribution of the Tax Burden

Since the total liability under the overall income tax includesincome, excess profits and property taxes, liabilities at any incomelevel vary considerably with the composition of the taxpayer's income.Table S8 shows the liabilities for an individual with wage and salaryincome only. In the case of a married taxpayer wvith three dependents,

260 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

TABLE 88

TAX LIABILITIES AT SELECTED SALARY LEVELS1

(Married taxpayer, three children)

Tax Liability

Net Income Salary Income frombefore Company Subj ect to

Exemptions Income Tax Other Sources

Percent of Percent ofIncome Income

Ps.$ 8,000 Ps.$ 10 0.13 Ps.$ 10 0.1310,000 35 0.35 35 0.3515,000 423 2.82 423 2.8225,000 423 1.69 1,249 5.0050,000 1,019 2.04 4,617 9.23

100,000 5,116 5.12 15,502 15.50

1 No property income or patrimony. For details see Appendix F.

the first Ps.$7,000 are exempted. At an income of Ps.$15,000, aliability of Ps.$423, or 2.8 percent of income, is reached. Due to thespecial treatment of high salaries paid by companies, liabilities abovethis level depend on the source of the salary income. If the salary isderived from a company taxable in Colombia, the tax liability reaches2 percent of income at the Ps.$50,000 level and 5 percent at a salarylevel of Ps.$100,000. 6 If the income is derived from other sources,such as professional fees, the tax liability rises somew-hat faster andreaches a rate of about 15 percent for an income of Ps.$100,000.

Since dividend income is not taxed to the shareholder, income taxliabilities remain unaffected by additional income in the form ofdividends. However, in that case the patrimony and excess profitstaxes become applicable. Table 89 shows tax liabilities at variouslevels of patrimony and profit income. To simplify matters, it isassumed that property income only is received. 7 Since the excessprofits tax liability depends upon the ratio of profits to investedcapital, each level of incoimie is cocnhirned with a loxv and a high profit-to-capital ratio. The resulting tax liabilities are considerably abovethose applicable to the previously considered case of salary income.Whereas a professional man with an annual fee or salary income of,say, Ps.$50,000 pays a tax of less than 10 percent, a man with asimilar profit income pays from 15 to 20 percent or more, depending

6 We assume that the taxpayer's position is such that the company may deductPs.$15,000 rather than Ps.$10,000. N"Tote that the tax rate is regressive for incomesfrom Ps.$15,000 up to the level at which the special 1948 rates on high incomes beginto apply.

7 Includes property income other than dividend income only. For the case of com-bined property and salary incomes, see Appendix F.

TABLE 89

TAX LIABILITIES AT SELECTED LEVEL.S OF PATRIMONY AND PROFIT INCOME1

(pesos in thousands)

Company4

Position before Tax Individual Taxpayer3 Individual Total Total

Net Income Excess Amount Amountbefore Income Profits Patrimony of Percent of of Percent of

Exemptions2 Patrimony Tax Tax Tax Tax Income Tax Income

Ps.$ 12.0 Ps.$ 30.0 Ps.$ .1 Ps.$ .2 Ps.$ * Ps.$ .3 2.8 Ps.$ .3 6.8

13.5 30.0 .3 1.7 * 2.0 14.9 2.0 20.1

13.5 60.0 .3 .5 .1 .9 6.5 .9 8.7

53.5 150.0 5.5 7.3 .4 13.3 24.8 12.4 24.8

53.5 250.0 5.7 2.9 1.0 9.8 18.3 8.7 17.3

103.5 250.0 15.9 16.4 1.0 33.3 32.1 29.8 29.8

103.5 500.0 16.6 4.9 3.5 25.0 24.1 20.7 20.7

503.5 1,500.0 124.1 52.7 17.1 193.9 38 5 160.4 32.1

503.5 3,000.0 106.4 23.2 39.4 169.0 33.6 132.1 26.4

1,003.5 3,000.0 _ 93.1 39.4 419.7 41.8 343.6 34.4

1,003.5 6,000.0 2 . - 84.0 373.7 37.2 289.9 28.9

10,003.5 80,000.0 3,720.7 _ 1,184.6 4,905.3 49.0 3.,964.0 39.6

* Less than Ps.$100.I For details see Appendix F.2 Profit income other than dividends.3 Married taxpayer, three children.4 Assumes company with net income after exemptions equal to that of individual taxpayer. Liability under patrimony tax and excess profits

tax is the same. Liability under income tax is less because special 1948 rates on high incomes apply to natural persons only.

262 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

upon his profit-to-capital ratio. Assuming a profit-to-capital ratio of30 percent, the combined tax liability tends to be about twice thatof the salaried taxpayer, and rises sharply writh the taxpayer's profit-to-capital ratio. MVhile a smaller capital results in a lower patrimonytax, it also results (for any given amount of profits) in a higherexcess profits tax, and usually the latter is considerably larger thanthe former. It is in the taxpayer's interest, therefore, to show alarge invested capital, wvhich explains why property tax assessmenthas provided relatively little difficulty in Colombia. The last columnof Table 89 showvs tax liabilities applicable to a company rather thana natural person. Except for the lox-er part of the income scale, thecompany liability is some\vhat less since the 1948 special rates appli-cable to high incomes apply to natural persons only.

While the general level of income tax rates is low compared withthe United States or European countries, the distribution of theincome tax burden is, nevertheless, fairly progressive. High exemp-tions and low initial rates hold down the burden for the low andmiddle income ranges, compared to which the rates applicable tothe upper brackets (though moderate in absolute terms) are relativelyhigh. Consider Table 90, which gives the distribution of 1947 incometax returns by size groups of income. The bulk of personal returnsfalls into the low er income brackets, whereas the bulk of the yield isderived from the higher brackets. While 90 percent of the returnscome from incomes of less than Ps.$10,000, they provide only 20percent of the yield: over 80 percent of the yield comes from thetop tenth of the returns. Countries such as the United States showNthe same general picture, although a relatively larger fraction of theyield is draw n from the lower to middle income ranges. This reflectsthe fact that the gefl yield requirements of the personal incometax are less severe in_ lombia. Also, a larger fraction of the taxableincome appears to fall into the middle and higher income ranges, thusindicating a more unequal distribution of income.

An equally high degree of concentration is found in the distribu-tion of income tax returns by companies. Table 90 shows that thetop 33 companies, or 3 percent of the total number of companiessubject to tax, declared two-thirds of the total profit income for 1947.A breakdown by industrial sources shows textile, beer and tobaccocompanies to be the most important sources of income tax revenuefrom companies, accounting jointly for more than one-half of thetotal yield. The contribution of agricultural companies is negligible.

In order to obtain a more complete picture of the burden of taxdistribution, indirect taxes must also be included. These taxes areestimated in 1950 at Ps.$151 million. As noted before, the indirect

PUBLIC FINANCE 263

TABLE 90

DISTRIBUTION OF INCOME TAX RETURNS, 19471

Net Income after Number of TaxExemptions Returns Income Liability

(millions)INDIVIDUALS

Ps.$ 0- 2,000 45,663 Ps.$ 36.5 Ps.$ .42,000- 5,000 17,784 57.2 .85,000- 10,000 9,331 65.3 1.4

10,000- 20,000 4,730 64.9 2.120,000- 50,000 2,200 65.4 3.450,000-100,000 556 37.9 2.9

100,000-500,000 194 30.6 3.4over 500,000 4 3.0 .4

TOTAL 80,459 Ps.$360.8 Ps.$14.8

COMPANIES

Ps.$ 0- 5,000 672 Ps.$ 8.0 Ps.$ .350- 100,000 113 8.1 .6

100- 500,000 125 26.4 2.9500-1,000,000 32 21.3 2.91 -5,000,000 28 54.5 9.5

over 5,000,000 5 65.9 13.8

TOTAL 975 Ps.$184.2 Ps.$30.0

I Taxable returns under income tax only included. Does not include excess profitsor patrimony tax.

Source: Estadistica Fiscal y Administrativa, 1947.

tax vield stems largely from custom duties, taxes on the purchaseand remittance of exchange, and taxes on gasoline and stamp taxes.The custom duties and exchange taxes together account for two-thirdsof the total yield of indirect taxes. To the extent that imports arecommodities for mass consumption or materials to be used in thedomestic manufacture of such products, custom duties and exchangetaxes fall more heavily on the lower and middle income groups.Analysis of imports shows that perhaps one-half of the total belongsin this category. The stamp tax proceeds, -which in 1950 amount toabout Ps.$18 million, enter into the cost of mass consumption goodsto a limited extent only. The Ps.$80 million derived from gasolinetaxes are reflected largely in consumption costs since truck transporta-

tion is important in the marketing, of staple goods. Considering thewveight of these indirect rates, whlaich account for about one-half ofthe estimated yield for 1950, the distribution of the total tax burdenis much less progressive than appears from the income tax. This isbroutght out further if departmental and municipal taxes are takeninto consideration. 8

8 See discussion below.

264 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

Taxation and Capital FormationThere is no evidence that taxation in Colombia has tended to

reduce the overall level of investment either by cutting the supplyof savings or by reducing investment returns and hence the willing-ness to invest. Profit margins above tax, as well as the supply offunds, have been at record levels. As shown in the preceding section,average rates of tax (tax liabilities as percent of income) are moderate,even for large incomes. Bracket rates (the rate of tax applicableto the top bracket of taxable income into -which the taxpayer's incomeextends) rise to fairly high levels, but the top rates have very limitedapplicability. Bracket rates (including regular income tax and excessprofits tax) applicable to companies may rise to an upper limit of65.6 percent although in practice they rarely exceed 50 percent. 9

Bracket rates applicable to a person receiving profit (other thandividends) may rise to an upper limit of 70 percent. This is of nopractical importance, however. In 1947 there were only 200 returnswhich were subject to income tax rates of 36 percent or more, andfew of these paid additional excess profits taxes at the peak rate.

In appraising the impact of these rates upon investment, it mustalso be kept in mind that the actual tax burden is usually less severethan provided for in the statutes. Liberal interpretation combinedwvith under-reporting results in actual tax burdens which are sub-stantially lower. Over-evaluation of goodwill and liberal treatmentof deductions cut down the excess profits tax base. The exclusion ofcapital gains from taxable income invites tax evasion by conversionof profits into gains, and so forth.

A word might be said here about the extent of integration ofcorporate and personal income tax. While dividend payments areexcluded from the shareholder's taxable income and corporate profitsare taxed at the corporation level only, this does not assure integrationof these two taxes. Since the same exemptions and rates apply toboth individuals and corporations, and since corporation income isapt to be substantially larger, dividend income is taxed more severelyat the corporation level than wvould be the case if it were taxed tothe shareholder and excluded from corporation income. Moreover,insofar as the excess profits tax is concerned, dividend income is sub-ject to taxation at both the corporation and the individual level. Butin view of other advantages, this inequality does not seem to havebeen a significant deterrent to incorporation.

9 The rate of 65.6 percent includes a top bracket rate for the income tax of 29.7percent plus a top bracket rate for the excess profits tax of 51.5 percent. Since thelatter applies to profit income after income tax only, it is in effect equal to a rate of35.9 percent only. The rate of 50 percent would apply to a company with profits ofPs.$l.l million and a profit-to-capital ratio of between 25 and 35 percent.

PUBLIC FINANCE 265

In some instances, the tax law endeavors to direct investment bygranting exemption from property or income taxes for certain limitedperiods. Thus, companies engaged in the manufacturing of iron andsteel are exempted from such taxes for a ten-year period. A furthersignificant factor in this connection is the exclusion of capital gains(other than gains incurred in the regular line of business) fromtaxable income. Capital gains, under conditions of investment boomsuch as prevail in Colombia, much exceed in importance the volumeof capital losses. Their exclusion from taxable income has tended to.direct investment into speculative channels, such as real estate andunimproved lands-investments \vhich do not meet the developmentneeds of the Colombian economy and which contribute to the further:inflation of capital values. This tendency, moreover, is accentuatedby the greater ease of tax evasion in the reporting of real estate, asdistinct from industrial, income.

Since the level of rates is relatively low, the Colombian tax systemdoes not offer any significant barrier to the inflow of foreign capital.Compared with exchange regulations, tax provisions are of secondaryimportance in this respect. Foreign companies doing business inColombia are subject to Colombian tax laxv but their liability is limitedto income obtained from sources within Colombia. Salary paymentsto individuals not resident in Colombia may not be deducted, butnotwithstanding this limitation it is claimed that foreign companiesappear to evade Colombian income tax by making excessive deductionsfor costs imputed to their offices in Colombia. Salaries earned byindividuals residing in Colombia are taxable under Colombian law,even though they may be paid to accounts abroad.

Tax Administration

While the Colombian tax structure is fairly well designed on thewhole, the system of tax administration is entirely inadequate. Pre-cise estimates of under-collection are difficult to obtain, but it isgenerally felt that better administration and enforcement might raisethe total yield by one-third or more. Perhaps the most importan'cause of poor tax administration is the lack of adequate staff andtrained personnel. This is partly a matter of insufficient budgets andlow salary scales, and partly a matter of training. Even with moresubstantial funds, properly schooled candidates for employment wouldbe difficult to find. Apart from the inadequacy of the administrativestaff, rigorous enforcement of the law is difficult because taxpayersfrequently fail to keep proper accounting records. The failure tocollect all tax obligations is due in part to non-declaration by tax-payers subject to tax and in part to under-declaration in returns filed.

266 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Non-declaration occurs primarily with regard to individuals and part-nerships, while under-declaration is important xvith regard to all cate-gories of taxpayers. Under-declaration of property is less serious thanunderstatement of income, since the larger taxpayer may reduce hisexcess profits tax liability by registering a higher invested capital.

Under the present arrangement, the bulk of the tax returns areprocessed in the Regional Offices which are subject to the generalsupervision of the Central Office. There is one Regional Office foreach department. In 1946, some 1,400 people were employed in taxadministration; of these, one-half were employed as local collectors;about 45 percent were employed in the Regional Offices and lessthan 5 percent in the Central Office. Property tax assessments arenot subject to the jurisdiction of these units. They are made by theCatastro Office, but also under the supervision of the Finance Ministry.

The Regional Offices collect tax returns, compute liabilities onthe basis of information provided by the taxpayer, inform the taxpayerof the amount of tax assessed and collect the payment. Tax declara-tions are due by March 1 of each year and the assessments are largelyreturned by October. After receipt of the assessment, the taxpayeris required to pay wvithin fifteen days. In checking the taxpayer'sdeclaration and computing the tax, the auditors are authorized torequest additional information and to inspect the books wlhere neces-sary, but in practice this is seldom done. Due to lack of trained per-sonnel, auditing usually does not go bevond arithmetic checks of thetaxpayer's return.

The statutory responsibility of the Central Office is to issue policy7directives to the Regional Offices and to check their tax assessments.However, the staff of the Central Office is too small to permit exten-sive checking; out of over 50,000 returns assessed in the RegionalOffices, only about 500 are checked in the Central Office. Returnschecked in the Central Office include the more difficult returns oflarge companies. Also, the Central Office handles all appeals, about500 a year, except those based on purely arithmetic errors. It takessix months on the average to return a claim to the taxpayer. If he isunvilling to accept the decision, he may appeal again and if he rejectsa second decision of the Central Office, he may resort to the courts.But even though a taxpayer has entered a claim, he must pay the taxas initially assessed by the Regional Office and wait for later refunds.This frequently causes hardships. A further important function of theCentral Office is to value goodwvill in computing invested capital forassessment of the patrimony and excess profits tax. A complicatedprocedure is established for this purpose, reflecting one of the inherentdifficulties of excess profits taxation. Also, the Central Office rules

PUBLIC FINANCE 267

on the amount of salary deduction per employee to be permitted tocompanies.

The checking of tax returns, and especially retuirns from high in-come individuals and companies, requires considerable knowledge ofaccounting and business finance. Individuals possessing this knowl-edge cannot be attracted by the salary levels oftered to employees inthe revenue administration. In 1948, for instance, high ranking audi-tors in the Regional Office for Cundinamarca received monthly salariesof Ps.$450, while the salary for others (liquidators) ranged fromPs.$200 to Ps.$320. In the Central Office, the salary of the Chief of theIncome Tax Section, the most important unit in the revenue adminis-tration, was Ps.$700, while the salary of lawyers and accountants inthis same office ranged from Ps.$400 to Ps.$500. Although the ac-countants have to travel extensively, no special allowaance is made.Inadequate salaries and unavailability of trained personnel thus impairthe efficiency of tax administration and result in wastage of publicrevenues.

Budget Legislation and Procedure

The Colombian budget system as now constituted is an outgrowthof Professor Kemmerer's budget law of 1923. A revision of the orig-inal law was undertaken by Kemmerer in 1931 and since then therehave been several further changes, notably those of 1945, and DecreeNo. 164 of January 24, 1950.

The intent of the first Kemmerer law was evidently to constructa statute which would assure a policy of balanced budgets. Accord-ingly, it was provided that the Executive when submitting his budgetto Congress must hold expenditures within the limits of estimatedrevenue, other than borrowing. Throughout the following discussion,the term "revenue" is defined to include tax yield, fees, proceedsfrom public enterprises, etc., but to exclude borroxving. Only expendi-tures on public services which are self-liquidating (in the sense ofallowing a fee income sufficient to service the debt incurred) wereexemnpted from this rule. Next, it ivas provided that revenues (exceptfor nexv sources) shotuld be estimated to equal the average yield ofthe three preceding years. This was to prevent wavilful overestimationof yield. In order to prevent the budgetary balance from being upsetby Congress, the law forbade Congress to increase expenditures abovethe proposed total without also providing for new revenue. Congresswas, however, to be permitted to change expenditure items withillthe limits of the proposed total. In order to assure that the budgetarybalance should not be upset in the process of budget execution, the

268 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

law provided that the administration may not make expenditures inexcess of those provided in the budget.

As may be expected, these overly rigid rules wvere not adhered toand had to be amended. Kemmerer's revision of 1931 aimed at intro-ducing some flexibility. The new law permitted the government tomake additional expenditures in excess of appropriations if this ap-peared necessary while Congress was not in session. Such additionalexpenditures, howvever, were subject to the limitation that newprovision for revenue must be made at the same time.1 0 Withunfortunate lack of clarity the Act referred to the requirement fornew revenue as "nuevo ingreso" without making it clear whether theterm "ingreso" was to include borrowing or only revenues as definedabove. While the former interpretation came to be adopted, it isevident that the narrow interpretation of revenue was Kemmerer'sintent in the 1931 Act. It did not in any way relax the basic require-ment that the Government should present a balanced budget. Indeed,the 1923 provision that strictly self-liquidating public works mightbe loan financed was dropped in the 1931 law.1 ' Nor was there anyrelaxation of the estimating formula.

A further liberalization was introduced by the law of 1944 whichabandoned the rigid formula for yield estimating. The Governmentxvas then free to base estimates upon its appraisal of economic con-ditions, as long as there was an adequate explanation of the estimate.Congress, similarly, assumed the right to revise such estimates. Not-withstanding these adjustments, budget law and practice remainhighly unsatisfactory. In some respects actual practice disregards theintent of the laxv; in others, practices developed to circumvent thelawv in turn produced distortions of their owvn. Notwithstanding theseemingly clear and still applicable requirement of the 1931 lawv thatproposed expenditures should not exceed estimated revenue, theadministration has consistently included provision for loan finance as,vell as revenues in the budget proposal. Also, in contradiction tothe intent of the 1931 Act, the Executive showed an increasing ten-dency to undertake additional (extra-budgetary) expenditures on thebasis of loan finance. Much of this tendency to resort to additionalcredit, in turn, may be traced to the provision of the laxv which holdsthat Congress may shift expenditure items but not increase the total.To circumvent this provision, Congress adopted the practice of sub-stituting non-essential expenditure items for essential items proposedby the government. As a result, the government had to undertake

10 See Budget Act of 1931, Article 30D. The requirement for new revenue holdsonly if there are no balances available which are not appropriated for other uses.

11 See Article 3, Budget Act of 1931.

PUBLIC FINANCE 269

these essential expenditures, which had been dropped from the bud-get, as the basis of special credit. In recent years additional expendi-tures of this kind rose to nearly 40 percent of appropriations, thusresulting in a severe distortion of the whole budgeting process. Theliberalization of the estimating procedure provided for in the 1945law also led to abuse on the part of Congress. Congress frequentlyraised yield estimates without justification, merely to permit raisingthe overall level of appropriations within the limitations imposed bythe law.

Recently, the general rule that the proposed budget must be bal-anced has been dropped.' 2 In future, expenditures will be dividedinto "ordinary expenditures," which cover the essential minimumfunctions of government; "secondary expenditures," which includeless essential items and development projects; and "extraordinaryexpenditures" arising from domestic disturbances, wvar or othercatastrophes. Proposed ordinary expenditures will remain within thelimit of estimated revenues, but provision for loan finance may berecommended with regard to (1) extraordinary expenditures or (2)those secondary expenditures which are for developmental purposesand the loan financing of which has already been provided for bycongressional debt authorization. Revenue estimates again willbe made subject to a formula, although a less rigid one than providedfor originally. Ii warranted by economic conditions, the estimatedyield might be as much as 110 percent, or as little as 70 percent, of thepreceding three-year average. To avoid the distortions arising fromthe substitution of non-essential for essential expenditure items byCongress, and the resultant need for special credit, Congress willnot be allowed to reduce proposed items of ordinary expenditure.Also, Congress will be permitted to increase total expendituresonly if this does not alter the budget balance as provided for in theproposed budget. While this is a crucial point in the whole plan,the decree is ambiguous as to the interpretation of this rule.13 Also,it provides that the additional expenditures wvhich the Governmentmay undertake while Congress is not in session will be limited to10 percent of appropriations. Finally, a Budget Bureau is to be

12 Decree No. 164 of January 24, 1950.13 The experience since 1921 indicates the importance of a clearly written budget

statute but unfortunately the decree is far from clear. What does a requirement ofnot changing "the budgetary balance" mean? Does it mean that Congress shouldprovide additional tax revenues for all additional expenditures? Does it mean thatCongress may base all additional developmental or extraordinary expenditures on loanrevenue? Or does it mean that the original revenue to total expenditures ratio asproposed in the Government's budget must be kept intact? In this, as in other respects,more careful legislation is needed. To avoid confusion, the general term "ingreso"might be avoided altogether; reference should always be specifically either to revenue(as defined above) or loan finance.

270 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMIBIA

established. Under the direction of the Finance Minister, this bu-reau will have the function of preparing the budget and of coordinatingthe requirements of the various ministries.

The establishment of a Bureau of the Budget is an importantand altogether desirable step in improving the administrative 1nechan-ism of the Government and in strengthening the position of thePresident in his relation to the various ministers. The merits ofother aspects of the decree are less clear-cut. There is a basic ques-tion whether it should be the function of budget legislation to assurebudgetary balance, or whether any statute can be written wvhichwill do so effectively. Responsible legislation on public expenditurescannot be undertaken, of course, independently of provision for theirfinancing; and in a country like Colombia, the economy of wvhichpoints toward a predominance of inflationary conditions, tax ratherthan loan finance wvill generally be favored. Thuis, there is a case

for constructing the basic budget lawv so as to discourage loan financedexpenditures. At the same time, the evidence shoxvs that attemptsto legislate a balanced budget have been unsuccessful and that theirprimary effect has been a distortion of the general process of budgetmaking.

Budget Presentation

Distinct from the problem of budget formulation and execution,though with important bearing on good budget making, is the prob-lem of budget accounting and presentation. In this respect theColombian system is wholly unsatisfactory and in urgent need ofreform. The present form of presentation of financial data is suchthat it is virtually impossible for the citizen and legislator to obtaina clear picture of the state of Government finances. The concept ofdeficit or surplus as used in the official statements is of little economicsignificance. There is no ready w-ay of determining the effects offiscal transactions upon the size of the public debt, or of assessingtheir contribution to the level of demand in the economy. The absenceof such essential information, in turn, encourages fiscal legislationxvithout due consideration of the economic issues involved.

REVENUES AND EXPENDITURES OF DEPARTMENTS AND MUNICIPALITIES

DepartmentsThe fifteen departments into \vhicll the country is divided are

important administrative units even thoutgh they do not possess anygreat degree of political autonomy. Total departmental expendituresfor the fiscal year 1947-1948 amounted to Ps.$140 million, or somewhat

PlUBLlC FINANCE 271

over one-third of the national budget. Departmental, as -vell asnational, expenditures have shown a sharp increase from prewarvears and are noxv at about three times their 1940 level.

The composition of departmental expenditures is shown in Table91. Expenditures for the judicial system, hygiene, education anddlevelopment are the major items in the budgets of the departments.Somnewhat over 10 percent of total expenditures are transfers tomunicipalities. The level of departmental services differs greatly bydepartments. As shown in Table 92, per capita expenditures for1948 ranged from over Ps.$24 in Atlantico and Ps.$22 in Valle delCauca to less than Ps.$7 in Narifio. The differences in service levelsare brought out even more drastically if the per capita expendituresfor various specific budgetary items are compared. Per capita expendi-

TABLE 91DEPARTMiENTAl EXPFN-nTTLTRES, 1941-48

(millions of pesos)

1941-421 1945-461 1947-482

Administration ....... . 3.1 3.7 5.2Services . ...... ..... .... 1.0 2.2 1.2

Justice ................ ... 6.3 88 13.3Tax Administration 5. 7 8.5 11.2Hygiene and Beneficencia 3.5 8.9 13.8Culture .. .... 11.1 16.9 25.5Developmenit ......... 11.3 20.2 21.1Departmental Industries ..... 4.2 9.9 12.7Debt. 5.4 11.9 13.5

To Municipalities 6.3 9.8 16.8Othier .2.1 4.0 5.7

TOTAL .60.0 104.8 140.0

1 4nuario Gcneral de Estadistica, 1946, p. 788.2 Data supplied by Colntraloria General.

tures on hygienie in 1948 ranged from Ps.$3.4 in Atlantico to 40centavos in -Norte de Santander and Tolima and 30 centavos inBoyaci. Per capita expeniditures for education ranged from overPs.$5 in Atlantico and Valle del Cauca to Ps.S1.1 in Bovaca.

These differences in expenditure levels correspond closely to differ-ences in levels of departmental revenues. While the latter reflect tosome extent differences in tax effort, the primary cause is the sharpdisparity in the economic and fiscal capacity of the various regions.

TABLE 92

PER CAPITA EXPENDITURES BY DEPARTMENTS, 1945-481(pesos)

1945-1946 1947-1948

Develop- Develop-Total Hygiene Education ment Others Total Hygiene Education ment Others

Antioquia .................. .......... 14.7 1.7 2.3 2.4 8.3 18.2 2.3 3.7 1.6 10.6

AtlaIItico n.a. n.a. n.a. n.a. n.a. 24.2 3.4 5.3 2.2 13.3

Bolivar ..... . 7.8 .8 1.7 .9 4.5 7.9 1.2 1.8 .8 4.1

Boyaca .5.0 .7 .2 .5 3.6 7.7 .3 1.1 .7 5.6

Caldas ... ......... ......... 13.6 .8 2.2 3.3 7.3 14.7 1.6 2.7 3.2 7.2

Cauca. ..... 7.4 .4 1.3 .9 4.7 8.9 .8 1.9 1.1 5.1

Cun(linamarca . . .... .... ......... 12.2 .9 1.6 2.5 7.2 14.2 2.0 2.7 1.8 7.7

Huila . 1.2 .8 1.8 3.4 5.2 13.6 1.4 2.2 1.8 8.2

Magdalena .6.8 1.1 .8 1.1 3.8 17.4 1.6 3.8 1.0 11.0

Narifo ..... ........ .... ........ 4.7 .2 1.3 .3 2.9 6.6 .5 1.5 .9 3.7

Norte de Santaeder .10.8 .4 2.3 2.9 5.2 12.1 .4 3.4 3.1 5.2

Santallder .... .............. 1..... ] 0.3 .5 1.6 1.9 6.3 13.2 .8 2.4 3.3 6.7

Tolima . ... .... .. ......... 10.7 .4 1.7 1.2 7.3 11.1 .4 2.1 1.0 7.6

Valle dCl Cauca .15.8 1.9 2.9 4.4 6.6 22.3 2.2 5.2 4.8 10.1

ALL DEPARTMENTS 10.5 .9 1.7 2.0 5.9 13.9 1.5 2.8 2.0 7.6

1 PopUlation figures for 1946 from Anitario GceIeral de Estadistica, 1946, p. 35. Statistics on1 expenditures from Contraloria General.

PUBLIC FINANCE 273

The sources of revenue for the departments are shown in Table 93.By far the most important single source of revenue is the productionand sale of liquor through departmental monopolies. There are alsorevenues from various excise taxes, notably on beer, liquors originat-ing outside the department, and tobacco. In 1945-46 these three taxes,plus the revenues from liquor production, produced 83.5 percent ofall departmental income, apart from transfers from the nationaland municipal treasuries and borrowings. The percentages for differ-ent departments ranged from 90 percent in Cundinamarca to 74 per-cent in Bolivar. In the last few years the proportion of revenuesderived from liquor sales and taxes has declined somewhat as aresult of the prohibition of chicha and guarapo, but in 1947-48 theystill accounted for over 36 percent of all the departments' ownrevenues, as compared with 55.4 percent in 1945-46, and the proportionwas much higher in some departments.

TABLE 93

SOURCES OF DEPARTMENTAL REVENUES, 1941-48(millions of pesos)

1941-421 1945-461 1947-482

Departmental property ........ . .1 .3 .3

Departmental services 1.0 2.9 4.4

Liquor production, etc . -............ 19.0 39.9 31.1

Taxes on liquor and beverages - 6.8 15.9 11.7

Lotteries .... , 1.5 3.3 2.5

Various taxes ....................... 22.7 36.7 61.3

From National Treasury ..... ... 4.2 6.7 8.9

From municipal treasuries ....... .2 .4 .1

Other revenue ....... .............. .7 1.8 6.9

Borrowing .... ........... 4.8 13.4 8.6

TOTAL .61.0 121.3 135.8

I Data supplied by Ministry of Finance.2 Data supplied by Contraloria General.

Departmental lotteries, though heavily publicized and widely par-ticipated in, provide a relatively unimportant part of the total revenue-about 2 percent in the fiscal year 1947-48. However, lottery revenueis of some special importance since it is one of the major supportsof the social services rendered through the Beneficencia.

274 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Municipalities

The "municipios" (municipalities) are the units of local govern-ment in Colombia, more or less equivalent to counties or townshipsin the United States. There are more than 800 in all, ranging fromcities of several hundred thousand population to tiny hamlets andwholly rural districts. Aggregate municipal revenues and expendi-tures for 1948, compared with 1941 and 1946, are shown in Tables 94and 95.14 Similar data for the twelve cities with the largest budgetsare contained in Table 96.1a

TABLE 94SOURCES OF M1UNICIPAL REVENUES, 1941, 1946 AND 19481

(millionis of pesos)

Sources 19412 19463 19484

Municipal property ... 1.6 3.8 3.4Services . __.................. 9.8 19.7 33.0Taxes . .......... . 11.1 31.1 57.4Miscellaneous income; 1.1 3.1 4.1National Treasury .1.8 4.4 3.2Departmental Treasuries ... ...... 6.1 13.7 15.9Balance from previous years 3.1 4.8 11.8Borrowings .2.0 3.9 9.9

TOTAL6 ........ 36.6 84.4 138.9

l Except the Choc6, and comisarias and intendencias.2 Anuario General de Estadisticto 1941, p. 168.3 Ibid., 1946, p. 794.4 From Contraloria General.5 Fines, forfeit of deposits, interest, etc.6 Totals differ from sum of individual items because of rounding.

In the aggregate, miunicipal budgets were nearly balanced in 1948,Nvith expenditures of slightly over Ps.$130 million and revenues, ex-clusive of borrowing, of about Ps.$129 million. Howvever, out of thelatter sum nearly Ps.$72 million, or 56 percent, were received byonly four cities-Bogota, Medellin, Cali and Barranquilla-and afurther Ps.$17.5 million by eight others. Thus about 70 percent ofthe total revenues of Colombian municipalities accrued to twelvecities with about 18 percent of the country's population. All theothers had aggregate current income of only about Ps.$40 million.

14 For more detailed information see Appendix F.15 The data in these tables do not include 'valorizaciones"-assessments for special

imiprovements-wlhicli play an important part in municipal development in manycities and towns but do not appear in the regular municipal budgets. For somemunicipalities all revenues and expenditures of municipal utilities (power, water, etc.)are included; for others only their net income or deficit, depending on their relationto the municipal government; in still others the utilities are privately owned or non-existenit and so do not appear at all.

P-UBLIC FINANCE 275

TABLE 95

MUNICIPAL EXPENDITURES BY DEPARTMENTS, 1941, 1946 AND 19481

1941 Expenditures 2 1946 Expenditures4 1948 Expenditures6

Pesos Pesos Pesosper per per

Departments millions capita3 millions capita; millions capita7

Antioquia .7.7 6.1 20.9 15.1 38.5 26.8Atlantico. 2.0 6.7 5.5 15.5 6.4 17.4Bolivar ................ 1.1 1.3 2.2 2.3 4.39 4.4Boyaca ................ 1.0 1.4 1.4 1.8 2.39 2.9Caldas ................ 5.0 5.8 9.1 9.3 10.3 10.1Cauca ................ 0.5 1.3 1.0 2.4 1.3 3.0Cundinamarca .......... 9.1 7.2 16.58 12.1 33.39 23.5Huila ................ 0.4 1.7 1.0 4.3 1.5 6.2Magdalena ............. 0.6 1.5 1.1 2.6 1.79 3.9Nariio ................ 0.4 0.8 0.8 1.5 0.8 1.5Norte de Santander ... 0.9 2.5 1.2 3.0 3.0 7.2Santander ................ 1.8 2.8 3.1 4.4 3.8 5.2Tolima ................ 1.0 1.8 2.4 3.6 4.8 6.8Valle del Cauca ......- 3.4 4.8 6.3 7.4 18.3 20.6

Total ......... .. 34.9 3.8 72.5 7.2 130.3 12.5

1 Except the Choc6 and comisarias and intendencias.2 Anuario General de Estadistica, 1941, p. 170.3 Population estimates. ibid., p. 3.4 Ibid., 1946, p. 794.5 Population estimates, ibid., p. 35.6 From Contraloria General.7 Population estimates from Contraloria General.8 1946 figures for Cundinamarca from Contraloria General.9 Data supplemented with information of previous years.

TABLE 96

INCOME AND EXPENDITURES OF PRINCIPAL MUNICIPALITIES, 1948

Municipality Income Expenditures

(thousands)Bogota .. ..... Ps.$29,992 Ps.$29,585Medellin ... .... 29,227 31,100Cali . ......... ................... 12,663 12,457Barranquilla ... . .. 6,957 5,981Manizales ........................... . 3,766 2,357Pereira ..... -. ...... ......... 2,867 2,920Cartagena ... ...... ........ 2,856 2,566C6cuta . ..... 2,205 2.206Armenia .............................. 1,735 1,164Bucaramanga . ............................ 1,723 1,691Ibague ....................... 1,710 1,497Palmira .... .... ....... 1,176 1,042

Source: Contraloria General.

276 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

The paucity of local financial resources in most cases becomeseven clearer when these aggregate figures are broken down accordingto the size of revenues of the individual municipalities. Table 97summarizes these data for 1946 :16 no similar breakdowvn is yet avail-able for 1948. Nearly three-fifths of all municipalities, with 32.5 per-cent of the population, had total revenues in 1946 under Ps.$25,000each, averaging less than Ps.$11,000. This municipal poverty wasespecially acute in certain departments. In Boyaca, 111 out of124 municipalities, containing 89.5 percent of the population, werein the lowest revenue class, with average revenues of only Ps.$6,208in 1946, and a similar situation prevailed in Narinlo. Moreover, thepercentage increase in these lowest municipal revenues since 1946has apparently been less than for the wealthier communities, so thatthey tend to lag farther and farther behind.

TABLE 97

REVENUES OF -MUNICIPALITIES BY SIZE OF REVENUES, 1946(for 784 municipalities)

Estimated TotalNo. of Population Percent Revenues Percent Pesos

Size of Annual Munici- (thou- of Total (000 of Total perRevenues (pesos) palities sandls) Population pesos) Revenues Capita

Over 1,000,000 9 1,336 13.3 49,721 58.5 37.2500,000-1,000,000. . 7 298 3.0 4,702 5.5 15.8100,000- 500,000 . 68 1,759 17.6 13,247 15.6 7.550,000- 100,000 103 1,688 16.8 7,243 8.5 4.325,000- 50,000 147 1,684 16.8 5,145 6.1 3.1

Under 25,000 450 3,257 32.5 4,927 5.8 1.5

Total ......... 784 10,022 100.0 84,986 100.0 8.5

Source: Committee of Financial Experts, Ministry of Finance; data from Con-traloria General.

Because of the great differences in the nature of municipal func-tions in the various communities-from the elaborate complex ofpublic utilities and services in Medellin, for example, to the rudi-mentary services provided by the municipalities in rural districts-itis hard to draw any except very general conclusions from the overalldata on municipal expenditures in 1948, which are summarized inTable 98. The cost of municipal government has risen somewhatmore rapidly than the level of prices or of National Governmentexpenditures, increasing nearly fourfold from 1941 to 1948. In thesame period, there were substantial changes in the relative importanceof different categories of expenditure. The proportions of the budgetdevoted to "government," "welfare" and "education" declined, and

16 See Appendix E for more detailed figures.

TABLE 98NUMBER AND MONTIILY COSTS OF MUNICIPAL. PERSONNEI BY DEPARTMENTS AND FUNCTIONAI. GROUPS, 1948

Cundi- Norte de ValleFunctional Groups Antioquia Aflantico Bolivar Boyaca Caldas Cauca namarca Choc6 Huila agdalena Ndrilno Saontander Santander Tolima del Cauca Tota I

GovernmentNo. of Employees 2,467 695 1,031 440 1,244 553 783 130 299 469 963 684 763 987 1,515 13,023Monthly Costs Ps.$269,034 Ps.$ 76,572 Ps.$ 73,961 Ps.$18,235 Ps.$119,713 Ps.$20,151 Ps.$ 97,168 Ps.$ 5,259 Ps.$18,761 Ps.$25,254 Ps.$20,817 Ps.$53,138 Ps.$ 49,338 Ps.$ 86,112 Ps.$150,854 Ps.$1,089,367

Welfare & HygieneNo. of Employees 414 78 161 61 310 43 408 5 61 50 73 29 150 55 169 2,067Monthly Costs Ps.$ 89,906 Ps.$ 10,385 Ps.$ 15,128 Ps.$ 1,8243 Ps.$ 40,761 Ps.$ 1,494 Ps.$ 66,485 Ps.$ 170 Ps.$ 4,613 Ps.$ 3,217 Ps.$ 2,229 Ps.$ 2,240 Ps.$ 12,703 Ps.$ 4,630 Ps.$ 17,794 Ps.$ 273,598

JusticeNo. of Employees 83 8 IS IS 64 3 77 12 13 20 19 7 8 32 25 401Monthly Costs Ps.$ 13,749 Ps.$ 530 Ps.$ 1,209 s.$ 328 Ps.$ 5,609 Ps.$ 120 Ps.$ 10,152 Ps.$ 527 Ps.$ 650 Ps.$ 1,185 Ps.$ 595 Ps.$ 187 Ps.$ 525 Ps.$ 1,594 Ps.$ 1,874 Ps.$ 38,834

FinanceNo. of Employees 412 96 363 172 603 121 519 56 73 121 133 12i 349 190 241 3,570Monthly Costs Ps.$ 93,038 Ps.$ 16,988 Ps.$ 25,072 Ps.$12,376 Ps.$ 78,072 Ps.$ 7,175 Ps.$106,468 Ps.$ 3,212 Ps.$ 7,515 Ps.$ 7,962 Ps.$ 6,397 Ps.$1

6,055 Ps.$ 32,338 Ps.$ 41,240 Ps.$ 34,842 Ps.$ 488,750

Public WorksNo. of Employees 412 43 49 120 113 64 119 4 62 21 39 32 55 91 220 1,444Monthly Costs Ps.$ 47,236 Ps.$ 7,920 Ps.$ 3,760 Ps.$ 6,100 Ps.$ 13,256 Ps.$ 6,598 Ps.$ 37,381 Ps.$ 960 Ps.$ 6,554 Ps.$ 1,230 Ps.$ 2,599 Ps.$ 3,265 Ps.$ 8,850 Ps.$ 27,769 Ps.$ 28,002 Ps.$ 201,470

EducationNo. of Employees 205 20 45 79 268 106 333 I 10 I I 132 602 59 56 176 2,103Monthly Costs Ps.$ 20,608 Ps.$ 82i Ps.$ 2,466 Ps.$ 4,015 Ps.$ 27,198 Ps.$ 4,169 Ps.$ 35,474 Ps.$ 60 Ps.$ 500 Ps.$ 470 Ps.$ 3,298 Ps.$ 5,750 Ps.$ 2,478 Ps.$ 6,820 Ps.$ 17,630 Ps.$ 131,765

Municipal ControllerNo. of Employees 38 19 25 I 14 4 62 I 8 I 11 - 10 4 30 228Monthly Costs Ps.$ 13,013 Ps.$ 4,730 Ps.$ 3,580 Ps.$ 23 Ps.$ 3,305 Ps.$ 741 Ps.$ 18,371 Ps.$ 200 Ps.$ 1,710 Ps.$ 150 Ps.$ 1,100 Ps.$ - Ps.$ 2,390 Ps.$ 950 Ps.$ 6,400 Ps.$ 56,671

Other ServicesNo. of Employees 599 3 5 30 4 11 39 - 31 3 36 11 - II 8 791Monthly Costs Ps.$167,883 Ps.$ 220 Ps.$ 252 Ps.$ 993 Ps.$ 345 Ps.$ 405 Ps.$ 1,028 Ps.$ - Ps.$ 1,728 Ps.$ 21 Ps.$ 697 Ps.$ 1,595 Ps.$ - Ps.$ 1,440 Ps.$ 400 Ps.$ 177,007

TOTALNo. of Employees 4,630 962 1,6?4 9i8 2,620 905 2,340 209 557 696 1,406 1,486 1,394 1,426 2,384 23,627Monthly Costs Ps.$7 14,467 Ps.$1 18,166 Ps.$125,428 Ps.$43,913 Ps.$288,259 Ps.$40,853 Ps.$372,527 Ps .$10,378 Ps.$42,031 Ps.$39,489 Ps.$$7 Ps.587,230 Ps.$1 08,622 Ps.$170,555 Ps.$257,804 Ps.$2,457,462

Number ofMunicipalities 97 20 42 49 40 33 52 7 28 20 46 291 73 40 34 610

Source: Contraloria General.

278 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

there was an absolute decrease in overall municipal expenditures for"justice and public order." At the same time, the relative importanceof "finance" and "'public works" rose sharply, reflecting large outlaysfor development and improvement of municipal services, especiallyby the larger cities.

The revenues of local governmenits have increased generally inline with their expenditures. They are derived from three principalsources: receipts from the national and departmental treasuries, whichprovide about 15 percent of total municipal revenues (exclusive ofborrowings); income from municipal property and services (elec-tricity, water, public markets, etc.), about 28 percent; and local taxes,about 45 percent of the total. In addition, extra-budgetary incomefrom assessments for special improvements (valorizaciones) is quiteimportant in numerous cities. Each of these categories will be dis-cussed briefly in the following paragraphs.

National and Departmiental Aid.The relative importance of grants or shared taxes from higher

levels of government varies widely among the different municipalities.In 1946 these sources provided 22 percent of all municipal incomeother than borrowings, but the proportion ranged from 12 percentfor municipalities with budgets over Ps.$1 million each, to nearly42 percent for those with less than Ps.$25,000 income. The latterpercentage, however, is mainly a reflection of the small size of thebudgets of most Colombian municipalities. In absolute terms, thesum received from national and departmental sources by the firstgroup wvas three times that given to the last group, and the percapita contribution was more than seven times as great for the formeras for the latter. 1 7

Participation in departmental taxes yielded nearly 15 percent ofthe municipalities' total income in 1946 and about 12 percent in 1948.The allocation of these shares is the responsibility of each separatedepartment and in some cases it appears to be quite arbitrary orsubject to ad hoc negotiation between the departmental and municipalgovernments. Thus this source of revenue, so important to the poorermunicipalities, is usually uncertain and ill-adjusted to their needs.

Additional assistance from the departmental level, in the fields ofhealth and welfare, is given through the Beneficencia. Part of thesefunds goes to support hospitals and charitable institutions, and part isused to supplement municipal health and welfare programs. Evenwhen they are used for the latter purpose, however, they are notincluded in the municipal budgets.

17 See Appendix E.

PUBLIC FINANCE 279

Assistance to the municipalities from the National Government isprovided in three ways:

1. Certain municipalities share in the revenues frorm gold andsalt mines, and oil fields, located within their boundaries. This isan important source of income for the few localities affected, but isof little significance to the great majority.

2. Special grants are frequently extended by the Congress toparticular municipalities.

3. The Mtunicipal Development Fund, described in Chapter X,gives financial assistance for the construction of local public works.These funds are earmarked for specific projects and do not appearin the municipal budgets.

Tax remissions and grants from the National Government, asidefrom allocations by the -Municipal Development Fund, totaled nearlyPs.$6.2 million in 1946, and about Ps.$3.2 million in 1948. Revenuesearmarked for the Municipal Development Fund are currently yield-ing some Ps.$10 million annually; the volume of expenditures fromthis source fluctuates, of course, with the rate at which projects areapproved and construction progresses. Assistance from the NationalTreasury to the municipalities might be very important as a meansof equalizing the disparity in their resources and mitigating theextreme poverty of the majority of local governments. At present itdoes not seem to be serving that purpose effectively. In 1946, forexample, the regular contribution from the National Treasury tomunicipalities wvith revenues under Ps.$25,000 was less than 5 cen-tavos per capita, while the localities xvith larger revenues receivedfrom 20 centavos to more than Ps.$1 per capita, the largest contribu-tions going in general to the towns with the most ample reventuesfrom other sources. Special grants also benefited chiefly the wealthierurban centers.

Apparently this is not a deliberate policy. It results mainly fromthe fact that the larger towns are more potent politically and arebetter organized to present their needs and press their claims to theCongress and national administrative bodies. Mloreover, because ofthe greater concentration of population in the larger centers, theirrequirements are likely to be more obvious and to involve more com-plex and expensive facilities than those of small villages or purelyrural districts. But these circumstances are more than counterbalancedby the higher incomes and property values in urban areas, and by theexistence of many sources of tax and other revenues which are notavailable to smaller commtunities.

280 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Incomiie from Alunticipal Property and Services.

These categories of revenue are inmportant mainly for the largercities, where municipal utilities are well developed. They accountedfor only 16.4 percent of the total income (apart from borrowings) ofBogota in 1948, but were 39 percent of the corresponding total forMedellin, 40 percent for Manizales and Cartagena, 51 percent forCali. and 62 percent for Pereira. The difference is due chiefly todiffering relationships between the respective municipal governmentsand the public utilities which serve the people. The financial opera-tions of the Bogota Electric Company, for example, do not appearin the municipal account, except for the dividends it pays to thecity; in other localities, the major utilities are owned and administeredby the city, and their gross income and outgo are included in themunicipal budget.

Local Taxes.

The municipalities have been delegated the right to levy certaintaxes and, except for the real property tax, in general to set therates. These delegated taxes, which are the main source of or-dinary municipal revenue, fall into four main groups: real prop-erty, commerce and industry, motor vehicles, and miscellaneous (in-cluding fees and fines). A more detailed breakdown is given inAppendix F, but the specific taxes are actually much more variedand complicated than can be shown in summary form. For example,the 1949 budget estimate of Bogota contains 59 separate classificationsof taxes. A few of them serve some regulatory as well as revenuefunctions-e.g., the taxes on wveights and measures and on streetvendors and, to some extent, motor vehicle registration fees-but ingeneral the number of small, separately collected, and frequentlyoverlapping taxes is excessive from the standpoint both of adminis-trative efficiency and of public convenience.

The various taxes on industry and commerce are important mainlyin cities and larger towns. The tax base and rates vary considerablyfrom place to place, and in some cases at least seem to have no veryclose relation to the actual value or profitability of the enterprisetaxed. In BogotA, for example, the principal tax on industry andcommerce is applied on the basis of a study made in 1922, and therental value of the place of business is used as the main criterion fordetermining the tax. A special tax on foreign merchandise is leviedby a number of the larger towns and cities, especially BogotA. It is,in effect, an additional customs duty. In BogotA, in the first six monthsof 1949, it produced Ps.$525 thousand, or more than 6 percent of thecity's income from all taxes and charges.

PUBLIC FINANCE 281

The land is still the major source of Colombian production andwealth, and the tax on real property in the nature of things shouldbe the basic financial resource of the Colombian municipalities. Infact, however, its revenue possibilities have generally been realizedonly to a very limited extent. This is one of the reasons for theextreme poverty of local governments in rural areas.

Although the "impuesto predial" is more important than any othersingle tax, its total yield in 1946 wvas only Ps.$6.7 million, or only7.9 percent of aggregate municipal revenues. The street cleaning andlighting tax, levied in some localities on the same basis as the"predial," provided an additional 2.8 percent of municipal income. Theroad tax, xvhich principally affects rural areas, is apparently leviedin some localities on a property valuation base and in others as auniform head tax for which labor on the roads may be substituted.

The nornmal rate of the real property tax is generally Ps.$2 perthousand, to wlhich an additional 2/1000 wvas added by a special decreeon July 19, 1948. This added revenue, however, goes to the NationalGoverniment for support of the Rural Police Corps and for the Munici-pal Development Fund. Some of the larger cities have rates gradu-ated upward to 8/1000 for properties \vith high valuations or forunimproved land in built-up areas, and the maximum in Bogota is9/1000 which, however, includes a street cleaning and lighting tax.i8

In the past, satisfactory application of the real property tax hasbeen complicated by unequal and unrealistic assessments. In 1942,howvever, the Instituto Geografico Militar y Catastral, a unit of theMinistry of Finance, started a comprehensive reassessment of realestate throughout the country, based on a uniform and detailed classi-fication of land and improvements and on up-to-date standards ofvalues. The value of the properties reviewved through 1948 is estimatedat over Ps.$12.8 billion, and it was hoped to cover a further Ps.$5billion wvorth of properties in 1949. As of March 1949, the reassessmenthad been completed in 351 municipalities and was in progress in 66.The survey had added over 160,000 properties to the tax rolls (anincrease of 23 percent) and of course had brought valuations into linewvith current higher prices.' 8 The task is supposed to be completedby 1952 or 1953. It is intended to keep assessments up-to-date bychecking current sales prices, and to make a general review of eachlocality at five-year intervals.

"Valorizacion." Most of the larger municipalities have adopted--and the others are authorized to adopt, subject to approval by the

18 See Appendix F.

282 THE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOMBIA

departmental governor-a system of "valorizacioni" taxes to financesuch improvements as streets, sewvers, park-s and the like. These arespecial assessments levied against the properties wvhose value is en-hanced, or is considered by the municipality to be enhanced, by theproject in question. In Bogota the procedure is to estimate the costof the work, add 20 percent, and allocate the resulting expense amongthe properties affected, in proportions varying directly with the sizeof the property and indirectly xvith its distance from the improvement.The area affected is limited for some purposes to 120 meters, and forothers to 200 meters, on each side of the improvemenit.

In practice, the "valorizacion" system is open to certain abuses.The 120- or 200-meter limit on its application is an arbitrary one, andnmay have little relation to the benefit actually received by a particularproperty oxvner. Basing the assessment on 120 percent of the cost ofthe project makes provision for contingencies in the cost, but alsoopens the wvay to waste or diversion of funds, and offers a temptationfor the municipality to expand its regular revenues under the guise of"valorizacion." But these defects are not inherent in the "valorizacion"technique, and it should not be difficult to guard against them. Inpriniciple, the system provides a simple, practical and generally equi-table means of financing special improvements.

THE PUBLIC DEBT

The composition of the public debt and its growth during the 1940'sare showvn in Table 99. These data must be used with some cautionsince they are derived from different sources and are not entirelycomparable. Nevertheless, they suffice to showv the general magnitudeof the public debt and its components.

Nearly three-fourths of the public debt estimated in Table 99 isdomestically held. Of the remainder, about 75 percent is owned by theNational Government, including obligations arising out of Governmentguarantees. All the external debt is oxved in dollars, except for sterlingobligations of the National Government totalling about £2.2 million(Ps.$12 million).

Nationcal Debt

The distribution of the national debt by types of holders is dis-cussed at length in Chapters XIV and XV and need not be consideredhere. However, some comments may be made regarding the types ofdebt instrument and the level of interest rates. About half the externaldebt is in the form of 30-year, 3-percent bonds due in 1970, issued inexchange for various earlier National Government or Government-guaranteed issues which wvere in default or arrears during the 1930's.

PUBLIC FINANCE 283

TABLE 99

PUBLIC DEBT OF COLOMBIA, 1940-49(millions of pesos, converted at current exchange rates for external debts)

Dec. 31, 1940 May 31, 1948 June 30, 19491

NATIONAL 221.0 497.5 533.8External 2 ............. . 129.03 146.04 165.05 6Internal 2 92.03 351.54 368.87

DEPARTMENTAL .... .... 111.3 150.9 106.8External

3................ 91.08 105.49 66.55

Internal3

............. 20.38 45.510 40.311

MUNICIPAL _............... 47.4 98.3 158.1External3 34.112 33.19 18.15Internal .............. 13.33 12 65.23 10 140.02 13

TOTAL . ................ 379.7 746.7 798.7External ................ 254.1 284.5 249.6Internal .125.6 462.2 549.1

1 Estimated.2 Includes both floating and funded debt.3 Includes funded debt only.4 Revista del Banco de la Repi'blica, November 1948, p. 1328.5 Estimate based principally on SEC Registration Statement submitted in 1949.

Bonds covered by negotiated settlements are included at new par values.6 Does not include U.S.$21,254,000 of Export-Import Bank credits granted but

uildisbursed as of June 30, 1949.7 Revista del Banco de la Repablica, July 1949, p. 828.8 Ibid., May 1940, p. 202.9 Data for Dec. 31, 1947, supplied by the Ministry of Finance.

10 From statement supplied by Stabilization Fund.11 For May 1949, from Banco de la Republica.12 Ainuario General de Estadistica, 1940, pp. 160 and 165.13 From Contraloria General, Banco de la Repb6lica, and individual muicipalities.

The internal debt is very largely in the form of long-term bonds;short-term obligations amount to less than 20 percent of the total.The bonds carry a fixed coupon rate payable until maturity. Eachyear a certain fraction of each issue (stipulated at the outset) is to beretired and the particular serial numbers to be retired are determinedby lot. The holder, therefore, does not know the term of his invest-ment, except that the maturity date for the issue as a whole determinesthe maximum possible period.

As shown in Table 100, over two-thirds of the funded domesticdebt outstanding in 1948 had maturity periods of more than 20 years,and less than 2 percent had maturity periods of less than 10 years.This, however, does not mean that no retirement payments will bemade before the final maturity date. The annual rate of amortization

284 THE BASIS OF A DEVELOPMENT PROGRAMv FOR COLOMBIA

TABLE 100

DOMESTIC DEBT OF NATIONAL GOVERNMENT BY TYPES OF ISSUE, MAY 1948

Amounts Outstanding

Percent ofYears to Maturity Million Pesos Funded Debt

Under 10 . . .. ........ 4.3 1.4

Over 10, under 15 . . . 17.7 6.1

Over 15, under 20 _ . . 50.3 17.4

Over 20, under 25 115.9 40.0

Over 25, under 30 101.6 35.1

Total Funded Debt 289.8 100.0

Floating Debt 61.7

Total .351.5

Amounts Outstanding

Rate of interest on Funded Debt Million Pesos Percent

4 . . . 53.3 18.4

5 . 56.5 19.5

6% . ...... 180.0 62.1

Total Funded Debt 289.8 100.0

Source: Stabilization Fund.

is spread quite evenly over the lifetime of the bonds, so refundingreqnirements also remain at a fairly even annual rate. The lowerpart of the table shows the distribution of the debt by the rate ofinterest paid. About two-thirds of the issues carry a coupon of 6percent per annum, the remainder being split about equally between4 and 5 percent bonds. As previously noted, these rates are muchbelow the yields obtainable in private investment.

Departmental Debt

The departments' indebtedness has decreased substantially, bothin relative importance and absolute magnitude, since 1940. The size oftheir external obligations, in particular, has been greatly reduced byopen market purchases of defaulted bonds and by the recent debt

PUBLIC FINANCE 285

settlements. -Most of the departments' foreign borrowing was forrailways, roads and public works, responsibility for which has beenlargely assumed by the National Government; and no external loansof any consequence have been contracted by the departments since1928, when a law was passed requiring that all such loans be approvedby the National Government.

Two-thirds of the funded domestic debt of the departments wasissued for 20 years, and most of the remainder is of 10- or 1Z-yearmaturity, as is shown in Table 101. Fifty-eight percent of the bondscarry an interest rate of 7 percent, and substantially all the restare 6 percent issues.

TABLE 101

DOMESTIc FUNDED DEBT OF DEPARTMENTS BY TYPES OF ISSUE, MAY 1949

Amounts Outstanding

Years to Maturity Pesos Percent

Under 10 . . . . . 37,500 0.1

10-14 .. . ... ..... 11,236,230 27.9

15-19 . . .. . 2,200,200 5.4

20. . . 26,812,770 66.6

Total . . 40,286,700 100.0

Amounts Outstanding

Rate of Interest Pesos Percent

4 % .. ... .... ...... .... 844,000 2.1

6 % . .. . . 15,898,160 39.5

6%2% .. .5 . 22,000 0.6

7 % ... . 23,292,540 57.8

Total. ... 40,286,700 100.0

Source: Banco de la RepTiblica.

In 1949 Antioquia owed some 44 percent of total external depart-mental debts and about 25 percent of the funded internal debt, asshown by Table 102. Cundinamarca owed more than 17 percent of theexternal, and 16 percent of the domestic, obligations. Caldas accountedfor about 16 and 15 percent, respectivelv, and Santander for a littleover 4 and 18 percent.

286 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

TABLE 102DEPARTMENTAL FUNDED DEBT, MAY 1949

External DebtOld Par New Par

Department Internal Debt Values Values(000 omitted)

Antioquia Ps.$10,022.4 U.S.$12,361.6 U.S.$14,833.9Atlantico 948.3 -Bolivar 1,322.0Boyaca ........ ...... ..... 2,109.9 -Caldas 6,212.2 4,612.0 5,534.4Cauca .558.2 -Cundinamarca 6,620.0 4,940.0 5,928.0Huila .1,056.8 -Nariho .. . 162.5 -Santander 7,439.2 1,243.0 1,491.6Norte de Santander . . 37.5 - -Tolima .. . 2,379.8 900.0 1,080.0Valle del Cauca. .. 1,327.7 4,397.0 5,276.4Comisaria de Caqueta . 90.2 - -

Total Ps.$40,286.7 U.S.$28,453.6 U.S.$34,144.3

Source: Banco de la Rep6iblica.

Municipal DebtThe internal debt of the municipalities consists mainly of short-

term obligations to banks and commercial houses; their aggregateinternal funded debt (in October 1949) was only Ps.$54,193,260.19

All the external, and 85 percent of the internal, debts were owed bythe four largest cities. Their approximate debts follow:

External Debt Internal Debt(000 omitted)

BogotA . U S.$1,050 Ps.$ 81,376Xledellin 5,400 32,603

Barranquilla 1.240 312Cali . . 1,260 4,788

U.S.$8,950 Ps.$119,079

The only other cities wvith substantial debts (all internal) areMIanizales, which at the encl of 1948 had a debt of about Ps.$6.8millioni; Pereira, Ps.$2.3 million; Armenia, Ps.$1.85 million; Bucara-manga, Ps.$1.8 million; Cucuta, Ps.$1.4 million; and Popayan, Ps.$870 thousand.2 0 Together they accotut for an additional 11 percentof the ag gregate internal debt of Colombian municipalities. Expendi-tures for debt service for all m1unicipalities in 1948 wvere about Ps.$12.3 million, of wlich 72 percent was expended by the four largestcities shown above. The interest rate for about two-thirds of thedomestic funded debt of the municipalities is 6 percent; about one-fourth is at 7 percent, and the remainder at 4 percent.

19 Bancu de la Republica.20 From Contraloria General.

CHAPTER XIV

Money, Deficits and Inflation

Inflation has profoundly influenced the economic history of Colom-bia during the last decade and is still characteristic of the Colombianeconomy. The avoidance or control of inflation will probably con-tinue to be major problems jor years to come. It is important, there-fore, to understand the causes of inflationary developments in Colombiaduring recent years and what may be done to provide moreeffective controls in the future. This chapter considers first somegeneral characteristics of Colombian inflation; then the roles of creditand fiscal policy are explored in some detail.

CAUSES OF INFLATIONARY DEVELOPMENTS

The index of consumer goods prices, wvhich1 provides the bestsingle measure of Colombian inflation, rose from an average of 100in 1940 to 182 in 1946 and 272 in December 1949, as shown in Table103. This increase of 172 percent, the larger part of wvhich occurredin the postwar period, reflects about the average rate of inflationin South American republics during the 1940's. While there was adistinct slowing down in price rise by the middle of 1949, inflationaryforces were still at work and carried the index to new heighlts inearly 1950.

Wartime inflation in Colom>bia, as in other parts of South America,resulted from expansion in the supply of money simultaneotusly withcontraction in the supply of goods. During the war years the greatlyexpanded value of exports xvas accompanied by a forced shrinkage ofimports. Export proceeds, therefore, could not be returned abroadthirough the purchase of imports and increased the domestic moneyrsuipply. In.creased incomes from exports and increased holding-s ofmoney in turn added to domestic demand. Since domestic productioncould not be expanded substantially and since no general system ofdirect controls could be effectively applied, increased demand resultedin a rising level of domestic prices. But the entire pressure was notreflected in the cost of living; much of the additional purchasingpower was directed into speculation in shares, land, buildings andother capital values. Rising prices, and especially rising capitalvalues, induced expansion of bank credit and thus added further toinflation.

287

288 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

TABLE 103

PRICE INDICES, 1940-1949

Annual Average December1940 1946 1948 1949

Prices of consumer goodsl.. 100 181.8 250.1 271.7

Foodl . . 100 192.7 265.7 275.9Housingl . 00 146.8 199.8 248.0Clothingl 100 197.3 250.1 277.7

Construction materials 100 226.S 254.4 286.6Coffee 2

... . ... . 100 276.2 398.9 716.1Cattle 100 217.0 335.5 415.3Shares . ...... 100 186.9 126.5 130.1Wages3 10 0 1 5 1 .0 4 255.0 -

I Cost of living for middle class in Bogota, see Revista del Banzco de la Rep4lblica.2 Medellin, excelso.3 From 1940 to 1945: estimates for Departments of Boyaca, Cundinamarca, San-

tander, supplied by Contraloria General de la Republica. From 1945 to 1948: esti-mated average wages in manufacturing, same source.

4 1945 figure, 1946 not available.

With the close of the war, imports again became available. Back-log demands for foreign goods were released and the wartime accumu-lation of foreign exchange provided a ready means of finance. Theredeveloped a scramble for imported capital equipment and durableconsumer goods which had been unavailable during the war. Not-withstanding a continued high level of export income, exchangereserves were depleted in the course of sixteen months. Heavyimports of capital goods permitted rapid expansion in domestic manu-facturing and mechanized agriculture. The import boom and therecord level of domestic investment again induced additional expan-sion of commercial credit. Increased Government expenditures, deficitsand extension of credit to public lending institutions contributedfurther to inflation. Due to favorable conditions in the coffee market,export proceeds remained high and boom conditions continued toprevail after exchange reserves had been depleted and stricter importlimitations were applied.

Usually price inflation, which of course is a result of increasedexpenditures unmatched by equivalent increases in the supply ofgoods, is associated with an expansion of money supply. This inturn may be both a cause and a result of the inflationary process.The relationship between increases in money supply and prices inColombia is shown in Table 104. The term "money supply" is heredefined to include the total of currency outside banks plus demandand term deposits at commercial banks. Savings deposits are excluded.

MONEY, DEFICITS AND INFLATION 289

For the period from 1940 to 1949 as a whole, the cost of living,or price level, rose 172 percent, while the money supply increasedover 340 percent. But the relationship differs for the war and postwarperiod. From 1940 to 1946 the money supply increased 250 percentcompared with a rise in price level of 82 percent; from 1946 to 1949the money supply increased 27 percent while prices rose by nearly

50 percent.

TABLE 104

INCREASES IN MONEY SUPPLY AND PRICES, 1940-1949

1940-1946 1946-1949 1940-1949

Increase in money supplyl

in pesos ...... ................ 527.8 199.6 727.4

in percent ...................... 248.6% 27.0% 342.6%

Increase in cost of living 2

in index points .................... 81.8 89.9 171.7

as percent ............ ...... 81.8% 49.4% 171.7%

1 See Table 105. Figures for 1940 and 1946 are annual averages; figure for 1949is for June 30.

2 See Table 103.

During the war years, the unavailability of imports led to thepostponement of purchases. Individuals held larger cash balancesand funds were diverted into speculation in capital values. This isreflected in the movement of share prices and real estate transactions.The price of shares increased by 85 percent from 1940 to 1946 andthe value of annual real estate transactions rose from Ps.$65 millionto Ps.$311 million. With the reappearance of imports, available fundswere directed into the purchase of capital equipment, automobilesand other durable consumer goods; and as the newly available goodsremained scarce, these prices were bid up rapidly. The movement ofshare prices, at the same time, was reversed; notwithstanding excel-lent profit prospects, share prices declined during 1947 and 1948. Realestate transactions continued to increase but at a slower rate.

The same development may be seen when examining changes in

the ratio of money supply to national income. In 1940, the nationalincome amounted to approximately four and a half times the moneysupply, but by 1945 this ratio had declined to a little over three. In

290 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLO-MBIA

other words, during the war years purchasing power increased at afaster rate than expenditures on goods and services. By the closeof 1949 the money supply to national income ratio again returnedto close to its prewar level; the increase in goods and services expendi-tures apparently was more rapid during the postwar years than the

further rise in money supply.

Sources of Increcase in Money Supply

In order to analyze the causes of inflation, it is useful to examinethe sources of increase in the money supply. The money supplyincreased from December 31, 1940 to June 30, 1949 by Ps.$728 million,raising the total from Ps.$212 million before the war to Ps.$940million in June 1949. Of this total money supply (excluding savingsdeposits) about two-thirds were in the form of deposits and one-thirdin the form of currency, as shoxvn by Table 105. Nearly the entirecurrency supply is in notes issued by the Banco de la Republica. The

deposits, nearly all of which are held at commercial banks, are heavily

concentrated in a small number of major banks which operate country-wide branch systems. As shown in Table 106, about 40 percent of

the increase from 1940 to 1949 was in the form of currency and theremainder in the form of deposits. In addition to this increase in

the money supply, there was also a sharp expansion in the volumeof savings deposits which rose from Ps.$9.5 million in December 1940to over Ps.$90 million by June 1949.

Since the additional supply of money was very largely in theform of increased bank credit (deposits or notes), with the issuanceof treasury currency of minor importance, our main concern is the

causes of increased bank credit. Three main causes may be dis-tinguished: (1) the inflow of foreign exchange during the war years

in payment for exports; (2) the expansion of the volume of bankloans to business; and (3) the extension of bank loans to the

Government.

An attempt is made in Table 107 to trace the increase in moneysupply to these three sources, with a further distinction being drawnbetween credit originating from the Banco de la Repdblica and fromthe commercial banks.1 The relative importance of these sources of

I Table 107 bears some similarity to Table XXXIV in the Revista del Banco de laRep tiblica, May 1949, page 549. How%ever, the latter table does not allocate Banco dela Rep6blica and commercial bank credit to various types of borrowers.

TABLE 105

MONEY SUPPLY, 1940-1949(millions of pesos)

DEPOSITS CURRENCY

Banco de la Republica Banco de la GRANI)

Dec. 31 Commercial Total Treasury Rep6blica In Banks Total TOTAL

Treasury Other Banks Notes

(1) (2) (3) (4) (5) (6) (7) (8) (9)

1940 .11.0 13.8 107.6 132.4 28.1 62.3 10.5 79.9 212.3

1941 .11.3 13.7 117.4 142.4 28.1 74.4 7.5 95.0 237.4

1942 .10.3 20.7 151.6 182.6 28.2 103.6 12.0 119.8 302.41943 .30.7 42.7 187.9 261.3 28.5 125.4 9.2 144.7 406.01944 ........ . 31.1 28.1 251.6 310.8 29.0 179.3 10.1 198.2 509.0

1945 .64.1 27.2 300.0 391.3 29.9 204.9 13.3 221.5 612.81946 .53.2 32.6 379.7 465.5 31.9 260.1 17.4 274.6 740.1

1947 .31.5 33.8 401.4 466.7 34.7 297.9 20.3 312.3 779.0

1948 .20.8 28.8 457.0 506.6 35.6 361.8 22.9 374.5 881.1

19491 .14.3 29.5 535.3 579.1 35.6 347.3 22.3 360.6 939.7

1 June 30.Column (3) Includes dlemand deposits and term deposits. Excludes savings deposits and interbank deposits.Column (5) Revista del Bnnco de la Reptiblica.Column (8) Columns (5) plus (6) minus (7).Column (9) Columns (4) plus (8).Source: Balance sheet of the Banco de la Repdtblica, Ansnual Report of Banco de la Repdiblica, 1948, and Appendix G.

292 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

TABLE 106

ANNUAL INCREASE IN MONEY SUPPLY, 1941-1949

INCREASE OVER PRECEDING YEAR

PercentageYear Deposits Currency Total Increase

(millions)

1941 ........ . Ps.$10.0 Ps.$15.1 Ps.$ 25.1 11.81942 40.2 24.8 65.0 27.41943 78.7 24.9 103.6 34.31944 . 49.5 53.5 103.0 25.41945 80.5 23.3 103.8 20.41946 74.2 53.1 127.3 20.81947 1.2 37.7 38.9 5.31948 . . . 39.9 62.2 102.1 13.119491 . . . 72.5 -13.9 58.6 6.7

I January 1 to June 30.

TABLE 107

SOURCES OF MONEY SUPPLY, 1941-1949(millions of pesos)

Sources 1941-45 1946-48 1948-491

FOREIGN EXCHANGE ............... ......... 265.9 -121.9 -11.0

CREDIT TO GOVERNMENT AND PUBLIC

INSTITUTIONS .. 25.2 163.6 13.3

Banco de la ReptiblicaGovernment ....... ..... ... 15.8 66.4 2.8Stabilization Fund ...............-... .............. - 1.6 28.2 -5.3Caja de CrGdito Agrario and other mem-

ber banks ................................ ..... .... -2.5 33.7 4.9Banco Central Hipotecario .... ... ... ..... -3.2 29.0 -4.8Caja Colombiana de Ahorros.. - 8.0

Commnercial BanksGovernment .......... . .... .. ......... .... 16.7 - 1.7 15.7

CREDIT TO PRIVATE BORROWERS2... 107.9 220.6 56.4

Banco de la Republica .... . -21.1 17.5 51.9

Commercial banks ...... 129.0 203.1 4.5

TREASURY CURRENCY 1.8 5.7 -

TOTAL ............ ............ ... 400.8 268.0 58.7

1 January 1, 1948 to June 30, 1949.2 Also includes miscellaneous items in balance sheets of Banco de la Rep6blica and

commercial banks.Source: Anitual Report of Banco de la Rep6blica, and AppendiK G.

MONEY, DEFICITS AND INFLATION 293

increase differs sharply between the first and second half of thedecade. From 1941 to 1945, exchange inflow was the largest factorof increase but subsequently exchange outflow was about equal toone-half of the initial inflow. The extension of credit to the Govern-ment was a small factor up to 1945 but it became substantial there-after. However, bank lending to private borrowers was the mostimportant factor throughout. Though the direct extension of creditto private borrowers was largely a matter of lending by commercialbanks, this could not have occurred without the concomitant increasein Banco de la Rep6blica credit.

International Aspects

Inflation has been connected closely with international develop-ments. To a considerable extent, it has been the direct result ofthe country's international position. Exchange proceeds accountedfor a sizable share of the increase in money supply, and the unavail-ability of imports during the war accounted for the accumulation'of backlog demands. In addition, some degree of inflation xvas anecessary adaptation to developments abroad. While this does notfully account for the degree of inflation in Colombia, it is evidentthat it xvould have been difficult and, indeed, undesirable for any onecountry to maintain price stability in view of rising prices in theUnited States and other Latin American countries.

A policy of preventing any price rise might have had seriousdisadvantages. Maintenance of a stable price level would have re-sulted in large peso profits to exporters as the price of exports wouldhave risen with the world market, while the cost of productionwould have remained constant. Maintenance of general price stability,at the same time, xvould have required a decline in the prices ofdomestically produced goods in order to offset the higher prices ofexport and import goods. Thus a large section of the domesticeconomy would have suffered depressed conditions. In fact, shortof considerable appreciation in the value of the peso, foreign exchangemight have continued to accumulate. Most important, the low levelof domestic income and prices would have discouraged demand forcapital goods imports at high foreign prices. Thus economic develop-ment woould have proceeded at a slower rate.

Considerations such as these suggest that it would be unreasonableto expect one country, such as Colombia, to isolate itself from infla-tionary developments abroad. Some degree of price inflation wasnecessary in order to permit Colombia to benefit from the worldprosperity in the postwar period; without it, the country could nothave experienced the high degree of capital formation that did occur

294 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

and the benefits of postwar prosperity could not have been spreadamong groups engaged in production for domestic as well as forexport markets. At the same time, it is evident from the pressureon exchange controls that the actual expansion of money supply in1947 and 1948 was excessive in relation to the prevailing rate ofexchange.

EFFECTS OF INFLATION

The inflationary process resulted in forced savings and thus sus-tained a high though distorted rate of capital formation in the post-war years. According to estimates presented in Chapter IV, privategross capital formation rose from 8 percent of the gross nationalproduct in the late 30's to about 12 percent in the postwar years. Thehigh profit margins and rising capital values created by inflationencouraged a record rate of investment. The accumulation of largecash balances during the war years, as well as the ready availabilityof new credit, enabled investors to finance their expansion programs.These capital expenditures in competition with other demands addedto inflationary pressures, and by bidding resources away from otheruses resulted in a high rate of capital formation.

Primarily this took the form of devoting a major portion offoreign exchange resources to the importation of capital rather thanconsumer goods; to a lesser extent it diverted domestic resourcesinto capital formation. Whether this high rate of capital formationwas desirable or whether there should have been more imports ofconsumer goods is a matter of judgment. There is no objectivebasis on which to decide just how fast capital formation shouldproceed; yet it is evident that the advantages to be derived fromcapital formation are especially great in an underdeveloped countrysuch as Colombia.2

Thouah inflation increased the rate of capital formation, it alsocontributed to the misdirected use of capital resources. Capitalformation under inflationary conditions tends toward projects whichwill be profitable over the near-term rather than to long-term eco-nomic development needs. Thus there has been a great deal ofspeculative investment and of investment not directed to meetingessential needs. This appears to have been the case especially inconstruction. Under more stable conditions it is likely that thedirection of capital formation would have been more in line witlbasic needs of the economy. And since capital is scarce in Colombia,the country can ill afford misallocations.

The effects of inflation upon the distribution of Colombian incomeare difficult to ascertain. As showvn in Table 103, the increase in prices

2 See Chapter IV.

MONEY, DEFICITS AND INFLATION 295

differed considerably in various areas of the economy. Coffee prices,in particular, increased more rapidly than did most other prices. Profitincomes, undoubtedly, rose much more rapidly than did wage incomes.An attempt was made in Chapter III to appraise the distribution ofincome for 1947. Those estimates w,Aere based on scanty data and thereis even less information for estimating changes in income distributionbrought about by postwvar inflation. The only continuous data ondistribution of income by size groups are provided by income taxreturns. These returns, as well as the increase of profits relative toother distributive shares, suggest that inflation has tended to increasethe inequality of income distribution. From 1943 to 1947 the numberof taxable returns increased from 54,800 to 80,500, reflecting a generalupward shift in the size of income as well as improved tax adminis-tration. At the same time, the degree of inequality in distribution oftaxable income increased. Arranging taxpayers by size, we find thatthe top 10 percent of taxpayers in 1943 received some 35 percent oftotal reported income, but by 1947 their share had risen to about40 percent. The share received by the top 20 percent of taxpayerssimilarly increased from 67 to 73 percent.

However, only a very small fraction of the total number of incomerecipients is included in the income tax data. .Some-95 percent. of thepopulation receives incomes beloNv the exemption. limit of Ps.$1,000_peiperson and income tax reporting is rather deficient. However,scattered data on the earnings of farm and industrial workers suggestthat the picture would be similar if a larger sample were available.

MONETARY AND CREDIT POLICY

Structure of the Banking SystemThere are ten domestic commercial banks of major size and four

foreign banks, but nearly 70 percent of all commercial bank deposits arewith the three largest domestic banks which have branches throughoutthe country. While the structure of the commercial banks is similarto that of the United Kingdom or Canada. the organization of theBanco de la Republica and its relation to the commercial banks aremodeled after the Federal Reserve System of the United States. Allcommercial (and some non-commercial) banks are member banks ofthe Banco de la Republica. They must hold their required reserves,amounting to 15 percent of demand and 5 percent of time deposits, ondeposit with the Banco de la Repuiblica. Only the Banco de laRepublica has the privilege of note issue. By using its powver torediscount and to change reserve requirements, the Banco de laRepublica could exert control over commercial bank reserves andtheir lending capacity. Bank examination, among other functions,

296 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

rests with the Superintendent of Banks, who is appointed by thePresident and is independent of the Banco de la Repuiblica. In additionto the commercial banks, there are a number of semi-public creditinstitutions providing for savings deposits, mortgages and farm credit.These have been considered in Chapter IV.

Central Banking PolicyThe extension of credit by the Banco de la Repuiblica is of twofold

importance. When the Central Bank makes a loan to the Governmentor purchases paper in the market, it thereby creates deposits and thusincreases the money supply. So far the result is the same as if the

\ loan had been made by a commercial bank. However, credit creation.by the Central Bank also adds to the reserves of commercial banks.3

The ability of commercial banks to create credit is thereby increased;and since credit creation may proceed on a multiple basis (vith reserverequirements of 15 percent, each additional Ps.$1 of reserves permitsover Ps.$6 of credit creation), 4 changes in the reserve position ofconmmercial banks are of great importance. At times, lendinig by theCentral Bank is aimed directly at providing commercial banks with

3 Since the relationship of Central Bank lending to the reserve position of com-mercial banks is of basic importance to monetary policy, it may be well to explain thematter in some detail. Suppose, for instance, that the Banco de la Repuiblica makes aloan to the Government. In the process, the Banco de la Republica adds Governmentsecurities to its assets and an equal amount of Treasury deposits to its liabilities.Further developments may be along two lines:

(a). When the Government proceeds to spend the money, say to erect a building,it will pay the construction company by a check drawn on its account with the Bancode la Repdblica. The check will then be deposited in the commercial bank of theconstruction company and the construction company will receive a credit on its depositaccount. The commercial bank will present the check for collection to the Banco dela Republica. The Banco de la Republica will debit the Treasury account and give acredit to the commercial bank, thus raising the reserves of this bank. The commercialbank may then exchange its increased reserves for additional cash holdings. In eithercase, its lending ability is increased. When the bank gaining reserves makes a loan,the proceeds are deposited in the same or another bank and in this way the familiarmultiple expansion of deposits on the basis of an increment of reserves is set in motion.

(b). When the Government proceeds to spend the money, it may wish to pay theconstruction company in currency rather than by check. In this case, the initial increasein Banco de la Republica liabilities will be in the form of an addition to notes out-standing rather than an addition to Treasury deposits. When this additional currencyis passed to the Government and the Government has handed it over to the construc-tion company in payment, currency outside banks will be increased, thus raising themoney supply in the hands of the public. Commercial bank reserves will not be affectedinitially. (Technically speaking, the addition to reserves through increased Banco dela Rep6blica credit is canceled by the loss of reserves through increased currency incirculation.) However, a substantial part of the increase in currency in the hands ofthe public is likely to be returned to the commercial banks, since at any time thepublic will have its own ideas about what fraction of its total money holdings itwishes to keep in the form of currency and in deposits. To the extent that the currencyis thus deposited in commercial banks, these banks may hold the additional cash intheir own vaults or they may retumr it to the Banco de la Republica in exchange forincreased reserve accounts. In either case, the end result will be similar to that of(a) above.

4 Less drain on currency.

MONEY, DEFICITS AND INFLATION 297

additional reserve funds, as is the case with the rediscounting ofcommercial paper presented by the banks. At other times, the primaryobjective of credit creation by the Central Bank is to provide creditto the Government or other non-bank borrowers, either directly orthrough various lending institutions. But even though the primaryobjective of such transactions is not to expand commercial bankreserves, they will, nevertheless, have this result just as do rediscountoperations. In expandin- or contracting Central Bank credit it isimportant, therefore, to consider the effects upon the reserve positionof commercial banks.

The data indicate that commercial banks throughout the 1940'swere in a position to rediscount freely with the Banco de la Rep6blica.With the exception of 1941 and 1946, reserve balances of commercialbanks, as well as excess reserves, showed a continuous increase. Com-mercial banks, which in December 1940 had excess reserves of Ps.$7million, increased their reserve balances by nearly Ps.$60 millionduring the war years, and by another Ps.$35 million from 1946 to June1949. Of this total increase, Ps.$60 million were absorbed in additionalrequired reserves while Ps.$32 million were added to excess reserves.

The analysis of sources and uses of reserve funds presented inTable 108 appears to be the first attempt to present this importantaspect of monetary policy in Colombia. The table shows for variousperiods the major sources and uses of reserve funds, including inflowof foreign exchange and increase of Banco de la Rep6iblica credit asthe major sources, and expansion of currency in circulation as themajor drain on reserves.S The resulting net changes in commercialbank reserves, in turn, determine the ability of the commercial banksto extend credit.

Again there is a sharp difference between the first and secondhalf of the period. From 1941 to 1945 an avalanche of foreign exchangeinflow, induced by high exports and war-restricted imports, resultedin an addition to commercial bank reserves of nearly Ps.$60 million.This gain in reserve funds occurred in spite of the drain on reserveswhich resulted from expansion of currency in circulation and increasedTreasury deposits. Banco de la Rep6iblica credit expanded in 1941,but declined somewhat in 1942 and 1943 when commercial banks usedpart of their exchange receipts to curtail rediscounts with the CentralBank. However, the expansion of Central Bank credit was resumedwith the beginning of the war boom. Notwithstanding further ex-change gains, rediscounts to commercial banks increased steadily after

5 The data are drawn from the balance sheets presented in Appendix G. Furtherrefinement of the data will be needed, but the information provided in Table 108 issufficiently accurate for purposes of general discussion.

298 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

TABLE 108

SOURCES (+) AND USES (-) oF RESERVE FUNDS, 1941-491(millions of pesos)

December 311941-45 1946-48 1941-48 1948-492

1. Foreign Exchange, inflow (+) or out-flow (-) ...... .......................... +265.9 -121.9 +144.0 -11.0

2. Banco de la Republica Credit........ ......... + 11.0 +238.5 +249.5 + 6.73. to National Government and Sta-

bilization Fund ........................ + 14.2 + 72.9 + 87.1 - 2.54. to Commercial Banks ............... . + 10.5 + 43.5 + 54.0 -34.55. to Caja de Credito Agrario,

Banco Central Hipotecario,Caja Colombiana de Ahorros,etc. ... . ........... ...... - 5.8 +103.0 + 97.2 + .1

6. to others ........................ . 7.9 + 19.1 + 11.2 +43.67. Treasury Deposits at Banco de la Re-

publica ............... 53.1 + 95.5 + 42.4 + 6.58. Currency outside banks .- 142.6 -153.2 -295.8 +13.99. Other sources (+) or uses (-) - 23.8 - 49.5 - 73.3 + 7.3

10. Total ............ ..................... + 57.4 + 9.3 + 66.8 +23.4REsERvF POsITION OF COMMERCIAL BANKS

11. Cash and Deposits with Banco de laRepublica ... ............. + 57.4 +. 9.4 + 66.9 +23.4

12. Amounts not countable .- .3 - 1.0 - 1.3 - 1.013. Reserves, total .............................. + 57.7 + 10.4 + 68.1 +24.4

14. required .............................. + 27.1 + 21.6 + 48.7 +11.315. excess . . ................ + 30.4 - 11.2 + 19.4 +13.1

1 For annual data see Appendix G. (+) means addition to reserve funds; (-)means reduction in or use of reserve funds.

2 January 1, 1948 to June 30, 1949.

1943. As a result of borrowings from the Central Bank by the Govern-ment, the Caja de Cr6dito Agrario and the commercial banks, excessreserves of commercial banks climbed from Ps.$12 million to Ps.$34million. This provided the basis for a near doubling of demanddeposits -which followed during the subsequent years. In 1945 thereoccurred some slight contraction in Banco de la Rep6blica credit,btut commercial bank reserves and deposits continued to increase ata substantial rate.

In 1946 the inflow of foreign exchange ceased. At the end of theyear, the picture was reversed by the reappearance of peacetime im-ports and during 1947, as well as 1948, outflow of exchange exerteda heavy drain on reserve funds. To this drain was added a continuedincrease of currency in circulation. While this was a universal develop-ment during the forties, the currency drain was more drastic in

MONEY, DEFICITS AND INFLATION 299

countries, such as Colombia, which have a basically high currency-to-deposit ratio than in countries with more developed credit systems.However, in 1946 a moderate increase in Banco de la Rep6blica creditoccurred simultaneously, with more drastic increases in 1947 and 1948.As a result of these forces, commercial bank reserves declined slightlyin 1946 but increased further in 1947 and 1948. About one-third ofthe Banco de la Republica credit extended from 1946 to 1948 went tothe National Government and nearly one-half went to various semi-public credit institutions, such as the Caja de Credito Agrario. Theremainder went largely to raise rediscounts of commercial banks.6

With the exception of 1941 and 1946, expansion of Banco de laRepuiblica credit thus permitted a continued increase of commercialbank reserves. The contraction of Central Bank credit in 1942 and1943 fell far short of offsetting the expansionary effect of exchangeirnflow. During 1944 and 1945, there xvas an actual expansion ofBanco de la Republica credit, notwithstanding heavy exchange gains.The net effect of these factors was to increase sharply commercialbank reserves during the first half of the decade. During 1947 and1948, the expansion in Banco de la Republica credit wvas at a muchfaster rate but, due to offsetting factors, commercial bank reservesincreased only slightly. Indeed, it is evident from the data presentedin Table 108 that a substantial increase in Central Bank credit wasrequired during 1947 and 1948 in order to avoid a drastic contractionGf commercial bank reserves which otherwise would have occurredbecause of the loss of foreign exchange and the further currencydrain. However, the actual expansion of Central Bank credit wassufficient not only to maintain reserves but to increase themn further.Thus banks were in a position to provide the credit basis for continuednionetary expansion.

To some extent the failure to place effective restraints on creditexpansion might be explained by the inadequacy of available meansof restriction. It should be noted here that there is no open marketin Government debt and that the power to raise reserve requirementsdid not become available until February 1949. Under the BankingLaxv, each commercial bank is entitled to rediscount paper tup to anamount equal to 120 percent of its capital and reserves.7 Ho\vever,there is the further condition that eligible paper be presented; among

6 For a more detailed statement of the use of Central Bank credit during thisperiod, see Appendix G.

7 Law 168 of 1938, Art. 3, and Law 38 of 1939, Art. 3. From the language of thelaw, it is evident that the ratio of 120 percent sets an upper limit to the amount ofdiscounts which can be given by the Central Bank to any individual bank. It is lessevident whether the law prohibits the Banco de la Rep6blica from setting a lowerlimit if it so desires.

300 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

other requirements, the paper must not be over ninety days' maturity.Also, a single bank cannot present for rediscount paper issued by anyone company in an amount exceeding 25 percent of the commercialbank's capital and reserves. While Banco de la Republica policy,as well as the policy of the Superintendent of Banks, apparentlyattempted to interpret these rules as strictly as possible, "eligible"paper was plentiful and the volume of rediscounts presented remainedwell below the statutory limit. As a result, rediscounts of commercialbanks with the Banco de la Republica showed a steady increase from1943 through 1948, rising from less than Ps.$100,000 at the close of1942 to nearly Ps.$70 million at the end of 1948. Commercial banksin effect could have obtained any desired amount of reserves theywished.

At the same time, the rediscount rate remained unchanged at 4percent, the level set in July 1933. Although some people advocatedan increase in the rate as a desirable measure of restraint, noneoccurred. Since the loan rates which commercial banks may chargetheir customers are determined by the Banco de la Rep6blica inrelation to the rediscount rate, commercial loan rates also remainedunchanged throughout the period. With the rediscount rate of 4percent, a 6 percent rate was applicable to ninety-day loans and an8 percent rate to 120-day loans by commercial banks.

Maintenance of easy credit conditions was hardly necessitated byconcern for Government financing needs. Nor was continued easymoney required by concern for stability in the security markets.There was no substantial increase in budget expenditures for warpurposes and private trading in Government securities was quitelimited. Most Government securities were closely held by a relativelysmall group of institutional investors who, for most of the period,were subject to compulsory holding requirements. Thus, it is ques-tionable whether a somewhat tighter policy, assuming the instru-ments to enforce it were at hand, would have interfered withgovernmental necessities.

Commercial Bank Policy

We have seen that commercial banks enjoyed an easy reserveposition throughout the 1940's. This is shown again in Table 109.While entering the war with a low level of excess reserves, commer-cial banks experienced a sharp increase in reserve funds during1942 and again in 1944. As a result, they were in a position through-out the 1940's to expand loans and at the same time to maintain acomfortable level of excess reserves. Excess reserves reached apeak of Ps.$37.5 million in 1945, but dropped temporarily to Ps.$20.2

MONEY, DEFICITS AND INFLATION 301

million in 1946. However, rediscounts with the Banco de la Repuiblicaincreased sharply during the following years, more than offsettingthe drain on reserves due to other factors.

TABLE 109

POSITION OF COMMERCIAL BANKS, 1940-491

(millions of pesos)

Reserve s

TotalCash and Redis-

Dec. 31 Excess Required Reserves2 Loans counts Deposits3

1'41' 7.1 15.7 28.1 91.0 5.1 110.91941 ............. 4.4 16.4 26.1 120.7 16.0 121.31942 .... ......... 11.4 22.4 41.9 123.1 .1 156.71943 . . ... ..... 12.2 26.5 44.1 143.9 2.4 194.11944 ........ ..... 34.5 35.4 75.9 176.7 15.4 256.91945 ...... ....... 37.5 42.9 85.3 241.8 15.6 309.11946 ......... .... 20.2 52.9 80.5 356.1 24.0 389.71947 ............. 23.9 57.2 89.0 404.0 53.1 414.01948 .. ..... .26.4 64.4 94.8 461.8 67.5 467.81944 .40.5 75.6 118.2 466.5 33.0 545.9

l For details see Appendix G.2 Exceeds the sum of excess and required reserves because only part of cash hold-

ings is counted as legal reserve.3 Excludes savings deposits; includes interbank deposits.4 January 1 to June 30.

Nor was deposit expansion checked by scarcity of bank capital.Colombian law provides, in addition to the reserve requirement,that bank capital shall equal at least 15 percent of deposits. However,additional bank capital was readily available. To meet additionalrequirements, capital and reserves at commercial banks were increasedfrom Ps.$29 million in 1940 to Ps.$75 million in 1948. Earningsfor the large banks averaged over 8 percent in the first half of 1948 asagainst 6.6 percent in 1940 and 10.5 percent in 1945.

The annual volume of loans at commercial banks by type ofborrower is shown in Table 110. Total loans outstanding rose fromPs.$91 million in 1940 to Ps.$241.8 million in 1945 and Ps.$461.8million in 1948. The gross amount of new loans granted per annumrose from Ps.$133 million in 1940 to Ps.$396 million in 1945 and Ps.$756 million in 1948. Throughout the period, about one-half of theloans granted wxent to commerce. Credit to industry remained fairlystable until 1945 but increased sharply thereafter, reaching about 20percent of total loans granted in 1948. Farm credit provided bycommercial banks, as well as credit to cattle raisers, increased some-

TABLE 110

NEw LOANS GRANTED BY COAIMERCIAL BANKS, 1940-1949(millions of pesos)

_~~~~~~~~~~~ _ _ _ __ __; .

1940 1941 1942 1943 1944 1945 1946 1947 1948 19491

Agriculture .................. ....... 5.9 6.2 7.8 11.6 16.7 21.6 36.5 40.7 39.5 16.9Cattle .. . ............. 11.2 13.8 16.2 23.6 33.5 46.5 73.2 83.9 87.8 44.0Commcrce ..... ............................. 72.3 87.3 88.2 121.6 150.4 213.5 304.8 319.7 378.1 198.5Industry . 24.8 35.1 47.1 52.9 42.9 59.6 79.9 130.3 158.1 84.9Mining ............ . 1.1 .6 1.5 .8 1.4 1.0 .5 .6 .1 2Building ............ 34....... .... 34 5.2 5.6 4.7 5.7 7.9 27.6 27.7 19.5 9.9Official institutioins . .. ......... 6.7 8.3 7.6 20.9 23.3 25.9 21.3 31.4 31.7 20.1Other ............... .......... 7.9 10.2 9.7 17.0 16.8 20.1 28.9 25.7 40.7 18.7

Total 133.3 166.7 183.7 253.3 290.7 395.7 572.7 660.0 755.5 393.0

1 First 6 mouths of 1949.2 Less tlhati l's.$100,000.

Source: Revista del Banco de la Rep6blica.

MONEY, DEFICITS AND INFLATION 303

wvhat faster than did total loans but remained a relatively smallitem. Credit for construction purposes was unchanged during thewar but showed some increase in the postvar period. As commercialbanks in Colombia do not enTgage in long-terimi mlortgage credit, thevolume of construction loans by banks remained small relative tothe total volume of mortgage funds provided from other sources.

The distribution of deposits by departments showed no signifi-cant change during the period, although there -was a slight tendencytoxvard a wider distribution of deposit holdings.8 Much the largestsingle item of expansion was in commercial loans. During the waryears, wlven there xvas no significant increase in production, thetripling of commercial loans contributed heavily to speculation incapital values. Subsequently, an important part of the additionalcommercial credit went to sustain speculation in inventories of im-port comniodities.

These developments testify to the fallacy of the principle thatthe restriction of bank lending to short-term or "self-liquidating"commercial loans will assure the proper volume of credit. Yet, thiswas part of the philosophy of the Banking Law of 1923 which limitedcommercial banks to loans of less than one-year maturity and excludedthem from investment in industrial enterprise or real estate.9 Thecommercial loan principle, once widely held, is based on the fallaciousassumption that the demand for such loans, and hence the supply ofeligible paper, will adjust itself to the current volume of productionand thus match each peso of credit with a peso of available goods.In an inflationary period, a number of producers or merchants willbid for the same resources or merchandise, thus driving up prices.Commercial banks in meeting sulch competitive demancds for creclitadd to the inflationary process, even though remaining whollywitlhin- the rule that only eligible loans should be granted. The prin-ciple that banks should grant only self-liquidating or commercialloans, therefore, in no wvay reduces the responsibility of the CentralFBank to control the volume of credit by regulating the ability ofcommercial banks to extend loans. The basic principle of mnonetarycontrol is that the supply of money does not regulate itself.10 Qualita-

8 See Appendix G.9 The policy of the Banco de la Repiblica to exclude from rediscount paper of over

ninety-day maturity further reduced the effective maturity on commercial bank assets.10 In the explanations of the Banking Law of 1923, great stress was laid on the

principle of self-liquidating assets. See Leyes Financieras, presentadas al Gobierno deColombia por las Misiones de expertos americanos en los afios de 1923 y 1930 yexposici6n de motivos de estas, page 203. However, the Kemmerer Report alsoemphasizes the responsibility of the Central Bank for adjusting the rediscount rateas an instrument of monetary control. Ibid., p. 74.

304 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

tive control is no substitute for quantitative control of loans anddeposits.

A further argument for limiting banks to the extension of short-term credit was that only thereby would it be possible to assure thenecessary liquidity of the banking system. This principle has somedegree of validity, and the concern of the Kemmerer Mission withbank liquidity is readily understandable in view of the record ofbank lending prior to 1923. However, the soundness of the bankingsystem, in the last resort, does not depend upon the maturity of bankassets but upon the soundness of the economy as a whole. An indi-vidual bank, no matter how highly liquid and short-term its portfolio,will find itself in a xvholly illiquid position if the general level ofeconomic activity collapses. Yet, in a healthy and expanding economy,some longer-term paper is fully compatible with a sound structure ofbank assets.

It appears, therefore, that the rigid restrictions imposed by thelegislation of 1923 were of no merit as a means of automatic creditcontrol; also, they went further than necessary in order to assurebank liquidity. Yet, as a result of these restrictions, there developeda complete separation of the commercial banking system from capitalformation. While encouraged to provide an excessive supply of short-term funds for commercial and speculative purposes, the bankingsystem has not been in a position to render its full contribution tocapital formation. In viexv of recent experience, therefore, it seemsdesirable to reconsider the rigid rules imposed upon the lending prac-tices of comnmercial banks.

FISCAL POLICY

Budgetary expansion and deficit finance aecentuated the generalinflation picture. However, they were of less importance in Colombiathan in other countries, such as the United States, which diverted alarge share of total output into wvar cffort.

Growth of Public Expenditures

The growth of public expenditures is shown in Table 111. Whilepublic expenditures11 rose from Ps.$190 million in 1940 to Ps.$476million in 1947, the ratio of public expenditures to gross nationalproduct appears to have declined. This is the case especially withregard to transfer payments but also holds true for goods and servicesexpenditures. Thus, Colombia did not experience the inflationarypressure which, in the major war economies, resulted from the

11 For an analysis of public expenditures, see Chapter XIII.

MONEY, DEFICITS AND INFLATION 305

absorption of a vastly increased share of the nation's product forwar purposes, although there were indirect impacts on its economyby the war. Similarly, Colombia was not left with the postwar heri-tage of an increased budget-to-income ratio, the 1947 ratio being belowthe prewar level. The growth of public expenditures apparentlyfollowed rather than led the rise of money income, thus acting asa sustaining rather than a causal factor in the inflation picture.

TABLE 111

PUBLIC EXPENDITURES AND GROSs NATIONAL PRODUCT, 1940-19471

(millions of pesos)

1940 1945 1947

1. Gross National Product ............................ 1,196.5 2,366.6 3,673.8

Government Expenditures

2. Goods and Services.............. 168.6 252.0 434.43. Transfer Payments ..................... .. 21.7 38.5 42.0

4. Total. ............... ............ 190.3 290.5 476.4

5. (2) as percentage of (1) ............................ 14.8 10.8 11.86. (4) as percentage of (1) ............................ 17.4 12.1 12.9

1 Data from Table 1, Chapter III; includes all levels of government.

Taxation and DeficifsExpansion in the size of the budget, however, is only one indicator

of the contribution of Government finances to inflation. Another, andusually more important, factor is the extent to which public expendi-tures are financed by taxation or borrowing. Tax receipts failed tokeep step with the expansion of expenditures with the result of grow-ing governmental deficits. This increase in public outlays, unaccom-panied by a curtailment of private demand through higher taxes,added to inflation pressures. This was the case especially becausea substantial part of the newly created debt was sold to the CentralBank, thereby further increasing the reserves of commercial banksand the money supply.

