W.H.-15a

RESTRICTED

rThis report is restricted to use within the Banlk.|

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

THE ECONOMY OF ECUADOR

January 21, 1954

)epartment of OperationsWestern Hemisphere

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TABLE OF CONTENTS

Page No.

BASIC DATA

GRAPHS

SUMMLARY AND CONCLUSIONS i

DOMESTIC POSITION AND PROSPECTS 1

I. Production and Income 1The Two Economies 1The Predominance of Agriculture 2Mining and Industry 4Total Output and Income 5

II. Domestic Finance 6Prices 6Money and Credit 6Public Finance - The Budget 7

EXTERNAL POSITION AND PROSPECTS :1

I. Recent Developments 11General .2Foreign Exchange Reserves 23The Exchange System 13Import and Export Licensing 13Exchange Rates 13

II. Balance of Payments Prospects i1General 1Earnings 14Bananas 4Cacao 5Coffee 15Other Products 36Future Payments 1 6Direction of Trade 17Summary of Payments and Earnings 1 7

DEVELOPMENT PROSPECTS AND CREDIXJORTHINESS 1 7

STATISTICAL APPENDIX

Table 1. External Public DebtTable 2. Forecast Service on External Public DebtTable 3. ExportsTable 4. ImportsTable 5. Distribution of Land in the SierraTable 6. Foreign Exchange ReservesTable 7. Exports, Imports, Terms of Trade, and

Capacity to ImportTable 8. Production, Export and Refining of PetroleumTable 9. Estimate of Gaaoline ConsumptionTable 10. Sources of Changes in Money SupplyTable 11. Expenditures of the Central GovernmentTable 12. Holding of Domestic BondsTable 13. Investment of Central Government and

Public Entities

MAPSCommunicationsAgricultural Production

BASIC DATA

Area 150,000 square miles

Population (1950 census) 3.2 million

Output (GNP) 1952 6,400 million sucresu. s. $4oo million$94 per capita (1952)

Trade (1952) (in US $ million)

Exports 106.6Imports 66.1

Balance 40.5

Balance of Payments(Suiplus T or Deficit -) $12.3

Foreign Exchange ReservesCentral Bank As of Dec. 31, 1952

In US $ million 39.4As % of 1952 imports 59.6%

Public Revenues (1952) (in million sucres)

Total (Central Government, AutonomousAgencies, Municipalities,Provincial Councils) 1,421,0

Central Government 454.6Expenditures (Central Government) 455.6

Internal Debt As of May 31, 1953(in millron sucres)

Total 150.8

Held by: Central Bank 68.4Institutions and Individuals 82.4

As % of National Income 3%

External Debt As of MaY 31, 1953

In US $ million 38.3As % of National Income 9.6%

ECUADORCENTRAL BANK CREDIT(MILLIONS OF SUCRES)

ASOF 0 100 200 300 400 500 600DEC. 31

TO GOENENT ITO BANKSAND OFFICIAL ENTITIESfS

I Z [ ir~~TO PUBLIC

1946

1947

1948

1949

1950

1951

1952

(A O IF OCT 51 5

1954

MONEY SUPPLY AND COST OF LIVING(INDEX, 1948 = 100)

ZOO YEARLY 200

150 -150

MONEY SUPPLY_

100 - - 100

-FOOD PRICES (Quito)

50 I I 1 11 501946 1947 1948 1949 1950 1951 1952 1953 1954

11120/53 (Aug.)Nob B25 I BRD - Economic Staff

ECUADORREVENUES AND EXPENDITURES OF THE CENTRAL GOVERNMENT(MILLIONS OF SUCRES)

600 600YEAR LY

400 400EXPENDITURES

200 200

0'40 '41 '42 '43 '44 '45 '46 '47 '48 '49 '50 '51 '52 '53

TOTAL PUBLIC REVENUES(BILLIONS OF SUCRES)

0 .5 1.0 1.5 2.0

I940

19 41

1942

1943

.... .,,, .1944

1945 ...

1946 = ...

1947 H1947 l. ~~~~...3..............r:.:-

1948 ...........

1949.....................

1950 H-I- ..s..... / ..:.

1951 W.iui 3 X/// t............. v SOCIAL SECURITY

1952 ' 1 N

1953 r t MUNICIPALITIES SOUTHERN RAILROAD1953 _ J V< PROVINCIAL COUNCILS

GOVERNMENT GOVERNMENT ANTONOMOUS ENTITIES(ORDINARY (EXTRAORDINARYBUDGET) BUDGET)

11/20/53No. 826 I BRD- Economic Staff

ECUADORTOTAL EXTERNAL TRADE(MILLIONS OF U.S. DOLLARS)

150 YEAR Lr

100 100

50 .afi _ =~~ ~~ 50,, ~~~~~~~KIMPORTS

0 - I I I l0 I I'37-'39 '47 '48 '49 '50 '51 '52 '53 '54AVERAGE

NOTE: Exports are the Foreign Exchange Receipts of the Centrol Bank

EXPORTS OF PRINCIPAL COMMODITIES(MILLIONS OF U.S. DOLLARS)

25 FrARLY I I T I I I I I I2

20 CAC2O 20

10-5 15I0 1

5 5

~-~~;BANANAS0 0 11'40 '41 '42 '43 '44 '45 '46 '47 '48 '49 '50 '51 '52 '53

PERCENTAGE DISTRIBUTION OF EXPORTS BY PRINCIPAL COMMODITIES

1917 1945 1952

~~ 41%

BNANA CCO

850%/

I 1/20/52No. 827R IBRD- Economic Staff

ECUADORBALANCE OF PAYMENTS ON CURRENT ACCOUNT(MILLIONS OF U.S. DOLLARS)

0 20 40 60 80 tOO 1201946 leEXPORTS

RECEIPTSPAYMENTS I > INV LES

1947 IMPORTS

RECEIPTSPAYMENTS

1948RECEIPTSPAYMENTS

1949

RECEIPTSPAYMENTS

1950

RECEIPTSPAYMENTS

1951'RECEIPTSPAYMENTS

1952

RECEIPTSPAYMENTS

1953RECEIPTSPAYMENTS

EXTERNAL PUBLIC DEBT SERVICE(MILLIONS OF U. S. DOLLARS)

4 4

-QUITO SAN LORENZO flY. 3 3

'~' *~ EXSTING DEBT6

o 0

1953 1955 1960 1965 1970 1975 198011/20/53No.828 IBRO - Economic Staff

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SULY2ARY AND CONCLUSIONS

DOhESTIC POSITION A3lD FPROSPMTS

General

1. E:cuador is slightly smaller in area than the State of California.

Its population.was 3., million in 1952. The country lies across theEquator between the Pacific Ocean to the west and the Amazonian jungle

to the east. The high ranges of the Andes, extending from Colombia to

the north through Peru to the south divide the country into three entirely

distinct regions: the eastern part ItEl Oriente" is covered with densetropical jungle and almost uninhabited. The population has settled in the

two remaining regions, the Andean highlands referred to as the "Sierra"and the lovw-lying coastal plains the "0Costa't.

Two Ec onomies

2, The chiaracteristic feature of the economr of Scuador is tne division

of the country into these two sharply contrasting sectors: the Sierra and

the Costa. The climate of the Sierra is teiaperate; but the region: is

overpopulated and land is scarce; except for some fertile valleys, the

soil is barren and eroded4 In the Costa the climate is tropical; and

there is lack of labor to cultivate this great expanse of fertile land,

most of it still untouched. The difficulty of cormaunications has hanpered

interchange between the two regions. Diseases fornerly widespread on the

coast, and the resistance of the Andean Lndian to change hame also pre-

vented migration from the dense population centers of the Sierra, to the

Costa.