The development of national expenditures, revenues and deficitsis shown in Table 112. Tax receipts rose from Ps.$84 million in 1940to Ps.$335 million in 1948. Income tax yield increased about seventimes, while the yield of indirect taxes tripled.1 2 This increase inyield was due in part to the expansion of the tax base which occurredwith the rise in national income, but to a considerable extent it

12 For a discussion of the Colombian tax system, see Chapter XIII.

306 THE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOMBIA

resulted from the imposition of higher tax rates, especially under thelegislation of 1942 and 1944. Nevertheless, the growth of expendituresexceeded that of receipts and after a short period of surplus in 1941and 1942, a series of deficits followed to 1948-

TABLE 112

NATIONAL BUDGET SUMMARY, 1940-19491(millions of pesos)

BUDGET

Deficit or Changes inYear Expenditures2 Receipts3 Surplus4 National Debt5

1940 ......... 112.5 84.3 -28.2 +16.01941 ......... 104.2 107.9 + 3.7 +23.21942 ......... 97.9 115.3 +17.4 +11.21943 .. ....... 166.5 140.7 -25.8 +53.01944 .......... 158.6 136.2 -22.4 +15.31945 .. ....... 186.4 167.2 -19.2 +89.91946........ . 242.5 230.6 -11.9 +39.01947 ........ . 337.4 305.0 -32.4 +45.31948 ......... 369.3 335.8 -33.5 +56.51949 ......... 344.5 383.5 +39.0 n.a.

1 For details see Appendix G.2 Budget expenditures exclusive of debt retirement.3 Direct taxes, indirect taxes and other receipts, but excluding borrowing.4 Receipts minus expenditures; does not correspond to the concept of deficit in

Colombian budget statements.5 Differs from deficit or surplus largely due to failure of budget to include all

debt transactions.

In order to measure the impact of budget deficits upon the levelof demand and hence on inflation, the term "deficit" should be definedas the excess of the Government's cash disbursements to the publicover its cash withdraw als from the public through taxation. Thedata on deficits showvn in the fiscal statements of the Governmentunfortunately bear little relationship to this definition. Indeed, itis difficult or impossible to obtain this basic information from thepublic data. Nevertheless, an attempt was made in Table 112 toarrive at an estimate of annual cash deficits during the 1940's. Aswvill be seen from the last column of the table, the total increase indebt was substantiallv greater than the aggregate net deficit for theperiod. It appears that extensive fiscal transactions giving rise todebt remained outside the budget statement. Even though this unex-plained increase in debt in part reflects accounting transactionsrather than cash outlays, the cash deficit is undoubtedly understatedby the figures shown in Table 112. To the extent that these estimatesmay be relied upon, we find deficits from 1943 to 1948 amounting On

MONEY, DEFICITS AND INFLATION 307

the average to 10 to 15 percent of expenditures. While this seemsmioderate in comparison with the deficits incurred by the UnitedStates or the United Kingdom during this period, it must be remem-bered that the wartime requirements upon the Colombian budgetwvere much less severe.

Absorption of National Debt

From December 31, 1940 to June 30, 1949, the domestic nationaldebt rose from Ps.$92 million to Ps.$369 million and the foreigndebt of the National Government increased from Ps.$129 million toPs.$165 million.1 3 At the same time, there occurred a substantialincrease in departmental and municipal debt.14 Notwithstanding thistripling of national debt, the ratio of national debt to gross nationalproduct, which is frequently referred to as a general indicator of theseverity of the debt problem, declined from about 19 percent in 1940to about 14 percent in 1948. The ratio of interest payments on nationaldebt to national income similarly fell from 1.2 to .6 percent. Theseratios seem low by comparison with the United States where thenational debt is in excess of the national income, but the comparisonis misleading. The conditions of the capital market are wholly differ-ent in the two countries. In the United States the public debt iswidely held by institutional investors, individuals and commercialbanks, but in Colombia investors absorb only limited amounts of thepublic debt.

This becomes quite evident when the record of debt absorptionduring the 1 940's is examined. From June 1941 to June 1948, publicor semi-public institutions absorbed about 80 percent of the totalincrease; so-called private investors, including commercial banks,absorbed only 20 percent. Within the first group, the Banco de laRepiblica took the largest share with 36 percent. The Caja Colom-biana de Ahorros came next with 23 percent, followed by the Stabili-zation Fund which took 10 percent. Among private investors, com-nmercial banks absorbed 4 percent and insurance companies took 5percent. If the analysis is limited to the postwar period, the generalpicture is much the same, with commercial banks showing a netreduction in holdings.

Notwithstanding the slight participation of commercial banks,over one-half of the total increase in debt (the combined shareabsorbed by the Banco de la Reptiblica, the Stabilization Fund andthe commercial banks) was monetized-that is, absorbed by the

13 Table 99, Chapter XIII.14 For a discussion of departmental and municipal debt, see Chapter XIII.

308 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

banking system and paid for out of newly created money. While wehave seen that substantial additions to commercial bank reserveswere needed in 1946 and 1947 to offset reserve drains from othersources, the actual amount of reserve funds supplied by the CentralBank was excessive. This might have been avoided had there beenless pressure on the Central Bank to absorb public debt.

The failure of private investors to contribute significantly tothe absorption of public debt is the more striking as compulsoryinvestment requirements are applied to various groups of institutionalinvestors. Thus companies, including commercial banks, savingsbanks and insurance companies, must invest 5 percent of their legalreserves in "Bonos Dinu del 4%" and an additional 10 percent in"Bonos Denal." These investments are formally designed to providereserves for meeting the social security obligations of the compan-ies, but in effect are compulsory investment requirements. In addition,the following requirements apply, as of September 1, 1949: theCaja Colombiana de Ahorros must invest 20 percent of its funds in"Bonos Denal del 6%," 20 percent in "Bonos de Tesoreria del 6%,"and an additional 10 percent in "Bonos Instituto de Credito Territorialdel 5%." Insurance companies must place 10 percent of their legalreserves in "Bonos Denal ;" 15 percent in "Bonos Nacionales," andan additional 10 percent in "Bonos de la Caja de Credito Agrario."

While these requirements may have assisted in some measure indirecting capital resources into developmental uses, they have donelittle to reduce the inflationary impact of public financing. From thelonger run point of view a private market in public debt is preferable.The development of such a market would assist in the conduct ofpublic investment programs on a non-inflationary basis.1 5

15 For further discussion, see Chapter XXVII.

CHAPTER XV

The International Economic Position of Colombia

One of the most interesting, and at the same time one of the mostdifficult, aspects of Colombian economic life centers around its inter-national economic position. On the one hand, Colombia is in thevery fortunate position of possessing exports which command anactive and growing market in hard currency areas. On the otherhand, there has been constant complaint of the shortage of dollars, acontinuous tendency to excess of demand for dollars over the supply.This demand was so persistent and strong that it exhausted, in arelatively short time, much of the gold and foreign exchange re-sources accumulated during the war, depleted the Central Bank'sreserves to a dangerously low level, and actually, for a period, resultedin heavy arrears in payment of current obligations. Thus, we havethe spectacle of a country whose dollar exports have increased sub-stantially, as contrasted with before the war, but which at the sametime apparently has been compelled to have recourse to a complexsystem of exchange controls involving individual import and exportlicensing and strict control over capital movements and remittances \abroad.

Few countrics have benefited more than Colombia from theinternational division of labor. Its exports of coffee, petroleum andgold have enabled it to import, over the past twenty-five years, aboutU.S.$3 billion worth of transportation, industrial and agriculturalequipment, raw materials for its growing manufactures and a varietyof foodstuffs and consumer goods. Here again, however, a paradoxappears. While Colombia has gained greatly from foreign trade andmultilateral trade, there is at the same time evident a trend towardnational self-sufficiency and a recourse to bilateral agreements.

The explanation and appraisal of these apparently inconsistentdevelopments and trends constitute one of the most interesting andinstructive problems for economic study. As a background for sucha study, however, a description of Colombia's balance of payments,and of the various measures adopted to meet the problems that havearisen in connection with the balance of payments, is necessary.

INTERNATIONAL TRANSACTIONS AND THE BALANCE OF PAYMENTS

The usual method of examining international transactions inColombia, prior to the balance of payments work of members of theMission, was to consider exchange receipts and exchange authoriza-

309

310 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMIBIA

tions. The former category covers purchases of foreign exchange ando0 ne\vly mined gold by the Banco de la Republica and thus shovsforeign moneys and gold accruing to Colombia and available to buyimports and to make other foreign payments. The latter categorycovers authorizations or licenses granted by the Office of ExchangeControl permitting the payment for imports and the making offoreign remittances. In 1948, total exchange receipts amounted to

U.S.$284,476,000 while exchange authorizations were U.S.$316,815,000,as shown in Table 113.

This approach to Colombia's international transactions highlightscertain significant details. It shows the extraordinarily high degreeto which Colombia's ability to earn foreign exchange to pay for herimports is dependent upon exports of coffee. In 1948, coffee exportsaccounted for 75 percent of total receipts. At the present time, thispercentage seems likely to increase, with higher coffee prices andreduced transfers of foreign exchange to Colombia by the petroleum

TABLE 113

COLOMBIA'S EXCHANGE RECEIPTS AND EXCHANGE AUTssORIZATIOxS, 1948

Total Percentage(thousands) Composition

EXCHANGE RECEIPTS

Exports of coffee. U.S.$212,320 74.6

Exports of other commodities 14,919 5.2

Remittances and services . 7,073 2.5

Iniward transfers of foreign exchange bypetroleum companies ... .... . 35,068 12.3

Other inward transfers of foreign exchange 3,997 1.4Purchases of nexyly minied gold . 11,099 3.9

U.S.$284,476 100.00lD

EXCHANGE AUTHORIZATIONS

Imports .U.S.$277,290 87.5

Remittances ....... ................ 7,245 2.3

Government payments (excluding debtservice) ...... ......... .............. 6,357 2.0

Government debt service 9,410 3.0

Private debt service and dividends. 3,097 1.0

Other current payments 9,947 3.1

Capital payments 3,469 1.1

U.S.$316,815 100.0

* Differs from the sum of the constituents because of rounding.

TIlE INTERNATIONAI. ECONOMIC POSITION OF COLOMBIA 311

companies. These transfers, at 12 percent of the total, were thesecond most important source of foreign exchange in 1948, and arethe only way in which petroleum affects exchange receipts. Thisis because the companies do not surrender directly the proceeds oftheir exports. Exports of other comnmodities-bananas, leather, plati-num, cattle, etc.-accounted for only 5 percent of total receipts.Purchases of neewly mined gold, down both absolutely and relativelysince the prewar period, accounted for only 4 percent of the 1948receipts.

The preponderance of coffee has become even more marked oflate. The price of Manizales coffee, which averaged 32Y2 cents apound in 1948, rose by the end of November 1949 to 58.75 cents perpound, an increase of 81 percent. By March 7, 1950, the price hadfallen to 50 cents, or 54 percent above 1948. With exports of about5.5 million bags of coffee, a variation of as little as one cent perpound means a variation in receipts by Colombia of as much as U.S.$7million. Another way of emphasizing the growing importance of coffeeexports is to compare 1938 receipts with those which may reasonablybe assumed for 1953, for example. In the former year, receipts wereU.S.$50 million for exports of 4662Q00 bags at an average of 11cents a pound. In 1953, if exports reach 6.5 million bags at an averageof 43 cents a pound, total receipts would be about U.S.$369 million.We most definitely are not attempting to forecast the future priceof coffee. The significant point, however, is the overwhelming impor-tance to the economy of Colombia of changes in the price and in thequantity of coffee exported.

Exchange authorizations are dominated by those for payments inconnection with the importation of merchandise-88 percent of thetotal in 1948. Government debt service, the next most important cate-gory, accounted for only 3 percent.

While useful, a study of exchange receipts and exchange authori-zations gives an imperfect picture of Colombia's international trans-actions. The two concepts are not wholly comparable. Further, thedata on receipts and authorizations exclude, or present a misleadingpicture of, several important items in Colombia's international trans-actions. For example, Colombia's second most important export,petroleum, is not directly included. Substantial imports of machineryand products for sale by the petroleum companies are ignored. Alsoignored are imports paid for out of new capital raised abroad, etc. Noaccount is taken of loans by the Export-Import Bank and of subscrip-tions to the International Monetary Fund and the International Bank.The data presented do not by themselves shoxv changes in Colombia's

312 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

exchange reserve. Further, the figure for inward transfers of foreignexchange by petroleum companies is misleading if taken as a measureof the inflow of petroleum capital into the country.

In an attempt to meet these difficulties, a balance of paymentsstatement for Colombia has been constructed. The technical problemsencountered in this task would be of only secondary interest to thegeneral reader, and are therfore presented in an Appendixl which willbe of particular interest to the specialist. A condensed version of thebalance of payments for the years 1938, 1946-1948, and the first halfof 1949 is presented in Table 114. This table brings out the very

TABLE 114

CONDENSED STATEMENT OF COLOMBIA's BALANCE OF INTERNATIONAL PAYMENTS,

1938-49

Credit (+) and Debits (-)

(millions of U.S. dollars)

Jan.-June1938 1946 1947 1948 1949

Merchandise exports ...................... +81 +201 +254 +286 +131Merchandise imports ........... ......... - 89 -230 -364 -346 -143

Trade deficit.8 - 29 -110 - 60 - 12Gold production. +18 + 15 + 13 + 12 + 7Other current account. -181 -29 - 33 -29 - 27

TOTAL CURRENT AccOUNT - 8 - 43 -1292 - 77 - 32

Capital imports by petroleum com-panies . .............................. + 43 + 29 + 26 + 23 - 2

Other capital movements in foreignexchange . .4 + 11 + 6 - + 5

Export-Import Bank and other loansnot involving foreign exchange.... ...... - + 5 + 3 + 6 + 2

Gold and U.S. dollar subscriptions toIMF and IBRD .............................. - - 1 - 12

Increase (+) in arrears of foreignpayments (incomplete) ......... ......... 4 + 3 + 5 - 2 + 15

Decrease (-) in exchange reserves.... -6 + 2 + 65 + 29 + 7

TOTAL CAPITAL ACCOUNT ...... 2 + 502 + 922 + 572 + 262

Errors and omissions .......................... +10 - 7 + 37 + 20 + 6

l Includes capital debits but includes no credits as data are not available.2 Differs from the sum of the constituent items because of rounding.3 Based on rough estimates. See Appendix H.4 Not available.

I Appendix H.

TEE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 313

substantial expansion in exports (including petroleum) in the postwar,as contrasted with the prewar, period and the even more substantialexpansion in imports. As an indication of the magnitude of Colombia'strade, it may be noted that, over the twenty-five year period 1924 to1948, imports amounted to nearly Ps.$4.5 billion, or nearly U.S.$3billion at current rates of exchange. Exports are dominated by coffeeand petroleum, respectively 77 and 16 percent of the total in thefirst half of 1948. Imports, by contrast, cover a wide variety of com-modities with no dominant items.

As shown in Tables 115 and 116, there has been a marked changeas contrasted with the prewar period in both the destination of exportsand the source of imports. The United States now takes more of theexports and supplies more of the imports than previously, whileEurope's participation in Colombia's trade has declined markedly.

TABLE 115

PERCENTAGE DISTRIBUTION OF COLOMBIA'S EXPORTS BY DESTINATION, 1938-48

Jan.-June1938 1945 1946 1947 1948

United States ................... 52.7 78.2 81.9 84.4 82.5

Europe ................... 24.6 3.3 4.6 5.0 5.2

Central America & Antilles... 12.2 4.8 5.3 5.2 8.4

Canada .9.8 9.8 5.3 3.1 2.7

South America .0.6 3.1 2.8 1.8 1.2

All other counltries ..... ... 0.1 0.8 0.1 0.5 -

100.0 100.0 100.0 100.0 100.0

TABLE 116

PERCENTAGE DISTRIBUTION OF COLOMSBIA'S IMPORTS BY SOURCE, 1938-48

Jan.-June1938 1945 1946 1947 1948

United States .......... .... 51.2 67.7 68.8 72.3 73.6Europe .............. ..... 44.8 6.3 11.3 14.4 14.3

Central America & Antilles 1.1 5.0 4.3 2.9 2.3

Canada ...... ........... .. 1.0 2.1 2.6 2.2 1.9South America .......... ...... 1.4 18.9 12.9 7.6 7.6

All other countries ........ ..... 0.5 - 0.1 0.6 0.3

100.0 100.0 100.0 100.0 100.0

There has been a considerable absolute decrease in the contributionof newly mined gold to Colombia's exchange receipts since before

314 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

the war, as is evident in Table 114. In 1938, production was reportedas valued at U.S.$18 million. It rose to U.S.$22 million in 1941 andthen dropped to U.S.$12 million in 1948. Some rise occurred in thefirst half of 1949 when production was reported at U.S.S7 million. Thechanged significance of newly mined gold in the balance of paymentscan be seen from its changed relation to the trade deficit. In 1938,gold production was more than double the trade deficit. In the firsthalf of 1949, the deficit was a slightly smaller fraction of importsor exports than in 1938 but, in the later period, gold production offsetonly a little more than half of the trade deficit.

The treatment of petroleum in the balance of payments gives riseto peculiar problems. Included in merchandise imports are petroleum-producing equipment and supplies at an estimated value of U.S.$26million in 1948, and petroleum products for sale estimated at U.S.$12million in 1948. The companies, all of which are foreign owned, pur-chased these goods with their own (external) resources, i.e., withoutdrawing on Colombia's foreign exchange reserves. Equivalent amountsmay, therefore, be regarded as imports of capital into the country. Atthe same time the companies have transferred funds in dollars toColombia. Such transfers, amounting to U.S.$35 million in 1948, shouldalso be recorded as part of the capital imports by the companies. Thesethree items, therefore, mean that in 1948 the petroleum companiesaccounted for gross imports of capital of U.S.$73 million.

This amount, however, cannot be regarded as the actual net contri-bution of the petroleum companies to the Colombian economy, or asthe net capital inflow. The value of crude petroleum is included inrecorded merchandise exports as shown in the balance of payments.But the companies do not return these sums directly to the country,although they may return them indirectly in the form of merchandiseand inward transfers of foreign exchange. In 1948, exports totaledalmost 19 million barrels, valued at U.S.$48 million. An equivalentamount thus is in the nature of an export of capital, and must beoffset against the gross imports of capital amounting to U.S.$73million in the same year. A further offset is to be found in the smallremittances of foreign exchange which the Tropical Oil Company hasbeen allowed to make from Colombia. For 1948, these remittancesare understood to have been about U.S.$2 million.2 Total offsets togross capital imports by the petroleum companies thus amounted to

2 To the extent of such remittances, the statement in the previous paragraph thatthe companies purchased the goods which they imported out of their own (external)resources may be technically incorrect.

THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 315

U.S.$50 million in 1948. It follows, therefore, that the net capital im-ports by the petroleum companies were U.S.$23 million. This is theamount shown in the balance of payments. As an indication ofcapital imported into (or invested in) Colombia, it would appear tobe much more meaningful than the inward transfers of foreign ex-change in the exchange receipts statement. 3

Since 1946, net capital imports into Colombia by the petroleumcompanies appear to have been declining. Decreases in 1947 and 1948were occasioned by the rising value of crude oil exports, caused chieflyby rising prices. This more than offset increases in the items con-tributing to the gross infiow. In 1949, the decline has been greatlyaccelerated. In the first half of the year, transfers of funds to Colombiawere at an annual rate of only 76 percent of 1948; imports of equip-ment and supplies, 86 percent; and imports of petroleum products forsale, 73 percent. Meanwhile, rising quantities increased the value ofexports of crude oil to an annmal rate of 122 percent of those in1948 and there appears to have been an increase in the rate of exchangeremittances. On the basis of these data, the U.S.$23 million capitalinflow in 1948 was replaced by a capital outflow of U.S.$2 million inthe first six months of 1949.

This disappearance of a previously important source of foreigncapital was due partly to a rise in exports of crude oil, i.e., to anincrease in exports which did not produce foreign exchange. Butthere has also been a sharp drop in the inward transfers of fundsand imports of merchandise. The petroleum companies are tendingto withdraw from Colombia. This is true not only of the TropicalOil Company, whose concession lapses in 1951, but also of others.Exploration work is being reduced. The reduction in the importationof equipment and supplies has no immediate balance of paymentseffect. Lower inward transfers of funds by the companies, however,mean a decline in an important source of foreign exchange-12 percentof the total in 1948. Lower imports of saleable merchandise may meanless petroleum products for sale to Colombians.

The balance of payments summarized in Table 114 has fairlylarge "errors and omissions" items, necessary to make the paymentsbalance or add up to zero. This matter is considered in Appendix H.Here it may be noted that one contribution to "errors and omissions,"

3 The basis of the balance of payments figures is somewhat incomplete becausethe figures for capital imports do not include certain non-petroleum products, suchas automobile tires, brought in for sale by the companies. And as a more or lesscomplete offset, deductions have not been made on account of exports of petroleumproducts other than crude oil and on -account of the re-export of equipment or theproceeds from its sale.

316 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

and a serious defect in the balance of payments statement, resultedfrom the lack of data on the use of non-reimbursable import licenses.Such licenses have enabled importers to bring goods to Colombiausing funds originating abroad, or perhaps acquired in the blackmarket, and have been issued in the amounts of -U.S.$10 million in1946, U.S.$60 million in 1947, U.S.$32 million in 1948 and U.S.$8million in the first half of 1949. Their use represents an offset toimports and should therefore be shown in the balance of paymentsas an import of capital. While account is taken of such credits in thecase of imports by the petroleum companies, and as a result ofExport-Import Bank and similar loans, data are not available to de-termine the extent of other uses of non-reimbursable import licenses.This means that in certain years, perhaps particularly in 1947, the"errors and omissions" figure is larger than it would be if these datawere available.

Another shortcoming in the balance of payments statement arisesfrom the incomplete nature of the data used to show changes in thearrears of foreign payments for Colombia's imports. Changes inthese arrears belong in the capital account. An increase in the arrears,for example, means that goods have been imported (balance of pay-ments debit) without an offsetting outflow of foreign exchange(credit). The increase in arrears should therefore be shown as theoffsetting credit. Complete exchange control data on paymentsarrears, however, became available only in April 1949, after whichtime applications for exchange registered with the Office of ExchangeControl rose to U.S.$45 million. The data used in the balance ofpayments show the change in untransferred foreign collections ofcommercial banks, and cannot be regarded as completely representingthe change in arrears.

Despite the shortcomings of the method employed, the variousreceipts and payments items in the balance of payments indicatedecreases in exchange reserves in 1947, 1948 and January-June 1949.Such decreases did, in fact, occur. In addition, there apparently wveresome exchange receipts not disclosed by available official data ineach of these years (included in "errors and omissions"). This isindicated by the fact that the excess of exchange sales over exchangereceipts was apparently greater than the loss of reserves-by U.S.$10million in each of the years 1947 and 1948, and by U.S.$4 million inthe first half of 1949.

In 1946 foreign exchange reserves decreased by U.S.$2 millionas a result of an increase of foreign liabilities of commercial banks.In 1947, the sharp rise in the trade deficit and the payment of the

THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 317

gold subscription to the International AMonetary Fund resulted in adecrease of U.S.$65 million, almost entirely out of Central Bank goldreserves. Largely as a result of reduced trade deficits, the declinewas reduced to U.S.$29 million in 1948 and to U.S.$7 million in thefirst half of 1949.

But while the rate of decline in exchange reserves decreased, thegold and foreign exchange holdings of the Central Bank fell to whatwere regarded as dancerously low levels. At the end of April 1949,they fell to U.S.$63 million, not including the subscription to theFund. This level was regarded as the minimum below which reservescould not be allowed to fall and increasingly severe exchange controlmeasures wvere introduced to prevent a further deterioration. Subse-quently, reserves rose to about U.S.$87 million at the end of July 1949,then declined somewhat, but rose to about U.S.$127 million as ofJanuary 31, 1950.

A final unavoidable defect in the balance of payments statement isthe omission of unrecorded illegal exports and imports. We have nomealns of estiliiatinig the magnitude of such movements, although wehave been assured by competent observers that the traffic is substan-tial, particularly to and from Venezuela.

COLOMBIA'S TERMS OF TRADE

Prior to the increase in coffee prices in the autumn of 1949, therewas sometimes expressed in Colombia the view that the terms oftrade had deteriorated considerably. On a prewar base (1937 or1938), this does not appear to be borne out by available evidence,although the resuilt depends very largely on the year chosen as abase. An indication of the changes which have taken place inColombia's export and import prices is given in Table 117.

In 1948 and in the first half of 1949, the relative price of Manizalescoffee in New York stood at 295 on the base of 1938 = 100. OnMarch 7, 1950, the index stood at 455. For most practical purposes,this index of the price of coffee may be taken as representative ofColombian export prices, since coffee constitutes such a high percent-age of total Colombian exports. In the first half of 1948, coffeerepresented 77 percent of total exports and 91 percent of exportsdirectly yielding foreign exchange to Colombia, i.e., exports other thancrude petroleum. Although they are of limited significance, priceindexes for petroleum, Colombia's second ranking export, are alsoshown in, the table.

318 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Prices of Colombia's imports apparently have not risen since 1937or 1938 by nearly so much as the prices of her exports, even beforethe increase in coffee prices in the autumn in 1949. This table showvsunit value indexes of exports from the United States, wvhich sourcesupplied 74 percent of Colombia's total imports in the first half of1948. In 1948, the unit value index for total U.S. exports stood at206 (1938 = 100); in the first half of 1949 it wvas 198. Insofar asU.S. export prices represent the prices wlaich Colombia has to pavfor her imports, it is apparent that prices of her exports have risenconsiderably more than her import prices.

TABLE 117

COLOMBIA'S TERMS OF TRADE, 1937-49

Jan.-June1937 1938 1946 1947 1948 1949

Exports:

Coffee-Manizales, in N. Y., ¢ per lb. 11.6 11.0 21.8 30.1 32.5 32.5

Price index (1938=100) ...... 105 100 198 274 295 295Coffee as Cc of total exports. 65 61 77 77 771 -

Petroleum-Crude oil, Oklahoma-Kansas wells,

¢ per bbl. .... 116 112 131 184 251 251Price index (1938=100) 104 100 117 164 224 224

Colombia's exports, unit value,¢ per bbl. 113 112 135 190 254 249Unit value index (1938=100). 101 100 121 170 227 222

Petroleum as to of total exports 23 26 12 15 161 -

Irmpjorts:

Imports from U. S. as % of total . 48 51 69 72 741 -

Total unit valuie of LT. S. exports in-dex (1938=100)2 .108 100 163 194 206 198Crude Materials . 113 100 183 213 245 234Crude Foodstuffs 123 100 233 267 283 252Maniufactured Foodstuffs . 116 100 191 237 243 199Semi-manufactures .114 100 137 177 194 188Finished Manufactures . . 101 100 154 181 191 187

1 First six months.2 Constructed from index based on 1923-25=100.

Only in the case of crude foodstuffs have U.S. export pricesapproached those of Colombia in recent years. In 1949, howvever, theprice of Colombian coffee rose but the U.S. crude foodstuffs unitvalue index declined. On the 1938 base, the index for Colombian coffeestood considerably above that for U.S. crude foodstuffs in the firsthalf of 1949. While Colombia does import some foodstuffs, a much

THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 319

larger proportion of her imports falls into the categories of semi-manufactures and finished manufactures, the great bulk of which comefrom the United States. During 1948 and the first half of 1949, theunit value indexes of U.S. exports of these commodities have hoveredaround 190 on a base of 1938 = 100. Roughly, therefore, it wouldappear from these data that, prior to the recent sharp increase in coffeeprices, the average price of Colombia's exports had about tripled since1938 and the average price of her imports had increased to a consid-erably smaller extent-probably not much more than doubled.

The feeling that Colombia's terms of trade have deteriorated waspartly based upon a comparison of the price of Colombia's exportswith the price at which imported goods sell in Colombia. A consider-able markup is placed upon imported goods sold in the Colombianm .ar1ef7-sfar as the individual Colombian consumer is concerned,it may be true that the prices which he paid for imported commodities,at least until recently, had increased more since the prewar period thanhad the price of Colombia's exports. For the Colombian economy asav whole, however, a substantial improvement in the terms of tradeappears to have taken place.

INTERNATIONAL INDEBTEDNESS AND INVESTMENT

Data on Colombia's international indebtedness and assets heldabroad are far from complete. About the only statistics on foreigninvestments, exclusive of external holdings of public obligations, arethose shown in Table 118. The figures in this table are not to be taken

TABLE 118

FOREIGN CAPITAL INVESTED IN COLOMBIA AND REGISTERED

WITH THE OFFICE OF EXCHANGE CONTROL, JUNE 1947

(thousands)Insurance companies U.S.$ 957

Gold and platinum mines .... .......... 25,392

Banks .... .... 3,238

Stocks and bonds .................... .......... .... 14,075

Petroleum companies 189,885Other industries .. ....... . ....... . 17,779Miscellaneous .......... .... . .. 549

Total ........... ..... U.S.$251,876

as a complete statement of foreign capital invested in Colombia. Theydo not include external holdings of public obligations, although theydo include some imported capital which has been invested in bonds ofColombia's internal and external debt. But the data are incompleteeven as to foreign capital investment outside of the Government

320 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLONIBIA

sphere. They cover only the amount of capital imported into Colombiaand registered with the Office of Exchange Control, such registrationfacilitating the transfer of dividends and subsequent re-export of capi-tal. The practice of registering capital was begun only in 1945 and itis, therefore, doubtful that completely accurate information was ob-tained on the balance of foreign investment at that time.

In any consideration of foreign investment in Colombia, it shouldbe stressed that a very substantial part of such "investment" doesnot, and will never, constitute a drain on Colombia's foreign exchangeresources for its repayment. A vcry substantial part of the importedcapital has gone into industry - petroleum, gold mining, textilemanufacturing, etc. Much of this capital wvill probably remain inthe country indefinitely. This is less true in gold mining vwhereamortization payments are made. But only partial capital withdrawalis to be expected in the case of the vast foreign investment in thepetroleum industry. It is calculated that, in the years 1921 to 1948, theTropical Oil Company imported about U.S.$145 million in the formof foreign exchange and equipment. As far as the company is con-cerned, "vithdrawals" have been made out of the proceeds of thesale of crude oil. But in 1951, Tropical is required to turn back tothe Government its concession and its refinery-as going concerns.TI he company will retain its retail outlets but the present value of theconcession and refinery is not to be re-exported. Even more important,many petroleum companies have spent huge sums on exploratory anddevelopmental work, with little or no return. It has been estimatedthat, from 1936 to 1948, all petroleum companies imported materialsto the value of about U.S.$170 million and that, from 1944 to 1948,they brought in about U.S.$160 million in cash. Much of theseimports, having been unproductive, can be regarded todav neither ascapital invested nor, in any sense, as obligations which may haveto be met out of Colombia's exchange reserves.

An atmosphere and economic environment unfavorable to exten-sive foreign private investment appears to have developed in Colombia.This atmosphere is compounded of a number of elements. For onething, there has been a distrust of the permanence of the presentexchange rate. Of greater significance has been the uncertaintycreated by the numerous laws and regulations that might be appliedto foreign capital and the frequency with which these regulationsare changed. The actual treatment of capital may be fair, as itappeared to be in mid-1949 but, in addition to the many conditionswhich must at present be fulfilled, there was an intimidating arrayof potential rules and restrictions hanging over the head of the for-eign investor.

THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 321

It is not possible to generalize as to present practices becausethey vary from case to case and because there may have been changessince the time of our investigation. In many cases, reasonable pay-ment of dividends abroad appeared to be approved, although some-times there have been considerable lags between the application andthe actual remittances. On the other hand, examples were found ofcompanies which had had considerable difficulty in obtaining authori-zations to remit profits. Such difficulties appear to have arisen par-ticularly in the cases of recently established companies which havehad to contend with almost endless red tape in trying to establishthat their capital was legally imported. Applications pending forperiods of over a year appeared to exist.

The general attitude as to dividend payments, however, appearedto be reasonable within the limits of the general exchange controlsituation. Similarly, there did not seem to be any indication thatdomestic companies were favored over foreign companies in thegranting of import quotas or licenses.

It is even more difficult to generalize about the Colombian attitudetoward the re-export of capital. Most industrial companies have beenincreasing their investment rather than reducing it. This suggeststhat they are reasonably satisfied with their treatment. It also meansthat they did not know how they would be treated if they soughtto re-export capital, since the problem had not arisen. Investmenthas been increased by the companies' plowing back profits. Amorti-zation has, to some extent at least, been dealt with through the im-portation of new machinery-and import licenses could be obtainedfor this.

A problem of a somewhat different nature arises from the politicalattitude of certain groups toward foreign companies. Foreign-ownedenterprises have sometimes been regarded as convenient political andpropaganda targets. Labor in foreign-owned industries has been par-ticularly strongly organized and it has been felt that on occasiontheir demands have been excessive and their attitudes unreasonable.

For these and related reasons, there has recently been little dis-position for new foreign private capital to enter Colombia, despitethe many favorable opportunities that exist.

As shown in Table 119, the total external public debt outstandingand authorized amounted on December 31, 1949 to U.S.$146 million,of which about U.S.$23 million had not yet been utilized. The majorportion of the debt consists of dollar obligations, the new Republic3's due 1970 (U.S.$42 million) and the departmental and municipal3's due 1978 (U.S.$41 million). These two bond issues are the new

TABLE 119

COILOMBIA s EXTERNAL DEBT, 1949-1950

Interest Date of Date of OutstandingRate % Issue Maturity End of 1949 End of 1950 Purpose

( thou sands )1. PUBLIC DOLLAR BONDS

Republic of Colombia ..................... ... .................. 3 1941 1970 U.S.$ 41,710 U.S.$ 39,734 For refunding old bondsDepartmental & Municipal ........................................ 31 1949 19781 40,825 39,600 (see Appendix H forCity of Barranquilla ................................. ....... 1939 1964 1,345 1,227 original use of funds).

T OTAL .. . .......... ..... .. ........ .. .............. ..... 83,880 80,561

2. OTHER DOLLAR DEBTTreasury Notes .3 ..... ...... ...... ............... .3 1949 1952 7,650 5,100 Settlement of previous

indebtednessMaritime Terminal at Barranquilla .6 399 399Docks at Buenaventura 250 250Central Telephone Co. Bonds 2,778 2,788

TOTAL .... .... ..-. ....... 11,077 8,527

3. EXPORT-IMPORT BANKOutstanding .312 19593 22,302 29,759 Materials, machinery

and servicesUndisbursed .42 17,431 5,687

R.F.C 28 -O.F.L.C . . . 23/s 1946 1951 273 137

TOTAL INTERGOVERNMEFNTAL DOLLAR DEBT . . . 40,034 35,583

4. I.B.R.D.-Disbursed .......... ................................ 3 V2 1949 1956 _ 3,833Undisbursed 5,000 1,1674

5. Total Other Dollar Debt 56,111 49,110

6. Total Dollar Debt 139,991 129,671Of which undisbursed 22,431 6,854

7. STERLING BONDSRepublic of Colombia (i1,422)2 ................. ............. 3 1972 3,983Agricultural Mortgage Bank (L795) ...................... 31 2,227 5,826

TOTAL STERLING BONDS 6,210 5,826

GRAND TOTAL-including undisbursed 146,210 135,497excluding undisbursed . 123,779 128,643

3 Estimate based on the expiration dates of t e individual loan contracts.

THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 323

securities offered in exchange for the old debts under the permanentdebt adjustment plans of 1940, 1946 and 1949. The second majorcategory of debt is intergovernmental loans from the U.S. Govern-ment, mainly in the form of funds received from the Export-ImportBank. As of December 31, 1949, U.S.$22 million were outstandingand U.S.$17 million authorized but undisbursed; it is expected thatthe undisbursed amount will be drawn by 1951. The remainder ofthe debt is accounted for mainly by U.S.$7.6 million ColombianTreasury 3-percent notes held by New York banks in settlement ofolder obligations, the International Bank loan of U.S.$5 million, andU.S.$10 million of miscellaneous loans of which about one-half arepayable in sterling.

The debts call for interest and amortization payments as shownin Table 120. This table exclucdes payments on certain issues with

TABLE 120

CONTRACTUAL CHARGES ON COLOMBIA's EXTERNAL PUBLIC DEBT, 1950-70

(thousands of U. S. dollars)

Year Outstanding Amortization Interest Total

1950 133,700 8,539 4,257 12,7961951 . .... 130,500 8,929 4,177 13,1061952 . ... ..... 120,800 10.145 3,895 14,0401953 ....... 108,500 7,769 3,473 11,2421954. 98,400 7,391 3,121 10,5121955 88,300 7,065 2,774 9,8391960 44,600 3,567 1,366 4,9331965 .16,900 1,325 519 1,8441970 200 127 8 135

principal of U.S.$3.4 million outstanding, on which details of servicerequirements are not known; however, based on the assumptioln thatthis debt will be paid off over a five-year period, the resulting chargeswould amount to nearly another U.S.$1 million, bringing the totalexternal debt charges to U.S.$13.5 million in 1950. On the other hand,unquestionably some of the dollar bonds are held wvithin Colombia,which would reduce U.S. dollar requirements for servicing. In thecase of the dollar bonds, it has been estimated that the bonds will bebought in the market considerably under par, so that each U.S.$1,000spent on amortization will reduce the face amount of debt outstand-ing by more than that amount. In view of the fact that much ofColombia's foreign debt is refinanced at a low interest rate, theburden on Colombia to service debt is relatively light.

324 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Little information is available on Colombian investments abroad.However, it is believed that Colombian private assets in the UnitedStates amount to a significant figure. Transfers of funds to theUnited States have in many cases been illegal so that the assets areheld in ways not readily identifiable as Colombian. Foreign assetsmay be acquired through the outright purchase of funds in the blackmarket or through the overvaluation of imports. In addition, contra-band exports may yield foreign exchange. We have no means ofknowing how large such assets may be. In any case, they constitutea hidden offset to Colombia's foreign obligations.

EXCHANGE RATES AND EXCHANGE CONTROLS

In an effort to curb the rapid postwar decline in exchange resources,Colombia instituted a system of multiple exchange rates, depreciatedthe peso from 1.75 to 1.95 per U.S. dollar in 1948, and has madeincreasingly severe the exchange controls over imports and othertransactions involving international payments. Of these three devices,exchange control has been much the most important in curbing thedecline in exchange reserves.

The depreciation of the Colombian peso in December 1948 mayhave had some effect in tending to restore balance to Colombia'sinternational accounts, but that effect appears to have been veryslight. There is no evidence that it had any appreciable influenceon exports wlhich wrere, in U.S. dollars, at a smaller annual rate inthe first half of 1949 than in 1948. Also the inflow of capital apparentlyfell off considerably. Imports have been reduced, but that reductionapparently resulted from the increasingly severe application of im-port controls rather than from falling off of demand. The deprecia-tion did little to correct the disparity between Colombian sellingprices and the much lower costs of imported commodities. This dis-parity has been a most important source of the excess demand fordollars and is the justification of exchange control.

In addition to the official rate of exchange, there are numerousother rates applicable to exchange payments. These rates arise fromthe practice of imposilng varying tax rates on imports of differenttypes of goods and otn other payments. Further, in order to checkthe decline in gold production, a system of gold certificates wasintroduced at the beginning of 1948. These certificates were madeusable for certain types of payments and could be bought and soldon the stock exchange at rates deterimined by market forces. In themiddle of 1948, they were replaced by exchange certificates and weremade applicable. in addition to part of the proceeds from gold produc-

THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 325

tion, to proceeds from minor exports and from certain invisibles.They have always sold at substantially above the official rate-e.g.,dollar exchange certificates averaged Ps.$3.20 per U.S. dollar inAugust 1949. In addition, exchange taxes apply to most paymentsthrough the use of certificates.

Thus, in the middle of 1949, a system of considerable complexityhad arisen. It was possible to distinguish at least twelve differentmnajor rates on different types of transactions, which ranged fromPs.$1.95 to Ps.$3.86 per U.S. dollar.4 In addition, there was the blackmarket rate which varied daily. A more detailed account of thiscomplicated rate structure is presented in Appendix I.

The exchange certificate system was introduced primarily to assistthe gold mines, many of which were closing or threatening to closein 1947. Some success was achieved in meeting this situation up tomid-1949. The decline in gold production was arrested and recordedoutput rose from 159,000 troy ounces in January-June 1948 to 176,000troy ounces in July-December 1948, and to 191,000 troy ounces inJanuary-June 1949. But this expansion was not maintained in thesecond half of 1949 when recorded output fell to 168,000 troy ounces.5

Even at its expanded levels, however, the amount of gold producedand sold through official channels under the certificate system has beenconsiderably below prewar levels, being kept down by leakages intothe black market and reluctance of operators to expand under exist-ing circumstances.

Despite the premium given by the exchange certificate system,contraband exports of gold were rep.orted to have reached considerableproportions by mid-1949. Purchasers for illegal export can afford topay higher prices since the legal price is based upon U.S.$35 an ounceand somewhat less than the certificate rate, whereas the black marketprice is based on more than U.S.$35 an ounce and the black marketexchange rate, generally above the certificate rate. In the middle of1949, according to competent observers, more than 40 percent ofAntioquian production was going into the black market. Antioquiaproduces over half of the recorded national total. Also substantialsmuggling is believed to take place from other regions.

In addition to being unable to compete with the black market,legitimate operators appeared, in some cases at least, to be reluctantto expand their own operations. Operating costs were said to be veryhigh. Further, some producers felt uncertain that they w7ould con-

4 Certificate rate, taken at 3.20, plus 34 percent (of 1.95) tax.5 Recorded output in January 1950 rose to 39,800 troy ounces, as compared with

32,500 troy ounces in January 1949 and 32,100 troy ounces in January 1948.

326 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

tinue to have access to the certificate market in its present form. Thusit was felt by some that the legitimate gold mining industry was justholding its own under the certificate system.

As regards the stimulation of minor exports, the introduction ofthe exchange certificate system does not appear, by mid-1949, to havehad significant effects. In the first half of 1949, such exports returnedexchange only to the value of U.S.$1.3 million. Regardless of theexclhange produced by similar exports in earlier periods, this cannotbe regarded as significant. A possible reason for the failure of minorexports to expand in the face of such a substantial premium is to befound in the nature of Colombian export regulations. Small exportersmay find it difficult to arrange for the 40 percent export guarantee.Also it has been charged that Government export licensing policyhas been unnecessarily restrictive in keeping down such exports.

A serious effect of the exchange certificate system has been atendency to undermine faith in the official exchange rate structure.No matter how limited the scope of a so-called free market, there isgenerally a strong tendency to regard it as representing a closerapproach to an equilibrium or "realistic" rate than does the restrictedofficial market, no matter how small the restrictions. In Colombia'scase, restrictions of the official market have not been small, and it isnot surprising that the certificate rate has been taken as indicating asubstantial overvaluation of the peso at the official rate. As long asthe authorities seek to hold the present official peso rate, the existenceof a substantial premium in the certificate market makes their taskmore difficult.

On the import side, the high certificate rate has probably been afactor in curbing the demand for the importation of machinery andparts for which certificates have largely been used, at least duringthe first half of 1949. However, in the first half of 1949. importsinvolving the use of exchange certificates were only about 8 percentof total imports. With regard to the system of exchange taxes, itseems unlikely that they had much effect in curbing imports. Thedifferential character of the taxes, in particular, apparently was oflittle significance. Almost all of the import licenses issued in thefirst half of 1949 fell into the "Group I" category which bore a 10percent exchange tax. V;ery little exchange was allotted for importsin the other groups with higher import tax rates.

Even apart from the differential nature of the exchange tax sys-tern, the existence of taxes which raised the selling rates of exchangeabove the buving rate apparently did not significantly curb the demandfor imports. Colombian prices have been far above those at which

THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 327

imports could be obtained with official exchange. Tremendous profitscould be made from the importation of goods, even with the paymentof exchange taxes. As an illustration of this, there is some traffic inimport licenses for the purpose of buying luxury goods and thereported price in mid-1949 was almost invariably Ps.$1 per U. S.dollar. This rate is above any of the exchange taxes-and the importerwould still have to bear the tax. Of course, the taxes may reduce thedemand for certain commodities. But, in general, the tax applicableto most imports has been too small to act as a significant curb andmain reliance has been placed on the system of direct controls to keepColombia's imports in line with its ability to pay.

In addition to the complexities arising from the system of multiplerates, much greater complexity has resulted from the system of con-trol over the granting of foreign exchange. The nature of the systemas it had developed up to the autumn of 1949 is indicated below,with particular reference to how it affected imports.

The use of foreign exchange for the importation of commoditiesinto Colombia has been restricted at a number of points, and theacquisition of exchange involved at least six steps. In the first place,importers were classified as "industrial," "commercial" or "official,"and each importer was granted an import quota covering a certainperiod. The second step was the assignment or allocation of importquotas. This was the establishment of a maximum percentage of animporter's total quota against which import licenses could be obtainedin a particular part of the quota period. It was generally on a differ-ent basis for each of the three classes of importers and might placecertain limits on the goods to be imported. Third came the grantingof the import license for a particular importation of goods. Thefourth step in the process was the registration of the debt by theimporter with the Office of Exchange Control. This required thepresentation of certain documents, such as the commercial invoiceand the Customs House manifest. Debts registered were then tabu-lated by the Office. Fifth came the granting of an exchange authoriza-tion by the Office of Exchange Control. This authorization is a licenseto purchase foreign exchange and was granted in favor of a debtregistered with the Office. The sixth step, which followed the author-ization after a one- to three-week lag during which the red tape wascut, was the actual remittance of foreign exchange by the importer.

Quotas-considerably scaled down from applications-were grantedfor the twelve-month periods July 1947-June 1948 and July 1948-June1949. The next quota period was for the six months July-December1949, but no quotas were granted. Thus allocations during the period

328 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

were based on previous quotas. Quota allocations wvere for varyingperiods-generally for two months after August 1949. In some periods,however, general allocations were not made and in no case (at leastsince July 1948) were they sufficient to exhaust the quotas if continuedat the same rate throughout the quota period.

In April 1949, the fourth step, the registration of debts with theOffice of Exchange Control, wvas introduced and it was further decidedthat exchange authorizations would be limited to exchange receiptsby the Banco de la Repdblica in the previous week. This was followedby the building up of considerable arrears of debts for which exchangeauthorizations had not been granted. These arrears, on June 30, 1949,amounted to US.$45 million. Another April 1949 decree set up apriority system according to which exchange authorizations wereto be granted.

Developments reported in the month of November 1949 illustratethe complexity of the changes occurring within the system. Quotaallocations were made for the following two months (actually 2'2months); provision was made for imports of Group I raw materialsby new industries without basic quotas;' a regulation covered theimport of books; U.S.$5 million were made available for the importa-tion of trucks and buses; provision was made for further importsof drugs in excess of basic quotas: an extra-quota allotment was given

to commercial importers to cover imports for the Christmas season;and U.S.$3.5 million were earmarked for commercial importers whohad suffered damage during the disturbances of April 9 to 15, 1948.In the same montlh, there were also teported an increase in importquotas for a number of Group I and Group II commodities, the freeingof 69 commodities from quota restrictions, the broadening of the useof exchange certificates to include payments for certain luxury goods

and certain non-merchandise remittances, and a resolution settingforth the conditions under which official exchange would be granteclfor medical treatment abroad.

Appraisal of the Exchange Control System

The vigor with which controls over imports and other paymentswere applied during 1949 seems largely to have achieved their imme-diate purposes of wiping out arrears of payments and preventingfurther declines in Colombia's gold and foreign exchange resources.According, to the Office of Exchange Control, the arrears of debtsregistered with that Office declined from U.S.$45 million on June 30,1949, to zero on October 1. There is some question whether theactual improvemeent was as great as this statement would indicate,

THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 329

but it seems certain that the bulk of arrears were wiped out. It isunfortunate that they were allowed to arise originally, since they have,damaged Colombian credit abroad. The improvement in Colombia'spayments position and in her exchange reserves was at the expenseof the maintenance of a highly restrictive system of control, whichhad certain damaging effects on the functioning of the economy andgave rise to numerous complaints.

The complicated and detailed character of the system inevitablyhas imposed a heavy burden on the administrative agencies concerned.as well as on the businessmen who have had to operate under it. Thesuccessive steps required to obtain authorization for imports andremittances of exchange have been described above. The number ofthese steps, and the red tape required at each point, seem undulyonerous. Apparently, the Office of Exchange Control did not establishgeneral rules which would permit applications to be handled auto-matically or as a matter of routine; each application was reviewedas an individual case and was subject at each step to discretionaryaction by the Office of Exchange Control. Importers complained thatit was consequently necessary to send senior executives to the Ex-change Control to battle with the crowds and push their applicationsthrough personally, because they could not rely on the applications'being properly considered otherwise. This has been a particularlyserious problem for firms located outside of BogotA. In the absenceof clear general rules, which would permit delegation of adequateresponsibility to branch offices of the Exchange Control in othercities, the latter have had to refer almost every substantial questionto the head office. It is reported that senior officers of some Medellinfirms have had to spend almost all their time for weeks at the BogotAoffice.

In view of the complexity of exchange control regulations andprocedures, their frequent changes, and the discretionary way inwhich they have been applied, orderly business planning has beenvery difficult. For example, the importer could not tell to what extenthis import quota, or even the periodic quota allocation, would assurehim access to imported goods. Moreover, in a system of this kind,differences are bound to arise in the treatment of different importersand different classes of importers. Although such differences maysometimes be justified, they inevitably produce complaints from manybusinessmen that they are treated arbitrarily and unfairly. Much ofthis dissatisfaction stems basically from the uncertainty and insecurityof importers, and the impossibility of their planning ahead when theymust struggle along from allotment to allotment and from license tolicense.

330 TIIE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Cases xvere cited of a commercial importer finding it impossibleto get licenses for goods in which he dealt regularly, while otherimporters who did not normally handle those commodities were ableto obtain such licenses. In some cases, it was then necessary for thefirm wvhich had the license to sell the goods to the firm which hadthe sales outlets. Such transactions would clearly involve added effortand presumably higher markups to the final customer.

Similar defects have been apparent in the granting of licenses forremission of earnings on foreign investments. This is undoubtedlyan important deterrent to further investments.

In theory, a rigid system of exchange control through individuallicensing makes it possible to put a country's foreign exchange re-sources to the most effective use. This implies that the allocation ofresources arrived at through conscious and discretionary control isbetter than that arrived at through the competitive pricing process.

It is very doubtful whether in practice the operation of exchangecontrol in Colombia has actually resulted in a better use of foreignexchange resources than would have occurred in its absence. Carefulstudy of imports discloses that the percentage composition of importsin the postwar period, when individual licensing was in effect, variecdlittle from that prevailing in the prewar period. the main differenceresulting from the increased self-sufficiency in finished textiles. Forexample, the categories "Metallic Manufactures" and "Machinery andApparatus," representative of capital goods, comprised 29.9 percentof imports in 1937-40, and 30.6 percent in 1945-47. The decline intextile products from 16.3 to 8.3 percent of imports for the same vearswas apparently largely offset by greatly increased importation ofother consumer goods.

Within the categories, the practice of assigning quotas and licensesto established importers has lessened the degree of competition, whichin any case is not overstrong in Colombia, has facilitated higher mark-ups and has tended to increase the already considerable inequalityin incomes. The allotment of quotas in small fractions has made itdifficult to bring in commodities which come in very expensive units.

It has been found in many countries that exchange control, origi-nally proposed to conserve foreign exchange resources, becomes in thecourse of time an instrument for the pursuit of policies not originallycontemplated. This appears to have occurred in Colombia. For ex-ample, through the operation of exchange control, a competitiveadvantage wvas conferred on the Flota Mercante Gran Colombiana,a shipping company xvith capital subscribed by Colombia, Venezuelaand Ecuador. This company began in 1947 to accept Colombian pesos

THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 331

in payment for inward freight instead of U.S. dollars, as specifiedby Shipping Conference regulations. Since the Office of ExchangeControl required that dollar freight payments be met out of theamount of the import license, the importer was under considerablepressure to ship by Gran Colombiana and pay in pesos. In certaincases, the amount of exchange granted was just sufficient to coverthe f.o.b. cost of foreign mechandise, so that the importer was ineffect forced to ship by the Colombiana line. Gran Colombiana wasable to convert pesos into dollars to meet its dollar expenses. Thisdiscrimination gave a great stimulus to freight movements by GranColombiana and reduced the freight volume carried by foreign ships.

Another example of the apparent use of exchange control machineryfor purposes other than limiting international payments is affordedby the treatment of foreign publications. Before the Office of Ex-change Control permitted their importation, it determined the appro-priateness of the publication, thus exercising de facto censorship. Theirregular allotment of quotas on import licenses upset the regularinflow of such publications and disrupted their distribution.

When the privilege of importing foreign goods becomes a lifeand death matter for many businesses and spells the difference be-tween the possibility of making high profits or incurring heavylosses, the system of discretionary exchange control is likely to beexposed to great pressures. Despite, however, the innumerable storiesand charges of favoritism and influence, there appeared to be a fairlygeneral feeling in Colombian circles that the administration of theexchange control mechanism was, on the whole, honest. It has un-questionably, however, given rise to much discontent.

Against the undoubted merit of having conserved Colombia's for-eign exchange resources, therefore, it is necessary to offset these ad-verse consequences. They center largely around the complex, discre-tionary character of the control system, and the uncertainty it hasimposed on business operations.

EXPORT CONTROLExports from Colombia have been subjected to a licensing system

and to a certain degree of control designed to insure that the exchangeproceeds are surrendered to the authorities and that exportation doesnot denude the economy of necessary goods. This control is exercisedby the Ministry of Commerce and Industry. In September 1949,specific approval of the Ministry was required before licenses weregranted for exports of certain agricultural products, including cereals,beans, potatoes, oil seeds, cacao, cattle and other livestock, hides,meat, flour, sugar, lard, butter and cheese. Another type of export

332 THE BASIS OF Ak DEVELOPMENT PROGRAM FOR COLOMBIA

control results from the minimum prices for exports established bythe Office of Exchange Control.

Export control appears to have held down the exportation of cer-tain commodities. It may explain the decline in recent years of ex-ports of most of the significant items other than coffee, petroleum,bananas and platinum. As noted above, it has been charged thatexport control explains at least partly why the application of the ex-change certificate system to minor exports has not resulted in anysignificant increase in the volume of such exports. On the other hand,control has tended to drive certain exports into illegal channels-augmenting the effect of the attractiveness of obtaining foreign ex-change to be sold at black market rates. As regards insuring thatthere will be adequate supplies of goods in the domestic economythrough export control, it is to be noted that goods for Colombianpurchasers can also be secured through facilitating a larger volume ofimports. To the extent that export control has reduced exchange re-ceipts and, therefore, made necessary a greater restriction on thevolume of imports, the gain to the domestic economy through restric-tion of exports has been offset.

CONTRABAND AND THE BLACK MARKET

The scarcity of U.S. dollars in Colombia has led to the develop-ment of an illegal or black market for such dollars. In the middleof 1949, the black market rate tended to be about 20 centavos perU.S. dollar above the certificate rate, although this spread has beenby no means constant.

Contraband exports and imports are important in giving rise totransactions in the black market. Colombia's long and relatively un-guarded borders facilitate these movements. Many people cross theborders of both Venezuela and Ecuador without difficulty and it isunderstood that considerable amounts of contraband are carried withthem. Convoys of trucks are alleged to carry illegal shipments be-tween the Venezuelan border and the interior of Colombia. The con-traband export of gold, alleged to result in considerable receipts ofU.S. dollars in the Colombian black market, was considered above.Other illegal exports also produce such receipts, while heavy illegalimports produce demand in the black market.

Substantial illegal exports of such commodities as cattle, hides,etc., are understood to take place as a result of export restrictionsand the premium obtainable from the sale of foreign exchange in theblack market. Contraband exports, however, are not restricted tocommodities where export control is severe. It is understood that evencoffee is exported without the surrender of exchange proceeds. In

TIIE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 333

considerable measure, such exports are paid for in U.S. dollars, par-ticularly by Venezuela.

In mid-1949, there was apparently a substantial volurne of illegalimports. Luxury commodities, such as American cigarettes andScotch whiskey, bulked large in the traffic. The disparity between theinternal selling price and the external cost of the commodities, madepossible because the volume of legal imports was kept down by importrestrictions, permitted contraband imports to be sold at considerableprofit, apparently high enough to enable the importer to pay blackmarket exchange rates.

Tourists and Colombian travelers added to the inflow, and outflowof contraband merchandise. This gave rise to demands for closerregulation of issuance of tourist visas and appears to have postponedthe introduction of a tourist card. It would be unfortunate if the po-tential development of tourism in Colombia were to be restrictedbecause a few people have abused the privileges granted to them.

In addition to illegal exports, there have been other sources ofdollars for the black market (or for holding abroad). One which isbelieved to have had considerable importance in the past has been thepractice of overvaluing imports, with the excess being placed to theimporter's credit abroad. Commissions paid to Colombian merchantsby foreigners may be deposited to their accounts abroad. To a sub-stantial extent, tourist and commercial traveler expenditures havefound their way into the black market. Similarly, the demand forfunds in the black market has arisen not only to pay for contrabandimports but also from the demands of Colombian tourists going abroad,people wishing to make remittances, and others wishing to acquireassets in the United States.

The volume of contraband trade, particularly imports, has givenrise to considerable Government concern, numerous conferences, anddemands that it be stamped out, but the efforts to do so did not appearto have been very effective by mid-1949. The contraband traffic isclosely tied up with the black market in U.S. dollars, which is affordeda degree of toleration.

BILATERAL AGREEMENTS

In the postwar period, Colombia's exports of coffee and other com-modities to European countries have been below prewar levels invalue as well as volume. In 1938, they were valued at U.S.$20 million,but in the first six months of 1948, they were running at an annualrate of only U.S.$13 million. For the latter period, trade with Euro-pean countries (including the United Kingdom but excluding depen-

334 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

dencies) resulted in a Colombian deficit at an annual rate of U.S.$42million. In an effort to build up exports to Europe, Colombia in1948 and 1949 entered into bilateral agreements with five Europeancountries: Belgium, Sweden, The Netherlands, Finland and WesternGermany. An agreement with France has also been considered, andthere have been reports of negotiations with Italy and the UnitedKingdom. A further agreement was concluded with Ecuador, withthe purpose of economizing in the use of U.S. dollars for trade betweenthe two countries. In addition to these agreements covering tradefor a given period, agreements covering specific shipments have beenconcluded by the Instituto Nacional de Abastecimientos, a semi-official trading organization. These cover, for example, exports ofrice and imports of copra.

The most ambitious of the bilateral agreements is that withWestern Germany, negotiated in June 1949 and running until May 30,1°50, with the possibility of extension. Colombian exports to, andimports from, Western Germany were at an annual rate of less thanU.S.$1 million in the first half of 1948. The agreement contemplatesraising these figures to U.S.$15 million. 6

Colombia's six bilateral agreements have been entered into bythe Office of Exchange Control or the Banco de la Republica. To aconsiderable extent, the agreements have been aimed at expandingcoffee sales. Indeed, the Coffee Growers' Federation acted as an inter-mediary in the negotiations with Finland, and the Netherlands agree-ment specified that it will administer the coffee exports.

This role of the Coffee Growers' Federation in Colombia's bilateralagreements contains at least the danger that their object may be tofacilitate an increase in coffee exports to Europe even at the expenseof other elements in the economy. One agreement, that with Finland,has been the cause of considerable complaints within Colombia. Thesearose because the prices of Finnish paper were substantially abovethose at which purchases were possible in the United States andCanada (at least before the depreciation of the Finnish markka inSeptember 1949). In addition, according to one source, a 10 percentcommission to the Coffee Federation had to be added to Finnishprices. One Colombian firm publicly asked the Office of ExchangeControl to free it from its obligation to buy paper from Finland.In general, however, in the middle of 1949, merchants felt favorablydisposed toward the agreements, although they also felt that thesystem had not been long enough in effect to permit final judgmentto be passed.

6 Reportedly increased to U.S.$22 million in November 1949.

THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 335

GENERAL APPRAISAL OF COLOMBIA'S INTERNATIONAL

ECONOMIC POSITION

Colombia's present international economic position appears on thesurface to be extraordinarily favorable. Exports in 1948 were 354percent of those in 1938, while total exchange receipts, including thevalue of gold production, were 298 percent of the 1938 level, and in1949 both figures were substantially higher. The terms of trade havemoved markedly in Colombia's favor in comparison with the prewarperiod. Moreover, the overwhelming bulk of Colombia's exchangereceipts are from hard currency areas. With the adjustment of itsexternial indebtedness, the burden of annual servicing charges appearsto be light relative to the current and prospective volume of exchangereceipts.

Colombia's foreign exchange position is largely tied up with coffee.Coffee is one of those commodities that has, in the economist's par-lance, both inelastic demand and inelastic supply. In other words,a considerable variation of price has little effect upon consumptionor, except over a long period, upon production. A coffee tree takesabout five years to mature and has a life of some forty years. Conse-quently. relatively small variations in supply or demand may causeconsiderable variations in price.

At the beginning of 1950, the statistical position of coffee wasstrong. While world production has been falling, consumption hasshowvn a steadily rising trend, increasing at the rate of about 10 per-cent every five years. The U. S. consumption has been expandingstill faster. At the present level of 21 million bags, it has doubled in

volume since the 1920's and comprised in 1949 almost one-eighth ofall U. S. imports. World production of coffee has been steadily falling,mainly due to the decline in Brazil, whose output fell from over two-thirds to slightly under one-half of the world total. Bearing treesin Brazil fell from 3 to 2 billion over the last twenty years and almosttwo-thirds of these are old trees. World production in 1949 amountedto about 38 million bags, of which 9 million were used for consump-tion in the producing countries, while 29 million were exported. Worldimports amounted to 32 million bags, the difference being supplied

from Brazilian stocks from previous years' production-which arenow reported to be nearly exhausted. Undoubtedly current prices forcoffee will lead to increased plantings in all producing areas, butthese plantings cannot affect the near-term prospects significantly.Consequently, it woould appear that Colombia can look forward to aperiod of relatively high prices and substantial volume of coffeeexports, resulting in exceptionally large foreign exchange receipts.

336 TIHE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

This prospect gives an exceptionally favorable opportunity toaccelerate Colombia's economic development. On the other hand,it also creates certain dangers, unless wise, far-sighted and firmmonetary and fiscal policies are adopted. Increased incomes fromthe export of coffee tend to mean increased spending and the possi-bility of a more or less automatic increase in the money supply, basedon larger bank reserves. With restrictive import controls, this impliesa grave risk of renewed inflation with its attendant injustices andharmful social consequences.

With respect to petroleum, the other main source of dollar ex-change, Colombia's position has definitely worsened. No new impor-tant fields have been discovered in recent years,7 and the heavyexpenditures for exploration undertaken earlier by foreign oil con-panies are being sharply curtailed. Existing fields are approachingor past their peak production and, in the absence of new discoveries,an overall decline in production is to be expected. On the other hand.consumption of refined products in Colombia has been growingrapidly and it may be anticipated that this trend will continue and,if anything, be accelerated. While Colombia still has sufficient pro-duction and sufficient reserves to satisfy its own requirements forsome years and to provide a margin for export, it is currently deficientin refinery capacity and is importing refined products. Provision ofadditional refinery capacity would involve considerable capital outlay.This matter is discussed at greater length in Chapter XIX.

Under present conditions, it would appear that little expansioncan be anticipated in the current relatively low volume of gold pro-duced and sold to the Banco de la Republica and that, if costscontinue to rise relative to the selling price, a further reductionmay occur.

It appears, therefore, that unless rich new oil fields are discoveredor new exports are developed, Colombia's foreign exchange receiptsand its capacity to buy goods abroad will become almost entirelydependent upon one commodity. While this is not an alarming pros-pect over the near-term, it entails obvious longer-run dangers. Thepeculiar nature of the demand and supply conditions for coffee hasgiven rise in the past to tremendous variations in price, and evenas late as 1938, coffee stood at 11 cents a pound.

The final weakness lies in a somewhat excessive drive towardnational self-sufficiency. Although Colombia has benefited enormous-ly from foreign trade, there has been some tendency to adopt measuresto cut down on imports and stimulate domestic production regardless

7 At the time of writing, it was impossible to assess the possible importance ofthe Texas Company's discovery well near Ortega.

THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 337

of the economic costs involved. Another aspect of this same attitudeis shown in the attempt to limit exports of various commodities.Further evidence is seen in the recent development of bilateral tradeagreements-which, in view of Colombia's extraordinarily strongdollar position, appear to be unnecessary and, in certain cases,uneconomic.

In summing up Colombia's international economic position, it isimportant to recognize the close interrelationship of donmestic fiscaland financial policies with exchange rates and exchange controls,and the impact of all these factors on the process of economic develop-ment. The subjects analyzed in this and the two preceding chapterslie at the heart of one of the most complicated areas of economics,in which partial appraisals may be very misleading.

At the beginning of this chapter we cited the paradox that "Onthe one hand, Colombia is in the very fortunate position of possess-ing exports which command an active and growing market in hardcurrency areas [while] on the other hand, there has been constantcomplaint of the shortage of dollars, a continuous tendency to excessof demand for dollars over the supply." And as a result of thispressure of demand for dollars-which represents in the main adernand for imported goods8 -Colombia has been led to adopt andelaborate the whole apparatus of quotas, individual import and exportlicenses, multiple rates of exchange, special tariffs and subsidies,bilateral trade deals and the like, which have been developed sincethe 1930's by various countries to meet grave and chronic imbalancesin their international payments.

The root cause of the heavy demand for imports was the greatexpansion in money supply, which was analyzed in Chapter XIV.Domestic production was unable to keep up with the sharply risingdemand for consumer goods. At the same time, the level of domesticprices rose by 172 percent from 1940 to 1949-a much greater increasethan took place in the United States, which is the source of mostColombian imports. As a result, the internal buying power of the pesofell progressively below its external buying power-as determined byprices in foreign countries (especially the United States) and theofficial rate of exchange of the peso with other currencies-and foreigngoods were made relatively cheap in the Colombian market. Hen-ce thedetailed and complicated system of controls that has been describedis required to keep the demand for such goods in check; and thecontrol system in its turn has produced new diffculties and distortionsin the Colombian economy.

8 Any foreign exchange demand for purposes of capital flight is assumed to benon-recurrent and has been left out of account in this discussion.

338 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Monetary experts have proposed, and in recent years have gainedconsiderable experience with, various kinds and combinations ofaction to meet difficulties of this kind. There has been some publicdiscussion of possible changes in Colombian exchange policy, in viewof the obvious problems created by the present system. It is clear,however, that any alteration of exchange rate or control measurescannot be considered intelligently in isolation; their relationshipsxvith other aspects of the economy and with the entire developmentprogram must be taken fully into account and the advantages anddisadvantages of various alternative courses of action weighed ac-cordingly.

Where, for example, inflationary pressures have produced a dis-equilibrium in the exchange rate, a revision in the rate would giveonly temporary relief if these pressures remain unchecked. In addition,a change in the rate might xvell aggravate the pressures if it werenot accompanied by firm and skilful application of appropriate anti-inflationary fiscal and monetary measures.

The process of economic development itself has, in the recentpast, been an important factor contributing to inflation and to exchangedifficulties. The large peso investment made in development wvorkgenerates increases in incomes and consumer demand, which havebeen only partially balanced by simultaneous expansion of the out-put of goods and of the volume of intended saving. At the same timethe necessary purchases of machinery and equipment from abroadhave been a major factor in depleting foreign exchange reserves.

It is clear, therefore. that the scale and character of developmentactivites have a direct influence upon the country's foreign exchangeposition. If the methods used to finance development are inflationarv-broadly speaking, if total investment undertaken exceeds intendedor voluntary saving-exchange pressures are likely to continue. Evenif this kind of monetary inflation is avoided, some exchange pressuresmay persist if the development program results in exceptionally heavyimports.

A high and rising level of exchange receipts, such as Colombia nowenjoys, wvill not, therefore, suffice to obviate exchange difficulties aslong as the prices of all foreign goods appear low relative to a periodwhen trade wvas in equilibrium and as long as internal prices andincomes continue to rise relative to foreign prices and incomes.These factors operate through the financial mechanisms of the bank-ing system and the Government budget; thus appropriate exchangepolicies cannot be devised apart from banking and fiscal policies, nor,in fact, from the entire development program.

THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 339

Not only do the pace and financing of development affect theexchange position, but the reverse is also true. A period of highexchange receipts is, in general, a particularly favorable time forincreasing investment for economic devolopment-if care is exercisedto avoid the difficulties summarized just above. In this Report wemake certain assumptions as to future exchange receipts. If it ap-pears later that these assumptions will have to be altered, then thedevelopment program as a whole must be adjusted accordingly.

No less important, although perhaps less obvious, is the influenceof a particular exchange rate or method of control on the size, andespecially on the character, of the development program.

A rate of exchange that overvalues the currency may act to restrictthe expansion of certain types of domestic production in competitionwith imports, and to limit the prospects for developing more diversi-fied exports. While it may be possible to mitigate such consequencesto some extent by import controls or subsidies, these mnay createadditional distortions.

On the other hand, a reduction in the external value of the currencyhas the effect, unless counteracted by other measures, of increasingexporters' money incomes and decreasing importers' profits, thusoriginating changes in incomes throughout the economy. Throughrevaluation of reserves, it may increase the ability of the bankingsystem to extend credit. It has direct and indirect budgetary influ-ences. By changing the local cost of imports, it alters the priceof an important proportion of consumer goods and of capital equip-ment, affecting in turn all investment plans previously contemplated.

Either the maintenance or the alteration of the exchange rate,therefore, produces consequences throughout the economy, affectingthe various interrelationships that have been mentioned before. Thesoundness and success of the development program will depend insubstantial part upon whether those interrelationships move towardbalance rather than further out of balance, and this will be deter-mined not alone by the exchange rate but by the whole complex ofeconomic policies involved in the program.

Apart from the exchange rate, the character of exchange controlscan greatly affect development. On the investment side, unsatis-factory controls may aggravate the difficulties of obtaining importsof required capital equipment. Decisions to grant or to withholdimport licenses are likely to become the day-to-day factor governingprivate development investment, distorting and weakening competi-tion and lessening the effectiveness of the market mechanism as ameans of guiding resources into the most productive channels.

340 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Such considerations as these make it clear that the function ofsound exchange and import control policies is not merely to protectexchange reserves, but to do so in a ifanter which, so far as pos-sible, aids rather than obstructs economic development. Thus theymust be determined in relation to other economic development policiesto make a coherent whole; and, by the same token, the overall develop-ment program must take realistic account of the country's exchangeposition and prospects.

It would clearly be inappropriate at this time to try to anticipatethe timing or magnitude, or even the precise nature, of changes in theexchange rate or the control system that may prove desirable in thefuture. In the model quantitative projections worked out in ChapterXXX, therefore, we have used the present rate of exchange.

CHAPTER XVI

Organization for Planning and Administration

The Mission was not equipped in personnel, nor did it have thetime, to make a comprehensive or detailed study of the problem ofpublic administration. However, in the course of its study, it neces-sarily came into contact with those parts of the administrative ma-chinery of Colombia that relate more directly to economic matters.In this chapter, therefore, it is proposed to summarize briefly someimpressions derived from these contacts.

ADEQUACY OF BASIC DATA

It is obvious that economic planning can be no better than thedata on which it is based. An indispensable prerequisite for theformulation of sound policy, for the enactment of wise laws and forgood administration of such laws is that correct information be com-piled, arranged and presented in a form significant for these purposes.Colombia possesses a wealth of statistical material, and in recent yearsimportant strides have been made toward improved statistical organi-zation and wider and more regular collection of data. Much of thisstatistical material, however, has not been sufficiently subjected tocritical analysis, nor worked over and rearranged in a form bestadapted for planning purposes. Much of the time of the Mission wasspent in this type of work.

Many of the most basic economic series were lacking and had tobe worked up. Perhaps the most significant of these is that depictingthe national income and its composition. Such a series compiled overa period of years affords knowledge of the progress of a community,the division of its total product into capital formation and consump-tion, the changes in relative importance of various industries and inthe way the national income is shared by the different economicgroups. Also such data are necessary for comparative studies withother countries, which in turn are of the utmost value in suggestingdesirable changes in laws and practices.

Series closely related to national income and also vital for planningpurposes are those of saving and capital formation. It is obviouslyimportant to have some idea as to how much of the current nationalincome is being saved, i.e., not being spent on consumer goods andservices and therefore available for expenditures on producers' goods,or for maintaining and adding to the stock of real capital. This in

341

342 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

turn affords a measure of the magnitude of capital formation whichmay be safely undertaken without resorting to expansion of bankcredit and the possibility of inflation. It is also of obvious importanceto know how much income is being saved and by what classes, and thecomposition of capital formation. Only if this information is availableis it possible to make soundly based decisions on the expansion orcontraction of existing types of capital formation.

Comments of the same general nature may be made about variousfiscal and monetary series. It is desirable, for example, to rearrangebudgetary items in order to depict a true cash surplus or deficit thatmay be reconciled with changes in the public debt. Series depictingclearly the sources of changes in the money supply and bank reservesare of obvious importance for the conduct of wise monetary policy.Unless such information is immediately available, it is difficult toadopt proper policies to bring about appropriate changes in the supply.In the same general field, we have noted earlier the usefulness of theinternational balance of payments series and the desirability of per-fecting it.

WVe have also had occasion to point out the desirability of improv-ing basic statistical series in agricultural and industrial production.The importance of improving and expanding the agricultural produc-tion series, in particular, is obvious if efforts are to be made to bringabout increased agricultural production and a better balanced dietfor the nation as a xvhole. Similarly, a soundly conceived and wellexecuted transport program for the nation calls for intensive work ontraffic surveys. Again for intelligent planning in many fields, betterstatistics related to birth rates, death rates, health, dependents, ageand geographic distribution are of paramount importance. In all thesefields, statistical information in Colombia leaves much to be desired.

We have had occasion to note a general absence of modern costaccounting techniques in the operation of both Government and pri-vate enterprises. There is, for example, almost no application of costaccounting in the most important field of transport.

The lack of essential basic data is attributable not so much to thefailure to compile statistics as to the lack of well-trained, analyticaleconomists, statisticians and accountants to work on existing material.Few persons in Colombia have been adequately trained in the newertype of quantitative and analytical economics that has come to thefore in the past twenty years. The same general remarks are applicableto both statistics and cost accounting. Accountancy in Colombia,with the exception of one or two foreign firms, has not acquired highprofessional status and the great contribution that highly trained ac-

ORGANIZAT10N FOR PLANNING AND ADMINISTRATION 343

countants can render to the efficiency of an economic organization isnot sufficiently appreciated.

It is doubtless due at least in part to these factors that many Colom-bian projects and plans appear to be based on inadequate analysisand study. The absence of such analyses and studies, in turn, has madeit easier for purely political considerations to acquire excessive weightin the determination of policy. Numerous cases came to light whereprojects involving substantial capital investments were undertakenwithout adequate study and statistical data. For example, diligentinquiries and search failed to uncover any basic economic studies sup-porting the proposed railroad linking Ibagu6 and Armenia, a projectthat might cost some Ps.$70,000,000 or more.

ORGANIZATION FOR ECONOMIC PLANNING

The political organization is not so well adapted to economic plan-ning purposes as might be desired. Wise planning and proper execu-tion ideally require not only correct information and studies, but aconcentration of authority and responsibility and a considerable de-gree of continuity in personnel. In order to safeguard its politicalliberties, Colombia has gone even further in the direction of a systemof political checks and balances than has the United States. Not onlyare authority and responsibility distributed among the executive,legislative and judicial arms of the Government, but in addition thePresident, the House of Representatives and the Senate are electedat different times for different terms, and the President cannot beimmediately reelected following a term of office of four years.

Inevitably this system produces obstacles in the way of consistentplanning and continuing direction of the economy which do notexist, for example, in the parliamentary system as practiced in theBritish Commonwealth, where the government of the day has boththe legislative power to enact laws and the administrative authorityto carry them out. The system of checks and balances was institutedin the Americas at a time when the state played little role in theeconomic life of the country. Today exceptional skill is required tooperate it efficiently. When the President's party lacks a majorityin the National Congress, the consequences of the division of authorityand responsibility are particularly serious in the field of economicpolicy. Even when the President's party has also a majority in Con-gress, the limitation of his term of office to one term at a time, whileagain probably desirable on other grounds, undoubtedly weakens hispower to enforce discipline on his own party and impairs his leader-ship.

344 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

We are not for a moment implying that Colombia should modifyits basic constitutional form of government. We are only concernedto point out here that that particular form raises certain problems inthe modern economic state. That these problems are not insuperableis shown by the experience of other countries with similar govern-mental systems, which have successfully analysed and solved theirmost pressing economic problems.

Even within the executive branch of the Government, the Presi-dent's ability to provide leadership is weakened in various ways. Forone thing, the extremely small staff at his disposal makes it virtuallyimpossible for him to follow closely the activities of all the variousgovernmental agencies or to check independently on the bases ofaction. In view of the smallness of his personal staff and the generalproliferation of government functions and agencies, it is physicallyimpossible for him to provide a high degree of coordination in plan-ning or in execution.

There is a noticeable tendency in all countries for government,left to its own devices, to become more complex. As a state is calledupon to plan and carry out more and more activities, more and moreagencies are created. In the course of time, this may result in con-fusion and in conflict of authority and responsibility within the execu-tive arm of the government itself. This trend has been going on inColombia for many years and consequently the Government has be-come very diffused. Numerous agencies are involved in almost everyfield of activity, often with little coordination. In the field of agri-culture alone, there are twenty or more agencies, corporations orboards, in addition to the Ministry, whose activities affect agricul-ture in one way or another. Under such a setup, it is difficult to plana coordinated program for agriculture as a whole, to determine theproper-degree of emphasis on different parts of the program, estab-lish priorities and provide for a rational allocation of available funds.The same is true in lesser degree in the fields of health, public utilitiesand transport. In the fields of health and education, the problemof working out well-coordinated programs is further complicated bythe necessity of reconciling national action with departmental andmunicipal attitudes and requirements.

A further factor militating against the effectiveness of economicplanning is the impaired status of technicians. The inadequacy of thepay and the lack of security of tenure have weakened the attractivenessof the public service to outstanding technicians and have resulted inreduced prestige of technical positions in the Government. Conse-

ORGANIZATION FOR PLANNING AND ADMINISTRATION 345

quently, plans are not so effectively developed nor so vigorouslyand authoritatively presented as could be wished.

As a consequence of the inadequacy of basic data, the lack of highlytrained economic and other technicians, and the weakness of thegovernmental setup from the point of view of planning, economicplanning in Colombia has not been outstandingly successful. Thefailure to plan properly has frequently made it necessary to resortto cumbersome controls. For example, the failure in the postwarperiod to avoid inflation and to maintain general stability in the pricelevel has led to numerous price controls, which in turn have resultedin widespread evasion. Another illustration is afforded by experiencein the field of foreign exchange. Failure to set an equilibrium rateof exchange and to maintain general price stability thereafter forcedrecourse to a rigid system of exchange control.

ORGANIZATION FOR ADMINISTRATION

Inadequate staffing in the Executive Office of the President notonly weakens the leadership of the President in the formulation ofpolicy, but it also naturally undermines efficient and coordinated ad-ministration of the laws. It is very difficult for the President to assertadequate control either over the budgets of all the various agenciesof Government or of the legislative projects and plans of these agencies.The number of officials who have the right and privilege of directaccess to the President is staggering. The demands on his timearising from relatively trivial matters are such as to leave him littletime for the most important matters of state.

The growth in the number of public and semi-public agencies hasnaturally given rise to overlapping and conflicting jurisdictions andhas militated against efficiency of administration. If the Ministersattempt to secure desirable coordination by attending meetings ofall the juntas and boards of which they are members, they have littletime to administer their Ministries or to engage as a Cabinet in overallplanning. In part, in the field of public administration, Colombia hasbeen caught in a vicious circle. Weaknesses in governmental admin-istration have induced proponents of new state activities to attemptto secure better administration by providing for new and independentor semi-independent agencies to carry out the new activities. While insome cases this has solved one problem, the total result has been atremendous proliferation of governmental agencies, without propercoordination or assignment of responsibility. Waste, as well as in-efficiency, inevitably results.

346 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

The relation of the National Government to departmental andmunicipal governments has been discussed in part in Chapters X andXIII. The weaknesses of aovernment at the municipal level havecaused the National Government to assume more responsibility forservices wvhich are essentially local in character. The line betweensetting policies and standards and providing grants-in-aid, on the onehand, and actual execution of policy at the departmental and munic-ipal level, on the other hand, has become blurred. Here again avicious circle appears. Absence of local responsibility naturally re-sults in the central authorities' assuming more responsibility. Thistrend, however, in turn further weakens local responsibility, and atthe same time increases the complexity and inflexibility of the alreadyoverburdened national administration. Some of the most urgentproblems in Colombia today arise from the inability of governmentsat the municipal level to meet the problems of modern communitylife. A contributing factor to this situation has probably been thefact that frequently the Mayor is of one political party and theCouncil of the other.

The weakness of administration in the fields of transport andpublic utilities has been commented on in earlier chapters. In bothcases, it is apparent that the administration has been too exposed topurely political pressure. In addition, the quasi-judicial nature of thefranchise-granting and rate-making povers has not been sufficientlyappreciated. These powers do not give protection from politicalpressures, do not provide an opportunity for hearing the variousinterests in the community, and are not generally so organized thatthey can attract and hold the services of outstandingly competentand public-spirited men. The same general considerations apply tothe administration of Government corporations, again with somenoteworthy exceptions.

The problem of attracting and holding the services of men of highintegrity and competence in Governnment is a perennial one commonto all countries. It must be admitted that, along with many othercountries, Colombia has not been too successful in solving this prob-lem. The relatively low pay and lack of security of tenure for publicservants, and a lower prestige generally than prevails in private in-dustry, have resulted in great difficulty in attracting and retainingthe services of competent people. In recent years, this has been in-tensified by dismissals for political reasons. By general testimonv,

ORGANIZATION FOR PLANNING AND ADMINISTRATION 347

the quality of governmental service has thereby suffered despite thecontinued service of many very competent and very devoted publicservants. The turnover has been exceptionally heavy in recent yearsat the ministerial, gubernatorial, mayoral and higher levels.

The picture painted in this chapter is perhaps unduly pessimistic.Actually, many excellent laws have been drafted and well adminis-tered. Howvever, the fact remains that there is room for a great dealof improvement in the whole field of public administration and eco-nomic planning. It will be admitted by all objective observers thatthe Government at its various levels is not now well adapted either forcomprehensive economic planning or for the efficient implementationof such planning. Here is an area in which a great increase in nationalefficiency can be attained at small additional cost.

The situation xvith regard to both planning and administrationdoubtless accounts at least in part for the limited effectiveness ofvarious foreign technical missions and technical personnel sent toColombia in recent years. A continuance of this situation raises seriousquestions as to the extent to which Colombia might effectively takeadvantage of the international technical assistance program.

PUBLIC PERSONNEL

These general impressions about personnel problems in publicemployment are pointed up by an examination of the overall statisticson such employment. Table 121 shows the number of employees ofthe National Government by major functional groups. It wouldrequire a wider and more intensive exaniniation than the Missionwas able to make to reach accurate conclusions as to the adequacyof these numbers to carry out the Government's functions. Unques-tionably, the salaries paid, however, averagin- Ps.$173 per monthin 1948, are much too low to attract first-class, well-trained personnelin competition with private employmnent. The basic difficulty, of

course, is that such personnel is sadly inadequate for all Colombianneeds, and a real solution is to be found only through expansion ofthe facilities for their proper education and training. But in viewof the importance of the Government's role in Colombian economiclife, it seems essential that its ability to compete for the best qualifiedpersonnel should be improved by providing greater financial induce-ments and opportunities for advancement in Government service.

348 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

TABLE 121PERMANENT NATIONAL GOVERNMENT PERSONNEL BY FUNCTIONAL GROUPS, 1948

Number of Employees

Groups Men Women Total Monthly Cost

Directionl of Public Administratioln 1.243 405 1,648 Ps.$ 421,261Justice and Iinternal Order 11,100 524 11,624 1,891,375International Relations 223 31 254 205,461Collection of Taxes 1,830 570 2,400 401,385National Services . 5,123 1.282 6,405 872,633Natiolnal Defense. 4 ,5 3 0 2 0 4 ,5 5 0 5 2 3 ,57 6

Culture . 2,296 1,400 3,696 446,830Hygiene and Public Assistance 1,910 692 2,602 463,297Labor and Social Security 147 37 184 65,030Economic Development2 1 ,6 31 10 9 1,7 4 0 5 9 6 ,9 5 7

Audit and Control . .1,304 266 1,570 413,447Statistics 216 53 269 71,055Various Services 525 117 642 150,505

Total .................. 32,078 5,506 37,584 Ps.$6,522,814

1 Civil personnel only.2 In Economic Development are included the following sub-groups: Public Works,

Agriculture and Animal Industry, MIines, Industry and Commerce and miscellaneousdevelopment activities.

Source: Contraloria General.

Table 122 gives a breakdowin of National Government personnel

by salary classifications for 1948, Avhich indicates that only about

1,000 employees (less than 3 percent) are paid more than Ps.$500

per month. The salaries for about 60 percent of the total number arelaelo\v Ps.$150 montlhly, averaging Ps.$92.

TABLE 122PERMANENT NATIONAL GOVERNMENT PERSONNEL BY SALARY SCALES, 1948

Number of EmployeesMonth!

Salary Scales Men Women Total Cost

Up to Ps.$ 50 .2,809 811 3,620 Ps.$ 124,;From Ps.$ 51 to 100 .6,478 1,307 7,785 640,f

101 to 150 ........ .. 4 i9,178 1,881 11,059 1,312,151 to 200 ... . 3,736 1,008 4,744 851.201 to 300 . ......... 5,497 426 5,923 1,497,301 to 400 .. _....... 2,233 56 2,289 822,401 to 500. .......... 1,091 12 1,103 508,501 to 600. ....... - 516 5 521 297,601 to 800 ......... . 366 - 366 254,

More than 800 ......... 174 - 174 212,

TOTAL . 32,708 5,506 37,584 Ps.$6,522

Source: Contraloria General.

ORGANIZATION FOR PLANNING AND ADMINISTRATION 349

Insecurity of tenure is also commonly cited as a principal complaintof public personnel, especially those in professional or administrativepositions, and in combination with low pay this is a major cause ofthe reluctance of many qualified persons to enter or remain in Gov-ernment employment. No comprehensive data are available withregard to turnover in public employment, but from spot indicationsthe rate is very high. Some attempts have been made to remedy thissituation by instituting an Administrative Career Service based onmerit principles. It is difficult to determine the effectiveness of thesystem, but in nearly ten years since it was started only 1,518 em-ployees of the National Government have been certified into thisservice.

The same considerations apply in even greater measure to de-partmental and municipal administration. Total employment in thedepartments is almost the same as that in the National Government,but the average salary is only Ps.$105 per month (Table 123). Themonthly salary average for employees of 610 municipalities is Ps.$104,and for the poorer departments the average scales down to extremelylow levels-to Ps.$50 per month for the Choc6, Ps.$48 for Boyaca.Ps.$45 for Cauca and only Ps.$27 for Narinio. The tenure of employees

TABLE 123PERSONNEL OF DEPARTMENTAL GOVERNMENTS BY FIJNCTIONAL GROUPS, 1948

Number of EmployeesFunctional Groups Monthly

Men Women Total Cost

Direction of DepartmentalAdministration .......... ................ 713 192 905 Ps.$ 201,262

Justice and Internal Order .. ........... 8,157 78 8,235 679,124Collection of Taxes ........... ............ 3,752 126 3,878 469,889Departmental Services ............... .... 244 107 351 38,460Hygiene and Public Assistance ...... - . 578 410 988 117,380Culture ............................. 5,505 12,375 17,880 1,752,752Economic Development ...... ..._.. 634 33 667 92,086Departmental Industries ... ..... ... .. 333 126 459 51,401Audit and Control .............. ....... 580 94 674 150,473Statistics ............... .............. 127 22 149 30,066Municipal Services ............................ 2,037 1 2,038 214,947Various Services ........................ .. 1,178 52 1,230 129,105

Total ...... 23,838 13,616 37,454 Ps.$3,926,945

Source: Contraloria General.

at the departmental and municipal levels is at least as precarious asin the National Administration. Although the law establishing theAdministrative Career Service for the National Government appliesalso to departmental governments, few departments have taken ad-vantage of it in substantial or sustained manner. In Cundinamarcathere are about 150 classified employees, in Bolivar about 50 and inCauca only 3.

PART II

The Program

CHAPTER XVII

The Nature of the Program

-0

OBJECTIVES AND EMPHASIS

As indicated in the Preface, the Mission's terms of reference wereto work up a sound development program for Colombia, designed toraise the standard of living of its people. The description and diagnosisin Part I show that the standard of living of the mass of Colombianpeople is low in terms of such basic elements as health, education,housing, balanced diets, and the simple types of goods and servicesthat go to make up the amenities of life. In seeking for the causes ofthis relatively low standard of living, stress was laid on low produc-tivity, which is fortunately not the result of any inherent deficiencyof natural resources but rather of a variety of factors that can bechanged or ameliorated. Our problem in Part II, therefore, is todetermine what elements in the standard of living are most urgentlyin need of improvement and to suggest how this improvement may bebrought about.

As was pointed out in Chapter II, the correspondence betweenmore consumption of goods and services on the one hand, and a stateof well-being on the other, becomes somewhat problematic in aneconomically advanced country. In Colombia, however, the standardof living of the majority of people is so low that there can be littlecontroversy as to what things are most urgently needed. Likewise,there can be considerable assurance that improvement in the standardof living will mean a corresponding increase in the well-being andhappiness of the Colombian people. We are therefore placing primaryemphasis on the provision of those things which have come to be con-sidered the basic essentials-good health, adequate and well balanceddiets, education and training for a better and more productive life, andadequate housing and clothing. In addition, we would place high onthe list of priorities the provision of electric power to supplement thelimited strength of workers, thus increasing their productivity, and tofurnish light and run other household appliances.

The fact that we place these basic human needs first does not, how-ever, mean that we approve only products and activities which ad-minister directly and immediately to these needs. Economics is rarelyas simple as that. In order to make available more of the essentialgoods and services which make up an improved standard of living

353

354 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

for the Colombian people, it may often be necessary to change pro-duction, transportation or marketing processes at two, three or evenmore stages removed from the ultimate consumer. The economies ofmaking some manufactured goods in Colombia, rather than continuingto import them, may well be great enough to justify high priority forcapital expenditures; the resultant saving of dollar exchange wvill allowavailable exchange eventually to be used for additional power andmechanical facilities; and these in turn will raise the productivity ofColombian labor.

In other words, the basic oblective of our recommendations is to>raise the standard of living, but to achieve this our primary emiiphasismust be on those things that will most increase 'efficiency in produc-'tion. Even in the production of luxury goods, increased productivitypermits the release of resources that can then be devoted to the pro-duction of more essential or useful objects. Hence, it is not a questionof stressing either agriculture or industry, but rather one of stressingproductivity per capita, or efficiency, in all fields.

In the remainder of Part II, we shall discuss a wide variety ofactions and policies that at first examination may appear to have littleto do with the basic elements in the standard of living, or even withthe productivity of the Colombian worker. Actually, however, all ofthem are relevant. The better utilization of natural resources, im-provement in the quality of workers and management, the provisionof more capital, better organization of the factors of production-allhave a fairly direct bearing on the output per capita and hence onthe standard of living.

There is a possible ambiguity in the word "program" that shouldbe cleared up at the outset. We believe that the following series ofrecommendations constitute a true basis for a program inasmuch asthey are comprehensive, interdependent and internally consistent.They do not, however, provide for a program in the sense of consciousallocation of all available public and private funds. The recommenda-tions also vary considerably in detail and precision. This arises partlyfrom limitations of time and personnel and partly from deliberatedesign.

We are not seeking to suggest that a radically new and differentorder be adopted by Colombia. On the contrary, we seek only tomodify an existing situation, to shift the emphasis somewhat, and tosuggest a multitude of improvements and reforms. Some of our pro-

THE NATURE OF THE PROGRAMI 355

jections of capital expenditures, particularly in industry and transportequipment, are magnitudes that we think are consistent with certainpatterns of economic growth and are likely to occur without any par-ticular state action being called for, except to maintain a favorableeconomic climate. It is mainly in the public and semi-public spheres,where the allocation of capital does not proceed in response to purecost and profit calculations, that we become most specific in ourrecommendations.

NEED FOR A COMPREHENSIVE AND INTEGRATED PROGRAM

The task of raising the standard of living of a whole people in arelatively short time, say five years, is an extraordinarily difficult one.It has been calculated that from 1884 to 1924 in the United States-a period when conditions favored exceptionally rapid development-real income increased at the rate of 1'2 percent per capita perannum.' Production itself increased more rapidly than this, but muchof it went to support a rapidly increasing population.

The dynamics of economic development are complex. Owing tothe number of mutually interacting variables-or, to put it anotherway, the very wide range of constantly changing interrelationships-the process is a difficult one to grasp. A modern economy is one inwhich the division and specialization of labor have been carried to ahigh point. Specialization, however, while contributing to increasedproductivity, makes each producer dependent to an increasing degreeon the efficiency of thousands of other producers in other parts of theeconomy. Again and again in this Report, we have encountered caseswhere an improvement in one sector of the economy is dependentupon improvement in another, which in turn is tied in wvith a numberof factors including, perhaps, an improvement in Government ad-ministration, which depends on still other factors, and so on. Improve-ment in general health, for example, depends on improvement in water,diet, housing and sanitation, on comprehensive campaigns to eliminateor control sources of infection, on better education in hygiene, andother factors-and each of these improvements requires further com-plex and far-reaching changes. This may explain why attempts tobring about improvements restricted to particular sectors of theeconomy have met with only limited success. It also helps to explain\vhy technical advice or assistance in particular fields so frequently

I Simon Kuznets, NVational Income antd Its Comiiposition, 1941, Vol. I, p. 147. Forfurther comparative data, see American Economic Review, 1944, p. 826.

356 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

fails to yield the results obtainable in more advanced economies.

This point we believe to be of great importance-in order to achieveresults in a short time, it is necessary to bring about simultaneousimprovements throughout the entire economy. By and large, theindividual segments of the economy cannot progress rapidly apartfrom the whole-and in the exceptional cases where one segment de-velops at a rate very muclh faster than the rest, the result is likely tobe a serious distortion of the nation's economic and social structure.It is obviously difficult to achieve and maintain a high degree ofefficiency in a general atmosphere of inefficiency. On the other hand,improvements in one sector make improvements in other sectorseasier.

This, then, is the reason and justification for an overall programof development. Piecemeal and sporadic efforts are apt to make littleimpression on the general picture. Only by a generalized attackthroughout the whole economy on education, health, housing, foodand productivity can the vicious circle of poverty, ignorance, ill healthand low productivity be decisively broken. But once the break ismade, the process of economic development can become self-generat-ing. Each improvement leads to others and the wvhole level can thusbe raised.

Influenced by these considerations, the present series of recom-mendations cover a very wide field. We have preferred the risk ofbeing superficial in some fields to the greater risk of conceiving theproblem in too narrow terms. Practically every field that we touchupon requires further intensive and continuing study. It is more im-portant that those studies cover the broadest possible front than thatthe details of every recommendation and suggestion contained hereinbe fully thought out at this stage.

Another implication of the interrelationships of phenomena ineconomic growth is the necessity of providing, in our overall thinking,for consistency and coordination. lnternal capital expansion can beno greater than savings; if greater than voluntary savings, then thedifference must be made up through involuntary or forced saving.Provision must also be niade for a steady growth in consumption.Similarly, available manpower, transportation facilities and foreignexclhange are all obvious limitations. Expansion plans must be con-sistent with these changing variables, and hence must be subject tomodification as progress in various directions exceeds or falls shortof expectations. It is obvious, therefore, particularly in a free society,that no program of overall development can be static. It must be re-studied continuously and be subject to constant alteration in emphasis.

THE NATURE OF THE PROGRAM 357

FURTHER UNDERLYING CONSIDERATIONS

In general, the broad pattern of development envisaged calls fora smaller proportion of the population in agricultural pursuits and alarger proportion in urban areas. The rapid increase in manpoweravailable for non-agricultural pursuits would be absorbed in industry,housing and other building construction required by the expansion offacilities for community services (electric power, water, sewers, hos-pitals, schools, streets) and industrial and commercial establishments.

We shall place primary emphasis throughout Part II on internalimprovements-obtaining more efficient organization and utilizationof Colombia's own natural and man-made resources. This followsfrom the conviction that, to raise the standard of living appreciably,main reliance must be placed on the utilization of domestic resources.In addition, it is difficult to estimate how much foreign capital maybe available. In some countries the accumulated stock of real capitaland the margin available for saving above essential consumption areso small that capital from abroad is almost indispensable to get theprocess of development started. In Colombia's case, however, sub-stantial capital has been invested in the past and the current annualvolume of saving is much greater than could reasonably be expectedyearly from abroad. Foreign capital, therefore, is less a necessity foreconomic growth than a desirable aid that will, if wisely directed,accelerate such growth. In any case, our general recommendationsapply to the disposition and utilization of foreign and domestic capitalalike.

'While stressing the relatively greater importance of securing in-ternal improvements, the great assistance that foreign investment canprovide is not to be minimized. Colombia's annual capital formationis still small in absolute terms for a nation of eleven million people.In 1947, the figure was Ps.$600 million. An abnormally high propor-tion of this amount wenit for profits and transportation costs. More-over, a considerable portion of this gross capital formation went intothe replacement of relatively short-lived transport equipment ratherthan into new facilities, and a further amount went into luxury-typebuildings. In other words, truly productive real capital is muchscarcer in Colombia than in economically advanced countries and is--)accumulated at much greater sacrifice to the population in general.,/For both these reasons, its commitment should be made only afterthe most careful study and consideration of alternatives. We have,consequently, been most concerned throughout the Report thatColombia's scanty savings be wisely directed and properly utilized,and we have subjected all proposals involving large capital expendi-tures to as critical an analysis as time and personnel permitted.

358 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

It must be borne in mind that "scarce" and "abundant" are relativeterms when applied to capital. In Colombia's case, the relativelyabundant item in production is manpower, and the scarce elementsare capital and good level arable land currently available for the grow-ing of crops. It is very difficult to determine the ideal size of popula-tion in relation to resources and techniques; and such a figure, if itcould be determined, would be subject to constant modification astechniques and international conditions change, to say nothing ofchanges in the other factors of production. Nevertheless, the conceptsof "optimum population size" and of balance among the factors ofproduction are of the greatest importance in the discussion of thestandard of living.

At the present time, population is completely out of balance withother factors in Colombia. If it were merely a question of utilizingexisting resources, including land, more efficiently and of increasingcapital equipment, especially power-generating facilities, the problemwould be relatively simple. The difficulty arises from the fact thatwhile these other things are being done, population itself continuesto increase. In fact, it is paradoxical that the implementation of ourrecommedations may well result in an accelerated increase in popula-tion, and this will unquestionably complicate the task of attaining abetter economic balance and a higher standard of living. Any generalimprovement in environmental and health conditions will manifestitself immediately in a decline in the death rate, particularly of infants.

The importance of this may be pointed up by a simple arithmeticalexample. If the population increases at the current rate of 2.15 per-cent per annum in the next ten years, it will reach 13,900,000 by 1960.If, however, as a result of improved economic and health conditions,the death rate should fall to the U.S. level of 10 per 1,000-an ad-mittedly unlikely possibility-the rate of increase in the populationwould become 3 percent per annum and the 1960 population would be15,100,000, or over a million more.2 A further projection of the samerate of increase would give a population of 20,000,000 in 1970, and ifthe projection is carried up to fifty years-a short period in the lifeof a nation-the figure becomes 50,000,000 by the year 2000. Clearlya population increase of anything like this magnitude would makeimpossible the task of achieving a more favorable ratio between thenumber of people and the amount of land and capital available toenable them to make a living-the necessary condition of that rise inliving standards that is our objective.

2 Something like this has occurred in Puerto Rico where the birth rate has remainedat about 40 per 1000 while the death rate has fallen from 25 to 12 per 1000.

THE NATURE OF THE PROGRA-M 359

If, confronted with these possibilities, one were tempted to aban-don or reduce the health aspects of the program, that would in noway solve the problem. Better health is an essential requisite togreater productivity, and it is both a necessary part and an almostinevitable consequence of a higher living standard. (This is anotherexample of the complexity and interrelation of the various factorsinvolved in economic development.) Thus an increase in the rate ofpopulation growth for a time must probably be assumed as one ofthe conditions of our problem. It is not an insuperable obstacle overthe near term to a substantial improvement of living conditions,though it acts as a drag on the rate of improvement. On the basis ofexperience in some other countries, it is possible that the process ofeconomic advance will itself bring about a reduction in the birth rateand a slowing of population growth. Failing such a development,however, the prospects for a continued rise in the standard of livingwould be gravely jeopardized indeed.

Apart from this one factor, other basic economic conditions offergrounds for expecting gratifying results from the adoption of asoundly conceived and comprehensive program of development. Forone thing, the fact that the economic base is very low to start withmakes possible a high percentage rate of increase. Moreover, Colombiacan take advantage of nearly two centuries of development of machinesand techniques abroad. Consequently, increases in productivity re-sulting from the introduction of modern equipment and techniques canbe spectacular. Colombia's highly favorable position with regard tothe basic sources of power-coal, oil, gas and hydroelectric potential-and in relation to foreign markets is a further element of strength.Colombia is also fortunate in possessing a vigorous and well educatedclass that can provide leadership in government, the professions, in-dustry and agriculture. We set forth the recommendations whichfollow, therefore, with confidence that basic conditions favor anappreciable rise in the standard of living of the Colombian people ina relatively short time. A five-year period was chosen as the minimumin xhich it -would be possible to show results, and yet not so longas to make calculatiors too highly speculative. In any case, the im-portant thing is not the selection of any particular period, but ratherthe launching of a comprehensive and well-coordinated attack on theproblems of economic development, and the prosecution of the attackover an extended period.

CHAPTER XVIII

Agriculture

Raising the standard of living in Colombia is largely a matterof increasing agricultural productivity-not only because it willresult directly in a greater and more diversified output of food, fibreand export crops but also, and perhaps even more important, becauseit will release labor for the production of other things. This doublegain has been the underlying cause of the rise in living standards inall economically advanced countries, and it should form the basis ofeconomic progress in Colombia.

AGRICULTURAL PLANNING AND PRODUCTION GOALS

Colombia has engaged in certain agricultural planning activitiesfor many years. Among its most notable achievements in this linewas the five-year plan for the development of agriculture known asthe "Plan Quinquenal de Fomento Agricola," which included recom-mendations with respect to agricultural education, engineering, devel-opment investigations and experiments, study and protection of thesoil, sanitation, economic studies, as well as production goals forthe years 1945-1949 for many crops. As shown in Table 124, however,actual performance had little in common with these goals. Since thefigures reported for acreage and production cannot be deemed veryaccurate,' any detailed analysis might be misleading. HowNever, con-clusions can be formulated in general terms.

Actual production in 1948 did not conform closely to productiongoals in terms of either acreage or tonnage. Responses to limitedinquiries indicated that there was little real farmer participation inthe planning of these goals. While this undertaking doubtless helpedto give some direction to agricultural efforts during the period covered,it is not surprising that there was a substantial gap between the goals

and actual accomplishment in the absence of "grass roots" participa-tion. Plans, to be meaningful, must be understood and accepted bythe people affected by them, and this usually comes only from partici-pation in the planning process.

1 The figures for 1945 in particular seem unreliable.

360

AGRICULTURE 361

TABLE 124

PRODUCTION GOALS AND PERFORAIANCE, 1945 AND 1948,

OF FIVE-YEAR PLAN FOR AGRICULTURAL DEVELOPMENT

Average Hectaresin Cultivation Production (Tons)

Planned Planned1945 1948 1948 1945 1948 1948

(000 omitted)

Sugar Cane 162 149 163 - - -Sugar . .... 14 21 16 70 108 80Panela. 1 4 8 ... 148 115 147 590 687 810Wheat ..... ............... 118 177 128 109 118 138Rice ........ ..... 82 149 109 74 182 118Potatoes -........... ... 102 64 450 486 590Cotton (Lint) 52 ... 52 35 73 7.5 6.6 17

Sources: Produfcci6n Agropcciaria de Colombia, Bogota, September 1949, foractual 1948 figures; estimates for 1948, Plan Quinquenal de FomTentto Agricola, 1945;Ministerio de la Econonlia Nacional, for other data.

Another factor that may have been partly responsible for failure

to attain the goals set in 1945 is that the plans had to be based on the

statistics available, which were probably not reliable enough for such

a purpose. When data from the 1950 census become available, they

will provide a much needed bench mark for truing up present estimates

and a base for future estimating. Finally, credit and pricinU.!qoicies

were apparently not coordinated with the goals. Thus a major

incentive toward change in the agricultural pattern was inoperative.

1955 Production Goals

Recognizing fully that production goals, in the preparation of

which farmers have not participated, are of doubtful value, it nonethe-

less seems desirable to attempt to estimate some practicable produc-

tion goals for 1955. These estimates must be based largely on official

data which, although not generally precise enough to serve as the

basis for definite plans, can be used in a rough way to sho-w directions

or trends. This section should be regarded, therefore, merely as

demonstrating some of the types of material and some of the processes

upon which serious planning of agricultural production might be

based in the future, with full farmer participation and accompanied

by financial, fiscal and other measures necessary to help farmers reach

whatever goals may be set. Data from the 1950 census should be help-

ful in such an effort.

362 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

The first step toward setting production goals for 1955 was tostudy the trends of production from 1938 to 1948, and to examine,on the basis of 1946-48 assumed performance, what would be likelyto occur if they were maintained until 1955. In order to obtain a plaus-ible framework for this study, it was necessary to match severalsources of information, and use those figures and trends which couldbest be substantiated. The results of comparing data for 1938-40 and1946-48 are shown in Table 125. On this basis an attempt was made tocalculate an average rate of groTrowth for the whole of Colombian agricul-ture. If recorded annual growth of production for each crop isweighted by the relative importance of that crop in the total value ofColombian production in 1947, a rate of increase of 3 percent annuallyis indicated. If the acreage importance of the crop is considered, thisrate falls to 234 percent a year. This is also the rate if only absolutevolumes of production are taken into consideration.

TABLE 125PRODUCTION TRENDS INDICATED FOR VARIOUS CRops, 1938-19481

Yearly Rateof Growth by Average Production

Volume Production in 1955 if1938/40- Volume these trends1946/48 1946/48 are maintained

(in percent) (1,000 tons) (1,000 tons)

Cacao .... 0 10 10Coffee . 3 T 347 448Lint Cotton. 1 2 6 7Sugar 8 4 89 162Panela .2'4 691 826Rice . 8 138 256Corn . .2 625 704Wheat .2 119 124Barley . 17X2 27 98Beans 7 58 100Potatoes 1 469 508Tobacco .7 19 33Beef Cattle (1,000 heads) 3½ 1309 1724Hogs .0 616 617

1 The yardsticks used in the study of the national income were adopted. WT9hen pro-duction performance matches closely the expansion in cultivated areas, the volumefigures reported by Varea Martinez (V.M.) of the Ministry of Agriculture areaccepted. In the case of cacao, the decrease in production indicated by V.M. in 1946-48is not substantiated; it was assumed that production levels had not changed. In the caseof paanela, from 1938 to 1948 the average of cane sugar (for panela) has only increased29 percent per year. This contradicts the growth in volume indicated by V.M.(6V4 percent per year in the same period). Our hypothesis of a low rate of growth issustained by statistics of the Ministry of Commerce and Industry and estimates ofthe Andaes de Econoinia y Estadistica. In the case of tobacco, the rate of productiongrowth indicated by V.NM. (4' 2 percent 1938-48 and 3 percent 1939-47) does not com-pare with the increase in hectares planted (7 percent), or the growth in demand fordomestic cigarcttes (9 percent), taking into account a decrease in demand for localcigars.

AGRICULTURE 363

Since the agricultural population has grown at a rate of less than2 percent per year, one can conclude that increases in per capitaoutput have taken place of about .34 to 1 percent per year. Farmershave worked more hours per day and dpened new lands and, thoughtheir productivity per hour may not have changed substantially,their annual output has climbed. It would appear, however, that theeffectiveness of their work, in income terms, has increased. Spe-cialized crops (sugar, rice, barley, beans, tobacco) have expanded atthe expense of staples (corn, wheat, potatoes, and perhaps platano andyucca). Output per capita per hour may also have climbed slightly.Although yields in Colombian agriculture are uniformly low, improve-ments have been recorded in certain lines as a result of better seedselection, agricultural mechanization, the introduction of better tech-niques in some instances, and irrigation.

Primarily, however, the growth of agricultural production hasresulted from the opening of new lands. Although this method hasbrought about some spectacular production increases in the past,2

and some further prospects exist of opening up unsettled areas, a limitmay well have been reached in the densely populated districts. Culti-vated land acreage increased 48 percent from 1934 to 1948, an annualincrease of 234 percent, slightly higher than the population increase.If further progress is made, we believe it will result more from intensi-fication than from extensification of agriculture.

By 1946 Colombia was practically self-sufficient in many agri-cultural products.3 The volume of domestic production compared withdomestic consumption for a few major products follows:

Percentage 4

Cacao . .. ... . . 60

Coffee .... .. .. ............... 650

Cotton ... ...... .. . 18

Sugar .... .. . . ... . .. 89

Rice ... ........................... . 105

Wheat .. ........ 82

Platano and bananas. - .. 104

Beef, hogs, fish, milk, beans, barley, 100yucca-name, potatoes, fique, panela, cornj

2 It is a matter of record that between 1929-30 and 1933-34 the area of cultivatedland in corn increased threefold, and that rice lands grew sixfold from 1929-30 to .71946-48.

3 The vear 1946 was chosen as it is the only one for which both foreign trade andlocal consumption have been analyzed in detail.

4 Techniques of computation are described in Appendix B.

364 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

The level of consumption only partially satisfied adequate nutritionalrequirements, however. The national diet was deficient in fats, animalproteins, calcium, ascorbic acid, phosphorus and niacin, as shown inTable 126. An increase of per capita consumption of meats, fats andoils, milk, fish, vegetables and fruits is clearly in order.

From the standpoint of foreign trade, the balance of paymentsdepended on two products for the major part of receipts, and the highrate of population increase indicated the need to find new exports.Sugar, rice, cacao, bananas and coffee in 1946 were obviously potentialsources of greater exchange revenues. A gradual replacement ofagricultural imports by local production wvas in prospect, but importsof cotton, wheat and cacao represented a heavy charge on foreignexchange receipts and the rate of reduction of such imports was slow.

TABLE 126

LEVEL OF NUTRITION IN COLOMBIA COMPARED WITH REQUIREMENTS, 1946

AvailabilitiesColombian Theoretical in 1946 as

Standard 1946 Requirements percentage of(per capita) I (per capita) I Requirements

Food energy (calories) .. . 1801.3 1710.0 105Proteins (grainis) 39.65(18)2 50.0(20)2 79(90)2

Fats (grams) 24.38 37.0 66Calcium (mg). . 455.37 880.0 52Iron (mg) . . 12.51 9.12 139Ascorbic acid (mg) 47.63 55.2 87Thiamine (mg) 1.07 0.93 115Riboflavin (mg) 0.67 1.28 52

Niacin (mg) 5.50 9.3 59Phosphorus (mg) 730.13 1320.0 55

1 Techniques of computation described in Appendix B.2 Animal proteins in parenthesis.

Also, the structure of agricultural production in 1946 was unbal-

anced. Certain areas experienced deficits which were obviously re-flected in their standard of living and nutrition; other areas had pro-duction excesses of foodstuffs of low nutritional value which could notbe moved far within the country owing to their low cost. Surpluseswere available in some departments, and the average diet was danger-ously deficient in others. In 1946, there was little regional specializa-tion, except for sugar. Thus, the 1946 pattern of production wasinadequate. If per capita production remains constant, the disequilib-rium will be accentuated. For example, analysis shows that ZoneII (Atlantic Coast) and Zone III (Antioquia) are not keepingt up with

AGRICULTURE 365

the rest of the country and should increase considerably their rateof industrialization, in order to be able to consume food surplusesfrom Zones I and IV.

We suggest modification of Colombian agricultural productiontoward a series of production targets in 1955 designed to achieve theminimum objectives of (a) maintenance of 1946 levels of per capitaconsumption where this consumption could be deemed adequate, (b)better nutritional standards in fish, milk, fats, fruits and meats, (c) anincrease in export volumes, (d) greater agricultural self-sufficiencywhere feasible in order to decrease imports, and (e) a new level ofconsumption of goods for which industrial demand is increasingproportionately more than the population.

The suggested targets and the pattern that would follow from themaintenance of recent trends are compared in Table 127. To attainthese targets, production volumes in 1955 would have to be increased28 percent above 1946 and 22 percent above 1948 levels; the totalvalue of crops in 1955 (at 1948 unit prices) would be 29 percent above1948 levels. The attainment of these _eneral le3els appears to be awholly feasible task. In fact, it requires a rate of overall productiongrowth only slightly larger than the present estimated trend. The:!major effects of the program of agricultural development that vepropose would be a change in emphasis among various crops, animprovement in their quality, a lessening of the amount of laborinvolved, and a consequent shift in population from agriculture to Iother pursuits. The increased productivity would be reflected inhigher farm inconmes and a greater demand for the products of indus-try, and in lower prices for some products.

Perhaps the most important aim of our recommendations is toincrease the production of agricultural workers in such a way as toenable a reduced labor force to meet these goals and thus permit therelease of a considerabe number of workers for other occupations-to carry out the more ambitious objectives outlined in the fields ofindustry, construction, transport and public facilities, or for longer,0schooling. At the same time, the life of those remaining on the farmwould be made progressively easier and their standard of livingraised. We are confident that adoption of these agricultural recom-meindations would result in a very substantial increase in productivityper farm worker, though it is impossible to say precisely by how much.

We would not lay too much stress upon this particular set oftargets. Their main purpose is to illustrate the magnitude and natureof the changes necessary in agriculture to raise the standard of living.Opinions may legitimately differ both as to the accuracy of the basic

366 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

TABLE 127

SUGGESTED PRODUCTION TARGETS FOR 1955,

COMPARED WITHl PRODUCTION IF PRESENT TRENDS ARE MAINTAINED

Rate of Actual ProductionGrowth Trend-Rate in 1955 if

Production per Year To of Growth Past Trend isTarget in 1955 Attain Target per Year Maintained(1,000 tons) 1 (percent) (percent) (1,000 tons) 2

Cacao 3 34 13 0 10Coffee4 ...... 461 3.25 3.25 448Lint Cotton3 37 26.25 1.5 7Sugar 4 156 8.25 8.25 162Panela5 801 2 2.25 826Rice 4 224 8 8 256Corn5 . 741 2 1.5 704Wheat 6. 175 4.25 .5 124

Barley3.... 40 5 17.5 98

Beans5 72 2 7 100

Potatoes5. 550 2 1 508Yucca-Name 5 872 2 n.a. n.a.Fique 3 16 S n.a. n.a.

Tobacco3 . 34 7 7 33Beef Cattle7 17248 3.5 3.59 17248

Hogs7 7258 1 0 6178Milk7 1346 15 n.a. n.a.Fish7 86 n.a. n.a. n.a.

I Production targets in 1955 based on 1946 volume because (a) 1946 agriculturalstatistics are more complete than 1948 and (b) 1946 statistics served as basis for studyof nutritional standards on which targets were based.

2 Production in 1955 resulting from trend based on a 1946-48 average, consideredmore likely to be safe basis for computation of "normal growth".

3 Industrial demand led to the expectation of a 1955 demand greater than thatrequired to maintain per capita consumption. Production targets were set in the lightof such industrial demand.

4 These commodities had export significance. Inasmuch as their current rate ofproduction growth is high and satisfactory, the production targets assume the main-tenance of this rate.

3 The 1946 production satisfied nutritional requirements. The production targetfor 1955 should insure the maintenance of per capita consumption and is calculated bvmultiplying the 1946 production or consumption by the rate of anticipated populationgrowtlh (19.6 percent in 9 years).

6 Consumption satisfied nutritionial requirements and industrial demand in 1946, butproduction was deficient. Therefore, 1955 target is the 1946 consumption multipliedby the rate of anticipated population growth.

7 These commodities did not satisfy nutritional requirements in 1946. New standardsof per capita consznnption were set for milk and fish to serve as bases for calculationof 1955 targets. As regards meat production, maintenance in the rate of growth ofcattle stock is adequate but increases in meat yields per head should be obtained, whichwould fulfill the need for animal proteins.

8 Thousand head.9 Increase in weight of about 1 percent per year also desired.

AGRICULTURE 367

data and the reasonableness of the suggested goals, but we believethe overall figures are probably not too far off. In any event, theyindicate what appears to be a realistically practical increase in agri-cultural productivity and living standards, and these targets may behelpful in guiding decisions on the allocation of credit resources,irrigation and transportation projects, efforts in the fields of researchand education, and the like.

Targets in Specific Crops

In the refinement and implementation of production goals, fulland continuous participation by farmers will, of course, be requiredto obtain satisfactory results. Planning committees of farmers at alllevels would be increasingly useful in bringing to bear their combinedjudgment to guide public officials in setting proper goals, devisingeffective programs to attain them, and in explaining the goals andthe reasons for setting them at certain levels to their fellow-farmers.In the following paragraphs, the major commodities are consideredand production practices discussed as they affect the productiontargets outlined in Table 127. In some cases, suggestions are madeas to measures that might help to overcome obstacles to meeting thesetargets.

Table 128 compares the trends in production of major agriculturalcrops with both the desirable and the practically attainable 1955 pro-duction goals, together with the varying rates of growth involved.

Coffee. In considering future production goals for coffee, it mustbe taken into account that it is a deferred maturity crop rather thanan annual crop like corn. Coffee trees are nursery-reared for twelveto fourteen months before transplanting and do not begin to bearuntil three to four years after field setting. They reach mature bearingage at about six years and, once established, may bear for as long asforty to fifty years. Obviously a goal for coffee for 1955 must bepredicated almost entirely upon crop increases from trees \vhich willbe in full bearing by that date. This mzeans that any young trees thatmight be relied on for substantial additional yields in 1955 mustalready be out of the nursery and transplanted to permanent fieldsettings. Taking both short- and long-term trends into consideration,a production growth of 3'4 percent per year seems possible. Thisindicates that the suggested 1955 target of 461,000 tons is quite feasible,given a slight acceleration in the rate of growth of the past few years.

TABLE 128

TRENDS IN AGRICULTURAL PRODUCTION, 1938-48, AND 'DESIRABLE" AND "PRACTICAL." TARGETS FOR 1955(Volumes in thousands of tons)

(A) (B) (C) (D) (El (F) (G) (H) (J)Rate of

Appareat Rate "Desirable" Production Productionof Increase Rate of in 1955 if Growth

Average in Productui. Production Production Desirable Rate Required To1946 1946 1946/1948 1938/40 to Growth in 1955 if of Production "Practical" Achieve Target

Production Consumption Production 1946/48 1946/1955 Past Trend is Growth were Target for for 1955Volume Volume Volunme (percent)' (percent) Maintained

2Attained

31955 (percent)

Cacao . ... 11.2 18.6 10 0 13 10 34 15 3.25Coffee . . ... . 346.0 25.0 347 3.25 3.25 448 461 461 3.25Cottoni lint . 4.6 25.4 6 1.5 26.25 7 37 18 16.33Sugar . .. ... .. 76.4 85.7 89 8.25 8.25 162 156 156 8.25Panela . . . . 670.0 670.0 691 2.25 2 826 801 801 2Rice .. . . . ........ 118.2 112.0 138 8 8 256 224 224 8Corn ... . . 620.0 620.0 625 1.5 2 704 741 741 2Wheat . . . 119.7 146.8 119 .5 4.25 124 175 140 1.75Barley. ....... ..... 26.0 26.0 27 17.5 5 98 40 40 5Beans . .60.0 60.0 58 7 2 100 72 72 2Potatoes . . 460.0 460.0 469 1 2 508 550 550 2Yucca-Name . . 730.0 730.0 - n.a. 2 n .a. 872 872 2Fique ...... 10.3 10.3 - n.a. 5 n.a. 16 16 5Tobacco . .. . . 18.6 15.7 19 7 7 33 34 34 7Beef Cattle-

(000 Heads) . . 1260.0 1260.0 1309 3.5 3.5 1724 1724 1724 3.5(Weight) .. .. 251.8 251.8 260.0 3.5 3.5 345.0 382 382 3.5

Hogs-(000 Hcads) . 664.9 664.9 616 0 1 617 725 725 1(Weiglht) 39.9 39.9 37.0 0 1 37 43 43 1

Milk . . .. 376.6 376.6 n.a. n.a. 15 n.a. 1346 752 8Fish .... . .. . n.a. n.a. n.a. n.a. n.a. n.a. 86 86 n.a.Average 3 3.5 3.25

1 Fique, fish and yucca omitted in coiuputing rates of increase.2 (F) = (C) X (D)1 (G) calculated for different crops as follows:

Panela, Corn, Beans, Potatoes, Yuicca-Name: (G) = (A) X population growth (2 percent per year).Coffee, Sugar, Rice: (G) = (A) X (D).Wheat: (G) = (B) X population growth.Cacao: (G) = (B) X growth ill industrial demand (5 percent per year).Lint Cotton: (G) = 37 thousand tons (estinmated industrial demand).Barley: (G) = (B) X estimated growth in demand for beer (5 percent per year).Tobacco: (G) = (A) X estimated growth in denmand for cigarettes and cigars (7 percenit per year).

...s... e of .310 rrams/capita/day.

AGRICULTURE 369

Most of the factors that will be helpful in reaching this productionover the next five years probably are already operative. The chiefof the Technical Department of the National Federation of CoffeeGrowers has pointed out that the adoption of advanced culturalpractices, including proper soil selection and preparation, nurserypropagation of selected seed strains, improved methods of transplant-ing, weeding, shading and pruning, and better techniques for process-ing and drying, has almost doubled coffee production in the lasteight years. These results have been obtained with a comparativelysmall staff of field workers and represent only a partial coverage ofthe coffee growers. Every effort should be made to increase educa-tional work on the part of the Extension Section of the Ministry andof the National Federation of Coffee Growers so that needed informa-tion may be readily available to all coffee growers.

Spot checks indicate that new plantings in the last several yearsare probably large enough to offset deterioration of old plantings andprovide additional acreage to help reach the 1955 production goal aswell. While it is to be expected that application of the best culturalpractices to these new plantings may show the most outstandingreturns in yields per tree, it already has been demonstrated that greatbenefit is gained from introducing rational culture in the managementof established coffee plantations, and it is these older plantings whichwill provide the bulk of the crop for the 1955 goal. Considering thevitally important part which coffee must play in the total economyof the country, no effort should be spared to conserve and improvethis established productive resource.

The additional labor and equipment costs of handling the largercrop volume can probably be financed easily through normal internalcredit machinery. Most of the mechanical equipment used in process-ing coffee is relatively simple and inexpensive, and much of it is oflocal manufacture. On the farm, coffee production is so largely amalnual operation at all stages that wages for day labor are the majoritem of expenise. Short-term production credit is essential, especiallyfor small growrers, but existing facilities can readily be expanded tomeet this need.

Becatise coffee is a slow-maturing, long-lived crop, long-rangeplanning looking beyond the 1955 crop goal should be carefully con-sidered. If world market conditions are favorable, there are consider-able areas of ideally suitable coffee lands in the departments ofValle del Cauca, Tolima and Boyaca, in the Santa Marta area ofMagdalena, and perhaps elsewhere in Colombia, which could beutilized to expand production beyond the 1955 target.

370 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Sugar Cane. This is Colombia's second crop in terms of value.It is grown both on efficient, highly mechanized plantations on irri-gated land, mainly in Valle del Cauca, where the cane is used for theproduction of a semi-refined sugar, and on small farms all over Colom-bia in association with other crops; juice from cane grown in the latterfashion is extracted and processed by primitive methods to makepanela (brown brick sugar), or miel (practically unrefined extractused to make alcohol and chicha). In the limited areas of industrializedsugar production, the cane is allowed to grow for a year and a half ormore and can be cut throughout the year. Total sugar cane productionhas increased just about to the point of self-sufficiency in Colombiaand some growers are looking forward to exports.

Up to the years 1946-47, however, industrialized sugar productionrepresented only about 10 percent of the total output. Panela wasabsorbing 83 percent of all cane. It was estimated that the totalvolume of production of cane was increasing approximately 214 per-cent per year. Aggregate cane production reached 8,922,000 tons in1948, yielding 108,000 tons of sugar, 687,000 tons of panela, and50,000 tons of miel in total (sub-products weighing 9.5 percent of theinitial volume of cane).

The desired expansion in sugar production (8Y4 percent per year)and in panela production (2 percent per year) does not require undueexpansion in sugar cane. The prohibition of chicha has decreasedthe demand for miel to perhaps one-third of its former level. Forecasttonnage of cane sub-product output in 1955 would thus be about1,000,000 tons, equivalent to about 10,520,000 tons of cane. Thisimplies that the acreage of sugar cane need increase by only 17 percentfrom 1948 to 1955, or at about the past rate of 2% percent per year.

There may arise, however, some problems of area distribution.The maintenance of a rate of increase in output of 2'4 percent per yearin the temperate or cold areas may result in a surplus of cane, whileits maintenance in Valle del Cauca would result in a deficit whichcould be only partially compensated by sugar imports from otherregions. It is believed, however, that farmers are already aware ofthe first possibility, and are reducing their plantings in the temperatezones, while the Cauca Valley sugar producers are making greatefforts to keep up with huge demands.

If some investment is made in plant expansion, output of refinedsugar could reach a level of about 160,000 tons by 1955. This wouldapparently make some sugar available for export. However, a partof the sugar manufacturing industry wvill be confronted with a seriousproblem if Colombia reaches a level of production that requires con-

AGRICULTURE 371

stant export outlets. The sugar now manufactured is not raw sugar,but at the same time it is not sufficiently refined to compete inworld trade as refined white sugar except in cases of world-widescarcity. While it is a granulated sugar, its color has a grayish castthat might limit its sale. Thus considerable changes in the manu-facturing process may be called for if Colombia wishes to expandexports. This might require almost complete replacement of someof the older plants, and would involve expenditures both in pesos andin foreign exchange.

There seems to be no physical difficulty hampering a larger produc-tion of panela. Indeed, as noted abcve, the availability of cane forpanela has considerably increased in the last two years because of alower demand for miel (resulting from the prohibition of chicha).But panela sales may drop considerably if costs and prices cannot besubstantially reduced. Current price spreads between panela andrefined sugar are only 10 percent; as a result, people shift to the moreexpensive product, which seems better suited to their taste. Thisshift is unfortunate, however, from a nutritional standpoint, sincepanela contains mineral salts and other elements needed to provide abalanced diet and which are lacking in sugar.

We recommend that experimentalv work be initiated promptly inan effort to lower production costs for panela and improve its competi-tive position. The primary need is to increase the cane-juice extractionfrom 50 to 60 percent for the panela mills as against 80 percent ormore in the larger sugar factories. The whole process of handlingcane, and boiling and handling the cane juice, should be consideredwith a view to eliminating present inefficient methods.

The educational program of the Extension Section can also con-tribute by recommending improved practices in the raising of sugarcane. Better methods of irrigation in flat lands (irrigation should beavoided on mountain sides where it accelerates erosion), of weed con-trol (possibly by the use of airplanes), and of using soil improvementcrops should be helpful. Additional investment in field machinery andnew irrigatiorn developments is recommended-possibly as much asPs.$4 million a year for machinery and Ps.$0.6 million a year forirrigation. The latter expenditures would be helpful in increasingproduction of cane for sugar after 1955, even though it might notinfluence production much before that time.

Cereals, Roots and Similar Crops. The Colombian diet is fairlyhigh in terms of calories. This is mostly due to the fact that Colom-bian agriculture is a good producer of cereals (averaging 350 caloriesper 100 grams) and roots and nutritious fruits (averaging 40-125

372 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

calories per 100 grams). Trends over the past fifteen years seem toindicate that per capita output in most of these crops has been main-tained, if not improved. For these reasons no great efforts are neededto increase their production except where, as in the case of wvheat,local supply must be supplemented by imports; or as in the case ofrice and "export" bananas, an increase in exports is possible, or aswith barley, there is a demand for other than direct human consump-tion. Thus, the growtlh in production of platano, yucca-name, arra-cacha, potatoes and perhaps corn should not exceed 2 percent peryear. It could even be argued that no danger would be involved ina decrease in the per capita consumption of these foodstuffs, and thatthe resources released by this decrease could be used for productionof 'protective" foods and export crops. This, however, would implymore confidence in the accuracy of Colombian agricultural statisticsthan appears justified, and would exclude the possibility of using somesurplus crops of yucca and corn, for instance, in experimentation forindustrial use or animal feeding.

Corni. In setting the production target at 741,000 tons, no allow-ance has been made for use of corn for cattle and hog feed, but anysuch diversion from human consumption would be partly offset bythe production of additional meat. In any case, large-scale use ofcorn for feed is unlikely in the next few years for reasons of habit.

The construction of storage facilities to prevent spoilage of cornis desirable. The Extension Program should stress the use of im-proved varieties of corn and better seed selection methods. Whenthe results of current research on "synthetic" corn varieties and onhybridization become available, they are likely to point the way tomuch greater yields, which would open the possibility that corn pro-duction could be expanded sufficiently after 1955 to support a corn-based livestock program. Each of the four zones should be able toreach self-sufficiency in corn production, with Zone III requiring themost help.

Rice. Although statistics on rice production are not deemedreliable, the production level has apparently risen very rapidly in thepast ten years. There is no reason to believe that this rate cannot bemaintained, which would bring output to a level of 225,000 tons in1955. However, there is evidence that the country has practicallvreached self-sufficiency in rice at present levels of consumption, andunless domestic consumption can be increased, additional productionwould have to seek export markets. Before Colombia can competesatisfactorily for a share of the world export market, the averagequality of rice now produced will need to be considerably improved

AGRICULTURE 373

and production practices on most farms will have to be changed sub-stantially.

Present cultivation covers a wide range of practices from thecrudest hand methods on small farms to a high degree of mechaniza-tion on large irrigated plantations. Two crops are harvested yearly.Frequently land is kept in constant rice cultivation for a 5-year period.This infrequent crop rotation intensifies red rice contamination, weedinfestation, and disease problems. The present widespread use ofmixed varieties of seed results in varying degrees of maturity atharvest and high percentages of chalky and broken kernels. Purevarieties of the best types of seed will have to be used to produceexport grades of rice, and rigorous steps will have to be taken toeliminate the serious contamination of red rice. Even with more uni-form maturity some of the crop harvested by combines probably willrequire artificial drying to insure acceptable market grades.

It appears likely that most of the rice suitable for export will begrown in the interior surplus areas, and therefore will have to absorbheavy freight costs to ocean ports before it can enter export trade.These production and transportation problems, while not insurmount-able, will undoubtedly tend to deter over-rapid expansion of produc-tion Their existence also suggests that priority should be given tothe development of rice cultivation by potential producers nearestthe coast in the departments of Valle del Cauca and Bolivar.

It is doubtful if any advantage would accrue from a substantialincrease in rice production over domestic consumption needs, unlessand until the work in improved cultural practices requisite for theproduction of export quality is well established. On the other hand,Colombia has the land and water resources to increase greatly itsrice production, and further mechanization could accelerate the in-crease very rapidly.

An investment of Ps.$4 to Ps.$5 million a year in irrigation facilitiesmight contribute slightly, toward the end of the five-year period, toattaining the 1955 target, and would help materially in reaching highergoals in later years. Likewise, Ps.$1 million a year invested in dryingand storage facilities should help to conserve rice and make the targetmore easily attainable. Around Ps.$4 million a year invested in farmmachinery would also be useful in this regard.

Wheat. The target of 175,000 tons for 1955 was set on the basisof consumption forecast at a level of about 46 percent above 1946,or at a rate of increase of about 5 percent a year. There seems to belittle prospect that this target can be attained, and it is questionablewhether it should be, or indeed whether any expansion of wheat pro-

374 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

duction should occur in Colombia. Wheat is not well suited totropical or subtropical countries. Its appearance in Colombia resultsfrom the existence of high altitude zones with cold climates. Eventhose climates and the soil of the Colombian "wheat belt" are notconducive to efficient xvheat production. We have, however, pro-ceeded on the assumption that some increase should be planned, ifonly to improve the situation of depressed areas such as Boyaca andNarinlo, xvhere wheat is a major crop and where few, if any, alternativeuses for the land are available.

Wheat production is already highly subsidized through price sup-ports, but this incentive has not yet brought about inuch higller pro-duction levels than the 120,000-140,000 tons attained during the war.A fine program of research is under way, particularly to select varietiesresistant to rusts, but it will probably take another two or three yearsbefore the results are definite enough to serve as a basis for recom-mendations. Further time may be required to build up significantsupplies of the varieties of seeds that prove most satisfactory and theexperiments will need application on different soil types and indifferent climates. So far the projected research to develop wheatvarieties for the warmer climates has not been started and it appearsdoubtful whether this is desirable.

No substantial increase in production is likely, therefore, before1955. However, we believe it could be raised above current levels,perhaps to 140,000 tons by that year. This increase could be obtainedthrough introduction of fertilizers, adequate rotation, educational pro-grams and some further mechanization of production on level areassuch as the Bogota savanna. Quite substantial increases in wheat pro-duction may be possible after 1955 as the results of experimentationbecome available.

Barley. Barley occupies a very small acreage. Its productionincreased considerably in recent years, because of the mounting de-mand for beer, and present output may well satisfy the wvhole of thisdemand. Further expansion of barley production should not, there-fore, beat the previous rate, and the target-40,000 tons in 1955-should be easily within reach.

Aside from its industrial uses, barley serves as a food in the mostdepressed areas. Higher incomes may bring about its replacement bypotatoes, rye and wheat. It might be desirable and fruitful to test itspossibilities as a hog feed; if this is profitable, it would furnish anexcellent source of additional income to the inhabitants of the coldareas.

AGRICULTURE 375

Pldtano, Yuicca aind Namne. The platano (the cooking banana), oneof the most important food crops in Colombia, is the one about whichstatistics are most vague. Most farms, in practically all re-ions ex-cept the coldest, have at least one patch planted in plitano. Totalproduction has been estimated to be about 1,000,000 tons per year.Much of it never enters into the money economy. The nutritional valueof the several varieties of plitano is roughly equivalent to that ofpotatoes, while yields are higher and cultivation is less expensive. Thesuccess of this crop in Colombia is one of the major reasons why theaverage diet is adequate in calories. However, with mounting incomes,the shift is toward a costlier diet. Platanos and bananas are graduallyreplaced by potatoes and cereals. This process is slow, but its existenceindicates that there is no need for growth in plitano production abovethe rate of growth in population, and perhaps production should re-main stationary.

Statistics for yucca and name are only slightly better than forplatano. These two crops, of a nutritional value similar to that ofthe platano, are also household economy staples. According to officialestimates, their production has substantially increased in the lastfifteen years. The existence of this trend is open to question; at anyrate, it is unlikely that there would be any difficulty in maintainingpresent per capita production.

"Export" Bananas. Only a small part of the banana crop is ex-ported. Production of the export banana is highly industrialized andconcentrated in a specialized area. The fruit is of uniform type andcarefully selected. The export banana is thus a distinct product fromthe banana cultivated in the interior.

Colombian and U.S.-owned plantations near the Atlantic Coasthave managed in recent years to combat successfully various plantdiseases and are recovering some of their past importance. The possi-bilities of expansion of banana exports from the coast, however, arelimited for relatively few people will embark on such a speculativeenterprise; and it is doubtful that the banana of the interior will everfind its way into foreign markets. It is hoped, however, that someexpansion of export banana plantations can be undertaken nearTumaco, an area which has been reported as favorable. At best thiswould lead to the expectation of a 10 percent increase by 1955.

Potatoes. Potatoes are such an important food, and are so gen-erally liked by all classes of people in the areas where they are readilyavailable, that it seems reasonable to assume an upward trend in pro-duction proportionate to the increase in population. It is believed thatthe proposed 1955 target of 550,000 tons can be realized and probably

376 THIE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

exceeded, without increasing the acreage now planted to this crop.

The potato was being used as a food crop by the Indians whenEuropeans first came to South America. While there are exceptions,the generally prevailing pattern of potato culture is still crude andprimitive. Typically, the crop is grown largely by hand labor in smallpatches, averaging perhaps one hectare per farm. Yields and qualityare both low compared to other producing countries, and potatoes area high-priced food even near areas of production. Practically allthe crop is consumed within the country and because of the high costof transporting such a heavy, bulky commodity, much of the consump-tion occurs in the highland regions in fairly close proximity to pro-ducing areas. It seems unlikely that there will be any significantchanges in the consumption pattern, except for a gradual increase involume, up to 1955, and it is probably safe, therefore, to assume thatproducing areas will largely continue within their present geographiclimits.

If increased production is to be realized without expanding acreage,better cultural practices must be generally adopted by the many smallgrowers who produce most of the potato crop. During the centuriessince its wide adoption in Europe and America, the potato has beengreatly improved by rigorous selection of high-yielding strains forseed, better systems of tillage, propagation of disease-free "certified"seed, systematic control of insect pests and plant diseases, and byuse of superior harvesting, packaging and storage techniques. Colom-bian potato growers can increase yields and improve the quality oftheir crops by the use of these proven practices, which would havesimilarly beneficial results in Colombia. The problem is largely oneof education. It is strongly recommended that a special educationalprogram in better potato-farming methods be undertaken by theExtension Section of the Ministry of Agriculture and that its fieldstaff be increased to the extent necessary for this purpose.

There are noteworthy exceptions to the generally poor methods ofpotato farming in Colombia. Some large farms on the Bogota savannacompare favorably with the best potato farms in other countries.Only the best producing varieties of disease-free seed are planted, andfrom the initial preparation of the land to the final grading of theharvested crop, the best modern technology is applied. Yields andquality are excellent. Large-scale mechanization of potato farmingis not practicable for the small growers who produce the bulk of thecrop, but much more general use of lighter animal-drawn machineryshould be encouraged wherever field topography will permit. The useof fertilizers also should be introduced. An additional investment of

AGRICULTURE 377

at least Ps.$200 thousand per year in animal-drawn tilling and diggingequipment for small potato growers is recommended for the next fiveyears to assist in attaining the 1955 target.

Cacao. While Colombia exported cacao in the early years of thecentury, since the early 1930's its production has not sufficed even tofill domestic requirements. A substantial increase would be desirable,from the current level of 10,000 to 11,000 tons a year to about 34,000tons in 1955. However, there is little likelihood of achieving produc-tion of more than 12,500 to 15,000 tons by 1955.

Little change in cacao acreage was reported from 1934-38 to 1946or 1948. Production was quite stable, increasing only approximatelyone-half of one percent a year over the whole period and decreasingslightly from 1939 to 1947. It has been reported that in the last twoyears some young trees have been planted. This leads to the expecta-tion of some increase in production in 1955, but not before, because ittakes approximately five to six years to get trees into substantial pro-duction. Other factors that might increase output somewhat duringthis period would be improved cultural practices, better handling ofcacao beans harvested from existing trees, the expansion of old andthe creation of new bean nurseries, and perhaps additional irriga-tion. Without new plantings, the maximtim increase that could beexpected would be at the rate of perhaps 2 percent per year, whichmight raise 1955 output to 12,500 tons; the addition of some newtrees that could come into production by 1955 might permit raisingthe practical target to 15,000 tons.

But probably more important than the 1955 cacao production isthat of five or ten years later. There is still plenty of time to influence1960 or 1965 output. A goal as high as 20,000 tons would not seemunreasonable for 1960. An important factor in such possible futuregrowth is the experimental work under way at the new Cacao Experi-ment Station near Puerta Tejada; individual trees have been testedfor a year and a half on nearby cacao plantations with a view toeventual propagation by cuttings from the better trees. Since theCauca Valley (Zone IV) is apparently free from the witches broonmdisease, a considerable expansion there seems warranted.

Looking ahead still further to the time when Colombia would notonly be self-sufficient in cacao production, but also might enter worldmarkets, raises a question about types and varieties. The criollo orwlhite bean cacao is reported to be of very high quality and to be ableto compete in world trade on a basis of quality. But it does not yieldas well as the pajarita cacao which has purplish colored beans. Inthe long run, if Colombia intends to raise cacao for export, it would

378 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

seem desirable to devote some of the experimental program to select-ing higher yielding strains of the white bean variety which have anadvantage in world trade.

An investment of approximately Ps.$0.2 million a year over thenext five years in cacao bean nurseries and additional irrigation facili-ties for cacao seems to offer the best prospect of getting cacao pro-duction up to the 12,000- to 15,000-ton target tentatively set for 1955.Substantial investment in new plants, and types of credit adapted tothese requirements, will be necessary to achieve the desired post-1955expansion.

Cotton. The Colombian Cotton Institute has estimated that anannual production of 30,000 tons of lint cotton is needed to supplycurrent domestic requirements, and this figure is not far from theproduction target of 37,000 tons8 shown in Table 128. This target,however, is about nine times the 1934-1938 average production andabout seven times the production reported for 1946. Notwithstandingthe strong incentives offered by the Government to increase productionrapidly, it is unlikely that such a tremendous growth in lint cottonproduction can be realized by 1955. The most important difficulty isin locating and developing sufficient suitable land. No proven produc-ing acreage well adapted to immediate exploitation for cotton grow-ing on such a large scale is available although the Sinu region lookspromising. Therefore, a figure of 18,000 tons is suggested as a morepractical goal for 1955. This would require increasing production tothree times the 1946-48 average. While this would still be a verylarge expansion, there is great interest in cotton and there seems tobe a reasonable chance that it could be attained if prices are adequatelystipported. But it will require serious effort on the part of the Govern-ment and interested citizens alike.

Both quality and average yields of cotton in Colombia are gen-erally low, but yields on the better farms in Tolima and the SinuValley in Bolivar compare favorably with those of good non-irrigatedcotton lands in the United States. The Sinui Valley around Monteriais a new area considered to have great promise because of the highyields produced on limited acreages planted during the last year ortwo. The land is very fertile and growers believe there is adequateannual rainfall to grow a crop of cotton for one picking a year withoutirrigation, to be followed by a quick maturing crop like sesame orbeans before the next cotton planting. There were 2,000 to 3,000 hec-tares of new land being planted to cotton in the Sinui Valley in 1949and if they yield satisfactorily, this new area may prove to be an

8 The growth in the demand for cotton textiles should be taken into account.

AGRICU-LTURE 379

important source of increased cotton output in the years to come, butthe lack of skilled picking labor there may well create difficulties evenwvith the present limited acreage.

Cotton farmers may need assistance in recruiting anid traininglabor. At least one mechanical cotton picker has been purchased inthe hope of solving the aniticipated labor shortage, but it has not yetbeen te.eiS on the rank groWving Sindi cotton. The mechanical pickerxvas not considered very pronmising in previous tests in the Armerosection of Toliia. Perhaps more satisfactory results \vould have beenobtained if a chemical defoliator had been used to reduce leaf trasland speed the maturing of green bolis.

Other newv areas are also being planted in cotton. In the MagdalenaValley south of ILa Dorada over 1,000 hectares are reportedly beingplanted for thie first time. In many respects this may be considered anextension of the type of cotton farming established farther southin the Armero section of Tolima. TIhe type of soil appears to be good,but it is likely that seasonal deficienicies in rainfall at the critical bloom-iug period nmay cause excessive bloom-drop and serious reduction inyieldls in certain years, as it does occasionally in the Armero area. Ithas also been reported that the San Jorge Valley is particularly suitedto extensive cotton cultivation. In this case (as in the case of theSil.), transportation facilities xvill have to be considerably improvedlif real progress is to be made.

The Saldana Irrigation Project in Tolima, nov under construction.vill supply wvater to 15,000 hectares of land, some of it suitable for

cotton growving. This project will not, however, be completedl in timeto develop any substantial cotton acreage for 1955 production.Acceleration of this wvork as much as possible miight help in attainingthe target. About Ps.$6 to Ps.$S million a year invested in irrigationxvould appear to be wvorth while in helping to meet the 1955 target andespecially to increase cotton production in later y ears. Investmentof around Ps.$3 million a year in farni machinery, about Ps.$1 millionper year in better transportation for the Sindi and Sani Jorge VTalleys,and the creation of special credit facilities for new plantatiolns shouldalso be helpful. Educational extension programs may be of consider-able valuc in teaching improved practices in cotton growing.

Fiqiie. The target for fique for 1955, requiring increases at a rateestinated to represent the growth oi industrial demand, should bereached without major difficulty. Fique is used largely for packingother products, particularly coffee, and its production has been keepingin line with demand. Farmers xvill probably continue to grow neededamounts A-ithout any special programs to aid thelmi.

380 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Tobacco. The 1955 target for tobacco wvas set at 34,000 tons, onithe basis of mainitailaing the past rate of increase-about 7 percenta year from 1934-38 to 1946. While continuance of this rapid expan-sion will place a heavy burden on tobacco growvers, and may not befeasible, nevertheless the proposed target seems about as reasonableas any other. Santander is likelv to remain the principal center oftobacco production for many years, but some areas suitable for tobaccogrowving exist in all four zones.

At cost and return ratios prevailing in the United States, tobaccojustifies rather heavy applications of commercial fertilizer on mostsoils, with substantial use of potassiulm along with phosphorus andnitrogen. Unfortunately, research results are not available to indicatewhether such a practice should be recommended in Colombia. Werecommend, therefore, that extensive fertilization experiments beconducted on tobacco in different soil types during the next threeor four years. If tile results favor the use of fertilizer, intensive educa-tional efforts by the Extension Section of the Ministry of Agricultureand the Tobacco Cooperative to encourage such use might contributeto increasing productionl by 1953 and later.

Educational w-ork on methods of sterilizing plant beds is needed.Experiments in topping growing tobacco plants should be carried on.wvith a view to determining whether this practice wrould result in agreater yield of productive leaves. If it proves useful, it should be wide-ly taught to farmers through demonstration programs, wrhich should beaccompanied by educational work on seed plant selection since wvholefields of seed would no longer be available. Finally, we suggest thatlegislation affecting the monopolistic position of tobacco buyers couldsubstantially improve the position of the tobacco farmer and, by givinghim a oreater incentive, would help to assure achievement of the target.

Beans. Many types of beans are cultivated and consumed inColombia. Statistics on past production levels seem unreliable, butthis crop does not seem to require special attention. No difficulties areanticipated in maintaining per capita production levels until 1955.

Beef Cattle anid Becf. The 1955 targets for beef cattle and beefinvolve not only increasing beef cattle production at the same rate asin past years, but also increasing the average weight of slaughteredcattle by about I percent per year. This -will require better livestockmanagement practices, and particularly the improvement of pastures.Keeping in mind that other recommendations, particularly for accelera-tion of parcelization programs, are in the direction of reducing theacreage of good lalnd in pastures, the need for pasture improvement iseminphasized.

AGRiCULTERE 381

It has been reported that the cattle population in 1948 was14,500,000-an increase of 80 percent over 1938 estimates-and that1,315,000 head w-ere slaughtered. It is also reported that 43,000,000hectares of land were in pasture in 1948. Allowving for the use of partof this land by other varieties of livestock, the pasture probablyaveraged more thani four acres (1.6 hectares) per head of cattle. Thelarge amount usecd is due to failure to seed pastures with better grassesand pasture mixtures. Improvement of pastures by reseeding defi-nitely will be required to attain the 1955 target. Reseeding- of onemillion hectares a year does not appear to be an unreasonable objective.Guinea grass, para grass, India grass, and yaragua uribe grass shouldbe considered. It is important also to provide adequate drinkingwvater for cattle in Bolivar, Magdalena, parts of Tolima and Huila andthe eastern llanos, and opportunities for low-cost supplemental irri-g-ation of pasture should be sought.

Continuance of the breeding program, particularly development ofcross-bred animals capable of being grown and fattened in 2X2 to 3years, instead of four or five, would be very helpful. The bull pools,containing both beef and dairy bulls, maintained in many sections ofthe country by the Animal Industry Division of the Ministry to enablefarmers to breed their cows free of charge, are rendering valuableservice. Some farmers, howvever, show poor judgment in introducingdairy blood into beef herds.

Since thousands of cattle lose 100 to 200 pounds or more whilebeing driven to market on foot, the provision of better road trans-portation facilities from producing areas to central slaughterhousesor markets would help to conserve meat already produced.

Hogs and Por.. The number of hogs slaughtered each year aver-ages slightly less than one for each two farms. Hogs are fed on wasteproducts and are never fattened on corn or grain. Their productionseems to have been fairly stable since 1938 and has not kept up wvithpopulation increases. The target for 1955 is based on an increasein pork production at a rate somewvhat lower than the populationinicrease.

We suggest that farmers be urged to experiment with feeding somecorn, barley or soybeans to hogs. If, in spite of the high cost of suchfeeds, farmers wvere to find their feeding profitable, it would helpmaterially to reach the target. Expansion of hog production shouldbe possible over rather widespread areas (especially in Bolivar andNfagdalena) and it appears that each zone should be able to increaseproduction up to its full qcuota of the target.

382 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLO-MBIA

Alilk. Studies of Colombian nutritiontal standards indicate a percapita consnmption of about 100 grams of milk per clay in 1947.equivalent to a production of 376.6 thousand tons. (A substantiallyhiigher production has been reported, but the figures appear to beiuch inflate(l.) To obtain a supply of milk adequate for health, the

level of output shotldl be lifted to 1.346,000 tons by 1955. vhich isobviounsly impossible. B'ut an increase of about 103 percent to 753,000tons may be feasible.

To achieve this result vigorous efforts vill be necessary. First,the imiport of milk cows of selected types, at the rate of about Ps.$2millioi per year, is desirable to boost production and improve dairyherds. Second, the breeding- of dairy cattle should receive continuedattentioni, particularly the development of breeds that do well in thehot portions of the country. Third, pasture lands should be improvedthrong-h adequate rotation; grass should be considered and cultivatedas a valuable crop. Fourth. training should be given throng-h expandedExtension programs, particularlv in areas near the larger cities, inbetter milk produlctioln and sanitation practices. Special attentionshould be paid to Qettin-g dairy farmers to milk their coNvs twice a dayinstead of allowinilg the calves to nutrse part of the day. Strongencoturagemiienit should be given to the keeping of cowvs to producemilkl for home use on the farm.

Slhee an1d Coats. The country needs the wrool, mohair, and meatthat increased production of sheep and goats wvould provide. ThroughIthe E.xtension program, special educational activities should be carriedout to help farmers increase production of those types of livestock,especially in the higher altitudes of Zone I, in Cundinamarca, Boyaca.and the Santanjders. Imports of selected breeding stock may coIn-tribute substantially to increased production.

I'oidztrv anzd Eggs. We recommend special attention to encouragin-all farmers to rai,e chickens and - - for honme use, and to demon-strating- improved poultry raising- and feeding practices. Breedingappears to be a special problem; there is great need for hens that

ill lax- more eggs per year and also be better producers of meat.Breeding flocks. to be used as a source of hatching eggs or baby chicksat strategic points, should be developed by the Government if privateenterprise does not fill this need. YVith sources of better stock easilvaccessible, education on better feeding and management practicesmight be more productive.

Honc I-egetable Gardens. The diet of a large proportion of Colom-bia's farm populationi is seriouslv lacking, in freslh fruits and vege-

AGRICULTURZE 383

tables, particularly green leafy and yellowv vegetables of hio-h vitamincontent. Many farms have no home vegetable garden and completelyneglect the possibilities of this supplementary source of foodl. Prob-ably this is largely the result of lack of knowledge of the dietaryimportance of protective foods. The only satisfactory goal for thisphase of the agricultural program would be to have every farm pro-ducing a variety of vegetables and fruits for home use and as mtuchsurplus of garden crops as markets will absorb.

About three years ag-o an official project wvas set up under theExtension Section of the Ministry to encourage miuch xvider use ofhome gardens by furnishing selected garden seeds free to farmers.A manual of instructions for planting and cultivating the vegetablegarden also was provided for free distribution. NVhile this programlhas been very limited in scope compared to the great need for farmgardens, it has greatly benefited those families it has reached. Theresults already obtained warrant its being greatly expanded.

Fishcries. An efficient and economical way to increase thc proteinsupply in the diet is to develop the fishing industry, the possibilitiesof which have been exploited to a very limited extent. It has beenestimated that with an investment of Ps.$10 million to Ps.$20 millionin boats, fishing equipment, and canneries, the supply of fish mightbe increased from around 10,000 tons per year at present to 8 or10 times this amount. The target of 86,000 tons by 1955 xvould providean average of 7 kilograms per capita per year (concentrated, ofcourse, in the coastal departments). which might reduce the conI-sumption of meat and make available some exportable surplus. Aprog-ram is under w-ay to increase fish production. M\ore positix eincenitives to private ventures in this field might well be provitled.

GENERAL RECOMMENDATIONS

Probably the most important single factor making for low pro-ductivity in agriculture in Colombia is the uneconomic and paradoxicaluse of land. As we have seen in Chapter V, the good, level, arableland situated near populous centers is strictly limited; yet, for themost part, it is devoted to the grazing of cattle, and is customarilyovned by, absentee city dwellers. On the other hand, the bulk ofthe foocl is grown on tiny farms which are generally on steepslopes and in poor soil. The average Colombian farm has only tw-ohectares of crop land, and many farms are considerably smaller.Many farm people owvn no land at al'. and Awork on the larger farmsfor a living. Even many of the coffee growvers have so little land of

384 THE BASIS OF A DEVELOPMlENT PROGRAMI FOR COLOMIBIA

their Ovin that they have to work part time for larger coffee growersto eke ou1t a living.

There are, therefore, two aspects to this problem: better and moreeconomical uise of land, particularly of the rich valley and savannalands; and opporttinity for wider lanid ownership for those who till thesoil. In Switzerland, where the supply of level arable land is alsovery limited, absentee ow nership of farm land is severely restricted;those \vho own farn lanid must live on it. Colombia might study thisprecedent wvith profit since owlnership of sufficient farm land to pro-vide a good living throuah intensive farming wvill almost automaticallylead to improved land use, besides providing obvious social benefits.Substantial amounts of good land, which could and should be usedmore efficiently, appear to be available, including (1) privately owned,presently underutilized land; (2) undeveloped land now under publicoxvnership; (3) small uneconomic farms, which may be combinedinto more efficient units as some of the present operators are drawnoff to new farming opportunities or industrial employment; and (4)nexv land which could be made available for farming through irriga-tion or drainage, such as areas in the Sinu Valley and -NorthernTolima. To get these lands into effective cultivation it will be neces-sary to provide financial and technical aid, improved health, educa-tional and transportation services.

Colombia can ill afford underutilization of its limited arableland. This is, therefore, a matter of concern to the vhole communiiityand not to the private owner alone. If, for example, one person owinedall the level land in the country and insisted on using it for cattlegrazing, the nation would be impoverished. The same principle applieswhen a relatively few oxvners do virtually the same thing. Inefficiency,poor organization, or misuse of resources anywhere in the communityaffects adversely the -vell-being of the whole community. NWhat isurgently required, therefore, is some means of inducing the o-wnersof arable land either to put it to its most economic use, or to disposeof it to others who will.

Tax Inducements to Efficient Land UseWe feel that the most effective method of achieving maximiium

utilization of land is a system of taxation -which -vould penalize pooruse of good land. The special tax on unimproved land imposed invarious countries and the mild penalty tax on unimproved andunutilized urban land in Colombia itself are precedents in point.

The system might wvork somewvhat as followvs:

The first step is to revalue for tax purposes the best farm lands

AGRICUTLTURE 385

of Colombia to reflect the steady increase in land values. Most goodland is grossly undervalued. Additional funds and facilities shouldbe afforded the Instituto Geografico Militar y Catastral to enableit to accelerate its revaluation of farm lands. First attention should bepaid to the highland valleys of Cundinamarca and Boyaca, and nextthe lowland valleys of XValle, Cauca, Bolivar, Tolima, Huila, Magdalena,Cundilnamarca, Santander and Santanider del Norte.

W,Te do not suggest at this time that the existing basic tax rate ofPs.$4 per thousand be altered.9 An increase in valuations wvould initself provide a very substantial increase in yields for urgently neededlocal services. WVe suggest, however, that this basic rate be progres-sively increased as the net income fronm the land falls below- a certainpercenltage return on the current market value of the land as deter-rnined by the Instituto Geografico. In general, the high valleys ofCundinamarca, Boyaca and certain sections of Narifio may be expectedto yield less than the valley lands of V'alle, Tolima and so forth. It isprobably desirable, therefore, to set as norms different rates of returnifor these different types of land. The actual rates and the degree ofprogression should be determined after careful study. How ever, inview of the relatively high return to capital in general, it seems reason-able to assume that land in the savannas of Cundinamarca should,if properly farmed, yield a return of at least 10 percent on marketvalue. If land use produces the normiial rate of return, the basic taxrate -would apply. If uneconomic use of land brought lower returns,the tax rate should be progressively raised as indicated in Table 129.

TABLE 129

ILLUSTRATIvE TAX RATES PER THOUSAND BY INCOME CLASSIFICATION

EquivalentNet Income Tax Rate

Income Tax Returnl (2) as percent of (1)(1) (2) (3) (4)

Ps.$100 Ps.$ 4 Ps.$ 96 4.090 5 85 5.680 6 74 7.570 8 62 11.460 10 50 16.750 13 37 26.040 16 24 40.030 20 10 66.720 25 - 5 125.010 32 -22 320.00 40 -40 -

9 Established by Decree No. 2473 of 1948.

386 TTIE BASIS OF A DEV'ELOPMIENT PROGRAMI FOR COLOMiBIA

For lands in the lowland valleys. the standard rate of return might betak]en as 14 percent of market value and the whole rate schedulestepped Up correTpondin(gR-l. It might also be desirable to raise thelower limit at vwhich the excess profits tax begins to apply in the caseor property subject to this tax.

The progressive rate should probably not apply to land undergoillgreforestation or planted in cacao or palm nut trees. Administrationiof the tax could be carried out by the National Governmilellt. but thereceipts should go back to the country districts to improve healtlh andleducation and to finance local services in accordance with establishedform-ulas and tinder standards laid do\vn by the National Governrmcnt.

It must be reemphasized that we are here concernied not so muchwith the details as with the principle of this proposal. The importanitthing is that these v aluations be made and the rate of progressionrletermlinied in such a way as to provide an imllmediate and positiveincentive to correct the present iiistuse of the best lanlts of Colomnbia.wvhaich conistitute muach the largest part of the national patrimony.

In addition to providing a direct stimulus to more intensivefarming, the proposal -would also operate to depress inflated landvalues-i.e., those not justified by the productive capacity of the landin qduestion-and so put better land within the reach of poorer farmers.AMoreover, it xvould tend to increase employm-lent opportunities. sinceit has been the general experience that conversion of land from cattlegrazing to intensive cultivation, even with machinery, creates anincreased demand for agricultural labor and equipment operators. l3vexpanding the productivity and incomes of agricultural wvorkers gen-erally, it should help to expand the market for manufactured prodluctsand thus lay the basis for more efticielnt and diversified industries inColombia.

While our tax proposal will tend to makie the acquisition of laudeasier for small proprietors, the land affected will still usually bebeyond the means of most rural people. To satisfy their desire formore land, andl to achieve the economic and social benefits of owner-ship of land by those wvho cultivate it, this proposal needs to besupp)lemented by other measures. The Governmelnt in recent y ears

has inaugurated a farm purchase program through the Institute forParcelization and Colonization of Land. This program is excellent inintenition, but the cost is heavy and the progress has been slo\v. TheInstitute should make arrangements to take full advantag-e of theservices, personnel and experience of such agencies as the ExtensioniSection of the M[inistry of A-ricuiture the Caja Agraria, the Housing

Institute, and perhaps others. In adldition, ve feel that this programl

AGRICULTURE 387

should be enlarged ancd pushed forward more vigorously, but it mustb3e suppleniented by other more direct and immllediately effectivemeasures if tangible results are to be achieved within a five-year period.

Agricultural Credit

One of the primnary needs is credit on favorable and suitable termsfor the purchase of land, for necessary improvements, for initial operat-ing capital. Intensive training and supervision will usually be neededto enable the farmer to repay the loans he receives and to enhance hisgeneral chances for success. The loans miglht be made conditionalupon the borrower's agreeing to follow desirable farm and home man-agemeint plans. Continuing advice and supervision should be givento assist the family in making and carrying out such plans. A programcombining- credit and technical supervision might well be initiated incarefully selected areas of good land now under public ownership.Limited amounts of public lands might be made available to smallfarmers free of charge, together with credit for buildings and equip-ment. Also, opportunities might be found to make a living- through1a combinatioi- of farming and forestry as well as through farmingalone.

Although loans are presently beingi made for a great variety ofpurposes, the Caja de Credito Agrario, Industrial y Minero, the prin-cipal farm credit agency, does not have sufficient funds to permit it,along with banks and other credit agencies, to meet the full need foragricultural credit. Moreover, the long-term loan field is almostentirely neglected, again apparently for lack of funds. Even in 1948,the year of the Caja's largest volume, only 140,540 loans amounting toPs.$119 million were made. Thus only about 12 percent of the farmerswere served by the Caja, and observation in various parts of Colom-bia clearly indicates that private bankis have not been meeting thecredit needs of the remainder. To make inadequate funds go as faras possible, only short and intermediate term loans were nmade inthe main, most of them being for production purposes and runnino-for not more than one year.

It is strong-ly recommended that adclditional funds be made availableto the Caja to enable it to meet the credit needs of agriculture moreftully. It is also recommended that the Caja establish a program oflong-term credit to finance the purchase of farms, and improvementssuch as farm buildings, farm storage facilities and irrigation anddrainage works. Such loans might well run 30 or 40 years, at loWinterest rates.

One of the understandable reasons why the resources of the Caja

388 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

have tended to be loaned out in iedium and larger sized loans is theneed to cover its operating expenses. Generally, interest rates evenof 65 to 7 percent will not cover expenses on a very small loan, in-cluding necessary advice and supervision. Too often, as a result,small farmers have to resort to the town money lender and pay inter-est of 30 percent or more, wvith no advice or assistance. A specialservice charge to cover the heavy overhead costs of small short-termloans may be justified, if it would really serve to extend the Caja'sfacilities to small borrowers in adequate amounts. Or it may be de-sirable for the Government to subsidize a lowver interest rate for cer-tain types of loans, by covering part of the Caja's administrative costsfrom annual appropriations.

Loans can be made to imluch better advantag-e, both to the lenderand to the borrowver, if they are based on sound farm and home man-agement plans. This wvould require either a close and cooperativeworking relationship betwveen the Caia and the Extension Sectionof the Ministry, or the employment by the Caja of its owvn agricul-tural technicians. In either event, the Government shoultld bear tilecost of admiiniisterinig the educational part of such a program, sinceit should be a public responsibility. In this connectioln, we suggestthat a careful study be made of the experience of the small loan andtechnical assistance program for lo\v-income farmers carried out by theFarm Secturity Administration in the United States before World WA\arTI. Lending activities of the Caja Aoraria should be carefully coordi-nated wvith the programs of other agencies, particularly the Institutefor Parcelization and Colonization and the Territorial Credit Institute.Greater coordination of the credit activites of such semi-public agen-cies as the National Coffee Growers Federation and the AntioquiaCattle Fund, which are financed -wholly or in part with public funds,with those of the Caja Agraria is also recommended.

We suggest further that the Caja give greater emphasis to loansto cooperatives, ivork out suitable credit terms for this purpose. andaid cooperatives vith advice on their financial problems and adminis-tration. Loans for forestry and fisheries are also needed; specialterms should be worked out to fit the requirements of these indus-tries.

The Caja A-graria is currently engaged in many activities, suchas merchandising machinery and supplies, besides credit. In orderto give it greater freedom to handle properly a greatly expanded creditprogram. it should be relieved of these other responsibilities. Loans toprivate contractors for the purchase of such equipment as shovels,bulldozers. land levelers and subsoilers wvould permit them to handle,

AGRICULTURE 389

through custom work, projects for flood control, drainage, irrigation,catch basins, leveling and clearing land, terracing, and the like: thisis a field in wvhich private enterprise should prove increasingly effec-tive. In general, it wvould appear desirable also to leave in privatehands the functions of importing, selling and servicing agriculturalequipment, fertilizers, and- insecticides.

Rural Education

Educational facilities and programs in rural areas appear to begrossly inadequate. Members of the Mission wvere impressed withthe eagerness of the people to learn more about improved farmingmethods, and with the ability and earnestness of most staff membersof the Extension Service. But the latter have been able only to a lim-ited extent to reach farm people and to convey scientific findings inagriculture. Primary education is, of course, fundamental. In thelong run, good basic education for the futtuire farm men and wonmenof Colombia may be more important for the future of agriculture ancdof the \vhole nation than any change in agricultural techniques andinstitutions, howvever far-reaching. At the same time, the possibilitiesof working with adults should not be neglected. Much can be learnedfrom the experience of folk schools in Denmark and farm adult train-ing programs in Nova Scotia and elsewhere.

Thel-e is need for consolidation of the various educational pro-grams of the MT\.inistry of Agriculture, with particular attention toan integrated approach to agronomy and livestock educational xvork.A single Extension Division, staffed both in Bogota and in thedepartmental and local offices wvith persons especially competentin the fields of agrononmy, care and feeding of livestock, human nutri-tion, andl farm and home management, could make greater progress.The focal points of interest in such an expanded program shouldbe the farm family and the wrhole farm, wvith wvhatever attention isnecessary given to various fields to support a farm and home manage-ment plan. Special attention should be paid to gardening (includ-ing distribution of quality garden seeds) and to home-produced meat.milk and eggs, in order to improve farm diets.

Such a program wouLld build upon and expand the v ery worthwhileprograms already under way in the Agriculture and Animal IndustryDivisions of the Ministry. A well balanced expansion should takeplace for the first fexv years at as rapid a rate as the adequate train-ing of personnel xvill permit, with a budgetary goal of perhapsPs.$2,000,0001 annually by 1955. Salaries and xvorking conditions

10 Principally for salaries for educational personnel, but not including tlle develop-mental (Fomento) program.

390 THIE BASIS OF A DEVELOPMENT PROGRA-M FOR COLOMIBIA

Ilust be suich as to obtain and hold well-qualified men and xvomeun.Continuous study of the programii by advisory committees. made upof both professional agrictulturists and practical farm men and wvollmell,would be useful in defining the eventual size and content of the pro-gram, and indicating the current changes required in movina towardthe longer term goal. The Extension personnel wvill probably be ableto reach the owners of large fincas and haciendas, but the real test oftheir effectiveness w\,ill be in developing methods to meet the needsof the large majority of farmers wvho fall w,vithin the lowver incomegroups of the population.

To assure adequate attention to educational wvork, certain importalntservice activities that are nowv the responsibility of Extension fieldpersonnel-such as maiintainling pools of tractors ancl farm implements,and( providing plowing, cultivating and similar services on a custombasis-should be turned over to private enterprise or to a newv sectionwithin the Ministry. The important educational wvork in agriculturalenigineering, hoAvever, should be continiued in the Extension program.

The Extension personnel will have to cooperate with many othera-encies and groulps in the various communities 'where they work,particularly suclh agencies as the public schools, the Churclh, healtlhandCi welfare .-:OLnpS. and farm credit agencies. Careful coordination ofits programn Avith the activities of the Caja Agraria and the Institutefor Parcelization andl Colonization is especially needed, as previouslvnotecl.

A prerequisite for effective expansion of the Extension Service isan increase in facilities and personnel of the agricultural colleges.College' education is a matter of particular urgency since prog-ress inall other agricultural programs wNrill be limited by the rate at whlichtrained personnel become available. Achievements \vith very limitedfacilities at Bogota. 'Medellin and Palmira indicate that much couldbe accomplished if adequate funds wvere made available for igll-ereducation in agriculture. The N-ormal Colleges at Buga and Duitamahave trained some vocational agricultural teachers, majordomos, andExtension wvorkers, and one or twvo private colleges have offered some\vork in agriculture. But all these programs together are wholly in-sufficienit to meet the demand for well-trained agricultural personnel.Less thani five hunidred students in all are enrolled and probably notmore thani fifty or sixty graduate each year.

The programs of existing colleges should be broadened to includehuniian nutrition, farm and home management, and miore wvork instatistics and agricultural economics. While evel-ituallv a fewv newvagricultural colleges may be needed, for the immediate ftuture enlar-e-

AGRICULTURE 391

iment and improvemiient of existing facilities Awotild be most feasible.Adequate funids sblould be made available, from public or privatesources or both, to assist qualified students wvho are unable conmpletelyto finance their own education. Education in local colleges shouldcontinue to be supplemented by training of individutal students inforeign maethods, particularly through participation in the program fortraining of Latin American students in the United States.

M\ore vocational schools are needed to supplement agriculturalcolleges for the training of agricultural Extension personnel and inde-pendent farmers. Considerationi might be given to the establishmentof farm schools, 'which wvould carry further the ideas exemplified inthe vocational schools conducted by the National Federation of CoffeeGro-wers. Such schools could be built around a leased finca and mightbe sponsored by the Mlinistries of Agriculture and Education and per-haps the Caja de Credito Agrario. Produce growvn on the farm wvouldprovide food and help pay expenses, and its processing and cookingby the female students -would provide practical experience in homue-making. After, say, a twvo-year course, personal credit might be ex-tended to students of demonstrated capacity to enable them toestablish themselves as farmers.

Irrigation, Drainage and Water Utilization

Aniother step wvould be a comprebensive, long-range plan for irri-gation, predicated on the basic land policy of the nation. Colombia hasconsiderable reserves of land suitable for irrigation development. someareas which may offer possibility of reclamation througll drainage,and still others wvhich badly need a larger \vater supply for liian andlivestock use. Extension engineerilng studies, supplemented by geo-logic and soils data, are necessary for these purposes.

Water is a basic natural resource. Present Colombian \vater regu-lations, howvever, do not appear to be fully adequate for its protectionand use in the public interest. Water rights laAvs designe(d to con-serve supplies of irrigation water, to prorate allocations fairlv amongusers, to establish equitable use-rates, and to assure adequate main-tenance of facilities are needed.

All irrigation projects financed through amortizable loans shouldbe so organized that annual revenues are definitely providecl to meetrecurring fixed charges. 'Ne recommend that wvhere projects areFinalced wlith public funds, wvater should not be supplied to any onelandowner- for irrigation of more than perhaps 50 to 100 hectares.This limit is, in fact, quite high-25 to 50 times the area of crop landon1 the average farm in Colombia-but some such limit seems neces-

392 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMtBIA

sary to prevent the benefits of these public expenditures from accruingto a fexv large landowvners.

The Saldana Irrigation Project, now tinder construction in Tolimaand designed to supply water for about 15,000 hectares, should beexpanded to include some 17,000 additional hectares if further studiesconfirm that a suitable storage site is available and cost factors arefavorable. Proposed projects such as the 10,000-15,000 hectare tractin the lower Magdalena Valley, some 25 kilometers south of Barran-quilla, and others of comparable merit, deserve careful consideration.Attention should be given to the possibilities of developing supple-mental irrigation for certain areas in the Cauca Valley, in NorthTolima, farther south in the upper Magdalena Valley, and in manysmaller tracts in other areas. The cost of facilities must be low enoughto be economically justified for intermittent use, and the feasibility ofindividual deep-well pumping units as a source of water for supple-menital irrigation in a number of these areas merits fuller exploration.

Catch-basin type reservoirs should be constructed for stock pondsand to supply water for domestic use, if drilled wvells prove impracti-cable, to relieve the desperate water shortage in periodically drysections like the Sincelejo area in Bolivar. Stock ponds of the catch-basin type can be cheaply excavated with bulldozers, the purchase ofxvhich could be financed by Caja Agraria.

Drainage is often a complementary problem. In established irriga-tion systems, drainage may be required to relieve wvater-loggingtendencies in the irrigated area or seepage or run-off to adjacent areas.In newv projects, any needed drainage should be planned as an inte-grated part of the system. AVhere subsurface deposits of salts exist,adequate drainage may be necessary for successful irrigation, in orderto prevent the rise of such salts into the root-zone of growing crops.

In swvampy lands, or where special flood conditions exist, a systemof drainage canals, alone or in conjunctionl xvith protecting dikes, maybe the means of reclaiming large tracts of fertile agricultural land.Some of the w-et, uncultivated lands in Colombia's river valleys mayoffer sound opportunities for drainage reclamationi and agriculturaldevelopment. but the Mission has no definite information on thissutbject. Drainage projects should, of course, be undertaken onlv ifthey are fully supported and justified by engineering and economicdata.

In considerinig priorities in the further development of land andwater resources for increasing agricultural production, great caremust be used in deciding between the opening up of nexv areas, intensi-fication of the use of pasture lands, or development of land through

AGRICULTURE 393

irrigation or drainage. It seems obvious that the first emphasis shouldbe on using to the best advalntage the good land already availablebefore creating new agricultural land at great expense. For example,it would not be considered sensible for a farner to borrow large sumsto irrigate a part of his farm when he might increase his productionand profits as much or more merely by farming more intensivelyand( scientifically on another part of his land. In the same wvay, itwould appear wvise for the Colombian Government to be sure thatexisting- land is put to the best practicable use before embarking onnew irrigation projects, even though the latter might appear profitableon paper. This principle may be subject to some modification in thecase of crops like rice that can be grown only wvith irrigatiom.

Soil ConservationOur basic recommendatioln for soil conservation in Colombia is

that the growving of cultivated annual crops be removed from steepslopes to the fertile plains to the fullest extent practicable. Earlierrecommiiendations in this chapter are designed to promote this develop-ment. Farming practices that include crop rotation, fertility programs,use of cover crops, contouring, terracing, etc., are helpful.

Contour plowving, planting and tillage of crops, which unavoidablymust be groDvn on slopes, will minimize erosion and should prove aneffective control on gentle slopes if supplemented with well (lesigineddiversion ditches and proper terracing. The most modern practicesin coffee growing- planting the rows on the natural contour with asmall terraced basin around each individual tree, preserving the natu-ral forest cover, controlling wveeds by cutting them without disturbingthe surface soil, and using leguminous cover crops like creeping indigoto smother weed growth - constitute practically ideal soil conserva-tion procedures.

Lack of a complete systematic soils survey is a major obstacle toan adequate soil conservation program. The good wvork in soils classifi-cation, already begun by the Soils Section of the Instituto GeograficoMilitar y Catastral, should be expanded and accelerated. Researchin soil conservation and control methods for particular soil classifi-cations and types of crops should also be expanded.

A program of reforestation wvith long-term loans is recommendedfor the steeper slopes and hillsides which can be removed from agri-cultural use. Other types of soil-retaining vegetation should be studiedfor use in less acute situations wvhere grazing might be substitutedfor cropping.

An effective soil conservation program must also take account of

394 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

the human problems involved in some types of soil conservationmeasures. Population pressures bear heaviest in some of the areaswhere erosion is most intense. To the extent that such lands are takenout of cultivation, a source of livelihood must be provided for thepeople now living on them. The recommendations in other sectionsof this Report are designed in part to meet the problem of providingthe incentives and the alternative employment necessary if workers areto be moved successfully out of uneconomic or destructive types ofagriculture to more productive locations and occupations. Thus broadsocial and economic considerations, as well as those of sound agri-cultural policy, are involved in a full-scale attack on the problems ofsoil conservation.

MechanizationThe gradual substitution of animal-drawn and tractor-powered

machinery and tools for hand tools should be encouraged as a meansof improving productivity on farms. It should be recognized, however,that large numbers of farms, probably half or more of them, are notnow adapted to the use of tractor-drawn or mounted equipment, anclmany farms are so rough that even animal-drawn machinery is im-practicable. Nevertheless, mechanization will be an important meansof raising productivity in many cases.

While one farmer alone would frequently be unable to afford afarm implement, either tractor- or animal-drawn, several farmerstogether might well own and use certain implements cooperatively.Encouragement to small groups of farmers -perhaps 3 or 4 in somecases, 8 or 10 or 15 in others - to buy and use farm equipment jointlyshould help to give small farmers access to the modern implementsthey need. We believe greater emphasis should be given in publicprograms to financing or importing farm machinery for small- andmedium-sized family farms, provided they are large enough to beeconomic units, and to cooperatives serving such farms.

It is important that adequate provision be made for spare parts,maintenance and repairs. Farmers should be taught- through farmmachinery schools, demonstrations, and the like - to use machineryproperly, to keep it Ilbricated and greased, to make minor repairs, andto provide adequately for storage of tractor fuel on the farm. A moresatisEactory system of storage and distribution of tractor fuel andoils is greatly needed.

Perhaps even more important than mechanization in terms oftractors and tractor equipment is to effect a shift from hand labor aildthe almost excltusive use of pack animals on small farms to practicable

AGRICULTURE 395

types of animal-drawnv machinery and wheeled vehicles, possibly two-wvheeled carts or even four-wheeled wagons. Such changes would addgreatly to productivity and are urgently needed. Through researchand pooling the ideas of farmers, Extension workers, interestedmachinery and cart or wagon manufacturers, and others. appropriatzmethods and devices can perhaps be developed and demonstratedwidely to farmers. There are several establishments in Colombia thatcould undertake the manufacture of farm wagons, scrapers, hillsidewalking plowvs, stone boats, harrows and simple agricultural imple-ments.

Fertilizers, Insecticides and Fungicides

The principal problem with respect to fertilizers is the lack inColombia of the raw materials essential for their 1nanufacture. Ex-cept for small amnounts of organic wastes from a few slaughterhouses,the nit;-ogen, potassium and phosphorus compounds necessary to makefertilizer mixtures all have to be imported. High transportation costsmake the use of mixed fertilizers very expensive. It is suggestedtherefore: that the possibilities of importing and selling concenitratesto farmers be explored. This could be done through an extension offacilities and credit by the Instituto Nacional de Abastacimientos'1

to private dealers to permit sales at controlled prices. Even at highcost, it is believed that use of concentrates can be amply justified.

A recent development in the United States, the direct applicationof anhydrous ammonia (82 percent nitrogen content) to the soil, mayhave important possibilities in the future since, if eventually adaptableto Colombia, it would permit both the use of a domestic source ofsupply and great savings in transport costs. A ton of Chilean nitrate,for example, contains 85 percent waste material that must be trans-ported to get 15 percent of nitrogen. The possible manufacture ofcheap ammonia in Colombia is discussed in Chapter XIX. In anycase, it appears feasible to produce ammonium nitrate (33 percentnitrogen) and ammonium sulphate (20 percent nitrogen) from gas inColombia. A cheap domestic source of nitrogenous fertilizers wouldgive a great impetus to agricultural production. In the United States,through the direct application of anhydrous ammonia, it has provedfeasible to fertilize an acre of ground for U.S.$2.58.

Experimental research with regard to fertilizer formulas, use tech-niques, soil deficiencies and responses, benefits to specific crops, andrelated subjects already begun at the Experiment Stations should becontinued and expanded. Commercial fertilizers should be plainly

11 National Food Supply Institute.

396 THE BASIS OF A DEVELOPMENT PROGRA-M FOR COLOMBIA

labeled as to their guaranteed plant food content, and the provisiolnsof the December 1948 Fertilizer Decree to this effect should be fullyimplemented. Lime could be supplied in abundance by cement plantsat relatively lowv cost. In addition, credit could be made available tofinance the development of small local quarries.

Correct timing of the application is a most critical factor in theeffective use of insecticides and fungicides. There is widespread com-plaint among farmers and growvers that supplies of these products aregenerally inadequate and often wholly unavailable. We recommilend.therefore, that their domestic manufacture be increased, that a betterdistribution system using strategically located depots or warehousesand an extensive network of private or public local sales agencies bedeveloped, and that import requirements be purchased and deliveredfar enough in advance to be available on farms when needed. Millimumnretail prices to farmers and educational work by the Extension Service

'ill be incentives toward greater and more effective use of pesticides.The resulting increases in productivity and in financial returns tofarmers will help to improve standards of living.

Marketing, Storage, Processing and Transportation

We recommend that a better system of grades and standards forfarm products be established to facilitate the marketing process. \Wealso suggest that the Division of Rural Economics of the Ministry ofAgriculture develop a market news reporting system wvhereby currentprices of farm products will be available to buyers and sellers. Ainimproved system of food distribution and marketing would reduce thewaste of farmers' time in selling their products directly to the public,avoid the inconvenielnce, waste and unsanitary conditions wvhiclh char-acterize most existing public markets, and would increase the overallproductivity of agriculture and the cjuality of food. Some changesare gradually taking place. In Bogota, for example, it is planned tobuild a central wholesale market and to abandon the traditional retailmarket places about the city; the latter wvould presumnably be re-placed by neighborhood shops. Howvever, wvidespread changes in thepresent typical pattern are obstructed by the strength of tradition, bythe distrust felt by argricultural producers towvard middlemen, and bya lack of oroaniization, experience and capital for large-scale foodxvholesaling.

The gro\vth of a more efficient distributioll system might be en-couraged bv (1) Government assistance in the formation and financingof farmersi marketing cooperatives and (2) a progressive reductionin the role of the larger municipal markets in retail food distributionl.Urban public markets, Nvhere overcrowvding is general and increasing.

AGRICULTURE 397

should not be replaced or expanded. Lack of space and its increasingcost in these markets wvould tend to give an advantage to the moreefficient retailers Avith a large turnover, and thus encourage decentrali-zation of retail meat and produce shops into residential areas.

The National Food Supply Institute has attempted for some yearsto introduce a more efficient system of marketing through \Nholesalepurchases from the farmers, or farmers' cooperatives, but it seems tohave lacked both funds and the precise goals and policies which couldhave contributed to decisive improvements. The Institute has alsoinitiated a grain storage program, intended to reduce substantiallylosses of products between the farmer and the market and to aid instabilizing agricultural prices. Such a program is imperative becauseapproximately Ps.$20 million worth of grains are lost annually for lackof proper storage and prices of principal crops fluctuate widely accord-ing to the quantities available to the market. When the harvest isgood, prices are likely to drop considerably; later when commoditiesare not available in large quantities, extremely high prices may occur.In 1946, for example, wheat prices in Bogota fell from Ps.$5.50 perarroba in April to Ps.$4.80 in June. Simultaneously, prices in Bovactiremained unchanged at Ps.$4.80, while prices in certain communitiesin Antioquia had fallen from Ps.$6 to Ps.$4.60.

The steel grain storage elevator nearing completion in Bogoti,with a capacity of over 4,000 tons of corn, rice, wheat and other grains,is expected to be the first of a number of similar facilities in all thelarger cities in or near major grain-producing areas. These shouldbe completed in the five years before 1955, and supplemented with aclozen or more smaller storage wvarehouses equipped with drvingfacilities, particularly for rice, in lesser producing areas. Improveclstorage facilities would undoubtedly pay for themselves quickly, butit should be remembered that it takes a long time to train specialistsin storage construction and administration. Also, priorities in thestorage program should be based on economic necessities. Finally, astorage program is not the only method of obtaining food conservationand price stabilization; wider education is needed in methods of con-trolling insect pests. rodents and other causes of grain losses onfarms and in smaller local wvarehouses.

Thousanids of "trapiches," or panela mills, scattered all overColombia are a special problem. While these plants are well located,most of them are quite inefficent in extraction of juice. We recoim-menid that possible improvements in the efficiency of these little mills,particularly wvith more efficient types of rollers, be studied and ifiml)rovement is found practicable, special credit and other assistance

398 TIlE BASIS OF A DEVELOPMENT PROGRAM FOR COLO-MBIA

should be macle available to mills which can be improved. So mluclhlabor is devoted to the production of sugar cane and the processingof panela that improvements in this field should afford a considerableincrease in productivity.

Processing of agricultural products close to the areas of productionwould often help to reduce transportation charges. The developmentof processing plants, as \vell as other industries, in rural areas willhave the additionial advantage of providing more non-farm jobs forfarm people now employed very inefficiently. Flour mills, dairyprocessing plants. and slaughterhouses with refrigerated storag-e areexamples.

Reconiiiiendationis concerilinig transportationi are made in ChaptersXX and XXI. However, it is appropriate to emphasize here the crucialimportance for agricultural progress of improving transportation sys-tems. Colonization in Colombia generally follovs roads. It is there-fore important that highways be extended into promising areas forsettlement, such as the Sinu and St. Jorge valleys and the Magdalenabelowv La Dorada. Also, farm-to-market roads suitable for wrheeledvehicles and highwvays suitable for trucks wvould be especially helpfulin some rural areas.

Research and StatisticsColombia is to be commended for the careful preparations for its

1950 Census of Agriculture. In subsequent census years, as Nvell asin 1950, the importance of obtaining accurate comprehensive statisticspertaining to agriculture, including animal industry, and rural lifeshould be recognized and adequate resources devoted to this purpose.Mlore adequate procedures should also be set up for continuous col-lection of the more important data, which should be made publicperiodically-monothly, quarterly, or annually, depending upon thetype of data and their significance-to make possible more accurateestimates and the mainltenance of needed statistical series pertainingto various problems of production. marketing, land use and rural liv-inlg. Such data are essential to informiied planning by Governmentagencies, individual farmers, agricultural processors and middlemen,and other elements of the economy affected by agriculture.

It is suggested that the best way to develop an adequate statisticalprogram is to build upon that already started in the Division of RuralEconomics of the Ministry of Agriculture. After completion of the1950 Census, it might be well to consider transfer of certain agricul-tural statistical personnel from the census organization to this Divi-sion. A special section of this Division should be made responsiblefor collection, tabulation, and publication of statistics on crops,

AGRICULTURE 399

livestock and rural life. In establishing this expanded program, theservices of a well trained statistician, especially skilled in samplingtechniquzes and with considerable experience in crop and livestockestimating, should be sought.

Research in both the physical and social science fields as appliedlto technical, economic and social problems in agriculture, rural home-making. and rural community life should be expanded as rapidly ascompetent personlnel can be trained. Every effort should be made toassure continuity in carrying out the program, which will requirewell-paid personnel and security of tenure. The economic and socio-logical research program, already under way in the Division of RuralEconomics of the Ministry, should be expanided and lodged in a sectionclosely associated with the statistical section mentioned above. Wllileexpansion of the statistical and research programs should be gradual,since there may be a serious problem of personnel training, it is sug-gested that an annual rate of expenditure of at least Ps.$1,000,000for this purpose should be aimed at within five years.

Research in the physical sciences and on technical agriculturaland farm home-making problems is greatly needed, particularly as a

guide to Extension wvorkers in their aid to farm people. Fortunatelv,a start on such work has already been made by various agriculturalexperiment stations and substations under the supervision of therecently organized section on Agricultural Investigations and Experi-mentation of the AMinistry of Agriculture. Its program needs enlarge-ment and broadening as rapidly as wvell-trained personnel can beobtained. One of the most serious problems in present research pro-grams seems to be lack of media for carrying their findings to farm

people and getting them into practical use, but the recommendedexpansion of the Extension program should supply a more adequateoutlet for these findings.

The follo\ving fields, among others, might well receive carefulconsideratios as new technical research projects are undertaken: (1)soils and soil conservation; (2) plant breeding and selection; (3)plant diseases and pests; (4) cultural practices appropriate for differ-ent climatic and soil conditions; (5) crop rotation; (6) agriculturalengineerilng, including animal- and tractor-drawvn machinery, irriga-tion, drainage and storage; (7) breeding of beef and dairy cattle: (8)livestock pests, parasites and diseases; (9) animal nutrition; (10)human nutrition; (11) clothing, holmie furnishings, home equipment,and rural housi'n- design; and (12) rural healtlh and sanitationproblems.

In planning its researclh programn, Colombia shlould consi(ler the

400 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

possibilities of interchange with other countries. International coopera-tion, particularly with respect to basic research, might avoid needlessduplication and assure broader coverage. Cooperation with the Inter-American Institute of Agricultural Sciences at Turrialba in CostaRica would seem to be especially appropriate.

Rationalization of Agricultural ProgramsWe feel that a thoroughgoing rationalization of the numerous

separate agricultural programs being carried out by public, semi-public and private groups is necessary, and that they should be re-oriented and integrated into a unified program built around the wholefarm and family as the primary focus, with all groups having a clear-cut relationship with the Ministry of Agriculture and Animal Industry,as well as with each other. A wholesale consolidation of separateagencies, or transfer of functions among agencies, should clearly notbe launched without careful study, but we believe that some economiesand increases in effectiveness can undoubtedly be achieved by thismeans. Short of actual transfers or consolidations, however, muchmight be accomplished through cooperative agreements among agen-cies carrying on related programs.

In general, we recommend that the programs of the approximatelytwenty public and semipublic groups now in existence be tied moreclosely into the Ministry of Agriculture. This will require substantialstrengthening of the Ministry, in terms both of finances and of num-bers of competent officials. Specific recommendations for administra-tive improvements in particular phases of the agricultural programhave been made in several preceding sections of this chapter. Thiswhole field, however, should be a subject of study by the proposedPublic Administration Mission. In general, we believe that improvedfarming practices will flow from good agricultural organization. Whenthe latter has been secured-and only then-full benefits will bereaped from the advice of foreign crop and livestock specialists andfrom research carried on in Colombia. Consequently, we have notattempted to make many specific recommendations for improving farmpractices.

The growing cooperative movement offers hope of eventuallyrelieving somewhat the load on public agencies. We recommend thatthis movement be encouraged through technical aid, credit andother assistance. However, in an industry consisting of a millionwidely scattered competing units a large measure of Governmentinitiative and guidance is inevitable; and the agency of Governmentresponsible in this broad field should be equipped to carry out itsfunctions with maximum efficiency.

AGRICULTURE 401

ESTIMATED COST OF PROGRAM

The capital requirements in agriculture over the next five yearscan be calculated roughly on the basis of the various assumptionscontained in the preceding pages. While the very nature of ourproduction program implies the expansion of irrigated areas, we haverepeatedly advised great caution in the selection and initiation ofirrigation projects. A list can be made of a dozen or more existilngirrigation projects, concentrated mainly in the Cauca Valley and theUpper Ma-dalena, between Dorada and Girardot, totaling more than200,000 hectares. None of these projects is recommended specifically.However, it has been estimated that in order to meet the productiontargets set forth tentatively in this chapter, about 130,000 hectares ofland will have to be brought under cultivation and irrigated. Also,30,C00 hectares of old land may have to be irrigated or drained, orprovided with a new water supply system, if production is not to lagin "old" sugar, rice, cacao, and cotton lands. At an average of Ps.$500 per hectare, expenses involved would amount to Ps.$S0 millionin five years for irrigation alone.

In addition to the new irrigated land, it can be estimated that490,000 hectares of land suitable for panela, corn, wheat, beans, pota-toes, yucca, coffee and other crops will have to be opened. 'While theexpense involved in its purchase will not be included in our investmentprogram, there is little doubt that machines and labor will be needed,not only to clear the land, but also in order to improve its character-istics. As this applies to new irrigated land as well, total expensesinvolved in opening and preparing new lands would amount to Ps.$62 million, at Ps.$100 per hectare. Old lands, whether or not irrigated,also should be improved. While owners cannot be expected to launcha wholesale remodeling of their properties, it is hoped that about 2percent of old lands would be improved by contour plowing, reseedingof pastures, drainage canals, erosion control, etc., each year in theyears to come. Expenses involved, if costs of such work amount toPs.$65 to Ps.$70 per hectare, will be about Ps.$16.5 million, or a five-year total of Ps.$78 .5 million for laud improvement. No attempt hasbeen made to set in exact quantitative terms the investment require-ments in production facilities and equipment. However, on the basisof 1947 performance, it is assumed a total of Ps.$38 million worth ottractors, implements, insecticides, fungicides, seeds, fertilizers, etc.,will have to be imported each year, while Ps.$7 million in annual pur-chases of locally produced fertilizers and chemicals will be needed.To these two must be added about Ps.$19.7 million in trade, transport-and installation costs each year. The five-year total for machinery,

402 TIHE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

implements, fertilizers, etc., would thus be about Ps.$325 millioll.

In the field of grain storage and drying facilities, almost unlimitedpossibilities for investment exist since the techniques of the construc-tion and use of grain storage facilities are almost unknown in Colombia.The efficient operation of granaries would involve major reforms inmarketing methods and the training of their buiLders and managerswill also take time. Therefore, we recomnmend investment of the rela-tively snmall sum of Ps.$17.5 million over the next five years in variousstorage experiments. The organization of a full-scale program of in-vestment in this field will have to be postponed until the countryhas outgrown its current marketing system.

Since the development of a fishing industry will follow only afterinvestment in boats, equipment and canneries, it is recommended thatan investment of Ps.$17.5 million be made in the next five years tostart an industry of great potentialities. In summary, then, the recoin-miendations in this chapter would call for the followving investmentsto be made by 1955:

Irrigation and drainage projects ....... .......................... Ps.$ 80.0 millionDevelopment and reforestation of land (including re-

seeding of pastures) ............................. ...... 78.5Production facilities and equipment (machinery, fer-

tilizers, breeding stock, pesticides, etc.) .. ..... .... .. 323.5 "Grain storage and drying facilities ...................... 1..... .. 17.5Fisheries development ................................... 17.5

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

Investment of this amount-an average of Ps.$103.4 million ayear-would represent an increase of about 52 percent over the esti-mated level of investment in agriculture in 1947. This is largely off-set, however, by price increases in the succeeding three years. .Thereal increase is about 14 percent, and considerably less on a per capitabasis, but substantial changes in emphasis are contemplated.

Obviously not all the investments proposed should be made eitherby the Government or subject to its control. To a large extent theywould be made by individual farmers, by cooperatives, or throughother private channels, assisted perhaps by Government credit andtechnical aid. Substantial possibilities exist, in rural areas particularly,to raise the level of capital formation without any corresponding de-crease in consumption, by more effective use of labor now employedonly part time or in relatively unproductive occupations to improverural roads, land and buildings. Such investment of labor might beeither on a -wage basis or in the form of voluntary cooperative effortsto provide facilities for the common benefit.

AG, 403

The estimated capital requiremen.. n above include only thosewhich represent an increase in the re2 apital resources of the nationand exclude requirements for credit to finance transfers of propertyfrom one element of the population to another (as, for example, loansfor the purchase of land) or to repay other debt already existing (e.g.,revolving production loans). On the other hand, expenditures foropening and developing neAw land, for improving pastures and increas-ing the fertility of the soil, and for similar purposes, are included inthe above estimates. Capital requirements in related fields, Awhichaffect agricultural productivity and rural welfare substantially, areshowv,n in the chapters dealing with health. education, transportationand community facilities.

.PTER XIX

Industry and Fuels

Two maini problemiis confront industry in Colombia. The first isthe problem of reducing, costs and selling- prices in order to broadenthe market for industrially produced goods. The other is the problemof expansion, both in existing industries and in new fields. Theseproblems are dealt w-ith in this chapter.

MEASURES TO INCREASE EFFICIENCY AND REDUCE PRICES

Transportation

One of the greatest contributions to the development of industryin Colombia would be improvement in the efficiency of transportatioln.Industry has perhaps more of a stake in improved efficiency andeconomy in transportation than any other segment of the Colombianeconomly, as it is so dependent on expansion of its market for itsfurther groxvthl. Specific recommelndations on transportation arepresented in Chapters XX and XXI.

Raw Materials

As noted in Chapter VI, the high cost of manufactured goods inColombia is in large part due to the high cost of raw materials, includ-ing building materials, fuel and power. While industry itself can dolittle to reduce these costs, it is important that everything possiblebe done as these various elements make up a substantial proportionof the cost of the completed article. For example, industry shoulddirect its efforts toward securing those types of financial setup andrate structure in local municipal power plants which wvill permit re-clied power rates for all industry. The interdependence of the various

segmenits of the economy is apparent; industry as a wvhole has atremendous stake in increased efficiency in every part of the economy.I ncreased productivity and decreased costs, unless purchased at theexpense of the \vorker's earnings, benefit industry as a whole regard-less of where they occur. It is hoped, therefore, that industry will useits great infltuence, both actual and potential, to secure the adoptionof ineasures that would tend to reduce its costs and hence widen itsmarkets.

Worker Productivity

Chapter VT I shows that wvhile the Colombian worker can be made

quite efficient, he suffers from the initial handicaps of poor health and

404

INDUSTRY AND FUELS 405

faulty education. WVe are elsewhere making recommendationis affect-ing primary education, vocational training and health and sanitation.1

Much, howvever, can be done by managemenit to improve the produc-tivity of workers within their plant. The introduction of ini-planttraining courses and the adoption of merit promotion villi help toprovide both the skills and the incentives necessary to improveefficienicy. These measures lvill also make it possible for tlle coming-generation of supervisors and foremen to be drawvn more largely fromthe ranks of labor. Likewise, efforts might be made through jointaction by industry and institutions of higher learning to orienlt promis-ing students to supervisory and junior executive positions. The ad-\verse social attitude toward learning a job by actual experience mustin some manner be overcome. Perhaps, initially, intensive in-plantitraining in industrially advanced foreign countries may be the bestway of overcoming this attitude.

Generally speaking, Colombian workers do not appear to have thestrengtlh or the staminia of workers in most industrially advancedcountries with a higher stanidard of living. It is possible, therefore,that the maximum productivity may be achieved in a shorter vvork-daythan the customary eight hours. Some industries have tried two six-hour shifts with gratifying results. Similarly, the provision of care-fully planned lunches may remedy dietary deficiencies and imlprovethe strength and stamina of xvorkers. These are subjects on wvhichit is difficult to make any positive recommendations as each industryshould study them in the light of its particular Avork force and Ivork-

ing conditions.

While the various social security benefits provide the Colombianiivorker with a certain degree of security, they may at the same timehave the effect of decreasing incentives. It may be found desirableto couple them with carefully worked out piece-rate methods of pay-ment or Ivith bonuses for performance over and above acceptableulmnima.

ManagementAs noted in Chapter VI, the quality of managemiient in private

enterprise in general in Colombia is quite high. The problems of han-dling complicated machinery Ivith relatively unskilled labor, instillingdiscipline and securing a relatively high degree of efficiency have beenmastered by many Colombian industrialists in a surprisingly short

period o time. Holvever, much remains to be done, particularly insecuring reorientation in attitudes toward profit marginis, costs, and

I See Chapters XXII and XXV.

406 THE BASIS OF A DEVELOPMENT PROGRAMt FOR COLOMBIA

volumes of output but it is difficult to make specific recommendationsin this field. Colombian manufacturers are in agreement, howvever,that they have been stimulated and have learned a great deal in visitsto more industrially advanced countries. This would point to theimportance of securing a greater interchange of personnel and publi-cations and also reemphasizes the importan-ce of developing morejoint Colombian-foreign enterprises. This is particularly true in newfields, such as mining, fishing and lumber, and in fields requiring largeamounts of equipment and specialized skills, such as petroleum re-fining.

The growth in markets and in the number of competing units ineach field would tend to stimulate efficiency, lead to price reductionsand willingness to operate on lower profit margins. The abolitionor reduction of quantitative restrictions on imports, the avoidance ofexcessive tariff protection and a reduction in internal transport costs,particularlv on imported goods, wvould all help to establish healthierC cis.

Inventory Policy

Manufacturers in Colombia are handicapped by the excessivelyhigh inventories it is necessary to carry, not only because of the dis-tance from the nearest large industrial country, but also because ofthe delays and uncertainties caused by the operation of the import-licensing system and the internal transport system. In somne cases,inventories are fully ten times greater than those in comparable plantsin more industrialized countries.

A possible solution may be the provision of central warehousesin a free port or free zone. It wvould, of course, be even better ifthe central varehouses could be set up within the country itself andfinanced and supplied by foreign capital. However, in the present cir-cumstances, it is doubtful that foreign private capital would care toassume the risks involved in such an undertaking, but in many fieldsthese risks would be considerably miiiinimized if invelntories were Avare-housed in a free zone. Colombian industrialists could then operateon low^er inventories and thus release capital for other and moreproductive purposes.

Research and Standards

While it woould not be practical for Colombia to duplicate theenormous volume of industrial research that goes on in many highlyindustrialized countries, especially since Colombia can normally countoin gaining access to the fruits of such research in the course of time,

INDUSTRY AND FUELS 407

nevertlheless there are certain fields where research wvould be justified.These relate mainly to the locatioln and adaptation of local rawmaterials. For example, it has been stated that Colombia has no clayssuitable for the imanufacture of bathroom fixtures or for the making,of high temperatture refractories. Properly organized and directed re-\searclh mighlt solve this probleml and permit the use of local materialsin place of the present very costly imported material. Research wvotuldalso promote quality control and reduce the proportion of rejects.