The Predominance of Agriculture

3. In both regions agriculture is the dominant activity. The Sierra

produces for domestic consumption. Somne valleys are fertile and devotedto the production of cereals, vegetables, fruit and to dairy cattle.

Here farms are, as a rule, efficiently run, but on the high plateaus and

in the dry valleys, cultivation is inefficient and yi-elds are low thouoii

much could be done to inprove this situation through the disseminationof better knowledge.

4. On the rich soil of the Costa, plantations have specialized in

tropical products for exports: banana, cacao, coffee, rice. Cottonis also grovwn for the domestic market. Uuch of the land remains untoucheddue to the difficulty of communication but, as soon as roads are opened,possibilities for expansion will be high.

5. Mining and industry still play a minor role. Coal, sulphurr,kaolin are being, produced on a small scale in the Sierra. It thriving

pharmaceutical industry has started in Quito. Petroleun is exploitedon th-e coast, but increasing fuel consui.ption is likely to turn Ecuador

into a net importing country unless production can be expanded. The

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once flourishing handicraft industry of Panama hats is on ti decline.Cement production has increased; the establishment of a newv plant inthe Sierra should satisfy the grovring demand for some years to come.Electric nower, still lacking in many regions, will have to be expandedto cope with the growing demand.

Production and Income

6. With the rapid development of the Costa, the economy hasexpanded rapidly in the last years, but incom.e per capita is still oneof the lowest in South America. Mioreover it is unevenly distributed,and about one-third of the total population lives on a subsistencelevel. This growth in income and output in the last years has beenstimulated by external factors such as the high prices for Ecuadorianproducts in the world markets. Public finance and monetary policiesfollowved by the Ecuadorian Government have aided this grovrth.

Domestic Finance

7. Following a period of inflation fed by chronic budget deficits,prices have remained relatively stable since 19L88 In early 1953 atemporary scarcity caused by the floods pushed prices upwards; theyhave nowf declined to tihe level of mid-1952. This stability has beenmaintained oring to the cautious credit policy of the Central PanIkwhich has kept money supply wvithin the limits required for monetarystability and growth. In 1953, however, there are signs of reneewedfinancial pressures. There was a sizeable increase in money supplyin the period January - August. A furthler expansion of credit tothe Central Govrernment is expected before the end of the year tocover in art a sizeable bud-;et deficit. Once again budget deficits,ill be the elentent of instability.

8. The characteristic feature of Public Finance in Ecuador isthae dispersior. of public revenues anong a great number of separateentities. In 19_51 the Central Government received only 3b% of totalrevenues, the rest being distributed between the Mdunicipal and ProvincialCouncils, and the Autonomous Entities. The fiscal system rests heavilyupon indirect taxes, most of them derived from customs duties. A reformnow under way will bring some improvement tbcughf it will not remedy thebasic weakness of the system.

9. In 1950, 33% of government expenditures were allocated togeneral administration purposes, 24% to social services, 21% to defenseand 9% only to development; total public expenditures for developmenthave been much higher, however, since large investments have beenfinanced outside the budget by means of special taxes allocated tospecific projects. In 1950 and 1952, capital expenditures of the CentralGovernment amounted only to 20% of total public investment, wvhich rosefrom 4.2% of total output in 1950 to 6.8% in 1952.

EXTiRYNAL POSITION AINTD TPROSPECTS

10. Ecuador's balance of payments has follmoed a pattern common to

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many South American countries since the start of the Korean war. Bothexports and imports have increased steadily, leaving however a positivetrade balance, in part offset by increasing payments on account ofimvisibles, Capital movements have played only a minor role.

11. Prospects for export earnings are good, and shifting from aone crop exporter (cacao), Ecuador has shown a surprising ability todiversify its economy. Today production and exports are well-balancedbetween the three leading crops; cacao, coffee, bananas, which accountfor 75% of the total value of exports, and substantial increase in theexport of these commodities can be expected with the opening of new land.The remaining 25% is made up of a variety of products among which rice andpanama hats occupy the leading positions.

12. Import requirements vrill continue to grow but there are goodpossibilities of replacing some imports by increasing domestic production,particularly in the case of cereals. Though the present exchange systemdoes not make use of quantitative restrictLons, imports have been keptwithin reasonable limits through the use of differential exchange rates,ad valorem duties and requirement of advanced excharnge deposits.

13. Ecuador's Balance of Payments should not show much stringency inthe near future when dollar earnings should cover fully dollar payments.The possible danger would rather stem from the indirect effects upon theBalance of Payments of the government's domestic policy, as new pressureswill develop from the heavy investments of the development program.

t.EVELOPIAEIT PROSPECTS ANlD CRSDITWORTHINESS

14. Although public investments have been stepped up in the last twoyears, Ecuadbr still lacks basic fac-lities such as roads and electricity,vwhich are necessary for further development of its unutilized resources.Programs of the government for the immediate future appear ambitious. Ifcarried out, this program would strain availaable external and dormiesticresources. The country is ready to absorb foreign capital; but investmentin Ecuador should be a step by step operation in accordance with a programprepared by a coordinating body.

15. The total external debt service will average US $4.2 million in theperiod 1955-59 with a peak of US 'h.4 million in 1956. Average annual servicerepresents 3.5% of expected annual foreign exchange earnings. The twoIBRD loans nmo under active consideration for roads in the Province ofGuayas and expansion of electric powper in Quito would raise annualaverage service during the period 1954-59 tb us $5.3 million and shiftthe peak of annual service payments to US $6.0 million in 1959. The annualpayments would still be less than 5.0% of the expected annual averagevalue of exports. Thus, there would still be room for further borrowing,particularly for projects of an export generating or iraport saving type.The size of this additional margin will depend upon the domestic policiesto be followed by the government.

DOMESTIC POSITION AND PROSPECTS

I. Production and Income

1. Two main features characterize the economy of Ecuador: the exist-ence of two distinct economies corresponding to two widely different andseparate regions; the predominance of agriculture over other activities inbotn regions.

The Two Economies

2. Lying astride the Equator, between the Pacific Ocean on the westand the Amazonian jungle on the east, Ecuador is slightly smaller in areathan the State of California, and contains only half of its population.The Andes divide the country into three separate zones. The eastern part,"El Oriente," is sparsely inhabited by Amazonian Indians, living in a wildstate completely outside the economy. The Andean highlands, the "Sierra,"and the lowlying coastal plains, the "Costa, " are the only populated andeconomically active regions.

3. The Sierra and the Costa contrast sharply. Owing to the altitude,the Sierra enjoys a temperate climate but, except in the floors of the Inter-Andean valleys, land is eroded and often barren; arable land is scarce andpatches of cultivated soil hang on the steep slopes of the ranges. Theregion is overpopulated, containing two thirds of the total population;it produces only for the domestic market, and wages are low. The Costa,on the other hand, looks towards the outside world and produces tropicalproducts for export. Only narrow belts of land have been opened up alongthe means of communication, leaving large expanses of fertile land stilluntouched. There labor is lacking and the level of wages is higher.

4. Physical differences have also influenced the human outlook; theSierra with the capital Quito is traditional, while the Costa with Guayaquilas the main commercial center is more active and enterprising. The economicconsequences have sometimes been damaging. A narrow regionalism has notinfrequently led to a dispersion of resources, with investments of a localcharacter and of low productivity.