Again, foreigrn enterprises are usually characterized by the greaterstress placed on cost accounting and the development of cost andproduction clata for management control purposes. There appearsto be a need in purely Colombian enterprises for more of this typeof analysis.

IMPORTANCE OF INDUSTRY

Study of past trends indicates the contribtution Colomblian industryA-ill probably make to future national income. From our study, themost relevant elements in indtistrial expansion seem to be:

Growvt]h oer V2- r Index of Growth1939-1948 1939-1948(perceunt) (1939 = 100)

Volume of output . 10/2 / 243MIlanpow er 5 . 155Productivity. 5V4 ,, 157

An acceleration in the shift of manpowAer from rural tc urbaln activi-ties could easily increase employment in industry at a rapid rate, andthe introduction of more efficient production methods could boost pro-ductivity considerably. It is, therefore, not unlikely that oUtpult mayincrease at more than 12 percent per year in the comingc yvears. If thisoccurs, it has been estimated that the contribution of industry tonational income may rise from 15 percent in 1947 to more than 20percent by 1955. The anticipated growth in output of about 12 per-cenl per year seeims to exceedl tIme rates of conisumiption growth thatcan be forecast for most major products:

ANNUAL GROWVTH IN CONSUNIPTION1950-1955

Percentage

Gasoline ............ 7 to 9Electric power ....... 8. .... ........... 8Cotton textiles ........ .................. 5W oolen textiles .......................... 6X2Cigarettes ... ....................... 9Soft drinks ................. ......... 17Sugar refining .... .. . 8 to 10Rubber tires .. 7 to 9Cemenlt ...................... .... ... .. 10

408 THE BASIS OF A DEVELOPMIENT PROGRAMI FOR COLOM\BIA

This variation, however, is logical because industrial production. inorder to displace imports, -will by necessity have to grow faster thanlocal consumption. Also, entirely newv industries will be born andthe volume of their output will boost the aggregate rate of growthin industrial volumes.

VOLUME OF CONSUMPTION

The statistics on Colombian consumption in the followinig pagesdiffer widely in accuracy and reliability. The best data were obtainedfor goods imported in major part,2 and for goods produced in largequantities in Colombia, such as cement, beverages, textiles. petroleumli.tobacco and liquors.8 The reports to stockholders of some major firmsalso gaye clear ideas on the consumption or production of importantcommodities. It wvas, however, extremely difficult to estimate con-sumiiption of goods wvhich were produced locally in small plants insmall quantities, or imported in small lots. While the InduistrialCensus of 1944-45 provided some production data, in most cases noneexisted for other years or were in incomplete form, as in the AnuarioGeneral de Estadistica, 1938-43, for example.

In general, when no better indications were available, it wasassumed that rates in consumption growth prevailing between 1937-39and 1945-47 were roughly representative of normal growth. Thesetwo groups of years seem to occupy similar positions in the Colombiancycle. lt is recognized, however, that pent-up demands of the wvaryears expressed themselves in 1947, and that consumption of all im-ported capital and durable goods in that year may have exceedednormal trends. In the case of consumption goods, on the other hand,1947 may understate normal trends as capital formation attainedexceptional levels. Our interpretations of trends take these influencesinto account. Also, Awhen possible, trends in the prewvar-postwarperiods were examined critically in the light of information on 1947-50trends, when such wvere available.

Forecast of consumnption in 1955, in order to be significant, mustbe matched wNith information on plant production capacity, existingor planned. In this field we had to rely on sketchy data provided byindtistrialists, who qcuite naturally are often reluctant to reveal thistype of trade secret. In general, it was assumed that no expansionwvould be needed, if forecast consumption could be met by existingplant capacity.

2 From Anutoario de Coinicrcio Exter-ior.3 AHnuario General de Estadistica, Bulletinz of the Banzco de la Rcpdlica, and unpub-

lished data by Controlaria General.

INDUSTRY AND FUELS 409

DESIRABLE EXPANSION OF INDUSTRY

It would be highly satisfyin,- and desirable if we could predictwith any degree of certainty the demanids for industrial products in,say, 1955. Estimates of such dermands would, in turn, form the basisfor estimates of the capital requirements of industry both in peso andin dollar terms. A study of past, current and prospective demandsmay indicate potential markets for manufactured products in a futureyear, and thus the nature of the industrial developments which shouldtake place to meet demand through expansion of local industries orreplacement of imports by local output.

In more highly industrialized countries the demand for industrialproducts and the volume of plant and equipment expenditures can berelated to the growth in incomes. They can also be more or lessprecisely defined in terms of average consumption of specific productsper capita over a period of years. In Colombia, however, demands forindustrial products and capital expenditures necessary for industrialexpansion cannot be forecast without great difficulty. Even whenithe bulk of products consumed is manufactured locally, the determina-tion of "normal" rates of consumption is at best hazardous. Statisticson local industrial production are sketchy, covering a few productsand a few years only, and cannot be related with any amo tint of pre-cision to imports of similar industrial goods. When manufactureclgoods consumed are in major part imported, the volume of importsdepends to an extraordinary degree upon the price and volume ofcoffee exported and upon other extraneous factors. This is particularlytrue of capital goods, the demand for which fluctuates widely.

The attempt, therefore, wvas not made to forecast for 1955 preciseconsumption and production targets in industrial products as in thecase of agricultural commodities. Alternatively, efforts were made toshow what consumption levels might be in 1955 if past trends andvolumes of consumption, estimated roughly, are maintained.

Textiles

The cotton textile industry has shown a rapid rate of development,reflecting in part a real growth in demand and in part a displacementof imports. Henceforth, as Colombia has become almost self-sufficientin cotton textile manufactures, the rate of growth of internal produc-tion will be almost wholly dependent upon the growtth of domesticdemand unless export markets are developed in Venezuela and otherneighboring countries. Apparently, in the period from 1938-1940 to1946-1948, demand increased at the rate of 5 percent per annumii. Ifthis rate should hold for the period 1946-1948 to 1955, consumption

410 TIIE BASIS OF A DEVELOPMENT PROGRAMT FOR COLOMBIA

would amoutnt to over 39,000 toiis, or 3.1 kilograms per capita, ascontrasted with 2.5 kilogramns per capita in 1947.

The capacity of the industry at the beginning of 1949 wvas in theneighborhood of 30.000-32,000 tons per year. Most plants \vereproducing yarn antd thread on a three-shift basis. Although this rateof operations wvas resulting in a mountint inventory of finished goods,Coltejer, in 1949, installed equipmllen-t desig-ned to increase its yarncapacity by 30 percent. Therefore, there is apparently no need forfurther expansion of yarn production to cover expected near-termrequiremiients for domestic textiles. There appears, howvever, to besome possibility of replacing wvith domestic production some of thespecialized types of fabrics which are still imported. The firm LDish-ington" states that it requires U.S.S750,000 to complete a shirtingplant. This material will replace imported materials or purchases fromother Colombian mills.

The consumption of woolen textiles is still lowv in Colombia,amountintg to about 2,000 tons in 1944-45, or 0.21 kilograms per capita.Demand, nevertheless, has been increasing- at the rate of 6'2 percentper annumliil in the period 1938-1947. A continuation of this rate ofincrease w-ouldl indicate a demand in 1955 of 4,350 tons, or 0.34 kilo-grams per capita. SlhouldI Colombian mills be able to meet 85 percentof this demanld, production of 3,700 tons \vould be called for. or anincrease of approximately 50 percent over current levels. The majormill in the country operating in Bogota may provide some of theincrease. It is operating now xvith obsolete equipment and its Frenchowvners have indicated that expansioni and modernization \vill have tooccur within five Years, involving investments of U.S.$2 million and(Ps$1 millionl. Thlis mioht take care of the 1955 requirements describedabove but furtlher expansion of the woolen industry is desirable.

According to the last industrial census, the consumption of rayonin 1944-1945 Avas approximately 1,500 tons or 0.15 kilograms percapita. WVe estimate that the constimptioni may have increased to3,600 toins by 1947, of which local production furlished 3,200 tons,based on bo0th locally produced and imported viscose yarn. Sincepresent domestic varn capacity amounits to about 2,000 tons a yearand a Barranquilla firm will soon be able to produce 4.500 tons peryear, it appears that no further capital investments for production ofthis type of yarn are necessary in the near-term period. Demand foracetate type yarn sceis to exist, however, and a joint Colombian-American group is stuidying- the feasibility of erecting a plant costingU.S.$1 million to produce that type of rayon. Eventually it may evenbe feasible to supply rayon pulp from local production.

INDUSTRY AND FUELS 411

ShoesIn 1946, consumption of leather and rubber shoes was estimated at

2,800,000 pairs. In addition, there was probably consumption of some3,000,000 pairs of fiber sandals. Leather shoes, owing to their highcost, are purchased largely by the urban groups. It is possible thatthe demand for leather shoes alone in 1955 may amount to 2,800,000pairs. However, a plant turning out 30 percent of the total productionof the country hopes to increase capacity 20 percent and reduce pricessubstantially after investing U.S.$500,000 and Ps.$2 million in expan-sion and modernization in the next few years. As a transitionalstage between fique sandals and leather shoes, rubber-soled shoes withcanvas tops appear desirable. A full mechanization of the rubber shoeindustry will permit a very substantial reduction in prices and wouldmake these shoes competitive with fique sandals. Such mechanizationwould require capital investment of U.S.$600,000. The potential mar-ket for rubber shoes is believed to be above 2,000,000 pairs per annum.

Alcoholic BeveragesIn 1948, estimated consumption of alcoholic beverages amounted

to 353 million liters, of which beer comprised 234 million liters. Thevalue of production in 1948 was estimated at slightly over Ps.$200million. Per capita consumption of alcoholic beverages in Colombiahas apparently increased by 50 percent above prewar levels, reachingsome 33 liters annually by 1948. Although this figure appears mod-erate in comparison with that of certain other countries, it should beremembered that some 40 percent of Colombians are under fourteenyears of age and that the per capita income of the bulk of the popula-tion is very low. It appears that consumption of beer has been growingrapidly at the expense of the locally manufactured and now illegalchicha. This process may be expected to continue for some time andmay result in consumption in 1955 approaching 400 million liters ofbeer and more than 45 million liters of liquor. Present capacityappears adequate to meet this demand.

:igarettesThe consumnption of cigarettes in 1948 amounted to some 530 mil-

lion packs, or about 50 packs per capita. Of this total, all but 30million packages were locally produced. Demand for some time hasbeen increasing at the rate of about 9 percent per year. Projectingthis rate of increase to 1955 gives a figure of some 825 million packs,Df which 55 million packages may be imported. Current productive-apacity of the Cia. Colombiana de Tabaco, which enjoys a virtualnonopoly, appears to be adequate to cover the possible requirements

412 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

in this period. About 500 million packages were produced by thisfirm in 1949 and most of its plants operated on a one-shift basis. Thevalue of production in 1948 was Ps.$94,000,000.

Mineral Water and Soft Drinks

Consumption of mineral wvater and soft drinks has been increasingat a particularlv rapid rate in recent years, amounting to 130 millionliters at a total value of Ps.$24 million in 1948. It is estimated thatthe rate of increase from 1938 to 1948 was 17 percent per annum. Ifthe same rate of increase prevails in the future, the demand wouldamount to more than 400 million liters by 1955. Such an increase inconsumption would reflect an increase in the real income of theworkers and farmers and in view of the alternative drinks-beer, orwater that is not always safe-may represent a desirable trend. Tomeet this increased demand, it is estimated that capital requirementsfor plants, inventories and trucks would amount to U.S.$800,000.

Sugar Refining

The demand for sugar is increasing at a rapid rate, as a combinedresult of increased income, a shift from panela to sugar and the crea-tion of an export market. In recent years, production has increasedfrom an estimated 76,000 tons in 1946 to 133,000 tons in 1949.For further growvth, it is believed that an investment of at leastU.S.$3,500,000 and Ps.$1.5 million is required to place producers ina competitive position in the international market.

SaltThe Salt Adimiinistrationi is currently studying a project to replace

the present highly inefficient refining of natural salt at Zipaquira bya modern plant, and this appears to be economically justified. Byusing modern refining methods the iodizing of the salt will be facili-tated. The Salt Administration has created additional capacity toobtain crucle salt from sea water at Galera Zamba. Further study maysuggest the desirability of extracting various by-product chemicalsnormally found in obtaining salt from sea wvater.

Fats and Oils

As noted previously, the Colombian diet is unbalanced and appearsto be deficient in fats and oils as well as in vitamins and other protec-tive elements. It is importanit that wvays and means to increase theconsumption of fats and oils be devised. Such a program should leadto an intensification of local production of oil-bearing seeds and theindustrialization of oil extraction, which will provide cheaper and

INDUSTRY AND FUELS 413

better raw materials for vegetable shortening plants. Such a programmight require some Ps.$1 million investment, of which 60 percentwould require foreign exchange.

Further investment will be necessary to increase the productionof soap. Consumption is increasing at a rapid rate but the per capitalevel is still low-3.5 kilograms per capita in 1948. Forecast 1955demand is about 7,800 tons above the present capacity estimated at40,000 tons. A plant to cost U.S.$125,000 is projected.

Leather

Statistics on leather production and consumption are sketchy andmisleading. Some categories of leather, such as calves' leather andupper sole, etc. are imported, with the balance produced in Colombia.There are no immediate prospects of replacing imports by local pro-duction. Twenty percent of domestic production of leather is ex-ported. Existing tanning capacity seems adequate to nmeet forecastdemand for hides in 1955. However, the major tanner has a projectto invest about Ps.$4 million and U.S.$1 million in moving his plantout of its crowded city quarters and modernizing it. It is expectedthat such investment would enable the firm to tan annually 6 millionfeet of cowhide and 1.8 million feet of sheepskin with a lower cost ofproduction than prevailed in 1949.

glass ProductsDemand for glass products has increased considerably in the last

ten years as a result of the ever-increasing demand for bottled goods.Local production of glass, particularly of glass bottles, has been in-:reased rapidly so that Colombia should shortly be in a position tosatisfy all its current bottle requirements. If demand for glass>roducts continues to increase at the prevailing rate of 10 to 13 per--ent, consumption in 1955 may reach two to two and one-half timeshe current level and amount to around 70,000 tons a year. Of thislemand, some 50,000 tons would be for bottles alone. While local,apacity seems adequate to meet demand in colored bottles at thisime, investment of about U.S.$1,500,000 (including U.S.$700,000 inoreign exchange) may be needed to expand capacity for the produc-ion of wlhite containers. The production of window glass must waitipon the discovery of suitable sand.

?ubber Tire Manufacture

The rapid increase in road transport has resulted in a rapid in-rease in demand for tires and tubes. Though the calculated increasen consumption amounted to about 5 percent per year from 1940 to

414 THE BASIS OF A DEVELOPMENT PROGRAMf FOR COLOMBIA

1947, this represents an understatement of real requirements sincemany tires were recapped, and shortages were plaguing the Colombiancar, truck, and bus owners through the war years and in the immediatepostwar period. More representative of real trends in consumptionwould be the annual rate of growth in use of gasoline-about 7 to 9percent per year.

Until 1945, most tires and tubes had to be imported. Since Janu-ary 1946, the production of the recently established Icollantas dis-placed much of these purchases as follows

Local Output of Tires TotalYear Icollantas Others Imports Consumption

(in thousands of tires)1946 ............... 62 104 130 2021947 .............. 79 20 103 2021948 ............... 98 25 41 1641949 ........ ....... 107 25 435 1755

The statistics reflect the abnormal demand induced in 1946-1947 bythe satisfying of wvartime shortages, and seem to indicate the resump-tion of a normal trend of grovwth starting in 1948. However, no yearcan be expected to reflect "'normal" consumption, and the averageconsumption of the years 1946-1948 is arbitrarily chosen as a basisfor forecasting 1955 consumption. If the rate of growth in demandfor tires averages 8 percent per year from 1946-1948, as can be expectedfrom the rate in demand for fuels, consumption may attain 350,000tires in 1955. The market for local tire production, howvever, is unlikelyto exceed 250,000 units, if \ve assume that 15,000 vehicles will beimported equipped with tires and tubes, and that about 25,000 odd-sized tires may also have to be imported.

WThile this figure wvotuld exceed the full capacity, of Icollantas(170,000 units) and of a smaller Goodyear plant in Cali (25,000 units),it is doubtful that they will operate at such levels if governmentpolicy toward tire producers is not modified. The cost of productionof tires in Colombia is abnormally high, because of the existence oftaxes and duties of more than 60 percent on the c.i.f. price of Malavanraw rubber, and of the requirement to purchase domestically producedrubber. Under these circumstances, displacement of foreign tires canonly occur under a stringent system of exchange and import quotas.Were these obstacles removed, and the Colombian producer put inposition to lower cost, it is likely that the plant capacity should beincreased by 1955 to take care of total requirements. The management

4 Mainly a small Goodyear tire and tube plant in Cali. Output estimated.5 Estimated.

INDUSTRY AND FUELS 415

of Icollantas has perceived this necessity, but the investment requiredin increasing plant capacity by about one-third has not been calculated.

Chemicals

With the expansion of sulphuric acid capacity in recent years andthe near completion of a new plant for soda ash and caustic soda, itis not anticipated that capital requirements for this industry wvill bevery heavy in the next five years, although some small growth willcontinue in pharmaceuticals and probably in paints and resins. Theexistence of large amounts of cheap blackstrap molasses would facili-tate the establishment of a chemical industry which would use thismaterial as its base. To satisfy the capital requirements in these anda number of other small chemical mixing plants, an investment ofPs.$2,000,000 may be assumed, of which 60 percent would requireforeign exchange.

Building Materials

Cemiienit. The demand for cement increased at the rate of about 10percent per annum from 1937-1940 to 1945-1947. Capacity at one mil-lion tons has grown more rapidly than demand, hoxvever, whichprobably amounted to 440,000 tons in 1948. Should the yearly demandfor the period 1945-1947 to 1955 increase at the same rate as in theearlier period, it xvould attain 950,000 tons. Capacity, therefore,appears adequate to meet near-term prospects. However, about sevento ten modern concrete batching plants which would reduce costs andimprove quality are needed at a cost of U.S.$1 million.

Brick avid Tile. In almost every locality in Colombia, brick andtile for building purposes are being made chiefly by hand, althoug,-hrecently in some of the more heavily populated areas, very modernfacilities have been put into operation for making high grade materials.Current requirements for brick may amount to about 500,000 tonsand are expected to reach nearly 600,000 tons by 1955. Requirementsfor tiles for flooring were about 100,000 tons in 1946. F.xpected con-sumption in 1955 is 118,000 tons. It is apparent that little capital isrequired by this industry.

Roofinig AMaterial. Roofing material in years past consisted essen-tially of tile and metal. "Eternit," an asbestos cement material, israpidly replacing both. Requirements are expected to climb veryrapidly if a loxv-cost housing program is successfully carried out.There is plenty of "Eternit" capacity. Also, Johns-Manville is look-ing into the possibilities of exploiting local asbestos which will elimin-ate the need of importing asbestos.

416 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Lumsber. It is hoped that the major development in buildingmaterials will be in the direction of utilizing wood products instead ofearth products. Colombia has tremendous forest reserves wvhichshould be a source of good dry kiln lumber. L-ike most of the industriescited previously, this is a field for private enterprise and, in thisspecific case, it is impossible to make any estimates as to possiblecapital expenditures until it is known whether or not private enter-prise finds this field a profitable one to enter. As a bench mark, it maybe noted that the capital investment needed to produce 10 millionboard feet of lumber per year might be in the neighborhood of U.S.$250,000. Assuming that the simplest type of t-wo-room house couldbe constructed with 5,000 board feet, sufficient lumber to build 20,000such houses per annum w^Tould necessitate a capital investmelnt ofU.S.$2,500.000, of w,hich 80 percent wvould be in foreign exchange.

Forestry ProductsLumber as a building material was considered in the preceding

paragraph. However, wood products in Colombia can meet a greatvariety of purposes. For several understandable reasons, the tremen-dous forest reserves of Colombia have in the past been left untouched.For one thing, the best reserves are in the lower Magdalena Valleyand the Western Pacific slopes of the Andes, both areas until recentlyof most unhealthy climates. With progress in health, sanitation andmethods to combat malaria, this situation may be expected to change.Tropical forests have also been left largely untouched because tech-niques of forestry have been developed largely in northern countrieswhere lumbermen have worked on great stands of unliformii trees.Tropical forests are typically variegated, with as many as 85 varietiesin one square kilometer. These range from the valuable hard wvoods.consisting of mahogany, walnut and cedar, to the very soft woods,consisting of the cativo and similar types. In between is the abarco,strong, tough, easily fabricated, making it ideal for construction lum-ber. In the past, suclh an assortmenit of trees has been a barrier toselective logging. Today, however, it is believed that the entire forestcan be used and every tree can be cut and sent to the mill and usedfor specific purposes. The hardwoods can be sawed for furniture, forplywood, flooring, panels and doors; the medium hards can be cutinto lumber suitable for all types of construction, including girders.columns, siding and floors; the soft woods can be processed into soft-board, hardboard, and various types of pulp. This type of integratedlogging and processing operation is ideally suited to Colombian forests.

For the first time, substantial industrialists are becoming- interestedin starting a modern logging and timber processing industry in Colom-

INDUSTRY AND FUELS 417

bia. Their plans are modest and well conceived and should result ina very successful industry leading to continuous growth and exploita-tion of Colombia's vast timber reserves. In the most modern sawmillin Colombia in 1949, construction lumber sold for 35 centavos perboard foot, or Ps.$350 a thousand board feet. This price necessarilyincreasedl considerably before it reached the consumer. Efficient log-ging, sawing, curing and marketing should reduce this price to notmore thani Ps.$100 per thousand board feet and still leave a handsomemargin of profit to the operator.

While the climate and soil of Colombia combine to produce untoldquantities of cellulose in its tropical forests every year, Colombia isa large importer of paper products, both paper and pulp. In 1947, suchproducts amounted to 42,000 tons. The demand for paper productsincreased by more than 6 percent per annum in the period 1937-1940to 1944-1947. The level of consumption in 1944-1947 xvas 3.26 kilo-grams per capita. If the same rate of increase in the demand for paperproducts should continue until 1955, in that year it would amount to65,000 tons. Regardless of the exact rate of increase in demand, it isobvious that the market and raw rmaterials for a thriving paper in-dustry exist in Colombia. Capital and ability and skill to surmountthe problems facing a newv industry are needed. In the developmentof forest resources every effort should be made to enforce the con-servation laws nowv on the statute books and to check the wastefulpractice of burning forests to clear land.

The softwvoods in Colombia. because of the constant climate, amplerainfall and fertile soil, grow very fast. This permits cellulose to beproduced more abundantly than elsew-here and will in time permithigh grade rayon pulp to be produced in very large quantities. Theeventual export of rayon pulp or filament and staple, as well as otherforestry products, appears to be a real possibility. For the productionof lumber, Kraft paper, and other forestry products, we shall arbi-trarily assume an investment of U.S.$5 million (70 percent in foreignexchange) for the period under discussion, in full recognition of thefact that while it would be desirable to have a much larger investment,it is possible that the investmenit will be smaller than this figure.

Iron and Steel

Production of steel in Colombia is quite small. In recent. years ithas aggregated approximately 3,400 tons of reinforcing rod and ingotsa year from scrap in Medellin, and approximately 500 tons of pigiron in Pacho. Most Colombian requirements are currently coveredby imports.

418 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Arriving at possible future demands for steel products in Colombiais rendered particularly difficult by the erratic nature of imports,which are affected particularly by scarcities abroad and variations inColombia's foreign purchasing power. In an attempt to delineate atrend, we have studied the growth of imports in the period 1937-1939to 1945-1947. The average in the latter two years was 130,000 tons,as contrasted with an average of 90,000 tons in the earlier period. Thisgrowth has been in large part accounted for by an extraordinary in-crease in the imports of reinforcing rod, steel building structuralsand steel rails. Increases in demand in the first two categories reflectan abnormal increase in office and commercial building and in factoryconstruction. Steel rail imports in 1945-1947, on the other hand, weregoing largely into stocks of the railroads. Assuming that demand for(1) reinforcing rod will increase at a somewhat lower rate in thecurrent decade, (2) steel building structurals and rails will increaseat a rate proportionate to the increase in population, and (3) demandfor other steel products will increase at the same rate as in the period1937-1939 to 1945-1947, the total demand for steel products in Colombiaby 1955 wvould amount to 150,000 tons, or 33 percent above 1945-1947levels. Of this total, some 44,000 tons would consist of large pipe,heavy structurals and other products which could not be economicallyproduced in Colombia for many years to come. We are left, there-fore, with a potential demand for steel products by 1955 of slightlyover 100,000 tons of types whose production in Colombia might befeasible. However, requirements for many odd shapes and sizes willbe included and it would hardly be economical to produce them in thesmall quantities desired. Colombia's main steel requirements for thenext decade will consist for the most part of wire products, concretereinforcing rod, pipe and light structurals.

The above estimates of probable markets for domestically pro-duced steel products in 1955 are considerably lower than those usedin the official studies of possible markets in 1953. The market surveyon which official estimates were based is open to criticism. It isapparent, for example, that in many cases obvious double countingwas involved, since the requirements both of the consumer and of themanufacturer for a given article sold to the consumer were included.The survey was conducted in the postwar period when steel wasextremely difficult to get and much of it was being distributed throughother than normal channels. Under such conditions, it is natural thatmanufacturers should overemphasize their requirements. Large ton-nages in certain items were arrived at through estimates submittedby other Government departments. For example, the Ministry ofHygiene estimated annual cast iron and steel pipe requirements at

INDUSTRY AND FUELS 419

30,437 tons per annum. This is equal to 1,450 kilometers of pipe andappears to be in excess of the amount that can be financed by thisparticular Ministry in the next few years. Similarly, the NationalIRailroads estimated an annual need of 15,000 tons of rail, althoughtheir average requirements for the past ten years have been less than3,900 tons. Requirements for various other fields appear to be equallyoverestimated.

There is quite naturally an active desire on the part of the Gov-ernment to produce these articles in Colombia and thus save dollarexchange. The Mission is very sympathetic toward this desire, pro-vided it can be demonstrated that the production of steel productsin Colombia is economic, that is, that it can be carried out so thatsteel can be sold at a price comparable to the price of importedmaterial ex duty. If this essential condition cannot be met and aColombian steel industry can exist only through the continuance ofhigh protection, then it would appear more economic for Colombiato export those products which it can produce at a comparative ad-vantage and import those which it can produce only at a comparativedisadvantage.

Two approaches to the problem of building up a steel industry toreplace imports were brought to the attention of the Mission andwere subjected to considerable study. One approach actively advo-cated by the Government looks to the creation of a completely inte-grated steel industry utilizing domestic iron ore, coal and limestone.The other approach advocated by some private business groups is ofmore modest nature. It proposes that the next step for developinga steel industry in Colombia should take the form of providing morefabricating facilities for the processing of local and imported scrap,and eventually work into the use of pig iron and the reduction of ironore. We shall consider these two proposals in order.

Integrated Steel Planzt

The possibility of establishing an integrated steel industry inColombia has fired the imagination of Colombians for years. Thispossibility has been studied by a number of foreign companies andindividual experts with varying results. Some reports and recom-mendations have been favorable and some unfavorable. A report bythe American Rolling Mill Company in 1944 advised against theproject. The most recent study has been made by the Koppers Com-pany of the United States, which submitted a report on January 20,1949, calling for an integrated plant to produce 193,530 tons of finisbedsteel products per annum. Again, in October 1949, this same companysubmitted a second report outlining an alternative plant capable of

420 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

producing 104,600 tons of steel products per annum. It was estimatedthat the larger project would cost U.S.$94,870,000 and the smaller

project U.S.$41,000,000.The proposed plant is to be located in the wvestern part of the

dlepartment of Boyaci at a village called Belencito near Sogamnoso.It will draw its materials from the nieighborhood of Paz de Rio, some37 kilometers distant, where in relatively close proximity are locateddeposits of coal, iron ore and limestone. The meter-gauge railroadfrom Bogota to Sogamoso has been extended to Belencito. Variousbuildings have been erected anid extensive exploration wvork and testsof the raw materials have been carried out.

The general recommendations of the Koppers Company are asfollows:

SIZE OF PLANT

Recommendation RecommendationItems January 1949 October 1949

Coke Oven ..... ....... 51 ovens 27 ovensBy-Products Plant ............ Fertilizer and light oil FertilizerBlast Furnace ......... .......... 850 tons 500 tonsFoundry ... ...... Cast iron pipe EliminatedSteel Production Facilities 2 converters 1 converter

3 electric furnaces 1 electric furnaceBlooming Mill ........ 32" two high reversing EliminatedBillet and Rail Mill ........ 3-26" three high stands EliminatedMerchant and Rod Mill . 1-18" three high stands 8-16" i two high

5-14" two high stands 5-12" stands2-12" two high stands6 rod finishing stands

Plate and Sheet Mill 1-22" three high stands Eliminated1-20" three high stands3-30" three high stands

Wire and Wire Products 11 wire-drawing machines 8 wire-drawing machinesPipe Mill ......... ........ Welded pipe EliminatedSteam and Power Plant .. 5..... S boilers 3 boilers

3-11500kw. turbines 1-11500kw. turbineSulphuric Acid Plant. Acid for sulphate Eliminated

VOLtUAIE AND TYPES OF PRODUCTION

Recommendation RecommendationProduct January 1949 October 1949

(toils)Pig Iron ...... 13,400 13,400Cast Iron Pipe 32,200 NoneSteel Pipe .. .. 4,700 NoneWire, all types 32,600 32,600Sheet and Tin Plate 28,500 NonePlate Mill . . . 6,700 NoneLight Shapes ......... ...... 14,500 14,500Rails 15.000 N'oneBillet Mill Products 14.930 13,100Reinforcing Bars 31,000 31,000

TOTAL . 193,530 104,600

INDUSTRY AND FUELS 421

It wvill be noted that the plant envisaged in the second recommenda-tion provides for the fabrication of only four types of finished product,exclusive of pig iron.

Estimated Costs of Construiction. The estimate of U.S.$95,000,000does not appear to be sufficient for the completion of the larger inte-grated steel plant and certainly does not measure the total cost to theColombian economy. For one thing, certain major items that willhave to be provided have been omitted from the estimate. These in-clude such things as housing and community facilities; the establish-ment of central warehousing and branch warehouses for the efficientdistribution of the final product; starting-up materials; personneltraining and miscellaneous smaller items.

Of greater importance is the apparent underestimate of man-daysand material required. We have not felt it part of our task to makean independent estimate. However, it may be pointed out that experi-ence on a similar mill in Chile provides some indication of the possiblemagnitude of these items. It is estimated that the completion of theplant at Belencito would require two million man-days of labor andapproximately 87,000 metric tons of material. In the comparableChilean plant, it is estimated that the completion of the mill wvillrequire 4/2 million man-days of labor and 150,000 metric tons ofmaterial, and this despite the fact that the Chilean labor is probablymore efficient.

In addition, no provision is made for interest charges during whatwvill probably be a somewhat lengthy period of construction. Thegeneral plant facilities appear to be estimated considerably below theactuial cost incurred in the comparable Chilean project and the costof the necessary power plant appears to be grossly underestimated.

The cost of construction of this type of project has been almostconsistently underestimated in Latin America. For instance, theoriginal estimates on the comparable Chilean steel plant were forU.S.$53,000,000. Toward the end of 1949, this was raised toU.S.$90,000.000, even though some of the finishing plants providedfor in the original estimates had been omitted. It is quite possiblethat the addition of these plants pltis the power plant, the ore boats,and comnmunity facilities-indeed, the total investment necessitatedby the Chilean steel industry-will amount to some U.S.$140,000,000before the w hole project is completed. For various understandablereasons, the ultimate cost of the Brazilian steel plant far exceededoriginal estimates.

422 THE BASIS OF A DEVELOP-MENT PROGRAM FOR COLOMBIA

Similarly, the estimate for the smaller plant provided for in the

second recommendation appears to be too low a figure. Moreover,inspection of some of the major differences in cost between the twoplants shown in the following table xvill indicate the probable degreeof underestimation.

850 Ton per 500 Ton perDescription Day Plant Day Plant

Raw MXIaterial Development . . . U.S.$6,830,000 U.S.$3,521,000Spares for Plant. . . 2,300,000 NoneSpare Rolls .. . ... 850,000 NoneConnecting Pipe . . . 1,260,000 303,000Yard Tracks .. . 1,150,000 420,000Roadways .. 450,000 NoneConstruction Contingency . . . 6,751,500 NoneWire Mills6 . . .... ... 2,596,000 1,785,000

Domiiestic Financing. Very large amounts of peso financing wouldbe required for either project. Provision for such financing has alreadybeen made through Executive Decree in a most ingenious fashion. Asof 1949 a tax of 5 percent on corporate and individual incomes abovea certain amount was earmarked for the purchase of bonds of theCr6dito Territorial to finance a housing program. Under the newDecree,7 the taxpayers are required to pay 2,I percent to the CreditoTerritorial and are given the "alternative" of paying the remaining2'2 percent as a tax or to purchase shares in the Empresa Sidertirgicade Paz de Rio. In addition, savings banks must purchase bonds ofthe mortgage bank to a certain percentage of their deposits, andhave the choice of either purchasing additional bonds of the mortgagebank or bonds of the steel company guaranteed by the Government.

Through this ingeniouisly contrived financing, it is maintained thesteel enterprise wvill be owned by private stockholders and managedby the representatives of such private owners. How "private" aninstitution can be that is financed in this way is open to question.Both the domestic and external borrowings must obviously be guaran-teed by the Government. In addition, if heavy deficits arise, additionalsupport may have to be forthcoming from the Government in theform of tariff protection. It appears inevitable, therefore, that theGovernment must in such circumstances have a strong and continuinginterest in both the management and the policies of the company.

There are obvious dangers in the proposed method of financing.The 'investors" have no real choice and a project finalnced in this man-ner cannot be said to be attracting capital on its owAn merits. More-over, the precedent offered is a dangerous one. The same device could

be used to finance any number of other projects.

6 Both wire mills are to produce the same finished product in kind and quantity.7 No. 4051, issued December 20, 1949.

INDUSTRY AND FUELS 423

Aid to Depressed Areas. Another argument stresses a more intan-gible, but important, point. Boyaca and Santander are poor depart-ments, subject to social unrest, and the proposed steel mill would helpto raise the standard of living in those departments. We are mostsympathetic with this objective but at the same time cannot avoid theconclusion that the costs would be disproportionate to the resultsiobtained. The bulk of the capital expenditures would be in U.S.dollars and for freight rather than being disbursed locally. The volumeof continuing employment provided under either proposal would besmall and the remoteness of the plant and high transport costs wouldmilitate against the growth of steel fabricating industries in thisarea. A substantial portion of the increased costs to Colombian indus-try would go to service the loan rather than to provide employmentin Bovaca. Other things could be done to improve the conditions ofpeople in Boyaca at much less cost to the community.

Estinated Profitability of Operations. On the basis of pricing millproducts at American mill prices plus internal and external transporta-tion costs, exchange costs and duties, less an estimate for the cost ofshipping domestically produced steel products throughout Colombia,a composite price of U.S.$154.19 a ton was arrived at for the largerplant. A figure of U.S.$141.16 was arrived at on the same basis forthe smaller plant. At these composite prices and at full capacity oper-ation, it is estimated that the larger plant would earn U.S.$11,000,000net for interest, depreciation, arid profit, or 13 percent on total invest-ment, and the smaller plant would earn U.S.$6,300,000, or 15X2 per-cent on a capital investment of U.S.$41,000,000. Unless the proposedplant can operate at or near full capacity, the unit cost of productionwould be very high and profitable operations would be impossibleunless unit selling prices are set very, very high. It would be expectedthat the smaller plant would have a higher unit cost of production.although this is not indicated in the two studies at hand, probablybecause of the low degree of utilization of some of the finishing facili-ties in the larger plant.

In arriving at estinmates of returns, a mill price of U.S.$154.19 a tonwvas posited for the larger plant. Careful checking of the assumptionsmade in arriving at this figure lead us to the conclusion that an exduty mill price truly competitive with imported American steel wouldbe nearer U.S.$116.00 per ton. Recent developments indicate thatEuropean mills are prepared to deliver all steel products at prices

considerably below those prevailing at the time of the study, in somecases by as much as 35 percent.

424 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

From a technical point of view, the reduction of iron ore at Pazde Rio appears feasible. There are, however, many factors adverselyaffecting the cost of such an operation. The more important of suchfactors are as follows:

1. (a) The iron ore is extremely high in silica, necessitating care-ful selection as only the upper two-thirds of the iron ore deposits aresuitable. By such selective mining, it is estimated that the silicacontent of the ore can be kept within 10 percent.

(b) The relatively small pockets of ore and coal 1500 feet abovethe valley floor w'ill result in progressively more expensive extraction.

2. The phosphorus content of the ore is high. This would re-quire the basic converters to have their lining renewed after approxi-mately 30 blows, each blowv being about 30 minutes. The basic liningfor the converters is not available in Colombia and must be imported.The high phosphorus content also necessitates the use of scrap as aphosphorus dilutant in order that an acceptable grade of foundry pigiron can be produced.

3. The ore is of a lemonite type with an average iron contentof 47 percent. Some of the deposits are friable and require a sinter-ing plant.

4. The plant is at a very high elevation, the barometric pressurebeing about twvo-thirds that at sea level. This will require theconsumption of more coke, and larger equipment per unit of product,in order to handle the greater volume of gas.

5. The coal is high in sulphur and ash and must be washed toreduce these two factors to acceptable limits.

6. The study provides for 2,400 tons of coke per ton of pig.Some furnaces in the United States have been able to operate as lowas 1,350-1,400 tons of coke per ton of pig.

7. Steel mills re4uire large amounts of cooling and washingwater. Unfortunately, Belencito is not near a large source of suitable

water. It is necessary, therefore, to resort to the utilization ofcooling towers.

S. The plant site is so remote as to require construction of newcommunities and community facilities.

9. Boyaca is not an industrial area, which means that the entirelabor force would have to be trained. This will be difficult in viewof the low standards of health and education prevailing in this eco-nonmically backward department.

INDUSTRY AND FUELS 425

10. The plant at Belencito does not have a market for its excessgas. This \vill be consumed as far as possible as plant fuel. Evenunder these conditions, some gas will be wvasted.

11. Large quantities of supplies, especially converter linings,must be imported at great cost, amounting to approximatelyU.S.$2,700,000 per annum.

All these factors wvill make for relatively higlh production costs.In addition, capital costs and servicing charges will probably be high.Still another factor making for high cost will be the distributionproblem. The plant at Belencito is comparatively remote from someof the important industrial areas. It is connected by a meter-gaugerailroad to Bogoti, some 250 kilometers distant, where productswould be transferred to the yard-gauge railway for shipment toother parts of Colombia. To reach the Cauca Valley and MIedellinarea, transshipment to trucks would be required for passage overthe Cordillera Central. Therefore, the cost of distribution of theproduct to many areas in Colombia would far exceed the freightcharges on imported materials to those areas in Colombia. Finally,because of the relatively low demand for many different types ofsizes and shapes, it would be necessary to erect warehouses at strategicpoints in the country, since a year's requirements for certain sizesof steel shapes, for example, can be rolled in a few hours. Therefore,the combination of high operating and distribution costs and limitedmarkets would result in substantial deficits for some time to come,unless, of course, the industry \vere protected by very high tariffswhich would permit high unit prices to cover costs. This, however,-would constitute in turn a grave handicap to development of otherindustries in Colombia which are forced to use high-cost steel.

For those wvho feel that any reduction in U.S. dollar payments,regardless of domestic costs, justifies a project, it may be pointedout that there would be substantial offsetting and continuing pay-ments to be made. In addition to amortization and interest paymentson the loan, there woould be payments for material and supplies andfor operating fees and foreign personnel. In the case of the largerplant, these charges would approximate U.S.$10,000,000 by the tenthyear and in the smaller plant over U.S.$6,000,000 in the seventh year.The estimated value of steel imports replaced in each case would beU.S.$20,000,000 and U.S.$12,500,000.

It seems apparent that the location of the proposed plant, on theone hand, and the smallness of the market, on the other, make itpremature and inadvisable at this time to consider the erec:ion ofeither the larger or the smaller integrated steel projects at Belencito.

426 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

The high prices that would have to be charged would operate toretard the industrial development of the country. The tremendousamount of capital involved, particularly U.S. dollars, would returnmuch greater yields to Colombia invested in other sectors of theeconomy.

Additional Steel Fabricating Facilities

The reduction of iron ore requires great amounts of capital. Thefabrication of a few finished steel products from melted steel scrap.however, involves comparatively little. Generally, under free com-petitive conditions and in the absence of special governmentalmeasures, this step precedes ore reduction and "integrated" plantoperations. Japan built up a large steel industry on the basis ofimported scrap. It was not until World War II that the wealthyand populous West Coast of the United States, with a steel marketmany times the size of the Colombian market, supplemented its scrapmelting facilities (open hearth furnaces) by ore reduction facilities(blast furnaces). The same process wvas apparent in Chile and, toa limited extent, in Colombia itself. The market in Colombia, whiletoo small for some time yet to justify ore reduction and many linesof finishing facilities, would justify, in our opinion, a considerableexpansion of facilities for the fabrication of wire products, reinforcingrod and light structurals.

The first project calls for the creation of a steel industry atBarranquilla. This wxould consist of an open hearth furnace for themelting of imported scrap, a blooming, merchant and rod mill, anda wire plant, together with necessary facilities. It need not includea power plant, since the local electric powver plant has ample capacity,and fuel oil is in ample supply. No additional housing or communityfacilities are required. We estimate that a plant to melt 65,000 tonsof scrap and pig per annum and process this into 30,000 tons ofreinforcing rod, 5,000 tons of light structurals, and 25,000 tons ofwvire products would cost about U.S.$9,000,000, of which the U.S.dollar cost would approximate $5,000,000. For this relatively modestcapital investmenit, the bulk of Colombia's finished steel requiremelnts

wvould be looked after for some time to come.

Such a plant is simple to construct and operate and very similarto the successful one already in operation in AMedellin. Its capitalcost is low because it eliminates very costly items, such as cokeovens, blast furnaces, mine development and power plant. Due tothe simplicity of operation, a large group of foreign technicians andoperators is unnecessary. Assuming that scrap can be purchased

INDUSTRY AND FUELS 427

on the average at U.S.$35.00 a ton, and pig iron at U.S.$55.00, weestimate that it would be possible to price the mill product at theimported price less duty and still make an excellent return on thecapital investment, Total annual dollar requirements at prices pre-vailing at the end of 1949, including the purchase of scrap and pig,and the servicing of the loan, would amount to approximately U.S.$3,900,000, whereas the imported price of products displacedamount to U.S.$8,200,000, so that the annual dollar savings wouldbe U.S.$4,300,000, or almost equal to the total dollar capital require-ments. The open hearth furnace would be suitable for handling eitherimported scrap or pig iron, so that it would be possible to use someof the excess pig iron capacity of the new Chilean steel mill. A risein scrap or pig iron prices would not affect the validity of our calcula-tions as their rise is generally accompanied by an increase in importedsteel prices.

We have suggested Barranquilla as the best site for such a plantfor various reasons. For one thing, capital costs would be less therethan in any other site in Colombia, as housing and power facilitiesare already available and imported machinery would not have to bearany heavy internal freight charges. Moreover, both the internalmarket and the Pacific Coast can be supplied from Barranquilla.Finally, location on the coast would permit easy export of the productto neighboring Caribbean markets, if found desirable.

In addition to the possibilities of initiating a low cost steel industryat Barranquilla, we are favorably impressed with the possibilities ofdeveloping an ore reduction program at Medellin. Generally, orereduction projects involve heavy capital expenditures. It so happens,however, that most of the necessary facilities are already availableat Medellin. The very successful Empresa Siderfirgica in that cityhas rolling capacity for 15,000 to 20,000 tons of reinforcing rod a year.Although there are three electric furnaces for melting scrap, theshortage of local scrap has limited the yearly production to 3,500tons. Even at this production rate, however, operations have beenprofitable and the profits have gone into the construction of a nearbycement plant, and a 4,000 kw. hydroelectric plant. Coal miines andlimestone deposits have been developed in connection with the cementplant and iron ore deposits have been acquired. Since, therefore,this company already has power facilities, developed mines and rollingfacilities, all that is needed to double its capacity of finished productswould be a relatively small investment of U.S.$550,000 for a largerelectric furnace to make 4,000 tons of steel ingots a year fromiron ore.

428 THE BASIS OF A DEVELOPMENT PROGRA-M FOR COLOMBIA

With this favorable combination of circumstances, it is estimatedthat it would be possible to produce steel ingots at U.S.$55.00 a ton,which compares with a price of $67.00 a ton in the United States.This would obviously permit finished steel to be sold competitivelywith the imported article and thus permit a further saving of dollarexchange of nearly a half a million a year, or savings in one yearalmost equal to the total dollar capital requirements.

In our judgment, there is no comparison between the merits ofthe two proposed ways of meeting Colombia's finished steel require-ments. 'I'he second alternative, the development of projects atBarranquilla and Medellin, will cost relatively little, can be quicklycompleted, will result in substantial annual savings in dollars, canbe privately financed and easily operated, and can lead by naturalevolution eventually to completely integrated operations.

Petroleum ProductsStatistics on the production and consumption of refined petroleum

products are numerous and conflicting. The computation of pasttrends and forecast of future performance may therefore be unreliable,though many inaccuracies mav be corrected by the interpretation ofcomplementary information on trends in automotive vehicle regis-tration, and other uses of power. Some data on past trends are foundin Table 130.

TABLE 130

RATE OF GROWTH PER YEAR IN PRODUCTION AND CONSUMIPTION OF

REFINED PRODUCTS, 1937-47

Productionl Consumption-2

From 1939 From 1937 Average 1938-40 toTo 1947 To 1945 Average 1945-47

Percentage)

Average 11Y3 7 V3 10Gasoline .. . ................. 8 4'/3 8Ethyl. 13 8 27"Tractorina" 5 8 n.a.Kerosene 7V4 7/3 6'2Gas Oil 12 7X2 5Lubricants . .5 5 7 Y2

l Anuario General de Estadistica, 1947.2 Ibid., 1938-1947, anid An,ario dc Coimer-cio Exterior.

According to the Anuario General dc Estadistica, which may some-what overstate fuel oil production by adding to it an item called "cruderefined," the amount of crude oil refined did not increase sizably from

INDUSTRY AND FUELS 429

1938-40, when it reached about 3.3 million barrels per year, to 1945-1946,when it averaged 5 million barrels per year. However, productionjumped in 1947 to 7,852,000 barrels of crude oil refined and thisexplains why rates of growth based on 1947 figures indicate, in gen-eral, performance much above the level of previous years.

Whether or not the trends that brought about the high level ofgasoline consumption in 1947 will be maintained in the years 1950-55,gasoline consumption is likely to be at least 60 percent above the 1947fi-ures (if it is assumed that gasoline consumption per vehicle in1949 was equal to 1947 consumption), since Table 131 shows thatvehicle registrations increased by 60 percent betwveen 1947 and 1949.

TABLE 131

REGISTRATIONS AND IMPORTS OF AUTOMOTIVE VEHIC[.ES, 1938-1949

1938 1939 1946 1947 1948 1949

(thousands of vehicles)Registrations:

Motor Cars . 12.5 13.7 15.3 19.0 22.6 31.9Buses .2.6 2.7 3.7 4.3 5.5 6.7Trucks .6.2 7.0 10.0 13.8 17.2 20.4

Total .21.3 23.4 29.0 37.1 45.3 59.0

ImportsMotor Cars ....... 2.3 3.9 3.4 5.4 6.02 6.32Busesl 0.6 1.0 0.9 1.3 1.42 1.62Trucksl ........... 1.8 2.9 5.2 6.9 8.02 9.32

Total 4.7 7.8 9.5 13.6 15.4 17.7

1 Ilncluding chassis.2 Estimated on basis of registration and depreciation.

An increase of 60 percent would be equivalent to an annual increasein consumption lof almost 6 percent per year from 1949 to 1955. Ifautomobile registration increases (and this will occur if yearly im-ports of cars, trucks and buses do not go below approximately 10,000units a year), the growth in gasoline consumption from 1947 to 1955could easily reach 8 percent per year or more. Other factors contrib-uting to the likelihood of this increase are the opening of new roads,the improvement of old ones, and additional production (together withtruck transport needed to carry the manufactures) which is likely toincrease at better than 8 percent pcr year.

430 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMtBIA

Table 132 shows the demand for refined products in 1955 and1960 as predicted by McGraw-Hill on the basis of estimated demandin 1950 and rates of growth in demand. The information utilized asa basis for this computation differs in some respects from officialColombian figures utilized by the Mission. However, as will beshown belowv, demnand reported for 1950 and the rate of consumptiongrowth are closely consistent both with our estimates of consump-tion in 1945-1947 and the rates of consumption growth in the waryears. It is felt, therefore, that McGraw-Hill's figures are a reliablebasis for forecasting the possible 1955 demand of refined products.

In order to meet Colombia's demand for petroleum products, it isnecessary to supplement the present topping units, which yield from6 percent to 10 percent gasoline, and to add modern cracking facilitiesgiving a yield of approximately 40 percent. The capacity of newrefining facilities should be ample not only to meet present require-

TABLE 132

ESTIMATED DEMAND FOR PETROLEUM PRODUCTS, 1955 AND 1960

Yearly rate Yearlyof growth rate ofin demand growth in

1950 (Based on consump-Consump- Demand McGraw-Hill's tion

tion in (Estimated Demand in Estimate) 1938-40 to1945-47 by 1955 - 1960 1945-47

(Estimated McGraw- (Estimated by 1950- 1955- (Missionby IBRD) Hill) MicGraw-Hill) 55 60 Estimate)

(Barrels; 000 omitted) (Percentage)Gasoline

(motor)5 6,450 8,232 11,735 17,923 7'4 9 8Kerosene 660 679 1,076 1,513 10 7 6X2Diesel 1,250 1,689 2,035 2,812 4 7 5Fuel Oil 7,600 7,853 10,268 13,457 6 5X2 n.a.Crude Oil

(Approx.) 15,000 19,500 26,600 37,800 6 7 9

1 Including ethyl, but excluding aviation gasolinie above 90 octane.

ments of 2,500,000 barrels of regular gasoline per year, but to takecare of future gasoline needs and also permit an increase in capacitythrough the installation of additional equipment at some future date.From studies of present requlirements and estimated growth, itappears that total facilities for the refining of some 38,000 barrels aday, or additional capacity to treat 16,000 to 17,000 barrels of crudea day, are justified and adequate to meet 1960 demand. Such aninstallation woould be of economic size.

INDUSTRY AND FUELS 431

Cirltde Oil Situation. According to a recent study by the WesternGeophysical Company, the crude oil picture is as foilows:

ReservesAugust 1951 to

Source End of 1980 Percent Quality

(Barrels)De Mares . 72,200,100 25.8 Heavy

Casabe . . 106,891,000 38.2 Heavy

Barco ...... ...... 93,248,900 33.4 Excellent

All Others . . . 7,270,600 2.6

Total . . 279,610,600 100.0

Of the three main sources of crude, Barco apparently is the only onewhich is entirely suitable for refining lor the. proper distribution ofproducts without going to extraordinary expense in refining equip-ment. This does not mean that the De Mares and Casabe crudesshould not be refined, since we believe they should be processed tothe fullest extent possible without producing an undesirable surplusof black oil. It simply means that Barco crude will be the keystoneof a national refining industry, and that the relative proportions ofBarco to heavy crudes used will increase as the demand for lightproducts increases.

In January 1949, total oil production in Colombia was 79,000barrels per day. Continued production at this rate would result indepletion of proven reserves in 9.7 years. At the present refining rate,21,000 barrels per day, and assuming no export of oil, proven reserveswould be depleted in 36.4 years. At projected internal consumptionrate for the year 1960, 37,800 barrels per day, proven reserves wouldbe depleted in 20.2 years. If Barco crude alone were used for aninternal refining industry, without export, it would be depleted in12.2 years at present refining rate. If Barco crude alone were usedfor an internal refining industry, without export, it would be depletedin 6.75 years at projected internal consumption rate for the year1960.

The depletion rates described above should not be taken too liter-ally, since many factors determine rates of production from oilfields,but they may be considered as fair indications of reserves. In com-parison, the U.S. petroleum industry has, for a long period of time,maintained a proven reserve equivalent to approximately twentyyears based upon total current production. We may consider this asbeing a measure of sound practice in a stable and healthy industry.

432 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

The following conclusions appear wvarranted:

1. Proven reserves are dangerously short if present productionand export rates are maintained. Every encouragement should begiven to further exploration.

2. Ideally, B3arco crude should be earmarked for internal use, andexports should be limited to the heavier crudes, which are in greatersupply and less suitable for local refining.

3. No large capital expenditures for refining equipment can bejustified until the crude oil situation is more favorable. Dollars willbe better spent in a vigorous exploration program.

4. A modest capital expenditure for refining equipment is justi-fied, provided that it will bring distribution of products into balance.This is a conservational step because it means that the nation will notbe forced to export surplus black oil, which, in the final analysis. isalmost equlivalent to crlde.

Refining Requiiremiients. In view of the situation confrontingColombia with reference to crude reserves, present refinery capacityand growth of consumption, what course of action should be takenin order to bring production of refinery products into balance wvithprobable market demands? The matter has been exhaustively studiedby the Foster Wheeler Corporation in conjunction with the ConsejoNacional de Petr6leos and their recommendatiotns are as folloxvs:

1. Immediate construction of cracking facilities at Barrancaber-meja, at an estimated cost of U.S.$9,000,000.

2. Immediate construction at Mamonal of a new refinery toprocess 12,000 barrels per day of Barco crude, at a cost ofU.S.$13,500,000.

3. Extension of the Mamonal refinery in 1955, by addition ofcracking equipment, at an additional cost of U.S.$12,200,000.

For various reasons we question the wisdom of embarking on aprogram of this character and magnitude at the present time. Someof the considerations that influence our attitude are:

(a) Total capital expenditure proposed is U.S.$34,700,000. Thisoutlay is excessive, especially when one considers the uncertainty re-garding the source and types of crude xvhich may be available foiprocessing a fewv years hence.

(b) Geographical dispersion of refining facilities will postpone thetime when it will be economical for Colombia to produce its ow:high-priced specialty products such as quality lubricants and 100/13

INDUSTRY AND FUELS 433

aviation -asoline. All cracking facilities should be at one locationuntil a complete refinery of 40,000 to 50,000 barrels per day capacityhas been developed.

(c) Up to 1955 the operation of the proposed distillation unit atMiamonal would be wasteful of Barco crude. Followilng is an estimateof Mamonal's operation in 1955:

Barco Crude Charge .. 1,800 BPD

ProduictsMotor Gasoline . 5,100 BPDTractorina ................................ 190Kerosene .................................. 640Diesel Fuel ... ... 1,180Fuel Oil ..... 5....... ....... .......... ,690

12,800

\Ve call attention to the "ifuel oil" production of 5,690 barrels perday, or 45 percent of Barco crude. This material is 7lot fuel oil butgood cracking stock, potentially convertible largely to white products.While it might conceivably be sold as fuel oil, if it were not too waxyand if it met flash point specifications, it would represent a wasteaf Colombia's most valuable reserve.

(d) The refinery at Mamonal is uneconomic and cannot show areasonable returnl on the heavy investment involved without beingLllowed an additional 1 or 2 cents a gallon in the spread between re-Fined products and crude oil, an unjustified subsidy.

As an alternative, we recommend that advantage be taken of the-entral location of existing facilities at Barrancabermeja, and of the;ystem of connecting pipelines. To meet 1960 consumption require-nenits, we recommend the immediate construction of a two-coil thermalracking unit. This unit would increase combination crude distillationvnd present crude capacity by approximately 17,000 barrels a day,ind would efficiently crack all heavy oil produced from existingacilities. Such equipment wvould keep products in balance during theiext ten-year period and permit as much heavy crude as practicable toe run at all times in order to minimize the consumption of Barco:rude. The combination cracking unit would be economic to operateLnd should not cost in excess of U.S.$10 million. In addition, someurther moderate expenditures will be required to replace presentvorn-out equipment.

The transportation problem does not appear to be too complicated.)ne loop of the Andean line could be modified to bring Barco crudeip from La Gloria. Exported crude and cracked fuel oil could be

434 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

alternated in the other loop of the Andean line for transport toCartagena. The viscosity of the residual fuel, being lower when thecrude has been processed through a cracking unit than through a dis-tillation unit, could be readily pumped through the pipeline to thecoast. In the event that the country might some day be required toimport crude, it could be brought up one loop of the Andean line.

A pipeline from Puerto Berrio to Medellin would serve as the firstmajor step in the distribution of gasoline from the new Barranca re-finery. From Medellin, tank cars and trucks could be used to distributethe refined products throughout the western part of Colombia, whilegasoline barges could be economically used in taking the product toBarranquilla and Cartagena. This wotuld eliminate the necessity ofcarrying gasoline through the Panama Canal to Buenaventura and ofconstructing a pipeline from Buenaventura to Cali. Another pipelineto La Dorada. and eventually to Bogota, may be justified.8

Our recommendation for immediate new facilities at Barranca-bermeja is posited on the assumption that the proposed modern com-bination thermal cracking unit will be operated by experienced privatemanagemiient. Successful, efficient and low cost Government opera-tion of moderni refinery facilities cannot be expected in Colombia atthe present time.

Nitrogen Fertilizer

The urgent need for low cost fertilizers was mentioned in ChapterXVIII. The difficulty centers around high transport costs as wellas lack of domestic sources of supply. The desirability of using moreconcentrated forms of fertilizer was stressed. In the case of Chileannitrate, for example, the nitrogen content may be taken at around15 percent. In order for the farmer to take advantage of this 15percent, however, it is necessary to transport the 85 percent residueat great cost.

A new development in the direct application of anhydrous ammoniato the soil has occurred in recent years in the United States andmay be of great potential significance for Colombia some time in thefuture. The significance of this process, of course, lies in the factthat anhydrous ammonia is mostly nitrogen and can be made vervcheaply from gas, a by-product of the proposed oil refinery, or fromnatural gas. While the process appears to be completely feasiblefactors militating against its early use center around the type o-equipment and method of handling required. The anhydrous ammonicis liquefied under pressure at the plant and is transported in pressur

8 For further discussion, see Chapter XX.

INDUSTRY AND FUELS 435

tank cars. It requires special storage equipment, and special equip-ment for its application to the soil. The savings, however, would beso spectacular that close study of adaptability of this type of fertilizerto Colombia appears merited. In any case, serious considerationshould be given to the manufacture of ammonium nitrate or ammoniumsulphate for fertilizer, as their shipment and application require nospecial equipment.

CoalIt was pointed out in Chapter VI that Colombia undoubtedly pos-

sesses great coal reserves which should prove of enormous valuein the future. At the present time, however, they are being mined'most inefficiently and primitively, so that the price is high and the'consumption very low. Consequently, charcoal is still extensivelyused even though it is very expensive. The use of efficient coalmining methods, which are well known today, would result in asubstantial reduction in the cost of coal and a displacement of char-coal by coal for many cooking purposes.

It also is possible that coal may be one of Colombia's new exports.)There are two possibilities: one is the coal on the Pacific side of thecountry near Cali, and the other is at Cerrejon on the Caribbean. TheCali coal, except for fairly high ash and sulphur content, is a goodcoal and a washing plant could bring the quality up to exportablegrade. However, before exports could be considered, the industrywould have to be made proficient by the investment of considerablecapital, securing of good management, and a cheap export rate on therailway to Buenaventura.

The possibilities at Cerrejon are good. There appear to be verylarge coal deposits of high quality only 100 kilometers from theocean over level, dry terrain. The Mission arranged for analysis ofthe coal's physical and chemical properties by the United StatesBureau of Mines. Preliminary results indicate that the coal hasexcellent fuel properties with over 12,000 B.T.U.'s per pound andwith a very low ash content. 9 It does not appear, however, to possessgood coking qualities though this possible deficiency may be cor-rected by blending with other coals. This preliminary analysis,

9 Actual analysis of one sample on "as received" basis:Moisture ...........- 10.5 percent Carbon .... 48.6 percentVolatile ............ 38.7 Ash .... 2.2

Ultimate analysis:Hydrogen ... ...... 6.0 percent Oxygen . ... 19.3 percentCarbon ...... ... 70.4 " Sulphur .... 0.5Nitrogen ..... .. 1.6 " Ash .... 2.2"B.T.U. 12,430Ash fusion temperature 2570°F.

436 THE BASIS OF A DEVELOPMNENT PROGRAMI FOR COLOMBIBA

therefore, appears to justify further exploratory work in provingreserves. In view of the high fuel value and low ash content thiscoal may prove to be of great value to the Colombiani economy.

As an indicationi of possible capital requirements, the developmentof the Cerrejon to a point where 500,000 tons of coal a year coulclbe produced would necessitate a capital expenditure of approximatelyU.S.$8,000,000, of which 60 percent would be in foreign exchange.For the developmenit of coal in other localities for consumption withinColombia, a rough figure of IU.S.$10.00 per ton per annumii may betaken as representing capital costs of providing completely modernmining methods.

Electric Power

Colombia is particularly fortunate in having a large hydroelectricpotential due to the very rugged terrain and relatively good rainfallin many sections of the country. This potential was estimated at5.4 million horsepower in 1947 by the U. S. Geological Survev. Forvarious reasons, little of this potential has as yet been realized. Inaddition, the abundant supply of coal and modest reserves of oil per-mit the use of thermal plants where use of water power is impractical.As a means of raising the standard of living, both directly and in-directly through the provision of power to industry, we would placehigh on the list of priorities a considerable expansion of electric powercapacity in the next decade.

Specific recommendations for the expansion of power facilitieswvill be found in Chapter XXIII, "Electric Power and CommunityFacilities." WVhile electric powver is of prime importance in industrialdevelopment, its overall use by municipalities for street lighting.commnercial enterprises, households, and farms makes it logical toconsider it along with other community facilities.

ESTIMATE OF CAPITAL NEEDS

It is extraordinarily difficult and hazardous to estimzate industrialcapital expenditures in an industrially new and rapidly developingcountry like Colombia. Characteristically, capital investment tendsto go in cycles and, in Colombia, has been affected greatly by suchfactors as foreign wars and the volume of fore'gn exchange receipts.All we can attempt, therefore, is to assume certain rates of growthin the demand for various industrial products and to calculate theadditional capital investments necessary for expansion or moderniza-tion of plant to meet such growth. In certain cases, we have reliecupon actual projects currently under discussion. In other cases, sucl-

INDUSTRY AND FUELS 437

1s iron and steel, forestry products and coal, we have assumed certainirbitrary figures as representing possible capital requirements in the'iext five years.

Table 133 shows the cost of the specific industrial projects whichiave been singled out for discussion in this chapter-a total of aboutU.S.$36 million in foreign exchange and Ps.$34.3 million. This total,-iowever, is not all-inclusive since the cost of foreign equipm-1ent andmiaterial has been estimated on a c.i.f. basis, and it is necessary to addpayments required in addition for markups and transport costs on suchimports. As shown in our chapter on capital formation, those expendi-tures amounted on the average to approximately 50 percent of the-.i.f. costs from 1939 to 1947. It is hoped, however, that the load>f those expenditures will diminish as a result of the structuralreforms brought about by the implementation of the Mission's recom-mendations. By 1951-55 the average may be reduced to one-third orless of the cost of equipment delivered at ports. Thus, if the recom-L-mended foreign exchange investment shown in Table 133 is convertedinto pesos, the c.i.f. cost would be Ps.$72 million, to which must beadded an estimated Ps.$24 million to cover trade markups and trans-port costs-or a total of Ps.$130.3 million, including of course Ps.$34.3 million in local material and labor, to be expended in the five-yearperiod for investmenit in specific industry projects.

TABLE 133RECOMIMIENDED INVESTMENT IN SPECIFIC INDUSTRIES,' 1951-1955

Foreign Exchange DomesticInvestment Investment

(illilliolls)Zotton Textiles ................. . U.S.$ 0.75 Ps.$ -WVool Textiles .... ..... ............... 2.00 1.00Rayon Textiles ................ ..... 1.00Shoes . ........ 0.70 2.80M\Iineral Water 0.80Sugar .. .. ..... ........... ... ...... 3.50 1.50Fats 0.42 0.40Leather 1.00 4.003lass 0.70 1.60Shemicals 0.60 0.80Scncrete Batching 1.00Lumber . .3.50 3.00Scrap and Pig Iron .. 5.... ........ . 00 8 00_lectric Smelter 0.55Petroleum 9.60 4.80-oal . .4.80 6.40

Total ............... ...... ........... U .S.$35.92 Ps.$34.30

lYBased on recommendations in this chapter Avhich do not include cost of markupsmd internal transport for imported equipment and material.

438 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLONIBIA

These projects do not represent, however, the total recommendedby the Mission for industrial investment. Rather they should be con-sidered as a favored or "priority" segment within a larger scheduleof investment. The projects recommended in Table 133 representspecific targets to be reached by various industries, while the other

programmed outlays are those necessary to maintain a high level ofeconomic -rowth in industry as a whole.

The total outlay recommended is shown in Table 134. It has beencalculated for the year 1953, the midway point in the program period,and represents an average investment for the five years 1951 to 1955.Those entrusted with the implementation of the investment program

'viIi of course study the extent to which the figures for individualyears will deviate from our projected average year. The estimates

w,,ere made on the basis of the 1947 figures on capital formation.While it is recognized that the level of capital formation in 1947 wasexceptionally high, the very conditions which made it possible-

TABLE 134

MODEL PROJECTION OF INDUSTRIAL CAPITAL FORMIATION, 1953

OtherTotal Specific Projected

Investment Investment IndustrialRecommended (Table 133) Investment

(millions)EQUIP0IENT

Imported Equipment Ps.$ 75.0 Ps.$ 14.3 Ps.$ 60.7Domestic " . 13.3 3.4 9.9Trade and Transport Costs

Imported ... 25.0 4.8 20.2Domestic .. 3.3 0.9 2.4

Total . .. .. 116.6 23.4 93.2

BUILDINGS

Imported Materials 1.7 1.7Domestic " .. 5.6 5.6Trade and Transport Costs

Imported 0.6 0.6Domestic 1.4 1.4

Subtotal MIaterial . 9.3 9.3Labor .10.7 10.7

Total .20.0 20.0OTHERS

Installation Costs 11.7 2.7 9.0

Total in 1953 ... 148.3 26.1 122.2GRAND TOTAL 1951-55. Ps.$741.5 Ps.$130.5 Ps.$611.0

INDUSTRY AND FUELS 439

high levels of imports and economic activity-could readily prevailin the future. The indices and ratios used in the projection are dis-cussed in Appendix J.

Recommended gross industrial capital formation in the projectedperiod totals about Ps.$740 million, or almost six times the costof priority outlays of Ps.$130 million. This difference of Ps.$610million consists of roughly Ps.$200 million for depreciation of exist-ing industrial equipment, factory buildings account for about Ps.$100million, and maintenance of equipment for another Ps.$50 million.The balance of Ps.$260 million seems a minimum required for expan-sion in the great number of industries not covered in our discussionof priority outlays, such as wheat and cereal mills, food-canningplants, quick-freezing plants, chocolate and sweets factories, brick-kilns, furniture and appliances, ready-made clothes, miscellaneouschemicals and pharmaceuticals, paints and varnishes. It also coversadditional expansion which may result from the play of conmpetitiveforces in those industries we have discussed, and which mav causeexpansion beyond what is strictly necessary.

Capital requirements for the expansion of power are presented inthe chapter on electric power and community facilities.

CHAPTER XX

Surface Transport

The analysis in Chapter VII of the characteristics and problemsof surface transportation led to the general conclusion that the varioustransport systems in Colombia are not now capable, either singly orin combination, of serving the country's growing needs adequatelyand at reasonable cost. The purpose of this chapter is to makerecommaendations for corrective action of twvo general kinds: (1) forimprovement of conditiolns and practices \vhich interfere with efficientuse of existing transport facilities; and (2) extension or improvementof the existing facilities at certain points.

One problem of overall importance is the regulation of all typesof transportation in the interests of the users of transport facilitiesand the public generally, notablv the re-ulation of rates, safetv con-ditions, and standards of service. It was to fulfill this importantfunction that Lawv 90 of 1948 established the National Council ofTransportation, made up of representatives of the various govern-mental agencies concernied with transportation. The Council is not,however, a satisfactory agency for this purpose. In the first place,it is composed of top officials wvho have other cxtensive and pressingresponsibilities; it meets on an informal basis and does not haveadequate staff or facilities to carry out the functions envisioned. Theofficial budget for 1950 calls for only Ps.$30,000 for the Council'swork.

Second, and even more important, the Council as it is presentlyconstituted could not in any event be expected to evolve and enforcea consistent policy for the regulation of all transport media, basedon objective analysis and consideration of all the varied interestsconcerned. Most of its members represent particular economic and,more particularly, bureaucratic interests. Some of them are directlyresponsible for the operation and promotion of particular transpor-tation media, wvhich are inevitably (and should be) in competitionone with the other. They cannot be expected to decide objectivelyon rate and other questions which vitally affect their owvn com-petitive positions.

AWN e recommend, therefore, that the proposed Public Administra-tion Mission -ive particular attention to the problems involved inregulating transport in all its forms, as xvell as to the proper organi-zation for operational purposes. Regulation includes jurilsdiction

440

SURFACE TRANSPORT 441

over franchises, rates. safety regulations and related matters for allforms of surface ancd air transport, except for purely local transportservices.

In defining re-uilatory powers and policies, it is almost asimportant to avoid too much regulation as too little. Some formsof transportation require more extensive and detailed public super-vision than others. For exaample, the licensing restrictions nowimposed on trucking operations seem to be unduly severe. In abusiness such as this where capital requirements are relatively smalland where investments can be liquidated quite easily if necessary,the forces of competition should be given rather wide leeway tobring about an increase in average efficiency and a reduction incosts and rates. The emphasis in this field should be placed onregulation of rates and on requirements for safety and financialresponsibility, rather than on route franchises. In the aviation indus-try, on the other hand, regulation of competition is more necessary,as is pointed out in thie followiing chapter, because of the magniitudeof needed investments, the costs of operation, the more limitednumber of routes, and the smaller volume of traffic to be sharedamong competing lines.

RAILROADS

Administrative Reorganization

The National Railway System as now organized is a branch ofthe National Government, under an Administrative Council (Consejo)of which the Minister of Public Works is Chairman. The originalconcept of the Consejo as an autonomous board of directors was asound one, but it has not been carried out in practice. The Chairmanis a political appointee, subject to change with each shift in thenational administration, and burdened with many other responsibili-ties. The members appointed to represent industry and agricultureare also changed frequently. Only two members of the Consejo-the Administrator General and the transportation expert-have anysubstantial continuity of tenure. At the same time the Consejo,especially its two relatively permanent members, has tended to becomeitself the active general manager of the railroads, leaving no roomfor an independent, continuing check on management. As a remedyve recommenid that:

1. The direction and administration of the National Railwaysshould be vested in a Public Railways Corporation with a Board ofDirectors wvho wvould be given full responsibility for efficienit opera-tion of the railroads.

442 THE BASIS OF A DEVELOPMENT PROGRANI FOR COLOMBIA

2. The Board of Directors should appoint as general manageran administrator of demonstrated competence who wvould be givenbroad executive powers and responsibility for day-to-day operations,within the scope of general policies determined by the Board. Heshould also be a member of the Board ex officio.

3. The directorships, except for the general manager, should bepart-time positions with specified terms. The appointees shouldbe outstanding executives from business, finance and government.

4. The Board of Directors should periodically review operationsand at stated intervals submit full operational and financial reports.In addition, Congress would review their operations further when-ever requests for funds for capital outlays or to cover deficits werenecessary.

5. The problem of the proper organization for the regulation ofall forms of transport should be accorded special study by the pro-posed Public Administration Commission. It should be emphasizedthat all recommendations relating to organization are tentative andsubject to review by the proposed Commission.

This proposed administrative reorganization would have severaladvantages. First, it would help to remove railroad operations fromexcessive political control and permit greater continuity of operatingpolicies. Second, it would clearly fix responsibility-for policy forma-tion and supervision on the Board of Directors and for day-to-dayoperations on the general manager-and at the same time it wouldgive them, particularly the general manager, the necessary authority.Third, a part-time Board of Directors would be less tempted to inter-fere in details of management, and it would be easier to secure theservices of outstandingly public-spirited, competent, and experienceddirectors on a part-time basis. Fourth, the regulatory function xvouldbe subject to thorough review and reorganization. Administrativereorganization along the lines proposed wvould be a desirable startingpoint for improvements in operating practices. This has been amplydemonstrated in the experience of other countries.

Operating Practices and Equipment

The major reasons for low productivity in the Colombian railroadsystem have been discussed in Chapter VII. Productivity could beconsiderably increased through improved operating practices and theuse of more efficient equipment. Many specific recommendations alongthese lines have been made as a result of previous studies of Colom-bian railroads. Some of the important ones are reiterated here, withcertain additions and modifications, for little or nothing has yet been

done to effect the improvements recommended over the past several

SURFACE TRANSPORT 443

years. Until effective action is taken to increase productivity and cutcosts by these means, little further capital investment to expand thepresent railway system should be made.

We recommend that double-heading and helper service be in-augurated on those traffic segments most suitable from the stand-point of operating conditions and economics-for example, fromBuenaventura to Cali, and on the steep slopes up from the Cauca andMagdalena valleys. This wvould not only make possible increasedpayloads per train, but also reduce problems of traffic congestion onthe more densely traveled segments. At the same time adequate load-ing and maintenance facilities should be provided and, in some cases,the use of diesel-electric equipment would be desirable.

Many operational delays are directly attributable to the inefficient"manual block system" of traffic control and dispatch and to theway in which it is operated. It is recommended, therefore, that thepresent methods of traffic control be completely reexamined, especiallyon those segments where bottlenecks exist as a result of the greatpostwar increase in traffic. Such a study should explore the possi-bilities of using centralized timetable dispatching, meet orders, im-proved communication systems, and mechanical signal systems.

Twenty-four hour operations would be of great value in takingcare of traffic demands over certain runs, and should be emplovedwherever traffic and operating conditions warrant.

Many operations could be made less costly and more efficientthrough greater mechanization. Examples are the use of such devicesas spring-switches rather than swvitch-tenders; direct coalers to sub-stitute for hand-coaling of locomotives; and mechanical loading andunloading devices for handling cargo. The merits of cargo-handlingdevices must be weighed on the basis of specific facts in each case,but in many situations one or more of these mechanical devices woouldspeed up the handling of freight and, in all probability, lower costs.

The report of the U.S. Railway Mission in 1946 reviewved in greatdetail the safety problems of railroad operations in Colombia. Littlehas been done to carry out their recommendations; operating safetystandards should be promulgated without delay and aggressivelyenforced.

The very elaborate reequipnient program proposed by the Na-tional Railways, involving approximately Ps.$13 million for loco-motives and cars, does not contemplate the use of diesel-electriclocomotives or lighter weight rolling stock. Before any such procure-ment program is embarked upon, it is recommended that both thesematters be fully considered.

444 THE BASIS OF A DEVELOPMENT PROGRAAT FOR COLOMBIA

Narrow-gauge, diesel-electric locomotives suitable for the mostdifficult types of tropical, hig-h altitude, mountain operations are nowavailable. These locomotives (twvo integrated units) provide a trac-tive effort of 144,000 pounds compared with 32,000 pounds for thenew mountain steam types the railroads now have on order. Thus thediesel-electric provides a tractive elTort 4.5 times greater than thatof steam. At an estimated price of U.S.$380,000 for a diesel-electriclocomotive (2 units at $190,000) and U.S.$110,000 for a steam loco-motive, the former costs approximately U.S.$2.65 per pound of trac-tive effort as against US.3.50 for the latter, or about 25 percent less.The possible increased costs of maintenance and of training of per-sonnel are not sufficient to offset the better performance of the diesel-electric locomotives in terms of ton-mile costs. In addition, boxcarsare available which are built with high tensile steel and are 15 percentlighter than present types and cost only 10 percent more.

A combination of diesel-electric locomotives and lightweight carswould, for example, permit the operation of 30-car trains over thebottleneck segment between Buenaventura and Cali at an average of10 miles per hour, making- the run in less than 10 hours. Such a traincould haul on an average 650 to 700 tons of payload, equivalent to10 or 12 of the present type trains. Such modern equipment woouldprovide the capacity required to bring petroleumn products into thecountry from Bueniaventuira and to export coal from Cali. Two trainsof this type should be able to keep the port of Buenaventura clear,wTith a minimum of steam train support to handle traffic peaks. Thisconclusion is based on the port tonna-e figures in Table 30 of Chap-ter VII.

This level of performance wvouldl probably not be immilediatelyobtainable, but it \vould be a practical goal, and provides a definiteeconomic justification for using diesel-electric locomotives and lighterweight cars. Because of smaller train crews required, lower overallmaintenance costs, and increased capacity, ton-miiile costs would bedecreased perhaps as much as 50 percent, depending on the efficiencyof railroad operation. The amounts of diesel fuel required would besmall and ample sources of supply are available. Although uinit main-tenance costs might be higher than for steam locomotives, their greatercapacity should result in lower overall maintenance costs per ton-mile.

Since the development work on narrow gauge diesel types hasalready been done, their construction should not be too difficult ortime-consuming. In view of special operating problems in Colombia,however, it is recommended that an initial fleet of five such locomo-tives be secured, wvith a manufacturer's representative in Colombia atleast during the test period. The recommended five locomotives could

SURFACE TRANSPORT 445

be used in the be.inning for double-heading twvo trains on a completeschedule sequence, with the odd engine as a reserve. AWhen the initialdifficulties of personnel training, maintenance and operation have beenovercome-assuming that the locomotives prove satisfactory overa reasonable test period-a gradual plan of expansion should be de-veloped.

Maintenance Practices and Shop FacilitiesWith regard to the maintenance of way and structures, we can

only reiterate and reemphasize the recommendations made by the*'. S. Railway Mission in 1946. Greater use of smaller power-crushedtrack ballast is recommended. Outside and inside guard rails forcrossing bridge structures should be adopted universally throughoutthe railwvay system. Most ties used on Colombian railways are ofnon-treated wvood. There are some steel ties on the meter-gauge linesand these should be replaced with wood as soon as possible as partof the changeover from meter- to yard-gauge, which is (lisctissed be-lowv. It is recommended that the comparative cost of treated tiesover the long run be thoroughly investigated to determine whethertheir use wvould be justified and whether the tie-treating plant atBogota should perhaps be relocated. As was noted in Chapter VII,rail replacements and maintenance of roadway appear to be reason-ably satisfactory, but the entire m1aintenance of wNay programii requiresconstant and systematic attention.

Equipment maintenance is a more serious problem. The Missionfound that the percentage of unserviceable locomotives was generallyas high as, and in some cases eveni higher than, the excessive figurenoted by the U. S. Railwvay MvIission in 1946. It should be possible toreduce the percentage of unserviceable locomotives from the presentlevel to 10 or 15 percent at most. The followving recommenidationsare made to this end.

The first, and one of the most important, step is to centralizeshop facilities, wvhich are loxv scattered in several units throughoutthe railway system. WVith the possible exception of the Pacifico shopsat Cali, none is adequate in machinery, plant layout, capacity ortrained personnel. Nowv that integration has been at least partiallyachieved, duplication and the resultant inefficiencies should be reme-died. Two central shops should be enough to perform all generalrepair work required on the WAestern and Eastern systems-thePacifico shops at Cali and an adequate central shop facility in Bogota.The centralization at Bogota will require movement of the Girardotshop equipment to Bogota and standardization of the gauge on theNorte and Nordeste lines coming into Bogota. Determination of the

446 THE BASIS OF A DEVELOPMIENT PROGRAMI FOR COLOMBIA

precise cost of the necessary shop construction will require more de-tailed analysis, but the estimate of Ps.$18,339,000 submitted by theConsejo appears somewhat high. The industrial construction contem-plated for the new shop facilities should not cost more than aboutPs.$100 per square meter, rather than the estimated Ps.$250. Thelower figure would reduce capital requirements, including machinery,to about Ps.$10 million. The operating economies which such a cen-tralization would make possible, together wvith greater standardiza-tion of equipment and gauge, should amply justify such an investment.It is therefore recommended that the centralization of shop facilities inBogota for the Eastern system be undertaken as a matter of toppriority.

Other shop facilities wNill, of course, be necessary for runningrepair wNork. This xvork should be adequately handled by the round-house facilities in Cali, Medellin, Girardot, Facatativa and BogotA.It will, of course, be necessary also to have maintenance facilitiesfor each of the isolated liries continued In operation.' Another essen-tial for efficient, low cost mainteniance of equipment is adequatemachine tools. The 1946 Railway Mission recommended the pur-chase of certain specific tools to increase the efficiency of the Calishops. Most of this equipment, howvever, has not been purchased,although the need for it is even greater nowv than in 1946. Thesemachine tools wvill still be required wvhen the recommended centrali-zation of shop facilities has taken place. It is therefore recommendedthat requirements for machine tools be reestimated on the basisof the voluime of maintenance to be performed when the centralizedshops are established at Bogota and Cali.

A.nother factor contributing to high maintenance costs is thelack of standardization in rolling stock, especially locomotives. Thismakes for inefficient operations in practically every aspect of mainte-nance, by complicating the training of personnel and the establish-ment of uniform maintenance practices, and requiring an excessivelylarge inventory, of spare parts and many specialized shop tools andequipment for special machining of practically every part that fails.Moreover, it reduces operational flexibility. It is recommended,therefore, that every effort be made to achieve greater standardiza-tion of equipment on the National Railways.

Despite the detailed recommendations in the U. S. RailwayMission Report, much still remains to be done in the area of produc-tion controls and scheduling. It is recommended that the personnelselected to supervise the central maintenance facilities at Cali andBogota be well versed in such organization and controls to achieve

See discussion below of the isolated lines.

SURFACE TRANSPORT 447

full utilization of available equipment, and more efficient assign-ment of personnel. Other shop practices which wvould tend to im-prove maintenance efficiency are greater use of electric welding,and better servicing of both machines and tools.

Productivity of LaborAchievement of higher labor productivity is to a considerable

extent the result of more efficient or-anization and supervision ofwork on the part of management, as well as greater efforts by labor.Adoption of the preceding recommendations on operating and main-tenance practices should therefore be of considerable value in raisingproductivity. Other specific recommendations on this general problenmfollow.

In some cases, payment of wvages on the basis of work performedrather than time may help to raise productivity. An example is thetime basis of payment of train crewvs, cited in Chapter VII. This isnot inten-ded as a blanket recommendation of piecework wages. Anychanges in the system of wage payment should take account of thespecial circumstances of the job in question, the potential benefitto the workers in the form of higher earnings, as Avell as the efficiencyof the railway system.

We recommend that the practice of individual assignment ofengine crews, which prevents the full utilization of both manpowerand equipment, be abandoned. The arguments usually advanced infavor of this practice, such as the contention that more maintenancewvork is performed by the engineer, are outweighed by the result-ing inefficiency of use of men and equipment. Greater standardiza-tion of locomotive types should also help to simplify problems ofcrew and locomotive assignment.

The pension system as it is presently operated contributes heavilyto the high cost of rail transport. It dilutes the efficiency of thelabor force by depriving the railroads of the services of employeeswvhose experience should make them exceptionally useful and pro-ductive. At the same time, the payment of benefits ranging up to80 percent of the employee's last salary rate, imposes a heavy burdenof overhead, wvhich will continue to increase for many years to come.It is recommended that the railway pension system be revised alongthe following lines:

t. Establishment of a minimum retirement age of perhaps 55or 60 years. This would permit the railroads to retain the services ofexperienced, still productive older employees.

2. Compensatory increases in wages and benefits for retirementDn account of injury or age should be made.

448 TIIE B-ASIS OF A DEVELOPMENT PROGRAMT FOR COLOMBIA

In this way, provisioln for the employees' security wvoild be strength-ened, their productivity and their current incomes would be increased,and the transport system1 and the nation as a w-hole wvould benefitfrom better use of manpower resources.

Proposed Extensions and Changes of the Railroad SystemFor several years the -National Railxvays of Colomlbia have spon-

sored an ambitious programi for expansion and developmelnt xvhichhas been embodied in legislation. In general, these plans have in-volved construction of two trunk railways inland from the Carribbeanports, one connecting with the W\}estern system near iMledellin andthe other with the Eastern systenm near Barbosa; linking of theEastern) and Westerni systems by the constrtuctioni of a railroad betweenArmenia and lbague; and extension of both the Eastern and Westernisystems farther south-in the case of the A;Vestern system, as faras the Ecuadorian border. AVork is movin,g forwxard on several ofthese projects at a slow pace. As of November 1949, the Administra-tive Council of Railroads listed the following projects as having firstpriority: ( I) connection between the two sections of the NorteRailroad to eliminate the Magdalena River route disability: (2) theIbagu6-Armilenia link; (3) the Bolivar section of the Western trunkrailroad; and (4) the proposed cut-off in the Pacifico Railroad from13uenaventura to Buga. Several other projects of substantial sizehave been proposed, but are assigned a lower priority.

The twAo chief flaws in the present expansion program of the rail-roads, as described herein, are: first, that it contemplates establish-mient of several conmpetitive routes for the same traffic and increasesthe traffic-handling capacity of the railroacls well beyond any reason-able estimate of future traffic demand: and second, that it contemplatesthe simultaneous prosecution of so many projects that many yearswould necessarily elapse before any wvould become really productive.Our recommendations are designled to focus oii the more practicaland urgent projects, in order to get thelmi finished as soon as possibleand to avoid furtlher dissipation of resources on undertaking-s of loweconomic value.

El7inination of lhe Hllagdalcia River Route Disability. V-arious pro-posals have been considered in recent years for the conistruction ofrailroads to supplement the MXlagdalena River south of Puerto WVilches.The cost of keeping the river in a conclitioni to handle traffic abovePuerto Wilches (lurinig the dry season wvould be prohibitive if therewere assurance that it could be done successfully. Thus the variousrailroad proposals for supplemelnting the upper river in dry seasonsmerit serious consideration.

SURIFACE TRANSPORT 449

The Administrative Council favors connecting the t\wo sections ofthe nieter-g;auge Nlorte Railroad to make th-e Magdalena River routea dependable transportation artery at all seasons. The first sectionof the Norte Railway runs between Puerto Wilches and BucaramangaStation, located about ten kilometers northwest and 600 feet belowthe city of Bucaramanga and connected with the city by highway.The second section of the railroad is some 117 kilometers long, betweenBogoti and Barbosa.

The Government lhas considered two proposals for uniting thesetwo sections. The first wvould extend Section II along the valley ofthe Suarez River, connecting with the first section at a point 33 kilo-meters east of Puerto MVilches and by-passing Bucaramanga. Thenmaximum grade for this route is estitiiated at 1.5 percent for 80 percentof its length and 2.5 percent for the balance. Under the second pro-posal, Section II would follow the Suarez River as far as Los Frios,thence climbing to Chocoa (600 meters) and going down to connectwith Section I at Bucaramanga Station (300 meters). The grade fromLos Frios to Bucaramanga is estimated at 2.5 percent. The followingtable shows the distances for both alternatives between Bogota andPuerto Wilches:

Proposal # 1 Proposal #2(kilometers)

Bogota ........... .............. 0 0Barbosa ................... ...... 223 223La Falua ......................... 260 260Los Frios .... ..................... 364 364Bucaramanga Stationi ...... .... - 427Kilometer 33 44. . 511Puerto Wilclhes ..... .... 487 544

Both follow a comm11on1 routing betNveen Barbosa and Los Frios. hliefirst involves new construction of 231 kilometers, and the second only204 kilometers. Nevertheless, the Government estimates that thesecond proposal would be inore expensive, primarily because of themore rugged country en route to Bucaramanga Station. Constructionis already in progress on the comtimon section and has been practicallvcompleted betveen Barbosa and La Falua, a distance of some 37kilometers. As of August 31, 1949, the cost per kilometer on thisportion had reached as higih as Ps.$197 thousand. However, theGovernment estimates that the cost from La Falua to Kilometer 33under the first proposal, a distance of 194 kilometers, would be Ps.$30million at the nmaximum, or approximately Ps.$155 thousand per kilo-meter. The total cost of the second proposal is estimated betweenPs.$32 million and Ps.$35 million, or in the neighborhood of Ps.$200thousand per kilometer for the 167 kilometers still to be constructedon this route.

450 TIIE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOMIBIA

In support of the first alternative route between the two sectionsof the Norte line, the Government points out that:

1. It would provide a year-round system of transportation tothe eastern part of the country, including Bogota, by utilizing thepart of the Magdaiena River permanently navigable by day and night,and a railroad which would have good hauling capacity.

2. Utilizing the river (the cheapest means of inland transportin Colombia) for 597 kilometers and the railroad for 487, it wvouldbring transportation rates for through traffic down to about Ps.$70per ton from Barranquilla to Bogota, and would reduce transit timeto approximately five days.

3. It would eliminate the annual operating deficit of approximatelyPs.$1.5 million on the two sections of the Norte Railroad. Both sec-tions now lack traffic density and the first section needs a higherquality of freight, which would bear higher rates than the coal, lumberand agricultural products that now constitute its main traffic volume.The proposed project wvould help to solve these problems.

4. It wvould alleviate the congestion at Buenaventura and on thePacifico Railroad by providing a dependable alternative route forexport and import traffic.

The Mission concurs in the view that a railroad with good haulingcapacity is needed to provide year-round transportation to the easternpart of the country by supplementing the Magdalena River abovePuerto V1ilches. W\ke believe, however, that the proposed MagdalenaRiver Railroad, from Puerto Wilches south to La Dorada and PuertoSalgar, connecting with the Antioquia Railroad at Puerto Berrio,would be preferable. Figure 8 shows the possible location of thisrailroad. No engineering field survey has been made, so that theroute shown is only tentative.

In the absence of more detailed engineering data, it is difficultto make an accurate comparison of probable construction costs forthe Magdalena River Railroad as against the Norte project. Theformer xvould involve a longer distance of new line-from 50 to 60kilometers more-assuming the Barbosa extension is complete toLa Falua. However, the Magdalena River Railroad would traversecountry in which construction should be generally easier and lessexpensive per kilometer. It is, therefore, estimated that the cost ofbluilding the Magdalena River road would not exceed by more than20 percent that of completing the Norte project. Actually, it is believedthat more detailed engineering surveys xvill show that the constructioncost of the Magdalena River project would be reasonably comparableto that of the unfinished portion of the lNorte connection. The survevfor this road shouLld also consider the possibility of a grade reduction

COLOM BOA RIO ACHA

SANTA MARTAPRESENT BARRANQUILLA CIENAGA

,ND RECOMMENDEDRAILROADS

AND PIPELINES CARTAGENAt CALAMAR

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CU CUTA~BOCAS I,1 UCT\ TARAZi * ~~~~~~~~ ~~~~~ROSARIO *CCHIRA

5 PUERTO ~PUETO

PAMIPLONA

DASE)SA ~BERMEJ BUGARAMANGA

ANTIOQUCA BERRIOSAN JER6NIMO ORRO

OUIBO SONSON UERTO SOAM

/; LA DORADA SALGAR \{UJ

,ALJANDRO, HON}+

CARTAGO PEREIRA

z ,ARMENIA ,6SLNGT

ERBEL EZ xILVCNI

BUENAVENTURA E EGIRARZOT

CALi tPRADERAOLOMBIA ~ PPPAW

SATR -. i+111111111 RAILWAYS

\ ATNORJzIVA - PIPELINES

P O P AYA N i r RECOMMENDED

trHI Z RAILWAYS

1I-HI- PIPELINES

FLORENCIA

EL 0150

_PAS5TO-

IPIALES

FIG-URE 8

452 'THE' BHASIS OF A 1)EVELOINIEXN'T PROGRAM FOR (CLOSLMBIA

route which has beeln surveyed to some extent by the Alitioqtlia Rail-road between the Nare and MNIonos rivers.

From the standpoint of operating cost the 1Iagdalelna River routeprobably xvould be more advanta-eous. For example, it is believedthat the maximum compensated grade along the river Would be lessthan 1 percent in a southbound direction, as against 1.5 to 2.5 percentfor the other route. Its operating costs wvonld, therefore, be muchloxver and hence would permit loAver rates.

Perhaps the most importalnt factor in comparing the desirabilityof the Norte extension vis-a-vis the Mlagdalena RIiver route is thetraffic potential involved in each-case. Here again the Mtagcdalena Riverroad seems more promising. In the first place, it wvould provide aninport-export route from the Caribbean ports to the industrial centerof Medellin through its connection ivith the Antioquia Railroad, whilethe Norte route would not tap this area. The additional traffic poten-tial of the latter xvould be relatively small since export and importtraffic of the Bucaramanga area is already adequately served and theregioni between Kilometer 33 and Barbosa is not likely to generateniuch additional traffic. The Magdaleuia River proposal would alsoprovide the much-needed connection between the Eastern and West-ern railxway systems, and make possible the through routing of equip-inent that is so important for securing traffic and operating economies.

Finally, the Magdalena River Railroad wvould provide for the firsttime a through railroad connection between Colombia's two largestand most important cities, Bogota and M/ledellin, and between Bucara-mann-a and MIedellin. The utility of this road will increase progres-sively wvith greater industrial and agricultural specialization and thefurther development of these important centers of prodtiction anddistribtution.

Since traffic potential is not nowv sufficient to justify tw%o parallelnorth-south railroads connecting the Caribbean ports and the inlandcities, and wvill not be for the foreseeable future, it is recommendedthat the construction of the meter-gauge line to connect the two sec-tions of the Norte Railroad be abandoned in favor of a yard-gauge linedown the MAlagdalena Vallev from Puerto A\Vilches to La Doradaand Puerto Salgar.

Law No. 356 of March 3, 1949 (Article 3) gives the Governmentauthority to grant an operating concession up to 50 years to obtainthe construction of this railroad, and sets forth certain general con-ditions of such a concession, As a nmatter of general principle, theConsejo has been opposed to the construction and operation of rail-roads unlder concessions. Assuniino that the necessary administrative

StlRFACE TRAkNSI'OR'I' 453

reorganiizationi and operational reforms are put into effect, construc-tion and operation of a new railway line under concession would bemost undesirable since it would hamper the integration of facilitiesand services which would be one of the more important results of thisrailway. On the other hanid, if these administrative anid operationalchanges are not made, it woould appear to be unwise in any case toundertake any large new construction projects.

Ibagud-.4rmcnia Railroad. A second project to which the Govern-ment assigns high prioritv is the railroad link between the Easternand Western systems between Ibague and Armenia. Extension workhas already been started at the two ends of this link and 32 kilometersof the line are practically finished. According to figures submittedby the Consejo, the cost has averaged Ps.$260 thousand per kilometer.However, these 32 kilometers are the approaches and represent thesimplest construction from the standpoint of both engineering andcost. The 104 kilometers still to be built include over 14 kilometers oftunnels, the largest almost 5 kilometers long. The Government pres-ently estimates that this tunnel alone will cost Ps.$14.4 million andthat the other 99 kilometers will average about Ps.$330 thousand perkilometer, or Ps.$32.6 million in all. This would bring the final cost,including that for the portion already constructed, to approximatelyPs.$55,320,000.

This total figure is more than Ps.$10 million less than an estimateprepared for the Government by Winston Brothers Company, inde-pendent contractors, in June 1947. The latter estimated a total costof Ps.$37 million plus U.S.$17 million, or a total of approximatelyPs.$66,800,000 (dollars converted at the then prevailing rate of 1.75).The subsequent change in the exchange rate and the continued internalinflation would in all probability make the figure closer to Ps.$75million at present. The AVinston Brothers' estimate also assumed ahigh degree of mechanization and a construction period of a minimumof four years. Present construction is proceeding much more slowlyand without the proposed mechanization. It is felt, therefore, that theofficial estimate of the cost of this project is much too low.

In support of the Ibague-Armenia project, the Government citesthe great increase in passenger and freight traffic over the connectinghighway. In 1939, 253,000 passengers used this highway, but by1948 the number had risen to 339,000, an increase of 34 percent.Freight tonnage increased from 154,000 in 1939 to 324,000 in 1948,or 110 percent. Much of this increase, of course, represents trafficdiverted from Cartagena and Barranquilla to Buenaventura becauseof the disability of the Magdalena River, which the project previously

454 'IIFE BASIS OF A D)VEEL0o'P1.N'r PROGRAM FOR COLOnMBIA.

discussed would largely solve. With that route operating, it is doubt-ful that the present volume of traffic between Ibagu6 and Armeniawould be sustained, even assuming lower transportation costs andrates as well as continued high economic activity in the country.

The general objectives of the Ibague-Armenia Railroad link aresound. It provides a much needed connection between the Easternand Western divisions of the National Railways System, a throughrail route from Buenaventura to the eastern part of the country,and an interior rail link between -Medellin, Cali and the CaucaValley and Bogota. Its economic validity is questioned not becauseit would not be useful, but rather because of its high cost and themore satisfactory alternative means of accomplishing the desiredobjectives. The Magdalena River Railroad recommended above willachieve at least tvo of these purposes more cheaply and efficiently-namely, linking the eastern and western divisions and handling acertain amount of the export-import tonnage nowv moving over thisroute.

As for the traffic that will continue to move over the Ibague-Armenia route, we believe it could be handled over the highway atrates only half those now prevailing if the highway is improved tomake it usable by semi-trailer truck units and if terminal methodsand handling are made more efficient.2 In comparing potential high-way transport cost fig-tires with those for rail transportation it mustbe remembered that both the capital investment and the operatingexpenses on this railroad wvould be extraordinarily high; construc-tion costs would average about Ps.$550 thousand per kilometer atthe minimum. The route as presently located would encounter 3percent maximum grades, and it wxould be very costly to maintaini.Both these factors would make for very high operating costs.

Table 135 estimates the costs per ton and per ton-kilometer forhandling traffic over the proposed railway, under conditions of mini-mutm and maximutmzi traffic. For this purpose it is estimated that theminimum traffic over the railroad in 1955 would be about 200,000 tons.or 27 million ton-kilomiieters, assuming the restoration of the Magda-lena River route as an export and import artery, continued use of thehighl'vay under improved service conditions, and more efficient railroadoperations, permitting an average operating cost of five centavos perton-kilometer. Capital charges are computed on a construction costof approximately Ps.$75 million, based on the Winston Brothers sur-vey, amortized over a thirty-year period at 4'2 percent interest. Witlha minimum traffic volume of 200,000 tons, these capital and operating

2 See discussion below.

SURFACE TRANSPORT 455

charges would amount to Ps.$25.41 per ton and Ps.$0.1882 perton-kilometer-over 40 percent more than the existing average rateof Ps.$18 per ton for movement of general merchandise over the

TABLE 135

1955 ESTiMATED COST PER TON AND PER TON-KILOMETER FOR TRAFFIC

VIA PROPOSED lEAGUE-ARMENIA RAILWN'AY

Maximum Traffic Mlinimum Traffic

Total Tons ... ...... ...... 400,000 200.000Total Ton-Kilometers ... ....... ... .. 54,000,000 27,000,000Estimated Operating Costs] ... ... Ps.$2,700,000 Ps.$1,350,000Estimated Capital Charges2 ..... ...... . 4,3 3 2 ,5 0 0 4 ,3 3 2 ,5 0 0

Total .... Ps.$7,032.500 Ps.$5,682,500Less Passenger Revenue .. 400,000 600,000

Ps.$6,632,500 Ps.$5,082,500Estimated Total Costs:

Per Toln ..._ .Ps.$16.58 Ps.$25.41Per Ton-Kilometer ... Ps.$ .1228 Ps.$ .1882

I Operating costs are assumed to be 5 centavos per ton-kilometer.2 Capital charges are based on amortizationl of Ps.$75,000O,OO over a 30-year period

at 4X2 percent interest.

hig-hway. Even in the case of the maxiiiiuln traffic estimate of 400,000tons, which there seems little prospect of attainiing, the cost xvouldbe Ps.$16.58 per ton, or only slightly less than present rates. Underneither condition wvould there be a marked saving in transportationicost, and it is quite likely that the cost wvould be substantiallyin creased.

It is therefore recomiimenided that the Ibague-Armenia Railroadconstruction project be abandoned for the present because its con- E

struction and operating costs would be excessive for the potentialtraffic, the timie required for construction would be too long, and ahighway suitably improved would serve the purpose at lower cost andwvith greater flexibility.

TVestern¢ Trunk Railroad-Bolivar Section. The third project beingrpushed by the Governmelat is the Bolivar Section of the WesternTrunk Railroad, whicll Awould extend about 250 kilolmleters fromCartagena south to the San Jorgoe River. To integrate this line witlhthe Western systeim at Anzii, as is eventually proposed, would re-q(uire ultimate constrUctioni of some 486 kilometers of lisle. Over 40kilometers have been colipleted to date south from Cartag-ena, andsome 210 kilometers remain to be built in the Bolivar section.

45o THIE BASIS OF A DEVELOP'MENT PROGRAM FOR, COLOMBIA

Thlis railroad is designed to tap the excellent landl southl ofCartagena, to transport the cattle, rice, corn and cotton produced inthiis area, and in conjunctioni wvith the highway \vlhich wNould continuesouth to Medellin to provide an artery for foreign trade movingthrough Cartagena. It is estimated that this railroad wvould costapproximately Ps.$40 million, including the construction of new shopsin Cartagena.

The ultimate integration of this line with the Western Division,involving 486 kilometers of newv railroad, could not be completed formany years. As has already been stated, there is not now, nor willthere be in the foreseeable future, a sufficient volumiie of traffic tojustify more than one railroad to the Caribbean ports. We believe thelocal traffic which wvould be handled by the nortlhern section of theprojected Western Trunk Railroad can be adequately handled for thepresent by highwvay; and this highway should be given top priorityfor immediate completioll.3 In view, of the -reater importance andurgency of other railway projects, therefore, wve recommencl thatfurtlher wvork on this Bolivar project be postponed indefinitely.

The 40 kilomleters of constructioni comlpleted on this project to(late illustrate the wastefulness of tying up capital in ventures ofNvhich it is inmpossible to foresee the future return. At the currentrate of progress, 10 kilometers per year, it wvould take nearly 50 years

to complete this railroad; meanwhile, its economic value would be verylimited. If at some future date it is found desirable to extend a railroadfrom1 the interior to the Caribbean ports, an extension of the proposedMagdalena River Railroad seems more appropriate, and the route andothler details sliould be considered at that time.

Bi2ya-Bitenav'entatra Cott-Off. The fourth major railwvay constructionproject is a cut-off on the Pacifico Railroad from a point 43 kilometerseast of Buenaventura to Buga on the Cauca Valley portion of therailroad north of Cali. The chief purpose of this cut-off would be torecliuce the maximum grades of 3 percent and 4.5 percent on thel3uenaventura-Cali route to 2 percent. It wvould also shorten thepresenit route by 70 kilometers for through traffic moving to andfrom Buenaventura via Buga, about 70 percent of the total traffichanidled bv the Bueniaveintura port. Approxiniatelv 120 kilometers ofnewk roa(l are require(l, at an estimated cost of not less tlhain Ps.$22millionl, or Ps.$183,000 per kilometer.

Conistructioni of this railroadl would hlelp to relieve the persistentpostwvar bottleneck betwveen Buenaventura and Cali. However, if the

iSce discussioii belovw.

SURFACE TRANSPORT 457

Mlagdalena River route and the western trunk highway between Carta-gena and Medellin are both going to be improved, this traffic is likelyto be substantially reduced. The new Buga-Buenaventura highwaypresumably will also be able to carry a considerably increased volume.Vll these factors make it doubtful that the traffic potential is sufficientto justify a new Buga-Buenaventura railway line.

More efficient utilization of present equipment, as recommendedearlier, would easily permit the tonnage handled over the Cali-Buenaventura section of the Pacifico Railroad to be doubled. Forexample, the use of diesel-electric equipment and lighter weight rollingstock would permit a large increase in capacity. Given this increasedproductivity, together with the other improvements mentioned above,we feel that no economic need for this cut-off railway exists. Wetherefore recommend that wvork on it be discontinued.

Standardization of Gattge. Two of the four railroads servingl3ogota are meter-gauge; there are also two isolated meter-gaugelines-the Norte Section 1 from Puerto Wilches to BucaramangaStation and the Cucuta Railroad from Cucuta to Villamizar. It isrecommended that plans be made to change to yard-gauge on the tworoads serving Bogota as soon as possible. This step is important toaccomplish several of the previous recommendations, such as the cen-tralization of shop and maintenance facilities in Bogota and the stan-dardization and better use of rolling stock and equipment. Althoughthe interchange of traffic between these lines serving Bogota is notgreat, the operational advantages appear to justify the change, regard-less of traffic considerations. Moreover, with the expected increasesin agricultural and industrial specialization in Colombia, the trafficpotential should increase, and faster through service as a result of thisintegration of the railroads at Bogota would enable them to participatelargely in this increased traffic.

The case for standardization of the lNorte Section 1 between Puerto\Vilches and Bucaramanga Station is less clear. The previously pro-posed Magdalena River Railroad would directly link this line to therest of the National Railway System. For export-import traffic movingtup and dowi-n the 'Magdalena River, howvever, transfer of cargo atPuerto Wilches would still be necessary. If the proposed MfagdalenaRiver Railroad is built on the west side of the river, internal trafficwould also have to be transferred by ferry, since it is doubtful thatthe volume of internal traffic moving to and froni the Norte Sectioni 1would warrant the construction of a bridge in the immediate future.If, on the other hand, the new iMagdalena River Railroad is locatedalong the east side of the river, it would automatically tie in with the

458 THE BASIS OF A DEVELOP-MENT P'ROGRA-II FOR COLTOMBIA

Norte Section 1. and standardization of gauge would have the samemzaintenance and equipmlent advantages as were discussed in connec-tion wvith the meter-gauge roads serving Bogota, although to a lesserextent. It is therefore recommended that standardizationi of theNorte Section 1 be contemplated as part of the future railroad coIn-struction program, but that specific plans for its accomplishment bedeferred until the MIagdalena River road is located and built and thesuggested economies are possible of achievement.

Since there is no plan for the integration of the Cucuta Railroadinto the National Railxvay System in the foreseeable future, we recomi-mend that this road continue to be operated as a meter-gauge line.

Railroad .Abandonmoen-ts. In any decision wvith respect to abandon-ing railroad operations, two factors are usually wveighed-first. theservice rendered by the road and possible alternative means of trans-portation, and second, the losses currently being incurred by therailroad. In the case of two railroads, the balance of these two factorsappears to favor abandonment. Both of them are isolated lines-theN\arifio operating from Ttumaco to El Diviso, and the Cartagena Rail-road, whose main line operates between Cartagena and Calamar onthe Magdalena River. Table 25 in Chapter VII showed that thesetwo roads incurred greater operating losses per unit of service per-formed than any of the other National Railways in 1948, a year of hightraffic deemand. Expenses of the Cartagena Railroad were 371.5 percentof its revenues, an operating ratio over 200 percent higher than anyof the other National Railways: and the operating ratio of the NarifnoRailway wvas 297.8 percent, or more than 150 percent higher than anyof the other National Railways: and the operating ratio of the NarifnoPs.$1,278.000, 35 percent of the total loss of the National Railw-aysas a whllole. Historically, these two roads, especially the Nariflo, havecarried extremely lig,ht traffic volumes both in freight and passengersFor example, in 1947, the last year for which comparable statistics areavailable, the Narifio Railroad accounted for only 2/10 of 1 percent.and the Cartagena Railroad for only 1.4 percent, of the total cargoton-kilolimetrage of the National Railways, including the Cundinamarcaline.

The Nariflo Railroad is 109 kilometers long, from the Pacific portof Tuiiiaco to El Diviso. It joins at the latter point -with the westernitrunlik highway. wliclh goes nortlh up the Cauca Valley. Since there isno present or foreseeable traffic requirement that xvould make it pos-sible to integrate this isolated line with the National Railway System,wve recommiiend that it be abandoned and the highway extended fromEL Diviso to Tumaco, as is recommended later in this chapter. The net

SURFACE TRANSPORT 459

cost of such a higlivay would be less thanl continued operation, maini-tenance and necessary improvement of the present railway and betterservice would be afforded.

The chief purpose of the Cartagena Railroad is to provide a con-nectioni betwveen the Magdalena River port of Calamar and Cartagenafor the routing of export and import traffic moving through Cartagena.As we suggest beloxv, this traffic could be better served by the Canaldel Dique, provided that the latter is improved. For river traffic onetransfer operation would be eliminated. The Canal should then besufficient to serve the traffic which continues to use the river route,considering that both highway and air transportation will presumablybe available.

We recommend that the Cartagena and Narifno railroads beabandoned as soon as more efficient alternative means of transporta-tion are available. In effect, this should result in a net saving of atleast Ps.$l million yearly without any serious reduction in service.

PIPELINES

Economic Utility and Cost of New Pipelines

WYe conclude elsewvhere in this Report4 that one complete refineryat Barrancabermeja should be sufficient to supply the greater part ofthe domestic demand for petroleum products. The followving recom-mendations are based on this conclusion and are designed to pro-vide for the distribution of products from such a refinery, pluswlvatever imports would still be necessary.

The largest internal markets are Cundinamarca, Antio(quia andValle del Cauca. To supply the Cundiniamarca area, we recom-mend that the existing pipeline to Puerto Olaya be extended southto Puerto Salgar.5 We believe that railroad and highway facilitiesxvill be adequate, at least for the present, to distribute "white prod-ucts" (principally gasoline) from there. It may later prove econom-ically feasible to extend this line up the hill and over the savannato Bogoti, but this is not of top priority at present.

To supply the other major markets--Antioquia and Valle delCauca-it is reconmmended that a pipeline be constructed fromiPuerto Olaya to Medellin. Froml the latter city distribution wouldbe handled by rail and truck transport. The present line from therefinery at Barrancabermeja to Puerto Olaya will have to be replaced,since it was built during the war with inferior materials, the only

4 See Clhapter XIX.5 See Figure S.

40t 1 IL, l:A\SIsoFA OFVF:lO'l nx'I' TROGRl,=AiM FOIR COLOM-IBIA

onies then available. The Caribbean coast (notably Barranq(uilla aniCartagena) can be supplied from the refinery at Barranca by meansof river barges.

The products that will still have to be imported, such as aviation,gasoline, can be supplied directly to Barranquilla and Cartagena. M\anyinterior markets, however, will have to be supplied via Buenaventura.The increased capacity of the Pacifico Railroad between Buenaveturaand Cali, wvhich will be available if the other recommendations in thischapter are followved, should suffice to handle this traffic. This isespecially true since many of the petroleum requiremenits nowv beingsupplied throughl Buenaventura would be taken care of by the Ba-rranca refinery over the previously described transport routes.

The establishment of a single adequate refinery at lBarranca shouldal-SO obviate the need for a proposed refinery at Cartagena. from wvhich

petroleum product-, would be shipped through the L'anama Canalt(o B3uenaventtira. A single refinery at Barranca wvould thus servenot only to redcucc the traffic burden on the Buenaventura-Cali rail

gi-ment, but also to eliminate the need to purchase tankier capacityfor shipping petroleum nproducts from an Atlantic coast refinery to13 uenaventura.

'lThe capital requirements for the proposed two new\ pil)elinlesanLid for replacement of the present Barranca-Puerto Olava line wvillhave to be determined. Foster-Whecler estimates the latter at approxi-mately U.S.$1,200,000 for a line 6" in diameter, and Olaya-Salgar andlPluerto Berrio-Medellin lines at U.S.$2 millionj each, for a 6" and a 4"line respectively. Another company, Acosta Mladero anid Paris, Ltd.,imakes the following estimates: Olaya-La Dorada, 1's.$5,500,000, in-cluding U.S.$1.300,000, and Puerto Berrio-AXledellin, Ps.$415 00,000,incltudilng U.S.$950,000.

The Mission tentatively recommnenids a total of Ps.$10.4 miillioil foithe replacement of the pipeline from Barrancabermeja to Olaya, theextension of the pipeline from Olaya to Salgar, and the constructioIof a line from Puerto Olaya to Mfedellin. However, time didl notpermit a close study of the economics of proposed pipeline construc-tion. It is urged that a newv study be made before substantial sumilsarc committed, in view of the possibilities of reducinlg the cost ofrailroad transport for petrolettm products and of newv constructionl.

HIGHWAYS

1Vrom an econlomic standpoint, highwvays have two major- advan-tages over other means of surface transportation in the clevelopmentof a countrv like Colombia. First, they are flexible; they can be

SURFACE TRANSPORT 461

used by all types of velhicles from private automobiles to heavytrailers for long- distance hauling, and can serve all kinds of trans-port needs from local farm-to-market traffic to long-haul cross-countrytraffic. In addition, it is possible for highways to reach importantplaces in Colombia which are inaccessible for a railroad. Second, thecapital investment in highxvays can be adjusted to a considerableextent to the economic utility of the particular road, wvhereas wvith arailroad a v ery high minimum investment is alwvays required. Al-though highlways have not yet taken their logical part in the trans-port system of Colombia because of excessively high operating- costsand the incompleteniess of the highway system, they offer the bestmeans of supplementing the present railroad network.

Measures To Increase Operating Efficiency

There are twvo major areas in which the operating efficiency ofthe Colombian highway system can be improved and the excessivelyhigh cost of highvway transport reduced. The first is improvementof the quality and maintenance of the existing highway system inaccordance with traffic demands, and the second is lower truckoperating costs through reduced maintenance costs and the operationof higih capacity, more efficient equipment. The second objective isclosely dependent upon the first, so that prompt and efficient execu-tion of a highw,ay improvement program is of first importance.

Highlwav Maintenance, Pavring and Jliprovemente. The chief defi-ciency of the existilng highway netwvork has been inadequate mainte-nanice. Nutmerous examples of unsatisfactory highway mainitenanceexist at present; they are due not so much to inadequate appropria-tions as to unleconomic administ_ratioi-of-the--f-unds aaiLable. Thepresenit highwvay bet\veen Buenaventura and Cali is one of the mostvital traffic arteries in the country, and although its location andconstruction are far from ideal from the standpoint of ease of upkeepand use, its importance is such that it should have top priority formaintenance. In fact, howvever, frequent interruptions of serviceoccur for lack of adequate maintenance and the paving of this roadhas had to be financed by a special tax on1 imports rather than by themore appropriate allocation of national funds. As a result, the tonnagethat the highw,vay can handle is reduced and the costs of truck opera-tions over this route are excessively high, with a consequent toll onthe whole national economy.

Current outlays for highways are one of the largest items of publicexpenditure. The 1950 budget, for example, includes about Ps.$37million for maintenance, paving and construction of highways. This

462 THE B.ASIS OF A DEVELOPMENT PROGRAMI FOR COLOMIBIA

represents 53 percent of the budget of the MIinistry of Public Worksand almost 10 percent of the whole national budget. Article IV ofLaw No. 356 of 1949, the latest general law governing national expen-ditures for highways, provides that of the total amount appropriatedfor highway construction and maintenance "the sum will be takenthat is necessary to take care of imiaintenance, additions and improve-ments, which is considered to be about Ps.$1,000 for each kilometerin service." The 1950 budget calls for appropriation of Ps.$19,222,000for this purpose, and since there are approximately 20,000 kilometersof national and departmental highways this is close to the estimatedPs.$1,000 per kilometer. The 1950 total represents an increase ofabout Ps.$4,000,000 over the 1949 appropriation. We believe an annualappropriation of this size should be sufficient for adequate maintenanceand improvements if it is properly administered, especially since thevarious departments also nmake substantial supplementary investmentsfor highwvay maintenance.

It is recommended that some formal provision be made for regularallocation of these funds based on objective assessment of current andanticipated traffic requirements, in order to minimize political pres-sures and the danger of arbitrary allotments. The establishment ofsound and economic criteria for allocating highway funds is of theutmost importance. not only because of the large sums of money in-volved, but also because, it is only by this means that the highwayscan be developed effectively to play their full part in Colombia's trans-portation system and in the national economy. The increased utiliza-tion of highways, \vhich \vould result from a more rational construc-tion and maintenance program, would be self-financing in large partthrough greater returns from license taxes and a broader tax basegenerally. In estimating future traffic such factors as the effect ofcompleting missing highwvay links, the growvth of interzonal trade,prospective changes in the routing of exports and imports, and so on,should be taken into account. The traffic surveys and estimates shouldalso consider the xveight of individual vehicles, to provide systeniati-cally for strengthening bridge structures wvhere necessary. Surveysshould be repeated or spot checked from time to time to keep tip

to date and reflect changing traffic trends.

High volume highways should be maintainied in conforlmlity Aviththeir importance and traffic volume, even thoughl the cost of suclhmzaintenance in specific cases may exceed by mzany times the averageallowance of Ps.$1,000 per kilometer. W0Te recommiiend, therefore,that funds for maintenance as xvell as construction be allocated bythe Division of Highw7ays in the M\inistry of Public WR orks in accord-ance wvith the results of traffic surveys.

SURFAC' TRANSPORT 463

The magnitttde of the investmwent already made in Colombia's high-way network, and of the additional sums required for its extension,emphasize the importance of proper maintenance, in order to protectthis investment and get full value from it. Some experimentation tofind the most effective and economical method of assuring such main-tenance is certainly justified. One suggestion is that a proposed newhighway connection be built and maintained by private interests andfinanced by tolls. Another is that the maintenanice of one importantstretch of road be contracted out to a foreign firm experielnced in suchwork and in the tise of modern road equipment. Both suggestionsmight well be given a trial for comparative and demonstration pur-poses.

Efficient highway maintenance requires use of mechanized equip-melnt despite the relatively low cost of manual labor in Colombia.The road maintenance equipment now available, however, is so spreadout that the isolated pieces cannot be operated efficiently; in view ofthe shortage of inspecting and supervisory personnel these widespreadoperations cannot be properly supervised; and much of the equipmentis tied up for lack of spare parts and operating know-how. Reserveequipment is generally lacking. For example, a single grader is oftenassigned to the maintenance of a certain highway or group of high-ways, and if this piece of machinery is temporarily out of service allmainteniance ceases.

We therefore recommelnd that highway construction and main-tenance be perforned insofar as possible with mechanized equipmentoperating out of larger equipment pools, which can be transferredfrom project to project as necessary to assure efficient utilization. In1949 only Ps.$400 thousand, or less thaln 10 percent of the natiolnalhighway appropriations, were earmarked for the purchase of roadbuilding and maintenance equipment. The 1950 budget figure ofPs.$1 million is more adequate, and we believe annual allotments forsuch equipment should be maintained at this level at least for someyears to come. In order to speed up the acquisition of equipmentneeded for urgent highway construction and maintenance projects,it would probably be desirable to commit part of the annual appropri-ations to service a loan for immediate procuirement of the necessarymachinery.

Tru-ck Operations. Truck operations in Colombia are very expen-sive, often averaging 15 centavos per ton-kilometer. Two factors have)een mainly responsible-first, the use of low-capacity, high-costLquipment, and second, the high cost of equipment maintenance. Theiighway conditions previously described influence both these costs.

4(4 '111F IS O F A I 1K.1.O1' NI1 I'ROGRANIT FOR (OLOMNI.B1I1A

Given reasoniable improvement of these conditions, so that more effi-cient trucks can be tsed, it is safe to say that truck operating costscould at least be cut in half.

One illustrationn may point up the possibilities of reducing coststhrotgh-l the use of larger capacity and more efficient highway equip-menit if the most important highways or highwvay segments are madlecapable of carrying such equipment. The Armenia-Ibag-ue high+7waynow carries approximately 325,000 tons yearly. The averag-e chargeis about Ps.$18 per ton for general freight. If this rate could behalved, therefore, the annual saving to the economy would be approxi-inately Ps.$3 millioln. This savinlg could be acconmplished by the opera-tionI of 20-ton capacity semi-trailer equipment, assuming depreciationover five years and allowing for a 20 percent profit margin. This esti-mate is based on present road conditions, without paving or otheralterations. AMaintenalnce costs on the highway woould unidoubtedlybe increased by use of thi,s heavier equipment, and its effect on bridgestructures would also have to be considered. But an annual savinigof Ps.$3 million should outweiglh those increased expenditures.

Thlis highwray has an exceptionally high traffic volume, but similar,thong-ll more limited, savings could be realized on other importanthighway segments such as Cali-Buenaventura, MIedellin-Bogoti, andAtedeltin-Cartagena. It should not be hard to obtain private financingfor truck operations over such routes if operating conditions are im-proved as recommended; and again, expanded operations \vill resultin a wvider tax base and thus offset the necessary highwvay expendituires.

Truck maintenanice is undulv complicated and expensive also be-cause of the unavailability of spare parts, which has been accentuatecdby the diversity of types of trucks operated and the absence of largeoperators of uiniforun fleets xvho could afford to stock adequate spareparts inventories. In the postwar years exchange restrictions have alsocontributed to this problem: it is clearly desirable to give favorableconsiderationi to the allocation of exchang-e for the purchase of currentrequirements and reasonable inventories of spare parts.

Major Extensions of the Highway Network

The construction appropriations for highways for 1949 involved101 separate projects. Clearly, however, the allocation of availablefunds over so many projects is inefficient and makes it impossible tocomplete many of these highwvays for effective use for years to come.We strongly recommend, therefore, that construction appropriationsbe focused on a fexv top priority projects, in order to make them pro(llctive as rapidly as possible.

SURFACE 'I'RANSPOR'I' 4(65

Table 136 lists the projects which appear to imerit first attention,considering both national traffic carried and their export-import ship-ments. These six projects involve a total estimated cost of approxi-maitelv Ps.$36,500,000. In addition, there are two other projects towhlliclh favorable colnsideration might be given-namely, the Iighliwaybetween Bogoti and Neiva and that between Barranquilla and SantaMarta. It appears advisable that the routing from Arbeliez to Neivavia the Magdalena River Valley be explored before the link throughlthe mountains south of Arbeliez along the Rio Riachon to the -illageof Colombia is completed. All these projects and their relation to tllerest of the national highw,vay system are shown in Figure 9. ff atten-tion is adequately concentrated on these high priority undertakings, webelieve they catn all be completed within two years or less. P'resentconstrtiction schedules contemplate mucch longer periods.

It is difficult at this time to recommend specific allocation of fundsfor second priority projects, after those listed above. The traffic stir-vey recommended earlier will provide the required information dnpresent traffic and better data for forecasting future traffic volumes

upon which more informed decisions can be based. In general, however,it is strongly recommended that the number of projects simutltaneotuslyunder wvay be kept at a minimum, in order to employ larger forces andmore funds and thus complete the projects more qutickly and effi-ciently. If present appropriations for highway constructionl anddevelopment are allocated on a sound objective basis, their presenttotal size appears to be sufficient. The advantages anticipated fromcompletion of the six projects listed in Table 136 are stlmmarizeclbelow.

TABLE 136

ETI MATED CAP1TAI RFQuIREIMENTs FOR MAJOR Hs(HwxAy PROJECTS, 1951-55

Highways Links Estimated Cost

Cartagena-Medellin Taraza-Planeta Rica Ps.$ 5,535,000Bogota-Medellit . . La Dorada-Sons6n 5,500,000Bucaramaiiga-Saista Cachira-Abrego

Marta-Barranquilla . Rinc6is Hondo-Caracoli 7,700,000B3uga-Buenavenitura . . Buga-Buenaventura 5,140,000Tumaco-Pasto Tumaco-EI Diviso 7,550,000Medellin-Turbo . . arious Sectors 5,075,000

TOTAL Ps.$36,500,0001

I Includes U.S.$1.5 million (or Ps.$3 millioni) primarily foir reinforcing steel forconcrete bridge structures.

CO LOM B A RIO HACH&P SANTA MARTA

PRESENT BARRANQUILLA- CIENAGAAND RECOMMENDED

HIGHWAYSCARTAGENA UNDAC,6

CAAAAL-CNAV LAIASI.CE-A A STAAGATGIO UA M

CANASGORDASL BNCO

MONTERIA

TURBO PLANETA RICA GA.AR CFA V ; LLAMI2IAR

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CANASGORD^\ ~ ~~~~~PUERTO r,I ANTI0C,I- BERRTO_ "SAN JERNM L RROCOHANZA4 s EDELLI OLAYA X L

CI5D0Bc) "O"S PUIERTO SO~ 5GAMOSO.t A SOA AtsLGAR \ K U J

i LEAND.4o ON. _A LES L 'LAAAIn

CARTAGO ERIA _.

7 RMENIA B L OGOTA

s~~~~~~~~~~~RE Z LL;I ECIBUENAVENTURA jj GIADTPUERTO LOPEZ

CAL PRADERA /CLMl PSv

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TUMACO

> | QFL~~~~~~~~~~ORENCIA

,DVISO -< P~~ASTO

IPAES

SURFACE TRANSPORT 467

Cartagena-Medelffi. Completion of this highway would not onlyfacilitate the movement of export-import traffic from Cartagena toMedellin and other cities in Antioquia, but also provide an essentialmeans of tapping the agricultural resources of the Bolivar country.The latter region could provide important food supplies for the metro-politan areas of Medellin, Cartagena and Barranquilla, but until thehighwvay is completed its agricultural surpluses cannot be usedeffectively. The highway should also provide a valuable means ofdistributing the industrial products of Medellin to the coastal areaaround Cartagena and Barranquilla.

AMedeZlin-Bogotd. The La Dorada-Sons6n link of the Medellin-BogotA highwvay will provide a short route between Colombia's twoprincipal cities, wvhich should help greatly to expedite the industrialgrowth of both and to make available manufactured goods to theintervening country. In addition, some agricultural commoditiesxvould move over this route.

Bucaraniianiga-Sanita Marta. This higlhwvay will greatly improve thefood supply of the Atlantic coastal cities, primarily Barranquilla andSanta Marta, and Avill facilitate movement to the Bucaramanga-Cucutaarea of products originating in or imported througlh Barranquilla.

Bitga-Bitenaventiura. Completion of the Buga-Buenaventura high-way wvill serve principally to relieve the present bottleneck for exportand import traffic through Buenaventura. It will provide a shorter,lower grade routing for commodities moving through Buenaventurato and from Medellin and other cities in the northern part of theCauca Valley.

Tu7ziaco-Pasto. The Tumaco-El Diviso segment of the Tumaco-Pasto highway is important to the abandonment of the Narifno Rail-road, as recommended in a previous section of this chapter. This roadwould also alloxv distribution of agricultural and manufacturedproducts tlhroughout the southwestern section of the country andwvould complete this portion of the wvestern North-South trunkhighway.

MWedellin-To-rbo. The Mledellin-Turbo highway should not beregarded as a prospectively important artery for foreign commerce toand from Medellin through the proposed port at Turbo. Improvementsin the Medellin-Cartagena highway, the Magdalena River and the railand highway service between Medellin and Buenaventura should befully adequate for Medellin's foreign commerce in the foreseeablefuture. The function of this road will be primarily to open up forsettlemelnt and agricultural development an important and potentially

468 THE BASIS OF A DEVELOPMENT PROGRAtM FOR COLOMBIA

productive part of Autioquia, which xviil be a valuable source of foodfor Medellin. It is expected also that part of this route wvill serve asa section of the Pan-Amiierican Highwvay.

In addition, we believe consideration should be given to completinlgthe links which would close the gaps in the Bogoti-Neiva-Popayinroute and to buildlina a direct highwa ay betwveen Barranquilla andSanta Marta.

M\lost of these highlway connections 'will provide alternativeroutings to supplement the precarious routes now available to severalimportant inland cities. Their early completion xvill yield immediatepublic benefits which it is coitfidently predicted wvill far exceed theircost. These projects should be considered as the first phase of a mioretightly focused highway program, emphasizing rapid and efficientcompletion and early productivity of projects in order of priority(leterminied by objective criteria. Only on this basis is it possible tojutstify an(d obtain full benefit from the present large expendituresfor highAvav construction.

Departmental Roads in Cundinamarca

Apart from nationally financed road building programs, the depart-ment of Cundinamarca has tinder consideration a large road buildingand paving program of Ps.$44 million. This program was proposedtoo late to be studied by the Miission, but it does not appear to havebeen based on traffic surveys or carefully prepared estimates of trafficvolumes. Pending such studies, its econonmic justification must remainopeni to question. 'Moreover, the totals appear large in relation toother necessary expenditures. being twice the department's totalexpenditure for all purposes in 1947-48, and more than the nationalbudget in 1950 for high\vav maintenance, paving and construction.It is to be hoped that the expansion of essential departmental services,stuch as those for healtlh and educatioln, wvill not be set back by thisprograni.

WATER TRANSPORTATION AND PORT FACILITIES

Colombia's inland lwaterw,vay system has historically been the mostimportant artery of transportation for imports and exports, since theMagdalena River provides the only link between the Caribbean portsand the populous interior cities. During the last fexv years, however,the Milagdalena RIiver has ceased to be an economic and dependablemeans of communication. This has resulted not only from the naturaldlifficulties in maintaining year-round navigation in the upper reachesof the river south of Puerto Wilches, but also from the decreasing

SURFACE TRANSPORT 469

efficiency of the service rendered by the river navigation companies,mainly because of low labor productivity and the continued use ofinefficient equipment and operating practices. These factors, togetherwith certain problems common to all types of surface transportation-such as pilferage, breakage and excessive handling charges-havemade inland wvaterwvay transportation very inefficient aiid expensive.

Measures for Increasing Operating Efficiency

Operatinig anid Lab)or Practices ont the lllagdalenza River. As ChapterVII shows, some of the major factors in the high cost of river transportare (1) the high fixed charge imposed for stevedoring services intransferring cargo from warehouse to boats and vice versa, (2) theso-called "turn" system of assigning cargoes according to the orderof arrival of the vessels, (3) "crew featherbedding" on diesel-tvpepropellor equipment, and (4) lack of differentiation in rates betweenhigher value general merchandise and bulk commodities for whichwvater transport is normally most suitable. These various operationaldefects lhave resulted in a sharp decline in the importance of the riveras a primary nmeans of transportation. The higher value shiplmlentshave been diverted to other transport media because of excessivedelays, breakage and pilferage, while the cost per ton for river trans-portation is too high to attract bulk commodities. Unless these defectsare remedied, river traffic will inevitably continue to decline no matterhow much capital is invested in better facilities. Any such investmentswill be largely wvasted and the national economy will have to bear theburden of excessive transportation costs by other, inherently lesseconomic, means.

We recommend therefore that (1) greater use be made of mech-anized loading and unloading- equipment xvith the resulting laborsavings reflected in lower transfer charges, and that provision bemade for differentials based on the type and value of the commoditieshandled, in order to attract a greater volume of traffic; (2) presentrates for MIlagdalena River shipments be differentiated for varioustypes of commodities and different qualities of service, so as to com-pete more effectively with the charges of other surface transportmedia: (3) the "turn" system of operating ships be changed; and (4)crew labor practices be revised to permit efficient utilization of modernequipmenit and thus reduce costs to a level which will enable rivertransport to maintaitn its place in the national economy. Severalof these changes will require renegotiationi of labor agreements, whichmay be strongly resisted unless the workers and their leaders under-stand how dangerous to their economzic interests, and to the strengthof their organizatiolns, is the progressive decline of traffic and the

470 THE BASIS OF A DEVELOPNMENT PROGRAMI FOR COLOMNBIA

resulting loss of employment on the river. It is essential also, ifincreasing labor difficulties are to be avoided, that the higher produc-tivity resulting from the recommended changes be adequately re-flected in higher wage scales or other benefits.

Port Facilities. The analysis in Chapter VII indicated that presentport facilities are adequate. or capable of being made so, to handleall Colombia's commercial requirements. This conclusion dependsin large part, of course, upon better transportation into the interior,which in turn depends largely upon effective implementation of thegeneral recommendations contained herein with regard to railroads,highways and waterways. But certain improvements in port operat-ing practices are also of considerable importance. Emphasis shouldbe placed on speeding up the loading and unloading process, especiallyat Buenaventura. This should include xvork on a 24-hour basis whileships are in port, greater and more efficient use of mechanized load-ing and unloading equipment such as fork lifts and freight handlingpallets, the payment of wvages on an incentive basis to expedite thehandling of cargo, and use of lighters. These improvements haveall been discussed in detail over a periocl of years, but fewv have beeneffected.

Much of the difficulty has apparently been due to faulty adminis-tration. The Atlantic ports of Cartagena and Barranquilla are pres-ently administered by the Department of Navigation and Ports of theMinistry of Public W;Vorks; administration of the Pacific ports of Buena-ventura and Tumaco is vested in the National Council for Railwvays;and the Customs Department controls the valuation, taxation andrelease of shipments to the interior. This divided authority has con-tributed in many cases to inefficient use of transportation and wvare-house and other storage facilities. The railroads' control of the Pacificports has also militated against improvement of highwvay transpor-tation to and from the interior.

To reduce the administrative difficulties deriving from dividedauthority and responsibility, it is recommended that a National PortAuthority be established to administer and operate all ocean andriver port facilities. It would take over from private stevedoringcompanies the responsibility for cargo handling and wvould be in abetter position to install and operate modern mechanical facilities, tonegotiate fair agreements with the stevedores' organizations and to

SURFACE TRANSPORT 471

adjust handling charges to fit economic and competitive conditions.It should ultimately be possible for such an Authority to be finan-cially self-supporting; meanwhile, it would provide a sounder basisthan now exists for financing needed port improvements. It shouldbe assured a large measure of administrative and financial autonomy,although it might appropriately be placed under the Ministry of PublicWorks for general policy guidance.

The important problems of insurance costs for breakage andpilferage in transit, wvhich affect all types of surface transportationin greater or less degree, woould be alleviated in considerable measureby greater centralization of authority and responsibility for port oper-ations. The proposed National Port Authority would directly super-vise the labor handling cargo at all ports and control all warehouseand transfer facilities. It would be proper for this Authority to haveunder its direction a corps of river and harbor police, as -was suggestedby the British Police Mission in its report in the spring of 1949. Thisreport concluded that if the numerous remedies suggested were en-forced, they would immediately reduce very considerably the enor-mous amount of pilfering, smuggling, theft and substitution that isgoing on at present. 6 Meanwhile, the use of containers for shipmentin bond direct to the consignee should be adopted to help curb pilfer-age. The Cia. Colombiana de Seguros indicated that use of such con-tainers would reduce insurance rates by as much as 80 percent. Wealso recommend that transport companies be made responsible for lossand breakage of goods wvhile in transit to encourage more adequatesafeguards on their part.

Major River and Port Improvement Projects

We believe that three principal projects should be assigned highpriority in order to increase the economic utility of port facilitiesand inland waterways: (1) stabilization of an adequate channelthrough the 20-mile section of the Magdalena River opposite andbelow Puerto Wilches; (2) dredging of the jettied entrance channelto Barranquilla harbor (Bocas de Ceniza) ; and (3) improvement ofthe Canal del Dique. It should be reemphasized, however, that theserecommendations are contingent upon making necessary operational

6 See British Police Mission Report on Establishment of Ports and River Policeni Colombia, dated May 23, 1949.

472 'I'IIE 1BASIS OF A DEIlO\'lPM ET PROGRAN[ FOR COLOMI BIA

improvenmenits. In the absence of operating changes, further invest-

ment in improving the river would be largely wasted.

The design and the methods presently adopted for the improve-

ment of the river channel appear to be in accord Avith sound open-

channlel practice and wvith experience on this section of the river.

Although it is difficult at this sta-e to predict whether permanent

stability of the channel can be obtained as far south as Puerto Wilches,

wve believe that the effort now being made should be continued as

there is a reasonable prospect of success. WVe believe the Government

should be prepared to spend a mininium of Ps.$3 million and U.S.$1.5

million on this project and to undertake annual expenditures ofapproximately Ps.$250,000 for maintenance. Because of the relativelv

high cost of continuing the proposed Magdalena River Railroad north

of Puerto Wilches and of constructing ade(quate warehouses and

traffic-handling facilities in this area, this v olume of expenditure

appears justified despite the risk that the project may not be successful.

The second project also involves the expenditure of considerable

sUIms wvithout a guarantee of success. At present it is necessary for

most ships to load or unload partially at Cartagena since they can-

not pass into or out of Barranquilla harbor fully loaded. This ofcourse is highly uneconiomaic. WVe recommenid therefore that the

present Aork in the Bocas de Ceniza be continued. Im1provement of

the port of Barranqluilla is justified by the city's importance not only

as a port of entry but also as an industrial and commercial center. The

estimated cost of this work is some Ps.$] 0 million, with a further

annual requiremeent of perhaps Ps.$2 nillion, at least until stabiliza-

tion is finallv assured.

At the same time, the excellent natural port of Cartagena should

be utilized more fully and efficiently, which is the purpose of the

project for improvement of the Canal del Dique connecting Cartagena

with the Magdalena River. Comipletion of this undertaking wvill

permit abandonmiiient of the Cartagena Railroad, as recommended

earlier in this chapter. Improvemiient of the Canal, and use of nmodern

diesel-powered towboats wvhiclh wvill then be possible, wvill permit a

reduction of ton-kilometer operating, costs by about twvo-thirds.Abandonment of the railroad, moreover, will eliminate one transfer

point and the resultant handling costs. It is estimated that the cost

of improving the Canal wvill approximate Ps.$4 million, and that

SURFACE TRANSPORT 473

about Ps.$285,000 will be needed annually for maintenance. Theanticipated savings and improvements in service should more thanoffset these expenses.

Ocean Shipping

The ocean cargo shipping line Gran Colombiana, owvned by theColombian, Venezuelan and Ecuadorian Governments, was brieflymentioned in Chapter VII. We believe it is questionable Avhetherfurther capital outlays for the acquisition of more ships and the open-ing of newv routes can yield as large returns as the same amount ofinvestment in Colombia itself, especially under the conditions ofincreasingly severe competitioni nowv developing in the field ofmaritime transport. For example, Commodore Vanderbilt is reportedto have explained the disappearance of the American Merchant Marinefrom the high seas in the 1870's by saying that it was simply acase of 3 percent beating 6 percent. In other wvords, British ship-ping interests were satisfied wvith a relatively low return, whereas

the Americans could make more from investments within their own

country. In general, the same situation appears to apply to Colombia

today.

Coastwise Shipping

Promotion of the interchange of goods among the seaports ofColombia, especially the smaller ports, is desirable because of the

lack of adequate and economical inland transportation routes between

mainy of those points. In particular, the need of maintaining adequate

vessel service to the islands of San Andres and Providencia in the

Caribbean Sea is recognized. There appear to be sound reasons forthe acquisition of a serviceable vessel by the Colombian Government

for coast%vise shipping. The Government has planned to purchase a

1000-ton seagoing freight vessel of moderate draft to serve both

coasts throuigh the Panamia Canal, collecting freight concentratedat the intermediate ports, and also navigating the Orinoco and

Amazon Rivers as far as the channels are navigable to such a vessel.

This would release the smaller vessels now in use for coastwise

shipping for transfer to the Arauca, Meta, Caqueta and Putumayo

river fleet. Although the contemplated service does not promise

to be a directly profitable venture, the plan is probably justified for

social and political objectives.

474 TIIE BASIS OF A DEVELOPAIENT PROGRAMt FOR COILOMBIA

ESTIMATED CAPITAL INVESTMENT

The followving estimates of dollar and peso costs to carry out therecommendations in this chapter are not based on detailed costsurvevs, but rather on rough data and informed judgment. Theyare sutmmnarized here for purposes of general comparison xvith capitalrequiremenits in other sectors of the Colombian economy. In general,wve have sought in these recommendations to achieve the maximunmincrease in efficiency for the various transportation systems wvith theleast capital investment.

The total estimated capital reqtiirements for surface transport pro-

jects in the immediate future, based on our recommendations (exclud-

ing Magdalena River Railroad), are approximately Ps.$65.4 million

and U.S.$11.9 million, or a peso total (at Ps.$1.95=U.S.$1) of approxi-

mately Ps.$88.6 million. The Magdalena River Railroad would cost

about U.S.$12 million and Ps.$36 million, or a grand total of Ps.$101.4million and lT.S.$23.9 million, as shown in Table 137. The peso equiva-

lent of the needed foreign exchange is Ps.$47.8 million, to which must

be added Ps.$15.9 million to cover trade markups and internal trans-

port costs on these imports, or a grand total, \vhen local material

and labor costing Ps.$101.4 million are included, of Ps.$165 .1 million.

While this total covers construction work and equipment purchases.it does not cover all investmenit needed in transport, nor does itinclude purchases of rolling stock and equipment, depreciation and

maintenance allowances, etc. The total recommended yearly out-

lays in transport, therefore, include these various outlavs and havebeen calculated by the same techniques used to estimate overall

investment recommended in industries.

Table 138 showvs the annual projected investment recommended

in transport. Of a total of almost Ps.$1,440 million in five years,investment in specified projects represents only Ps.$165 million, or

11.4 percent. MIajor items covered by the balance are: (1) purchase

and delivery of rolling stock (cars, trucks, buses, wagons, locomotives)

for a total of about Ps.$790 million, including roughly Ps.$160 mil-

lion of equipment Used in maintenance and Ps.$225 million of equip-

ment for depreciation; (2) payments to labor engaged in maintenance

of rolling stock and equipment, Ps.$165 million; and (3) construction

of highways, farm-to-market roads, port improvements, etc., Ps.$320millioll. Of an annual total of Ps.$287.7 million required for invest-

ment in surface transport, foreign exchange requirements xvould

amount to approximately U.S.$60 million.

SURFACE TRANSPORT 475

TABLE 137

CAPlTAL INVESTMIENT IN SPECIFIED SURFACE TRANSPORT PROJECTS, 1951-55k

RAILROADS (11illionls)

Central shop facilities at Bogota .. ... Ps.$ 6.0 U.S.$ 2.0Diesel locomotives .... ....... - 1.0Standardization of gauge ................... 2.2 .1Relocation of Nordeste and Sur Railroads in Bogota 1.0 .2

Subtotal ... 9.2 3.3-Magdalena Railroad . . 36.0 12.0

Total .. . . ..... 45.2 15.3

PIPELINES

Barranca-Olaya replacement ..... ............ ........ 1.2 .6Olaya-Salgar 2. ... .... .0 1.0Olaya-Medellin . ..... 2 .0 1.0

Total .2... 2. .6

HIGHMWAYS

Trunk Line Construction . . . ... 33.5 1.5Road Building Equipment .... - 3.0

Total .33.5 4.5

PORT FACILITIES AND INLAND WATERWAYS

Bocas de Ceniza ....... .... .. ..... 10.0 -

Magdalena Channel 3.0 1.5Canal del Dique 4.5 -

Total ... . 17.5 1.5

Grand Total ... .. Ps.$101.4 U.S.$23.9

I Based on recommelndatiolns in Chapter XX, but does not include payments fortrade and transport of imported equipment ani(l materials, Excludes investment in landmurchases and working capital.

TABLE 138

ANNUAL PROJECTED INVESTM.ENT IN SURFACE TRANSPORT, 1951-55

SpecifiedProj ects Others Total

_quipment (millions)Imported .............. ........... .Ps.$ 9.5 Ps.$ 110.1 Ps.$ 119.6Domestic .. . 7.6 18.4 26.0

?ayment for Trade and TransportImported 3.2 36.6 39.8Domestic .... 1.9 4.5 6.4

[otal Delivered Cost of Equipment 22.2 169.7 191.9

nstallation Costs .. . ..... .. 10.8 52.0 62.8

Jaintenance - 33.0 33.0

'otal Annual Investment 33.0 254.7 287.7

Eotal Investment, 1951 to 1955 Ps.$165.1 Ps.$1,273.4 Ps.$1,438.5

CHAPTER XXI

Air Transport

ADMINISTRATIVE ORGANIZATION FOR AIR TRANSPORTATION

In Chapter VIlI are diagnosed the major problems currently facedby the Colombian air transport industry. Before recommendationswith regard to the technical requirements for commlunications, airtraffic conitrol, air navig ation and airport systems can be effectivelycarried out, the all-imlportanit problems of administration and financemust be solved. The communications, air traffic control and air navi-gation systems are noxv o\vned and operated by AVIANCA, but theairpcrts present a complex pattern of ownership by individual air-lines, the National Governimlent, municipal governments, the AirForce and private individuals or corporations. This heterogeneoussystem has produced the many disadvantages cliscussed in ChapterVIII, including suppression of competition, inadequate and unsafetraffic control procedures and duplication of many airport facilities.

Cornmercial air operations in Colombia have no\v reached a poilnt-vhere this system of owvnership has become quite inadequate andhampers the future developmenit of the industry. For example, it hasoften been impossible to obtain the capital necessary for the con-struction and maintenan1ce of commercial airports adequate to handlepresent and proposed equipment. The airlines have recognized forsome time that operations into Buenaventura would be advantageous.but the cost of an adequate airport has so far been considered pro-hibitive. The onlyr airport in Colombia wvith adequate paving is thatat Barranquilla (Soledadc) and this field was built during the wvarwith U. S. Airport Development Corporation funds. None of theindividual owlners has been able to do an aclequate job of airport con-struction or improvement, an(l this has obstructed the achievement oflowver costs and better service. The same difficulties have arisen in thecase of communications, air nav,igation and air traffic control systemsowined and operated by AVTIANCA. since that company is now finan-cially unable to maintain and improve these systems in such a wvayas to provide operational reliability and safety and keep pace with thegrowvth of air transport operations and traffic.

T o meet these difficulties, it is recommended that an Airport andCommunications Corporation be established to take over and operateall the principal commercial airports and the communications, airtraffic control and air navigation systems in Colombia. It would ac-quire the existing private facilities and assume responsibility for inte

476

AIR TRANSPORT 477

grating and improving them and establishing such new facilities as arenecessary. Airport facilities would be purchased outright or leased,as appropriate in each case. Other facilities would presumably beowned outright by the Corporation.

It is recommended that the proposed corporation be owned jointlybv the Government and the airlines-perhaps with some other privatecapital participation-the airlines' share of the capital being paid,in part at least, in the form of facilities Avhich they now own. Whereduplicate airport facilities exist, the Corporation would take overthe one better suited from the standpoint of technical equipment andfuture commercial expansion as the airfield for the locality in ques-tion. These airports would, of course, be open to commercial use byall licensed carriers and to other flyers, on an appropriate fee basis.

Preliminary analysis indicates that the economics of such a Cor-poration would be sound. Table 139 sets forth reasonable estimatesof its capital requirements and its potential annual revenues andexpenses. An original capital of Ps.$30 million is considered adequate.Approximately Ps.$12,500,000 would be required to purchase fieldsnoiw privately ownied, of which part would be paid in cash and part inshares of the Corporation. Some Ps.$10 million would be required forimprovements to present airports, new airport construction, andlighting of airports; and Ps.$3,500,000 for communications, air traf-fic control and air navigation facilities. The assets of the Corporationwvould then be composed of about 75 percent land, buildings and im-provements; 12 percent communications, air traffic control equipment;and 13 percent working capital.

The estimated revenues and expenses for the proposed Corporationreveal that after taking account of the present income from the gaso-line tax, from communications, air traffic control and air navigationservices (based on the current rate of Ps.$7.5 per hour flown), fromthe landing fees of iaternational companies, and from miscellaneousrevenues, approximately Ps.$2.5 million would have to be derived fromthe landing fees of domestic airlinies and other sources. Probablyh1alf of this sulml could reasonablv be charged to the airlinies in theWorni of landing fees, without placing an undue burden on them; basedIn approximately 90,000 potential landings per year, this woould re-

m-Lire an average fee of Ps.$30, which is considerably less than thewresent average,1 and the companies could count on improved facili-les and resulting larger revenues and lower costs.

l It should be emphasized here that these estimates are based on average communi-ations charges per hour flown and average landing fees. This is not meant to suggesthat these or similar rates should be charged across the board as is now the case withommunications charges. Actual rates should reflect the value and cost of the variouservices renidered, and also such factors as traffic development.

47S THE BASIS OF A DEVELOPMIENT PROGRANI FOR COLOMIBIA

There would remain an annual deficit of approximately Ps.$2,500,-000. If the carriage of air mail is placed on a compensatory rate basisand the present subsidy, estimated to be in excess of Ps.$1,500,000, isapplied against the Corporation's anticipated deficit, an additional

TABLE 139

ESTIM;ATED CAPITAL REQUIREMENTS, ANNUAL REVENUES AND EXPENSESOF TIHE PROPOSED AIRPORT AND COlIXIUNICATIONS CORPORATION

CAPITAL REQuIREMENTS:

Purchase of Private Airports . Ps.$12,500,000New Airports and Improvements 10,000,000Communications, Air Traffic Control and Air Navi-

gation Equipmenit .3,500,0001Working Capital .4,000,000

Ps.$30,000,000ESTIMIATED ANNUAL REVENUES:

Gasoline Tax .. ..... ... Ps.$ 1,000,000Communications Services 600,000Landing Fees:

Domestic Companies 2,500,000International Companies ....... . .. . .. 200,000

Rent, Franchises and Other Revenues 600,000

Total Revenues Ps.$ 4,900,000

ESTIMIATED ANNUAL EXPENSES:Airport Operations .. Ps.$ 1,500,000Airport Maintenance .700,000Radio Operation aind Maintenance 1.500,000Amortization . 2,000,000Interest ... . . . .. 1,700,000

Total Expenses . Ps.$ 7,400,000

Loss . . . .. Ps.$ 2,500,000

1 For a more detailed breakdown, see Table 140.

ainlilal subsidy of onily about Ps.$l m-illion wvould be required. Sucha subsidy to the air transportation industry appears more than justi-fied wlhen its economic, defense and air mail utility is considered. Webelieve, moreover, that with the additional airport revenues and in-creased traffic that may be expected in the future this subsidy couldbe abandoned in a few years.

A corporate agency of this kind was proposed to the ColombianCongress in 1947, but was not approved. 2 If, however, the Corpora-tion proposed here is operated wholly apart from Government regulatory agencies, if it is staffed -with personnel selected for their execu

2 See proposed Laws presented by the -National Government for the consideratioof Congress in its ordinary sessions, 1947, Volume I, pp. 260-340.

AIR TRANSPORT 479

tive ability and technical qualifications, and if they are assuredadequate authority and secure tenure so long as the Corporationoperates successfully, many of the earlier objections to such an ar-rangement wotuld disappear. Voting rights in the Corporation shouldbe set up so that no one airline or the Government would find it pos-sible to control the policies of the Corporation. The industry wouldbenefit by the release of capital that has been tied up in the facilitiesto be taken over by the nexv Corporation, and this capital wvould thenbecome available for reequipment and other necessary expendituresfor improving the quality and efficiency of operations. The Govern-ment and the iNation wouild benefit from better service, lowver costsand more safety in the air transport system.

Regulatory and Other Functions

Organization of the proposed Airport and Comrmunications Cor-poration will divorce operating from regulatory functions. At present,for example, Aeronautica Civil is in the anomalous position of bothoperating airports and setting and enforcing operating specificationsand standards for them. Similar considerations make it desirable forthe Government, specifically the Air Force, to abandon its presentcommercial operations. Where remnote areas of the country, which donot offer sufficient traffic potential to attract a commercial airlineoperation, require regular service, it is recommended that the Govern-ment subsidize a commercial airline to the extenat necessary for suchoperations. The Air Force would then confine itself to those transportfunctions required by the armed services. This method of affordingservice to marginal and developmental areas would permit more eco-nomic operation of the commercial airlines, and when traffic developsto a point wvhere a subsidy is no longer required, the operation wouldalready be a part of the commercial network.

Franchise Regullation. The first requirement for implementing apolicy of controlled competition is a system of franchises giving desig-nated companies the right to operate over routes and to perform typesof services required by public convenience and necessity. We reconi-mend that such a franchise system be establised and that routes befranchised to those companies which have operated consistentlythroughout the year 1949, since the industry attained a certain stabilityduring that year and it affords a reasonably sound basis for bothcompany and route franchises. Changes in these original franchises,especially any that involve additional competition, should be subjectto proof that the public convenience and necessity would be servedthereby. Similar regulatory poowers should be exercised over the

480 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

formation of new airlines, taking into account the fitness and financialability of the concern involved to render safely the required service.

A system of franchises wvould serve not only to assure an adequatepattern of service to the public, but also to protect the companies fromthe adverse consequences of unbridled competition. Both these objec-tives are becoming increasingly important as the capital requirementsin aviation for replacement of wvar surplus with more costly modernequipment, for construction of more expensive and elaborate main-tenance plants, and for the many other needs of a rapidly growvingindustry are expanding. The stability of a satisfactory system offranchises is particularly important in attracting the new capitalnecessary to achieve a satisfactory level of efficiency.

Techlnlical RegulTationt. With regard to the very important functionsof technical and economic regulation, the first and most importantrecommendation is that all civil air regulation be removed from theMinistry of War. The defects of the existing relationship are pointedout in detail in Chapter VIII. Military and civil aviation are essen-tiallv different in their purposes and needs and, although they havesolme comlllllonl interests, these can best be served by coordinating thewvork of separate agencies rather than through a single administrationnecessarily dominated by concern for one or the other. Therefore,technical regulation should also be handled by the regulatory agencyor division. It wvould be vested with authority to license all fliglhtand maintenance personnel and would set the standards for suchlicensin-. It would also establish aviation maintenance standards andadminister the civil air regulations. During the postwlar years Aero-nautica Civil, the agency presently responsible for regulation of airtransportation, has made important strides in inaugurating a programfor technical regulation including classification and licensing of pilotsand other aviation persomnel, establishment of civil air regulations,air traffic rules and mainteniance standards, etc. But constant revision,aimplification, interpretation and enforcement of these regulations arenecessary, and Aeronautica Civil has not so far been adequately staffedor financed to perform these functions wvith full effectiveness. Its pro-gram should be carried forwvard by transferring personnel who arealready trained in various aspects to the new regulatory agency ordivision.

Rate Regulation. The present machinery for rate regulation pre-sents a conflict of authority between three Government agencies-namely, Aeronautica Civil, the Division of Transportation and Tariffsin the Ministry of Public Works, and the newvly created NationalCouncil of Transportation. These agencies, as presently constituted,

AIR TP.ANSPORT 481

are not capable singly or collectively of carrying out effectively thenecessary functions in approving rates. Effective rate regulation,however, is essential for the protection both of the public and of theoperators. We recommend that, as soon as definite route franchiseshave been awarded, the Government and the industry collaborate inwvorkin g out a satisfactory system of rate regulation and enforce-ment. Air transport rates should be set after public hearings inaccordance wvith commonaly accepted principles, which take intoaccount such factors as the development of new routes and areas,competition wvith other forms of transportation, costs of renderingservice, and the value of the service to the traveler or shipper. Thesehearing,s \vould help to reduce the influence of political and economicpressure groups and vested interests which are likely to carry undueweight in private administrative decisions. In general, the proposedconcentration of independent responsibility in regulatory mattersshould be of great value in clearing up the legal and practical confusioenwhich now prevails in this field.

Effective regulation, especially in the field of rates. depends oneffective enforcement. Many of the present difficulties in rate regu-lation encountered by the National Council of Transportation stemfrom its inability to bring about rate agreements and to enforce ade-quately those made. In this connection, industry agreements wvithrespect to rates an-d other practices \vould be desirable, provided thatthey are filed \vith the proper authority and are subject to its approval.As for enforcement, wve recommend that the designated agency author-ize a semi-annual or annual audit of the books of each of the companiesby an independent auditor, the results of which w,ould be made avail-able to all companies. Such an andit, if properly carried out by areliable, independent auditing firm, should provide a sound basis forrate decisions and an effective aid to enforcement. Suitable fines couldbe assessed for anv violations. The interests of shippers and travelersxvould he protected through the hearing process.

Air MailIt is also recommended that the air mail should be carried under

contracts open to all franchised airlines at compensatory rates, ratherthan under a monopoly arrangement that conceals a substantial sub-sidv as at present. Mloreover, the present arrangements for groundhandling, including the sale of stamps and door-to-door deliveries bya privately-owned AVIANCA subsidiary (ADELCA), separate fromthe national postal administration, are obviously anomalous and aduplication of facilities and efforts. The logical remedy is to turnover responsibility for the administration of air mail contracts and

482 THE BASIS OF A DEVELOPMIENT PROGRAMI FOR COLOMIBIA

the handling of all ground services connected therevith to the postalservice, but this change should be accompanied by a thorough over-haulilng and improvement of the present postal administration, other-wvise air mail service wvould certainly deteriorate seriously. The ratesfor carriage of air mail should be set by a designated agency afterconsultation with the postal administration and the various contract-ing carriers.

It is believed that the above recommendations constitute a soundplan for the reorganization of Government functions relating to airtransport along lines which will promote orderly development of theindustry and afford adequate protection of the public interest.

IMPROVEMENT OF AVIATION FACILITIES AND EQUIPMENT

Communications and Control Systems

After extensive study of more than a year of the technical problemsinvolved, a Mission of the United States Civil Aeronautics Authority,3

wvorking with Aeronautica Civil and the Colombian companies, hasdefined the basic technical requirements for safe handling of the grow-ing volume of air traffic at present and in the future. We have re-viewed these requirements and the capital needed to implement themand developed the following tentative program. The total estimatedcapital requirement for equipment adequate to handle present andforeseeable needs for communications, air traffic control and naviga-tion systems approximates U.S.$1,750.000. These are allocated in

Table 140 to the four years required to install the equipment and

bring it into operation. This assumes that the equipment wvould beinstalled during the first year, approach control established duringthe second year. and route controls activated during the third.4 Theoperation of six approach control towvers, two air traffic control centers,forty-three air-ground coninunincations stations and/or air navigationfacilities is envisaged, together with the equipment necessary to sup-ply adequate meteorological informationl; present equipment andfacilities will be used \vherever possible.

Operating and maintenance costs for these systems would dependupon whether or not operations on a 24-hour basis are inaugurated,as is recomniended in another section of this chapter, especially forcarriage of air cargo. Night operations, howvever, would necessarily

3 This Mission consists of :\r. Royce Kunlze, Chief and Adviser on Air Safety;Mr. Clarence Tolpo, Adviser on Airw-ays Operations; and Mr. Farrar Simon, Adviseron Communicationis.

4 There are essenitially 3 areas of control of an aircraft for a given flight: approachcontrol, within a designated area adjacent to an airport; tower control of an aircraftlanding or taking off from anl airport; and route control at those times when neitheiapproach control nor tower control is active.

AIR TRANSPORT 483

TABLE 140

ESTIMATED CAPITAL REQUIREMENTS FOR AIR NAVIGATION EQUIPMENT PROGRAMlxI

Air Navigation,Approach Meteorological and RouteEquipment Communications Control

Control Equipment Equipment Total

Ist Year .... S... l.S.$205,000 U.S.$ 535,000 U.S.$ - U.S $ 740,0002nd Year - 490,000 - 490,0003rd Year ....... 297,000 43,000 340.0004th Year - 180,000 - 180,000

TOTAL . UlS.$205,000 U. S.$1,502,000 U.S.$43,000 U.S.$1,750,000

I Based on: 6 Approach Control Towers43 Communications and/or Navigation installations2 Air Traffic Centers

have to be confined at first to a few airports, together with necessaryalternate fields and facilities. Therefore, Table 141 summarizes theestimated operating costs for both 24- and 16-hour operations. Thesefigures include amortization and interest charges on the equipment,based on a 5-year amortization period. It is assumed that during andafter the third year all phases of the communications, air traffic con-trol and air navigation systems will have been inaugurated, and thateach companly will maintain a communications system for its ownpurposes.

TABLE 141

AIR NAVIGATION EQUIPMENT PROGRAM:

ESTIMHATED ANNUAL OPERATING AND MAINTENANCE COSTS

2nd Year 3rd Year

APPROACH CONTROL

16-Hour Operation . ..... ... Ps.$ 375,000 Ps.$ 375,00024-Hour Operation .... .. 490,000 490,000

ROUTE CONTROL

16-Hour Operation .. .. ......... .. ....... . .........- 205,00024-Hour Operation 2. - 70,000

CONTROL TOWERS AND COMMUNICATIONS STATIONS-

COMlBINED SERVICES

16-Hour Operation .... .................................... 455,000 455,00024-Hour Operation .................................... ... 565,000 565,000

TOTAL

16-Hour Operation ....... ............ . ........... ...... Ps.$ 830,000 Ps.$1,035,00024-Hour Operation ........... .. Ps.$1,055,000 Ps.$1,335,000

484 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

This air navigation program is based on a tentative layout involv-ing the installation of approach control towers at six locations-Bogota, Barranquilla, Bucaramanga, Cali, Cartagena and Medellin-and the installationi of two air traffic control centers at Bogota andBarranquilla. It also contemplates the purchase of air navigation andcommunications facilities nowv owned by AVIANCA, and replacementof this equipment wherever necessary. We recommend that plans bemade immediately in line xvith administrative arrangements proposedabove to acquire the necessary equipment and facilities. The safetyof all air operations in Colombia is directly involved in this program;thus it should be given top priority in aviation planning.

Any plan for communications, air traffic control and navigationsystems must be based on the layout of a definite national airwaysystem. The one on which the above estimates are based is tentativeand is subject to flight check and approval by the various companies.We recommend, therefore, that such a national airway plan be laidout, flight checked, and approved as soon as possible so that theserecommendations can be put into effect.

Airports

Four types of capital expenditures are required to insure the ade-quacy of the airport system from both operational and economic pointsof view. These are (1) construction of new fields, (2) enlargementand improvement of present fields, (3) elimination of airport duplica-tion, and (4) lighting of major airports and auxiliary fields to permitthe inauguration of night flying.

As regards ne-w construction, Table 142 sets forth a tentative plan

submaiitted by Aeronautica Civil for the construction, completion andimprovement of national airports. This plan contemplates the con-struction of six new airports at Araracuara, Bogota, Buenaventura,Medellin, Quibdo and Tunja. Twvo of them, at Bogota and Medellin,wvould duplicate present facilities. It is generally agreed that newvfields at Bogota and Medellin will ultimately be necessary. In the caseof BogotA, Techo field is located too close both to the city and to themzountains to justify a very large investment in its improvement andenlargement. The possibility of expanding the municipal airportat Medellin is very limited due to its position in the valley and thesteady encroachment of the city. In the latter case, a new airportlocation wvill involve large capital expenditures and a difficult probleniof providing access to the city.

In both these cases, however, the present facilities can be improvedto handle the demands of traffic and equipment for the immediate

AIR TRANSPORT 485

TABLE 142

PROPOSED GOVERNMENT PLAN FOR CONSTRUCTION AND IMPROVEMENT

OF NATIONAL AIRPORTS

Estimated Peso Cost

Runways,Construction of Buildings and EstimatedNew Airports Land Improvements Total Dollar Cost

Araracuara .. ...... .... Ps.$ - Ps.$ 600,000 Ps.$ 600,000 U.S.$ 100,000Bogota ... . ... 3,000,000 3,800,000 6,800,000 500,000Buenaventura .... 100,000 1,500,000 1,600,000 100,000Medellin ................ . 500,000 3,000,000 3,500,000 500,000Quibdo 300,000 300,000 -

Tunja .................. 400,000 400,000

Subtotal Ps.$3,600C.0 Ps.$ 9,600,000 Ps.$13,200,000 U.S.$1,200,000

Improvement ofExisting Airports

32 Fields ...............- Ps.$ 4,712,000 Ps.$ 4,712,000 U.S.$ 50,000

Grand Total Ps.$3,600,000 Ps.$14 ,312,000 Ps.$17,912,000 U.S.$1,250,000

Source: Aeronautica Civil

future, and it is recommended that such improvements be undertakenas a first step. This will provide immediate improvement in the safety

and adequacy of facilities in both cities for handling current traffic.At the same time, the lower cost of these improvements, in comparisonwith new airports, will make funds available for early development ofother important airports in locations now lacking such facilities. Theunit cost of the latter would bc much less than the capital expendituresrequired for new fields at Bogota and Medellin; as Table 142 shoxvs, theproposed Bogota and Medellin fields would take an estimated Ps.$12.3 million, or 60 percent of the total program. Improvements forthe present fields wvould cost considerably less, and should be madeimmediately; meanwhile, the new fields can be more carefully plannedand adequate financing arranged.

Of the remaining airports planned, that at Buenaventura is themost important economically and merits a high priority. It will notonly help to relieve the present bottleneck at this port but also pro-vide a much needed air service, especially for freight. There has notyet been sufficient investigation for a firm decision as to the locationof the Buenaventura airport. The two sites considered involve, in oneinstance, an enormous problem of earth movement and, in the other,an excessive distance from the city to the site. It is recommended thatbefore a site is finally selected the possibility of locating it on the

486 THE BASIS OF A DEVELOPMIENT PROGRA1\ FOR COLOMBIA

peninlsula across from the docks be fully explored, since the primaryutility of air transportation to Buenaventura wvill be in the carriageof cargo, and lighters and other types of vessels could be employed inbrin,-ing cargo as wvell as passengers to and from such an airport. Itis recommended that the survey be made as soon as possible so thatconstruction call proceed rapidly on whatever site is selected.

Improveinents to present fields constitute a most inmportant partof the recommeilded airport prograilm. These include lengthenting and\videning of rulnways to accommodate heavier equipnment, and pavingof certain of the heavier traffic fields. The airport at Barranquilla(Soledad) is the only airport in Colombia that is really teclhnicallyadequate. Sound further development of air transportation, therefore,necessitates improvement of several other airports. The most impor-tant of these are the txvo previously mnentioned-Bogota (Techo) andMIedellin-followed by Cartagena (Lopez), Cali (AVIANCA), and

Bucaramanga. It is reconlmended that the run-ways of all of thesefields be adequately paved as soon as possible, and that they be en-larged to handle safely aircraft of the DC-4, DC-6 and Constellationtypes so that internatioinal flights can be accommodated. This -wouldappear to be feasible in eacll case, wvith the possible exception ofBucararnanga. AWTithout more detailed engineering surveys an accurateestimate of cost is not possible. Since these cities are the primarytraffic-generating poinits, wve recommend that such surveys be under-taken at once so that work may be inaugurated as soon as possible.

,MIany other airports, of course, ineed improvenments; those specifi-cally cited are nmerelv the iiost acutely and urgently needed. One ofthe first functions of the Airport and Communications Corporationshould be to wvork out a comprehensive program and necessary priori-ties for the general anlelioration of airports. Priorities should beestablished on the basis of presently developed and estimated poten-tial traffic, both cargo and passen-er, and investments in the improve-inent of various fields should be allocated accordingly. For airports,as for highway construction, it is possible to allocate investmenit inconsiderable measulre oil the basis of economic utility. The sanmeprinciples that wvere recommended for high\vay expenditures (CllapterXIX) should also govern those for airports. AVe do not feel that theproposed improvements of the airports now owvned by the NationalGovernml1lent and aduiniistered by Aeronautica Civil, showvn in Table142, accord with these principles. WNe recommend, therefore, that theplans be reworked by the new Airport and Communications Corpora-tion on the basis of technical adequacy and economic utility.

One of the most iimportant factors limiting the use of air trans-portation in Colombia is the absence of night flying. This severely

AIR TRANSPORT 487

limits the service wvhich the airlines can render and the efficient utiliza-tion of the entire aviation plant, personnel and equipment. We believethat a technically sound plan can he developed for night flying. Itshould start with lighting the airports at Bogota and Medellin andthe required auxiliary fields between these cities and Barranquilla.As soon as experience is gained on this limited operation, night flyingshould be extended to include the other major airports at Cartagena,Cali, Buenavenitura and Bucaramanga. As has previously been pointedout, because of the short hauls involved, nig,ht flying will have itsgreatest utility in the carriage of air freight. It will, however, addimportant hours to the passenger operating day and will permit inter-national flights serving Colombia to be routed directly to interiordestinations, such as Bogota and -Medellin.

The final recommendation for airport improvement is to eliminateunnecessary duplication of facilities. The dissipation of airport con-struction funds resulting from such duplication has had importantadverse effects on the financial condition of the industry. The neces-sity for extra airplane servicing facilities, additional roads from air-ports to the city, and other duplicate investments accentuate thewvaste of capital involved. The duplication has also contributed tothe technical inefficiency of the airport system; for example, in BogotAthe traffic patterns of the two fields are so closely interrelated thatcontinual problems of aircraft clearance and communications arise. Itis recommended that airline operations be terminated as soon as prac-ticable. and any further investments excluded, at the LANSA fieldsat BogotA and Barranquilla and at the AVIANCA airport at Cartagena.Time did not permit a detailed study of conditions in the other dupli-cate airports shown in Table 46 of Chapter VIII; this should beundertaken as soonI as possible. The three airports named accountfor the largest investment to date and the largest prospective demandfor investment. From the standpoint of both technical operations andfuture expansioni, the fields recommended for abandonment are defi-nitely inferior to those recommended for continued use. In the caseof Bogota, Techo field should be abandoned when a new field isconstructed but, as previously recomended, it should be improved foruse during the interim period.

Flight Equipment

The type of flight equipment used in Colombia is becomingobsolete in more highly developed countries. Successful operationof this equipment has been possible because of unusually propitiouscircumstances, particularly the inadequacy of surface transportation,and the availability of \var surplus equipment and spare parts. In

488 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

view of their low original cost and the unavailability of more suit-able aircraft in the near future, however, we feel that present types,in increased numbers, should suffice to meet most of the equipmentrequirements of the industry in Colombia for the next three tofive years.

The carrying out of malny of the other recommendations in thisReport will make possible more efficient utilization of this equipment.For example, the recommended improvements in the airport systemshould make greater payloads possible and increase the number ofairports suitable for operations wvith more efficient four-engine equip-ment, such as the DC-4. The recommended program for night flyingshould also do much to improve the utilization of flight equipment,especially in cargo service. If these recommendations are followed,and the companies establish and operate more efficient maintenanceplants, presently available equipment should be able, for the immediatefuture at least, to offer competitively attractive service. This assumes,of course, that a rate regulation program is carried out on a basis thatreflects the operating costs of present equipment.

These arrangements will not, however, meet the long-term equip-ment problem. Most of the newer aircraft being developed in theprincipal manufacturing countries do not meet Colombia's operatingrequirements, nor are they as easily adaptable to these requirementsas previous aircraft have been. There will come a point in the nextfew years when it will no longer be economic to improve Colombia'sairport system to accommodate larger and faster equipment, sincethe advantages of such equipment to the Colombian airlines arelimited.

It is important, therefore, that some provision be made for thedevelopment of aircraft specifically suited to the domestic operatingconditions in countries like Colombia. Because of the short distancesand the relative lack of surface competition, high speed is not aprimary requirement. On the other hand, because many areas mustdepend heaviLy on air transportation, at least for their initial develop-ment, and because airport facilities cannot be elaborate, high perform-ance characteristics for landing and takeoff on short unpaved runwaysxvill be essential. Similarly, the great variation in altitude at thevarious Colombian airports makes necessary good altitude perform-ance. Since spare parts will have to be imported for some time, andthere will be a scarcity of trained technicians, it would be highly desir-able to make maintenance as simple as possible. From an economicstandpoint, the highest payloads possible in the light of the aboveoperating requirements should be obtained. Last, but not least, the

AIR TRANSPORT 489

cost must be relatively low if the induistry is to be able to maintainits admirable record of financial self-sufficiency.

We believe that these requirements, exacting as they are, arenot beyond the technical capacity of aircraft engineering. Three fac-tors have militated against development of this type of aircraft inthe past-the Colombian airlines' lack of capital resources, the diffi-culty of securing foreign exclhange to purchase new equipment or tofinance its development, and the prohibitively high cost of developingspecially designed aircraft by an individual manufacturer who canexpect only a limited market.

Nevertheless the development of such aircraft would do muchfor the economy of Colombia and other countries with similar condi-tions by providing more efficient, low cost, faster commercial trans-portation and a uniquely advantageous means of opening up remoteareas and making them economically productive. With a view to pro-moting the development of the desired new aircraft it is recommended,first, that operating specifications for such aircraft be carefullydrawn up by the airlines in cooperation with the Government agenciesconcerned, with such outside technical help as may be needed; second,that the potential market, based on replacement of present equipmentand allowance for future growth, be carefully determined; third, thatestimates be made of the development costs of such aircraft, and thepurchase price in the light of the anticipated market; and fourth,that possibilities of financing these development costs be carefullyinvestigated.

Pending development of a new aircraft Awith the characteristicsdescribed above, there is a present need for a certain number ofsmall single-engine, one-pilot planes, especially cargo types, to serveas feeder aircraft in reaching the larger airports served by DC-3, DC-4and C-4f6 equipment. The success of AVIANCA's subsidiary company,AEROTAXI, whlich is operating a fleet of single-engine Cessnaaircraft primarily for the carriage of passengers, indicates the poten-tial of this type of service. Such aircraft could be used in the samewvay to carry car go, and once effective rate-making machinery ise5tablished, they could be very valuable in developing areas such asthe llanos, wvhere few of the airports for some years to come will beadequate to handle larger planes. In addition, they xvould allow manymore localities to be served than is now possible with the largermultiple-engine aircraft. In other countries faced with similarly diffi-cult problems of surface transportation, notably Alaska, this typeof aircraft has been used to great advantage in the development of

4''1, THE BASIS OF A DEVELOPM1ENT PROGRAMI FOR COLOMBIA

resources. It is recommilended, therefore, that the acquisition and useof such aircraft be favorably considered and that planninig of theairports and other facilities required for this purpose be undertakenas sooIn as possible.

ESTIMATED CAPITAL REQUIREMENTS

A summary of the total estimated capital requirements for airtransportation over the next five years is presented in Table 143. Theserequirements are based primarily on the recommendations in thischapter. The proposed Airport and Communications Corporation willrequire approximately Ps.$30 million in capital in order to take overthe major airport and communications facilities, construct new fields,improve existing facilities, and purchase and install adequate com-munications, air traffic control and air navigation equipment. Of thissum, however, only about Ps.$13.5 million would be new capital, theremainder representing lancd and facilities already in existence andrequirements for working capital. The foreign exchange portion ofthis latter amount is estimated at U.S.$2 million for materials andsupplies needed in the construction of new airports, runways andbuildings and the machinery necessary for their construction andadequate maintenance; and U.S.$1,750,000 for communications, airtraffic control, and air navigation equipment. The estimated require-ment for the purchase of transitional aircraft of the types presentlyemployed in Colombia, plus new smaller single-engine cargo and pas-senger aircraft over the next five years, is U.S.$5 million. This doesnot, however, include requirements for the purchase of new typeflight equipmenit nor any of the development costs of such aircraft.

TABLE 143

CAPITAL INVESTIMENT IN SPECIFIED AIR TRANSPORT PROJECTS, 1951-551

(millions)

Buildings alid Runways Ps.$6.0 U.S.$2.0

Control and Air \Navigation Equipment - 1.75

Flight EquipmentTransitional Aircraft and Spare Parts (5 years) - 5.00

Total Air Transport . ... ..... Ps.$6.0 U.S.$8.75

I Does not iniclude an estimated Ps.$7.5 million already invested in land, and Ps.$'million in buildings and other facilities, which are already in existence and represen:11o new charge on the economy of Colombia. Nor does it include Ps.$4 million foiworking capital requiremenits.

AIR TRANSPORT 491

When this total of U.S.$8.75 million is converted into pesos, andthe amounts necessary to cover trade markups and internal trans-port on imported material and equipment are included \vith thedomestic investment required, -ve find that Ps.$29.5 million wVill beneeded for investment in air transport in the next five years. Hoxv-ever, this total does not cover all investment needed because it doesnot include purchase of maintenance and replacement equipment,purchase of military and tourist aircraft, and only provides for essentialbuilding of airports and essential purchase of commercial airplanes.

Total recommended outlays for air transport have been calculatedby the same techniques used to estimate total investment recommendedin industries and surface transport. Table 144 shows a total recom-mended investment of Ps_$85 million in five years. Of this amount,investment in specified projects represents only Ps.$30 million, or 31percent. Major items of the balance are estimated as: (1) purchaseof newv aircraft and replacement parts, Ps.$20 million; (2) purchaseof navigation and other equipment, Ps.$10 million; (3) construction ofair fields and buildings, Ps.$10 million. Annual requirements in foreignexchange \vould amount to about U.S.$5 million.

TABLE 144

ANNUAL PROJECTED INVESTMENT IN AIR TRANSPORT, 1951-55

SpecifiedProjects Others Total

(millions)Equipment

Imported .... ... . . . Ps.$ 3.5 Ps.$ 6.0 Ps.$ 9.5

Domestic . . . 0.4 0.8 1.2

Payment for Trade and TransportImported. . . . .. 1.2 2.0 3.2

Domestic . .. . 0.1 0.2 0.3

Total Delivered Cost of Equipment . . Ps.$ 5.2 Ps.$ 9.0 Ps.$14.2

Installation Costs ... . .0.7 2.1 2.8

Total Antnual Investmenit. Ps.$ 5.9 Ps.$11.1 Ps.$17.0

Total Investment, 1951 to 1955 ... Ps.$29.5 Ps.$55.5 Ps.$85.0

CHAPTER XXII

Health and Welfare

Colombia's health problems loom large. Disease and ill-health robthe country of productive manpower and resources, and retard theprogress of the national economy. 'I'he life span of the majority ofthe people of Colombia is much shorter than that attained in countrieswhere effective health measures are being applied. Moreover, thosewho are able to wvork must support many people whose productivecapacity is destroyed or greatly reduced because of constant ill-health.In Chapter IX it was seen that the people of Colombia suffer notonly from a high incidence of communicable diseases common totemperate zones, but are also subject to all the disease conditionsfound in tropical climates. Malaria, intestinal infections, tuberculosis,and venereal diseases take a heavy toll of lives and account for muclhof the nation's disability. Nutritional disorders are sufficiently wide-spread to make them a serious health problem; in addition, a signifi-cant percentage of the people face potential or actual malnutrition.Ordinary sanitation precautions are at a minimum, and adequate sys-tems of wvater purification, milk pasteurization, and sewage and wastedisposal are practically non-existent.

Against this picture of poor health and disease, the resources avail-able for coping with the problems are woefully inadequate. The publichealth organization lacks administrative direction and is failing tomeet many basic health needs. Health workers are few, generallypoorly trained, and inadequately paid. The shortage of medical prac-titioners and specialists of all kinds is acute. Hospital facilities andinstitutions are generally inadequate in quanitity and quality; manyare not meeting acceptable standards of performance and coverage.The systems of institutional and medical care and of social wvelfarerequire overhauling to meet more realistically the needs of themajority of the people.

Colombia has made a start, however, in attacking its major diseaseproblems, in building hospitals and providing institutional care forvarious groups in the population, and in attempting a comprehensivesystem of social security and public welfare. For instance, the MXin-istry of Hygiene has begun some vigorous and, in some cases, effec-tive anti-malaria measures: health ageencies have also begun campaignsto eliminate or control some of the country's other major diseases.It may generally be said, in fact, that Colombia's health status com-

492

HEALT H AND WELFARE 493

pares favorably with the levels attained by most of her South Ameri-can neighbors. But there is still a long way to go to reach evenminimum health standards and to effect the improvements in pro-ductivity and national wealth that come with good health. Moreover,because most of Colombia's poor health is preventable, it is one partof the vicious circle of disease, low standard of living, ignorance, andgeneral insecurity that can be broken through.

The present health program is predominantly medical, wvith thefirst emphasis placed on treatment. This is perhaps only natural inview of the tremendous backlog of disease and of people who des-perately need medical care. While treatment facilities are necessaryand while improvements must be made, both qualitatively and quanti-tatively, the overwhelmilng need is for an adequate program for theprevention of disease. First things must come first-effective diseasecontrol techniques, adequate sanitary measures, sound health educa-tion and the improvement of personal hygiene. Only by focusing firston the prevention of illnesses will it be possible to reduce the presentburden of disease and eventually raise the general level of health.

In order to launch a comprehensive health program in Colombia.at least three steps must be taken: (1) the public health structureshould be strengthened and its functions reshaped so that it concen-trates more directly on the promotion of positive good health and the.prevention of disease; (2) factors in the environment affecting healthshould be controlled, with first emphasis on the construction andmaintenance of sanitation facilities, such as water purification andsewage and waste disposal systems; and (3) more professional per-sonnel of all kinds, but especially physicians, dentists, public healthnurses, and sanitarians, must be recruited, trained, and brought intopublic health work. In addition, hospitals and related institutionsshotuld be strengthened and the systems of medical care, public wel-fare, and social security should be improved.

THE PUBLIC HEALTH STRUCTURE

The success of any preventive health program depends primarilyon the organization and effectiveness of the public health structure.Public health particularly affords an excellent field for long-rangeplanning. Problems can be defined with considerable accuracy andpriorities can be established where the needs are greatest. Moreover,since many of the remedial measures are quite specific, thev can bescaled to local needs and resources.

Colombia's public health structure demands considerable reviewand revision in order to meet health needs adequately throughout the

494 THE BASIS OF A DEVELOPMENT PROGRA-M FOR COLOMIBIA

entire nation. There are weaknesses in the health agencies at all gov-ernmental levels. In some departments and municipalities, a fairlygood job is being done; in the vast majority, however, the organiza-tion is rudimentary and fails to meet many basic needs. In general,health agencies are devoting more effort to purely institutional andmedical care than to the more fundamental preventive health needs.The health organization is relatively strongest at the national leveland wveakest at the local or municipal level. The various departmentsfall somewhere between these twvo extremes. Many purely localservices are performed by the Ministry of Hygiene, simply becauseit is the best organized of the nation's health agencies and has themost financial resources. There are no specific and fixed areas of re-sponsibility delegated to the health organizations at the various levels,either by law or by administrative regulation.

One of the first steps to be taken in overhauling the public healthsystem should be the establishment of some regular relationship tocover the whole range of health administration. Some general prin-ciples should be provided by lawv to serve as a guide in dividing func-tions and responsibilities among the Ministry, the departments, andthe municipalities. Health services, like education and other directservices for the people, should be primarily of concern to the munici-pality because it has the largest and most direct stake in promotingthe well-being and safeguarding the health of its citizens. Moreover,the majority of direct health services can be provided most econom-ically and efficiently at the lower governmental and administrativelevels. Because governmental jurisdictions often have widely varyingpopulations and unequal resources, however, most localities needfinancial as wvell as other assistance from central units of government.But the actual performance of direct services should be assigned bythe departments to the municipalities in accordance with local con-ditions and needs, always following the general principle of achievingthe greatest possible measure of local administration and financialresponsibility.

It would seem advisable, in general, to limit the Ministry of Hy-giene to broad areas of responsibility, such as the issuance of rulesand regulations, the distribution of funds, the setting of standards,the provision of consultative services, and the gathering of facts andresearch, both basic and applied. In addition, of course, the Ministrvwould continue to operate the national institutions and support andsupervise the public welfare system and the necessary constructionfor hospitals, health centers and the public health utilities. Somewhatthe same situations should apply to the departments, except that, inaddition to financial support and consultative services, these health

HEALTII AND WAELFARE 495

agencies could be expected to provide certain direct services on adepartment-wXide basis, such as the operation of diagnostic clinics andthe distribution of drugs and biologicals.

SANITATION AND OTHER PROTECTIVE MEASURES

Much of the explanation for the hi-h incidence of preventabledisease in Colombia lies in the extremely inadequate provisions forcontrolling the physical factors in the environment which contributeto the spread of disease. Countries wvhich have attained higth levelsof health have begun by building and maintaining, adequate com-niunity sanitation.

In Colombia, w-here ordinary sanitary precautions are barely beingmet, the public health program might wvell begin with buildin- andextending an adequate sanitation systemii for the entire country. In-testinal infections cannot be effectively reduced when sewvage andgarbage is inadequately disposed of and when the food and wvatersupplies are contaminated and polluted. Tuberculosis cannot be con-quered when the majority of the people live in crowded and unhealth-ful housing. Many other infectious diseases cannot be fully controlleduntil effective insect and rodent control measures are instituted.

Estimated costs for additional community sanitation facilities arefound in Chapter XXlII. But, in general, the first health reqtuire-ments in the cities are a good and safe water supply and a sewveragesystem available to all the inhabitants. Sanitation needs for ruraldwvellings can best be provided by individual installations, such assanitary privies or septic tanks, and a wvell, spring, stream or cisternprotected against pollution.

The construction of sanitation facilities alone, howvever, will notautomatically insure adequate protection from infection and disease.The physical plants must be mainitained in a state of good repair ifeffective results are to be obtained. One of the major failings ofColombia's present sanitation system has been the poor condition andinadequate upkeep of existing facilities. A major responsibility ofthe healtb organization should be to inspect and supervise all sanitaryand environmental facilities so that deterioration and breakdown arekept at a miinimum and the facilities perform their job of protectingthe health of the people.

Unprotected food and milk are also responsible for the transimissionof considerable disease in Colombia. It is important that protective

measures be taken to safeguard everything edible from the time ofproduction until the food is consumecl. Mleasures to prevent thespread of disease by milk and food are now mandatory in manv

496 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

nations. Some of these are pasteurization of milk, government inspec-tion of meats, and other examinations which certify to the purity offood and beverages. Other precautionary aids, such as refrigeration,are highly desirable for the preservation of dairy products, meat,and fish.

Although pasteurization of milk has been attempted for some timein Colombia, it has met with little success. Many of the existingpasteurization plants are run-down and poorly operated. Under presentcircumstances, it appears premature to recommend large capital out-lays for pasteurizing equipment. A more practical immediate coursemight be to encourage the development of evaporating plants. Whenrefrigeration becomes more common on farms, in restaurants, andhomes, measures might be taken to develop centralized milk pasteuri-zation plants and distribution services.

PERSONNEL REQUIREMENTS

Improvements in the public health organization, in the techniquesof disease control, and in hospital and medical care facilities are neces-sary in raising the level of health, but none of these can be effectiveunless there is an adequate reservoir of well-trained professional talentto provide the services, apply the techniques and man the facilities.Perhaps in no other field of community activity does success dependso much upon specialized and professional personnel. The need formore physicians. nurses, dentists, and other specialists is by no meanslimited to the field of public health. AMore general practitioners andspecialists of all types are needed to care for the sick and disabledthroughout the country. Hoxvever, the recommendations here will belimited to the personnel required to staff a modern public healthservice.

The professional and technical personnel must be, in fact, the back-bone of the public health organization. They must be actively re-cruited, well treated, adequately trained, and well paid. They mustbe protected in tenure of office through a genuine merit system andmust be employed in a program which puts to full use their profes-sional and scientific skills and knowledge.

In recent years, about a dozen or fifteen employees of healthagencies throughout the country have gone abroad annually for ad--anced study and observation. Fellowships have been financedthrough several sources: the local employing agency, the Instituteof Inter-American Affairs, the Rockefeller and Kellogg Foundations,the Pan-American Sanitary Bureau, the United States Public HealthService and others. This is a desirable trend and should be encouraged

HEALTH AND WELFARE 497

and perhaps put on a systematic basis. Moreover, it might be put ona two-way basis, with leaders and educators in other countries in-vited regularly to Colombia to give courses in pertinent fields, suchas health administration, malaria control, tuberculosis control, etc.

Training of public health workers should be an important consid-eration in Colombia; only through organized and adequate trainingcan the public health agencies hope to obtain the high caliber of em-ployees needed to carry out effective health programs. It should bestandardized and systematized and should be extended to cover alltypes of public health specialties. All the methods of training whichhave been mentioned, plus other techniques-such as supervised fieldtraining, apprenticeship, and residency-should be formally planned,budgeted, and utilized to enlarge the scope of professional educationin public health and to procure additional personnel when the flowof trained health workers from educational institutions is inadequateto meet staffing requirements.

It was shown in Chapter IX that the health program of the entirecountry is seriously retarded by inadequate salary scales for publichealth workers and by inefficient personnel procedures. Because avery large share of the total funds in the public health field is paidout for wages andl salaries, serious thought must be given to revisionand standardization of these scales. Salaries must begin to meet morenearly the costs of living in Colombia and the salaries in comparableprivate enterprise in the area. Very fewv young physicians, for ex-ample, can afford to accept public health positions other than on a part-time basis witlh some supplementation of income through additionalemployment.

Salary increases constitute an important reform in the pu-blichealth structure, but the increases alone will not be sufficient to insurea competent career service in public health. The lack of adequate jobstandards, insecurity of tenure, and the capricious and arbitrary per-sonnel practices all serve as detractive elements to a public healthcareer. The recruitment, placement, and promotion of employees ona systematic nmerit basis are essential to effective operations.

Some attempts have been made to institute civil service or meritsystems on a national basis, notably through the AdministrativeCareer Law of 1940. However, little has been done to implement thecareer service, especially on the departmental level, and fexv peoplehave been certified under the law. Under an earlier law, a merit sys-tem designed specifically for health service employees, tlhe HygienistCareer, was set up by decree. However, only three persons werecertified under this laxv before it was invalidated by the courts

498 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLONMBIA

Accordilng to the code which set up the present Ministry of Hygiene(Lawv 27, 1946, Article 6), the Minister is authorized and directed toestablish a hygienist career service. If properly administered, thismeasure could provide the basis for greatly needed improvements inpersonnel administration for public health xvorkers. It might be ad-visable at first to have the system cover physicians, dentists, andother professional groups for wvhom some educational standards arealready established and accepted. Other public health employeescould be brought into the system as experience indicates.

CONTROLLING DISEASE

All the health facilities, resources, and personnel have one majorpurpose-the promotion of positive good health and the preventionand control of disease. The most direct method of improving healthis to launch and carry on control programs to curb disease, with firstemphasis on the infectious and parasitic diseases because of theirpreventability. Many of the remedies for preventing and overcomingspecific diseases have already been mentioned in a general xvay inconnection wvith the sanitation and environmental health needs. Itmay be desirable, however, to examine briefly some of the methodswvhich can be used in combating the more important diseases.

Malaria

Malaria is frequently described by Colombia's health officials asone of their most serious health problems. Although much additionalwvork needs to be done in defining the true infection rate, the efficiencyof different mosquito vectors, and the suitability of various controlmeasures, many studies on malaria have already been completed andlothers are in progress. These studies shoxv, among other things, thatmalaria is probablly over-diagnosed, especially in areas whliere itsprevalelnce eems to be decreasing.

The chief obstacles which stand in the way of further progress inmalaria control are insufficient funds, shortages of trained personnel,and inability to import insecticides and drugs in sufficient quantities.Althougth the national as xvell as many of the departmental controlprograms includle most commonly accepted control measures, theseare not sufficiently broad, geograplhically speaking, to effect a reduc-tion in the natiolnal malaria incidence.

Some attempts have been made to eliminate mosquito breedingplaces but many students of the problem do not consider this a prac-ticable method of control, except in the cities. Although it may notbe practical to institute such wvidespread measures as drainage and

HEALTH AND WELFARE 499

land-filling projects, nationwide distribution of drugs and other prepa-rations would bring tangible results. In experimental areas encourag-ing results have been obtained with the newer drugs that displayremarkable suppressive and curative properties. The most effectivecontrol method is house spraying with DDT and similar preparations.The great advantage of household spraying is that it kills not onlynmosquitoes but other insects -which are a nuisance and transmit disease.Consideration should be given to the possibility of manufacturing atleast some of these items, particularly DDT, within the countrv.

Infectious DiseasesIntestinal disorders of various kinds rank as major health problems.

They owe their prevalence to improper disposal of human waste andpollution of the food and water supplies and, because sanitation needsare not being adequately met, they continue to flourish. The basicremedies for intestinal and parasitic infections have already been indi-cated in the section on sanitation needs.

Other diseases such as smallpox, diphtheria, and whooping cough,which are now important causes of death, are readily controllablethrough immunization. Full advantage should be taken of this pre-ventive measure. Attention should be devoted to the possibilities forthe manufacture of additional vaccines and serums at home ratherthan importing them from abroad.

TuberculosisAlthough some measures for the control of tuberculosis have been

undertaken, these have been directed largely toward hospitalizationand isolation rather than toward prevention and case-finding. By usingthe reported figures on tuberculosis deaths during 1946 (4,480) andallowing 2.5 beds per death, the Colombian Congress in 1947authorized approximately 11,000 beds for the country. This is to becontrasted Avith the approximately 1,600 beds nowv available fortuberculous patients in special and general hospitals.

The construction and maintenance of hospitals wvith sufficient bedcapacity to accommodate all or even a large portion of the tuberculouswho might profit from hospital care wvould entail a very large annialexpenditure of funds. In the long run such a huge hospitalizationiprogramii for a single disease would be difficult to justify. A bettercourse might be to allow the construction of one bed per estimatedtuberculosis death in 1955, resulting in a total requirement by thatyear of approximately 5,400 tuberculosis beds.' Long-range tubercu-

1 This is based on the assumption that proportionately there would be about asmany deaths from tuberculosis in 1955 as there were in 1946.

500 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

losis control measures should probably concentrate on indirect mea-sures which have broad implications for the disease, such as improve-meents in housing, nutrition and health education. It is generallybelieved that reduction in the prevalence of malaria, parasitic infesta-tions, and the common infectious diseases will effect a decline inbotlh the incidence and the severity of tuberculosis. The tuberculosiscontrol program in Colombia should also make use of mass-screeningand case-finding techniques, through the use of chest X-rays. Anotherprocedure of great promise is active immunization against the disease,with the use of BCG vaccine. Although a BCG vaccination programhas been initiated by the Ministry of Hygiene, only some 18,000 per-sons had been treated at the time this survey was made.

Venereal DiseasesNVhile veneral diseases are prevalent throughout the country, very

few effective control measures have been employed. Practically theentire venereal disease control program is directed towvard the super-vision and medical certification of prostitutes, which has not had muchapparent success.

A vigorous anti-venereal disease program could achieve markedresults. With the newer antibiotic remedies it should be possible, intheory at least, to eradicate syphilis and to make substantial reduc-tions in the incidence of the other venereal diseases. This requiresan active case-finding and treatment program and complete avail-ability of appropriate remedies.

Nutr_:o0A poor nutritional status, which is characteristic of many people

throughout Colombia, is attributed largely to the low standard ofliving and the lack of popular knowledge of correct dietary habits.Some of the measures for improving nutrition, such as raising thegeneral living standards of the country and producing an abundanceof nutritious foods, are outside the realm of public health responsi-bilitr. Howvever, public health agencies bear the first responsibilityfor educating the general public regarding food requirements, caloricintake, etc.

Recognizing the gravity of simple goiter, a widespread nutritionaldeficiency disease in Colombia, the Congress passed legislation in 1947which directs that iodine be added to salt and authorizes an increasein the price of salt by one centavo per libre. The income from thistax, which wvas expected to gross about Ps.$2,000,000 per year. wasto be used in part to defray the costs of iodization and in part to sup-port the work of the National Institute of Nutrition. At the time of

HEALTH AND WELFARE 501

the Mission's survey, however, the iodization program had not yetbeen started. Many factors contributed to the delay but it was re-ported that these had been resolved and that the program was tostart not later than November 1949. Because this simple measurecould be expected substantially to eliminate goiter, this programshould be pursued vigorously. Moreover, the proceeds from the addi-tional tax on iodized salt should furnish needed funds for the NationalInstitute of Nutrition to continue its research programs and expandits field services.

Leprosy

I.eprosy is important in Colombia not so much for its public healthconsequences but for the tremendous drain which it places on thehealth budget and the national economy. The present program iscentered around segregation of infected individuals and separation ofpresumably well children from leprous parents; this procedure, how-ever, is only partially effective. Individuals with leprosy are granteda subsistence allowance of Ps.$1.10 per day. The Ministry operatesthree leprosaria which accommodate 6,555 patients and provide facili-ties for 1,570 well children of leprous parents. An attempt is nowbeing made to redirect the program in order to give patients intensivetreatment in their own communities rather than in institutions. Thisis a desirable trend and should be fostered both to improve care andto lessen costs.

The w.hole leprosy program requires further study and reorien-tation. It is impossible to justify devoting approximately one-fourthof the national health budget to a single disease which constitutes buta small fraction of the total burden of illness. It is recommended there-fore that the funds appropriated for the leprosy control program bereduced to about half of their present total, or to about Ps.$2,400,000by 1955.

Health Education

AWithout the cooperation and active support of the people, healthprograms can meet with only partial success. Public health agenciesmust use health education to increase public awareness, promote goodhabits of personal hygiene, and gain active public support of and pa.--ticipation in the community's health programs. It is essential to breakthrough the general apathy and ignorance which serve to retard allhealth programs.

Health education is not only the best method of bringing peopleto seek diagnosis and treatment and of teaching preventive medicine,

502 TIIE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMIBIA

it is also indispensable for gaining the support and cooperation of thepeople in developing, expanding, and financing health programs andfacilities. For example, no programs of vaccination and immuniza-tion can be applied on a wide scale until the people are ready and wvill-ing to accept these programs. Improved nutritional status can comeabout only through public understanding of basic dietary needs andwillingness to make important changes in diet habits. Public healthagencies at all levels of government should therefore consider healtheducation as one of their primary responsibilities.

In the field of public health education, the aid of the Church andof the schools should be invoked. In many rural areas the priest isfrequently the only person of influence with a good educational back-ground. Now that the Church is awakening to the possibilities in thisfield, it is to be hoped that more attention can be devoted in thecurricula of seminaries and in special extension courses to a basicunderstanding of matters of personal hygiene, nutrition and the bear-ing of environmental factors on health. Such subjects should also, ofcourse, be included in the training of school teachers.

PUBLIC WELFARE AND BENEFICENCIA

Because of the generally low economic level of the country, publicwvelfare affects a large proportion of the people. In general, moremeasures are available for public wvelfare services, particularly medicaland institutional care for the lowest income groups, than for preven-tive puiblic health services. The Beneficencias, which derive most oftheir funds from public lotteries and earmarked taxes, provide theframew-ork for most social service and public welfare programs.

Wkhile most of the institutions for children and for the aged needimprovemlent and expansion, the trend should be away from strictlyinstitutional care. A constru-ctive, dynamic approach to the problemof social \velfare would envisage a field wvork program to complementthe institutional program. Social welfare services should plan for anadequate program of home care and utilization of community re-sources. The advantages for children of a suitable family, rather thanan institutional, environmenit are well knowvn to physicians and social

workers.

Althouih many Beneficencia workers are axvare of the desirabilityof placing children in a family environment, they are hampered bytwo serious obstacles: (1) the lack of social workers throughout thecountry to supervise such a program. and (2) difficulties in findingsuitable homes for either adoption or boarding. One of the basicneeds, therefore, is to recruit and train more social workers. This wvill

HEALTH AND WELFARE 503

require the establishment and expansion of training centers, the settingup of adequate standards for social workers, and increased employ-ment of social workers on Beneficencia and health center staffs. l.ikeother health department personnel, social workers must receive ade-quate salaries and must be protected by tenure and merit systems.

Pending the development of suitable home care programs, effortshould be concentrated on more individualized attention and greaterfreedom for the development of personality. In working with childrenespecially, much more should be done to increase the educationalopportunities, particularly in vocational education. Besides insuringa decent minimum education for each child, such devices as scholar-ships, special stipends, etc., should be utilized to provide opportunitiesfor higher education for promising youngsters.

Various medical care schemes have been proposed in Colombia,including comprehensive health and welfare insurance systems. Sincethe majority of the people fall in the low income groups, it will con-tinue to be necessary for some time for Beneficencia to provide thebulk of individual and family medical care in Colombia. Because ofthe essentially rural character of the population and the generallvlowv economic level of the country, Beneficencia can more effectivelyreach the medical care needs of the majority of the people. This isespecially true at the local level, where most Beneficencia programsare fairly wvell administered. The construction and staffing of an ade-quate number of health centers, such as has been proposed by theMinistry of Hygiene, should provide the physical facilities for theextension of preventive and medical care programs throughouit thecountry.

SOCIAL SECURITY

The new developments introduced by the social security legis-lation of 1946 raise important and difficult problems. What relativeemphasis should be placed at this stage in the country's developmentupon a broad program of social insurance as against the extensionand improvement of welfare services along the older lines? To whatextent should the resources available for social services be directedilnto hlealth measures, or to what extent should emphasis he placedupon a broad scheme of old age benefits? How desirable is it tofinance these social services on a contributory basis rather than out ofthe general budget? How appropriate is the accumulation of an oldage reserve fund in Colombia?