5. Sociological, institutional and physical factors have obstructedinterchange and migration between the two regions. The culture of the AndeanIndian resists change. Although able to assimilate new techniques, theIndian clings to tradition, to ancient customs and, above all, to the land.A feudal land tenure system strengthens the attachment of the peasant tothe soil and makes migration extremely difficult. Physical obstacles havealso been great. For a long time the Costa was almost uninhabited. Until1913, when the Panama Canal was opened, Ecuador was remote from Europeanand Eastern-American markets and European migration. Moreover, disease,especially the malaria and yellow fever, formerly widesp-read on the coast,effectively blocked human settlement. Only recently has it been broughtsuccessfully under control. The difficulty of inland communication stillremains as an obstacle, Ecuador has approximately 3,900 km of main roads,

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but there are no all-weather roads between the Sierra and the Costa. Therailroad from Quito to Guayaquil is the only effective land transportationlinking the two regions.

The Predominance of Agriculture

6. Both. in the Sierra and in the Costa, agriculture is the dominantactivity. ILining and industry play only a minor role. The two regionshave, however, specialized in very different types of agricultural produc-tion: the Sierra produces wheat, barley, potatoes and dairy products. Theeconomy of the coast at present rests upon the three main export crops tf cacao,coffee and bananas.. IMoreover, while agricultural production in the Sierra hasremained almost stagnant, the Costa is expanding and diversifying itsproduction.

The Costa

7. Formerly Ecuador was the prototype of a one-crop economy, depend-ing almost entirely upon the production and export of cacao. Cacao produc-tion has fluctuated widely. In the 1915-17 period, Ecuador producedannually 50,000 tons of cacao; the appearance of plant diseases in 1917-aimarked the beginning of a period of steady decline to the low mark of 10,000tons in 1940 (20% of the record production of l9l5-17). In the thirtiesthe whole economy experienced chronic depression. The trend was reversedin 19b1 and cacao production has now reached 50% of the record levels of1915-17, for a total value of about US ~18 million.

8. Coffee is a relatively new product in terms of its importance bothin domesticproduction and in exports. It has been developed under thestimulus of high world prices during the war and post-war years. Coffeeproduction in the last three years has been equal in value to that of cacao,namely between US $18 and US $20 million annually.

9. The increase in banana production has been striking. In the period1935-39, Ecuador shipped a yearly average of 1.2 million stems, all to theUnited States. In 1952, exports reached 16.5 million stems and the valueof production surpassed that of cacao or coffee. Ecuador is now the world'sleading supplier of bananas, and bananas are for the first time Ecuador'schief export. Until recently the main production center had been the Provinceof Guayas, but production is now expanding in the Province of Esmeraldas.Roads would bring new areas into production and avoid losses incurred whentransportation is at a standstill during the rainy season.

10. Rice, which is also cultivated in the Costa, has been one of itsmost important agricultural products. Rice is basic in the diet of malyEcuadorians, but has not been important as a foreign exchange earner exceptin the abnormal circumstances of shortages of the period 1946-1948. Riceproduction suffers from inherently high costs which makes it difficult forthe product to move on the world market. Production for domestic consumption

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could, however, be increased, and roads will permit the opening of new landsto be planted, particularly in the Guayas Province.

11. Cotton and sugar cane are the next most important products. Pro-duction of cotton has now caught up with domestic consumption. Efforts arebeing made to improve production by means of technical advice, import ofnew seeds, and introduction of new varieties. Given the favorable climaticand soil conditions which the region enjoys, production could undoubtedlybe increased to keep up with the growing local demand. Sugar cane is usedfor the production of white sugar, brown sugar, and Itaguardiente, ' a kindof local rum consumed in large quantities by the Indian population. Pro-duction has been able to satisfy local consumption and has kept pace witha growing demand.

12. In the Costa there is the beginning of what could be a thrivingbeef cattle industry. The Province of Esmeraldas appears as the most suit-able. Tropical diseases continue to plague some regions, but the crossingof breeds has improved the resistance of the animal to disease. A veteri-nary service hias been set up, and a four-year plan of the Ministry of Economyprovides 40 million sucres for the development of the cattle industry andimports of new breeds.

13. Potentialities for agriculture in the Costa are high. The use ofresources is still limited and inefficient and could be improved consider-ably by establishing a long-term agricultural policy in which emphasis shouldbe first placed on the improvement of crop yields from cacao, coffee, bananas,and rice rather than on the introduction of new crops. It is urgent to re-organize agricultural credit; agricultural loans at present average eightto nine months, while cacao and coffee trees require four to five years tocome into production, and the lack of long-term credit is, therefore, anobstacle to their cultivation. There is also a need for a program of agri-cultural education, with extension services and experimental stations.There is still a lack of labor in many parts of the Costa, and the govern-ment has taken some measures to stimulate immigration, such as granting landunder favorable terms. A number of foreign planters have already settledin this region. The lack of communications is still the strongest obstacle.It also hampers migratory movements from the Sierra which is overpopulatedand where erosion threatens. There the agricultural problem is the greatest.

The Sierra

14. Agriculture in the Sierra is waging a fight against nature. Erosionslowly reduces the available land, while the population increases steadily.There are three different types of land in use. On the steep mnQuntain slopesthe Indian peasant tills small patches of land for subsistence consumption.B3oth in the high plateaus and in the lower valleys, land is concentratedin the hands of large landowners. There are less than 24,000 landownersin the whole region, and out of them about 1% possess 65% of all arableland, while 82% of the smallest proprietors own only 5% of the total area.(Table 5 in Appendix.)

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15. A temperate climate permits a variety of culture, among whichcereals occupy the first place. The valleys and the plateaus offer sharpcontrasts. In the valleys productivity is high. They provide rich grazingland and some of the best dairy cattle in South America are raised there.On the plateaus, productivity is low.

16. The problem of agriculture in the Sierra will require long-rangepolicies, involving migration from the area and some improvement in theland tenure system. Experience has shown, however, that some immediateimprovements can be brought about with better education and better techniquessuch as rotation of crops instead of leaving the land idle, and the use ofbetter seeds. In some regions small scale industrialization might bringsome relief, but prospects for the near future are limited.

Mining and Industry

17. In contrast with Peru, mining plays only a minor role in the economyof Ecuador. Exploration in the Sierra has hardly started, and it is tooearly to make any predictions as to the future of mining in this region.At the present time, several minerals are being exploited on a small scale:gold, silver, copper, lead, sulphur and coal. Coal of a rather poor calorificcontent is extracted in the region of Biblian in7The Sierra. Total productionwas expected to reach 50 tons daily. Sulphur was exploited in the region ofTixan; total production averaged 30,000 tons a year. Kaolin is found in theprovinccs of Canar and atzuay. It is of high quality aniT7Tuity and will -provido the raw material for the new cement plant in Riobamba now underconstruction.

18. Petroleum is now produced and refined on the Costa in the Provinceof Manabi. Reserves there have been estimated in 1950 to amount to 4 millioncubic meters, representing only 10 years of production at the present rate.Hopes of discovering new petroleum fields had been stirred when the ShellCompany undertook intensive exploration work in the Amazonian jungle. In1950 the Shell Company withdrew, returning its concession to the EcuadorianGovernment. There are now two companies operating in Ecuador: the Anglo-Ecuadorian and the Manabi Exploration Company. The recent purchase ofcontrolling stocks of the Ianabi Exploration Company by the Pantepec OilCompany may be a sign of renewed activity. Production of crude petroleumhas increased slowly but steadily; in recent years Scuador has been export-ing an average of 140,000 tons of crude annually. While refined output hasbeen increasing, the country still imports refined products. Official gaso-line price policies, which do not permit the companies to sell their refinedproducts at a profit, have deterred a more rapid expansion of refiningcapacity.

19. Industrial production statistics are lacking in many sectors.Existing data, however, reflect a rather rapid growth in many industries.Cement production has increased 55% between 1950 and 1952, replacing imports,while consumption increased 35% in the same period. In addition to the plantat Guayaquil, a new plant is being built at Riobamba in the Sierra, with an

annual capacity of 50,000 tons. Total production will still be insufficientto cover the country's requirements which are estimated to reach 160,000tons in 1950. The pharmaceutical industries have expanded steadily, almostentirely in Quito. Though raw materials have to be imported, cheap laborhas permitted the industry to prosper. The local market is limited andmost of the production is exported. The value of exports has almost reachedthe US $1 million mark. The textile industr has developed in a favorableenvironment: existence of raw materials, abundant and cheap labor force,unsatisfied demand. At present, the industry covers over 60% of domesticconsumption. It is localized in the Sierra where cheap and abundant laborhas determined a type of industry with low capital investment and, by thesame token, low productivity.

20. The handicraft industry of Panama hats is going through a struc-tural crisis which affects various sections of the country, the region ofMontecristi in the Costa and the Province of Azuay in the Sierra. In theperiod 1944-46 exports averaged annually 4.6 million units, earning 22.7%of the total value of exports and occupying 80,000 to 100,000 workers.Decline started in 1947 with a fall of foreign demand and in 1952 exportsdropped to 3 million hats, only 3.2% of the total value of exports. Sometemporary measures have been taken, such as exchange advantages allowingexporters to sell foreign exchange in the free market. The crisis is mostsevere in the Sierra; there the long-term solution requires establishmentof new employments. In the Costa alternative opportunities already exist.

21. The food industries have developed relatively slowly. The mainlocal industries are flour mills, breweries, oil and fat factories. Pro-duction is still insufficient to satisfy domestic demand.

22. The future development of industry may be hampered by lack ofelectric power. In 1953 the rate of consumption of electricity in Ecuadorwas one of the lowest in South America: 58 KWH per year per capita. Atthe present rate of increase in consumption, capacity would have to bedoubled by 1960 to satisfy demand.

Total Output and Income

23. The economy has expanded rapidly in recent years. Total outputentering into the money economy was valued at the equivalent of US $343million in 1950; in 1952 it was estimated at US $400 million. In spite ofthis rapid increase, Ecuador has still one of the lowest levels of incomein South America: US 094 per capita in 1952. Moreover, it is unevenlydistributed between regions. The subsistence farmers in the Sierra, esti-mated at one million,have an average annual per capita income in money of$30; the remaining one million inhabitants of the Sierra have an averageincome of $80 per capita; in the Costa the average income is estimated at4150 for a population of 1.4 million.

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24. The expansion of production and income to the record levels of1952 has been influenced in great part by external factors. In 1952 thevalue of exports represented 27% of the total output and a great part ofthe increase in total income has been due to the increase of prices forexport products in the world market; this increase has averaged 18% between1950 and 1952. This sensitivity of the country's income to world demandand prices has deep effects upon the whole econonm. The Costa derives itsincome from the sale of tropical products on foreign markets and buys the

food and the manufactured products which the Sierra produces for domesticconsumption. As income in the Costa expands or contracts, its fluctuationsare transmitted to the Sierra through variations of demand for its products.Though very distinct, the two economies are complementary and highly inter-dependent.

25. Nevertheless, external factors account only in part for recenteconomic growth. Public finance and monetary policy have played an impor-tant role in providing a favorable environment for balanced growth. Totalgross investment, which had been low in the past, has increased from 97 ofgross product in 1950 to 12% in 1952. Moreover, development has taken placewith price stability.

II. Domestic Finance

26. Prices: For many years Ecuador was plagued with inflation, butsince 1948otns-iderable price stability has been achieved. The ConsumerPrice Index for the working class in Quito shows increases of 4.7% in 1950,7.7% in 1951, and 1.5% in 1952. In 1953 the price of many items increasedas a result of temporary scarcity brought about by torrential rains whichdisrupted communications between the Costa and the Sierra, but by Novemberprices had fallen again to the level of the corresponding month of 1952.This stability was maintained partly by cautious credit policies of theCentral Bank, and partly by the Government keeping its annual budgets inbalance at least until 1952. In 1953, however, there are again some signsof disequilibrium. The year 1952 closed with a budget deficit, and thedeficit will be greater in 1953. There have been added pressures upon theCentral Bank, and the rate of expansion of bank credit in the first partof the year has been unprecedented.

Money and Credit

27. Since 1948 and until 1953, the Central Bank has followed a com-pensatory monetary policy to maintain money supply within the limits requiredfor monetary stability and growth. (Appendix - Table 10.) Whenever a balanceof payments deficit exerted a contractionary effect upon income and moneysupply, the Central Bank would ease credit. This happened in 1948, 1949and 1951. In 1950, on the contrary, there was a contraction of the CentralBank credit as a balance of payment surplus exerted an expansionary effect.In 1952 money supply expanded by 23% to a year-end total of. 1,038 millionsucres. The factors of expansion were the balance of payments surplus and

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the credit extended by the commercial and development banks to finance in-creasing production. It must be remembered that 1952 was a year of higheconomic activity. Commercial banks increased loans and investments by19%; nonetheless their excess reserves increased. The development banksincreased loans and investments by 10%, and also improved their liquidity.The Central Bank continued a cautious policy; it reduced its own credit tothe public, but increased its rediscounts to other banks. In October 1952,however, an extraordinary advance of 30 million sucres was granted to thegovernment to finance its budget deficit.

28. In the first six months of 1953, there was a further increase inmoney supply of 8%. It was accounted for by domestic factors since therewas a deficit in the balance of payments (Table 10 - Appendix). The maincause of increase has been the expansion of credit from the Central Bankto the government, official entities and development banks. For the periodJanuary-August 1953, Central Bank credit to the public expanded by 50%;most of the credit was granted as emergency relief following the inter-ruption of traffic caused by the floods. Credit to other banks increasedh2% and credit to the government and official entities 68%. Private bankscontributed to the expansion at the expense of a decline in their excessreserves. Credit of development banks has in turn risen sharply on accountof emergency relief and of medium-term credits for the promotion of agri-culture.

29. In spite of this rather considerable expansion of credit, thedomestic inflationary impact will be limited, since only part of the increasehas been added to the flow of domestic expenditures. Much has leaked abroadin the form of emergency imports of foods and capital goods with consequentbalance of payments deficit. The danger spot, however, remains tne sharplyrising expenditures of the Central Government. The 30 million sucres advancefrom the Central Bank to the Treasury last October was followed by furtheradvances of 60.7 million sucres during the first half of 1953 to enable thegovernment to cover its current expenditures. A sizeable budget deficit isexpected this year, and the Central Government budget remains the tcrmuninzcmer.ft of :;onetary instability.

Public Finance - The Budget

Revenues

30. Total public revenues in Ecuador represent about 20% of NationalIncome. These revenues, however, are widely dispersed among a considerablenumber of separate entities. In 1951 the Central Government received only34% of total public revenues) while autonomous entities received 46% of thetotal, municipal councils 18%, and provincial councils 2%. The autonomous

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entities include more than 45 separate bodies such as the National RedCross, several universities, the National Railroad Administration, somecathedrals and churches, etc.