The first issue that must be decided relates to the relative priorityto be given to the various social services. In general, the lower a

504 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

country's standard of living, the greater the need for such services.Yet the size and comprehensiveness of the welfare program a countrycan afford to maintain is limited fundamentally by its income andliving standards. Within the limits of the national economy, expendi-tures for social services must compete with requirements for con-sumer goods and for capital investment. The most effective wvay toimprove the people's welfare is to raise their productivity andstandards of living; but at the same time, social services are oftenbadly needed both for the people's immediate welfare and as a meansof increasing their productivity.

The proper determination of priorities is therefore quite conipli-cated. But in our recommendations we have taken the general viewthat primary emphasis in the welfare program should be placed uponimprovement of public health, especially through preventive medicine.We have laid less stress on social security measures because wve feelthat this is the major field of social welfare in which Colombia hasalready gone the farthest. In fact, we have criticized some aspectsof the social security program because it seemed to go too far.

The emphasis placed in this Report on measures of preventivemedicine is important in organizing and financing the entire programof social services, since preventive measures do not lend themselvesto the insurance approach. These services accrue to the populationin general in the form of impro-ved health rather than to an individualrecipient of medical or custodial care. Thus it is evident that a vitaland substantial part of the welfare program will have to remain out-side the insurance framework. In order to strengthen and expand theprogram of preventive medicine, the administrative machinery nowprovided through the Ministry of Hygiene must be relied upon, andfinancing clearly will have to be on a budgetary basis.

There are serious questions, moreover, regarding the extent towhich the contributory principle should be relied upon for the re-mainder of the program. While this principle was generally acceptedin the earlier stages of social security development in Europe and theUnited States, there has been an increasing tendency to favor financ-ing out of the general budget. The argument in favor of the contribu-tory approach is that, by basing benefit payments on contributions,such benefits are made a matter of contract rather than charity. Thussome protection is given against political instability and social insur-

HEALTH AND WELFARE 505

ance is rendered more compatible with the philosophy of inidividu-

alism. AWhile much may be said in favor of these considerations, one

must not overlook the weaknesses of the contributory principle, espe-

ciallv for an underdeveloped country like Colombia. As mentioned

before, the primary need is for preventive health measures and these

will necessarily remain outside the insurance system. Moreover, the

need for wvelfare measures is greatest where poverty is most pro-

nounced, and this frequenltly is in an area or among groups where

benefits earned on a contributory basis wvould be small or non-

existent. Even in the United States payments under the various aid

programs conducted under the Social Security Act are more than twice

the amount of contractual insurance payments. In an undeveloped

countrv like Colombia, where poverty and regional inequalities are

greater, this ratio is bound to be much higher. 'Whatever the merits

of social insurance as an approach to welfare policy, the primary task

of wvelfare policy in Colombia for some time to come will be in pro-

viding relief to the most needy. This is a task wvhich by its very nature

cannot be conducted on a contributory basis because it involves

some degree of income redistribution. To accomplish this redistribu-

tion a general budget must be drawn upon.

Also, the contributory principle may at times conflict xith

considerations of sound fiscal policy. If the program is to be

financed to a large extent out of payroll taxes-taxes, that is, whiclh

wvill fall largely upon the vvage earner and consumer-the reliance

upon regressive taxation, and hence the tax burden upon consumption,

is increased further. Also the administration of a contributory pro-

grarn. especiallv an old age insurance scheme, involves complicated

administrative requirements. The maintenance of records throughoutthe wvorking life of the covered population requires an elaborate ad-

ministrative machinery. In view of the general shortage of competent

accountanits and statisticians in the public service, it is very doubtful

wlvether these requirements can be met for some time to come.

Finally, there are serious doubts whether the accumulation of a

large reserve fund, itself a direct consequence of the contributory

principle, is desirable at this point. The theory underlying reserve

accumulation is that such accumulation will permit financing of the

program at a fairly constant rate of contributory taxation. Since

premium payments xvill exceed benefit payments during the earlier

decades of the scheme, a reserve will be accumulated, the income from

506 THE BASIS OF A DEVELOPMIENT PROGRAMI FOR OOLOMBIA

Nvhich at a later date wvill add to the theln current tax receipts. This,of course, requires that the reserve fund be invested in assets whichwill yield income in the later years. These assets may be in the formof public debt purchased from other investors, or they may be in indus-trial securities. but unless assets are thus accumulated no later bene-fits wvill be derived from the reserve accumulation. Over the yearsthe administration of the reserve fund will not be an easy matter,quite apart from the extreme difficulties involved in obtaining ade-quate actuarial forecasts because of the insufficient population dataavailable. Finally, the very idea of a long-range social security pro-gram based upon the contributory principle and reserve accumulationrequires that the purchasing poxver of the monetary unit be heldstable, and this is by no means certain in Colombia.

While time did not permit the Mission to study this difficult prob-lem in sufficient detail to arrive at specific conclusions, we feel thatmore thought should be given to the ways in which the future xvel-fare program may best be administered and financed. On the onehand, it is highly desirable that the xvelfare program be placed on asefficient and non-political a basis as possible; and from this point ofv iewr the establishmenit of the Social Security Board is all to the good.On the other hand, it is evident that a considerable part of the welfareprogram xvill have to be administered for some time through theBeneficencia. Not only will the Ministry of Hygiene have to administerthe preventive health measures that we consider of primary importancein the -welfare program of the country, but beyond this it wvill undoubt-edly continue to have a large share in other programs. The insurancesystem itself will be expanded only slowly, and certain programs suchas relief to low incomiie families and unemployment assistance are notto be included in the insurance scheme. It is important, therefore,that the development of the nexv program should not detract attentionfrom improving the administrative efficiency and adequacy of theolder channiels of administration. Beyond this it xvould seem desirablethat within the insurance systenm greater reliance be placed upon theprinciple of budgetary, as against contributory, financin,-.

HOSPITALS AND RELATED INSTITUTIONS

The Ministry of Hygiene has put forward comprehensive estimatesof requiremzents for general and allied hospitals, based on a proposedratio of 5.3 becls per thousand population (see Table 56, Chapter IX).This would call for the construction of 37,654 additional beds, at anestimated total cost of Ps.$188,270,000. This ambitious hospital

HEALTH AND WELFARE 507

construction program, desirable as it may be in principle, raisescertain practical problems and should be examined critically. Theprojected new hospitals wvill involve not only heavy constructioncosts, but also large continuing expenditures for maintenance, esti-mated at Ps.$888 per bed per year. The present budgets of theMinistry of Hygiene and the departmental health agencies are quiteinsufficient for adequate maintenance of even the existing facilities.Part of the funds proposed for the newv beds might more effectively

be applied to extending disease prevention activities rather than tothe construction of elaborate new facilities for treatment.

A more desirable course might be to plan new general hospitalconstruction at a ratio of 3 beds per thousand population for theentire country, with no individual department having less than 2 bedsper thousand population. A suggested scheme of seven hospital serviceareas for the country, plus the bed requirements and construction costsin each, is shown in Table 145. In this system, seven cities-Bogota,Medellin, Cartagena, Cali. Barranquilla, Bucaramanga, and Pasto-would serve as hospital centers both for the departmelnts in wbich theyare located and for adjacent departments which do not contain ahospital center. Each department should either be brought up to alevel of two general hospital beds per thousand population by 1955 orretain the existing total, whichever is higher. The city designated asthe center of a hospital service area would be allowed all the additionalbeds required to bring that area up to a level of 3 beds per thousand.This plan would result in a total requirement of 17,267 new generalhospital beds by 1955, at a cost of Ps.$86,335,000.

The construction costs of the 4,539 recommended additional tuber-culosis beds, referred to above, wvould amount to Ps.$13,617,000, asshown in Table 146. The recommendations for general hospital con-struction xvould allow the nation an 85 percent increase in such beds;a proportionate increase for the number of mental hospital beds isproposed. This wvould provide 3,213 new beds in this category, at anestimated cost of Ps.$9,639,000. Thus, the total capital requirement forthe construction of general and specialized hospitals is estimated atPs.$109,591,000.

The estimated future annual maintenance cost for existing hospi-:als is Ps.$20,901,984. (See Table 146.) The newv construction recom-inueded would iiecesitate an additional annual outlay for maintenanceef about Ps.$21,073,370. Thus, the total annual maintenance costs ofteneral and specialized hospitals are estimated at Ps.$41,975,354 by:955.

TABLE 145. NUMBER OF BEDS AVAILABL.F IN 1948 AND NEEDED BY 1955 IN GENERAL ANND SPECIAL HOSPITALS

Existiug genieral and Estimated genierial and specialEstimnated special hospital beds hospital hed requirenie2ts by 1955 Estimated

Areas to le served populationt

constructionby 1955 Per 1,000 Additional costs

5

hospital center (in thousands) Total population Total' beds needed4

(thousands)

Colombia total . ... ... ........... ... 12,493 20,212 1.87 37,479 17,267 Ps.$86 ,3 3 5

Hospital service areas:I-Total .............. ....... .......................... ................... 2 ,432 5,608 7,296 1,688 8,440

Bogota ... . ............................................................... 1,003 5,015Cundinamarca . ..... .. ............................. 1,615 4,659 3.28 4,659 0 0Boyaca ... 817 949 1.21 1,634 685 3,425

II-Total . . . . . ......... 1,188 656 3,564 2,908 14,540Cartagena 1,188 5,940

Bolivar ..... .... .................................. 1,188 656 .65 2,376 1,720 8,600111-Total 1,000 957 3,000 2,043 10,215

Barranquilla 1.. .... .. . .......... ............. , I,000 5,000Atlantico 481 461 1.21 962 501 2,505M agdalena ........... ............ ............ ............. 519 496 1.13 1,038 542 2,710

IV-Total 2,331 2,815 6,993 4,178 20,890C ali .. ............................ . ............ .......... 2,331 11,655

Valle del Cauca 1,236 1,436 1.54 2,472 1,036 5,180Tolima ...... ................ 846 906 1.27 1,692 786 3,930Huila ... ................................................................. 249 473 2.00 498 25 125

V-Total ............................ ..... ..... .. ......... 2,906 6,033 8,718 2,685 13,425M edellin .... .. ....... ...........- 2,524 12,620

Antioquia ..... . 1,633 3,648 2.54 3,648 0 0Caldas ..... ..... ........ .. 1. , . . . ] ,273 2.385 2.30 2,546 161 805

VI-Total 1,109 809 3,327 2,518 12,590P a sto 1 0 5................ ..... ........... .. 4............ .......... .......... 1,10 9 5,545

Narifio 609 551 1.00 1,218 667 3,335Cauca . ........................................ 500 258 .59 1,000 742 3,710

VII-Total 1,298 2,924 3,894 970 4,850B ucaram anga ............... . ................. .. .................... 756 3,780

Santander 821 2,184 2.98 2,184 0 0Norte de Santander 477 740 1.77 954 214 1,070

Total . .... ..................................... 299 410 598 188 940Intendencies and Coisarias.. 273 1.47Department del Choco .. _ 137 1.22

1 Estimates are adjusted totals based on data in Anuario Gcneral de Estadistica. Sum of estimates for departments, intendencias, and comisarias donot equal total for Colombia because of rounding of numbers.

2 See Table 56, Chapter IX.3 Requiremenits were estinmated as follows: Hospital service areas were allowed 3 beds per 1,000 population. Each department, intenidelncia, andl

1 WIn -1re,latinn, or existinig total bed count, if that is higlher than estimate..t-J.. t.l e,,e, 1 for the area and estimated require-

TABLE 146

NUMTBER OF BEI)S IN 1948 AND ESTIAIArb:D NUMBER NEEDED IN 1955 PY DESIGNATED TYPES (OF HOSPITALS

Hospital bedsEstimated costs for

Available Estimated Additional Maintenance additional heds neededbedsl requirements 2 beds needed costs for

Type of hospital 1948 1955 1955 existing beds3 Construction4 Maintenance3

Total ................... . 24,833 49,852 25,019 Ps.$20,901,984 Ps.$109,591,000 Ps.$21,0 7 3 ,3 7 0General ...... .................................. .... 20,212 37,479 17,267 17,984,256 86,335,000 15,333,096

Tuberculosis ....... . . . ...................... 860 5,399 4,539 727,216 13,617,000 3,838,178Mental . ... ......... . . 3,761 6,974 3.213 2,226,512 9,639,000 1,902,096

l See Table 56 for general hlospital bed total in 1948.See Table 57 for mental and tuberculosis hospital bed totals in 1948.

2 Hospital bed requirements were estimated as follows:Overall, Colombia was allowed 3 general hospital beds per 1,000 population in 1955.Tuberculosis bed requirements were obtained by allowing 1 bed per estimated tuberculosis death in 1955.Mental bed requirements were obtained by allowing same percentage increase (85 percent) in menital beds as was estimated for general beds.

3 Estimated future maintenance costs per bed are as follows:General beds-Ps.$888.Tuberculosis beds-Ps.$845.6.Mental beds-Ps.$592.

4 Estimated construction costs per bed are as follows:General beds-Ps.$5,000.Tuberculosis beds-Ps.$3,000.Mental beds-Ps.$3,000.

510 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

It has already been noted that some increase in Colombia's custodialinstitutions would be desirable. It was not possible to ascertain thenumber of individuals in custodial institutions other than mental, orBeneficencia expenditures for the support of individuals in these estab-lishments. Such data, however, are available for the department ofCundinamarca. (See Table 62, Chapter IX.) In Cundinamarca, therewere approximately 300 persons per 100,000 population in the variouscustodial institutions, and about Ps.$500 were spent for maintenanceper person per year. For lack of other data, estimates for the entirecountry in 1955 were based on these figures. For the various custodialinstitutions, other than insane asylums, the Beneficencia may have toprovide for some 37,500 individuals at a cost per year of Ps.$18,750,000.Since most of the custodial institutions xvere overcrowded. replacementof some facilities and expansion of others may require as much asPs.$14,377,000 for new construction by 1955.

HEALTH CENTERS

The health center movement in Colombia has had periods of growthand decline, but the Ministry of Hygiene is nowv proposing the estab-lishment of a comprehensive health center svstem as a framework forall public health programs. The Ministry is sponsoring a programfor the extensive construction of health centers throughout the coun-try, which would combinc both public health and Beneficencia activi-ties. The capitals of departments and other municipalities of morethan 50,000 population would be responsible for providing and main-taining health services, including satisfactory health centers, out oftheir own financial resources. There are 12 municipalities with popu-lations over 50,000. Construction of a large health center for each ofthese at a cost of Ps.$50,000 per center would entail an expenditure ofPs.$600,000 in all.

-National assistance wvould be given, as funds become available, toprovide municipalities with populations of 20,000 to 50,000 wvith"primary health centers" (Centros de Salud). Eventual constructionof 146 of these primary centers is contemplated at an average cost ofPs.$40,000 each, and an overall total of Ps.S5,840,000. For munici-palities with less than 20,000 population, 648 "secondary health cen-ters" (Puestos de Salud) are proposed at an average constructioncost of Ps.$23,600 each, or Ps.$15,292,800 in the aggregate. Thus,the capital requirements for all health centers would amount to Ps.$21,132,000.

There are several problems which must be carefully considerecbefore such a program, however laudable its purposes, can b.

HEALTII AND WELFARE 511

launched. The first is the necessity for maintaining a distinction be-tween the primarily preventive public health activities and the essen-tially curative and custodial services. This does not prohibit bothtypes of services from being administered by the same agency. Infact, at the local level particularly, it might be desirable to continuethe existing organizational pattern for the near future. Fssential pre-ventive work should receive first priority wherever possible, butmedical care and treatment might well be integrated into the programof the local health units.

An even more serious question relates to the availability of anadequate number of competent professional personnel to staff thenew hospitals and health centers, especially in outlying areas. Theproblem of staffing is already serious and a great expansion of existingfacilities would greatly aggravate it. Recognizing the difficulty ofobtaining sufficient professional personnel, especially physicians, tostaff these facilities, the Ministry of Hygiene has proposed that medi-cal students, upon completion of their formal education, spend atleast six months in areas determined by the Minister. This service,if performed satisfactorily, xvould be accepted in lieu of the presentlyrequired hospital internship. However, this type of indentured servicehas had a long history of failure in many places and it is unlikely thatColombia's experience xvill prove an exception. The methods of goodpersonnel procedures already indicated will in time do far more toattract competent and qualified personnel than arbitrary assignments.

In undertaking the construction of a great number of healthcenters, the Ministry of Hygiene must bear this in mind as wvell asother limitations. Moreover, the Colombian people must be awvare ofthe fact that immediate attention to the improvement of sanitary con-ditions and the training of qualified professional personnel can do |much to improve health, eveln ivithinl existing facilities and administra-tive framework. However, since the proposed health centers wouldprovide the physical facilities for the operation of preventive publichealth and medical care programs, it is recomlmienided that thesecenters be constructed substantially as planned by the Ministry ofHygiene. The suggested staffing requirements and salary expendi-tures for such personnel are indicated in Table 147. It is recognizedLhat the application of the ratios suggested in this table would mean:he public employment, at least on a part-time basis, of the great-najority of Colombia's medical and allied personnel, particularlyThysicians. However, since most of the physicians in Colombia de-vote at least part of their time to public medical care at the presenthime, this kind of arrangement wvould not disrupt existing patterns.

512 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

TABLE 147

ESTIMATED NUMBER OF REQUIRED PUBLIC HEALTH AND BENEFICENCIA PERSONNEL

AND ESTIMATED ANNUAL EXPENDITURES FOR SALARIES BY 1955

Estimated Estimatednumber total

of personnel expendituresrequired, 19551 for salaries 2

TOTAL . . . 20,410 Ps.$6 7 ,455,00 0

Physicians . . . 2,750 18,000,000Physicians (full-time). . .... 250 3,000,000Clinic physicians (part-time). 2,500 15,000,000

Dentists .... .... .................... 8... 870 3,732,000Dentists (part-time) .... 250 1,500,000Dental assistants . .. ..... ... 620 2,232,000

Nurses .... 6,250 22,575,000Supervisors ........ ..... 500 2,700,000Health visitors 2,000 6,000,000General nurses for clinics 625 2,625,000Assistant nurses for clinics 625 2,250,000Nurse mid-wives 2,500 9,000,000

Sanitarians .... 840 3,276,000Engineers and biologists . . ... 140 1,176,000Inspectors . . . 700 2,100,000

Laborers and custodial workers 7,000 8,400,000Laboratory technicians . 620 2,232,000Clerks . . . 830 2,490,000Social workers . 1,250 6,750,000

I The estimated n.umber of designated personnel needed were based on the followingratios (estimates were rounded for this table):

1 public health physician per 50,000 personsI part-time clinic physician per 5,000 personsI part-time dentist per 50,000 personsI dental assistant per 20,000 personsI public health nurse per 5,000 persons1 supervisory nurse for 4 health visitorsI general clinic nurse per 20,000 personsI auxiliary clinic nurse per 20,000 personisI social worker per 10,000 personsI nurse mid-wife per 5,000 persons1 sanitarian per 15.000 personsI engineer for 5 inspectorsI inspector for 10 laborers and custodial \vorkers1 laboratory technician per 20,000 persons1 clerk per 15,000 persons

2 Salaries for public health personnel were based on existing salary levels (seeTables 60 and 61, Chapter IX).

Based on the salaries for public health and Beneficencia personnelshown in Tables 60 and 61 of Chapter IX, this would require anannual expenditure, including both health and Beneficencia functionsat all levels, totaling about Ps.$85 million, of xvhich some Ps.$67.5

HEALTH AND WELFARE 513

million wvould be for salaries. Present expenditures are at leastPs.$50 million, so the net increase would be Ps.$35 million or less.

Obviously the full burden of providing funds for health workcannot rest on the municipalities; many have neither the populationnor the financial resources to support even minimum healtlh services.Nevertheless, most of the services must be provided at the sourcenearest to the people who will use and benefit from them. Thus,while the direct services should be provided by the municipalities,all levels of government must share in their support. The proportionsfurnished by the national and departmental governments will, ofcourse, vary with the resources and needs of the localities involved.

ESTIMATED COST OF PROGRAM

The estimated cost for provision of the various Beneficencia andpublic health services (less construction costs) will amount toPs.$164,307,854 per year distributed as follows:

Health centers .Ps.$101,182,500Custodial institutions 18,750,000All hospitals .. 41,975,354Leprosy program .. .. 2,400,000

TOTAL .Ps.$164,30 7,854

Expenditures for recommended construction will total Ps.$145 ,-100,000 in the next five years. The amounts needed for the varioustypes of structures are as follows:

Health centers .. .... Ps.$ 21,132,000Custodial institutions . . . .. 14,377,000All hospitals 109,591,000

TOTAL . ..... Ps.$145,100,000

Of this total about Ps.$116.1 million cover domestic labor and materialcosts and Ps.$29 million represent needed foreign exchange expendi-tures. To this latter figure should be added about Ps.$9.7 million tocover payments for trade and transport of imported equipment andother contingencies. Capital expenditures for construction of hospitalsand related institutions would thus total about Ps.$154.8 million forthe five-year period, or about Ps.$30.96 million per year.

CHAPTER XXIII

Electric Power and Community Facilities

The difference in living standards between the most and the leastdeveloped countries can be measured largely in terms of their com-munity facilities-electric power, sanitary services, health and educa-tional facilities, and the like. The availability of these facilities hasa major bearing not only on the comfort and convenience of personallife, but also on the possibilities for industrial development, theefficiency of labor, and the general rate of scientific, technical andsocial advance. By and large, the more economic progress a country*or community has made, the more recognition is given to the need todevelop these services as the basis for further progress.

The need for large investments in these fields in Colombia hasbeen indicated by the description of their present state of developmentin Chapters VI and X. An attempt is made in this chapter to suggestthe overall order of magnitude of capital requirements for varioustypes of community facilities, and general areas of priority for in-vestment.

ELECTRIC POWER

Electric powver is perhaps the most important single element inmodern economic development. It provides the principal motive forcefor industry, lighting for homes and factories, energy for cooking andrefrigeration, irrigation pumps and urban water systems, and oppor-tunities for mass education and recreation through moving picturesand radio. Power development is thus the essential foundation andstimulus for development in a wide variety of other fields. Its benefitsare by no means confined to large urban concentrations. Becauseelectricity is so flexible and easy to transmit over considerable dis-tances it can serve small decentralized plants equally wvell as bigindustries, farms as xwell as factories. It can greatly increase theefficiency and diversity of rural and small-town economies and theattractiveness of rural life. Thus it is a major factor in acceleratingthe development of what are normally the least advanced sectors ofthe national economy.

In estimating requirements and developing plans for expansion ofpoxver facilities, it is necessary to take account of the demand for awide variety of uses-industry, handicrafts, street lighting, transpor-

514

ELECTRIC POWER AND COMMNIUNITY FACILITIES 515

tation (streetcars and trolley buses), commercial lighting and ad-vertising, houselhold lighting, cooking and refrigeration, and so on.The maximum requirement for generating capacity is determinedmainly by the size of the residential and commercial demand at theevening peak, with industrial requirements at the peak period consti-tuting a relatively small increment. For efficient and economicalpower operations, however, it is important to build up off-peak con-sumptioni for industrial and transport purposes and for householduses other than lighting and cooking.

We have estimated previously1 that the nationwide consumptionof power in Colombia has increased at an average rate of about 9 per-cent annually over the past decade, but that during the five yearssince the end of the war the rate of growvth was 12 percent. The ex-pansion in overall demand will probably revert to a more n-ormal ratein the next few years but, in view of existinig shortages in generatingcapacity and the key role played by electric power in development,we believe it is advisable to plan for expansion of power facilitiesat roughly the rate of consum11ptioni growth in the last five years-i.e.,12 percent per year.

This wvould call for an increase in installed capacity over the five-year period from about 270,000 kw. to 475,000 kwv. 3Most of the newfacilities wvould probably be hydroelectric. In view of the long timerequired for design and construction of powver facilities, particularlyhydlroelectric units, it is important that this aspect of the programbe pushed forward as rapidly as possible. We estimate the cost ofsuch a program, including all necessary transmission and distributionfacilities, as follows:

Imported equipment Ps.$106.4 millionTrade and transport .. 36.1

Local material . 30.4Trade and transport 7 7.6

TOTAL EQUIPM\rENT AND MIATERIAL . 180.5

Labor 74.1GRAND TOTAL .Ps.$254.6

Of the total, perhaps the equivalent of U.S.$50.5 million, or Ps.$101million, ivould be foreign exchange. Substantial investnmenits havealready been made in the partially completed projects listed in ChapterX. Hoivever, some of the outworn or uneconomic plants nowv in usebadly need replacement. Thus, Wve believe the estimated requirementDf Ps.$255 million is not excessive.

I See Clhapters VI and X.

516 THE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOMBIA

Expansion of this magnitude would make available generatingcapacity about 75 percent greater than at present, and perhaps 140percent greater than that available in 1944-45. If the off-peak con-sumption can be built up sufficientlv to maintain an overall load factorof 50 percent, this capacity would permit the production of over2 billion kwh. per year, or 3.4 times the 1944-45 total, and nearly twicethe present estimated consumption (Table 148).

TABLE 148

PROJECTION OF ELECTRIC POWER CONSUMIPTION, 1950-55

1944/45 1950 1955

(million kwh.)Industrial (Census).134

Otlher1 . 26 3053Household and Commercial .376 700 1275

TOTAL PUBLIC SERVICE . . . 536 1000 1812

Factory-produced .. 68 126 268

GRAND TOTAL . 604 1126 2080

I Consumption by small industrial establishments was not covered by the census.

As has been indicated previously, it is impossible to drawv a clearline between the requiremenits of generating capacity to serve indus-try and those needed for the various other types of consumption. Theproportions of the total power output required for those differentpurposes vary widely with the population and character of the com-munity served; their periods of maximum demand arle not identicaland accordingly their peak requirements may be overlapping or cuIIIu-lative. By adjusting rates and other incentives, it may be possible tosecure a better balanced consumption pattern. Nonetheless it maybe useful to try to project the overall requirements in Colombia forindustrial and non-industrial power, respectively, to assure that theexpansion indicated above wvill be in line with other aspects of theproposed development program.

Industrial Demand

We have estimated that there are about 170,000 workers currentlyengaged in industrial production; that they are aided by mechanical

ELECTRIC POWER AND COMMMUNITY FACILITIES 517

equipment amounting to about 1.5 h.p. per worker; that three-fourthsof this equipment uses electric power and, on the average, is usedabout 35 percent of the time. The objectives of the development pro-gram call for a considerable expansion in the number of industrialworkers and the amount of equipment, and for an improvement in theproportion of the time that it is used, to obtain the desired increasein industrial productivity.

Our estimates of trends in power availability and use for indus-trial purposes are shown in Table 149. According to these estimatesthe total horsepower capacity of non-generating machines of all typesincreased by nearly 80 percent between 1944-45 and 1950, and the co-efficient of utilization climbed from 0.28 to 0.35. As was pointed outin Chapter VI, this progress is largely a reflection of the postwarboom. While the projected industrial expansion over the next fiveyears will involve a further sizable addition of machinery,2 it is doubt-ful that increases in their capacity and utilization coefficient cantake place at a rate matching that of 1945-50. While 1945 was a yearof relatively low economic activity, 1950 represents the peak of thepostwar expansion. And while the increase of machine capacity inthe past five years took place in existing industry, already staffed withtrained managers and workmen, the future increase will occur mainlyin new industries, where staff and workers will have to be progres-sively trained in the use of the equipment.

For these reasons, power availability in 1955 as projected in Table149 seems realistic. It posits an increase in average use of equipmentfrom 35 to 40 percent of maximum, in horsepower per worker from1.5 to 1.8, and in electrical energy per worker/year from 2,500 to 3,500kwh. On these assumptions industrial powver requirements wotuldamount to 805 million kwh. per year. This would be about 39 percentof the potential power output of 2,080 million kwh., if the expansionrecommended above is carried out, as against 38 percent of totalpower output estimated as used in industry in 1944-45 and 1950. Inview of the relatively light off-peak loads presently carried by mostColombian power systems, this slight increase in the proportion ofindustrial consumption would be easily manageable. While the in-crease in two- and three-shift operations, wvhich should be encouraged,may increase the industrial demand in peak as well as off-peak periodsto some extent, it xvill usually be possible to schedule operations soas to avoid the hours of heaviest power use.

2 In speaking of machinery we mean to include equipment for electrothermal andelectrochemical processes, wlhiclh are likely to increase greatly in importance as usersof power.

TABLE 149

PROJECTED PowI.R AVAILABILITY FOR INDUSTRIAL PURPOSES, 1955

IlldustrialConsunip-

tion of Maxinmum Capacity of Total H.P.Electric Load per Electrical CapacityPower Machine 2

Equipment of all Number Kwh. per(million (kwh. Utilization Available Equivalent Machines of H.P. per Workerkwh.) per yr.) Coefficient3 (kw.) in H.P.4 Available 5 Workers 6 Worker per yr.

Ind(utstries shown in 1I44/45 censusl 202 8 7 6 0 0 .28 8 0 ,0 0 0 1 09 ,0 0 0 14 3 ,0 00 1 15 ,0 0 0 1 .2 5 1 ,74 0

All industries, estimatedl for 1950 426 8760 0.35 140,000 192,375 256,500 171,000 1.5 2,500Modlel projected for 1955 .805 8760 0.40 230,000 310,000 412,000 230,000 1.8 3,500

I About 80 perccnt of all industrial production.2 24 kwh. per day multiplied by 365 days.3 Kwh. consumed divided by kw. capacity divided by 8760.

4 1 h.p.=0.74 kw.5 Assuming that electrical equipmiient represents three-fourths of all mechaniical cquipment.6 Knowni for 1944/45; estimated 1950; assumed 1955.

ELECTRIC POWER AND COMMUNITY FACILITIES 519

Non-Industrial Demand

The use of electricity for purposes other than lighting is stillvery limited. The possibilities for expansion and diversification ofhousehold and commercial consumption of power are enormous; andas living standards rise the market for electricity for such purposesas cooking, water heating, refrigeration, air conditioning, urbantransportation, wvater pumping, and many others is certain to developvery rapidly if proper encouragement is given. A more varied con-sumption pattern of this kind would help to even out load curvesand promote mor-e efficient and lower cost operation of generatingfacilities.

In fact, however, potential requirements for even the simplestkind of household uses are sufficient in themselves to justify theproposed program of electrical developmnent. The most commondomestic fuels in Colombia are wood and charcoal. Such alternativesas coal and bottled gas are not widely used, because of their highcost and the difficulties of distribution in many areas. As a resultof overcutting, forests in populated districts have been seriouslydepleted and the cost of wvood has risen sharply. The average urbanhousehold in 1948 spent about Ps.$15 monthly for fuel and Ps.$3 morefor light.3 Electricity would in general be both cheaper and moreconvenient.4

As an indication- of the increase in availability of electricity forhousehold use, if the recommended increase in power facilities werecarried out, it may be pointed out that this program wvould give anaverage of 108 watts of generating capacity per capita for the pro-jected urban populations of conmmnunities of over 2000 population, asagainst their present average of about 60 avatts per capita.5 Thenon-residential load at peak periods is relatively small except in thelargest towvns. This would niake available an average of about 600watts for each household-enough, say, for lights and a small cookingplate. Clearly this is no more than a minimum standard, but it isnmuch above wvhat prevails at present.

3 National Institute of 'Water Utilization and Electrical Developme-nt, IoformeGenteral Sobre Electrificacid6 y Irrigacidn del Pais, p. 15.

4 In Medellifn, where per capita generatinig capacity is greatest, there are some18,000 electric ranges, which indicates that perhaps one-half of the urban householdsof that city cook by electricity.

5 See Table 65, Chapter X \Ve recognize that this is only a theoretical calculation.since the distribution of power facilities will inevitably be quite uneven and they willnot be wholly (although they will be largely) limited to urban districts. It is citedonly for purposes of general comparison.

520 THE BASIS OF A DEVELOP-MENT PROGRAM FOR COLOMBIA

Character and Location of Facilities

The principal urban districts, such as those around Medellin,Barranquilla, Bogota. Cali and l\Ianizales, are already better equippedwith generating facilities than most of the rest of the country. Inspite of this fact these cities and the immediately surrounding areasshould be assigned a high priority in the development of new powerprojects. There are several reasons for this. First, these localitiesoffer established markets that can quickly absorb a large additionalsupply of power. Second, the necessary distribution systems aremore concentrated, and many are already in place, and this reducesboth the time and the capital required to develop an efficient poweroperation. Third, these cities xvill be the centers of the most rapidcommercial and industrial expansion, in which power will necessarilyplay an important part; and the accompanying rise in their populationand production will stimulate an increasing demand for powver. Forsimilar reasons, certain other cities, which offer substantial industrialpotentialities but have very limited power supply at present, shouldbe included in the initial program of powver development. Examplesare Cartagena, Bucaramanga, Cucuta, and Popayan.

It is not our intention to suggest that power development berestricted to large urban centers. The distribution of electricityshould branch out progressively from these established markets intothe surrounding rural districts. Such expansion into areas of lighterdemand and more expensive distribution can be undertaken at reason-able cost, however, only if the larger, more secure and better balancedmarkets are adequately developed. In certain agricultural districts,where we recommend a rapid expansion in the output of such valuablecrops as rice, cotton, oil seeds and sugar, xve believe power develop-ment should be especially promoted in order to facilitate irrigation,farm mechanization and the growth of agricultural demonstration,processing and trading centers. The regions we consider particularlyimportant in this respect are the upper Mlagdalena Valley betwveenGirardot and La Dorada, the Cauca Valley north of Cali, and theSinu Valley.

Present Colombian power systems are local in character, servingonly a small number of towns in a limited area. The development oflarge hydroelectric "centrales" permits economic distribution of powerto somewhat more extensive regional networks. Eventually it willbe desirable to create power grids interconnecting the major generat-ing and distribution systems over a wide area, perhaps on a nationalscale. The advantages of a national grid, for efficient and flexibletransmission of large blocks of power from major hydroelectric proj-

ELECTRIC POWER AND COMMUNITY FACILITIES 521

ects, are obvious. But the volume of power production is not yetsufficient, and generating costs are not yet low enough, to justifysuch a scheme; its practical realization is still several years distant.We recommend, however, that the National Institute of Water Utili-zation and Electrical Development undertake the planning of regionalgrids, with a view to their eventual interconnection into a nationalsystem, as an important part of its overall analysis and planning work.

Most important power installations in Colombia in recent yearshave been hydraulic units, and the Institute of Water Utilization tendsto stress development along these lines-perhaps naturally in viewof Colombia's great hydroelectric potentialities and the Institute'sown terms of reference. Nevertheless, it may well be desirable togive greater emphasis to thermal plants in the further expansion ofcapacity in certain areas--e.g., BogotA, Cali, and the Atlantic Coastregion. Thermal units usuall} require a lowver unit investment thanhydroelectric plants; they afford a firmer power supply, since theyare not affected by dry seasons or droughts; and while their operatingcosts are higher, they may be financially advantageous if cheap fuelis available. Frequently a combination of thermal and hydraulicinstallations would make for the most flexible arrangement, as wellas the lowest capital cost per KVA.

Planning and Administration of Electric Power Programs

The National Government has assumed the responsibility, throughthe Institute of WN7ater Utilization, for planninig and promotingelectric power development on a national scale. However, the Instituteis relatively new and its plans are still quite general. We recommendthat it be provided with adequate funds and staff to perform thefollowing functions: (1) obtain accurate flow data on potential sourcesof hydroelectric powver; (2) make surveys, or collate the surveys madeby individual power companies, of present and prospective demandfor power in the principal regions of Colombia; (3) develop a com-prehensive program and priorities for construction of generatingfacilities to meet the anticipated rising demand; (4) develop practicalplans for interconnecting the major sources and markets for power,as rapidly as is economically feasible, with the eventual goal ofestablishing a national grid; (5) plan efficient and flexible combina-tions of thermal and hydraulic plants to meet the conditions and needsof the major power markets; (6) work out sound and realistic esti-mates and plans for financing power projects, and establish standardaccounting and financial control systems; (7) review project designsand construction plans well in advance of material procurement to

522 TIIE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOTMBIA

assure that all fundamentals, such as foundatioln, geological faults,stream flowv, etc., are adequately checked and that designts and specifica-tions are suitable and arrangements for procurement and constructionare properly handled: and (8) exercise general supervision over theconstruction and operation of projects to wvhich the National Govern-ment makes financial contributioln.

In the past, power enterprises in Colombia, whether privately ormunicipally owvned, have generally been local in scope and under localadministratioln. AMuch of the financing required to establish them,howvever, has come from outside sources-principally from foreigninvestment in private facilities or National Government aid to munici-pal enterprises-and in recent years the size of the initial investmelntsrequired has even more frequently exceeded the means availableto local enterprise. To meet this sittuation the Government hasestablished a pattern of "centrales" of mixed ovnership (usuallyshared by the natiolnal. departmental and municipal governments)to generate power on an adequate scale and to transmit and sell it tolocal utilitv coinDanies. In some cases the "central" takes over thelocal distributing company, wvith wvhatever generating facilities it mayhave, as vell. This seems to be a useful, practical administrativedevice for developing generating facilities on a nationwide scale whileretaining decentralized admillistrationi and permitting flexible financ-ing and businesslike managenmelnt. As yet, however, the Institute ofWater Utilization, xvhich is assigaled the principal role iln this pro-gram, is not adequately financed or staffed to carry out its broadresponsibilities.

Important problems of local administration also remain. It seemsappropriate and desirable to raise locally a part of the capital neededto build adequate power facilities for the locality involved. Butthe extreme difficulty of obtaining payment of the portion of the"centrales" capital subscribed by the municipalities-even in themost prosperous regions-has been a major stumbling block to com-pletion of several important power projects. In view' of the tremen-dous importance of power development, the primary beneficiaries ofsuch developmiient should be wvilling to make extraordinary efforts, ifnecessary, to fulfill their part of the obligation.

Another problem is that of rates for power consumptioni. Theyare norInally set at the muniicipal level, subject to review by theMinistry of Industry and Commerce. As has been pointed out pre-viously, the character of the rate structure has an important bearing¢on the efficiency and economy of the power system; the rates in manylocalities should be reviewed from this standpoint. MIore compre-

ELECTRIC POWER AND COMMUNITY FACILITIES 523

hensive attention is given to the problems of utility rate regulation ina subsequent part of this chapter.

OTHER FACILITIES

Water Supply and Sewerage

Every community wlhich now lacks a pure and adequate source ofwater and sanitary means of \vaste disposal should be provided withat least mininmum facilities to satisfy three criteria: (a) eliminationof substantial health hazards, (b) convenience to the public at leaston a par with facilities presently available, and (c) ease of main-tenance. Also. existing systems in those cities wvhose growvth hasfar outrun their present facilities should be improved.

WUater. Minimum requirenments can probably be satisfed form1ost smiall communities (perhaps up to 5,000 population) by theprovisioln of a number of outside taps at convenienit intervals throuhlathe towln. For householders wvho desire runnin1g wvater inside thehouse, individual connections to the community pipe could be madeat the expense of the property-owner. It is estimated that a simplesystem1 of this kind-including necessary well-digging, pumps, pipes,slow sand filters, etc.-wvould cost not more than Ps.$4 to U's.$8 perhead of population. About 75 percent of this cost Would be for im-ported equipment (mostly pipe and pumps) and would require for-eign exchange; a large part of the remainder wvould be itn the forniof local labor.

Larger towns and cities reqtuire a more elaborate system becausea more ample source of supply is necessary, the wvater has to be car-ried or pumped over longer distances, a larger volume of wvater hasto be treated, and the proportion of individual house conlnections isusually greater. The -Ministry of Hygiene estimates average costs-including the distribution netwvork wvithin the town and settling andchlorination facilities-at Ps.$400,000 for towvns of 10,000-20.000 popu-lation and Ps.$220,000 for towns of 5,000-10,000. On the basis ofthese costs and the data in Table 67, Chapter X, the following roughestimates of requirements for new or expanded wvater facilities in thenext five years are suggested:

1. For the 10 cities of over 10,000 population which still willnot have any modern wvater supply wvhen the 1950 conStruction pro-gram is finished, an average of Ps.$400,000 each, or a total ofPs.$4,000,000, about 70 percent in foreign exchange.

2. For the 46 towvns of 5,000-10,000 population, which are similarlyvithout n-iodern facilities, an average of Ps.$220,000, or a total of

Ps.$10,000,000, abouit 70 percent foreign exchange.

524 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

3. For about 100 towns in the 2,000-5,000 group, with averagepopulation slightly over 3,700 (Table 64, Chapter X)-at Ps.$6 percapita, a minimum water system would cost perhaps Ps.S22,000 foreach community, plus an additional Ps.$3,000 for some individual con-nections. The total requirement for 100 communities would bePs.S2,500,000, about 75 percent foreign exchange.

4. For municipalities which are wholly rural or have nuclei ofless than 2,000 population, it is difficult to make even a rough estimate.Their total estimated population is 3,358,000 (Table 64, Chapter X); if20 percent (670,000 people) live in clusters large enough to justifya community wvater system, at Ps.$6 per capita such systems, allowingfor some individual connections, would cost about Ps.$4,000,000 orPs.$4,500,000, 75 percent of which woould be in foreign exchange.

5. For necessary expansion and purification facilities for locali-ties wvhich already have some xvater supply systems, only a guess ispossible. There is no uniformity in the kinds of improvement re-quired. Bogota and Medellin need principally a supplementary flowof water in dry seasons and Bogota, an expansion of the distributionsystem; Barranquilla needs larger pumping and purification facilitiesand extension of the distribution network; Armenia, a purificationplant. Each of these facilities must normally be tailor-made to fitinto the existing systems. On the basis of general plans and roughcost estimates prepared so far by various cities, a sum of Ps.$50 mil-lion is tentatively suggested ; about one-third xvould be for filtrationplants, rvhich need a smaller proportion of imported materials thancondLuction and distribution facilities, so the foreign exchange require-ment is estimated at 50 percent.

The total investment indicated for the next five years is aboutPs.$71 million, or Ps.$97 million if the amounts budgeted for thectirrent year are added. About 55 percent of the former figure \vouldinvolve foreign exchange expenditures. The largest share of thetotal expenditure \vould be for facilities in large cities, wrhich needelaborate water supplies and can best afford to bear the burden oftheir financing and maintenance.

No information is available as to the need for better wvater suppliesfor individual households in rural districts, but unquestionably alarge proportion of the wells, springs and streams upon which theynowv rely are polluted or otherwise unsatisfactory. 'While the effortsand investmnents of individuals, rather than communities, must be themain reliance for improving private wvater supplies, the eliminationof this health hazard is clearly a matter of public concern. The costof building a satisfactory xvell is normally quite small-the principal

ELECTRIC POWER AND COIMMU NITY FACILITIES 525

requirement is labor, which would generally be furnished by theproperty-owner himself, or by his family, his neigahbors or his regu-lar farm workers-but considerable education by public agenciesas to the importance of a satisfactory water source, and somesimple technical aid, will be necessary. The Ministry of Hygieneshould give active encouragement and assistance, through its localoffices, to rural property owners in the improvement of their watersupplies.

Sewer Svstenzs. The building of sewers seems even more dubiousthan elaborate water supply systems for towns of small size. Certainlythey would not be justified for localities which do not have com-munity water systems and substantial numbers of houses with interiorplumbing. For most small towns, privies will normally be satisfactoryand are less expensive and easier to maintain. A standard sanitaryprivy, designed by the Ministry of Hygiene and simple enough to bebuilt by an individual out of local materials, costs about Ps.$50;assu-ming six persons per household, that is Ps.$8.3 per capita. Therelatively small percentage of houses wvith modern plumbing couldbe served adequately by individual septic tanks until their numberis sufficient to justify the building of a sewer. In making such adetermination the special circumstances of each town must be con-sidered, but it is suggested for purposes of the present calculation thata public sewer system wvill not generally be necessary for towns ofless than 20,000 population. Sewers serving small portions of suchtowns-business areas and wealthier residential districts-mav beeconomically justified. In such cases, the property-owners directlyconcerned should be prepared to finance such partial systems throu-hspecial assessments. The partial system could eventually form partof a general sewer system, as rising incomes and wider use of interiorplumbing make it necessary.

Four cities of over 20,000 population have no public sewer facili-ties, nor any definite prospects of obtaining them, and in numnerousothers the sewer systems are limited in scope and inadequate from asanitary standpoint. To correct these deficiencies, at least for themost built-up areas in these cities, it is estimated that an expenditureof Ps.$20 million will be necessary, perhaps 10 percent in foreignexchange.

About half the towns from 5,000 to 20,000 population will still bewithout sewer facilities after completion of the.current constructionprogram. About 120 of the towns in the 2,000-5,000 class and 360villages and rural communities under 2,000 population will also lacksuch facilities. Assuming that the size of the towns is in each case

526 THE BASIS OF A DEVELOPMENT PROGRANI FOR COLOMBIA

the average for their class shown in Table 64 of Chapter X, their totalpopulation in 1950 wvould be about 960,000, and the rural populationabout 7.2 million. For these areas an intensive program of privyconstruction seems the most practical approach. At an average ofPs.$8.3 per head of population, adequate privy facilities could beprovided throughout the country at a cost of some Ps.$78 million;substantially all of this xvould be local currency. Assuming that halfthis program could be completed over the next five years, the require-ment for this period would be Ps.$39 million.

As urban growAlth and industrialization continue in Colombia, theproblem of stream pollution will become increasingly serious unlessmeasures are taken to meet it. There are no sewage treatment plantsin Colombia at present, and none are being built in connection xviththe sewer construction program now under way. It would be pos-sible, however, to provide settling and lagooning facilities adequateto eliminate the major pollution hazard at very lO\v cost in mostlocalities-estimated at only 20 centavos per head of population-or not more than Ps.$l million in all.

In numerous localities surface drainage is unsatisfactory andstreet sewers are needed. The provision of such facilities is closelytied in with street paving and cleaning, and with the construction orreconstruction of sanitary sewers, whiclh in many places are nowcombined wvith the street drains. It is estimated that Ps.$10 millionwvill be needed for this purpose over the next five years.

In summary, therefore, requirements for sewer and privy facilitiesfor the next five years are estimated as follows:

For construction and extension of sewers in largerurban centers Ps.$20 million

For construction of privies . .39For treatment facilities . .. I .. 1For street servers .. ... 10

Ps.$70 miillioln

Perhaps the equivalent of Ps.$3 million of this sum wvould have to bein foreign exchange.

Telephones

Taking into account the strong demand for extension of telephoneservice in urban areas described in Chapter X, the plans of the exist-ing telephone companiies for such expansion, the need for replacementof outwvorn or outmoded equipmelnt in some localities and the possibleestablishment of telephone systems in some cities xvhich now lack

ELECTRIC POWER AND CO-MMTUNITY FACILITIES 527

them entirely, it does not seem unreasonable to anticipate a doublingof telephone facilities in Colombia during the next five years--i.e., anincrease of about 70,000 connections. The average cost is estimatedat about U.S.$350 per line-U.S.$24,500,000, or about Ps.$48 million inall-of wvhich about U.S.$21 million would be foreign exchange.

Schools, Hospitals and Related Facilities

Capital requirements in these fields are shown in Chapters XXVand XXII respectively.

Public Markets and Slaughterhouses

Development toward more economical and less wvasteful systemsof food-processing and distribution should be encouraged, and anyimportant new investmelnts in markec and slaughterhouse facilitiesshould be consistent with such a development. Thus, it is suggestedthat public capital outlays for such facilities should be confined, ingeneral, to the following:

1. Rehabilitation and improvement of existing public markets andslaughterhouses to the extent required on sanitary grounds-e.g., pav-ing, screening, provision of adequate water supply, etc.

2. Improved refrigeration and cold storage facilities for meatand other perishable foods.

3. Construction of new wholesale markets where necessary.

4. Expansion of existing markets and slaughterhoouses as maybe required to meet short-term needs. In this connection it is worthnoting that some shorta-e of market space and increase in its cost,should help to promote a desirable shift in the pattern of food distri-bution-by strengthening the position of more efficient retailers andencouraging the decentralization of retail meat and produce shops.At the same time, the income to the city from rental charges could beincreased; and when the existing public markets are finally abandoned.their central location should make it possible for the municipalitiesto sell them for other purposes at a substantial profit.

It is estimated that these requirements can be met with expendi-tures of perhaps Ps.$30 to Ps.$40 million for actual physical invest-ments. apart from the cost of land, over the next five years. Aboutone-fifth of the financial requirements wrould be for foreign exchangefor the purchase of wvater pipes and lighting, refrigeration, and han-dling equipment.

528 THE BASIS OF A DEVELOPAMENT PROGRAM FOR COLOMlBIA

Street Paving, Cleaning, and Waste Collection

The informiiation available as to the needs of Colombian munici-palities for investment in street paving and cleaning, waste collectionand the like is very inadequate. The seven cities listed in Table 70of Chapter X, however, plan expenditures of some Ps.$38 million forstreet paving and nearly U.S.$800,000 (all in foreign exchange) forstreet cleaning and Avaste collection equipment. On the basis of thisand other fragmentary information the Mission has been able toobtain, it is estimated that aggregate capital requirements over thenext five years might amount to Ps.$50 million (substantially all inlocal currency) for street paving, and the foreign exchange equiva-lent of about Ps.$3 million for street cleaning and waste disposalequipment.

It is worth notinig that the methods used b Barranquilla in per-forming these functions differ from those of most other Colombiancities in twvo respects. The first is its use of concrete for most streetpaving. The initial cost of such paving is about three to four timesthat of asphalt, buLt for streets which carry heavy traffic the superiorsurface and low\ maintenance cost of concrete paving usually morethan justify the outlay. Moreover, the high cost of concrete has beendue partly to a shortage in the domestic supply of cement, which isnowv overcome. It is believed, therefore, that concrete paving xvouldbe worthy of more general consideration. Barranquilla is also theonly city to use a large-scale sanitary fill for garbage and waste dis-posal. This accounts partly for the greater use of mechanical equip-ment in its \vaste collection activities. WVhere nearby locations suit-able for landfills exist, this method of waste disposal is likely to bethe most sanitary and economical. The capital outlay for equipmentwvould normally be fully justified by increased efficiency and by theeventual value of the land improvement.

Practically no cities or toxvns in Colombia have comprehensivemunicipal plans. Zoning regulations are rudimentary and poorly en-forced. W"here the city is growing rapidly, this is likely to lead notonly to unsightly or unhealthy conditions, but also to \vasteful invest-ment in public services. For example, there are cases where wvaterdistribution systems have had to be extensively replaced becauseinduistries requiring an exceptionally large volume of wvater xverebuilt in districts expected to be residential. Proper planning wvouldmake it easier to anticipate and to guide the character of urbandevelopment. It would also permit better control of speculative sub-divisions, which are ofteln developed without proper sanitary or otherservices and soon become an eyesore and a burden on the municipality.

ELECTRIC POWER AND COMIMUNITY FACILITIES 529

UTILITY RATES

Utility enterprises, whether they are publicly or privately owned,should be financially self-sustaining and should have adequate andstable operating revenues. A sound rate structure is, therefore, ofcrucial importance to the continuing development of power, waterand telephone systems. In this regard, the analysis of power andwater rates in Chapter X suggests the following general coursesof action:

1. The consumption of electricity and water should be mneteredinsofar as practicable; efforts of utility companies to obtain additionalmeters should be given full support by the National Government'sexchange control authorities.

2. Uniform general principles for fixing and changing utility ratesshould be developed as rapidly as possible by the National Govern-ment, in cooperation with local authorities and qualified technicalexperts. Actual rates will, of course, vary in response to local con-ditions and needs, but it is desirable that there be a consistent generalpattern of rates upon which utility managers, investors and consumersalike can rely. Procedures, as simple and objective as possible, shouldalso be established for changing rates in response to altered conditions.

3. The structure and level of rates should be such as to encouragea wider utilization of utility services, promote efficient operation andlow unit costs, and provide sufficient revenue to enable them toservice their debts, cover operating and maintenance costs adequately,and build up ample reserves for replacement or improvement of theirfacilities.

4. Rates wlhich serve primarily to tax or subsidize certain eco-nomic groups should be carefully reviewed in the light of their effecton the financial and operational soundness of the utility systems in-volved. While these social objectives are undoubtedly desirable inmany cases, they can usually be achieved more directly and effectively.with less likelihood of adverse effects, through taxation rather thanby manipulation of utility rates.

The rate-making body should be an independent, objective agency,so constituted as to take account of the broadest interests of theColombian economy. Presumably, therefore, this responsibility shouldnot be lodged in the agencies concerned primarily wvith planning andpromotion of utilities development, such as the Institute of \Vater

Utilization and Electrical Development. The feasibility of establish-ing a semi-judicial agency for utilities regulation, perhaps located foradministrative purposes in the Ministry of Industry and Commerce,

530 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

might be considered by the proposed Public Administration Missionin its general study of this wvhole problem. Its powers should includeinvestigation of the financial structure of utility enterprises, publiclyor privately oxvned, the definition of uniform methocls of utilityaccounting, the establishment of general standards for rate-making,includling rates for wvholesale as xvell as retail power, the reviewv ofspecific rates on its own initiative or upon request, etc., and it shouldbe giveni an adequate expert staff.

LOCAL ADMINISTRATIVE MACHINERY

Primary responsibility for administration of most public facilitiesand services rests wvitlh the municipal authorities, although theNational Government furnishes substantial finanicial aid. Obviously,no single pattern of administration wvill fit the needs of all municipali-ties in Colombia. For the larger and wealthier cities, the "empresasinuiicipales' are generally a useful adminlistrative device, providedthat competelnt, noni-political management is obtained. The followvingsuggestions might xvell be giveen further study by the proposedlPublic Administration -Mission

1. The Board of Directors should be composed of persons ofoutstanding capacity, responsibility and political independence.Various methods might be used to assure that directors of the neces-sary high caliber are obtained, and at the same time that local interestsare aclequately represented. In the last analysis. hosvever, no adlmin-istrative means will suffice without the support of interested andinformed public opinion.

2. The terms of the directors should be long enough to permitthemii to become fully familiar with the "empresas" operations; over-lapping terms for board members would help to provide the necessarycontinuity.

3. Technical operation and management of local public servicesshould be developed as a career, not left to patronage or to the effortsof civic-minded amateurs. This is possible only if managers andtechnicians are given adequate responsibilities, security of tenure,opportunities for advancement and adequate salaries.

4. Municipally-owned utilities should be assured sufficientrevenue and financial autonomy.

Assistance in Municipal Development

The administrative problems facing small municipalities are insome wvays even more fundamental than those of the major cities.

ELECTRIC POWER AND COMMUNITY FACILITIES 531

Considerable help and guidance from the National Government arenecessary to enable them to establish and maintain a satisfactorystandard of community services. The Municipal Development Fundand the other national agencies with wh`ch and through wvhich itworks have given very valuable help in this field, but still more effec-tive finanlcial and administrative aid is needed.

Consideration might be given to establishing a newAl MunicipalDevelopment Agency to meet this need. It would absorb the presentMunicipal Development Fund, and should be given sufficient po\vers,staff and financial resources to perform the following functions:

1. To serve as a center for studies on municipal developmentproblems and a clearinghouse for technical and financial advice tothe municipalities. For example, it could work out, through economicstudies and discussions with local authorities, a more rational andequitable plan for allocating taxes and grants-in-aid to be recom-mended by the national administration to Congress. It should be acenter for exchange of information among the municipalities abouttheir common problems, and for practical training in local administra-tion. It should make continuing studies of needs for communityfacilities, the major priorities, and the most practical ways of meetingthem. Drawing on the resources of other national agencies, it couldhelp individual towns to analyze their needs and financial capabilities,and work out practical plans for developing necessary facilities.

2. To administer the National Government's grants-in-aid, as theMunicipal Development Fund does at present. With more adequatestaff and broader futnctions, however, it xvould be better able to developand carry out a balanced national program.

3. To guarantee loans to municipalities, where the circumstancesrequire and justify such loans, to finance the local shares of nationally-aided projects or to undertake other desirable projects on their own.This would open organized channels of credit to small municipalitiesfor the first time and should enable the larger ones to borrow on morefavorable terms.

4. To set standards for planning, design, constrtction, manlage-ment and maintenance of community facilities built with the help ofnational grants or guarantees. It should make periodic inspections offacilities and financial records, review the qualifications of managersand technicians, and sponsor special training courses where necessary.

5. To have qualified technicians, and supplies of repair parts andequipment, available at convenient field offices in case anythingu goeswrong with local installations. Thus it could provide a much better

532 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

service organization than rnost municipalities can afford to maintainindependently, and wvould avoid unnecessary duplication of techniciansand reserves of spare parts.

Such an agency should not undertake to perform all these functionsdirectly, but should xvork throughl other agencies and their fieldoffices wvlhere possible. It would be primarily responsible for defininggeneral policies and plans, for coordinating financial relations betweenthe Nation and the municipalities, and for administering grants-in-aid.Establishment of such an agency wvould doubtless strengthen nationaliiifluelice in municipal development, but it should not be assumed thatit wvould correspondingly weaken local -overnments. On the con-trary, it should assist them to administer their own affairs moreeffectively and thus lay the foundation for increasingly vigorous,responsible local government in Colombia. It may be desirable toreinforce this objective by providing that some members of the Muni-cipal Development Agency's Board of Directors be designated in somewvay by representative local bodies.

It is believed that the financial and technical assistance of suchan agency would be of great benefit to the majority of Colombianmunicipalities. And it would equally benefit the national economyby providing means for planning and guiding investments in com-munity facilities, minimizing wvasteful expenditures, improving themaintenance and operation of existing services, and helping to increasethe country's productivity and strengthen its credit.

ESTIMATED CAPITAL REQUIREMENTS

Following is a summary of the estimates of capital requirementsfor comnulnitv facilities for the next five years

ApproximateTotal

(1.95 pesosper dollar)

Electric power U.S.$50.5 million Ps.$154 million Ps.$255 millionWater supply 20.0 32 71Sewers . 1.5 67 70Public markets and

slaughterhouses 4.0 32 40Telephones 2. 21.0 7 48Street paving 50 50Street cleaning and wvaste

collection 1.5 3

Total .U.S.$98.5 Ps.$342 Ps.$537

These figures, of course, are only a rough overall estimate, not aiinvestment program in the real sense. Further analysis is require(

ELECTRIC POWER AND COMAIUNITY FACILITIES 533

to fill out the data available to the Mission, and to provide a firmbasis for definite plans. It should be noted also that for certain otherrequirements-urban public transport facilities, public buildings, etc.-there was no adequate basis for making even rough estimates andhence they are not included in the above figures.

These estimates indicate a need for investment in community facili-ties at a rate substantially higher than in the past, but probably notbeyond the resources prospectively available to Colombia. The neces-sary capital will presumably be drawn from a number of sources:

1. The National Government, in the form of allocations from theMunicipal Development Fund, subscriptions to hydroelectric "cen-trales", special grants to municipalities, etc.

2. Departmental governments, principally as subscriptions tohydroelectric "centrales".

3. The revenues or borrowings of municipal governments.

4. Private investments in certain utility companies.

Table 150 is a rough attempt to estimate, first, the extent to wvhichthe facilities discussed above will be self-liquidating-i.e., producerevenue adequate to service the required investment-and second, thepotential sources of such investment. It appears that of the Ps.$537million total, perhaps Ps.$161 million may be derived from NationalGovernment sources, Ps.$22 million from the departmental govern-ments, and Ps.$354 million from local governments or private invest-ments. It is not possible to estimate what part of the last figure mightbe private capital, since the data available on investment needs andplans of the various power and telephone enterprises do not segregatethem on the basis of ownership. About Ps.$408 million, or 76 percentof the total, would be for self-liquidating investments, and hencewould be suitable for loan financing. This includes about 77 percentof the National Government's share, all of the departmental share, and75 percent of the amounts required from local sources.

At present, however, the financial resources of the municipalities,particularly of smaller toAwns and rural districts, are quite inadequateto enable them to assume enlarged responsibilities. The fiscal situationof the municipal governments, their relations with the national anddepartmental governments, and the possible means of improving theirposition are discussed in Chapters XIII and XXVI. There is no needto cover the same ground here, except to reemphasize that most ofthe municipal fiscal problems arise out of the poverty and weakness

534 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

TABLE 150

SOURCES OF CAPITAL FOR SELF-LIQtUIDATING AND OTHER

COMMUNITY FACILITIES, 1950-55

PercentSelf- Municipal

Type of Liqui- National Dept. Municipal Govt. orFacilities dating Govt. Govt. Govt. Privatel Total

(millions)

Power 100 Ps.$ 96 Ps.$222 Ps.$ 232 Ps.$1143 Ps.$255

Water 904 30 - 41 - 71

Sewers - 35 35 - 70

Markets andslaughterhouses 100 - - 40 - 40

Telephones . 100 - - - 48 48

Paving . - - - 50 - 50

Waste collection,etc. - - - 3 - 3

Total . . . Ps.$161 Ps.$22 Ps.$192 Ps.$162 Ps.$537

I Includes investments in local power and telephone companies, whether privatelyor municipally owned.

2 Subscriptions to hydroelectric "centrales".

3 Investments in local generating and distribution facilities.

4 It is assumed that organized water systems, with individual house connections,should be self-liquidating, while those having outside taps open to general use willrequire support from public revellues. About 90 percent of the capital requirementsestimated above are for the former.

of the great majority of local governments and their consequent inabil-

ity to borroxv on reasonable terms to finance permanent public im-

provements, in spite of the generally low level of municipal debts. In

general, they are too Aveak and disorganized to give adequate assur-

ance to investors that loans wvould be properly managed and serviced;

moreover, the amount of loans which they could use and repay wvould

normally be too small to jutstify the cost of floating them. It is be-

lieved that these difficulties could be reduced by more effective guid-

ance of the borrowving activities and reinforcement of the credit

position of the smaller municipalities by the National Government,possibly through a Municipal Development Agency operating along

the lines proposed above.

CHAPTER XXIV

Housing and Building Construction

If housing accommodations in Colom-bia are to keep pace wviththe growth of population, it is estimated that 192,000 newv houseswill have to be built from 1950 to 1955, even if no improvement in thepresent state of dwelling occupancy (6.4) people per dwelling, takesplace. In addition, about 160,000 houses will reach that stage of dis-repair which wvill make major improvements or replacement impera-tive. Requirements for dwellings for the next five years have beencalculated on the basis of assumed population shifts and are shown inTable 151.

TABLE 151

NUMBER OF DWELLINGS IN 1948 COMPARED WITH ESTIMATED NEEDS, 1950-55

Annual Rate ofNumber of Dwellings Population Growth

(thousands) (percentage)

1948 1950 1953 1955 1948-50 1950-53 1953-55

Urban 435.2 463.0 507.0 545.0 2.9 3.1 3.6

Rural 1,232.1 1,276.0 1,345.0 1,386.0 1.9 1.7 1.6

Total 1,667.3 1,739.0 1,852.0 1,931.0 1 2.15 2.15 2.15

In order to calculate the need for total or partial replacements, itwas assumed that in any one year about 2 percent of all rural dwvell-ings and 1 percent of all urban dwvellings reach an advanced state ofdisrepair. 1 If the year 1953 is taken as the central year of the hous-ing program, the number of such dwvellings to be rebuilt in that yearcan be estimated at 31,970, or a total of about 160,000 dwellings infive years.

I This concept, though similar to that of depreciation, is not the same. Were weto assume that rural houses in Colombia do not last more than 50 years, anid urbanhouses no more than 100, the calculated amount of depreciation would be very smallindeed, because the population of Colombia 50 or 100 years ago was extremely small,and building units insignificant in number. We have thus preferred to make an esti-mate, not of the number of houses totally depreciated, but of the number of equivalenthouses which would have to be built in order to keep the number of old dwellings-onstant.

535

536 THE BASIS OF A DEVELOPAIENT PROGRAMf FOR COLO-MBIA

FINANCING OF HOUSING

Since Chapter XI shows that one of the major problems involvedin securing adequate housing for the lowv- and middle-income groupsis that of financing, the feasibility of combining the housing func-tions of the Instituto de Cr&dito Territorial, the municipalities, andthe housing section of the Coffee Federation in a single new agencyshould be considered. By concentrating, all efforts and sources offinancing in a single agency to promote the development of low costhousing, greater strides could probably be made towvard adequatehousing for the approximately 97 percent of the population whichcannot afford dwelling units costing more than Ps.$8,000.

The sole functions of this agency would be the financing, super-vision of construction and rental of low-cost dwvellings for personsxvith family incomes under Ps.$4,000 per year-i.e., those who canafford dwellings costing under Ps.$%,000. High cost construction,which represents approximately 20 percent of the value of dwellingconstruction, could continue to be financed through commercial bankswvith the debts thus created consolidated by the Central MortgageBank after completion of building. The financing of schools, govern-ment offices, hospitals, etc., wvould be handled through budget appro-priations. The agency wvould not engage directly in housing con-struction but it would set standards for all projects in wvhich itparticipated. Its staff wvould consist of technicians, engineers, hy-gienists and economists xvho wvould plan urbanization and housing,advise architects, contractors and builders in planning and construct-ing houses, and regularly inspect dwvellin'gs after construction.

While this new housing agency might acquire funds by borrowingfrom the public, it is not believed that sufficient amounts could beobtained by borrowing at the suggested rate of 5 percent. Additionalresources might be needed to defray administrative expenses and tosubsidize the margin betwveen borrowving and lending rates. Tenta-tively, it \vould appear that the sources of revenue currently availableto the three present housing institutions-namely, a surtax of 2'2percent on incomes above Ps.$10,000, an export duty of 6 per thousandon coffee, and specified percentages of municipal revenues-Avould beadequate to take care of this deficiency. It is estimated, howaTever, thatat least Ps.$125 to Ps.$150 million per year in newv borrowings wouldbe needed by the agency. This might, in a few years, result in a veryheavy service charge, unless the capital market -were rapidly im-

proved and interest rates would fall significantly. Raising sums ofthis magnitude yearly would constitute a formidable task. To the

HOUSING AND BUILDING CONSTRUCTION 537

extelnt that bank and insurance funds could be diverted to this mar-ket under a governmentally guaranteed insurance system conductedby the proposed agency, the problem would be reduced. Study andadaptation of the system of guaranteeing housing loans in the UnitedStates might therefore prove beneficial.

The proposed agency mighlt be divided into two major sectionsto deal respectively with rural and urban housing. Roughlly two-thirds of those who need more adequate housing live in rural areas.

Rural Housing

Little difficulty is involved in financing the construction of largehaciendas and dwellings for their workers. The real problem inrural housing is to secure proper shelter for small owners or share-croppers. Some of them live in small communities which are too poorto provide collective services. The majority dwell in farms scatteredin the hills and valleys of the Andes. Both types of farmers needhousing with a minimum of sanitary facilities.

It is doubtful xvhether private organizations of real estate inves-tors, architects and engineers could do much to help in the construc-tion of such dwellings. They would find little or no profit in invest-ing in rural dwellings as the administrative expenses would soonexceed the meager returns from rents. Construction should be k-eptso simple that the part-time help of a cement layer or carpenter wvouldbe the only cash expense for manpower that need be sustained. UntilColombian industry can develop to the point wvhere prefabricatedhouses can be sold in large quantities, the work of the farmer himselfshould remain the major investment in low cost housing. At presentthe Coffee Federation provides technical help and part of the financingfor dxvellings costing from Ps.$1,600 to Ps.$3,500 and the farmerprovides some financing and a considerable amount of work. But inaddition to dwelling types A to F constructed xvith the aid of theCoffee Federation, which were described in Chapter XI, there shouldbe a unit to cost about Ps.$1,000, perhaps no larger than 35 to 40square meters, but built of good materials and provided with shel-tered outside k-itchen and latrine installation. A dwelling similarto this type is being built currently in Tolima by some large land-owners. It is a small whitewashed adobe dwelling, divided in twosections, with a cement floor, and a leaf roof supported by bamboolattices. With the application of some engineering talent, it would nodoubt be possible to replace the palm leaves with cement or tile roofsat no appreciable increase in cost.

538 THE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOMIBIA

This type of dwelling represents an absolute minimum for hous-ing, and therefore its inclusion in a program dedicated to betterstandards may seem objectionable. However, since perhaps 10 to20 percent of the population in Colombia live in mud huts and someare reported without any shelter at all, a unit of this type might wellform the basis of a Colombian housing program. If this type ofshelter were made available, the poorest housed and unhoused seg-ments of the population would feel that their standard of living hadbeen significantly increased. Needless to say, for this type of houselittle more than the farmer's labor can be requested as financial par-ticipation toward construction; for definitely depressed areas, termsof loans may even have to be more favorable than those suggestedin Table 77 of Chapter XI and with a larger element of subsidy.

Urban Housing

The concentration of population in towns should make possible ra-tional planning and efficient construction of low cost houses. WVhetherColombian architects, engineers, and contractors manage to buildapartment houses or separate dwellings, or a combination of the two,at least cost to the consumer is of academic interest. Whatever thesolution, it will undoubtedly be found that simultaneous constructioinof a large number of dwellings is cheaper than constructing them oneby one. This does not mean that we advocate the construction ofenormous and glum barracks. On the contrary, it is extremely im-portant that due consideration be given to the kind of environmentwhich the Colombian worker would find most pleasant and wouldmost probably keep him at top efficiency. No doubt he would wantflowers, space and colors in his housing developments. Whether ornot the wvorker becomes the owner of his dwelling, the initiative forits construction and the means of guaranteeing its payment in duecourse are, however, not within his capacity.

Good urban housing in Colombia therefore calls for action on thepart of wealthy individuals, corporations, or the, state in order toinitiate developments. For reasons of efficiency it is not desirablethat the state have the responsibility of building if it can possibly beavoided. Corporations or cooperatives might be organized to retainarchitects and engineers to submit plans for building developments tothe proposed housing agency. They would then assume responsibilityfor the construction and further management of the housing projects.The new agency would not finance the whole value of the projects butcould give its guarantee to financial institutions, including commercialbanks, which would put up some of the funds needed by the builders,as is done under the Federal Housing Act in the United States. The

HOUSING AND BUILDING CONSTRUCTION 539

intervention of the agency, aside from financing, would consist ofapproval of the plans from the point of view of health, adequacy,urbanizationa and the supervision of rentals or mortgage paymentscharged by the initiators of the project. Mortgage payments wouldof course be in order if the worker desires ownership and could financesome part of the construction. In addition, the agency might wellset standards of maintenance in its contracts with builders and super-vise such maintenance.

If no private corporations are ready to assume the responsibilityfor low cost housing, the agency could extend direct financing orim ortgage guarantees to those workers w ho would be willing to initiateconstruction of tlheir own housing according to set standards. Finally,the agency wouldl engage in direct action only if the private sectorof the economy were completely unwilling or unable to provide fordwellings. In suclh event, the agency could submit specifications tothe public. and engineers, architects and contractors offering the low-est bid would be r'esponsible for building while the agency wouldfinance and manag;e the project which, later on, might be sold to thepublic.

ESTIMATED COST OF PROGRAM

Table 152 s'howvs the distribution of Colombian families by variousincome groups,, both urban and rural. For each income class is shownthe average value of dwelling which it can afford in our estimation.The size of the dwellings and the estimated construction cost persquare meter are also indicated. It should be noted that the con-structioln crust per square meter assumed for rural dwellings is rela-tively hig,h, but it is estimated that standardized wood constructioncould rreduce this cost to Ps.$20. Also, the computation of costs forhomes of wvhite-collar workers and the wealthy is in line wvith presentcondi tions and does not allow for possible reductions in unit costsw hic_h could be brought about by the standardization of materials andthfe introduction of greater efficiency in the building trade.

The recommended size of dwellings is small. The small well-to-dofarmers, for example, generally have dwellings of at least 72 squaremeters compared with the 60 suggested in the table. The size of the)roposed home for farmers in depressed areas is undoubtedly very;mall. However, it is not felt that these figures are set too low)arring economies in construction costs. To set them higher wvouldlisregard current income conditions, or assume that financing could)e extended for more than 20-year terms and at less than 5 percentnterest. We do not believe this is possible, if funds are to be raisedn sufficient amounts to execute a low cost housing program.

540 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLl'4JBIA

TABLE 152

DISTRIBUTION OF POPULATION AND AVERAGE COST OF Dv 'E

Size ofPercentage Dwellings Construct i

of Total (Square Cost pe AveraPopulation Groups Families Mieters) Square 'l r Cost o_________________________________________________________eter, Dwellin

Farmer, depressed areas . 8.0 33 Ps.$ 31 P.3 P . ,

Average farmer ....... 44.0 40 4'

Snmall farmer, well-to-do. 7.0 60 r

Worker, urban . . 29.0 66 .60 4.(

White collar worker .... 3.5 60 006Skilled worker ... - 100MIedium landovner 2.0 80 8,0

Upper middle class .. . 1.0 100 100 lO,C

Wealthy (rural) ... 1.0 200 120 24,C

Very wealthy (urban) 1.0 300 120 36,C

100.0

Average cost (rlral) . 62.0 Ps.$ 9,'

Average cost (urban) 380 nPs$ 5,r

On the basis of these computatiolns, the average cost of horfor rural families, which are 62 percent of the total, w ould be aboPs.$2,250. The average cost of urban dwellings-for 38 percent of t]total population-would be approximately Ps.$5,550 at 1950 prices

Table 153 shows what these figures mean in terms ehf total coof housing between 1950 and 1955 for 82,000 new urban dwqlin-sg5 al

TABLE 153

DWELLING REOUIRE.IENTS, 1950-1955

Urban Rura; Tot.

Dwellings needed in 1955 545,000 1,386,000 1,931,(

Dwellings existing in 1950. 463,000 1,276,000 1,739,1

New dwellings required 82,000 110,000 192,

Replacements needed 25,350 134,500 159,

Total dwellings required. 107,350 244,500 351,

Total costl (thousands) . Ps.$596,200 Ps.$549,247 Ps.$1,145

Average cost per year (thousands).. 119,246 109,920 229

l Average cost of urban dwellings, Ps.$5,552; rural, Ps.$2,246.

HOUSING AND BUILDING CONSTRUCTION 541

110,000 new rural dwellinigs, which will have to be built from 1950 to1955 if average occupancy of housing is not to increase. The equivalentof 25,000 urban and 134,000 rural dwellings will also have to be built,if needed repairs and replacements are made to existing dwellings.This means that for the five-year period, the total cost of constructionof urban dwellings would amount approximately to Ps.$600 millionwhile new rural dwellings would cost around Ps.$550 million. Thetotal housing program for the next half decade would thus probablycost about Ps.$1,146 million, or around Ps.$230 million per year.

Table 154 shows projected total investment in all types of build-ings in the same period. Stubstantial advances are expected in invest-ment in urban and rural dwvellings. In 1947 it is estimated that aboutPs.$123 miillion were so intvested, while in an average year between1951-1955 the total investment is expected to climb to Ps.$229 million.

TABLE 154

TOTAL PROJECTED CAPITAL EXPENDITURES FOR DWELLINGS AND

BUILDING CONSTRUCTION PROGRAM, 1951-19551

Total AnnualInvestment Program

Program 1951-55 1951-19551947 (1950 prices) (1950 prices)

(million5s)

UrbaII dwellings Ps.$ 66.3 Ps.$ 596.2 Ps.$119.2

Rural dwellinags ... . .. 56.7 549.2 109.8

Total dwellings Ps.$123.0 Ps.$1,145.4 Ps.$229.1

onimercial buildings Ps.$ 17.2 Ps.$ 150.0 Ps.$ 30.0

goveriment

Schools 50.0 10.0Offices . 22.32 50.0 10.0Hospitals 155.0 31.0Public markets and slaughterhouses 42.7 8.6

Total commercial and govern-ment buildings . . Ps.$ 39.5 Ps.$ 447.7 Ps.$ 89.6

actories .... . . . Ps.$ 7.5 Ps.$ 100.0 Ps.$ 20.03

Granld total buildings . Ps.$170.0 Ps.$1,693.1 Ps.$333.6

I Including payments for trade markups and internal transport of imported equip-nent,

2 Estimated.3 Factory construction also shown in Table 134, Chapter XIX.

542 THE BASIS OF A DEVELOP-MENT PROGRAM FOR COLOMIBIA

In order to forecast investment in other types of buildings, 1947investment was projected on the assumption that costs had increasedby about 30 percent from 1947 to 1950 and that further expansion inthe real volume of such construction had been necessitated by in-creased economic activity. A discussion of the requirements forsclhool construction will be found in Chapter XXV, wvhile expendituresfor construction of hospitals are treated in Chapter XXII. Investmentin governiment offices and other buildings has been estimated roughly.In total, the cost of all building construction is expected to increasefrom Ps.$170 million a year in 1947 to an average of about Ps.$340million per year between 1951 and 1955. Total investment involvedin the building program from 1951-1955 is approximately Ps.$1.7billion at current prices. It is estimated that about one-half of thisNill be absorbed by labor costs, while 17 to 20 percent wvill representimported materials.

It may be possible to revise these figures doxvnward if buildingcosts fall. Reduction in transport costs, the use of new buildin,gmaterials and improvements in building construction practices mayresult in decreased costs, or at least prevent a further rise.

CHAPTER XXV

Education and Training

Chapter XII presents a brief picture of the educational systemand conditions in Colombia, pointing out some of the more significantdeficiencies. Illiteracy remains a tremendous problem. The presenteducational program is evidently not keeping pace with the increasein population since there were more illiterates in 1947 than in 1937.School facilities are generally inadequate and many teachers are poorlytrained and paid.

The whole field of education needs more prolonged and cletailedstudy than the Mission was able to make, and it is hoped that sucha survey wvill be made. It is possible here only to point out the moreobvious and fundamental measures that should be taken. Since anadequate educational system underlies the success of any broaddevelopment program, both the quality and quantity of instructionshould be improved.

The problem of education may be approached from social, psycho-logical, political or economic considerations but the targets soughtwill differ accordingly. The Mlission recognizes that other thaneconomic factors should be given due weight in a well-balanced pro-gram, but since the large majority of the Colombian people are nearsubsistence levels there are excellent reasons for placing primaryemphasis on economic considerations in the educational program.From an economic standpoint, the need for improving primary educa-tion ranks first and vocational training second. As to other typesof education, changes in curricula and requirements would probablyeffect sufficient improvements for the immediate future. However,fundamental to all improvement is the need for increased numbersof teachers with better training. No expense should therefore bespared to obtain well-trained teachers and additional primary andvocational schools.

PRIMARY EDUCATION

Economic development calls for increased per capita productivityby the introduction of machines or the improved efficiency of theworker, or both. In the agricultural sector of the Colombian economyDnly a small contribution can be made to productivity by the inter-vention of machines, but increases in human productivity are of greatmportance. Also, at present the agricultural sector includes thezreat majority of the population but in the process of development,ropulation will tundoubtedly shift to the urban sector. The introduc-ion of mass rural education is, therefore. of the utmost economic

543

544 THIE BASIS OF A DEVELOPATENT PROGRAMI FOR COLOMBIA

significance, but it also raises many problems. While improvementof education in towvns and cities is relatively easy because of theconcentration of population, ease of transportation, and because therelatively higher incomes enable urban families to forego the economicassistance given by children, in the rural areas none of these con-ditions exists. Small farms are scattered over hundreds of milesof niotntains or in sparsely settled plains, means of communicationare not good, and the standard of living of farm families is so lowthat they are reluctant to have their children attend school insteadof helping- on the farm.

As a first step in improvinig primary education, a study might bemade of all rural areas of Colombia where it \vould be possibleto provide education for a substantial number of children at relativelylow costs; then great efforts should be made to step up the rateat which education is introduced into these areas. The most modernmeans of mass education-such as the use of radio for the transmissionof important lectures, the use of educational movies, the transporta-tion of pupils in school buses, the distribution of educational materialby centrally located schools to a group of smaller schools-should beadopted. The nuclear school system, now employed in several LatinAmerican countries, has been devised to secure more effective instruc-tion in, and supervision of, schools in rural areas. It might well beadapted to Colombia's requirements. Under this system, one centralschool is charged with the supervision and administration of a groupof smaller schools in the surrounding area; the director of the centralschool provides guidance to the teachers in the other schools in suchmatters as curricula, methods, standards of instructioni, school sani-tation and plant management.

AW"hile this outlines the need for great efforts in the disseminationof education in rural areas, the type of education has not been ex-amined. The primary impact of a program of mass education \vouldprobably be the reduction of illiteracy, but the lfission does notbelieve it should be the sole purpose. At present rural schools teachlittle more than the three "R's". Even in areas above average ineconomic conditions where pupils may get three or four years ofschooling, their education does not provide information on the wayto live in a modern agricultural environment. Little instruction innutrition and in the prevention of disease is available. Althoughsome health classes are included in the curricula of Colombian schools,the teachers themselves are largely uninstructed in problems ofhealth. Also. the schools do not give instruction in the use of mechani-cal implements, the use of the soil, housing, etc. AWTe recommend,

EDUCATION AND TRAINING 545

therefore, that consideration be given to both increasing the coverageand to changing the type of education. Even under the best conditions,it will be difficult in a few years to devise an educational programwhich will simultaneously provide the rudiments of learning and somepractical instruction.

In order to obtain maximum attendance, the academic year mightbe so arranged as to release farm children from schools at plantingand harvest times. Free meals and medical service at school shouldalso be more generally available. Differential wage rates might beestablished for those adults who had positive proof of successfulcompletion of four or five years' schooling. A number of such incen-tives might considerably increase the rate of school attendance. WVhenreal progress has been made in the standards of living of both farmand urban families, the enforcement of rules regarding school atten-dance may be strengthened. At present, rules regarding attendanceand child labor are not, and cannot be, enforced. It is more realisticto enact only such rules and regulations as correspond to the moresand economic condition of the population.

In order to provide more adequate primary schooling both in urballand rural areas, the construction of many new school buildings willbe necessary. At the present rate of about Ps.$5 million a year forprimary school construction, it would take approximately a quartercentury to meet estimated present requirements, without any improve-ment or replacement of present facilities and without making provisionfor further population growth. This excessively slow rate of schoolbuilding is in part due to the high cost of construction.

By using cheaper materials, more efficient production methods,and taking full advantage of the savings involved in large-scale pro-duction, it should be possible to bring the cost of simple structures,adequate for rural schools, down to about Ps.$30 per square meterof floor space. Assuming that a standard schoolroom to accommodate40 pupils, and wvith some space for storage and other purposes, shouldhave 80 square meters of floor space, the average cost would bePs.$2400. Urban schools of brick or masonry construction withnumerous rooms, plumbing and sewer connections, and other moreelaborate facilities wvould be more expensive. For purposes of anoverall estimate, an average requirement of Ps.$3000 per room for40 pupils can be assumed, especially in view of the fact that thegreatest shortage of school facilities at present appears to be in ruralareas.

Under this assumption, the present provision for school construc-tion-Ps.$5 million a year-would be ample for expansion of primaryschool facilities at the rate of 1000 to 1500 rooms annually. This

546 THE BASIS OF A DEVELOP-MENT PROGRAM FOR COLOMBIA

Avould accommodate 40,000 to 60,000 more pupils each year, with asubstantial allowaance for improvement and replacement of presentfacilities. We believe that this rate of construction is as rapid as isfeasible, especially in view of the shortage of teachers. Since thereare not sufficient teachers even for present schools, a great many morewvill have to be secured to staff nexv buildings. There is little purposein further accelerating the building program unless enough newteachers are available.

VOCATIONAL EDUCATION

As has been pointed out in Chapter VI and elsewhere in thisReport, foremen, supervisors and skilled laborers are almost entirelylacking in Colombia. This is due in part to the rapid expansion ofpractically all fields of economic endeavor in recent years. wlhich hascreated needs never before experienced in Colombia. The MissionobservedI many cases where the lack of skilled mechanics or super-visors kept enterprises from being as efficient as possible.

The Colombialn Government has recently organized vocationalschools but it may have underestimated the number of people to betrained and it may have misjudged the direction which the trainingshould take. The training of artisans may have been provided for,but it is also necessary to turn out persons fitted for the intermedi-ate wvork between management and common labor in a modern agri-cultural or industrial organization. In addition, consideration mightwvell be given to financial help for children and adolescents of poorfamilies wvhich may be necessary if they forego work for technicaleducation folloxving their primary schooling.

Industrial and Arts and Crafts TrainingMAuclh can be accomuplished in industrial training if governmenit,

educational organizations and industry cooperate. Those industrialconcerns wvhich have great difficulty in procuring skilled wvorkmenand foremen \vould doubtless velcome practical plans for trainingworkers to meet their needs. They might well cooperate by furnish-ing instructors, training facilities, or some financial support and bygiving some assurance of employment for satisfactory trainees. The

Ministry of Education is considering a number of plans for an ex-panded program in Avhich industry takes an active part. The wvartimeexperience of the United States and other countries in techniques ofrapid industrial and mechanical training may furnish useful guidancein developing such a program.

The 'Ministry of Education recently estimated that Ps.$45 millionare needed for construction of new vocational school buildings, andan additional Ps.$3 million for equipment. Such a large expenditutr

EDUCATION AND TRAINING 547

on industrial training facilities would seem someiwhat disproportionatein view of the urgent needs in primary and secondary education. Cer-tainly, however, considerable investment for expansion and improve-ment of vocational school facilities would be well justified if thetraining is of demonstrated practical value.

Agricultural TrainingAgricultural schools should be gradually improved, enlarged and

expanded in accordance with the plans of the Ministry of Education,until they effectively reach all sections of the country. The need formore agricultural training is evident and these schools represent thebest means of intensively teaching modern agricultural methods tolarge segments of the agrarian poptilation. The Ministry of Educa-tion estimates that the budget for agricultural training, including theagricultural normal schools, should be stepped up progressively toabout five times its present level of Ps.$588,000 a year to about Ps.$3million. The three agricultural colleges have accomplished muchdespite very limited facilities. Although there miay be need for somoenew agricultural colleges in the future, the more immediate concernshould be for enlargement and improvement of present facilities andprograms.1

SECONDARY AND UNIVERSITY TRAININGOf the 17,000 pupils who complete primary school each year, only

13,000 go to high school and less than 3,000 ultimately graduate. Forsome students, high school is the culmination of their studies; forothers, high school is a stepping-stone to the "Bachelor's" Diploma,which is given at the completion of high school, or to universitystudies. The smallness of this second category is disturbing. Eco-nomic reasons account in large part for the few who complete highschool and go on to college. Many students who enter the universitiescomplete only one year of higher learning because the nuniber offamilies -which can afford to support one of their members until thecompletion of university training is very limited, and the number ofstudents is correspondingly small. Efforts should probably be madeto attract more young people to higher education. Toward this end.the desirability of extending more financial aid, either partially orcompletely by the Government, to promising students from lowverincome families should be considered.

The rate at which secondary school expansion can take place de-pends on the availability of teachers with the required training andon the number of primary school graduates in a position to continuetheir educationi. Requirements for additional secondary school facili-

1 For a more detailed discussion see Chapter XVIII.

548 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

ties will probably be quite small in the immediate future, but will risesharply later on if effective steps are taken to increase the number ofpriimiary school graduates and the proportion enrolling in secondaryschools. If it is assumed that the total high school attendance couldnot be raised to much more than 70,000 by 1955, both by increasingthe number entering high school and by keeping students in highschool longer, accommodations for 25,000 additional students would benecessary. If two square meters per pupil at a cost of Ps.$45 per squaremeter are assumed, investment necessary for secondary school build-ings would amount to about Ps.$2.2 million in five years. If universitytraining is trade available to about 20 or 30 percent more students, theexpense involved can be roughly estimated at about Ps.$5 millionper year. This expelnse would be fully justified if thereby the reservoirof high-grade and wvell-trained individuals could be concomitantlyincreased.

NORMAL SCHOOLS

The problem of securing capable, trained teachers is one whichaffects existing schools as well as those to be built in the future. Atpresent there are relatively few trained teachers and only about 800are graduated each year from the normal schools. This is scarcelymore than enough to fill vacancies occurring from a normal deathrate among the present teaching staff. Thus not only are existingschools inadequately staffed, but as school facilities are increased theaverage quality of teaching personnel is certain to decline further,unless vigorous action is taken to increase the number of qualifiedgraduates turned out by the normal schools and the number per-manently attracted into the teaching profession. If existing normalschools are used to full advantage, undoubtedly more graduates canbe turned out than at present. As needs for teachers increase, morenormal schools may be needed in future.

Alore important. however, is the need to raise salary levels in orderto retain trained teachers in the profession and to attract persons ofdesirable caliber. Only about 30 percent of the small number ofteachers now graduated each year actuallv go into teaching. It wouldbe of little value, from the standpoint of improving education, to trainmore candidates at considerable public expense only to have them gointo other professions. The first requisite, therefore, is to providemore adequate inducements for a teaching career. Comparison ofsalaries of teachers (Chapter XI, Table 83) with those of other occu-pations would indicate the increases required so that teaching wouldoffer equal attractions. In terms of long-range benefit to the country,there can be no doubt that the additional expense involved would bejustified.

EDUCATION AND TRAINING 549

Whatever system of salary increases is adopted, we believe asubstantial differential should be established in favor of trainedteachers over those who are untrained or poorly trained in order to(1) attract those who are best equipped and hence most in demand forother pursuits; (2) provide incentives to the large number of poorlytrained teachers IIow in the school system to increase their education.It may be feasible to institute a system of short training coursesduring vacation periods, with satisfactory completion of such coursesa condition for raise in pay. Thus the qualifications of present teacherswill be inmproved, and more properly qualified teachers will be madeavailable to the schools, by making their calling more attractive fromthe standpoint of salary, prestige and tenure than it is at present.

ESTIMATED CAPITAL REQUIREMENTS

Preliminary estimates, shown in Table 155, indicate that thecapital requirements for the constrmction of additional schools alonewould amount to Ps.$38.5 million in the next five years. To this shouldbe added substantial sums for comfortable shelter for students attend-ing institutions away from home, for permanent laboratory equipment,etc. Total capital investment required will probably approximatePs.$50 million. Increases in teachers' salaries, provision of buses forschool transportation, movie and radio equipment for demonstrationpurposes, and the increasing of fellowships for studies at home andabroad will further add to projected expenditures for education. Thus,compared with the general estimate that government expendituresin the next five years may increase by at least 30 percent above 1950figures, it is anticipated that appropriations for education may increaseby 60 to 80 percent and accordingly miay encroach on budget provi-sions for other governmental agencies.

TABLE 155ESTIM1ATED CAPITAL REQUIREMENTS FOR CONSTRUCTION

OF ADDITIONAL SCIbOOLS, 1951-1955

Vocational Schools

Primary Secondary Industriall Agricultural 3 Total(millions)

First Year . Ps.$ 3.0 Ps.$ .3 Ps.$ 1.0 Ps.$ .3 Ps.$ 4.6Second Year . 3.0 .4 2.0 .5 5.9Third Year . 4.0 .4 3.0 .5 7.9Fourth Year . 4.0 .5 4.0 .5 9.0Fifth Year . . 5.0 .6 5.0 .5 11.1

Total . Ps.$19.0 . Ps.$2.2 Ps.$15.0 Ps.$2.8 Ps.$38.5

I A part of these sums miglht be obtained from private industrialists.2 Including agricultural colleges and normal schools, but not the Extension Service

of the Ministry of Agriculture.

CHAPTER XXVI

Fiscal Policy

Throughout this Report we have emphasized the importance ofimproving the productivity of labor and developing the naturalresources of Colombia. These are the basic conditions for raisingthe standard of living. Their achievement, ho\vever, is determined inuo small degree by the efficiency with which the country's fiscaland monoetary mechanism operates.

From Adam Smith on, it has been recognized that there arecertain economic undertakings which do not readily lend them-selves to private management. This may be because their profita-bility is realized only over a very long period, as in the case of riverdevelopment, highlway construction or irrigation projects; or it maybe that the fruits of the enterprise are not assessable in direct returnsat the market, as is the case with health and educational programs.Yet these matters are of vital importance to economic developmentand to the welfare of the people. Properly managed and planned.public expenditures oII such development projects may make a tre-mendous contribution to economic progress in Colombia. This, how-ever, will be possible only if Government finances rest on a soundfoundation. That is to say, the necessary means of finance must beobtained in a way compatible wvith a high and stable level of economicactivity and which\ will contribute to a broad distribution of incomeamong the people.

Proper management and organization of the country's monetarysystem, similarly, are important conditions for the country's eco-nomic development. In order to stabilize Colombia's position in inter-national markets and to permit a sound direction of domestic capitalflows, credit must be rendered available where needed, inflation mustbe checked and a reasonable stability of the peso assured. Whilelittle could be gained and much lost by substantially deflating thedomestic price level, it is important that further inflation be halted.This in considerable part is a matter of monetary management. Itrequires a proper understanding of the issues involved and willing-ness to apply the necessary restraints when called for; also, it requiresthe availability of appropriate instruments of monetary control. Inorder to provide these instruments, some of the statutes now govern-ing the operations of the Banco de la Repulblica need to be considered.

In this chapter we shall concern ourselves with taxation andbudget policy. AIatters of monetary policy and credit structure willbe considered in Chapter XXVII.

550

FISCAL POLICY 551

NATIONAL TAX SYSTEM

The national tax structure, on the whole, provides a fairly good

balance amolng personal income taxes, taxes on1 company profits andexcises; yet the tax structure might be improved in various respectsand there is dire need for overhauling the entire system of revenueadministration.

Improvements in Tax Structure

The income tax, in its various parts, provides some 40 percentof the total tax yield and its importance is certain to increase in thefuture. The following suggestiolns, therefore, primarily relate toincome tax improvenmelnts.

1. The present system of income tax rates, in w hich the basicrates are supplemented by three sets of surcharges enacted at varioustimes, should be consolidated into one rate structure. While thisneed not involve a change in actual tax liabilities, integration willfacilitate tax computation and result in a more understandable system.

2. The policy of taxing large salary incomes (in excess of Ps.$10or Ps.$15 thousand) at the company, \vhile exempting them at thepersonal, level distorts the personal income tax structure. Intro-duced to forestall tax evasion by companies through excessive salarypayments, the exemption results in unidertaxationi of high salaryincomes, except where the higher company tax liability is reflectedin a reduced salary before tax. By applying the special rates on highincome, enacted in 1948, to total salary income, this distortion hasbeen remedied to some extent; but it wvould seem desirable to repealthe high salary exemption for the entire tax income, while devisingother means to check excessive deductions at the company level.

3. The interrelationship bet\veen the taxation of company profitsand the taxation of capital income at the personal level raise diffi-cult problemns in any income tax systenm. In Colombia this relation-ship is complicated by the fact that the basic rate of income tax andthe surcharge of 1946 apply to individuals and companies alike,-whereas the additional surcharges enacted in 1948 apply to naturalpersons only. Thus the bulk of company profits are taxed at theconmpany level at rates ranging from 25 to 30 percent (the basicrates plus 1946 surcharge), depending upon the size of the company.Dividend income is then exempted at the personal level, except forthe special 1948 rates which range from 5 to 16 percent. If, instead,company profits Avere taxable at the personal level, the rate of tax(including the 1948 addition) would depend upon the shareholder's

552 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA

income bracket, and in the average case would be lower.' The presentsystem, therefore, results in a somewhat heavier taxation of profitthani of other income. Since this acids to an otherwise rather moder-ate degree of progression in the tax structure, the result is notobjectionable.

The present treatment wvill lead to difficulties, however, once thelevel of personal income tax rates is increased, as may well benecessary in future years. It wvill then become desirable to differen-tiate between the schedule of rates applicable to personal incomesand that applicable to corporate profits, with personal rates risingmore sharply than is now the case above the level of company rates.Dividend income, in such a system, xvill have to be taxed at thepersonal level, with either (a) exemption of dividends paid from thecompany tax or (b) crediting of tax paid by the company againstthe shareholder's personal tax liability.

4. Next there is the question whether the company tax shouldserve merely as a means of collecting the personal income tax ondividend incomes at the source, or -vhether there should be an addi-tional tax on companiy incomes as such. MTuch depends on the roleof excess profits taxation. The excess profits tax is payable by bothcompanies and individuals; but it is, by its very nature, a tax appliedto the profits of a particular business unit, the rate of return foreach enterprise being the standard by which excess profits are mea-stured. Notwvithstanding inherent administrative difficulties, the excessprofits tax appears to have worked fairly well in Colombia andmuch may be said for accomplishing the supplementary taxation ofbusiness income in this fashion. This being the case, it wvill be xvell tocontinue treatment of the basic income tax on companies as a devicefor source withholding.

5. In coming years, additional revenue will undoubtedly beneeded. Such needs will arise in part from the expansion of certainnational services and partly from increased grants to local govern-ments. These needs might be met in considerable part from increasedproductivity of present taxes, resulting from both a rising level ofnational income and improved revenue administration. But beyondthis, some additional taxes will be needed. These should be drawvnprimarily from the income tax system, including (a) higher taxa-tion of personal incomes, (b) a corresponding adjustmnent in theincome tax rate applicable to companies to maintain balance be-txveen the rates of tax applicable to retained earnings and to divi

1 The company rate of 30 percent about corresponds to the liability which woulbe incurred by a shareholder with an income of Ps.$250 thousand.

FISCAL POLICY 553

dend income, and (c) a possible increase in the basic excess profitsrate with some lowering, of the tax-free rate of return. Since manycompanies in Colombia are closely held and there is a high rate ofprofit retention, consideration may also be given to the so-calledpartnership method under which retained earnings are taxed to theshareholders as if distribution had occurred.

6. The personal income tax as now collected applies to a relativelysmall sector of the population. As shown in Chapter XIII, less than8,000 taxpayers contributed 75 percent of the yield in 1947. This isdue partly to the fact that initial rates are very low (ior an incomeof Ps.$10,000, the tax anmounts to about one-third of one percentof income) and partly to the fact that exemptions are high-forinstance, Ps.$4,000 for a married taxpayer with an income underPs.$10,000.2

Additional income tax yield will be needed in time to meet risingrevenue requirements; also, it may be a desirable substitute for someof the indirect taxes now relied upon. This will be desirable espe-cially if a systematic program of national aid to departmental andmunicipal budgets is developed, thus relieving the indirect tax sourcesdrawn upon by the lower levels of government. While the progressiveincome tax is frequently thought of as a means of taxing the vervlarge as against the middle and smaller incomes, such is only one ofits possible uses. No less important is the fact that the income taxapproach, by the use of exemptions and progressive rates, permitsa more equitable distribution of the tax burden over the middle andlowver income brackets. Where these brackets are drawn upon, aswill be increasingly necessary with expanding governmental func-tions, the allocation of tax shares can be accomplished more equitablyby means of the income tax approaclh than by extensive reliance uponindirect taxation. Broadening of the income tax base, howvever, in-volves difficult problems of administration and renders improvementsin the machinery of tax administration all the more necessary.

7. A most important aspect of tax policy in Colombia is theimpact of taxation upon capital formationi. Capital is scarce andcostly in an underdeveloped economy such as Colombia. Almost everyitem of capital formation absorbs scarce foreig-n exchange, and alwaysit implies a diversion of resources from their more immediate uses insustaining the modest level of consumption. But while capital isscarce it is also highly productive; in view of the low state of tech-nology in Colombia and the high level of technological knowvledge ofour time, it is evident that properly directed capital formation may

2 Provisions of June 1949.

554 THIE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

rapidly raise the standard of living of the Colombian people. But theemphasis must be on proper direction: Ps.$1 million spent on theimprovement of transportation facilities, irrigation or water supplyin newTly cleveloped areas may contribute more to the country's wealtlhthani many times this amount spent on the construction of elaborateoffice buildings in big cities. Yet, the rate of profits wvhich the in-vestor may derive from the latter type of investment, and especiallythe profits to be derived in the short run, are particularly great. Thusthe question arises whether the tax lawv may contribute to redressingthis unbalance.