31. This dispersion of revenues results in a complex and rigidsystem of allocated taxes; it rests heavily upon indirect taxes derivedlargely from customs duties. In recent years, taxes contributed 80% oftotal revenues, and indirect taxes 80% of total taxes. A fixed percentageof eachi specific tax is allocated to a particular entity; the tax on coffeefor instance serves eleven different purposes. A reform is now under way.A new customs tariff prepared by UN experts has already been enacted, andwill be in effect from January 1, 1954; a project of income tax reform isnow being completed. This reform, however useful it may be, is not aremedy for the basic weakness of the fiscal system, which remains thedispersion of public revenues away from the Central Government. However,it will pave the way for future improvements to overcome the resistanceof strong local interests.

-9

Expenditures

32. Between 1941 and 1952 total expenditures of the Central Governmentincreased four times in nominal terms, but changed little in real terms;expenditures for services may have increased somewhat since salaries of civilservants have not kept pace with the cost of living.

33. In 1950 expenditures of the Central Government were distributed bypurpose, as follows:

Expenditures of the Central Government in 1950

Purpose In million sucres % of the total

General Administration 127.7 33.0Social Services 98.5 25.4Defense 82.9 21.4Develcpment 34.9 9.0Tax Collection 23.2 5.9Public Debt Service 21.2 5.4

Total 388.4 100.0

These data, however, do not reflect the total amount of official expendituresfor development, which are financed by borrowing from abroad for the construc-tion of specific projects, or by the creation of new taxes dedicated to specialfunds or to the support of new autonormous entities (Gomite de Vialidad deGuayas, Admiristration of the Railroad Quito-San Lorenzo, etc.) An importantcase of the latter procedure is the additional tax of 60 centavos per gallonplaced on gasoline in the spring of 1953 to finance an extra-budgetary nationalroads plan. The national budget for 1954 provides 22 million sucres forroads; but the Ministry of Public Works estimates that in addition the newgasoline tax will yield an average of about 57 million sucres annually duringthe next ten years, equivalent to almost U.S. $L million arnually.

34. The Central Goverrnent has an 't operationallt budget (formerly calledordinary) and a !capital¶ budget (formerly called extraordinary). The formerincludes appropriations for the maintenance of existing works and for studies,while the latter is devoted to small scale capital investnent. The cperationalbudget for 1953 was expected to balance at 47? million sucres while thecapital budget was estimated at 86 million sucres. The 1954 budget providesabout S60 million sucres for the operational budget and 130 million for thecapital budget.

35. As a result of the decentralization, the capital expenditures of theCentral Goverment itself represent only 20% of total publie investment. In1950 total public gross investment amounted to 234.5 million sucres (4.2% ofnational output), while gross investments of the Central Government reachedonly 52 million sucres. In 1952 total goss public investments rose to 6.8%of national output, but the pronortton of Central Government investments to thetotal was about the same, 87 million suores out of a total of 426 million.

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Budget Deficits

36. A period of cnironic budgetary deficits financed by recourse tothe uentral Bank was replaced by a period of financial stability beginningin 1946. However, in the last 12 months there have been signs of renewedbudgetary pressures. In 1952 the Government operational and capital budgetsclosed with a combined deficit of 19 million sucres, about 4; of the totalbudget. The actual expenditures of the Central Government in 1953 on accountof both the operational and capital budgets are expected to run aheaa ofinitially budgeted revenues by 60 to 70 million sucres, almost 15i of theinitial budget. A bill providing for new taxes has been presented to Congress;the Treasury has estimated the expected revenues at 25 million sucres. Thebill also orovides for an additional advance of the Central Bank up to theamount of 35 million sucres for the capital budget.

Prospects

37. The increase in the expenditures of the Central Government in 1953has been due in part to the capital outlays resulting from the floods of earlyAlpril. Much has tileakedif abroad in the form of emergency imports of foods,fuel and capital goods. Thlis emerg,ency does not however account for all ofthe increase, and there is evidence of increased spending in the operationalbudget as well as in the capital budget. Budget estimates for 1954 areiindicative of this trend; the i954 budget is estimated to balance at about730 mnillionl sucres, 30% above the 1953 estimates. Large deficit spendingon current expenditures would be very dangerous at a tirile wheni the governmentplans a sizeable investment program. Until reforms are carried out, thegovernment does not have adequate weapons to check the resultinig inflationarypressures. Given the present tax structure, Government revenues will growaore slowly than money incormes; these revenues depenid iheavily upon the levelof international trade rather thel of dome.stic activLty, as most of tile in-direct taxes are derived from customs duties. Noreover, there is no domesticbond market whiich would permit non-inflationeary borrowing. Nc, govern-mentbonds are held by the public; the holders are the Social Security and theStabilization Fund. The large holdings of mortgage bonds by the publicindicate, however, that a mnarket for certain types of securities could beorganized. There are, however, some encouraging signs; a planning board isto be set up, which will examine priorities and study the financing of thedevelopment program. In the second place, the Central Bank of Ecuador, whichis one of the best institutions of its kind in South America, is staffed withcapable officials whose advice carries considerable weight. But the futurepolicy of the government with regard to deficit spending on a large scaleremains an element of uncertainty which must be taken iinto account in theappraisal of the country's creditwortihiness. It suggests that Bank lendingto Ecuador should be a step-by-step operation. The domestic policies of thegovernment should be reviewed froma time to time.

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EXTERNAL POSITION AND PROSPECTS

I. Recent Developments

General

38. The trends underlying the external position of Ecuador in thepost-war years have been an increase in the volume and value of trade,an increase in the payments for invisibles, and the minor and decliningimportance of capital movements.

Balance of Payments of Ecuador(Million US.U equivalent)

Trade Capital DeficitYear Exports Imports Balance Invisibles Movements or Surplus

1946 38.1 30.7 7.4 -9.3 7.8 / 4.7

1947 42.2 47.9 -5.7 -11.0 5.0 - 3.9

1948 48.6 44.0 4.6 -11.6 8.9 f 1.0

1949 35.8 45.0 -9.2 -10.4 6.9 -12.0

1950 73.7 42.0 31.7 -12.8 2.7 /20.6

1951 67.0 54.3 12.7 -20.3 1.9 - 8.4

1952 106.5 66.1 40.5 -28.0 0.7 /12.4

Source: Central Bank and hIF

39. The growth in the value of exports and imports has, to a greatextent, been due to favorable terms of trade for Ecuador, which improved bothduring and after the war years (Table 7 in Appendix). In the thirties therehad been a steady deterioration of Ecuadorts capacity to import. Since 19140the steady inprovement in the terms of trade, accompanied by a growth in thevolume of exports has resulted in an improvement of the purchasLnng power ofexports per capita. At the same time, however, payments on account ofinvisibles have also increased steadily, on account of higher payments forfreights insurance and direct investment income. Profit remittances byforeign companies, mostly banana companies, have increased steeply in thelast years.

40.. In 1950 the Korean boom gave a new impetus to exports with aconsequent increase in Imports in 1951. The result was a substantial deficitin the balance of payments. In 1952 exports attained a record level and thebalance of payments closed with a surplus of US$ 12.3 mnillions. The foreignexchange bu;dget for 1953, presented on March 20, forecast a surplus ofUS$ 10.3 millions for the year, A week later, torrential rains disrupted com-munications and harmed agricultural production. Rice exports fell heavilywhile inports increased. In the first six months of the year, private importsincreased 8% in comparison with the corresponding period of 1952; paymentsfor official imports increased 71%. Exports were maintained at the samelevel. As a result the 1953 balance of payments is likely to close with adeficit of US$ 2 to T7S$ 4 million.

ttreign Exchange Reserves

41. The relative vulnerability of the economy to changes in foreigndemand and a high propensity to import have made it prudent to maintain a highlevel of foreign exchange reserves, usually over half a yearts imports.(Table 6,Appendix.) The Central Bank has often been criticized for such apolicy. Its wisdom, however, has been demonstrated several times. In 1949a fall of export receipts resulted in an overall balance of payments deficitof US$ 12 millions, absorbing 45% of the existing foreign exchange reserves.

42. At the end of 1952 reserves reached the highest level everattained, US$ 39.4 million, representing 60% of the value of 1952 importsand 57% of total ntoney supply. In spite of monthly fluctuations in thecourse of the year, reserves were always maintained above 46% of money supplyand h2% of the Central Bank total sales of foreign exchange during theprevious year, thereby revealing a strong reserve position. The floods ofApril 1953 brought about a reversal of the trend. Reserves fell toUS$ 36.6 millions at the end of May 1953, and to 's$ 29.5 million at theend of August. They then recovered to about US$ 31 millions on October 10;US$ 22.6 million is held in gold, the rest virtually all in U.S. dollars.These developments, though of an accidental and temporary nature, point tothe necessity for an adequate exchane system permitting a brake on irmportsin tines of emergency..

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The Exchange System

43. In this respect the present multiple rate exchange systemhas so far been successful in keeping imports within reasonable limits. Thesystem utilizes import prohibitions, differential taxes on import permits,advance payment requirements for certain imports and licensing of both importsand exports. Licensing is not used, however, as a method of quantitativerestriction. A legal free market exists.

Import and Export Licensing

44. All exports are subject to license and exchange proceeds mustbe surrendered in the official market. In the few cases where export proceedsare eligible for the free market, the Central Bank has a first preference topurchase the exchange. Imorts are divided into three categories --essentials (List A), semZ-essential (List B), and luxury (List C). Any itemnot included in any of the three lLsts may not be imported. Licenses arefreely issued by the Central Bank, which indicates the amount of tax payableon import permits (currently 33% for items on List B, 44% for items onList C). Foreign exchange for items on List C has to be obtained in thefree market and deposited at the Central Bank before the license is granted.In addition, imports and exports are subject to certain specific customsduties, often earmarked for special purposes. The new customs tariffprepared by UN technicians will become effective January 1, 1954. Thistariff consolidates a number of pre-existing specific and ad valorem taxes.The incidence which it will have umon the balance of payments and upongovernment revenues is difficult to appraise. Increased imports in antici-pation of the new law would indicate that higher rates of duty on a widerange of items are expected.

Exchange Rates

45. The par value of 15 sucres to the dollar applies to 90% ofexports and to imports on List A and B. Some minor exports, luxury andnon-essential imports (Category C),. unregistered capital and most invisibleshave access to the free market. Taking into account the taxes on importpennits mentioned above, the effective rates are 15 sucres to the dollar forimports on List A, 20 sucres for imports on List B, and 22.6 sucres for importson List C. Some mixing arrangements exist for exports of bananas and pharma-ceutical products. Up to the minimum surrender price cC US$ 1,20 per stem,exchange proceeds from banana exports must be surrendered to the CentralBank at the offical rate, but any additional amount can be sold on the freemarket. A similar arrangement applies to pharmaceutical products; 40% oftotal proceeds may be sold on the free market.

46. Since 1951, the free market rate has fluctuated between narrowlimits, 17.30 and 17.50 sucres to the dollar, owing to the active interven-tion of the Central Bank. The bank has intervened in the free market since1948, first as buyer and then, since July 1952, as seller. In 1952, foreignexchange originating in the free market represented nearly 30% of foreignexchange purchases of the Central Bank.

e 14 -

II. Balance of Payments Prospec -

General

47. In the future the Balance of Payments of Ecuador should not showundue strain unless renewed domestic inflation induces stronger importdemand pressures. Imports are likely to grow with the requirements ofdevelopment, and under the impact of the higher incomes of the last fewyears; nevertheless export earnings should cover import needs providedinflation is curbed. The main foreign exchange earners will for many yearscontinue to be the three tropical crops of the Costa: bananas, coffee andcacao. Marketing prospects for these products are good, even if Ecuadorianproduction were rapidly expanded. The share of Ecuadorian production inthe world market is small; coffee represents 1% and cacao 3% of world pro-duction. Banana production has risen rapidly; and in 1952 Ecuador's bananaexports were 16.5% of world supply and 20W of total supply to the U.S.market. As shown later, production increase in the next four or five yearswill be slow but as roads are opened and new plantations begin to producethe rate of increase can be greatly accelerated.

Earnings

b8. Bananas. - Tlhe increase in banana production in the last two yearshas been extremely rapid. Ecuador has become the largest single supplierto the U.S. market while its banana exports to Europe (particularly Belgiumand Germany) have also increased. New areas have been planted and the open-ing of new communications will give a considerable impulse to banana output.Some considerations must, however, be kept in mind: increased competitionof Central American countries and of Africa, spread of banana diseases, andpossible changes in foreign denand.

49. Compared with Central America, Ecuador is still a high-cost supplierdue mainly to transportation costs. In recent years Ecuador has takenadvantage of the decline in production in Central America. The success ofdisease control in these countries would increase competition in the U.S.;Africa may also become a serious competitor in the European market.

50. The existence of banana diseases (Sigatoka and Panama disease) isa serious threat in Ecuador as in all producin¾ regions. I-Measures to controlthe disease have been taken in some large plantations. In the South inEl Oro Province banana trees have been flooded to check Panama disease whichattacks the trunk. There are only a few plantations where this method canbe used. In the Province of Esmeraldas the Astral Company has attempted tocombat Sigatoka by spraying the leaves. It has now abandoned the attempt astoo costly. Besides, most plantations are in the hands of small producerswho cannot afford the very high cost of disease control. Fortunately, thedisease has so far spread very slowly and production can be expanded inregions which have not yet been contaninated. iMoreover, the contaminatedland can be used for other activities such as cattle raising. On the basisof present production and new plantations, the quantity available forexports is estimated to grow at an average of 8% per year from 16.5 millionstems in 1952 to about 23 million stems in 1958.

51. There is still the possibility of a fall in foreign demand, depend-ing mainly on the level of economic activity and income in the United States.

Miost Lcuadorian producers apparently realize the instability of banana pro-duction and markets compared to those of cacao and coffee; they consider thebanana boom as a source of windfall profit which they begin to plough backinto new plantations of cacao and coffee trees and into cattle farms. Thisgrowing awareness of the importance of diversification is an encouraging signfor greater stability. Assuming that the present marketing conditionsremain unchanged and that prices remain at the present level, banana companiesexpected that export markets will be able to absorb substantial additionalproduction. On the basis of the surrender price to the Central Bank in 1952the yield of banana exports could well reach US :9 30 million by 1958.

52. Cacao:- Since 1941 cacao production and exports have also grownsteadily.

Exports FOB(1,000 of metric tons) Increase Price per kilog.