One such aspect of tax policy (relating to underutilized land re-sources) has been discussed in Chapter XVIII. The tax treatment ofcapital gains is also of special importance in this connection. Follow-ing the British practice, the Colombian tax law excludes capital -ains(other than inventory gains wvhich are taxed as regular profits) fromtaxation if they do not constitute a regularly recurring source of in-come. This undoubtedly has accentuated the relative attractivenessof speculative investment, which is frequently realized as capitalgains. While it would not be practicable or desirable to tax capitalgains the same as other income, solne compronmise formula for theirtaxation needs to be developed. This formula should be designed tc,render the level of rates contingent upon the period over ivhich theasset was held, thereby encouraging longer-term, as againist specu-lative, investmelnt. Beyond this, the rates might be made to dependupon the extent to \vhich the investment has contributed to thecountry's econonmic development. To do this, capital gains need bedivided into various categories depending upon the type of invest-iment from which they are derived. Capital gains from unimprovedland, for instance, might be taxed at a relatively higher rate, whereasgains from the sale of an industrial plant \vould be taxed at a lowverrate. While the technical problems involved in such a scheme cannotbe developed here in detail, the matter is one of great importance fora country like Colombia w here the rapid development of cities andthe opening up of new areas Avill give rise to enormous capital gains.The prospect of such capital gains, under certain conditions, mayact as a spur to economic development; yet in some cases it may dis-tort the flov of capital and slowv dowvn economic growtlh.

8. While primary emphasis should be placed upon the develop-ment of income rather than excise taxation, indirect taxation niightwell be used in the form of excise taxes on certain luxury itemils.Such selective excises might be helpful in reducing luxury consump-tion, thus freeing foreign exchange and directing domestic resourcesinto more essential uses. This mighlt also be accomplished by forcing

FISCAL POLICY 555

a reduction in the luxury expenditures of high income groups throuhIisteeply progressive income taxes; but the selective excise approachhas distinct advantages for an underdeveloped economy such as Coloin-bia. High incomes, which result in high rates of savings, performi avitally important function in Colombian development, provided thatsuch savings are channeled into capital formation of types designedto improve the productivity of the Colombian economy. A selectivesystem of indirect taxes would accomiplish the objective withouitdeterring- investment by lowering investment returns or reducingthe voluo-me of savings, both of which might result from highly pro-gressive income taxes.

Improvements in Tax AdministrationImproving the basic tax law is only part of the problem. MIore

immnnediate, and in many ways more important, is the need for im-proving tax administration. Inequities of the tax law are bad, whetherthey arise from a faulty statute or from ineffective application; theyield of a revenue structure depends as much upon its enforcementas it does upon the rules to be enforced. Colombian tax administra-tion is inadequate in botlh these respects. Inefficient administrationin maniy instances causes inequitable tax burdens as well as sub-stantial revenue losses. The loss of revenue is due partly to failureof some taxpayers to report at all, and partly to failure of others toreport fully. While it is difficult to estimate the additional yield thatcould be obtained through improved admiinistration, the gain mightivell amotunit to one-third of the present income tax yield, or Ps.$40mil'lion.

Improvement of tax administration is a matter of personnel andorganization. The problem of personnel is of vital importance. Atpresent, both the number of employees and their techinical trainingoare inadequate. To remedy the situation it will be necessary to (1)increase the number of employees in the fiscal service, (2) raisetheir salary standards so as to attract more capable personnel, and(3) provide for the training- of suclh personnel. These measures, otcourse, wvill increase the cost of fiscal administration somewhat, buta multiple of the additional cost should be recouped in higher taxyield. For the year 1948, for instance, budget expenditures on revenue(excluding tariff) administration amounted to Ps.$3.5 million, over85 percent of which wvas for salary payments. This expenditure ofPs.$3.5 million produced tax collections of Ps.$223 million. In otherwords, Ps.$1.57 were spent in the collection of each Ps.$100 of revenue.WVhile this ratio is high relative to the United States ratio of 60 centsper $100 collected, the comparison is misleading since the higher level

556 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

of U. S. tax rates is bound to be reflected in a lower cost-to-yieldratio. Suppose that both the number of people employed in Colombiantax administration and their average rate of salary were doubled.This expansion, wvhich hardly overstates requirements, would meanan increase in the cost of tax administration from Ps.$3.5 toabout Ps.$14 million. Should the consequent improvement in adminis-tration produce an increase in vield of Ps.$60 million, as might be ex-pected, the additional outlay would provide the Government wvith anearly sixfold return. And even if the resulting gain wvas less strik-i ng, the outlay wNould certainly more than pay for itself.

While such a program is clearly indicated, it must not be for-gotten that the availability of qualified personnel imposes limitationsupon what can be accomplished in the slhort run. Expansion of thefiscal service, therefore, must go hand in hand with an extensive pro-gram of personnel training. The work required to administer a mod-ern income tax necessitates a thorough knowledge of accountingpractices, substantially beyond that provided in public school train-ing. Therefore, consideration should be given to sending a numberof qualified persons, present or former members of the revenue staff,abroad to study procedures and methods of tax enforcement. 'Undertheir contracts they should be committed on their return to give in-structions to auditors and tax collectors, and later to serve as techni-cal consultants. On this basis an in-service training program mightbe developed, and promotions (permitted under an expanded budget)might be tied in with the results of this program. Combined withgenerally improved salary levels, such measures should serve toattract capable young people into the revenue service.

In addition, some technical changes should be made in adminis-trative procedure. First, the internal organization of all the revenueoffices in the country should be unified; also, there should be moreuniform procedures in dealing wvith tax returns. Second, a singlerevenue code should be drafted to include all regulations issued bythe central office and revised whenever regulations change. Thiswould assure uniformity in rulings, even on minor points, and clarifythe taxpayer's rights and obligations. Third, measures should betaken to induce taxpayers, and companies in particular, to maintaintheir books in a form wvhich xvill permit proper tax assessment andverification of returnls. For this purpose, model systems of account-keeping should be made available for various lines of business. Therevenue code might then stipulate that, in the case of litigation.failure to provide the information required in these accounts wvouldplace the burden of proof on the taxpayer. Finally, tax administra-

FISCAL POLICY 557

tion might be facilitated by permitting the larger taxpayers, andespecially the larger companies, to compute their own liabilities andto pay in quarterly installments on that basis. These initial paymentswould then be subject to revision by the revenue administration andinterest would be due on tax liabilities incurred because of initialunderreporting.

FORMULATION AND PRESENTATION OF NATIONAL BUDGET

The budget is the central instrument by which all fiscal activitiesof the Government are planned and through which the legislaturecontrols the conduct of governmental finances. It is of crucial im-portance, therefore, that the budget picture be presented in as cleara form as possible and that the framework of budget determination besuch as to permit a careful and efficient planning process. As pointedout in Chapter XIII, the Colombian budget system is in need ofreform on both counts.

Budget Formulation

A brief description of Colombian experience with the budget systemintroduced in 1923 and of the recent decree 3 was given in Chapter XIII.One great improvement provided by the new plan is the establishmentof a Bureau of the Budget, which will furnish the President withmore adequate facilities for budget planning and permit better co-ordination of the fiscal activities of the various parts of the Govern-ment. Some other features of the new plan, however, are questionable.

1. The new scheme departs from the earlier requirement that theAdministration must always present a balanced budget. In the newplan this principle of balance is limited to the ordinary part (i.e.,expenditures covering the essential minimum functions of govern-ment) of the budget, while proposed "secondary"' (less essential ordevelopmental) and "extraordinary" (domestic disturbances and war)expenditures can be loan financed. While this is preferable to theuntenable requirement that the entire budget must always be balancedby tax and other non-loan proceeds, experience with similar provisionshas not on the whole been satisfactory.

The argument in favor of some such distinction is that loan financeis more appropriate in the case of self-liquidating or developmentalprograms than in the case of current expenditures because the formeradd to revenues (either through fee proceeds or a higher futurenational income) so that the problem of debt service will be simplified.IHowever, this reasoninlg (unless limited to fee-yielding, self-liquidat-

3 Decree No. 164 of January 24, 1950.

558 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

ing projects) applies to health and education expenditures as much asit does to construction projects. AMoreover, if general economic con-ditioiis are such as to require avoidance of deficit financing because ofits inflationary effects, deficit financing wvill be harmful whetherdirected toward capital or current expenditures. The choice betweenreveniue and loan finance fundamentally should not depend upon thetype of expenditures but upon the state of economic activity. WVhileit is highlv desirable for the Governmelnt to carry on careful account-ing of its capital outlays-and this may \vell be done in a capitalbudget planned over a number of years-'the two parts of the budgetshould not be separated wvith regard to the choice between revenueand loan finance.

Finally, there is real dangser that the neew formula wvill result inneglect of the so-called 'ordinary" expenditures, since they are to betied to the availability of revenue, but less vital items are not sub-jected to any such limitation. The ordinary expenditures, after all,cover the most important and basic functions of the Government, in-cluding such matters as education and public health services; at atime of lov revenue yield, therefore, the Government should not beforced to cut these outlays while at the same time expanding loan-financed but less important items. On the contrary, first care shouldalways be given to the maintenance of an adequate level of ordinaryexpenditures.

Wlhile the desirability of checking reckless debt financing muist berecognized, budgetary balance is not a principle which can or shouldbe legislated. The requiremenit that the budget on ordinary expendi-tures must be balanced by revenue may wvell do more harm than good.¾N`hat is required is not a rigid formula but a careful and intelligentprocess o0 revenue and expenditure planning, giving proper emphasisto the needs of the economy for various public services and therequiremenits of economic policy for maintaining stability in pricelevel and employlient.

2. In colnjunction svith the requirement for the revelnue financingof ordinary expenditures, the nex- plan also provides that the Congresscanniot increase the proposed expenditure total if this disturbs thebudgetary balance, or reduce the ordinary expenditures recommendedin the Governmenit's budget. The first of these requirements is xvhollvambiguous and should be clarified. The second stems from the princi-ple that ordinary expenditures must be revenue financed and is de-signed to prevent Congress from substituting less for more essentialitems within the "ordinary" category; such substitutions are to beavoided, because they force the Government to borrow later on in

FISCAL POLICY 559

order to finance the more essential items. While this prohibitionmight help somewhat, it will hardly eliminate distortions in thecongressional choice between alternative expenditures. There willstill be pressure for the exclusion of items which, though not in the"ordinary" category, are generally considered essential; and hencethere \vill be continued need for supplementary expenditures by theAdministration. In order to place the choice between- alternative ex-penditures on a sounder basis, Congress wvould have to be permittedto vote additional expenditures as long as the source of additionalfinance (revenue or loan) wvas provided for. But then the restraintagainst loan finance would be lost.

Possibly a compromise might be worked out by substituting forthese rules (including those set forth utnder 1 above) the requirementof a two-thirds majority for debt authorization over and above thatneeded to finance the expenditures recommended by the Government.Under this system all revenue wvould be counted first against ordinaryexpelnditures proposed in the Government's budget, and loan proceedsvoted upon by simple majority would go first to finance the proposedordinary expenditures not covered by revenue. Only loan proceedsin excess of this amount, and voted upon by a two-thirds majority,would be available for other expenditures. Yet, Congress wouldretain the privilege of changing the expenditure total and hence therewvould be less danger that the expenditure pattern would be distorted.

3. The new plan requires that revenue estimates again be basedon a formula, although less rigid than that provided for in the originallegislation. Any rule wlhich requires that yield estimates may notdeviate from the preceding years' average by more than a certainpercentage introdu ces undesirable rigidity into budget planning. Yetthe experience during the 1940's, xThen no such limitation was applied,shoxvs that some sort of formula is needed. The nexv formula has theadvantage that the resulting bias in revenue estimates will favor acompensatory fiscal policy over the business cycle: by making thedeficit larger than intended in a period of declining income, and thesurplus larger than intended in a period of rising income, the formulawill contribute to a proper fiscal policy.

4. The newv plan limits the amount of expenditures in excess ofbudget appropriations which may be undertaken by the Administra-tion while Congress is not in session. This is a sound proposal, as it isof great importance to assure that the control over public expendituresis with the Congress. Also, it is desirable, as provided for under thenew proposal, that expenditure authorizations should be drawn uponnnder ordinary circumstances in equal monthly installments. Howvever,

560 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMIBIA

these monthly installments should not be made to depend upon theamount of revenue yield which is forthcoming in the course of the year.A proper functioning of governmental departments and public agenciesrequires that those in charge of the program knoxv at the beginningof the year what their available funds will be. The procedure, nowpracticed and to be continuedl under the new plan, of more or lessarbitrary cutbacks in one or the other programs, interferes \vith properexpenditure planning on the basis of the annual program as deter-mined by the Congress. This provision should be dropped and theGovernment should be entitled in the course of the year to incuradditional debt equal to the excess of estimated over actual revenueyield.

5. The newv budget law does not affect the common practice ofearmarking certain revenues for specific purposes. This method ofraising funds, usually for developmental expenditures, has beenincreasingly used in recent years. New or increased taxes may, per-haps, be less unpalatable if they are earmarked for specific purposeswith considerable popular appeal, but the practice has several over-riding disadvantages. The basic objection is that it greatly reducesthe flexibilitv of the Government's fiscal structure; under changingeconomic circumstances the expansion or contraction of earmarkedreventues will not necessarily conform to the requirements of thefunction involved, or to its relative importance in the total budgetarypicture. At the sarme time the Government agency which administersthat function and the economic groups which specially benefit fromit gain a vested interest in certain revenues, which makes it hard tostop or reduce appropriations even though the original purpose mayhave been fulfilled or reduced in importance. In consequence, thetax system is likely to be thrown out of balance and other functionsstarved for funds. The importance of the last consideration is em-phasized by the fact that earmarking is resorted to mainly for "second-a ry" expenditures, while "ordinary" functions, which may be lessdramatic but are usually the most essential, cannot make use of thespecial revenues.

AWNe recommend, therefore, that this practice of earmarking be

abandoned as rapidly as feasible, except for the fees and charges ofautonomous agencies which are partly or wholly self-supporting.

Budget Presentation

The financial data of the Government should be presented in U

form \vhich provides the legislature and citizens with the informatiolrneeded to formulate an intelligent judgment of the Government's fisca

FISCAL POLICY 561

program. The financial statements, as currently presented in theofficial documents, do not meet this requirement and are badly inneed of reformulation.

The information to be provided should include (1) the kinds andamounts of public services to be rendered, expenditures being classi-fied according to responsible ministries or agencies and accordinigto functions; (2) a breakdown of expenditures between current andcapital outlays, with depreciation and interest being shown on capitalprojects; (3) a statement of cash receipts from and payments to thepublic, drawn up on a consolidated basis so as to include all phasesof budgetary activity; and (4) a statement showing the relationshipbetween the cash surplus or deficit and resulting changes in thenational debt and the treasury balance. The recasting of the systemof budget accounting and presentation is a difficult task and it mightwell be desirable to obtain technical assistance for this purpose; or,possibly, qualified Colombian personnel might be sent abroad tostudy the problem.

Precise information with regard to (3) and (4) above, wvhich areespecially important for appraising the impact of the Government'sfiscal policies upon economic activity, is unobtainable from the datanowv published. Indeed, most published statements, especially in theirinterpretation of the term "deficit," contribute little clarification.Yet, until the factual picture is presented clearly, neither the legis-lature nor the people will be in a position to reach intelligent judg-ments regarding the conduct of fiscal policies.

FISCAL SITUATION OF DEPARTMENTS AND MUNICIPALITIES

Rationalization of National-Local Financial Relationships

The relative importance of national revenues as against those ofthe departments and municip,lities has been rising steadily in recentyears-from about 23 percent of total government income in 1920 to35 percent in 1930, 41 percent in 1938, and some 60 percent in 1948.This general trend was to be expected, considering the character ofColombia's development in recent years; in fact, a shift in the balanceof financial and administrative strength from local toward centralgovernments has been almost universal throughout the world. Never-theless it involves some important political, administrative and finan-cial problems which must be realistically faced and overcome ifColombia's development is to proceed on a sound basis.

As the importance and strength of the departments and municipali-ties have declined, the development of the functions for which these

562 THE BASIS OF A DEVELOPNIENT PROGRA-M FOR COLOMBIA

levels of government are responsible has not kept pace in most locali-ties wvith the country's overall progress. Among these functions aresuch vitally important ones as health, wvelfare and educational services,the provision of wvater and sanitation systems, and the development ofelectric power facilities. The problem of providing adequately forlocal functionis is made more difficult by the great disparity in financialresources wvhich exists among different departments. and particularly

among the feAv largest cities and the great majority of smaller rmunici-

palities. As was pointed out in Chapters X and XII, the latter are

too weak and poor to carry out their essential responsibilities in

satisfactory fashion xvithout extensive national aid.

The financial difficulties of the poorer and less populous depart-ments are aggravated by the narrowness of their revenue base.Although the importance of income from liquor sales and taxes hasdeclined somewvhat in the last few years, it still constituted over 36percent of departmental revenues in 1947-48 and is the major relianceof many departments. Their need for larger revenues, particularlyfor education, thus frequently comes into direct conflict wvith theresponsibility imposed upon them by law for carrying on campaignsto reduce alcohol consumption.

* The Government has tried to meet this problem of the inadequacyand inequality of departmental and municipal revenues by shiftingresponsibility for v arious functions partly or \vholly to national agen-cies, and by providing grants-in-aid from the National Treasury. Theseexpedients, hovever, are likely to lead, and in some cases have alreadyled, to newv distortions in political and administrative relationships ofthe various levels of government. There is, first, a trend towvard over-centralization of activities which should more properly, or coulclmore efficiently, be administered at the local or departmental level:this tends further to \veaken local initiative and responsibility. Second.the present allocation of functions among the National Government.clepartments and municipalities does not, generally, seem to be basedon any consistent policy or pattern, but rather is the outcome of asuccession of piecemeal changes. This has brought about considerableoverlapping alnd confusion of authority and responsibilities. Third,muclh of the assistance given by the lNational Government to depart-ments and municipalities is ad hoc in character, based on transitory

political considerations rather than on consistent principles of equityor neecl. Its effect is often to aggravate, rather than reduce, the dis-parities in the resotnrces of different local governments. These distor-tions are not, apparently. deliberate. They result mainly from the

FISCAL POLICY 563

speed with which the Colombian economy and governmental functionsare expandinig and changing. and from inadequate coordination ofNational Government policies and administration. But unquestiollablythey hamper the continued progress of the country on a sound basis,and steps should be taken to remedy them.

( The developmiienlt of a well-balanced and integrated system ofrational, departmental and local finance in Colombia is a most difficult,pret vitally important, task. This should be based on two principles:(1) the nation as a whole must assume some degree of responsibilityfor meeting minimnum standards of public services in all regions ofthe country, and (2) this should be done wvithout \veakenilng the re-sponsibility of regions anid localities to help themselves. In a countrylike Colombia in which there are substantial differences in naturalendowrment and economic development among the various regions,application of the first principle requires that some assistance begranted by the wealthier to the poorer regions. Thus contributionsfrom the national budget, financed out of general revenue and drawvnmore largely from the wealthier regions, will have to be directedprimarily to assist the poorer regions to enable them to provide formore adequate public service standards. In order to accomplish thispurpose, plans designed to provide for national-local sharing of rev-enue sources are of limited use only, as are systems of matching grants.These devices cannot accomplish the purpose because the poorestregions wvhich are most in need of assistance can least afford to sharerevenue sources and are least able to match the national contribution.

The criterion for the allotment of grants, therefore, will h-iave tobe that of need, measured in terms of per capita resources and publicservice requirements in the various regions. This, however, mustbe qualified by the condition that a particular region or municipalitywill be entitled to claim support only if, and to the extent that, anadequate effort has been made to raise public service standards ontof revenues dra-wn from local resources. 'Need and local effort at self-help must both be considered. Considerable time, and more intensive,tudy of the situation at the various levels of government than hasaeen possible for the Mission, will be required to xvork out the details:f a satisfactory program of fiscal reform. In general, however, we-ecommend action along the lines indicated in the following para-Iraphs, subject to review and elaboration by the proposed PublicXdministration Mission.

The division of functions and of sources of revenutte amolng thehree levels of government should be reviewved in comprehensive

564 THE BASIS OF A DEVELOPMENT PROGRAMN FOR COLOMBIA

fashion to adjust their respective financial resources more closelyto their responsibilities, to give the departmental and local govern-ments relatively assured income adequate for their needs. and tosimplify the present complex and often quite arbitrary system of trans-fers of funds among the different governmental levels. A Committeeof Financial Experts in the Ministry of Finance has made extensiveand valuable studies of this problem, and has proposed certain specificrecommendations.

The initial proposals of this Committee would lessen the depart-ments' dependence on liquor reveniues by transferrinig the depart-mental alcohol monopolies to the National Government, with thelatter delegating additional taxes and assuming the responsibility forcertain departmental functions in exchange. They would also putthe lottery on a national rather than a departmental basis with aview to reducing administrative costs and eclualizing revenues; netincome from the proposed National Lottery would be returned to thedepartments in shares based on a definite formula. The Committeealso proposes certain other transfers of sources of revenue and respon-sibilities for expenditure, and more consistent (and apparently moreequitable) formulas for allocation of national grants-in-aid to depart-mental and municipal governments. These changes wvould substan-tially raise the proportion of national aid going to the large numberof poor municipalities which need it most-in 1946 the 450 municipali-ties at the bottom of the income scale, containing 32.5 percent of thepopulation, received only 6.3 percent of national grants to localgovernments.

Wlaile we do not feel that our information on these matters isdetailed enough, or that our analysis has been sufficiently intensive,for us to endorse all the proposals of the Committee of FinancialExperts, their general objectives appear to be desirable and necessary.These proposals deserve careful and sympathetic consideration by theAdministratioln and Congress.

The establishment of a more effective Municipal DevelopmentAgency, as suggested in Chapter XXIII, might be of value in helpingthe weaker municipal governments to improve the organization andadministration of their financial affairs and to enable them to stand ontheir own feet. It should also make it possible for many municipalitieswhich now have little or no credit standing to borrow on reasonableterms for municipal improvements. This is one example of the needfor national assistance to strengthen the position of local govern-ments, and their capacity to fulfill their growing responsibilities-anc

FISCAL POLICY 565

thus in the long run to reverse the trend toward overcentralization ofgovernment authority and administration.

PMunicipal TaxesMunicipal revenues (other than borrowings and assistance from

higher levels of government) are derived from two sources-(a) in-some from property and services, and (b) local taxes and charges.Chapter XXIII contains general recommendations with reoard toutility rates (the principal source of service income), which apply topublicly- and privately-owned utility enterprises alike. We recommendaction along the following lines to improve the efficiency, equity andadequacy of local tax structures.

1. The effectiveness of local tax collections should be improved.We believe the amount of municipal revenues could be substantiallyincreased in this way without increasing overall rates. The NationalMinistry of Finance (or perhaps the Municipal Development Agencyif it is established) might well institute a program of training inassessment, enforcement and collection techniques for municipalfinance administrators to give them the benefit of the best adviceavailable. Fortunately, local taxes generally involve less complicatedtechniques of assessment and collection than income taxes. A majoraid to more satisfactory collection of real property taxes will be thenationwide reassessment of property values now in progress, whichhas greatly expanded the tax base and removed many previous in-equities. On the basis of the normal tax rate of Ps.$2 per thousand,the valuations established by the end of 1949 should yield Ps.$30 to35 million, which is substantially more than the total yield of the"predial" tax in 1948; and aggregate valuations will presumablybe increased further as the reassessment program continues.

2. The complex structure of taxes on industry and commerce,motor vehicles, etc., which prevails in many localities, should besimplified in the interest both of equity and of efficiency of collec-tion. For example, there apparently is no satisfactory reason forseparate collection of an annual motor vehicle registration fee anda monthly "circulation tax" for continuing use of the vehicle. A singleannual or semi-annual tax would he cheaper to administer, harder toevade and more convenient for the taxpayer.

The Committee of Financial Experts is developing proposals formodernizing the principal municipal tax on industry and commerce,and making it uniform for the entire nation. Under their tentativescheme, the tax would be based partly on the type of business (its"essentiality"), and partly on the level of its net profits. This wvouldtindoubtedly be fairer and more logical than some of the present

566 THE BASIS OF A DEVELOPMIENT PROGRANI FOR COLOMIBIA

taxes, but it wvould overlap in large measure with the National Govern-ment's corporate ilncome tax, as do the present local taxes on industryand commerce. While such duplication is not necessarily bad in itself,it wvould be desirable to consider reform of the industry and commercetax as part of the necessary comprehensive review of financial relation-ships among the different levels of government. Clearly, however, theexisting tax needs modification in any case.

3. Some upward adjustment in the average rate of real propertytaxes seems advisable. The present normal rate of tvo per thousand,and even the emergency rate of four per thousand, is very moderate incomparison xvith those prevailing in more highly developed countries.Higher real property taxes wrould, in fact, tend to proliiote economicdevelopment in several wvays: (1) by providing funds for necessarypublic facilities and services; (2) by helping to divert capital fromundue concentration in land and buildings into more productivechannels; and (3) by encouraging owners to use their land moreintensively. The differential rates of tax on land used substantiallybelowv its economic capacity (proposed in Chapter XVIII) wouldserve these purposes. A similar principle already applies to unim-proved urban land in some cities and might well be extended to otherlocalities and suburban land, with a view to discouraging real estatespeculation and providing an incentive to more housing constructionat reasonable prices. The latter should, of course, be supplementedby adequate building regulations to prevent a proliferation of jerry-built houses merely to avoid taxes.

4. All taxes and levies interfering wvith the free flow of tradebetveen various regions of the country are detrimental to economicdevelopment and should be repealed. Departmental and municipalgovernments should not be permitted to impose such levies.

A substantial increase in municipal revenues is certainly necessaryto provide adequate local facilities and services (see Chapter XXIII).However, this need not be derived entirely from current resources.MIunicipal debts are loxv in the aggregate, and a great deal of progresshas been made in recent years in putting these obligations, especiallyexternal debts, on a sound basis. If municipal finances and adminis-tration are strengthened and if their plans are reviewed and theirobligations guaranteed by an effective M\unicipal Development Agency,many of them should be able to borrow substantial sums for develop-ment purposes on quite reasonable terms. On the other hand, it mustbe emphasized again that their ability to obtain and service new loanswill depend very largely upon an increase in their current revenuesand continued improvement in their overall financial position.

CHAPTER XXVII

Money, Banking and Capital Markets

The Colombian central banking legislation of 1923 was modeledin important respects after the early Federal Reserve System. Theunderlying purpose was to assure an elastic supply of currency andcommercial bank credit to avoid credit crises by pooling reserves andto assure a high degree of liquidity of commercial bank assets throughproper supervision. Rediscounts of the Central Bank, operating undereligibility requirements, wvere to 0-ear the volume of credit to thesupply of eligible paper and hence, so it was thought, to the properneeds of trade. The concept of the Central Bank's function has sincechangecl in important respects, and therefore it has been necessary tomake corresponding acljustments in the institutional structure ofthe banking system.

VOLUME OF COMMERCIAL BANK RESERVES

As pointed out in Chapter XIV, the supply of credit does notregulate itself but requires controlling action on the part of CentralBank autlhorities, designed to ease or tighten the supply of creditas the needs of the economiiic situation demand. This control isexerted by adding to, or curtailing, the lending potential of commer-cial banks. Whether this takes the form of rediscounts, open markettrading or changes in the reqcuired reserve ratio is relatively unim-portant. W,Vhat matters is that the ability of commercial banks to lendis kept at the proper level.

Action of the Central Bank to enlarge or restrict the supply ofcommtercial bank reserves or to change the required reserve ratio maybe needed for two reasons: there may be changes in economic condi-tions which render the volume of credit excessive or deficient; orcertain developments may occur such as inflowv of foreign exchange,or an increase of currency in circulation, wvhich Avould add to ordetract from the prevailing level of reserves and thus require com-pensating action by the Central Bank. In addition, lending activitiesby the Central Bank itself may cause important changes in the reserveposition of commercial banks.

Gains or losses of foreign exchange resulting from a surplus ofexports or imports have been an important unstabilizing factor in theColombian money system. Bank reserves \vere swollen during thewvar by the inflow of foreig-n exchange and wvere drained subsequently

567

568 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

by exchange losses: early in 1950 they were again increasing as aresult of the rise in coffee prices. An improvement in the balance oftrade and the concomitant exchange gain, ho-wever, do not neces-sarily warrant an expansion of credit and a rise in the domestic pricelevel. By raising domestic money incomes and thus increasing thedemand for imports, as wvell as by making Colombian products moreexpensive to the foreign buyer, rising prices would nullify the im-provement in the country's balance of payments position.

One way of dealing with the reserve effects of exchange move-meiits wvould be through a policy simnilar to the gold sterilizationundertaken in the United States during the late thirties. In orderto sterilize the effect of the gold inflow on commercial bank reserves,a policy wvas then adopted to finance treasury purchases of gold (whichpurclhases added to commercial bank reserves) through the sale ofGovernment securities in the market (which sales reduced com-mercial bank reserves by an equal amount). Since Governmentsecurities cannot be sold readily in the open market in Colombia, acorresponding policy would have to be designed along somewhatdifferent lines. The offsetting restriction of reserves might have tooperate through reduced discounts or an increased reserve ratio.

In setting the volume of rediscounts which the Banco de laRepiSblica may extend for a given period, the quota might thus beincreased or reduced automatically by the amount of loss or gainin foreign exchange over the period. Or a policy might be adoptedby \vhich there -would be a periodic adjustment in the reserve ratioso as to offset the reserve effects of the exchange movements. Butxvhile such a formula might be readily worked out, it might not bedesirable to establish so rigid a rule.i There is no particular meritin compensating for just one of the factors affecting commercial bankreserves if, at the same time, there may occur other changes inreserves (due to currency flow or lending by the Central Bank)which require further action. The only real solution to the problemis a central banking policy wvhich follo\vs current developments andmakes proper adjustments \vhen the need arises.

Similar problems also arise in connection with Central Bank lend-ing to the Government and various credit institutions. As waspointed out in Chapter XIV, lending of this kind was responsible

I Suppose that prior to the inflow of exchange the reserve ratio is equal to rand the volume of reserves equal to R: let the inflow of exchange (i.e., the additionto reserves) equal G. Then, in order to keep the credit potential constant we must have

R = (R -- G) or r = r R+G.r ri R

where r, is the new reserve ratio.

MONEY, BANKING AND CAPITAL MARKETS 569

to a considerable degree for the expansion of bank reserves duringthe postwar period. It arose both in the financing of budgetarydeficits and in providing Central Bank assistance to other publiccredit institutions, such as Caja Agraria and Fomento.

With regard to Central Bank participation in the financing ofbudget deficits, the primary issue is not whether the Governmentshould borrow from the Central Bank, but wvhether the funds shotuldbe obtained from the banking system (be it the Central Bank or thecommercial banks) or from the non-banking public. Where the debtis sold to the public, it is purchased out of existing money balances;where it is purchased by the banks, it is in effect bought with moneynewly created for the purpose. In the latter case, the money supplyin the hands of the public is increased, but in the former case, theincrease in the public's asset holdings is in the form of debt. Sincemoney is more liqtuid than debt, borrowing from the banks is themore inflationary procedure.

Although the initial effect on the money supply is the samewhether the debt has been purchased by the Central Bank or thecommercial banks, borrowing from the Central Bank also resultsin an increase in commercial bank reserves. This will permit a second-ary (and multiple) expansion of commercial bank credit unless off-setting action is taken. Frequent and easy resort to borrowing fromthe C'entral Bank for treasury financing thus imposes a heavy burdenupon central banking controls. In times of inflation, in particular,it should be used sparingly, if at all. As will be emphasized below,the solution is in the development of a healthy market for publicdebt outside the banking system.

Reliance upon Central Bank credit in supporting other publiccredit institutions has resulted in further conflict with the primaryfunction of the Central Bank. Where the Government wishes toprovide capital for development purposes, it should do so by channel-ing individual and business savings into such public uses, rather thanby creating new money. This channeling may be accomplishedthrough taxation or borrowing from the public, or through the useof public guarantees of private capital issues. Whatever the particu-lar techniques used, a sound program of capital formation, privateor public, must be based upon the flow of current savings and thus'be divorced from the inflationary process.

MEANS OF CONTROL

The preceding considerations point to the necessity for a flexiblecentral banking policy, aimed at continuously adjusting the lendingability of commercial banks to meet the credit requirements of each

570 TIHE BASIS OF A DEVELOPMENT PROGRANI FOR COLOMIBIA

particular economic situation. In order to effectuate such a policy.the central bankinig authorities mulst have the assistance of a staffof competent economists, wlho are in a position to advise on economicdevelopments both xvithin and \vithout the credit field. In particular,the responsible officers of the Central Bank should be supplied bythe staff wvith bi-weekly or monthly estimates of factors, wvhich willacld to or subtract from banik reserves, so that they will then be ina position to determine and continiuously adjust the supply of com-niercial banki reserves.

In order to implement such a policy of reserve control, the Central,Bank authorities must have the necessary tools of control. In theUnited States these include, in order of importance, open marketsales and purchases of Government securities, adjustments in therequired reserve ratio and, of historical rather than current im-portance, adjustments in rediscount rates. Open market purchasesand sales, which provide by far the most flexible means of control,are not readily adaptable to Colombian conditions. As yet there is noopen market for Government debt. WNhile open market operationsmay be conducted to some extent in paper other than Governmentdebt (e.-., corporate securities), these possibilities are limited.

Thus emplhasis wvill have to remain at present on rediscount policy1and reserve ratio adjustments. Of the two, rediscount policy is more

flexible and adaptable to short-run adjustments. It is important,therefore, that the rediscount technique be made as effective as pos-sible. In order to grant the Banco de la Republica the necessaryfreedom of operation, any ambiguity in the legislation concerningits powNers should be resolved.2 The Board of the Banco de laRepflblica should have wvithout question the responisibility of determill-ing the voluinc of rediscounts according to the needs of the economicsituation: and the Board should be free to do this wvithout anyreference to the supply of so-called eligible paper. A similar recomi-mendatioln is contailned in a bill presented bv the Minister of Financein July 1949.

If the Board of the Banco de la Republica has the power ofadjustinog the volume of rediscounts as it sees fit, the question arisesas to how the limited v olume of rediscounts should be distributedamong,- the individual banks. Presentation of eligible paper, or inthis case of the "most eligible," should not be made the basis of dis-tribution. Continuous redefinition of eligibility would be unwieldyand discourage flexible policy adjustments. As noted before, eligibilityrequirements are of no value in assuring an automatic regulation of

2 See footnote 7, Chapter XIV.

MONEY, BANKING AND CAPITAL M ARKEiTS 5 71

the proper creclit supply, and they are of little usefulness as a meansof qualitative credit control. Little would be lost and much gaine(lin the wvay of positive policy formulation if the eligibility conceptwvere dropped and primary consideration shifted to the quantity ofreserves and credit as such.

A second possibility would be to let the limnited supply of redlis-counts go to the highest bidder by adjusting the rediscount rate.B3ut this also is not a very feasible approach. Although it wvouldlhave been desirable to tighten rediscount rates in the postwar period,the demand for rediscounts is not sufficiently sensitive to the interestcost. Such adjustments, therefore, wvould involve very drastic andlfrequent fluctuations in rediscount rates.

The rationing of limited rediscounts, therefore. wvould have to beleft to the discretion of the Banco de la Repuiblica, or it might behandled by setting- flexible rediscount ratios. The first alternativehas the advalntage of creating flexibility but raises difficulties of inter-bank equity. Under the second approach, the upper limit for redis-counts vvhich any individual commercial bank is permitted to obtainwvould be set as a fraction of its capital and reserves, much in thesame way that a limit is set by the present law. Hoxvever, theCentral Bank would have the power to change this ratio, now setat 120 percent, and to make periodic readjustments depending- uponthe requirements of the situation. In order to assure flexibility, theBoard of the Banco de la Rep6blica might be required every monthto announce the rediscount ratio for the coming month. Sincechanges in ratio would apply to all commercial banks alike, noproblems of interbank equity wvould arise.' This instrument ofcontrol -would be essentiall1 siniilar to adjustiiieiits in the reserveratio but it inig-ht prove to have the advantage of greater flexibility.While neither of these mechanisms xvould have the flexibility pro-vi(led by open market policy, the two techni(Ilies used in conjtunictiollshould be adequate to deal -with the problem. In addition, there areDther devices wlhiclh might be used, such as a shift in Governmnlelntleposits to and from commercial bankis andl the Central Bank at. thelirection of the Central Bank.

DETERMINATION OF BANCO DE LA REPUJBLICA POLICY

The wise use of, as well as the possession of, adequate instru-ilents of control is important. Those responsible for central bank-ng policy have a most difficult task, requiring a combilnation of quali-

3 Such a procedure, nevertheless, would create certain technical problems, such asletermining the period in which a bank wvoild have to contract its rediscounts if its-atio were overextended. In view of the small number of major banks involved, ithould not be diffictlt, howvever, to work otut these problems.

.72 TTIE BASIS @lE \ DEVELOPIMENT P'ROGRAMI FOR COLOMIMA

ties. Ideally they, must, in the first place, have an understanding ofsome of the most difficult technical problems in the field of eco-

nomics. These problems center around not only the mechanics of thechanges in the money (currency and demand deposits) supply butalso the interaction of monetary, fiscal and exchange factors andtheir bearing on the dynamics of economic growth. Ability to assessthe future impact on the economy of changes in these three fields,and to adopt coordinated policies in these same fields to bring aboutdesired results, is both essential and most difficult. The creation ofa strong technical staff is indispensable, but the final responsibilityfor action must rest xvith the top policy formutlationi body of theCentral Bank.

Secondly, the formullationi of central banking policy is a publictrutst and consequenitly must be deterrinled by the public interest.The powver to create or destroy money has alxvays been the preroga-

tive of the sovereigni. Chanlges in the char-acter of money from coins

to notes to demand deposits in the 19th and 20th Centuries haveresulted in monev being created throughl the commercial banking

system as wvell as through the mint and the printing press. Theprimary purpose of central banks has become. therefore, not that of

servicing the commercial bankinig system., but of controllinig thesupply of money in the public interest. Commercial banks quitenatuirally have a tendency to make loans and hence create demanddeposits up to the full limits permitted by their reserves, and theresponsibility of the Central Bank is to adjust these reserves so thatthe volumie of deposits can be maintained at a level appropriate to the

-eneral economic situationi.

FIinally, in an underdeveloped country wvith relatively small anntual.>avings, high interest rates and alluring- opportunities and needsfor investment, the Board of the Central Bank will alwvays and in-evitably be exposed to great pressures and must be prepared onoccasion to adopt unpopular restrictive policies. The bearing- of theseconsiderationis on the organization and owvnership of central banks,on the composition and tenure of office of their boards of directors,andl on the difficult problem of the relationship of central balnks togovernments is obviotus.

Monetary theory in general and the role of central banlking in

particular have undergone important modifications in the past twventy-five years. It may be desirable, therefore, to review the basic organi-zation of the Banco de la Repi6blica and its relationship to the Gov-eriinent in the light of the changes in theory and practice wvhichhave occurre(d since it was established. Doubtless this whole sub-

MIONEY, RANKING AND CAPITAL MAIARKETS 573

ject will be studied by the proposed mission from the Board of Gov-ernors of the Federal Reserve System of the United States.

PORTFOLIO OF COMMERCIAL BANKS

At present the kinds of assets which commercial banks are per-mitted to hold are severely restricted. According to the Banking La-wof 1923, commercial banks may not grant loans of over one-yearlEnmaturity and they may not invest in industrial enterprise or realestate except wvhere such securities are offered as loan collateral.Exception is made for the investment of savings deposits. How-ever, only one commilercial bank has a savings department ancd only asmall amount is involved. This does not mean that commercialbanks render no contribution to long-term investment: by supplyingshort-term funds, other funds are in fact freed for longer-term use.Neevertheless, the direct contribution of banks to long-term capitalformation is slight. And in viexv of the dearth of ftinds available for jlong-term investment because of the reluctance of the Colombianinvestor to undertake such ventures, a larger direct contribution fromthe banks seems desirable.

In the bill recently presented by the Finance -Minister, it is pro-posed that the Superintendent of Banks be permitted to license theestablishment of savings departments in other commercial banks andthat such banks be permitted to invest up to 50 percent of theirsavings deposits in loans for development purposes, with maturitiesup to five years. Also, a recent decree provides that commiiercialbanks shall be permitted to invest up to 10 percent of their depositssimilarly. This is a desirable step and consideration should be givento further development of this approach. The Superintendent of Banksmight be authorized to establish certain assets as eligible for com-mercial bank investment up to a certain fraction of the bank's totalassets, and banks might then be encouraged to hold such assets\vithin these limits. Since the supply of funds for financing projectswhich are of key importance to economic development is altogetherinadequate and disproportionate to the funds which may be obtainedfor less essential uses, the Government may in certain instances wishto subsidize interest returns from such investments and to applymandatory investment requirements. If that is done, the types ofassets eligible for commercial bank investment should be determinedlmost carefully.

By suggesting limited bank investment in certain assets, we donot wish to suggest financing of long-term development projects byinflation. If continued inflation is to be avoided, total expenditures

574 TIIIE BASIS OF A I)EVELOP'MENT PROGRAMl FOR COLOMBIA

in the economny, whether for consumption, private capital formationior lon--termn development, must be held within the limits of the avail-able supply of goods and resources. That is, development expendi-tures (unless tax financed) mu1st be financed out of, or matched by,business or personal saving-s. The objective is not to achieve morecLapital formation by more inflationi, but to improv-e the direction ofcapital flo\v. Similarly. the objective is not to increase the existingcredit supply but to redirect some part of this supply into develop-menital uses. Giveen an effective overall limitation otn credit expan-sioI, no additional inflationary problem is created by thus shiftinlgcredit from coulnercial into developmental uses. From a long-runpoint of viexv, credit thus used -will contribute more to economicgrowth and be more compatible \vith price stability than alternativeuses of the same credit in short-ternm and speculative ventures.4

OPEN MARKET FOR PUBLIC DEBT

As showvni in thle closing section of Chapter XIV, the increase in

pulblic debt during the 1940's wvas absorbed very largely by public orsemi-public instituitions. Private investors, including commnercialbaniks, took only 20 percent of the total, anid a large part of this wvasaccouinted for by compulsory investmelnt requiremenits. Thus there islittle, if any, free market for the national debt; yet it is highly im-portant that such a market be developed.

The program proposed b) the MNissioni assigns a hilgh degree of

importance to certain long-range development projects which, bynecessity, will be undertaken by the Government. While some of these

projects might be justifiably based on loan rather thani revenuefinanacing, such sources of loan finalnce maust be found outside thebanking system, and especially outside the Banco de la Reptiblica.

If the Governlmlenit is to carry through these programs without infla-tionI, a way- must be found to secure absorption of public debt bynoni-bank investors. During- recent years the semi-public Caja Colom-biana de Alborros has provided in some measure a source of suclfunds, but the amoounts forthcolming are far short of what is needed.Moreover, it appears somewhat inequitable to expect holders of

saving-s deposits to furnislh funds at 3 or 4 percent in ani economx-where capital returnis generally are very much higher.

In order to establish an open mnarket in public (lebt. t\xo coIn-ditionis miust be inech First public debt mulst appear sufficiently-

4 in pursuing suich a policy of limite(d bank inlvestnlielit in developmental projects,the requiremelnts of bank liquidfitv should lnot be overlooked. However, given a healthyand expanding economy, there is no reason why some investmenit in such assets shouldnot be compatible with a thorouglhly souind bauking positioni.

MONEY, BANKING A,ND CAPITAL MIARKErS 575

attractive to the investor, in competition- wvith other types of invest-merit, to attract the necessary funds; and secondly, an adequate flowvof savings of the proper kind must be available to seek investment inpublic debt. The first condition involves issues of political andeconomic stability. The investor will find investment in national debtattractive onlv if there is no question regarding the Government'scredit standing and if the investor has confidence that there will beno inflation. Otherwise, investment in public debt wvill be less at-tractive than investmlent in variouis kinds of eqtuity assets, such asland, cattle, real estate or shares in private corporations. Thus publicborrowing from the Central Banik wNill not only contribute to inflationbut it will also undermine the development of a market for publicdebt outside the banking system. However, even in the absence ofpolitical uncertainty or fears of inflation, it is important that publicdebt be sufficiently attractive to compete with private investment.Accordingly, thought may well be given to designing types of publicdebt issues which will meet the needs of particular groups of investors.

The second condition-the availability of funds for investmnent inpublic debt-will have to be met in time by a growing level ofnationial income giving rise to a growing level of personal savings.This inevitably is a slowv process. Today, available saving-s areieavily concentrated in retained earnings of business and the personalsavings of the high income groups. As a rule, the position of these;avers is such that investment in more speculative, higlher-yieldingypes of assets is preferred. To be sure, to the extent that inflations checked and speculation is made less attractive through appropriateax measures, a larger part of these funds may become available forivestment in public debt.

From the longer-run point of viewv, development of an open marketI public debt, based on voluntary debt purchase, is of primary im-ortance. In the meantime, it will be desirable to make continued,e of compulsory debt-holding provisions. Certainly, such metlhods

finance are- less inflationary than borrowing from the banks and,used as a supplement to taxation, may be more equitable thani

:clusive reliance on taxation. Howvever, funds thus raised should be'plied to long-run development projects only wvhere they will do theost good. It is very doubtful, moreover, wNhether such funds slhould

raised for specific projects, such as the Instituto de Credito Ter-orial and the Paz de Rio project-like the earmarking, of taxes thisids to encourage misallocation of funds. Rather, it may be preferablecredit such revenue-equal to, say, a 10 percent addition to income

liabilities-to a general Developmnent Fund and to apply the

576 TTR BASIS OF A DEVELOPMENT PROGRAM FOR COLOMiBIA

proceeds (together wvith additional tax proceeds available to the Fund)to finance those sections of the program most in need of help.

ORGANIZATION OF CAPITAL MARKETS

In our discussion of capital markets, wNe noted a highly uneven- dis-tribution of funds among ditferent uses, leading to overdevelopmenitin certain fields and neglect of others.5 Structural improvements inthe capital market, or rather the development of a fluid capital market,would facilitate a broader distribution of futnds and are highly de-sirable.

The importan-ce of properly directing the flow of capital resources,so as to obtain the greatest possible benefit in terms of increasedproductivity, can not be overemphasized. Improvement in financialorganization is one aspect of this problem; more direct guidance ofcapital flows is another. This is of particular importance for anunderdeveloped economy such as Colombia's wvhere profit differentialsbetweeni various investment projects are not always a satisfactoryindicator of the country's longer-run needs. The investor's desire toobtain hig-h profits in the short run leads to overemphasis of immedi-ately profitable investments and to a disregard of long-range projectswhich, thotugh less profitable in the short run, may contribute moreto the country's productivity over a span of years. Distortions in theallocation of capital arising from the desire for quick profits will, ofcourse, be reduced if the level of prices is stabilized; but the guidingof the capital flow into the most significant uses will still be animportant problem.

While the MIission has been cognizant of the need to consider thisproblem, we have not had the time to study it in detail and to makerecommendations thereon. It is hoped that special attention will begiven to it-as wvell as to the problem of integrating the variouspublic credit and lending agencies-by the proposed mission fromthe Board of Governors of the Federal Reserve System of the UnitedStates.

5 See Chapter IV.

CHAPTER XXVIII

Foreign Trade and Exchange

As was pointed out in Chapter XV, any decisions on exchange ratesand exchange controls must be very closely coordinated with otheraspects of fiscal and monetary policy and with the requirements ofthe development program as a whole. This is a highly technical field;it is necessary that the factors involved be weighed with extraordinarydelicacy and that the policy decided upon be administered with greatskill and flexibility. We recommend that an intensive study be madeof this whole problem of monetary and exchange policy in relationto the overall development program; and we recommend that thisaspect of the study be carried out in close consultation with theInternational Monetary Fund, which has special responsibilities andcompetence in this field.

TREATMENT OF FOREIGN CAPITAL

Colombia offers many attractive opportunities for private foreigninvestment, and could benefit enormotusly from such investment,particularly if it xvere combined with Colombian capital in jointenterprises. Private foreign investment provides not only badlyneeded capital but also, and of almost equal importance, the technicalskills and management developed in highly industrialized countries.High technical skills and good management policies not only benefit.kthe enterprise directly involved, but also have a leavening effect uponindustry in general.

Canada may be cited as an example of wvhat foreign investmentcan mean to a country. Total foreign investment in Canada in 1947amounted to the relatively large figure of $7 billion (of wvhich only$1.6 billion were invested in Government securities) and has aided im-measurably in Canada's becomin-g a highly industrialized country witha high standard of living. Apart from private investments in explora-tion and development of petroleum and gold, wvhere there was somedefinite assurance of being- able to recover dollar exchalnge on invest-ment, direct private foreign investment in Colombian industriesamounts only to some U.S.$20 million. There are, of course, manyexplanations for this tremendous disparity in capital investmelnt.

Credit is a tender planti difficult to establish and nurture and easilydamaged. Successfully growvn, howvever, it yields enormous returns.A prolonged period of exchange sLability xwith no restrictions on the

577

578 THE BASIS OF A DEVELOP-MENT PROGRA-M FOR COLOMBIA

remittance of earnings would do much to create an economic environ-ment favorable to heavy foreign private investment. In the pursuitof such a course, it may be necessary to tolerate some individualabuses such as the remittance of large profits earned in speculativeactivities that contribute little to the welfare of the counitry. Thepossible value of every additional regulation in preventing such abusesmay be offset many times by the deterrent effect of multiplication ofrules on the inflowv of foreign capital.

Colombia has moved so far along the road of direct controls thatit is probably unrealistic at this date to recommend a complete reversalof policy so far as foreign private investment is concerned. However,mutch can be done even wvithin the framework of rules, regulationsand restrictions to create an atmosphere of certainty and the absenceof discriminationi. Investors can put up with many conditions, pro-vided these conditions are known in advance, adhered to and notaltered frequently. If, therefore, it is decided to continue certainrestraints on the exportation of earnings on foreign capital, it isimportant that a definite policy be worked out and continued over aperiod of time. It should, for example, be possible to establish at thetime of importation whether or not the basic conditions permittingremittances of earnings have been met. Thereafter, applications forsuch remittances up to the amount permitted by laxv should beapproved automatically. A limitation on such remittances to a certainpercentage of capital invested, averaged over a period of two orthree years, might not be too great a deterrent. The important thingis that the limitation should be generalized and not left to the dis-cretion of the Office of Exchange Control. Similarly, constancy oftreatment is necessary as regards the withdrawal of capital. The in-vestor should know what situation wvill face him in advance of bringinghis capital into the country. Perhaps limitation as to the time whenxvithdraxvals can be made and/or the amount of annual withdrawalswvould be desirable. This wvould seem to be the case especially wvherecapital comes into the country directly or indirectly in the form ofmerchandise.

WVhether or not the importationi of capital for certain purposesought to be restricted is problematic. There seems to be merit inavoiding this type of restriction, especially insofar as it might involvcdiscretionary action on the part of the authorities. Neverthelessgeneralized rules limiting investment along certain lines might bepossible without serious effect. Such limitatiolns woould seem leasobjectionable if they could be xvorked out so that the same rtle!applied regardless of whether the capital was of forei-n or domesti

FOREIGN TRADE AND EXCIHANGE 579

origin. In each case, certain charges on the country's foreign exchangeresources may be involved. Where foreign capital is concerned, thecharges may be for dividends and amortization, and in the case ofdomestic capital they may be for imported equipment.

A further question arises wvhether, quite apart from the purpose,capital imported in different forms ought to be treated differently.The Colombian approach to the problem tends to allow for differentcategories of capital imports: inward transfer of foreign exchange,importation of newv machinery or equipment, importation of usedmachinery or equipment, importation of raw materials, importationof saleable materials, and acquisition of inventions and patent rights.Also, where capital is imported at the exchange certificate rate, thereis a tendency to require that any remittances of earnings or amorti-zation be at the certificate rate. The important thing againi, as regardsany differential treatment of different types of capital import, is thatgeneral rules should be established and that decisions as to treatmentshould not be left to be made on a discretionary basis.

While the treatment of foreign capital in Colombia appears tohave been reasonably satisfactory, there have been some problems.One serious difficulty has been the problem of having to establishthat capital was legally imported into the country before remittancescan be made. It should be possible to establish the legality of entryonce and for all at the time of importation with no possibility of retro-active changes. It xvould probably do little harm if foreign capitalalready invested in Colombia w,ere given legal status. But the advan-[age of such a move would be largely destroyed if the foreign investorwvere forced to justify or to prove the legality of his capital importbefore such status was granted.

Another serious difficulty under the present system in Colombiais the holding up of requests for authorizations to remit dividendseven in cases wvhere there is no problem of proof of legality of thecapital import. These delaying tactics appear to have been quiteseparate from the problem of eliminating the arrears of paymentsregistered with the Office of Exchange Control. The delay referredto here has been rather a delay in getting the request for remittancesDn the arrears list. If payments have to be held up, that is one prob-let. But the holdup, if any, should be after the request for anexchange authorization has been registered wvith the Office of Ex-change Control, and not before registration. In general, once theimport of capital has been allowed, it should be eligible for dividendand amortization payments, subject to any general (but not discretion-ary) rules that may be deemed necessary.

580 THE BASIS OF A DEVELOPMIENT PROGRAMI FOR COLOMBIA

Special problems of foreign investment arise in the gold andpetroleum industries. In the case of gold, it may be noted that theDecree of September 9, 1949 appears to have established conditionsreasonably satisfactory to the foreign companies as regards the makingof remittances.

Like gold, the petroleum situation has certain peculiarities. Ingeneral, the problem of remittances is met bv permitting the com-panies to use the proceeds of the export of crude oil. There is,hoxvever, a special problem where a petroleum company such as theTropical Oil Company has a large peso income from sale of refineryproducts or from the sale of imported merchandise. The establish-ment of reasonable and continuing rules for the treatment of suchcapital would seem to be desirable. It is gratifying that a thoroughreconsideration of the problems confronting foreign oil companies in

Colombia is currently under xvay. While it is probably true that thebasic reasons for the tendency of foreign companies to withdrawv fromColombia may have been the disappointing results of recent explora-tion and the development of more promising areas elsewhere, never-theless the conditions under \vhich foreign oil companies haveconducted their operations in Colombia have played their part.Chaniges in the basic petroleum lawv and in the tax laws as appliedto the peculiar problems of oil companies are past due.

In general, if Colombia xvishes to encourage the importation offoreign private capital and enjoy the substantial benefits therefrom,it must maintain positive governmental assistance in overcomning theproblems which have developed writh respect to foreign capital asv,ell as ensuring absence of discrimination.

In some cases, the device of joint foreign-Colombian enterpriseshas eased adjustment to the lawvs and customs of the country, andhas worked very well in a majority of cases. Possibly many additionalopportunities for such happy combinations would be uncovered andfurthered through the creation of joint foreign and Colombian invest-nient banking and undervriting houses.

BILATERAL AGREEMENTS

At the time of writing, data were not available to permit appraisalof the effect of Colombia's bilateral agreements on her export andimport trade. There is, hoxvever, certain evidence to suggest that thiseffect has been fairly small. Except for the ambitious agreement wvith

Western Germany, the agreements themselves xvill not apparently

facilitate much improvem1-ent in Colombia's trading position.

FOREIGN TRADE AND EXCHANGE 581

As a general proposition, it would seem unnecessary for a countrywith the dollar-earnino ability of Colombia to force her trade alongbilateral lines. The fact that the great bulk of Colombian exportsproduce hard currency means that importers can buy in the cheapestmarkets. In the postwar period, there have been no significant difficul-ties in selling coffee for dollars. At present, it is difficult to see howthe agreements would increase such exports significantly. Bilateral-ism means increased costs of imports, as evidenced by the Finnishcase, and by a report in August 1949 that import prices ulnder theproposed French Agreement would be lowver if Colombia would payfor the goods in dollars rather than in coffee. It is argued that onlythrough bilateral trades can coffee be sold to Europe and that, becauseof such sales, the taste for Colombian coffee is maintained. Moreover,through the consequent reduction of sales in the United States, theprice structure there is strengthened. It is to be doubted, however,whether sales in small volume can have much effect.

In general, bilateral trading has been resorted to by countriesshort of dollars. It involves skill in negotiation and expertness inimplementation. Whilc it may be condoned for countries with noother recourse, the spread of this type of interniational trade will un-doubtedly yield greatly diminished benefits to the world as a whole,as contrasted xvith multilateral trade. It is greatly to be regretted,therefore, that Colombia, wvhich has benefited so tremendouslv frommultilateral trading in the past, should embark on this course wvhichcan only lead to more restrictions, more regulations and more inter-ference with the free flow of commerce and to sacrificing the benefitsof international division of labor.

CONTRABAND AND SMUGGLING

Contributory causes of contraband and smuggling are tie main-tenance of a rate of exchange which overvalues the peso in relation tothe dollar and a system of rigid import and export controls. There iswidespread feeling that these regulations are not just and reasonable,and the illegal traffic is condoned by many. Any such wvidespread dis-regard of laws has a demoralizing and corrupting influence. It leadsto unmerited large returns to the lawvbreakers and loss of revenueto the Government. The problems of smuggling and contraband couldbest be eliminated by removing the incentives. If, however, this isnot considered possible, resolute efforts should be made to stampthem out through creation of a career national police service.

There appears to be little justification for the continuance of con-trols on exports of cattle and agricultural products to Venezuela.

582 TIHE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

That country should continue to be a substantial dollar earner forsome time, because of its large petroleum reserves and rich iron ore(leposits, and Colombia can obtain some of those dollars by developingits exports to Venezuela.

DESIRABLE CHANGES IN THE COMMODITIES TRADED

As has been frequently pointed out, Colombia's foreign economicposition, wvhile currently very favorable, is at the same time vulnerable.It is imprudent, if not actually dangerous, for a country to tie itsfortunes so closely to those of a single commodity. Advantage shouldbe taken, therefore, of the currently favorable conditions to developnew exports wvith potential quantitative significance for the future,and to build up their domestic production. Attention has been calledto some possibilities in Chapters XVIII and XIX.

We are satisfied that it is both technically feasible and economicallydesirable to continue further the process of substituting domestic pro-dluction for certain imports. These imports include both raw materials(suclh as cotton) and fabricated articles, such as certain steel products,refined petroleum products and a variety of less important manu-factured goods. At the same time, we urge that every effort be madeto assist in the development of exports of coal, forest products andadditional agricultural products if current studies prove that suchexports can be justified on economic grounds. A change in the com-position of imports to less basic items and the development of newvexports would help to shield the standard of living from the seriousrepercussions that might arise from any unfavorable developmerts inthe coffee situation. Fundamentally, Colombia has the natural re-sources to provide a relatively high standard of living. If advantageis taken of the current situation to build up its powver resources and toincrease both the production and fabrication of raw materials, theeconomy \vould become much less vulnierable to unfavorable develop-ments abroad.

We have stressed throughout that, for the sake of Colombia'seconomic development, only enterprises should be started \vhich givepromise of bein- able to hold their own in competition with foreignproduction -vvith such protection as may be offered by high transportcosts. The mainteniance of an unduly high external value of the pesoplaces an uneconomic handicap on some domestic manufacturers. It isto be hoped that the nexv permanent tariff will not be based on presentprice relationships but will take into account prospective chang-es inexchange policies.

FOREIGN TRADE AND EXCHANGE 383

It is difficult to determine in advance the outer limits of foreigniborrowings or foreign capital investment \vhichl may be encouraged\vith safety anti prudence. These limits change constantly Wvithchanges in world economic conditions and the domestic situation.Moreover, the nature of the foreign investment or the purpose forwhich loans are secured are of paramount importance. For example,capital invested by foreign oil companies in exploration does nothave to be repaid unless oil is found in sufficient quantities. At theother extreme would be a debt incurred to establish an uneconomicindustry that would retard rather than help the development of thecountry.

Colombia's outstanding indebtedness is not large in relation tocurrent and prospective dollar earnings. It would appear, therefore,that Colombia could safely afford a substantial import of capital, pro-vided that it took place as part of an overall plan designed to increasethe productivity of the country and render its economy less vulnerableto unfavorable developments in a single crop. Our model projectionsin Chapter XXX assume an average net inflowv of foreign capital, afterrepayments, of approximately Ps.$60 million per anntim.

CHAPTER XXIX

Administrative Reforms

Throughlout Part I, ancd particularly in Chapter XVI, the needfor improvements in governmental organization and in the data onwhich policy must be formulated was stressed. In various chaptersin Part II, the genieral types of reforms desirable in this field have beennoted. The importance of these improvements can hardly be exag-gerated. In all countries, the governments have been assuming in-creasing responsibility for the operation of the economic system andare playing increasingly important roles in this field. It is obviousthat for the successful formulation of the type of program set forthin this Report and for its efficient implementation and execution,far-reaching improvements in public administration are called for.

As remarked previously, the Mission had neither the time northe personnel to undertake an exhaustive study of this field but wvasconcernled merely wvith pointing out some of the more apparent needsand possibilities. It quickly became evident that much more studywas required than could be afforded by an economic mission. Con-sequently, since reforms in this field are necessary prerequisites to theadoption and execution of our overall recommendations, the Chiefof the MIission indicated to the President that a further mission forthis specific purpose would be desirable. The President immediatelyexpressed his agreement wvith this recommendation. It is not proposed,therefore, to attempt to anticipate here the findings and recommenda-tionis of another advisory group. It may be useful, however, to in-dicate somie of thle more pressing problemls that need study and somepossible general lines of solution.

In general, the problem is to improve the efficiency of both plan-ning and administration throughout all levels of government inColombia. This necessitates improvement of the data on whichdecisions are based; iniproveinelnt in the personlel of government ;strengthening the organization of the Executive Office of the Presidentso that he may have better control over the Executive Branch of theGovernment and be better able to discharge his responsibilities forplanning and administration; the streamlining of the Government byregrouping, reorganizing and rearranging the numerous agencies,boards, committees, and corporations that exist at present to the endof securing a more coordinated and consistent administration; andthe carrying out of certain reforms in the relations of the NationalGoverinment to the departments and municipalities, from the pointof view of both functions and finances. Speaking again in very general

584

ADMIINISTRATIVE REFOR-MS 585

terms. it is felt that in carrying out these studies and making thesereforms a clearer line should be drawn between planning and directcontrols. We have pointed out several instances where more expertplanning would have obviated the necessity for resorting to directcontrols. In general, it is felt that the difficulties and deficienciesof public administration are such that direct controls and Govern-ment ownership and operation should be avoided wherever possible.

THE EXECUTIVE OFFICE OF THE PRESIDENT

As pointed out in Chapter XVI, the system of checks and balanceson which Colombia's political structure is based makes the task ofeconomic planning more difficult. This was mentioned not with anyidea of suggesting a basic change in the system, but rather to em-phasize the necessity for improving the operation of the Executivearm of the Government to minimize the difficulties inherent in thesystem of checks and balances. Although this necessity extends toevery branch of the Government at every level, it applies par-ticularly to the Office of the President, to whom the country looksfor leadership in planning and whom the country holds responsiblefor administration. These are tremendous responsibilities. It is vital,therefore, that the President be given every possible assistance indischarging them properly. Much can be learned from the steps takenby other countries to meet the increasing economic responsibilitiesof the state.

In the United States, for example, President Roosevelt, at thebeginning of his first administration, was most inadequately staffedto cope with all the problems confronting him. Various assistants,both official and unofficial, were hastily recruited for newly createdpositions reporting directly to him. In the course of time, need formore effective formal coordination was recognized by granting thePresident authority to appoint a number of additional secretaries andassistants and by setting up, in addition to the President's personalstaff, an Executive Office in which were placed the Budget Bureau,the National Resources Planning Board, and later the National Secur-ity Resources Board and the Council of Economic Advisers. Thesevarious measures to provide the President with a more adequatestaff, to improve the data on which his decisions were based, and togive him greater authority and control over the executive operationsof Government may be studied with profit by Colombia.

A planning or economic advisory agency of some sort appears tobe of vital importance. The President is at one and the same time

586 THE BASIS OF A DEVELOPMENT PROGRAI,M FOR COLOMBIA

the ceremonial head of the nation, the Chief Executive of the state,and the head of a political party. The demands upon his energy andtime are tremendous and every effort should be made to relieve himof detail and to present material in a form that wvill enable him tomake correct decisions w%ith a minimum of unnecessary effort, and todelegate the responsibility for executing these decisions with fullconfidence that they wvill be carried out effectively. While it is pos-sible in Colombia today for a Minister to have wvorked tup and pre-sented to the President in proper form material bearing UponI aproblem wvitlhin the purviewv of his particular department, this purviewis frequently unduly restricted and there is no machinery for effectivehandling of problems that cut across ministerial lines. As must beapparent to any reader of this Report, the most important economicproblems do cut across such lines.

It is recommended, therefore, that there be established in the Officeof the President a Resources Planning Agency, headed by a boardor individual of outstanding capacity antI prestige. It is believed thatthe head or heads of this agency should be chosen not to representany particular economic group in the community but rather on thebasis of individual attainments. Needed are men who have demon-strated broad vision, high intellectual attainment and outstandingpublic spirit. As important as securing the right direction of thisagency wvould be the provision of a staff of the highest caliber tooroanize thie data and studies on the basis of wvhich the agency wouldmake its recommendations to the President. In view of the presentshortage of Colombian economists and statisticians wvell trained inquantitative and analytical economics, wlhich is certain to persist forsome time, it seems desirable at first to recruit a number of foreignexperts and advisers to work alongside Colombian technicians.

It should be the first task of this proposed planning agency toundertake the construction and maintenance of various economic seriesbearing upon the national income, capital formation, various pricelevels, the balance of payments, and so forth. This information isessential to a proper allocation of the nation's resources, both govern-menltal and non-governnmental. It is not necessary that this workactually be performed by the planning agency itself but it is essentialthat the information be at hand for that agency to be able to pointup the policy issues involved and make informed recommendations.Thus, the pllanning agency should be assigned responsibility for seeingthat this necessarv basic analysis is performed.

The consistelnt pursuit of basic overall economic studies will notonly place the agency in a position to advise the President of the

ADMINISTRATIVE REFORMS 587

requirements for a coordinated and internally consistent economicprogram, but will also enable it to keep the President currently in-formed on the progress of the economy. If a broad program, such asthat set forth herein, is adopted, one of the agency's duties would beto follow closely its implementation by all the various agencies ofthe Governiment and to report on its progress to the President.

Moreover, by virtue of its overall studies, the agency will be ina position to assist individual ministries and agencies in their ownplanning. It would be a serious error to rely on the proposed agenicyfor all planning activity. This should go on in every ministry andat every level of government and any program of government reorgani-zation must make adequate provision for better policy formationthroughout the government. The job of the proposed Planning orResources Advisory Agency would be to stimnulate such planning,coordinate the various plans and undertake such overall studies ascannot appropriately be carried on elsewhere.

Finally, such an agency might appropriately assume responsibilityfor the organization and implementation in Colombia of the technicalassistance and economic development activities initiated by the UnitedStates and the United Nations organizationis. The need for a centralbody for this purpose is obvious both to review the requirementsof individual agencies and individual programs and to follow up theactivities and recommendations of foreign technical experts.

One of the administrative reforms effected during PresidentRoosevelt's regime, which has proved highly successful in practice,was to transfer the Bureau of the Budget from the Treasury Depart-ment to the Executive Office of the President. So long as the BudgetBureau wvas in the Treasury, one Department, which had certainfunctions closely related to those of the other Government agencies,was placed in the anomalous position of reviewing and often neces-sarily cutting dovii their budget requirements as wvell as those of theTreasury Departmenit itself. Other department heads wvere encouragedto appeal to the President over the head of the Secretary of theTreasury by the fact that the latter wvas considered an interestedparty in jurisdictional controversies and competition for appropria-tions; this created awkwvard situations and impaired the efficiency ofGovernmenit. By the transfer of the Bureau of the Budget, its Directorwas made directly responsible to the President. He is now in aposition to learn the President's wishes in advance, to clear hisrecommlendations wvith the President, and to speak for the Presidentin discussions with agency heads. He is no longer part of an operatingdepartment wvith bureaucratic interests of its own, but rather a

588 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

technical adviser to the President on complex governmental interre-lationships and requirements. The chances that his decisions will bereversed by the President have been correspondingly diminished.

The President's control over activities of all agencies of Govern-ment has been greatly increased, and the financing of every suchactivity has to be approved in advance by the Director of the Budget,as the President's agent, in the light of other Government functionsand needs. The possibilities of working out a coordinated govern-mental program with proper allocation of funds to the various partsof the program, and of keeping the total program within definitefinancial limits, are greatly improved. At the same time, it is easierfor the Congress to review governmental activities and requests forfunds when they are presented as a single, balanced program, preparedin the light of consistent budgetary principles. All bills sponsoredby any department or agency of the Government must first be sub-mitted to the Director of the Budget and be certified by him as beingin conformity wvith the President's program before being presentedto Congress.

A Budget Bureau is being established in Colombia and the BudgetDirector will have the right of reporting directly to the Presidentalthough the Bureau itself is attached to the Ministry of Finance.Further study and trial will determine whether an even closer relationto the President is desirable to perform the various planning and con-trol functions suggested above. Another broad function that couldadvantageously be performed by the Budget Bureau would be toprosecute continuous studies on ways and means of improving theadministrative organization and management of the various depart-ments and agencies of Government. In the United States, a specialsection of the Bureau, the Office of Administrative Management, isdevoted to this task.

The position of Director of the Budget obviously calls for a personof high intellectual and moral stature. He must have not only a graspof fiscal matters and of accountancy, but also a broad understandingof the substance, implications, interrelationships and relative impor-tance of the various Government programs. In effect, he would haveprimary responsibilities for translating the overall policies and pro-grams, developed by the planning agency proposed above, into con-crete administrative and financial terms. He must be able to resistgreat pressures and inspire complete loyalty in his staff. Here againforeign technical advisers could perform a useful service, by makingavailable to the Director the experience of other countries.

ADMYIINISTRATIVE REFORMTS 589

Another means of placing the Chief Executive in a better positionto discharge his major responsibilities would be to relieve him oflesser tasks. This could be done by reducing the number of officialswho have the duty and privilege of reporting to him directly. Thiswould follow naturally from a regrouping and consolidation of thefunctions and activities of the Government. Finally, a detailed studywould undoubtedly reveal that numerous minor duties, which con-stitute a drain on the President's time and energy. could wvell bedelegated.

REORGANIZATION OF THE NATIONAL GOVERNMENT

Tn Chapter XVI the need for a thoroughgoing reorganization ofthe Executive arm of the National Government was emphasized.Without question, as a result of the unplanned growth of Governmentfunctions, a maze of governmental organizations highly inimical tothe quality of both planning and administration has been formed. Inaddition to the inefficiencies arising from overlapping and conflictingjurisdictions, there are whole fields of important activities for whichliterally no one is responsible. While, after intensive study, it maybe found advantageous to have certain activities delegated to semi-autonomous and semi-official bodies, Cabinet members should havebroad responsibilities for planning and administering the functionalareas with which they are concerned. Policy formulation and adminis-tration in the fields of agriculture and transportation appear to meritspecial study.

In general, a requirement for good administration in any field isa concentration of responsibility in one individual, together with ade-quate authority to discharge this responsibility, subject to generalsupervision and control by his superiors in the Executive Branch andby the Congress. It has become the general practice in other countriesto take the quasi-judicial functions, such as approval of raillvay andutility rates, out of administrative departments and place themin bodies where greater security of tenure is afforded and decisions areless likely to be subject to political domination. The suitability ofthis practice for Colombia might well be studied. Finally, the experi-ence of other counttries indicates that the administration of certainactivities, like the operation of state-owned railroads, may efficientlybe carried out through the corporate device, with concentration ofadministrative responsibility and authority in the hands of the generalmanager, who in turn is responsible to a Board of Directors appointedby the Government. Strict financial accounting and responsibility areindispensable conditions for the successful operation of such enter-

590 THE BASIS OF A DEVELOP-MENT PROGRAMi FOR COLOMBIA

prises. We have indicated the application of these general principlesof administration to certain specific fields, particularly in surface andair transportation, though our recommendations will naturally besubject to reviewv by the proposed Public Administration Mission. Athorotughgoing study wvould doubtless disclose many places through-out the National Governmllenit where these principles mighlt furtherbe applied with advantage.

The political difficulties involved in a reor-anization of Govern-ment are formidable and great resistance to any change must beanticipated. Conseqiuently, it has been found advisable in the UnitedStates for the President to secure broad authority from Congress toregroup and to shift agencies and functions, with Congress reservingits right to overrule his decisions wvithin a strictly limited period.If no action is taken within this period, the President's decisions inthis field have the force of law'.

RELATIONS WITH DEPARTMENTS AND MUNICIPALITIES

Any study of public administration in Colombia will necessarilybe concerned with the relations among the various levels of govern-iment. The problem here is not only to secure a clear, consistent andlogical allocation of responsibilities and revenues, but also to achievevarious national minimum standards wvhile securing and retainingso far as possible, local responsibility. Some of the most importantfnllctioins of government affecting the wvell-being of the individual arecarried out at the municipal level and nowhere in government wvouldreforms so immediately affect the citizen. This is true for such basicactivities as education, health and sanitation, and the provision oflight and power. Although the National Government is obviouslyconcerned vith the health, education and wvell-being of all the citizensof the country and should, therefore, be expected to lay down nationalminiima and to assist poorer sections in attaining those minima, thesystem as it has developed in Colombia frequently wvorks in the otherdirection. Examples xvere cited in Chapter XIII. A thoroughgoingreform in public administration wrould doubtless seek to remedy thisstate of affairs.

For the purposes of implemiieniting the overall plan of developmenltenvisaged in this Report, it is of the utmost importance that efficientadministration and financial sounidness be secured at the municipallevel. In this connectioni, Ave have made certain suggestions relatingto the administration of municipal development programus wvhich webelieve will be helpful.1 These suggestions in themselves, however,

I See Chai:ter XXIII.

ADMINISTRATIVE REFORMIS 591

will not achieve the needed improvement in the efficiency and responsi-bilitv of (lepartmiental and local governments. That improvemen-t cancome about only through the growth and influence of informedl publicopinion and the establishment of conditions of opportunity. salaryand tenure that wvill attract first-class personnel.

PERSONNEL

A study of public administration would necessarily have to devoteconsiderable attention to the problem of improving the quality of per-sonnel at all levels of government. All countries have had to strugtglewvith the problem of making public service both attractive and efficient.In this field, therefore, as in others, there is a wealth of experienceavailable from more economically advanced countries. The attainmentof efficiency, initiative and high morale for the public service is adifficult task, but it has been solved relatively satisfactorily by manycountries and there is no reason to suppose that the situation cannotbe greatly improved in Colombia.

In one field, that of police, the Government is to be congratulatedupon securing the services of an outstanding British Mission, headedby Sir Douglas Gordon. It is to be hoped that his recommendationslooking toward the formation of a career national police service willbe adopted and implemented.

We do not feel competent to make detailed and specific recom-mendations in the field of personnel management relating to salaryscales, recruitment, dismissal, promotions, retirement, and so forth.WVe urge most strongly, however, that every effort be made to improve

the quality of personnel at all levels. This Nvill probably involve anincrease in public expenditures but we can think of no investment thatwould yield a higher return. As an offset to increased expendituresarising from expansion of services and increased salaries should bethe savings resulting from elimination of duplication, replacemenit ofinefficient personnel and the abolition of xvasteful practices.

ECONOMIC DATA AND STUDIES

It is hoped that this xvhole Report indicates sufficiently the im-portance and, indeed, the indispensability of accurate statistics com-petently arranged whichl may be brought to bear on significant prob-leins. In the absence of accurate and meaningful quantitative andanalytical studies, the best administration in the world would begroping in the dark and would inevitably make serious mistakes. Weurge most strongly, therefore, that every effort be made to build up astrong cadre of analytical economists, statisticians and accountantsand that every effort be made to improve the quality of basic statistics.

592 THE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOMBIA

Fortunately, there is already a wealth of statistics being currentlygathered so that what is mainly required is improvement in theirquality and in their handling. This would cost very little in compari-son with the national benefits to be expected from such improvement.After further study it may prove desirable to organize a Division ofStatistical Standards in the Bureau of the Budget to coordinate activi-ties and set standards in this field. This is another field in whichforeign technical assistance, if properly used, can be of great benefit.In addition, every effort should be made to insure that an increasingnumber of Colombia's experts in these fields are able to secure thebenefits of study abroad. It is gratifying that a new school of eco-nomics and statistics is being established in the University of theAndes with emphasis to be placed on the quantitative and analyticalaspects of the subject, and it is hoped that existing schools willdo likewise.

It is also very desirable that accountancy achieve the pro-fessional status it enjoys in more economically advanced countries.It is appreciated that this cannot be done overnight, or securedby the mere enactment of a law. However, if it were determinedthat at a certaini date in the future certain activities could be per-formed only by persons who have satisfactorily completed a mini-mum training in the field of accountancy, this would no doubt do agreat deal to raise the quality and the prestige of the profession.

Good planning and administration rest in the final analysis on theexistence of an informed public opinion. This can frequently bedeveloped and expressed most effectively through the active partici-pation of private alnd unofficial groups, associations, organizationsand foundations in the study and discussion of major public issues.In some cascs, the studies made and the measures advocated byprivate groups are for selfish or partisan purposes. In many cases,however, they are inspired by a genuine desire to bring about im-portant and desirable reforms. It would be most helpful if some-thing analogous to the National Planning Association of the UnitedStates could be inaugurated in Colombia by a group of publicspirited citizens. The National Planning Association is composed ofbusinessmen, farm and labor leaders, professors and writers, andfinances research studies and makes public recommendations onmost of the important economic issues of the day. Finally, studymight profitably be made of steps taken in other countries to pro-vide more technical assistance, expert advice and accurate informa-tion to assist Senators and Congressmen in drafting legislation andIn arriving at correct judgments.

CHAPTER XXX

The Overall Program and its Implementation

MAGNITUDE AND COMPOSITION OF THE OVERALL PROGRAM

An appraisal of a development program must of necessity con-sider not only the suitability of a wide range of recommendations inmany different fields but also the feasibility of the overall programof capital investmernt which it implies. We have now reached thepoint where it becomes appropriate, therefore, to consider the pro-gram as a whole, especially in its quantitative aspects, for the pur-pose of determining whether it is adequate yet not excessive in size,whether it is within the capacity of the country, and whether it isconsistent with probable foreign exchange resources and govern-mental revenues.

The overall investment program calls for approximately Ps.$5billion, or Ps.$1 billion a year. This compares with Ps.$850 millionestimated for 1950. We have not extended our calculations beyonda five-year period, though obviously a program of the kind set forthhere should continue to grow for an indefinite time.

A word of explanation is in order regarding the use of the word"program" in connection with total capital formation. We do notwish to convey the impression that we have examined and appraisedall the specific projects making up these totals. For the most partwe do not seek to substitute our judgment for that of the marketplace. We assume that a certain pattern and rate of growth willnecessitate and justify a substantial volume of investment, particu-larly in industry and transport. It is rather in the fields where forone reason or another the pricing mechanism is more or less in-operative or appears to yield faulty results that we have either ex-amined specific projects or have made independent estimates ofoverall requirements. Thus, in the fields of industry and transport,we have examined a few very large projects which would not beundertaken by private industrialists as a result of their own studies.In addition, we have tentatively earmarked some sums for promisingdevelopments in these fields.

For the most part, however, we have been concerned to diverta slightly larger fiow of capital to the provision of electric power,community facilities, hospitals, health centers and low cost housingthan could be expected on the basis of existing trends. Expansionin these fields could be financed in large part from the savings which

593

594 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLO_MBIA

would follow if our recommienidations against some Ps.$500 millionworth of projects in industry and transportation were adopted. Tables156 and 157 indicate the composition of the program for the period1951-1955 and for the approximate midyear 1953. The recommendedprogram of capital formation makes no provision for fluctuation ininventories nor for capital requirements for short-term agriculturalcrop loans. Neither does it include capital requirements for landpurchase programs since these involve no drain on the huma-n re-sources of the commtunity.

TABLE 156

PROJECTEI INVESTMENT PROGRAMI BY END USS, 1951-1955

Total Private Public TotalImports Investment Ilvestmenit Investment

(millions)

Inldustries ... U. .. US$191.5 Ps.$ 741.5 Ps.$ - Ps.$ 741.5Agriculture 109.0 341.0 176.0 517.0Transport 322.5 . 878.0 645.5 1,523.5Mining .... .. .. 46.0 135.5 - 135.5Constructioni trade .. 14.0 40.5 - 40.5Housing . 43.5 1,145.4 - 1,145.4Builinigs . 28.5 150.0 297.7 447.7Mlunicipal facilities and poxwer. 98.5 - 536.6 536.6

Total . U.S.$853.5 Ps.$3,431.9 Ps.$1,655.8 Ps.$5,087.7

TABLE 157

PROJECTED INVESTAIENT PROGRAMA BY END tiSE, 1953

Total Private Public TotalImports Investment Investmenit Investment

(millions)Inidustries U.S.$ 38.3 Ps.$148.3 Ps.$ - Ps.$ 148.3Agriculture 21.8 68.2 35.2 103.4Transport 64.5 175.6 129.1 304.7Mining 9.2 27.1 - 27.1Const:-uction trade . . 2.8 8&1 - 8.1Housing 8.7 229.1 - 229.1Buildinigs .5.7 30.0 59.5 89.5Municipal facilities anid powver 19.7 - 107.3 107.3

Total .. . U.S.$170.7 Ps $686.4 Ps.$331.1 Ps.$1,017.5

THE OVERALL PROGRAMI AND ITS IMPLEMIENTATION 595

Table 158 compares the percenitage composition of the recom-menided program of capital investment in 1953 with that of estimatedcapital formation in 1947. The percentage allocated to industrydeclines slightly from 1947, which was ana abnormally high year forindustrial capital investmenit. Agriculture, while increasing in abso-lute terms, continues to decline in relative importance and this maybe rated as a long-term and desirable trend. W\1 e allot residentialbuilding- a higher percentag-e of the total than in 1947. The mostmarked change is in buildlings and mnunicipal facilities. The relativelyhigher percentage here is a reflection of the proposed increases inhospitals, schools, and other comm1lunlity faCilities, including- electricpowver.

TABLE 158PERCENTAGE COMPOSITION OF CAPITAL INVESTM1ENT, 1947, 1953

19471 1953

Industries ... ....................... ........ 16.9 14.5Agriculture .................. .............. 11.1 10.3Transport ........ ............ ............... 332.6 29.9Mining ............ ....................... 3.6 2.7Construction trade ... ........... ................... 1.1 0.8Housing .............. ............. ........ 20.0 22.5Buildings (commercial and Government) ........... .... 6.4 8.8Municipal facilities and power . ........... ......... 8.3 10.5

Total ........ ...................... . 100.0 100.0

Corresponds to Table 11, Chapter IV.

Imports account for 33 percent and domestic production for 67percent of the recommended capital formiatioln. Public investmentrepresents 32 percent of the total, and private investment 68 percent.Furthermore, expenditures on equipment are estimated at 48 percentand on buildings 33 percent of the total program.

THE PROGRAM AND ECONOMIC STABILITY

Is an investment program averaging Ps.S1 billion a year overa five-year period too large or, in other words, is it consistent wviththe maintenance of stable prices, exchange receipts, governmentalrevenues and internal physical factors?

For the essential ecolnomic reasoninlg involved in the reqllirementsfor price stability, the reader is referred to Chapter IV. The reason-ing, may be summarized here baldly as followvs: the gross nationalincome (or product) represents payments to the factors of produic-

596 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

tion iucurred in the making of consumers' goods, producers' goodsor public services. The amount of income not spent on consumptionor public services-that is, the amount saved-thus equals the amountspent on producers' goods, or capital formation.

The significant question, howvever, is at what level of incomeand prices this equality is attained. Starting from stable conditionsof full employment under which the economy saves and invests acertain figure amounting to, say, 13 percent of the gross nationalproduct, let us suppose that a substantial new investment programis launched, financed by newly created bank deposits or by the useof existing idle funds. To produce substantially more capital goods.factors of production must be drawn from the making of consumers'goods. Money income and consumer demand are thus increased whilethe production of consumer goods is reduced. In the process, thereoccurs such a rise in prices as to force a decline in consumption inreal terms. In other words, increased investment in money terms, inexcess of current voluntary saving, sets in motion a rise in incomes andprices resulting in u2nintended saving or, which is the same, a cut in.real consumptioin.

Translating this abstract discussion into real terms, it is obviouslyof the greatest importance that the investment program should notbe larger than the voluntary sa-ving of the economy (plus budgetsurplus, if there is any) under conditions of fuTITeFmployment. Other-wise, inflation wvill occur and the program will be jeopardized.

The maintenance of price stability is an indispensable conditionfor reaping the full benefits of private foreign investment in a countrywithout paying an excessive price. Ulnder inflationary conditions, therettirns to equity holders increase more rapidly than other types of in-come and the earnings may be disproportionate to the original in-vestment. This phenomenon, which is in effect a transfer of realincome from the community to property ovners, arises from monetaryfactors and is not a reflection of increased efficiency. Consequently,unless an underdeveloped country can maintain stability, it mayfind itself forced to limit earnings on foreign investments and in thiswvay to decrease their attractiveness to foreign investors. Pricestability is also a condition of the maintenance of any new rate ofexchange that would permit the attainment of a substantial degreeof equilibrium in foreign accounts without recourse to individual anddiscretionary exchange control.

Another, and even more important, reason for maintaining stabilityis that only in this wvay can a start be made toward attaining a moreequitable distribution of income. Inflation, while forcing saving on

THE OVERALL PROGRAM AND ITS IMPLEMIENTATION 597

:he community, at the same time encourages waste. Earnings accrue:o property-owners so rapidly that expenditures on luxury items arencouraged and incentives to eliminate waste, reduce costs and im-prove efficiency are weakened. Finally, inflation imposes a majorharrier to the development of a bond market, to the indispensable[ong-term reduction in interest rates, and to the development of de-,irable habits of thrift and foresight and the growth of insurance.Under inflationary conditions pensions and savings mean little and itis not surprising that social unrest has frequently accompanied such:onditions.

The task of determining in advance the correct magnitude of in-vestment or capital formation to insure full employment, on the onehand, and yet avoid inflation on the other, is very difficult and yet itis the most essential element in economic planning. In Colombia'scase, the volume of "intended saving" in large part results from thepresent distribution of income and control over business earnings.Any pronounced change in this distribution brought about, say, bytaxation would affect the propensity to save and hence the "correct"figure of private capital formation, unless compensated for by changesin Government surplus or deficit. In addition, changes in Colombia'sforeign trade position are peculiarly important in influencing bothprofits and coffee growers' incomes and investment decisions.

In fact, all of the factors customarily regarded as influencing thebusiness outlook can be logically handled and more or less quantita-tivelv assessed in this general saving-investment framework of analy-sis. In actual practice, the task is not quite so formidable as itappears since, once a period of relative stability is achieved, the prob-lem consists in making short-term estimates of movements in thefactors affecting investment and intended saving and of providing for:compensatory action to offset anticipated excessive movements.

In view of the inadequacy of current data, the limitations imposedby time and staff available and, above all, the hazards of economicforecasting for a considerable period in the future, ve cannot pre-tend that the magnitude of the investment program set forth hereinis exactly the correct figure and not subject to modification. Whatwe can do, however, is to demonstrate that a private investment pro-gram of this general magnitude does not appear to be out of line with

the volume of voluntary saving which might reasonably be expectedin the years immediately ahead, plus some net borrowings and invest-ment from abroad. We also believe that the proposed level of publiccapital formation is compatible with a balanced budget and that theprogram is consistent with a reasonable pattern of economic growthand the physical capacity of the country. The demonstration may

598 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

serve a useful purpose not only in suggesting that the program ap-pears to be suitable and feasible, but also in illustrating some of theproblems of the dynamics of economic development and the inter-relationships of economic phenomena.

As our model year, \ve shall choose 1953, midway in the overallpro-ram. Estimates xvere prepared first for 1950, based on our knowvl-edge of changes that have occurred since 1947, and1an effort wasmade to develop the model for 195, from this base. The 1953 modelis liniked wvith the 1950 estimates through1 pr&jections of various exist-ing trends and a number of assumptions as to the behavior of prices,imports, productivity, etc., tilder the impact of the program. Themain underlying assumptions made for the purpose of presenting thismodel are that the price level xvill remain unclhalnged from 1.9$a-.on,that the net foreign investment wvill amount to Ps.$60 million in 1953,that expenditures at all levels of government will be double those of1947, and that no change will occur in the rate of exchange.1 To theextent that actual developments depart from these assumptions orfrom the assumptions mentioned in the preceding section, all the mag-nitudes would be affected. Hence, it must be reiterated that this isa demonstration model, not a forecast. An explanation of the meth-odology employed, wvhich is unavoidably quite technical, is availableas Appendix J. The results of our calculations are set forth inTables 159, 160, 161 and 162.

Table 159 presents for 1953 an estimate of capital formation,Government expenditures on current goods and services, consumerexpenditures and net foreign in-estment derived from the assumptionsand projections just mentioned. The sum of these gives a total grossnationial product in 1953 of approximately Ps.$6.7 billion comparedlK vith about Ps.$5.7 b'lTibil estimated for 1950.

It is apparent that a program of approximately Ps.$1 billion in1953, unider the assumptions mentioned, \vould be consistent with a

gross national product of Ps.$6.7 billion, wvhich in turn is consistentwvith a reasonable growth pattern. This, of course, is not an accidentas overall limitations wvere kept in mind in Avorking out the program.It Awill be noted from Table 159 that under our assumptions consumiierexpeniditures are expected to increase to otfset the rise in prices upto 1950 and to reflect further the increase in productivity throughoutthe period. With some assistance from abroad, a ratio of grossprivate and public investment to gross income of 15 percent does notappear unreasonable.

I The assumption concerning the rate of exchange is not to be construed as areconmslejidatioin, but nerely as an assumption in order to present a modeltcf. Chapter XXVItt) Devaluaticis would affect certain magnitudes but need notaffect the basic pattern or analysis.

TABLE 159

MODIo.I PROJECTION OF GROSS NATIONAL P'RODUCT, 1947-1950-1953

Volume Price Volume PriceTotal Index Index Total Index Index TotalValues 1947-50 1947-50 Values 1950-53 1950-53 Valuesin 1947 (1947=100) (1947=100) in 1950 (1950=100) (1950=100) in 1953

( milliolls) (nmillions) (millions)TOTAL GROSS NATIONAI PRODUCT . . 'Ps.$3,674 Ps.$5,708 Ps.$6,698

GOVERNMENT EXPENDITURES oii goods and services(current) .269 130 135 470 130 110 665

GROSS CAPITAL FORMATION 2. . . . 62 875 1,002Imports. 22 117 111 288 ,09.3 100 315Industries .68 138 124 116 139 100 161Trade and transport .128 112.5 126.5 182 116 75 158Labor-Construction .140 117.5 130 213 127 104 280

-Other 54 112.5 126.5 76 116 100 l 88CONSUMER EXPENDITURES ......................... 2,985 4,363 5,095

Agriculture 1,000 109.7 129 1,415 110.8 100 1,584Others . . . ....... .......... 1,568 119.3 128.6 2,405 122.1 100 2,918Imiports ... ................. .. ........ .... ......... 417 117 111 543 109.3 100 593

NET EXPORTS - 193 0 - 64Exports ........ ............ .. ...... 446 113 165 830 1.19.3 93) 843Imports ........... .. .. ............ ... ....... 639 117 111 830 109.3 l Q0 907

600 THE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOMBIA

Mlore significant is a comparison between the magnitudes of theconstituent elements of capital formation obtained by projection andthose- indicated in the program, as shown in Table 160. While total

TABLE 160

COI,PARISON OF PROJECTED AND RECOMMENDED PATTERNS

OF CAPITAL FORMATION IN 1953

Projection Program

(millions)

Total Gross Capital Formation Ps.$1.002 Ps.$1,018

Public Sector ...... .272 331

Private Sector 730 687

Imports of equipment and material 315 342

Domestic production of equipment and material 161 149

Trade and transport ....... . . 158 151

Labor costs, construction 280 275

Otlier labor costs 88 101

requiremeiuts for capital equipment and durable goods are similar

in botis instances. the relative participation of imports is greater

in the investment program. It is not believed, however, that this

implies a need for a level of total imports higher than the one

projected if it were assumed that the past trend in capital formation

would continue unchanged. Private capital formation under the in-

vestmiient program would amount in 1953 to 10.2 percent of gross

national product compared with 12.1 percent in 1947, when so much

assistance was derived from utilizing previous accumulations of

foreign exchange. Too much significance should not be attached tofluctuations in this ratio in any country where the absolute size ofinvestment is small and the national accounts are profoundly affected

by changes in the balance of payments.

A major difference exists, however, between projected and recom-mended figures for public investment. This is a manifestation of thegeneral orientation of the AMission's program. It so happens that some

THE OVERALL PROGRAM AND ITS IMPLENIENTATION 601

of the most urgently needed additional capital facilities lie in thepublic sector. While we recognize that private industry in Colombiais on the whole more efficient than public operation, we are neverthe-less forced to recommend a relatively greater expansion in the latterfield. This makes efforts to improve the quality of public administra-tion, and the administration of publicly owned enterprises, of thegreatest urgency.

NATIONAL INCOME BY ECONOMIC SECTORS IN 1953 MODEL

Other magnitudes which would make up a pattern consistent withthe model calculation of capital formation, consumer expendittures,etc., for 1953 are shown in Table 161. The same methods and assump-tions utilized in deriving a "demonstration" figure of gross nationalproduct in 1953 also give us a national income of about Ps.$5.9 billionin that year. In addition to depicting the share in the national incormecontributed by each economic sector, Table 161 shows our variousassumptions on prices, employment and productivity. The rapid in-crease in productivity in industry which has taken place since 1939and which is projected for the years 1950-53 is not only the resultof increased output per man hour but also of people shifting fromhandicraft and primitive agricultural production into industry. Thedemonstration in Table 161, therefore, serves a useful purpose inillustrating the impact on the economy of our recommendations andassumptions, and the nature of the changes in the labor force andproductivity that may occur to make the program successful. Shouldproductivity increase at the projected rate of about 3 percent perannum, wages and other factor incomes could be increased by thatamount xvithout inflationary consequences. We believe that such arate is possible under the program set forth herein.

The assumptions on price movements brought out in detail inTable 161 may very well prove unrealistic. We believe, however, thatprices can and should be stabilized and we are, therefore, reluctant toassume a continued increase. As remarked before, should the pricerise continue, all our magnitudes would have to be revised.