Years (annual average) % in US ,

1940 11.2 0.1719h1-45 15.4 37.5 0.201946-49 18.0 16.9 0.581950-52 24.7 37.2 0.72

Source: Central Bank

Successful efforts have been made to control cacao diseases which had des-troyed plantations in the early twenties, but improvements in other techniqueshave been slow. Since 1946 it is estimated that 1 million trees have beenplanted annually. This is, however, still insufficient to fully replace thelow-yield plantations. On this basis it is estimated that cacao productionwill increase at an annual average of 3% in the next four or five years.Even if an agricultural program increased new cacao plantings, the resultingincreases in production could not be expected before 1958, since trees takefive years to nmature.

53. The FOB price for Ecuadorian cacao in the period 1946-52 averagedUS Q0.66 per kg. Price in the New York market, with the exception of asteep and short-lived decline in 19L6, has been maintained at 78 cents a kg.Wklith the spread of diseases in Africa there are no expectations of a seriousfall in price. This paper assumes that cacao prices will fluctuate betweenU.S. $ 0.50 and U.S. 4 0.80 per kg., about an average of U.S. $ 0.65. Onthis basis the FOB value of cacao exports in the next five year period hasbeen estimated to reach at least U.S. $ 19 million by 1958.

54. Coffee - Coffee production and exports have been stimulated by thehigh level of prices in the world market.

Exports and Prices ofCoffee Volume exported Price per kg

(1,000 metric tons) FOBPeriod (annual averages) in US $

1903-L5 12.5 0.191946 7.6 0.341947-49 13.4 0.401950-52 18.9 0.96

-. 16 _

55. As in the case of cacac .here has been little im.nprovement inproductivity in coffee plantations. New plantings of coffee have beensmaller than those of cacao. However, wrhile most cacao trees are old, coffeeplantations are relatively recent. The increase in coffee production hasbeen due to better gathering and handling rather than to increases innatural yield per tree. Recently some new plantinLg has occurred as a resultof the banana boom which permits a reinvestment of profits. As in the caseof cacao, production is not expected to grow until present new plantingenters into production, namelyj in four or five years. On present estimates,production is not expected to increase beyond 22,000 tons. On the basis of1952 prices, exports are estimated to average U.S. $ 20 million per annumbetween 1954-58. The rate of expansion thereafter should be much higher.

56. Other products. - The future of exports of other products issomewhat obscure. Rice production could be increased, especially in theGuayas Province, but its marketing prospects are poor. Ecuador is a highcost producer, and without subsidy policies exports would decline from thepresent value of U.S. $ 9 million to about U.S. Q 6 million. The industryof Panama hats is on the decline, exports have fallen to a yearly averageof U.S. $ 3.6 million, and due to the high costs of production, there islittle hope of raising them to a higher level.

57. The remaining export sectors of the economy are more prosperous.The industry of pharmaceutical products is thriving and continues to grow.Exports of balsa wood are increasing, but are not likely to regain theirprevious position. Finally there may be possibilities for export of beefcattle. As shown later, Petroleum exports are expected to decline sinceconsumption requirements will increase. By 1958 all these minor exportscan be estimated to reach a value of U.S. $ 9 million.

Future Payments

58. No estimates exist of future import requirements for Ecuador.Food imports have averaged 20% of total imports. Inports of capital goodshave increased steadily; in 1929 they represented 16% of total imports,in 1936 they rose to 20%, and in 1950 they reached 33%, which is one of thehighest rates in South America. The remaining imports are divided in amiscellany of items, such as refined petroleum, textiles, pharmaceuticalproducts. Paper imports have grown steadily from U.S. $ 1 million in 1946to U.S. $ 2.4 million in 1952. They will continue to grow.

59. With the construction of all-weather roads imports of motorvehicles will undoubtedly increase, though this trend will be moderated bythe following factors: increase in the life of vehicles, fewer repairs,and a more even spread of traffic over the whole year, since without all-weather roads many vehicles are idle during the rainy season which lastsabout five months. Fuel requirements will also increase. Fuel productionin Ecuador, though showing a slightly rising tendency, has not been keep-ing pace with increasing demand. Unless present fields can be more fullyexploited or new fields discovered, it seems probable that Ecuador willbecome a net importer of fuel products. This underlines the importance ofliberal policies for petroleum companies to stimulate development.

60. There are opportunities for import replacements in economicfokrma Flour mills are now operating below capacity while flour is imported;

- 17 -

cereals, vegetable and cattle raising for domestic consumption can beexpanded. Imports of foreign textiles could be reduced if the widespreadtendency of buying "tforeignt" for prestige reasons rather than genuine priceand quality comparisons could be successfully combatted. Ecuador producesgood and relatively inexpensive textiles; their production could beexpanded. Finally the growth of the pharmaceutical industry into new lineswill permit a reduction in imports.

61. Direction :of Trade - The direction of Ecuador's trade does notgive rise to any special concern regarding its capacity to make dollar pay-ments. Since the prewar period the pattern of exports has shifted to thedollar area. In 1937-1938, 41% of total exports went to Europe, 35% toU.S. and Canada, 7% to Latin America and 17% to the rest of the world. In1950-1952, 585 of total exports went to North America, while only 18% wentto continental EPU; the share of Latin America increased to 17%. Importshave followed the same pattern. The share of Europe declined from 36% inthe prewar to 20% in the period 1950-1952. The proportion of imports fromNorth America (US and Canada) has increased from 40% of total imports in1937-38 to 66% in 1950-52. In value, exports to the United States haveaveraged U.S. $ 39 million while imports have averaged U.S. (jp 31 million.

Summary of Payments and Earnings

62. In 1952 exports reached the high peak of U.S. $106 million, ofwhich the Central Bank received the equivalent of U.S. $ 78.8 million. Onthe basis of our previous estimates and assuming the same exchange policiesthe Central Bank would receive the equivalent of about U.S. $ 90 millionby 1958.. This amount underestimates the FOB value of total exports sinceonly part of foreign exchange receipts for banana and chemical exportsare surrendered to the Central Bank. On the basis of the adjustments madeby the Central Bank in its official Balance of Payments estimates for thepast five years, total exports can be estimated to reach a level ofU. S. 14 115 million dollars by 1958. Should the exchange policy be changedand the subsidization of exports through the free market be abandoned orintensified, the proportion of total exports received by the Central Bankwould vary accordingly.

63. Imports willcontinue to grow; it must be re-emphasized that theirrate of growth will depend largely upon the domestic policies of thegovernment. Provided a reasonable amount of internal stability is achievedthe balance of payments should not encounter serious difficulty. It couldbe eased with the help of private capital inflows, which, so far have playedan almost negligible role. Ecuador can look forward to increased foreigninvestments but the country has to play its part in providing some of thebasic investments such as the opening of communications. Moreover, it mustmaintain the necessary climate of economic stability,

DEVELORIaNT PIOSPLCTS AJD CRiLTI'ORTHINESS

64. There are two main aspects of the creditworthiness of Ecuador:the first relates to its capacity to absorb foreign loans, the second toits ability to service its external obligations. Both aspects reflect itsprospects for development; the first is a problem of domestic finance andinvestment, the second of the balance of payments.

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65. Available data for 1950 indicate that total investment(gross domestic investment) reached 518.L million sucres, that is, 9J<of total output (OGN); public investment amounted to 45.2V of totalinvestment. On preliminary estimates total investment increased from9.461f to 121- of total output betvween 1250 and 1952. In the same periodthe proportion of public investment to total inivestment increased from45.2'9 to 57.1I. or, irn money terms, from 235 million sucres to 430mnillion sucres.