PROJECTED COMPOSITION OF NATIONAL ACCOUNTS

Continuing the description of a possible and consistent economicpattern that xvould result from the projections and the various assump-

TABLE 161

MIODEL PROJECTI(N OF NATIONAL INCOM1E, 1947-1953;EMPLOYMENT, PRsODUCTIVITY AND PRICE INDiCES, 1939-53

~~~94 _ _ _ _ 19 0 _ _ _ ___ ____ __ _ 9~l 9 4 7 1 9 5 0 1 9 5 3Employ- National Employ- National Employ- N'ational

ment Average Income ment Average Income ment Average IncomeEconomic Sector (tlhousands) Income (millions) (thousands) Income (millions) (thousanads) Income (millions)

Agriculture ................ .. 1,755 Ps.$ 745 Ps.$1,308 1,843 Ps $1,130 Ps.$2,090 1,927 Ps.$1,165 Ps.$2,245

Total Urban .1,124 1,720 1,931 1,224 2,430 2,961 1,335 2,697 3,615

Industry ....... 146 3,380 494 171 4,860 831 202 5,735 1,158Construction . 96 1,460 140 106 2,015 213 122 2,305 281Governimeint ................... 98 2,040 200 11S 2,987 352 141 3,548 490Otlers .. ............ ...... 784 1,400 1,097 829 1,893 1,565 870 1,926 1,686

Grand Total (or average) .. 2,879 Ps.$1,125 Ps.$3,239 3,067 Ps.$1,647 Ps.$5,051 3,267 Ps.$1,795 ps.$5,860

1939-47 1947-50 1950-53Indices (1939 100) Indices (1947 =100) Indices (1950 =100)

Employ- Produc- Employ- Produc- Employ- P roduc-ment tivity Price mncnt tivity Price ment tivity Price

Agriculture ................ 115 110 230 105.0 104.5 145 104.5 106 97.0

'i'otal Urbaan ..... .. .... 126.5 126.5 200 108.9 109.6 128.5 109.5 111.5 100.0

Industry ..... ....... 146 146 193 117.4 117.4 124 118 118 100Constructioni ......... 1....... 132 115 220 110.8 106 130 115 110 104Government ................... 103 124 257 120.0 108.4 135 120 108 110Others. .. . . .... 126 115 200 105.7 107.0 126.5 105.5 110 92.5

W;Veighted Average . . ..... 118.6 125.5 2(07 10(6.5 108.4 135 106.5 109.5 99

THE OVERALL PROGRAM AND ITS IMPLEMENTATION 603

tions wve have suggested, Table 162 presents a growth model of thenational accounts. The assumptions on government taxes and on thebalancc of paymcnts will be taken up in the following two sections.

TABLE 162

MODEL PROJECTION OF NATIONAL ACCOUNTS, 1947-1953(millions of pesos)

Gross National Product 1947 1950 1953

EXPENDITURES ....... ....................... 3,673.8 5,708 6,714

Current Government Expenditures. 269.4 470 665

Government Expenditures-Capital 165.0 236 331

Private Capital Formation .447.0 639 687

Net Exports .. .... ....... ......... 1 193.0 0 -64

Consumer Expenditures ............. ... .... 2,985.4 4,363 5,095

IN\'COMIE. ... . 3,673.8 5,708 6,714

-Depreciation ..... ... 128.5 175 201

-Indirect Taxes .306.3 482 650

National Income . ......... ........ . 3,239.0 5,051 5,863

+ Transfer Paynments .4 ....... . 4.0 50 40

-Retained Earniigs .1.0...... IO.0 210 130

Personal Income . . .... ..... 3,131.0 4,891 5,773

-Income Taxes ., . ..... ..... 130.1 260 368

Disposable Income .3,000.9 4,631 5,405

-Consumer Expenditures .... .. 2,985.4 4,363 5,095

Personal Savings .+ 15.5 + 268 ± 310

The increase in depreciation charges forecast for 1953 reflectsmainly increases in the volume of capital equipment, since depreciationis calculated at replacement costs, and the price level is assumed toremain constant. Retained business earnings are assumed to beslightly below their 1947 level. This-- again is consistent with ourassumption that some incentives will be provided to encourage greaterdistribution of corporate earnings and increase both tax yields andpersonal savings.

The figure for personal savings should be treated as at best aresidual. It is, however, consistent with the level estimated for 1950.It wvould be unrealistic to make any further commelnts on the probablebehavior of each of these specific items. As mentioned elsewhere inthe Report, the separation of the concepts of depreciation, retainedearnings and personal savings has to be largely arbitrary underColombian conditions.

604 THE BASIS OF A DEVELOPMlENT PROGRAMI FOR COLOMIBIA

Table 163 presents the projected overall picture of the wholeColombian economy for 1953. The table is useful in bringing out thefact that the projected depreciation account and retained earnings of

TABLE 163

PROJECTED INCOME AND EXPENDITURES

OF SEGMENTS OF COLOMBIAN ECONOMIY, 19531

(millions of pesos)

Income Expenditures Balance

Consumers2 ...... 5,405 5,095 +310Business ... .... . ... ..... 331 687 -356Government .. 1,018 1,036 - 18Transfers . .- 40 -40 -Net investment (foreign) - -64 + 64

GrDss National Product ..... 6,714 6,714 0

1 Capital formation at program, not projection, levels.2 For explanation of terms, see footnotes to Table 17, Clhapter IV.

business are inadequate to finance private capital formation (includingbhousing) so that external sources of finance are needed. The govern-ment account also shows a slight deficit. Both these deficits are offsetby private savings (Ps.$310 million) and foreign capital (Ps.$64million).

FISCAL ASPECTS OF THE OVERALL PROGRAM

The recommendations of the Mlission are likely to increase expendi-tures in the Governmenit sector by a sizable amount. It is thereforenecessary to examine whether these expenditures would be excessivein terms of revenue possibilities.

In the following discussion, no reference will be made to Govern-ment income and expenditures resulting from the sale of goods andservices. The experience of the past years has been that these accountsare approximately in balance, and there is no particular reason to be-lieve that this situation wvill be modified. In order to secure betteradministration and provide additional services in public health andeducation, it will be necessary to increase the number of Governmentemployees. Also, their salaries will have to be raised in order tocreate the necessary incentive for shifts to Government employment.It is believed that the number of people employed by the Governmentmay have increased by 20 percent from 1947 to 1950. However, mostof this increase is likely to have applied only to the national defense

THE OVERALL PROGRA-M AND ITS IMPLEMENTATION 605

and police sectors. The staff increases in health, education and admin-istrative services advocated by the Mission will represent at leastanother 6 percent per year.

On these assumptions, and assuming the salary and productivityincreases described in Table 161, Government expenditures on currentaccount may well reach Ps.$665 million by 1953, as is shown in Tables162 and 164. Projected Government expenditures on capital formationin 1953 are described in the investment program and xvill total approxi-mately Ps.$331 million. It is assumed that the service on internal debtwill decline as service requirements on foreig,n-held debt grow, sothat total transfer payments will remain around Ps.$73 million.

Table 164 presents a projected model of revenues and expendituresfor all levels of government in 1953 compared with similar data for1947 (actual) and 1950 (derived). It will be seen that in money terms,

TABLE 164

MODEL PROJECTION OF COLOMBIAN BUDGET, 1947-531

(millions of pesos)

1947 1950 1953

REVENUES

Direct taxes ............. . ........ .... 130 260 368Indirect taxes 306 482 650Foreign exchange funds ........ . .... .. .... - 0 50

436 742 1,068ExPENDITURES

Current 270 470 665Capital 165 236 331Internal debt2 . ...... .. ....... ... 42 50 40Externial debt2 10 26 32

487 782 1,068

BALANCE ... . ................. ..................... .- 51 -40 0

1 Excluding revenues and expenditures of Government enterprises and intergovern-mental payments.

2 Includes repayments and interest charges.

recommended expenditures in 1953 are more than double the 1947level. Even in real terms, the increase in Government services can beestimated at 75 percent. However, even at the projected 1953 level,Government outlays would represent only about 16 percent of thegross national product, a ratio that has prevailed in many LatinAmerican countries in the past five years and hence does not appearunreasonable provided revenues can be obtained without undue strainto match this level of expenditures.

606 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

In 1947 direct taxes wvere about 4.2 percent of estimated personalincomes. It has been estimated that this ratio, through better collec-tion methods, could be lifted to arouncd 5.5 to 6 percent. New taxeson capital gains and on underutilized agricultural crop lands, andperhaps the increases in tax rates discussed or suggested in otherchapters, could lift this figure to about 7 percent. In such case, fore-seeable income tax yield may xvell amounit to Ps.$400 million in 1955and fluctuate between 6 and 7 percent of total personal incomesdlurinig the program period.

Assuming that the Government or fiscal agencies will be the recip-ients of most expected forei-n loans. wkvhile equitv inv estment will

accrue to the private sector, gross borrowings from abroad w illincrease Government receipts. The Government will acquire equip-nment directly with the proceeds of loans and thus reduce peso expelndi-tures proportionally.

It can be anticipated that a better collection system may increasethe yield of existing indirect ancd excise taxes slightly. Also, ifexchange control is relaxed, it is likely that import duties on someluxury goods will be revised upward as a compensatory move. Thusmore funds are likely to be available without adding greatly to theburden on the mass of the consumers. In Table 162 it was assumedthat by 1953 indirect taxes of about Ps.$650 million wvould bridge thegap between gross lnational product and national income. This levelseemns reasonable; it implies that the yield of indirect and excise taxeswvould be 9.6 percent of gross national product, only slightly higherthan the ratio of 8.2 percent prevailing in 1947.

As shown in Table 164, budgetary balance is likely to be obtainedif direct and indirect taxes and foreign loans attain the level describedabove. The overall program would, therefore, be consistent withthe existence of a budget requiring no domestic borrowing.

THE PROGRAM AND FOREIGN EXCHANGE REQUIREMENTS

WR/e nowv come to an area where longer term projections are particu-larly hazardous. WTe should again emphasize that our discussion isdesigned merely to illustrate the nature of the problem and the veryrough magnitudes involved. It will be recalled that in Table 159 theprojected model for the average year of the program called for slightlyover Ps.$300 million of imported capital equipment and for Ps.$60million net capital inflow.

The bases on wvhich these assumptions were made are admittedlyhighly uncertain. The Colombian balance of payments is dominated

TI,E OVERALL P'ROGRAMI AND ITS 1AtliLE.MENTATION 607

bv the fortunes of a single commodity an(d total exchange receiptsin the next five years clepenid in large part on the price of coffee. If,ror example, the crop should averag-e 6.5 million bags and the priceaverage 43 cents (U.S.) per poulnd, the average receipts wvould beU.S.$369 miillioni. If other exports can be expected to average U.S.$50million, total exchalnge receipts wvould amount to around Ps.$840

millioni in the average year of the program, 1953.

Thle service on the existing- foreign debt nmay be expectedI to average

U.S.$11.5 millioln. To this should be added transfer of profits onexisting foreign equity investments in Colombia wvhich might amount

to U.S.$10 million if exchange w,ere more freely available. Assumin,-that the outflowv of capital may be offset in part by gold production ofaroundl U.S.$10 million yearly, \ve are faced \vith a net i .. ofapproximlately Ps.$20 million.

To provide for the increase in consumption and investment en-visaged in the program. it xvould be desirable to have average importsor some Ps.$900 millioni. The difference betwveen this liguire andPs.$820 million (imports less capital outpayments) vvould have to bemade up by an inflow of capital in the form of loans and equity invest-inelts. In view of the present low ratio of servicing charges on thleexternal debt and dividen(ds on foreign-held investmenits in Colombiato exchan,ge receipts, a gross capital inflowv of U.S.$200-$250 milliolnfor the period does not appear excessive. This amotint Ivould cor-respond to the projected net ilnflowv of Ps.$60 millioln per annium. Thisassullmes, of course, that progress contilnues on the repayment of old(lebt, that the price of coffee does not recede too far from present

levels, that efforts are made to build up other exports, that the wrholeprogram greatly increases the productivity of the country ancl, bychanging the character of imports. puts the counitry in a less vulner-

able position if the foreign demand for its products should fall. Theimportanice of the last consideration is that it would permit the con-

tinued servicin- of debt in the face of falling exports wvitlhout imposilngY

an intolerable burden on the standard of living of the country. It isalso essential that inflation not occur since the transfer of profits onforeign eluity investments would then become an excessive burdeni.All these conditions would be met by implemnentatioln of the recoin-

inendatiolns so that wNe may conclude that the foreign exchange re-

quiremenats of the pro-ram are not inconsistent with reasonable

expectatiolns.

6S THE BASIS OF A DEVELOPMENT P'ROGRAMI FOR (OLOMIBIAL

THE PROGRAM AND PHYSICAL LIMITATIONS

Since the projections of both consumption and investment havebeen built on estimates of the growth in manpowver and productivity,the program is necessarily within the overall manpowver potentialities.These overall estimates, in turn, imply considerable shifts in thelabor force and a relatively rapid growth in urban communities. Forexample, employment in construction wvill probably increase by some16,000 workers and in industry by 30,000 from 1950 to 1953. An in-crease of 3.1 percent a year is assumed in the urban population and1.5 percent in the rural population. Appendix J contains a tentativedescription of necessary employmenit shifts in ten selected spheresof activity. It is believed that the somewhat greater rise in wages inindustry, construction and Government than in the national average,and the lesser rise in halndicrafts and some backward agriculturalregions, will lead to the requisite shift in employmiienlt, although someadditional assistance to this maovement may have to be provided.

The same basic underlying assumptions vwhich determined the sizeof the overall program likewise delimited the component parts so thatthere should be no difficulty arising from insufficiencies of electricpover, community facilities, housing, or transportation. This illus-trates the importance of our insistence throughout that a program of

development must be comprehensive, integrated, quantitative and in-

ternally consistent in order to be successful.

IMPLEMENTATION OF THE PROGRAM

As has beeni reiterated tlhroughout the Report, this shlould be

regarded as a first draft of a program, or as a working paper, xvhich

should serve as the basis for a definitive program. Next steps wvould

logically be intensive studies to refine both the nature and size of

the overall program ancd its component parts, and taking- the measures

necessary to implement the programn decided upoIn.

To meet the first re(quiremiient. the Colombiani Governmnenit has

alreadv indicated its intentioni of referring the Report to a smali

non-partisan body of outstanding men, equipped wvith a good technical

>taf. xvho wvill be charged with the responsibility of preparing recom-

-nielndations to the President. Presumably this committee will set up

a number of subconimittees to studiy specific fields anLd will utilize theassistance of nationial and foreign technicians and specialists.

'I'lTE OVERALL PROGRAM AND) l'TS JAIPLEMIENTATION 609

Assumning that these recommendationis are comprehensive in natureand are acceptable to the Government, there xvill immediately arise thenecessity of contiutous study, revision and progress reporting. Thepreceding sections xvill have illustrated the techlnical nature of thestudy involved and the necessity for constant adjustments and revi-sions. This functioni, we have indicated, mighlt well be performed bva permanent Resources Planning or Advisory Agency set tip in theOffice of the President. This wvould be an advisory rather than anaction a-ency, and the quality of its advice to the President and thenature of its contribution xvoulld depencl on the technical efficiencvof its staff andI the soundness of judgment of the person or personsheading the agency. W;Ve have also suggested that this proposedAgency give leaderslip to and assist in the developmilenit of plans andprograms at all levels of Government and should be the coordinatingand clearing agency for technical assistance from abroad.

Of eqtial importanice in the implementation of an overall prog,ramis the type of action initiated in various fields designed to guide ne\\investment, brin,g about an expansion of certain activities, and in-prove organization and administration generally. The tvpe of actionadopted xvill depend very largely on the underlying general philosophyof the appropriate role of Government in directing- economic affairs,which in turn should vary xvith circumstances.

It is apparent that the preferenice in this Report lies on the sideof minimizing direct controls and direct state operation. Havingin mind the characteristics of the Colombian economy, xve shouldprefer, on the Avhole, to influence the actions of private individualsand groups through the provision of a suitable economic backgrotindand a system of incentives and deterrents. Although this type ofplanning- requires internsive study and an understanding of the natureof the economaic process, it has the great merit of avoiding the useof a wvide variety of restraints and( orders xvhich the use of directcontrol re(quires. Tt also dispenises xxith mulclh of the policing andthe necessitv for building- lip a larg-e bureaucracy to administer thecontrols.

In certain types of activities, hoxvever, Government action ispractically indispensable. Tlhe necessity for pursuling sound fiscalmeasures is obvious. Other activities include such fundamentalftunctions as the provision of g-eneral education and the establish-ment of minimum health standards. A third class of activities, suchas railivays and electric pow-er plants, may be the subject of varyingdegrees of responsibility on the part of public bodies, depending ona varietv of circumstances.

610 TIIIE BASIS OF A DEVELOPAIENT PROGRAAI FOR COLOMBIA

As alvays, the formulation of general principles is an easier taskthan their application to specific fields. One of the most importantre(luireinents for the attainment of our objectives is that the directionof flow of newv capital be modified. In this general field, we havesuggested a number of measures designed to influence as far aspossible individual decisions rather than to atternpt to channriel sav-ing-s directly through Government action. In general. it is felt thathigher social returns Wvould be yielded by devoting more savingsanid borrrowvin'gs to raising ag-ricultural productivity, providing electricpower andl variouis communitv services, anci low cost but decenithousing.

It is shownv- in Chapter IR that an exceptionally large proportionof Colombia's savings accrues to a relatively fexv people. Likewise,a substantial portion of earnings is retained by the enterprises whichmake them. This may not provide the requisite capital for the ex-pansion of more socially beneficial projects in other sectors of theeconomy, and the measures we have proposed may be insufficient.If this should prove to be the case, consideration might be given toa number of possible xvays to make these savings available. Themost drastic wvotuld be simply to tax them and have the state supplythe necessary fund(s. Another means would be a tax on undistributedearnings. This would be less drastic than an increase in the corpo-rate incotmie tax as it wv,ould not have to be paid unless a certainpercentage of earninigs vere retained. Other devices, for whiclthere is precedent in Colombia, include forced pturchase of securitiesor the provision of incentives to supply housing anti medical serviceslirectly for wvorkers

WN\e are not takinlg a definite positioln on the matter of divertin,-the retained earnings of business enterprises into other fields as\ve feel that at this staoe the most important matters on \vhichagreement must be reached are objectives and magnitudes. Whenthey are determined, further consideration can be given to themerits of a number of specific measures to implemelnt the program.Thle extent to \vhich particular measures are used is difficult tocletermine a priori anld must be tleterminledl in part by trial andexperience.

As an aid in increasing- the relative attractiveness of investmentin agriculture and hoLusing, we have suggested the establishment of a

/graduated capital gains tax, the highest brackets of wvhich shall applyto profits derived from urban real estate and more obviously specu-lative activities. The proposed graduated tax on underutilized agri-culttural crop land( is designed to provide an incentive for intensive

THE OVERALL PROGRAM AND ITS IMPLEMENTATION 611

cultivation or, what amounts to the same thing, a penalty on theuneconomic use of land. It is further suggested that under certainsafeguards an increased proportion of the funds of commercial banksbe permitted and encouraged to flow into agricultural loans and lowcost housing.

For the provision of more community services, including electricpower, water and sewage disposal facilities, the importance of plac-ing municipalities on a sound financial footing has been stressed. Itshould not prove impossible to establish various organizationalchanges that will make most of these projects self-liquidating. Ifthese various measures are adopted, it should prove possible to enlistthe aid of foreign capital in the provision of these facilities.

It is, however, to be doubted whether these incentives will stimu-late a sufficient additional flow of funds into these fields. Funds arenow being obtained for the provision of community facilities and forlow cost housing through local and national taxes. With more inten-sive study, it would doubtless be found that the yield of such taxescan be considerably increased. Additional funds for agriculturalloans could be obtained not only from the banking system, but frommore vigorous efforts to increase, collect and divert the flow ofsmaller savings into this channel.

The Government will have to continue to provide, either throughtaxes or through borrowings, capital requirements for highway andrailroad transportation; and the capital requirements for communityfacilities, especially electric power, will continue heavy throughoutthe program. There is some feeling that such types of expendituresshould more properly be financed through borrowings than from cur-rent taxes. This position does not appear to be well grounded. A por-tion of the annual expenditures goes to replace existing equipment andit is probable that expenditures financed out of current taxes will bescrutinized more carefully than those financed by loans. Moreover,there has been in the past a distinct bias in Colombia toward inflationand for this reason it is desirable that the overall budget, includingexpenditures for both current and capital purposes, be kept substan-tially in balance. It is above all important that the Government re-sort to borrowings from the Central Bank only in emergency.

Readers of this Report will appreciate that the burden ofcapital formation cannot be shifted onto future generations throughborrowing rather than taxation, except in the case of foreign loans.

612 THE BASIS OF A DEVELOPMENT PROGRANM FOR COLOMBIBA

The burden arises from the diversion of production from goods forpresent consumption to the production of goods which will makefuture consumption possible. The real cost, in other words,. is the(liminution in present consumptioil and this cannot be shifted fromthe present. The decision on borrowing or taxation as a means offinancing public works should be dictated solely by considerationsof price stability. The important thing is that overall capital forma-tion, both public and private, should not exceed inteiided or volmuntarysaving by more than the amount of available foreign capital.

In Colombia's stage of economic development, most forms of capi-tal formation involve imports. It is, therefore, not only essential thatdcomestic savings be adequate in volume, but that a portion of thesesavings should be utilized for capital imports. This can, of course,be accomplished quite easily through the direct allocation of exchange,and the development program will provide guiding principles andcriteria for allocation. If, however, for other reasons it is decided toabandon or relax the direct allocation of exchange and to secureequilibrium in the balance of payments through the adoption of anew rate of exchange, a different set of devices would be requiredto insure that an adequate volume of available exchange is utilizedon capital imports. These devices might take the form of additionaltariff duties on consumer goods. It is not, however, believed that thisproblem would be too serious. For one thing, it is anticipated that aportion of the capital equipment would be imported as a result ofborrowings and private foreign inrvestment in Colombia. For another,it is to be anticipated that the demand for certain types of capitalgoods under such conditions of rapid expansion as we are envisagingwould be quite. inelastic. In the third place, better tax collections andhigher tax rates may be expected to curtail the relative demand forforeign imported luxury goods.

The direct expansion of certain Government activities entails noparticularly difficult problems of implementation. Here the necessi-ties are the prior acceptance of well-conceived plans, the proper allo-cation of responsibility for execution of such plans among the threelevels of government, and various measures designed to increase theefficiency of administration and personnel. In education, in particular,a major effort appears called for and, in preparing a new and improvedand expanded program, full benefit should be taken of the variedexperience of other countries in this field.

THE OVERALL PROGRAM AND ITS IMPLEMENTATION 613

Again, in the field of agriculture, we have indicated the generallines along which further effort and study should be concentrated.The whole field of the organization of agriculture, which presumablywould be one of the subjects of study of the proposed Public Admin-istration Mission, is particularly important for the implementationof this program.

The health and education programs, though limited by lack ofpersonnel, will require an increase in Government expenditures. In-creased revenues can be obtained from better tax collection, the pro-posed graduated land tax and the capital gains tax and, if necessary,throutgh higher income and excise tax rates.

In facilitating the considerable shifts in manpower resources calledfor in the prorga-ram, particular attention should be paid to the estab-lishlment of national employment services and to various directmeasures to secure recruitment of workers from particularly dlepressedareas, such as Boyaca, Santander, Narifio, and the Atlantic Coastaldepartments, so that the necessity of excessive up-bidding of wagesmay be avoided. In this way, the status of the people who move isimproved and overcrowding in relation to the resources of certainareas is relieved.

As a means of implementing our recommendations relating to im-provements in or-aniization and administration, we would place mainreliance upon the work of the proposed Public Administration Missionand the adoption of various measures designed to improve the basesof policy formulation and administration throughout all levels ofgovernment. Some of the most urgent capital needs, such as thosefor relieving electric power shortages, wait upon a thorough reorgani-zation of municipal government and the institution of more rationalrelations betweeni municipal enterprises, municipalities and NationalGovernment organizations. We have made suggestions relating inparticular to the organization of surface and air transport which, ifimplemented, should make possible increases in efficiency which willbenefit all factors of the Colombian economy. Similarly, the recom-mendations in the agricultural field making for better land use andthe coupling of financial with technical assistance, together with anumber of other organizational suggestions, provide implementationfor agricultural objectives. Finally, in the development of naturalresources, proper incentive should be provided to encourage furtheroil exploration and development, the adoption of modern techniques

614 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

in coal mining, and the use of forest resources. We suggest thatspecial tax incentives be provided to stimulate reforestation, particu-larly of certain land near the larger cities and along the rivers.

BROAD OBJECTIVES OF THE PROGRAM

So many aspects of the problem have been touched upon that itmay prove useful to summarize briefly what it is hoped to accomplishin a five-year period through the adoption of the program. The pro-gramn is designed to:

1. Provide better health for all people;

2. Reduce illiteracy and improve primary, secondary and technicaleducation;

3. Provide better balanced diets;

4. Provide more adequate low cost housing;

5. Provide more light and power, and

6. Make possible the acquisition of more of the amenities of lifeand the enjoyment of more leisure by all people.

These objectives will be accomplished mainly through an increasein productivity, and secondarily through a better distribution of in-come, and increased borrowing and investment from abroad. Theincrease in productivity is expected to come about as a result of betterorganization of existing resources, the introduction and wide use ofimproved techniques, and the diversion of capital into more productiveand more socially beneficial channels.

It is also hoped, within the stated period, to increase substantiallythe power available per worker, to provide pure water and sanitarywaste disposal facilities for millions, to increase agricultural produc-tion with little additional labor, to reduce transportation costs, tobring about marked expansion of industry, to bring about certainchanges in imports and a diversification of exports, and to providefor a relatively large expansion in the construction of communityfacilities, housing and industrial and commercial buildings.

The question may very well be asked, would not most of theobjectives we have mentioned be attained in any case? The programset forth herein does not provide for any additional capital formationfrom internal saving, and substantial increases in production can beexpected to occur regardless of a program. This is perfectly true and

THE OVERALL PROGRAM AND ITS IMPLEMENTATION 615

yet past experience suggests that the fruits of increased productionwill be unequally divided, that institutional factors will operate againstthe simple basic needs of the people being fulfilled, that large capitalsums may be misdirected because of inadequate study, and that infla-tion will continue without conscious prevention. After all, the inherentrichncss of the country which makes our program possible hasexisted for all these years and yet the standard of living of the peoplehas remained far below that prevailing in many lands not so favored.One cannot escape the conclusion that reliance on natural forces hasnot produced the most happy results. Equally inescapable is the con-clusion that with knowledge of the underlying facts and economic pro-cesses, good planning in setting objectives and allocating resources,and determination in carrying out a program of improvements andreforms, a great deal can be done to improve the economic environ-ment by shaping economic policies to meet scientifically ascertainedsocial requirements.

In any case, the choice does not really exist. People everywhereno longer are inclined to accept poverty, ignorance and disease asunalterable facts of life. They are becoming aware that it is possiblefor them to improve their lot and they show an increasing tendencyto judge an economic system by the extent to which it satisfies theirneeds. For longer term stability, the masses of the people must becpnvinced that their economic system is efficient, equitable and capableof meeting what are coming to be universally regarded as the elementalneeds of human society.

Colombia is presented with an opportunity unique in its longhistory. Its rich natural resources can be made tremenldouisly pro-ductive through the application of modern techniques and efficientpractices. Its favorable international trade and debt position enablesit to obtain modern equipment and techniques from abroad. Inter-national and foreign national organizations have been establishedto aid underdeveloped areas technically and financially. All that isneeded to usher in a period of rapid and xvidespread development isa determined effort by the Colombian people themselves. In makingsuch an effort, Colombia would not only accomplish its own salvationbut would at the same time furnish an inspiring example to all otherunderdeveloped areas of the world.

I n d e x

Index

A tax policies, 84technology in, 88

Abarco, 416 training for, 251-52, 547Aberastury, Marcelo F., n. 172 transportation in, 398Accountancy workers in, 7-8, 365

and Director of the Budget, 588 see also Cooperatives; Crops; Exten-professional status, 342-43, 592 sion work; Farms; Intensive farm-shortage of trained personnel in, 505 ing; Land; (and individual crops)and tax administration, 556 Agriculture and Animal Industry, Min-

Acetate yarn, 410 istry ofADELCA, la0, 481 Animal Industry, Division of, 68, 381, 389Administration; see Public administration consolidation of separate agencies with,Administrative Career Law, 497 400Administrative Career Service, 202, 349 Education Section, 66Administrative Council for the National Extension Section, 67, 70, 86, 252, 369,

Railways, 107, 448 371, 383, 386Aclobe dwelling, 537-38 Investigations and Experiments Section,Aeronautica Civil, 146-48, 154, 161, 166, 85, 399

479, 480, 482, 486 major administrative units, n. 80Aerovias Nacionales de Colombia, 142 Rural Economics, Division of, 85, 398,Agricultural colleges, 252, 390-91 399Agricultural mortgage bank, 322 tractors owned by, 70Agricultural normal schools, 252 Air fares agreement, 154Agricultural production Air Force, 149, 479

diversity of, 3 Air mailfacilities and equipment, 402 administration of contracts, 481-82goals for 1955, 361-83 contract for carrying, 145and opening of new lands, 363 revenues, 149-50trends in, 368 service, 149-50

Agriculture subsidy, 149average rate of growth, 362 Air transportcapital requirements in, 401-3 administrative organiization for, 476-82census of, 398 air freight charge compared with high-commodities, quotas, price controls and way rate, 164-65

taxes on, 82-83 air-ground communications, 156-57, 482credit facilities for, 53-54, 75-77, 387-89 annual audit of companies by indepen-development of new lands, 401 dent auditor, 481experiment stations, 85, 395 approach control towers, 482-83exports of products, 331, 582 capital requirements, 490-91five-year plan for, 80, 360-61 commercial air traffic, 143, 476general recommendations, 383-400 competition and rates, 152-54mechanization in, 63, 70, 394-95 development of, 142multiplicity of agencies, 344 freight rates, 144-45, 153-55, 164-65planning for, 360-61 freight revenues, 149-50policies for, 80-86 navigation facilities, 156, 482-84population, 363 passenger traffic, 143-44productivity in, 70 productive capacity of airlines, 163processing of products, 82, 398 radio operation and maintenance, 478rationalization of programs for, 400 rate regulation, 153-55, 480-81research in, 85-86, 399 regulations governing airline operations,schools of, 66-67, 252, 390-91 147-48, 440, 479-82, 483self-sufficiency in commodities of, 82-83, relationship of government to, 146-50

363 route system, 150-52social research in, 85 technical regulation of, 148, 480statistics, 85, 342, 390-96 traffic control, 156-58, 477-78. 482

619

620 INDEX

Aircraft Anuario de Comercio Exterior, n. 408, i.conversion costs, 163 428equipmenit possibilities, 167 Aniuario General de Estadistica, 408, n.operating costs and rates, 164-66 428specifically suited to operating condi- Arable land, 4, 358, 384

tions, 488-90 Arango, Luis-Angel, xiAirport and Communications Corporation, Araracuara, 484

proposed, 476-79, 486, 490 Arauca River, 132, 473Airport Development Corporation, U. S., Argenitina

476 birth rate, 171Airports death rate, 174

buildings and runways, 490 population, 172capital expenditures for, 484 Argillaceous shales, 73construction of, 477 Armeiiiaduplicate, 159-60, 487 electric rates, 223improvement of, 477-78 growth of, 208operating and maintenance expenses of, housing, 240

478 -Ibague route, 109, 118, 464ownership of, 158-62 income and expenditures, 274revenues, 161 municipal airport, 159

Alaska, use of aircraft in, 489-90 nmunicipal debt, 286Alcoholic beverages, consumption of, 411 purification plant, 524Amazon River, 4, 131, 132, 473 street paving, cleaning and waste col-Ambalema-Ibagu6 Railroad, 105 lection. 221American cigarettes, 333 telephones in, 219American and Foreign Power, 210 transportation rates to and from, 139American Merchant Marine, disappear- Armero agricultural experimenlt station,

ance of, 473 85American Rolling Mill Company, 419 Arracacha, 372Aimmonium nitrate, 395, 435 Asbestos, 415Ammonium sulphate, 395, 435 Asphalt, 528Amortization Assessments of land, 84; see also Re-

of external debt, 323 assessment of property valuesand importation of new machinery, 321 Atlanitic Coast, 3, 169

Aniclhicaya power development project, Atlanitico214 per capita expenditures, 272

Anldealn pipeline, 433 per capita expeniditures on hygienie, 271Andersoni, Roger V., xiii, xxxviii depressed area, 35Andes, 3, 4, 133, 416 distribution of physicians, 197Andes, University of the, 592 expenditures, total, and bor education.Anenmia, 184 254AnliydIrous ammonia, 395, 434-35 Fondo de Foniento Municipal, 228Animal-drawsn machinery. 39495 funde(d debt. 286Anti-maladriaw measuires, 3492 5 generating facilities, 213Aniti-uialara heasures, 492 hospital beds, number of, 193

per capita expenditures, 272 malaria deathis, 180concentrationi of deposit holdilngs, 53 municipal personnel, 277dlstribution of physicianis, 197 primary school colistructioin, 245expenditures, total, and for education, public primary schools, 244

254 thermal electric plants, 210external and( iternal debt, 285-86 truck traffic flov, 122Fondo de Fomenito Muniicipal, 228 Atrato River, 131-32generating facilities, 213 Aull. Ruth, xi, xiiihospital beds, number of, 193 Automotive vehiclesnialaria deaths, 180 imports of, 429miscellaneous references, 3, 140. 183. rcgistrationi of, 121, 428-29

325, 459 AVIANCA, 142, 147-50. 152-54, 156, 162-mlunicipal expenditures, 275 64. 476, 481. 484, 487mulnicipal personnel, 277 Aviation gasoline, 433, 460; tax on, 161primary school construction, 245public primiary schools, 244 Btruck traffic flow, 122

Autioquia Cattle Fund, 388 Baclelor's diu)loma. 547Antioquia Railroad, 105, 106, 141, 452 Balance of paymelnts, 309-17. 568, 586.

INDEX 621

606-7; sec also Foreign exchange; Bassie, V. Lewis, xiiiForeign trade BCG vaccine, 500

Bananas, 62, 87, 311, 375 Beans, 362, 363, 366, 368, 380Banco Agricola Hipotecario, 75 Beef cattle and beef, 362, 363, 366, 368,Banca Central Hipotecario, 55, 56, 59-60, 380-81

75, 226 Beer, 4, 87, 411Banco de la Republica Beer industry, consumption of electric

formulation of policy, 571-73 power, 96increase of credit, 297-98 Belencito steel plant, 420, 424, 425miscellaneous references, ix, xi, xv. 22, Belgium, bilateral agreement with, 334

52, 55, 56, n. 64, n. 286, ii. 290, 295- Beneficencia, 1S4, 186, 189, 203-5, 278,300, 307, 310. 328, 334, 336, n. 408, 502-3, 506, 510-12570, 572, 574 Beverages, 408

rediscounts writh, 301 Bilateral agreements, 309, 333-34, 337,Bank capital, as percentage of deposits, 580-81

301 Biological Institute, 85Bank credit, causes of increased, 290, 292 Birth rate, 5, 171-73Bank earinigs, 301 Black, Eugene R., x, xiBankilng system, structure of the, 295-96 Blackn market. 316, 324, 325, 332-33Barbosa, 449 Blackstrap molasses, 415Barco crude, 431-33 Blast furnaces. 426Barley, 362, 363, 366, 368, 374 Blooming, merchant and rod mill. 426Barrancabermeja Bocas de Ceniza channel, 127, 471-72

cracking facilities at, 432-33 Boeing, 162, 247claily landings and takeoffs, 158 BogotaMagdalenia river traffic, 133 agricultural experimernt stationi, 85Puerto Olaya pipeline, 140, 460 airport facilities. 159, 160. 484-85refinery, 140, 459 birth rate, 5, 172wxarehouse, 137 college of veterinary medicine. 67

Barranquilla concentration of denosit holdings, 53air freight traffic and rates, 144, 155 concentration of industrv, 88airport, 139, 160: technlically adequate concentration of traffic, 122

486 daily landings and takeoffs. 158birth rate, 172 DC-4 equipment handled at, 164-Cartagena, internatiolnal traffic. 104 death rate, 5, 173coast,wise freiglht movements, 132 electric rates, 223concenitration of industry. 88 grain elevator. 78, 397concentration of traffic. 122 growth of, 208concrete street paving, 528 income and expenditures, 274daily landings and takeoffs, 158 miscellaneous references, 6, 64, 65, 73.DC-4 equipmenit handled at, 164 100, 102, 106, 110, 117, 140, 150, 230,deatlh rate, 173 252, 282, 389, 390, 396, 420, 425, 445,duplicate airports. 160 524electric rates, 223 motor truck rates to and from, 126growth of, 208 municipal debt, 286hospital center, 507-8 -Neiva-Popayan highwav. 468improvement of port, 472 power consumption, 212income and expenditures, 274 power develonment, 214low cost steel industry at, 427 -Puerto Wilches, proposals for rail-.Magdalena river traffic and rates, 133, road between, 449

139 roundhouse facilities, 446miscellaneous references, 100, 226, 427, street pavina, cleaninlg and wlaste col-

453. 470, 484, 524 lection, 221muniicipal debt, 286 telephones in. 219port facilities, 127-28 water rates, 222-Santa Mlarta highxvay, 468 BogotA Electric Company, 280slaughterhouse, 220 Bogota Powver Company, 214street paving, cleaning and w aste col- Bolivar

lection, 221 per capita expeniditures, 272telephones in, 219 cattle in, 381'water rates, 222 classified employees in, 349

Bartonellosis, 190 depressed area, 35Basic tax rate and niormal rate of retumr distribution of physicians, 197

for land use, 385 expelnditures, 254

622 INDEX

Fondo de Fomento Municipal, 228 -Santa Marta route, 465, 467funded debt, 286 street paving, cleaning and waste col-generating facilities, 213 lection, 221hog production, 381 telephones in, 219hospital beds, number of, 193 Budgetmalaria deaths, 180 accounting, 270miscellanieous references, n. 104, 349, balanced, 267, 557-58

373 Bureau of the, 269-70, 588, 592municipal expenditures, 275 Bureau of the, U.S., 585, 587municipal personnel, 277 deficits, 569primary school construction, 245 Director of the, 588public primary schools, 244 expansion of, 304rice production in, 373 -to-income ratio, 305thermal electric plants, 210 legislation, 267-70truck traffic flow, 122 presentation, 270, 560-61water shortage in, 74, 392 procedure, 267-70

Bonds, compulsory investment in, 308 projection, 605Boyaca Buenaventura

average departmental salary, 349 air operations, 476average income, 9 airport, 485per capita expenditures, 272 average daily cargo in, 130per capita expenditures on hygiene, 271 average daily cargo moving from, 131coffee lands in, 369 -Cali transportation, 119, 141, 443, 444depressed area, 35, 423 coastwise freight movements, 132distribution of phvsicians, 197 congestion at, 450expenditures, total, and for education, growth of, 208

254 international traffic, 104Fondo de Fomento Municipal, 228 Magdalena River rates, 139funded debt, 286 mechanized loading and unloadinggenerating facilities, 213 equipment. 470hospital beds, number of, 193 motor truck rates to and from, 126malaria deaths, 180 port facilities, 116, 128-130miscellaneous references, 83, 187, 276, Buga

382, 420, 613 agricultural normal school, 67. 390municipal expenditures, 275 -Buenaventura cut-off, 456-57, 465,municipal personnel, 277 467non-industrial area, 424 fertilizer mixing plant, 79parcelization of land, 63 storage facilities, 78primary school construction, 245 Bugalagrande powdered milk plant, 79public primary schools, 244 Building construction, capital expendi-truck traffic flow, 122 tures for, 541-42wheat in, 374 Building materials, 89. 415-16

Bracket rates, 264 Buildings, investment in, 232-33Brahma cattle, 86 Bureau of Mlines, U S, 435-36Brazil Bus registrations, 121

average income, 25 Businessbirth rate, 171 expenditures, 49-51, 604coffee production in, 335 income, 604population, 172 retained earnings of, 50-51, 575steel plant, 421 savings, 24

Breakage in transit, 102, 126, 165Brick, requirements for, 415Bridge structures and guard rails, 445 CBritish Police Mlission. 102, 471, 591 Cacao, 86, 362, 363, 366, 368, 377-78Bucaramanga Cacao Revolving Fund, 81

airfield, 161, 484 Caja Agraria, 85, 236, 386, 388, 392cold storage facilities, 220 Caja Colombiana de Ahorros, 52-54, 76,daily landings and takeoffs, 158 307, 308, 574electric rates, 223 Caja de Credito Agrario, Industrial ygrow,th of, 208 WMinero, 53, 54, 59, 68, 75, 298, 299,hospital center, 507-8 387, 391income and expenditures, 274 Cajas de Proteccion, 236municipal debt, 286 Calamarpower development, 214, 520 Magdalena river traffic, 133

INDEX 623

warehouse, 137 contribution of national finance to,Calarca, growth of, 208 255-56Caldas by economic sectors, 38-42, 44, 49-51

per capita expenditures, 272 and end use, 41-43, 594distribution of physicians, 197 financial aspects of, 47expenditures, 254 general sources of, 49external and internal debt, 285-86 and gross national product, 46, 598Fondo de Fomento Municipal, 228 and imports, 39-41, 599, 606generating facilities, 213 in industry, 437-39hospital beds, number of, 193 by inflation, 48malaria deaths, 180 long-term, 573miscellaneous references, 64, 73, 106, patterns of, 600

140, 183 and price stability, 49municipal expenditures, 275 public and private, 44-45municipal personnel, 277 and saving, 294, 612power development project, 214 series on, 341-42, 586primary school construction, 245 structure of, 38-47public primary schools, 244 and types of assets, 43truck traffic flow, 122 Capital gains

Caldas Railroad, 105, 106 exclusion from taxable income, 264-65Cali tax treatment of, 554, 600, 610

-Buenaventura highway, 464 Capital goods, 19-20, 22coal, 435 Capital requirementsconcentration of industry, 88 air navigation equipment, 483concentration of traffic, 122 construction of hospitals, 513daily landings and takeoffs, 158 construction of schools, 549DC-4 equipment handled at, 164 estimate of industrial, 436-39electric rates, 223 highway projects, 465growth of, 208 refining equipment, 432hospital center, 507-8 sewer and privy facilities, 526income and expenditures, 274 surface transport, 474-75miscellaneous references, 100, 220, 252, telephone facilities, 527

414, 443, 484 Capital yields and interest rates, 59-60motor truck rates to and from, 126 Caqueta, Comisaria de, funded debt of,municipal debt, 286 286power development, 214 Caqueta River, 132, 473roundhouse facilities, 446 Cargo-handling devices, 443telephones in, 219 Cargo transfer charge, 102water rates, 222 Caribbean Coast, 61, 62, 179, 182

Camacho-Lorenzana, Jose, xi Caribbean ports, 102, 115Canada Caribbean Sea, 132, 473

comparisons with, 3, 295 Cartagenaexports to and imports from, 313 air freight rates to and from, 155foreign investment in, 577 coastwise freight movements, 132

Canal del Dique, 134, 459, 471-73 daily landings and takeoffs, 158Canneries for fish, 383 duplicate airports, 160Capital electric rates, 223

access to, for new ventures, 56 generating canacity in, 212imports, 315, 578-79 growth of, 208investimient in highways adjusted to eco- lhospital center, 507-8

nomic utility, 461 income and expenditures, 274investment in industry, 88 -Magdalena river traffic, 133investment, percentage composition of, -Medellin route, 119-20, 465

595 miscellaneous references, 100, 226, 434,markets, organization of, 576 453, 470, 484movements, control over, 309 port facilities, 128, 472net inflow, 606 power development, 520re-expolr-t of, 320-31 street paving, cleaning and waste col-resource3 of, use of, 294 lection, 221scarcity of, 14-15, 358 Cartagena Railroad, 105, 116, 458, 472shortage of, 94 Casabe crude, 431

Capital formation Cast iron requirements, 418-19amount of, 38-45, 357 Catch basins, 74, 392concept of, 37-38 Cativo, 416

6 24 INDEX

Cattle, 311 Choc6marketing, 71 average departmenital salary, 349population, 380 distribution of physicians, 197raisers, credit to, 301-2 Fondo de Fomento Municipal, 228

Cauca generating facilities, 213per capita expenditures, 272 hospital beds, number of, 193classified employees, 349 malaria deaths, 180distribution of physicians, 197 municipal personnel, 277expenditures, 254 primary school constructioln, 245Fondo de Fomento Municipal, 228 public primary schools, 244funded debt, 286 thermal electric plants, 210generating facilities, 213 Church, 241, 390, 502hospital beds, number of, 193 Cienaga, growth of, 208malaria deaths, 180 Cigarettes, 407, 411municipal expenditures. 275 Civil Aeronautics Authority. U. S., 482municipal personnel. 277 Climate, 3, 61, 168, 234primary school construction, 245 Clothing requirements, 4public primary schools, 244 Coaltruck traffic flow, 122 analysis of Cerrejon coal, 435-36

Cauca River, 62, 106, 132, 179 deposits, 4Cauca Valley, 62, 106, 377, 392, 401, 425, exports of, 582

443, 520 investmenit in, 436-37Caustic soda, 87, 89, 415 mines, 90, 427Ceballos. Juan de Dios, xi, xiv reserves, 435Cedar, 416 Coastwise transportation, 131-132, 473Cement, 4, 87, 407-8, 415, 427 Coello project, 73Cement industry, consumption of electric Coffee

power, 96 domestic production and consumption,Central America and Antilles, exports to 362-63

and imports from. 313 expansion of sales, 334Central bank experiment station at Chlclhinla, 85

credit, expansion of by, 297-99 exports, 4, 309gold and foreign exchange holdings of, exports, dependence upon, 310-11

317 exports, transportation rates for, 138-39legislation, 567 farms, size of, 62lending to the Government, 568, 569 growers, 8-9policy, 296-300, 569-70 growing regions, 73

Central Mortgage Bank, 536 importance of, in internationial tradle,Centrales, 522 18, 61Cereals, roots and similar crops, 371-72 inmprovement in culture, 367, 369Cerrejon coal, 435-36 major crop, 62Cessna, 489 % price indices, 288Changeover from miieter- to yard-gauge, price of Manizales, 311. 317-18

445: see also Railroads price support program, 78Charcoal, 435, 519 processing plants. 79Checks and balances, system of, 343 production, 366-69Chemicals, 87, 415, 437 U. S. imports, 335Chest X-ray, 500 world imports of, 335Chicha, 411 world production of, 335Childreni of primary school age, number Coffee Growers' Federation, 59, 67, 73,

of, 242 75, 78, 81. 85, 235, 237-39, 252, 334,Chile 369, 388, 391, 536-37

average income, 25 Cold storage facilities, 220, 527birth rate, 171 Colombian-American rayon group, 410per capita power, 212 Colombian Cotton Institute, 378death rate, 5, 174 Colombian-foreign enterprises, 406death rates by age groups, 175 Colombian Livestock Association, 81horsepower in, 10 Comisarias, distribution of physicians in,national income comparisonis, 32 197population, 172 Commerce. credlit to, 301-2

Chilean nitrate, 395 Commerce and Industry, Miniistry of, 74.Chilean steel mill, 421, 427 n. 77, 83, 222, 331, 522, 529Chinchinia Coffee Experimenit Station, 85 Commercial banksChipechape locomotive shop, 111 annual volume of loans, 301-2

INDEX 625

credit extende(d by, 52 Cooperativesdeposits in, 295 and housing, 240excess reserves of, 298 loans to, 388loan principle, 303-4 marketing, 396loan rates, 300 Cooperatives, Superintendency of, n. 77,new loans granted by, 302 n. 84policy, 300-304 Cordilleras, 4, 62. 72, 73, 106, 133, 425portfolio of, 573-74 C6rdoba, Jaime F, xi, xivrediscounts of, 296-99. 300, 567, 570-71 Corn, 86, 362, 363, 366, 368, 372reserves, 296-299, 300-301, 567-69 Corporate and personal incotme tax

Commercial buildings, investment in, 233 integrationi of, 264Commercial fertilizers, 395-96 for Paz de Rio, 422Commercial training, 250; see olso Voca- Corporations, earnings of, 9

tional education Cost accounting techniques, 342Committee of Financial Experts, 564 Cost of living, 27, 289Commodities traded, changes in, 582-83; Costa Rica, birth rate, 173

see nlso Foreign trade CottonCommuniications and air traffic control, domestic production and consutmption,

482 363Community facilities ginning equipment, 81

administration of, 225 lint, 361, 362capital requirements for, 532 production, 81, 366, 368, 378-79improvement of, by National Govern- research, 81, 86

ment, 226-231 textiles, 4, 407, 409-410, 437need for, 209-210 Cotton textile industry, consumption ofprojected inivestmlienit ini, 593-95 electric power, 96sources of capital for self-liquidatinlg Council of Economic Advisers, U. S.. 585

and other, 533-34 Cracking facilities, 430, 433; see alsoCompania Colombiana de Seguros, 471 PetroleumCompania Colombiana de Tabaco, 411 CreditCompany profits, taxation of, 551 creation by Central Bank, 296-99Compenisation rates, 126, 138, 139, 154-55; expansion, restraints on., 299-300

sec calso Air transport; Inland water- facilities, 8, 51-55, 57-58, 75-77way system; Motor truck rates and pricing policies, 361

Compensatory fiscal policy, 559 for purchase of dwellings, 235Competition among airlines, 150-152, 480 supply of, 567Compulsory investmeent requirements, 308. 'Crew feathierbedding", 136, 469

575, 610 Criollo or white bean cacao. 377Concrete, 437, 528 CropsConcrete reinforcilng rod, 418 acreage in, 62Consolidated PBY, 162 chaange in emphasis amiong various, 365Construictioln improvement of, 86

and( capital formation, 44 loans for, 75cost of dwellings, 539-42 production trends in various, 362cost of municipal housing, 240 rotation of, 71expendittures, 37 targets in specific, 367-83and iiailiteiiace of tuberculosis hospi- Crude foodstuffs, prices of, 318-19

tals. 499 Crude petroleum, reserves, 314. 430, 431Consumer expendlitures, 8-9, 23, 49-50. Cucuta

599, 604 duplicate airports, 160Consunmer goods, 19-20, 22; index of electric rates, 223

prices, 287-88 growth of, 208Consumer income, 49-50. 604 income and expenditures, 274Consumer savings, 49-50 municipal debt, 286Consumption taxes, 258-59; sec also Tax power development. 520Consumption, volume of, 407-408 Citcuta Railroad, 105, 107, 108, 457-58Contour plowiing, 393 CundiniamarcaContrabanid, 324. 332-33, 581-82 average income, 9Contraloria General, 9, 172, n. 209, 218, Beneficencia, 203-205

n. 241. n. 286 per capita expenditures. 272Control and air navigation equipment, 483, classified employees. 349

490 concentration of deposit holdings, 53Convair-240, 167 departmental roads. 468Cooperativa de Colonizacion Tecnica. 79 distribution of nhvsicians. 196-197Cooperative movement, 83-84, 400 expenditures. 254

626 INDEX

external and internal debt, 285-86 Differential wage rates based on school-Fondo de Fomento Municipal, 228 ing, 545generating facilities, 213 Diphtheria, 499hospital beds, number of, 193 Direcci6n General de Aeronautica Civil;malaria deaths, 180 see Aeronautica Civilmiscellaneous references, 140, 382, 459 Direcciones Seccionales de Estadistica,municipal expenditures, 275 170municipal personnel, 277 Direct taxes, 256-57, 605-6primary school construction, 245 Disease control, 86, 498-502pubic primary schools, 244 Disease, incidence of, 177-182, 492sotls in, 73 Disease prevention, 507, 544tractors in, 70 "Dishington" shirting plant, 410truck traffic fiow, 122 Distribution of farm products, 396-97

Cundinamarca Railroad, 105, 107, 110, 116 see also AgricultureCurrency in circulation, expansion of, Diversion canals, 73; see also Irrigation

C 97-98 Dividend income, rate of tax, 551-52Curricula changes, 543 Dividends, transfer of, abroad, 320-21Currie, Lauchlin, v, ix, xii, xiii, xv Dollar debt, 322-23Curtiss C-46, 166Custodial institutions, 510, 513 Dollar exchange certificates, 325Custom duties, 258-59, 263 Domestic fabrication and current coII-Customs Department, 470 sumption, 89-90Customs Department, 470Double-heading, 112, 443, 445; see also

RailroadsD Douglas DC-2, 162

Death rates, 5, 173-177 Douglas DC-3, 162-163, 164-165Debt authorization, two-thirds majority Douglas DC-4, 163, 165. 486

for, 559 Douiglas DC-6, 167, 486Debt, purchase of, 569 Douglas Super DC-3, 167Deficit Drainage, 74, 391-93

concept of, 270 Drinking water, 74finance, 304-6, 558 Duitama agricultural normal school, 67,

De Mares Concession, 90 390De Mares crude, 431 Duplicate airport facilities, 477Denmark, 389 Durable consumer goods, as capital for-Density of occupation ner house, 232 mation, 37Dental Practice Act, 196 DwellingsDentists, 196 average cost of construction, 237, 540Departments average cost of, by population groups,

debt of, 284-86 540expeniditures of, 270-72 average value of, 235fiscal situation of, 561-66 capital expenditures for, 541level of services in, 271-72 construction of low cost, 235-39personnel of, 349 cost and area of. constructed by Coffeerelations with mtuicipalities, 590-91 Federation, 238revenues and expenditures of, 270-73 increase of, 232revenues, inadequacy of. 562 investment in, 233revenues, sources of, 273, 562 number of, 232roads of, 116 occupancy, 535

Dependents, number of. 5 requirements, 535, 540-41Depletion rates, 431: see also Petroleum see also HousingDeposit holdinzs, distribution of, 303 Dysentery, 179Depreciation, 49-50, 439Depressed areas, 35, 423 EDevelopment expenditures, matched by

business or personal savings, 574 Eastern Railroad, 106, 448Development projects of Industrial De- Eastern trunk highway, 117

velopment Institute, 57 Economic advisory agency, 586; see alsoDiesel-electric locomotives, 443-44 Resources Planning Agency, pro-Diesel fuel. 430, 433 posedDiesel-powered towboats, 472 Economic data and studies, 591-92; seeDiet, 8, 183-84, 405, 502 also Statistical dataDifferential tax rates on land, 566; see Economic development self-generating,

also Tax 356

INDEX 627

Economic planning, organization for, 341- Evaporating plants, 49643 Excess profits tax, 257, 258, 386, 552-3

Economic stability, 595-601 Excess reserves, 297Economic zones, 3-4, 100, 364-65 Exchange authorizations, 310Ecuador Exchange certificate system, 324-326

bilateral agreement with, 334 Exchange controls, 82, 309, 324-31, 339,and contraband, 332 340Gran Colombiana line, 127, 330 Exchange rates, 324-27, 598

Ecuadorian border, highway to, 117 Exchange receipts, 310, 335, 607Education Exchange stability, 577-78

appropriations for, 549 Exchange taxes, 263, 326-27per capita expenditures, 271-72 Export-Import Bank, 73, 311, 316, 322-23distribution of material for, 544 Exportsexpenditures for, 253-54 coffee, 87facilities for, 7, 241 command hard currency, 309rural, 66-68 control of, 326, 331-32see also Primary education; Secondary developing new, 83, 583

education; Vocational education of earnings on foreign capital, 330, 578Education, Ministry of, 66, 241, 248, 250, increase in, 335

546-47 net, 599Efficiency percentage distribution by destination,

measures to increase, 404-7 313variation in, 91 potential agricultural, 364

Electric furnaces, 96, 427 Extension work, 67-70, 86, 252, 369, 371,Electric plants 383, 386

grants for, by FFMI, 227 External debt, 282, 321-23, 607; see alsohydroelectric, 210 Public debtthermal, 210

Electric power Fcapital requirements, 532commercial and residential demand, Facatativa roundhouse facilities, 446

96-97, 519 Factors of production, balance among, 358consumption, 516 Factory buildings, 233, 439industrial uses, 210 Factory-owned facilities, power generatedfor industry, 95-96 by, 97-98metered consumption of, 224, 529 Fadul, Miguel, xiv, n. 64planning and administration of pro- Fairchild Packet, 167

grams, 521-23 Faison, Haywood R., xiiiproduction, 87, 210 Family income levels, 234public service plants, 210 Family unit, 7rates, 98, 212, 222-24, 522 Farm Security Administration, U.S., 388regulation of rates, 529-30 Farms

Electric smelter, investment in, 437 average size of, 13, 383-84Emeralds, 87 cooperatives, 397Employment indices, 602 financing of machidlery purchases, 77Employment shifts, 608 and home management, 68, 82, 387-89Empresa Siderurgica de Paz de Rio; see laborers, amount of schooling, 251

Paz de Rio machinery and equipment, 83, 401-2"Empresas municipales", 225-26, 530 -to-market roads, 398Engine crews, assignment of, 447 marketing system, 77Equilibrium rate of exchange, 345; see operators, amount of schooling, 251

also Exchange rates prices, 77Equipment production problems, 69-74

expenditures, 37 purchase program, 386-87maintenance of, 110, 445 Fats and oils, 87, 412-13, 437standardization of, 446 Federacion Nacional de Cafeteros, n. 62,

Erosion, 63, 72-73, 84 236, 237-39; see also Coffee Growers"Eternit", 415 FederationEurope Federal Housing Act, U.S., 538

exports to, 313, 334 Federal Reserve System, U.S., 295, 567,imports from, 313 573, 576shipping to, 127 Federation of Coffee Growers; see Coffee

European stock, 5 Growers Federation

628 INDEX

Federation oi Panela and -Molasses Pro- Forests, 4ducers, 82 . cuttin;g and burninlg, 72

Feeder aircraft. 489 depletion of. 519Fertilizer mixin g plant. 79 land in. 61Fertilizers, 70. 86. 376. 380. 395-96. 434 reserves. 416Fiber sandals. 411 temperate zone. 61F inance, Ministrv of. 226. 564. 588 tropical. 61Finished maniufactures. unit value index. Foster-Wheeler estimates of pipeline con-

318-19 struction, 460Fiinished textiles. self-sufficiency in. 330 France. 334Finland, bilateral agreement with, 334 Franchise reg-ulation. 479-480Finlay, Carlos, Institute. 189 Franco. Joaquin, xivFique, 363, 366, 368, 379 Franco. Jorge. xivFiscal and monetary series. need for, 342 Franco. Roberto. Institute, 189Fiscal policy, 304-8, 550-66 Fredoniia. t-ansportation rates to aiidFish production, 363, 366, 368 from, 139Fisheries Free meals at school, 545

development. 402 Free port, central warehouses in, 406loans for, 388 Freight rates

Fishiiig industry, 79. 383. 402 air cargo, 154-155Flesher, Carl W., xiii inlanld waterway, 135-140Flight equipment, 162-67, 487-88. 490: see rail, 115

aIso Air transport truck, 125-126Flota MIercanta Gran Colombiania, 330, Freight traffic, distribution of, 103

see also Gran Colombiana lie Freight trainsFlour mills, 79 average speed of, 112Fondo de Fomento Munmicipal, 58. 215. carrying capacity, 110

226-30: see also 'Municipal Develop- see also railroadsment Fund Fresh fruits and vegetables. 382-83

Fondo Gansadero (Ic ATdtioqclia, 77 Fuel oil production, 428-29, 430, 433Food Fuente, Emilio, n. 172

distributioii and marketing, 219-20, 396- Full employment, 59797 FuLnded domestic debt, maturity periods

expenditures for. 66, 183 of. 283-85and milk, 495-96 Fungicides, 396processing, 87, 527

Food aiid Agriculture Organization, xv, G78

Ford Trimotor, 162 Galera Zamba, 412Foreign assets, 324 GamarraForeign capital duplicate airports, 160

invested in Colombia, 319-21 MIagdalena river traffic. 133laws and regulation. 320-21 Gamba, Guillermo Camaclho. xivniet inflow of, .5S3 Garbage collection. 220anid tax provisions, 265 Garcia. Luis Roberto. n. 6treatment of. 577-80 Gardening, 389

Foreign (elet, 18. 607 : S.c also Public debt Garner. Robert L., xvForeign exchange Gasoline

accumullation of, 288 barges, 434and coffee, 335 consumptioni. 407, 414, 429, 430and development activities. 338 tax, 119. 263, 477-78and emplovment for capital goods im- Gauge, standardization of, 457-58; see

ports, 47 also Railroadsand exchange control system. 331 Generating capacitv, 213-14. 515. 519: scefor importation of commodities. 327 also Electric Powerinflow, 297-98 Generatingr facilities. 211. S70, 522: seeremittance of, 327 also Electric Powverrequirements. 606-7 Geological Survev. U. S.. 436reserves, decreases in .156 Germany. Western. bilateral agreement

Foreign investment. 319-21. 577. 598 wvith. 334. 580Foreigni oavments. arrears of. 316 Gill. Frederick C.. xiiiForeipo trade. 40. 104. 577-83 Girardot. 139. 208. 401. 446Fore;tr-. loans for. 388 Girardot Railroad, 1. 115. 116IForestry products, 90. 416-17. 5S2 Glass bottle capacity. 89

INDE X 629

Glass products High-cost steel, handicap to development,dlemand for, 413 425investment in. 437 High incomlies, tax rates applicable to, 257

(Goiter, 184. 500-1 High school attendanice. 547-48; scc olsoGold Education

and the balance of payments. 314 Higher education. 253black market price, 325 Highway transportcertificates, 324 high prices per ton of capacity. 124contraband exports, 325. 332 licensing and regulation of. 124exports, 87. 309, 311 number of passengers. 121foreign ilvestmelnt in, 580 tonnage of freight. 121mining, 320 volume of, 121-3production, decline in, 325 Highwayssterilization, 568 administration of. 118-121

G6mez, H6ctor Abad, xiv bituminous macadam, 116Gonorrlhea, 181-182 capital investlmielnt in, 463, 475Goodvear plant, 414: see also Tires and concrete. 116

Tubes constructioln. 117. 120. 463Gordon, David L., xii. xiii, xxxviii current ontlavs for. 461-2Gordon. Sir Douglas. 591 curvature, 116Government agencies equipment, 124-5. 464

improvement in organization of. 584-92 extensions of, 464-8proliferation of, 345 flexibility of, 460streamlining of, 584-85 grades, 116

Governiment air services. 148-149 improvement of operating efficiency,Government buildings, investment in, 233 461Government employees. 604-5 increased utilization of. 462Government expenditures, 50. 59S-99, 604 integrated network of, 126Governlmenit income, 604 maintenance of, 118, 452. 461, 463Government securities rates. 164-5

compulsory holding requirements, 300 width of, 116open market in, 568 Hogs and pork, 362, 363. 366. 368. 381private trading in, 300 Home care programs, 503

Grace, W. R. & Companiy, traffic hlandling Home vegetable gardens. 382-83reports, 130 Homes for the aged, 194

Grades andl standards for farm prod- Honda river traffic. 133nicts, 396 wagarehose 137rtafi,3

Grain elevator, 78 waHepouse, 137Grain storage program, 397, 402 per eapita, 10Gran Colombiana Line. 127, 473 capacity of maclimes. 518Grayson., Gor-don, xii, xiii per or 15, 88, 96, 517-8Greater Colombian Merchant Fleet. 127 Hpitar ls 51 00 96 517-8Gross national product. 22-23, 26. 46. S8. capital expenditures for. 513

596, 598-99, 601. 604 , ranits for, by FFMI, 227Gnaduas Formation, 72 mainitenianice costs, 195, 507, 509Guatemala, death rate, 5. 174 need for beds, 506-9Guaviare River. 132 number of beds in, 192-4Guiiiea grass, .31 ervice areas. 507-8

HousingH ability to pay for. 234-5

accommodations, 535Hainabergli, Augusto, xiv agency suggested. 536-7Health concditionis, 233-4

centers, 189, 510-3. 593 cooperatives, 236e(lucationi, 501-2 finaiicing of, 235-6. 536-7physical factors affectinig. 168-171 Institute. 386services and municipalities. 494 institutions. sources of reveniue. 536visitors, 196 lowv-cost. 593-5. 614and welfare. 168-207. 492-513 minimum, 537-8

Hearings procedure, 148 and municipalities. 239-40Helper service, 443: see olso Railroads overcrowding in, 169High cost constructioni finaniced throughl promotion bv enterprises of specified

commercial banks, 536 capitalization. 239

630 INDEX

requirements for, 535 prices of, 318typical, 7-8 quotas, 327-8for various income groups, 235 taxes levied on, 119see also Dwellings total, 10

Huila transportation rates for, 139per capita expenditures, 272 unavailability of, 289distribution of physicians, 197 Impuesto predial, 281erosion in, 72 Incomeexpenditures, 254 average, 7, 9, 25, 234Fondo de Fomento Municipal, 228 per capita, 28funded debt, 286 distribution of, 20, 596generating facilities, 213 distribution of, and inflation, 294-5hospital beds, number of, 193 groups, 34-5malaria deaths, 180 levels, 234miscellaneous referenices, 7, 73, 381 percentage available for housing, 235municipal expenditures, 275 Income taxmunicipal personnel, 277 exemptions, 257primary school construction, 245 rates, 257, 260-61, 551-53public primary schools, 244 repeal of salary exemption, 551truck traffic flow, 122 returns, concentration of, 262-63

Hydraulic units, 521 yield, 257, 305, 553, 606Hydroelectric centrales, 214, 520, 533 India grass, 381Hydroelectric resources, 4, 436 Indian stock, SHydrogen production, electrolytic proc- Indirect taxes, 262-63, 305, 554-55, 606

ess for, 96 Industrial census, 87, 408Hygiene Industrial demand for power, 516-18; see

per capita expenditures for, 271-2 also Electric powerpersonal, 501 Industrial Development Institute, 56

Hygiene, Ministry of Industrial equipmentbudget of, 187-8 electrically powered, 95-6employees of, by salarv levels, 201 utilization of, 97functions of, 186 Industrial productionmiscellaneous references, 177, 182, 184, raw materials for, 88-9

198, 216, 225, 418, 494, 498, 503, 506, series on, 342510, 511, 523, 525 value of, 88-9

organization of, 185 volume of, 88, 95personnel employed in, 189 Industrial products, demand for, 409

Hygienist Career, 497 Industrial research, 406-7Industrial training, 250, 546-47; see also

Vocational educationI Industry

Ibagu6 capital and reserves, 88growth of, 208 characteristics of, 91-9incomiie and expenditures, 274 concentration of, 88transportation rates to and from, 139 credit to, 301-2

Ibaguc-Armenia highway, 102, 122, 454 employment in, 33Ibague-Armenia link, 102, 119, 343, 448 expansion of, 94, 409Ibague-Armenia Railroad, 453-455 and fuels, 87-99, 404-39Icollantas tire plant, 414 historical development, 87Icopesca fishing company, 79 importance of, 407-8Illiteracy, 241, 543, 544, 614; sce also management of, 92

Education supervision in, 92Immigration, 172 taxes on, 565-6Immunization, 499, 502 Infalnt mortality, 5Imports Infante, Jorge, xiv

capital, 40 Infectious diseases, 499and capital formation, 612 Inflationcontrols on, 324 and availability of imports, 51duties on, 606 and budget deficits, 306and exchange taxes, 327 causes of, 287-94illegal, 333 contribution of government finance to,merchandise, 40 305-7overvaluation of, 324, 333 effects of, 294-95percentage distribution by source, 313 and exchange rates, 338

INDEX 631

international aspects of, 293-94 Iron oreand long-term financing, 573-74 deposits, 427miscellaneous references, 17, 550, 596-97 phosphorus content of, 424

Inland waterway system, 100, 103, 132-38, reduction of, at Paz de Rio, 424468 silica content of, 424

In-plant training courses, 405 Iron and steel, 417-28, 437; see also SteelInsect control, 86 Irrigation, 73-74, 371, 373, 378, 391-93,Insecticides, 396 401-2Insects and rodents, 170-171 Italy, 334In-service training program for tax per- Iturraspe, Jorge E., n. 172

sonnel, 556Institute of Inter-American Affairs, 188, J

198, 496 jpi,selidsr n 2Institute of Nutrition, 81, 183, 500-1 Johns-tlanvindsr 415Institute for Parcelization and Coniza- Johns- Wilfred, xiii

tion of Land, 63-64, 386, 388, Joint foreign-Colombiaii enterprises, 580Institutc of Social Security, 206 Junkers U-34, 162Institute of Water Utilization and Elec- JurisdictioUs, conflicting1 345

trical Development, 74, n. 211, 214,224, 231, n. 519, 521 K

Instituto de Credito Territorial, 53, 57-58,69, 75, 81, 236-37, 240, 388, 422, 536, Kellogg Foundation, 496575 Kemmerer's Budget Law, 267-270

Instituto Geografico Militar y Catastral, Kerosene, 430, 433n. 72, 82, 281, 385, 393 Kilowatts per worker, 518

lInstituto Nacional de Abastecimientos, Knecht, Herman D., n. 10977, 334, 395 Koppers Company, 419, 420

Instituto Nacional de Aprovechamiento Kunze, Royce, n. 482de Aguas y Fomento Electrico, 81 Kuznets, Simon, n. 355

Instituto de Parcelaciones, Colonizaci6ony Defensa Forestal, 75, 81 L

Insurance companies, 56 1 abor force, distribution of, 30-31, 33Insurance costs and transport, 102, 471 Labor in foreign-owned industries, 321Integrated logging operations, 416 Labor productivity; see ProductivityIntegrated steel plant, 419, 421; see also La Dorada, 4, 107, 133, 137, 398

Steel La Dorada Railroad, 105Intendencias La Falua, 449

distribution of physicians, 197 La Guajira, air transportation to, 149malaria deaths, 180 Land

Intendencias and comisarias best practicable use of, 393Fondo de Fomento Municipal, 228 development and reforestation of, 402hospital beds, number of, 193 ownership, 384primary school construction, 245 policy, 63-4

Intensive farming, 384, 389; and progres- taxes, 84sive tax rates, 386 use and taxation, 384-7

Interest rates, 59-60, 323, 388, 536 use and tenure, 61-4Intergovernmental loans, 322-23 use of, uneconomic and paradoxical,Internal debt, 283 383-4International Bank for Reconstruction Landa, Ruiz, n. 61

and Development, v, ix, xi, xv, 22, Landing fees, 161-62, 477, 478311, 322 Landings and takeoffs, number of, 157-

International economic position, 18, 309- 58, 160340 Lands, Division of, 85

Interniationial indebtedness and invest- LANSA, 142, 147, 150, 152-54, 163, 487ment, 319-24 LATCO, 142, 150, 163, 166

International Monetary Fund, xv, 311, Leather, 311, 413, 437317, 577 Lebrija power development project, 214

Intestinal infections, 179-181 Lemonite ore, 424Inventory policy, 406 Leprosaria, 501Investment program, 593-95, 597; see also Leprosy, 182, 501, 513

Capital; Capital formation Libano flour mill, 79Investments abroacd, 324 Licensing of imports and exports, 309Ipiales national airport, 161 Life expectancy, 5, 171

632 INDEX

L-imestonie, 427 Magdalena Railroad, 105, 116Limited markets for industry, 93 Magdalena RiverLineas Aereas Nacionales. S.A., 142 average annual traffic. 133Lineas Aereas Transatlanticas Colom- channiel stabilization, 133-4, 136, 471-2

bianas. Ltd., 142 deterioration of channel, 130Liquors, 408 elimination of route disability, 448-53Literacv, 8 and erosion, 72Lithosols, 72 freight charges, 136-7, 469l ivestock, 62; breeding of. 71, 86 and inland waterway system, 132-4, 468Load factor, 97-98, 213, 516 labor practices, 469-70Loading and unloading charges, 137 miscellaneous references, 102. 104, 110,TLoam soils. 72; see also Soils 115, 158. 179Loan finance operating costs and rates. 135-137

for developmental purposes, 269 public service fleet, 134-5for extra-bud-etary expenditures. 268-9 towboats, 135-6for self-liquidating programs, 557-8 Magdalena River Railroad, proposed,

Loan rates, 59-60 450, 452, 454, 456, 457, 472. 474Local governments; sec -Municipalities Magdalena Valley, 3, 4. 7, 62, 106, 171,Location, handicap of, to industry, 93-94 379, 392, 398, 401, 416, 443, 465, 520Lockheed Constellation, 167, 486 Mahogany, 416ILocomotives Major crops, 62

assigned to individual engineers, 113 Malaria, 171, 179-80, 187, 498-9different types of, 110 Malayan raw rubber, 414general repairs, time required for, 111 Mamonal Refinery. 432-3

Iorenzana, Jose Camacho; see Camacho- Management in industry, 405-6Lorenzana, Jose Manizales

1.os Frios, 449 birth rate, 172Lotteries, 273 daily landings and takeoffs, 158Low cost housing, 58, 539 death rate, 5, 173Lozano, Norberto Solano. xiv electric rates, 223Lubricants, 432 growth of, 208Lumber, 90, 416, 437 income and expenditures, 2741Luxury goods market, 219

excise taxes on, 554 municipal debt, 286illegal imports of, 333 power development, 214import licenses for. 327 slaughter house, 220

street paving, cleaning and wvaste col-

M lection, 221transportation rates, to and from, 139

McClov, John, xv utility rates, 222McGra`w-Hill estimates of demand for Manpower

refined products, 430 abundant item in production, 358Machinie tools for railroad repairs, 446 effect of health problems oni, 492Alachinerv and apparatus, 330 growth in, 608Magaiigue, .Magdalena river traffic, 133 resources, 16Magdalena shift of, 407

agricultural experiment station, 85 Manirique, Jorge Boshell, xivper capita expenditures, 272 Manufacturing output, 10cattle in, 381 Marginal and development areas, 479coffee lands in, 369 Marketingdepressed area, 35 of farm products, 396-8distribution of physicians, 197 news reporting system, 396expenditures, 254 Markups, trade, as percentage of c.i.f.Fondo de Fomento Municipal, 228 cost, 38generating facilities, 213 Marshall-Moorman Development Comi-hog production, 381 pany, xiiihospital beds, number of, 193 Martin-202, 167malaria deaths, 180 Martiniez, Raul Varela, n. 70municipal expenditures, 275 Mass education, means of, 544municipal personnel, 277 Meatprimary school construction, 245 handling, 219-20public primary schools, 244 inspection of, 496thermal electric plants, 210 processing, 170truck traffic flow, 122 Mechanical cotton picker, 379

INDEX 633

\Iechanization Minister of Hygiene, 58in agriculture, 63, 394-5 Mlinister of Industry and Commerce, 58of loading and unloading, 443, 469 MIinister of Labor, 58problems, 70 Minister of Public Works, 58, 441

\Iedellin Ainisterio de Agricultura y Ganaderia,agricultural college, 67 n. 62agricultural experiment stationi, 85 MXinor exports, stimulation of, 326airport, 159, 485 MIodel systems of accountkeeping, 556birth rate, 5, 172 Molina, Jose M., n. 72-Bogota highway, 464-5, 467 Monetary control, 303-4concelntrationi of industry, 88 Monetary and credit policy, 295-304concelntratioln of traffic, 122 Monetary and exchange policy, 577dlaily landings and takeoffs, 158 Monietary system, 550DC-4 equipment handled at, 164 Mfoney, banking and capital markets,death rate, 5, 173 567-576electric ranges, n. 519 Money supplyelectric rates, 98, 223 annual increase of, 292generating capacity, 212 control of, 572growtlh of, 208 expansion of, 288-89, 569hospital center, 507-8 sources of increase, 290-93hiousing, 240 oio ivr45income and expenditures, 274 Mlonteria, growth of, 208miscellaneous references, 100, 102, 140 Motitoyan Jua, Antonio, xiii

252, 390, 417, 425, 48 4, 524Moty,JaAnni,ximiotor truck rates to anid fromn, 126 Mortality cauises, 174, 176municipal debt, 286 Mortality rates of differe7t age groups,ore reduction at, 427 174-175power developmenit, 214 Mortgage credit, 303roundhouse facilities, 446 Mortgage guarantees, 539slaughterhouse, 220 Mortgage loans, 55, 57steel plant, 57 Motor truck rates, 126storage facilities, 78 Motor vehicle registration fee, 365street paving, cleaning and waste col- Mouiitin, Joseph W, xiii

lection, 221 -Multilateral trade, 309, 581telephones in, 219 Municipal Development Agency, pro-transportationi rates to and from, 139 posed, 531-32, 534, 564, 566typhoid cases in, 169 Municipal Development Fund, 58, 199,-Turbo hiighway, 465, 467-8 215, 216-17, 226-30, 243, 279, 531utility rates, 222 MIunicipalities

Medical benefits, 207 administrative machinery, 530Medical care, 9, 184, 195-202, 502-3, 545 assistance for development of, 530-32Medical personnel, public employment of, average income of, 224

511 budgets of. 274Mental hospitals. 194, 507, 509 cost of governnment, 276Merclhanidise exports, 312, 314 debt of, 286Meta, truck traffic flow, 123 departmental aid to, 278Meta River, 132. 473 expen(litures, 275Metallic manufactures, 330 expenditures for debt service, 2S6Mexico fiscal situation of, 561-66

birth rate, 5, 171, 173 functiolns of, 276-77death rate, 5, 174 growth of, 208death rates by age groups, 175 housing in, 239-40death rates by causes, 176 income from property and( services,population, 172 278, 280

Migone, Raul C., n. 172 markets in, 396-97Military expenditures, 255-56 national aid to, 226, 562-64Milk, 170, 363, 366. 368, 382 personnel of, by departments, 277Miller, Sherman F., n. 109 relations Nvith departments and nationalMineral water, 412, 437 government, 346, 590-91Minifundia, problem of, 63 revenues of, 274, 276-82, 565-66Minimum health standards, 493 revenues of, by size of revenues, 276Miniimum water requirements, 523-25 tax receipts earmarked for housing, 239Milnister of Education, 58 taxes of, 278, 280-81, 565-66MIinister of Finance, 58, 573 Musgrave, Richard A., xiii, xxxviii

634 INDEX

N personnel by functional groups, 348personnel by salary classifications, 348

Nare River, 452 relation of, to departmental and mumii-N\Tariflo cipal governments, 346

average departmental salary, 349 reorganization of, 589-90average income, 9 revenues of, 259, 561per capita expenditures, 272 National highways, 116, 119-20; see alsodepressed area, 35 Highwaysdistribution of physicians, 197 National incomeexpenditures, 254 per capita, 25Fondo de Fomento MIunicipal, 228 contribution of industry to, 407funded debt, 286 at current and 1947 prices, 27generating facilities, 213 by economic sectors, 601hospital beds, number of, 193 growth of, 25-9malaria deaths, 180 and money supply, 289-90miscellaneous references, 4, 9, 63, 83, projection of, 602

129, 187, 190, 196, 276, 374, 613 series on, 341, 586municipal expenditures. 275 sources of, 29-33municipal personnel, 277 National Institute of Water Utilizationparcelization of land, 63 and Electrical Development: see In-physicians per population, 196 stitute of, etc.primary school construction, 245 National Livestock Bank, 77public health organization, 190, 191 National-local financial relationships,public primary schools, 244 rationalization of, 561-4; see alsosoil in, 72 Municipalitiestruck traffic flow, 123 National lottery, 564wheat in, 374 National Navigation Company, 131-2

Narifio Railroad, 105, 116, 458 National Planning Association, U.S., 592National accounts National Port Autlhority, proposed, 470,

composition of, 601-4 471computation of, 22-4 National power network, 214, 520-21 ; secprojection of, 603 also Electric power

National Airport Fund. 161-2 National Railways, 106, 115-16. 119, 419,National airports, 161, 485 441, 443, 454, 458National budget, 255, 306, 557-61 see National Resources Planning Board,

also Budget U.S., 585National Bureau of Economic Reseatch, National School Fund, 227, 229, 230. 243,

U. S., 22 249; see also EducationNational Coffee Federation; see Coffee National School of Hygiene, 189

Growers' Federation National School of Nursing, 188-9, 198National Cotton Institute, 81 National Securitv Resources Board,National Council for Railways, 470 U.S., 585National Council of Transportation, 154, National Treasury

440, 480-1 contributions from, to municipalities,National Counicil of Ways of Communica- 279

tion, 119 grants from, 230-1, 562-3National debt National University, 67. 253

absorption of, 307-8 Natural resources, 13-14, 357-59, 613-14changes in, 306 Navigable rivers, 100andl gross national product, 307 Navigation, Directorate of, 127interest pavments on, and national in- Navigation and Ports. Department of, 470

come, 307 Negro stock, 5interest rates on, 284 Neivatvpes of, 282-84 airport, 161

National expenditures, development of, electric rates, 223305-7 Netherlands, bilateral agreemenit wvith,

National Federation of Coffee Growers; 334see Coffee Growers' Federation Night flying, 166, 482-84, 486-88: see also

Nationial Food Supply Institute, 397 Air transportN ational Government Nitrogen, 395, 434-35

balanced financial system, 563 Nordeste Railroad, 105, 108, 110, 116, 445credit to, 296-300 Normal colleges, 390domestic debt of, 284 Normal schools, 247, 248, 249, 548-49expenditures of, 255-56 Norte Railroad, 445, 448, 449, 450, 452

INDEX 635

Section No. 1, 105, 108, 116, 457, 458 agricultural experiment station, 85Section No. 2, 105, 108, 110, 116 growth of, 208

Norte de Santander income and expenditures, 274per capita expenditures, 272 Pan-American Hlighway, 118, 468per capita expenditures on hygiene, 271 Pan American Sanitary Bureau, xv, 496distribution of physicians, 197 Panama Canal, 434, 473exTenditures, 254 Pancla, 361, 362, 363, 366, 368, 371,Fondo de Fomento Municipal, 228 397-8funded debt, 286 Paragrass, 381generating facilities, 213 Paratyphoid fever, 179hospital beds, number of, 193 Parcelization of land, 63municipal expenditures, 275 Passengermunicipal personnel, 277 equipment, 114primary school construction, 245 increase in, and freight traffic, 453public primary schools, 244 rates. 115, 153truck traffic flow, 123 revenue, 149-50, 165

Nova Scotia, 389 train, average speed of, 112Nuclear school system, 544; sce also Edu- Pasteurization of milk, 170, 496

cation Pasto, 72, 208, 507-8Nurses, 196, 198-99 PasturesNursing Practice Act, 198-199 acreage in, 62Nutrition improvement of. 380-1

deficiencies in, 183-184 returns from, 63disorders caused by lack of, 492 Patrimony tax, 257, 258instruction in, 500-1, 544 Payload limitations, 164, 166, 443level of, 364 Payroll taxes and social security, 505reouirements for, 364 Paz de Rio project, 57, 420, 422, 575;

Nuttritional edema, 184 see also SteelPension system, 447

a Pereiraairport, 159

Ocean shipping, 473 growth of, 208Office of Administrative Management, income and expenditures, 274

U.S., 588 municipal debt, 286Office of Exchange Control, 82, 310, 316, P6rez, President Mariano Ospiina, ix, xi,

320, 327, 328, 329, 331, 332, 334, 578, xv579 Personal income

Oil extraction, industrialization of, 412 distribution of, 33-6Olaya-Salgar pipeline, 459 estimate of, 24Old ape insurance program, 207 higlher taxation of, 552-3One-crop farming, 71; see also Agricul- Personal savings, 24, 49, 575

ture PersonnelOpen hearth furnaces, 426; see also Steel government, 591Open market in government debt, 299, improvement of. 584

570 Persons per dwelling, 232Organization and planning, 16-18; see Peru

also Public administration average income, 25Orinoco River, 4, 118, 131, 473 population, 172Orphanages, 194 PesoOutput, growth in volume of, 407 buying power of, 337Overcrowding in houses, 234; see also depreciation of, 324

Housing external value of, 582overvaluation of, 326

p stability of, 550Pesticides, 396

Pacho, production of pig iron in, 417 PetroleumPacific Coast. 3, 61, 79, 179, 182, 190, 427 exploration, 336Pacifico Railroad, 6, 105, 109, 110, 111, exports of, 4, 18, 309

113, 115, 116, 445, 448, 450, 456, 460 foreign investment in, 580Packing plant, 79 investment in, 437Paints and resins. 415 miscellaneous references, 320, 408Pajarita cacao, 377 price indices for, 318Paliira production and consumption of refined,

agricultural college, 67, 390 428

636 INDEX

proven reserves, 432 basic sources of, 359refining facilities, 90, 430, 432-34, 460 per capita, 211

Petroleum companies consumption of, 212, 515capital imports bv, 315 demand for, 212transfers of foreign exchanige, 310-2 development projects, 214wxithdrawing from Colombia, 315 facilities, character and location, 520-21

Petroleum products, 428-34 generating capacity, 96demand for, 430 increase in installed capacitv, 515demand for, estimated by McGrawv- requirements for, 214

Hill, 430 use of, 211Petroleum refinery, 87, 140 sec also Electric powerPharmaceuticals, 415 Prefabricated houses, 537Phosphorus, 395 President, Executive Office of the,PhysiciaIIs, 196-197, 496 343-45, 584-89, 609Pieceworlk wages, 95, 405, 447 Preventive medicine, 498, 504Pig iron production, 417 Prevision Social, 236Pilferage losses, 102, 126 PricesPipe, 418 indices of, 602Pipelines inflation of, 288-9

capital investment in, 475 maintenance of, 293, 595-8capital requirements for, 460 measures to reduce, 404-7for crude petroleum, 138 series on, 586economic utility and cost of, 140, 459-60 Prieto, Joaquin, xivfor gasoline and refined products, Primary education

138, 140 average salary of public school teachers,miscellaneous referenlces, 100, 434 246-47for "white products", 140 enrollment in public schools, 242

Plan Quinquenal de Fomento Agricola; facilities for, 545-46sce Agriculture, five-year plan for improvement of, 543-46

Planes, utilization of, 163 need for, 389Plaining and administration private schools, 242

improvement of, 584 pupils per room in public schools, 243-44organfization for, 341-349 school construction program for, 245,

see also Public adminiistrationi 545Plannling agency, 588: see also Resources size and enrollment of public schools,

Planning Agency, proposed 244Plant and equipment expenditures, 37, 409 teachers, number of, 243Plcitano, 62, 363, 372, 375 teachers, training of, 246Platinum, 311 Private borrowers, bankc lending to, 293;Police, 591 see also CreditPolo, Jorge Pena, xiv Private capital formation, 294, 595. 600Popayan Private contractors, loans to, 388-89

airport, 161 Privies, 231, 525, 526electric rates, 223 Producers' goods, 19-20internial debt, 286 Productioiipower development. 520 capacity, 408slaughterhouse, 220 costs and pr-ices, 93

Population goals, 360-61age distribution of, 241. 243 loans, 75estimates of, 5, 193, 197, 208. 211 targets for 1955. 366increase in. 28, 172, 232, 358 Productivityoptimum size. 358 per capita, 13-18rural, 14, 208-9. 608 of farmers, 63. 71, 363urban, 14. 208-9, 608 health requisite to, 359

Port facilities, 127-31, 470-71. 475 increased by education, 543-44Postal savings systetn, use of, 53 increases in. 353-54, 359, 407, 601, 614Potassium, 395 indices of, 602Potatoes, 62, 361, 362, 363, 366, 368, 372, in inidustry, 91-92, 404-5

375-77 oni railroads, 112, 442Poultry and eggs, 382 per worker, 95Powdered milk plant, 79 Professional and scientific personnel, 184Power Profit-to-capital ratio, 262

availability for industrial purposes, Program517-18 and capital formation, 593

INDEX 637

fiscal aspects of, 604 Puerto Rico, n. 358implementation of, 593-615 Puerto Salgar, 133, 137, 459magnitude and composition of, 593-95 Puerto Wilchesnature of, 353-59 Magdalena river traffic, 133need for a comprehensive and ilnteg- navigation soutlh of, 133, 448

rated, 355-56 warehouse, 137objectives and emphasis, 353-55, 614-15 Purchasing power, 93physical limitations of, 608 Putumayo River, 117, 132, 473of projected investment. 594-95

Progressive tax rates, 262, 385-86 QProjected income and expenditures, 604Property tax, 258 Quibd6, 484Property tax assessment, 262, 266 Qulndio, 73Prostitution, 182 Quota allocations, 327-329Providencia, air transportation to, 149Public administration R

concentration of responsibility. 589 Racial composition, 5organization for, 16-18, 341, 345-47 Radio, 478, 544reforms in, 584-92 Railroad Administrative Council, 129

see also Government agencies; Na- Railroadstional Government abandonment of, 458-59

Public Administration Mission, 400, 442, administration of, 107-109, 441-42530, 563, 584, 590, 613 capital investment in, 475

Public capital formation, 595, 600 concessions, 107Public debt clescription of, 104-6

funded debt, 283-86 employee productivity, 113interest payments on, 256 equipment, 110investment in, 575 extensions and changes of. 448-59open market for, 308, 574-76 gauge standardization, 108

Public expenditures high cost of transportation, 115and gross national product, 304-5 integration of, 108-109growtth of, 304-8 isolated lines, 106

Public finance, 255-86, 305-8 maintenance of way and structures,Public health 109, 445

estimated number of personiel. and manual block system, 112, 443annual expenditures for, 511-12 nationalization of, 107

organization, 184, 190, 493-95 network of, 105personnel practices, 199, 200, 498 operating practices, 111-12personnel requirements, 496-98 payload on, 110services, 184-192 pension system, 114specialists. 198 replacement of rails, 445training of workers, 497 safety problems of, 443turnover of personnel. 200-2 schedules, unreliability of, 114

Public Health Service. U. S.. 496 shop facilities, centralization of, 445Public markets, 170, 219, 527, 532 state-owned, operated by corporation,Public opinion, 592 589Public personnel Railway Mission. U.S., 109, 443, 445

average salaries of. 256, 347. 349 Raw materials, 91, 404, 407dismissals for political reasons, 346 Rayon, 410low pay, 346 Rayon industry, consumption of electricsecuritv of tenure, 346, 349 power, 96turnlover of, 347, 349 Rayon pulp, 410

Public Railways Corporation, proposed, Rayon textiles, investment in, 437441-42 Real property tax

Public service generating facilities, 211, adjustment in average rate, 566213; see also Electric powver normal rate, 281

Public utilities. 222-231, 522, 529-30; Reassessment of property values. 281, 565sce also Communitv facilities Recio River Project, 74

Public welfare, 202-3, 502-3 Reclamation, 74Public works expenditures, 255-56 Rediscounts, 296-99, 300, 567, 570-71Public Works, Ministry of, 107, 118, 119, Refining facilities; see Petroleum

124, 127, 146-47, 462, 471, 480 Reforestation, 393Puerto Berrio, 7, 133, 137, 434 Refrigeration, 496Puerto Olaya, 459 Regional power networks, 520

638 INDEX

Regional specialization, 364; see also inspectors, 200-201Economic zones laboratory technicians, 200-201

Reinforcing rod, 417, 418 nurses, 200-201Remission of earnings, 330, 578 physicians, 200-201Rent, outlays for, 235 tax personnel, 555Reorganization of government, 589-90 teachers, 548-49Representatives, House of, 343 Saldana Irrigation Project, 73, 379, 392Research and statistics, 398-400 Salt, 4, 412Reserve fund for social security, adminis- Salt Administration, 412

tration of, 505-6 Salto Nuevo power development project,Reserve funds, sources and uses of, 297-98 214Reserves of commercial banks, 296-99, Salvador, birth rate, 173

567-70 SAM, 142, 150, 163Resources Planning Agency, proposed, San Andres, transportation to, 132, 149,

586-87, 609 473Retirement pay, 95 San Jorge Valley, 4, 377, 379, 398Revaluation of farm lands, 385 San Juan de Dios Hospital, 204Revenue code, 556 Sanitation, 199, 495-96Revenues Santa Marta

earmarking of, 560 coastwise freight movements, 132estimates of, 267, 269 growth of, 208and financing of ordinary expenditures, international traffic, 104

558-59 national airport, 161formula for estimates of, 269, 559 port facilities, 117, 127-129, 161projected, 605 Santandersources of, 563-64 per capita expenditures, 272structure of, 256-59 depressed area, 423

Rice, 62, 78, 361, 362, 363, 366, 368, distribution of physicians, 197

3R2-73 expenditures, 254Rio Grande power development external and internal debt, 285-86

project, 214 Fondo de Fomento MIunicipal, 228Rio Hacha coastwise freight movements, generating facilities, 213

132 hospital beds, number of, 193River and port improvement projects, malaria deaths, 180

471-73 miscellaneous references, 63, 83, 187,Road construction and maintenance, 119, 210, 382, 613

463; see also Highxvays municipal expenditures, 275Rockefeller Foundation, 86, 189, 198, 496 Inunicipal personnel, 277Rodriguez, Justo Diaz, n. 6 parcelization of land, 63Rolling stock primary school construction, 245

better use of, 457 public primary schools, 244improved types of, 443 tobacco production in. 380maintenance of, 474 truck traffic flow, 123standardization of, 446 Santander del Norte, 180, 38J

Roofing material, 415 SavintRoosevelt, President, 585. 587 aviual volnme of, 357Roundhouse facilities, 446; see also forced, 294

Railroads and gross natioisal product, 596Rubber shoe industry, 411 and investment, 48Rubber tires. 87, 407, 413-15 and public debt. 575Rinmral dwellings voluntary and forced, 356

imVeStl-nent in, 233 Savings and investment institutions, 51-59replacements needed, 535 SCADTA, 142, 156

Rural education, 66-68, 389-91 Sc 1 S JRural health and nutrition, 69 average cost of construction, 545-46Rural housing, 68-69, 537-38 buses for, 544Rural income, 29-31 fbuse I rt, 543Rural industries, 79 facilIties,54Rural populatrion, 6,646 grants for, by FFM, 227Rural population, 6, 64-65 resources for construction, 243, 245

see also EducationS Scotch whiskey, 333

SAETA, 142, 150, 163 Seaports, 127, 128Salary levels Secondary education

dentists, 200-201 enrollusienit for, 248

INDEX 639

expansion of schools for, 547 conditions of, 61facilities for, 248 conservation of, 72-73, 393-94investment necessary for school build- crops for improvement of, 371

ings, 548 Soledad airport, 476number of schools, 246 South America, exports to and imports

Secondary and university training, 547-48 from, 313Seed practices, 71 Specialization of labor, 355Self-liquidating public services, 267-68 Stabilization Fund, 56Self-sufficiency Stamp tax, 263

in agricultural commodities, 83 Standard of living, 6-10, 11-21, 65-69,national, 336-37 353-55, 357, 359, 360, 615

Semi-manufactures, unit value index, Standardization of equipment and gauge,318-19 446; see also Railroads

Semi-trailer equipment, 464; see also Standards for common carrier airlines,Highways 148

Sepiate, 343 Standby capacity, 97Septic tanks, 525 State, Department of, U.S., n. 10Servicio Cooperativo Inter-Americano de Statistical data, need for, 341, 398-99, 584,

Salud Publica, 187 591-92Sesame, 378 SteelSeverance pay, 9, 95, 206 domestic financing for production, 422Sevilla, housing in, 240 estimated profitability of operations, 423Sewer facilities fabricating facilities, 87, 419, 426-28

capital requirements for, 525-26, 532 industrv at Barranquilla, 426construction program for, 216-17, 525-26 ingots, a417, 427, 4a i

disposal systemFs,E 227 market survey of products, 418-19

treatment plants, 216, 217, 526 pipe requirements, 418-19tre n pla , 259160 pricing of mill products, 423Share yields, - products, demand for, 418

Sheep anid goats, 382Shipping Conference, 331 products from European mills, 423Shoes, 4, 411, 437 rails, 418Short-term credit, 51 unit cost of production, 423Silverware, 87 Sterling bonds, 322Simon, Farrar, n. 482 Sternwheel vs. propeller-type vessels,Sincelejo, shortage of water in, 74 comparative operating costs, 136Sintering plant, 424 Stevedoring services, 469Sinu River, 131-32 Stock exchange, 55Sinui Valley, 4, 63, 378, 384, 398, 520 Stock ponds, 392Sisga flood control project, 74 StorageSix-hour shifts, 405 facilities, 77-78Skilled labor, lack of, 121 of farm products, 396-98Slaughterhouses, 170, 219-20, 527, 532 and price fluctuations, 397Smallpox, 499 Storage and Preservation of Grains Con-Smith, Adanm, 550 ference, 78Smith, Raymond C, xiii Stream pollution, 526Snith, T. Lynn, n. 6 StreetsSmugglinlg 325, 581-82 capital requirements for, 532Soap, production of, 413 cleaninlg, 220-21, 528Social security, 95, 206-7, 503-6 drainage, 216Social Security Act of 1946, 206 paving of, 220-21, 528Social Security Board, 506 projected expenditures for, 221Social Security Institute, 192 Suarez River, 449Social workers, lack of, 502 Sugar, 4, 62, 87, 361, 362, 363, 366, 368,Sociedad Aerea de Tolima, S.A. 142 370-71, 407, 412, 437Sociedad Aeronautica Medellin, S.A., 142 Sugar Distributing Company, 82Sociedad Colombo-Alemana de Trans- Sugar industry, consumption of electric

portes Aereo, 142 power, 96Soda ash, 87, 89, 415 Sulphuric acid, 89, 415Soderlund, Dorothy, xiii Superintendencia de Cooperativas, 240;Soft drinks, 407, 412 see also CooperativesSogamoso, 420 Superintendent of banks, 55, 295, 300, 573Soils Sur Railroad, 108

classification of, 393 Surface drainage, 526

640 INDEX

Surface transport, 100-141, 440-475; see per capita expen(litures on hygienie, 271also Highways, Inland waterway per capita expenditures, 272system, Pipelines, Railroads coffee lands in, 369

Surplus, concept of, 270 cotton in, 378Sweden, bilateral agreement witlh, 334 distribution of physicians, 197Switzerland, 384 erosion in, 72Syphilis, 181-182 expenditures, 254

Fondo de Fomento Municipal. 228T ftiifded debt, 286T generating facilities, 213

Tabio, 6-7, 8. 64-66, 68. 85, 251 hospital beds, number of, 193Taniiigcapciy,413 mialaria deaths, 180Taning capacity, 5miscellaneous references, 7. 64, 73, 106,

Tariff Comission, US., n. 61187, 237, 379, 384Tariff Conmissioii, U.S., m 61 municipal expenditures. 275Tax . municipal personnel, 277

administrationi, 265-67. 555-57 primary school constructioni, 245appeals, 266 public primarv schools, 244burden, distributioni of, 259-263 tractors in, 70on capital income, 551 truck traffic flos, 123collections, ratio of budget expenditures Tolpo, Clarenice, n. 482

to, 555-556 Ton-kilometer costs. 125declarationis. processing of, 266-67 Ton-mile costs, 110, 444inducements to efficient land use, 384-87. Topography, 3, 100

566 Topping units, 430; see also Petroleumliabilities at various levels of inicomiie Torfs, Jacques. xii, xiii, xxxviii

260-61 Toro, Emilio, xvrates, illustrative, 385 Torres, Leonel, xivreceipts, 305 Toris, 333returns, checking of, 266-67 Tourist class air service 143structure, improvements in, 551-54 Toris class ai 5erie, 143on undistributed earnings, 610 Track ballast. 109. 445: see also Railroads

Taxation and capital formatioll, 264-65. Tractorina, 433; see also Petroleum553 54 Tractors and tractor-drawn equipment,

Taxation and deficits, 305-7 Trade deficit, 316-17Teachers Trade and transport costs, 43. 44, n. 437,

avaqlability of, 547 439. 474, 475, 491, 599, 600quality of, 543, 548 Trading zones, 3-4. 100, 364-65salaries, 246)-47 Traffic surveys and estimates, 462, 465shortage of, 243, 546 Trainingsee also Education of professional personnel, 511

Technicians, 344 of social workers, 503Techo field, 484 of tax personnel, 555Telephiones, 218-19. 526-27, 532 TransportationTerminal elevators, 78 agricultural, 71, 80Terms of trade, 317-19 for cattle, 381Terrain, problems of, 100 costs, 102Territorial Credit Institute, 388; sec also estimated capital investmelnt for, 474-75

Instituto de Cr6dito Territorial improvenent of, 404Textile industry, 87. 320, 410 inadequacy of, 440Textiles, 408, 409-10 lack of unified system, 91Thermal plants, 521 : see also Electric rates per toil, 139

power regulation of, 440Ties, railroad, 109, 445 vear-round system of, 450Tiles for flooring, 415 see also Air transport; Highways; In-Timetable dispatching, 443; sce also land waterway system; Pipelines:

Railroads RailroadsTires and tubes, 413-14 Transportation Act of 1949, 119Tobacco, 4, 87, 362, 366, 368, 380, 408 Transportation and Tariffs, Division of,Tobacco Cooperative, 380 124, 147Tobacco Development Fund, 82 Trapiches, 79, 397-98Tolima Treasury Department, U.S., 587

adobe dwelling, 537-38 Triana. Concha, xivaverage income, 9 Tropical anemia, 179

INDEX 641

Tropical forcsts, 416 national income comparisons, 32Tropical Oil Company, 129, 314. 315, 320, percentage employed in agriculture, 14

580 physicians per population., 196Truck population, 172

equipment, 124 presidential assistants in, 585licensing restrictions on operations, 441 productivity of labor oni railroads, 112-maintenance, 464 113operating costs and rates, 125-26, 461 public debt, 307rates, 103 public welfare services, 203registrations, 121, 428-29 railroad rates in, n. 115volume of traffic, 121-23 reserve control in, 570

Tuberculosis, 177, 181, 187, 194, 499-500, rising prices in, 293507, 509 surplus aircraft, 142

Tulua municipal airport, 159 tax collections, ratio of buclget expetndi-Tumaco tures to, 555

coastwise freight movements, 132 technical assistance, 587international traffic, 104 telephones in, 218-Pasto, 465, 467 traininlg of Latin American students in,port facilities, 128-30 391

Tunja, 208, 484 University training, expense of. 548Turbo, coastwise freight movements, 132 Unmetered consumption of utilities, 222,"Turn" system, 133, 469; see also Inland 224

waterway system Urban dwellingsTyphoid, 179 investment in, 233Typhus fever, 192 replacements needed. 535

Urban housing, 538-39u Urban income, 29-31

Uruguay, per capita power, 212Underutilization of land, 84; tax on, 385, Utah, life of highway equipment in, 125

606, 610-11 Utility rates, 222-24, 529-30United Kingdom, 295, 333-34 Utilization coefficient, 517-18United Nations

Food and Agriculture Organization, Vxv, 78

statistical office of the, n. 172, n. 174, V acations, paid. 95, 206n. 175 Vaccination, 502

technical assistance from, 587 Valle del CaucaUnited States per capita expenditures, 272

aid programs in, 505 per capita expendcitures on hygiene, 271aircraft in commercial service, 167 coffee lands in, 369airport operational standards, 164 distribution of physicians. 197anhydrous ammonia used in, 395, 434 expenditures, 254average hospital stay, 195 Fondo de Fomento Municipal, 22Saverage income, 25 funded debt, 286birth rate, 5, 173 generating facilities, 210, 213per capita power, 212 hospital beds, number of, 193checks and balances, 343 malaria deaths, 180comparisonis with, 3, 168, 198, 319, 333, miscellaneous references, 64, 73, 140,

337, 378, 426, 585 459cotton yields in, 378 municipal expenditures. 275death rate, 173, 174 municipal personnel, 277death rates by age groups, 175 primary school construction, 245death rates by causes, 176 public primary schools, 244diseases in, 177 rice cultivation in, 373exports to and imports from, 313 sugar production in, 370flight and ground equipment from, 145 tractors in, 70gold sterilization, 568 truck traffic flow. 123governmental reorganization in, 590 Valorizacion, 281-82highway equipment, life of, in, 125 Value added in manufacturing, 88horsepower in, 10 Vegetable shortening plants. 413hospital facilities, 192 Venereal diseases, 181-182. 187, 500income tax rates, 262 Venezuelaincreases in output, 28 birth rate, 5, 173interest payments on public debt. 256 and contraband, 332

642 INDEX

dleath rate, 174 Wheat mills, consumption of electricdeath rates by age groups, 175 power, 96death rates by causes, 176 Wheat Production, Fund for Promoting,export market for textiles, 409 82exports to, 333, 581-82 White, Joseph, xiiiGran Colombiana Line, 127, 330 Whooping cough, 499

Veterinarian educational program, 67 WVindow glass, 413Veterinary medicine, college of, 252 Winston Brothers Company, estimate ofViani model community, 81 rail construction costs, 453Vila, Pablo, n. 5 Wire products, 418Villeta formation, soils of, 73 Wool Development Fund, 82Viscose yarn, 410 Woolen mill, expansion and moderniza-Vocational education, 67, 250-52, 391, 543, tion of, 410

546-47 Woolen textiles, 407, 410, 437Worker productivity; see Productivity

w Workersbenefits for, 95Walnut, 416 full-time, 31, 33War, Ministry of, 146, 147, 480 handicaps of, 92Warehouses, 137 productivity of, 404-5Wartime inflation, 287; see also Inflation urban, 9XWaste collection, 220-21, 528 see also Labor; ProductivityWaste disposal facilities, 169, 209 Wylie, Katheryn H., n. 72Water-rights laws, 74, 391Water supply y

capital requirements for, 523-24, 532construction program for, 216-217 Yaragua uribe grass, 381facilities, 215-217 Yard-gauge track, 106, 452grants for, by FFM, 227 Yarn production, 410need for. 169. 209 Yaws, 182rates, 222 Year-round navigation on Magdalenautilization of, 74, 391-93 River, 468; see also Inland waterwaywells, 74, 524-25 system; Magdalena River

Water transport and port facilities, 127- Yellow fever campaign, 18939, 468-473 Yucca-name, 62, 363, 366, 368, 372, 375

Watts per capita, 211Western Germany, bilateral agreement z

-with, 334, 580Western railroad system, 106, 448, 455-56 Zebu cattle, 86Western trunk highway, 117 Zones, trading, 3-4, 100, 364-65Wlheat, 62, 83, 86, 361, 362, 363, 366, 368, Zoning regulations, 528

373-74 Zuluaga, Jorge, xiv