66. The present five-year program of public investment, if carriedolut, would raise the level of public investment by 310 million sucresyearly to arcund 7io million sucres. It is difficult to see how localresources can be obtained for this large investment increase withoutrecourse to some form of inflationary financing. The five-yearprogram wrould involve totals of 350 million sucres for an electrificationplan, 250 million sucres for the completion and rehabilitation ofrailroads, including thie new Ibarra San Lorenzo railroad, 500 millionsucres for roads, and 41So million sucres for agricutltural developmentand irrigation. Such a program would raise the rate of total grossinvestment, public and private, to about 17% of output in 1956, whichwould not fail to 'oring heavy strain on available internal and externalresoirces.

67. Public investment has been carried on in the past oy morethan 200 autonomous entities, provincial councils and municipalities;each agency has had limited resources, and short-term programs withoutany coordination or adequate preparation. .4toreover, their in.vestmientslhave often been of very low social productivity. Better planning andselection of projects vwould undoubtedlly improve results. In th:isrespect, the concentration of the allocation of inancial rescurces isa prerequisite Lor any balanced devlelopment program. hle establishmentor a planning office along the lines presently being considered by theFcuadorian government would make an important contribution.

68. As of Jtme 3, 1953, Ecuador's outstanding external public debtplus undisbursed commitments amounted to an equivalent of US 38.7million. Ti.To new} lorns from the ½dximbank for airnorts andfor the completion of the Qluevedo-Manta highway brought the total to1'S iJ43.S million. This principal amount is roughly l0% of 1952 b'ationalIncom,e; on this basis Ecuador cannot be considered as a heavy borrovwer,compared to other Latin American countries.

69. EstiLmqted service on the present debt (including the require-ments for the recent settlement and service of the recent Fximbank loan)rises to a peak of US 13.2 million in 1956, then drops steadily toUS t2,9 million in 197, US t2.9 million in 1962, U5 `2.L4 million in1964, and It 1.3 r2 ior' inl970. Service is almost wholly in US dollars.

70. To the oresent debt service have to be added the chargesresulting frorn a credit granted by .'ormns and Company of Paris in 1951for the constriction of the euito-San Lorenzo Railroad. Payments bythe railroad administration will amount to US t1,155,OC annually inU.S. dollars, during the years 1952 - 60 inclusive. The credit is

a 19 -

secured by land mortgage, a govermnent guarantee and a guarantee of theCentral Bank for transfer of exchange. (For further details see Annex I.).

71. Total external debt service (including the Quito-San Lorenzoloan) will average US *:,; Million in the period 1955-59, with a peakof US $41. miUlion in 1956. The average annual service for the comingfive years approximates 3.51 of expected total exort earnings.

72. Direct investment income transfers (of foreign owned oil,gold mining and other companies) in the past five years have averagedUS t5 million and they are expect&1 to increase in the future. Allowingfor an increase up to an average of US $10 million annually for the nextfive years, total service on capital account would amount to about 12%of exnected total export earnings.

73. Bearing in mind that Ecuador can expect its economy toexpand fairly rapidly after 1959, and even after discounting the un-certainty of future domestie financial policy, it is concluded thatthe country could safely assume higher foreign service payments.

74. If we assume the terms stated below with equal semi-annualpayments, the two IBRD loans now under active consideration wouldinvolve maximun annual service payments of US t'l1.7 million, shiftingthe peak year for total service from 1956 to 1959

ITMD Proposed LoansXYearsof Repayment

Principal Grace Period Interest(I illion)

Roads (Guayas) 8.5 4 10 years h-3/4Electric Plant (Zuito) 2.6 4 20 years 5%

75. With these additional charges, total service payments in theperiod 1954-59 would average US !.,5,3 million, with a peak of US E6 . O miUionin 1959. This would represent less than 5%I of expected total exportearnings during the period, and so far as can be foreseen, would stillleave some margin for additional borrowing. How large this margin mayultimately prove to be can be better determined when it is known whatpublic investment policies the Ecuadorian Government will in fact pursueIts present proposals (par. 66), if carried out, are likely to induceinternal and external pressures which would adversely affect futurecreditworthiness.

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76. One further consideration should perhaps be borne in mind;namely that Ecuador is an area where the economy has been affected in thepast by the occurrence of severe earthquake and flood damage and thoughmeasures, where possible, are being taken to control floods, the risk ofsuch disasters in the future cannot be entirely overlooked in this appraisal.

Table 1r

Ecuador - External Public DebtNational and Government Guaranteed Debt

(In thousands)

Debt outstanding Debt contractedIDENTIFICATION June 30, 1953 July 1 - Jan. 8, 1954

In currency Expressed in In currency Expressed inof payment U, S. dollars of payment U.S. dollars

TOTAL EXTERNAL PUBLIC DEBT 38,6841 1/ 4,780

U. S, DOLLAR DEBT $ 38,515 382515 $L4/76 h?78Q

Bonds 2/ $ 7,143 7,143$12,V82,1000 Guayaquil & Quito Railway Co. First

Mtge. 5%, 1899-1932 (fonmerly 6%) $ 6,737 6,737$1,075,050 Republic of Ecuador Salt Bonds 4%, 1908 $ 406 406

Other privately held debt $ 6,169 6,189Defense Supply Corporation 2/52 5!Jorge Levi and Carlos Ottolenghi $ 13 13$28,909.96 Sociedad France Equateur $ 12 12$1,855,415.83 Ericsson $ 1,081 1,081$10,400,000 San Lorenzo Ry, to French banks 5 1/2%,

1951 4/ 5/ $ 5,031 5,031

Loans from U.S. Government $ 23L62 23,762 $ 47 O 4,780

Export-Import Bank loans$4,000,000 Municipality of Quito 3 1/2%,

19h2-1966 5/ $ 3,415 6/ 3,45$5,300,000 Municipality of Guayaquil 3 1/2%,

1942 -1964k W/ $ 4,153 4,153$8,7713,07-.lt) Republic of Ecuador 4%, 1942-1970 $ 5,806 5,806$2,i720°,000 Republic of Ecuador 3 1/2%,1947 (20 years) $ 2,700 6/ 2,700

See footnrot+,e on last page.

Table 1 - Page 2

Debt outstanding Debt contractedIDENTIFICATION June 30, 1953 July 1 - Jan. 8, 1954

In currency Expressed in In currency Expressed inof payment U.S. dollars of payment U.S. dollars

TOTAL EXTERNAL PUBLIC DEBT (Cont.)U.S. Dollar Debt (Cont.)

Loans from U.S. Government (Cont.)Export-Import Bank Loans (Cont.)$1,950,000 Republic of Ecuador, 1949 $ 1,950 g 1,950$1,500,000 Rnpu'lic of Ecuador 3 1/2%, 1910-1971 $ 1,417 1,47$1,500,000 Republic of Ecuador 3 1/2%, 1949-1970 $ 1,390 1,390$250,O00 Rejub2ic of EcuMor 3 1/2%, 1950-1956 $ 150 150$500,000 Republic of Ecuador 3 1/2%, 1951-1972 $ 481 481$800,000 Republic of Ecuador 3 1/2%, 1952 (20 years)$ 800 64 800$165,000 Republic of Ecuador 3 1/2%, 1952 (20 years)$ 165 0 165$335,000 Republic of Ecuador 3 1/2%, 1953 (20 years)$ 335 T/ 335$l,000,OOO'Reputlic of Ecuador 3 1/2%, 1951 (10 years)$l,000 1/1000$2,,280,000 Reputlic of Ecuador 5%, 1953 (15 years) $ 2,280 6/ 2,280$2j500,000 Republic of Ecuador 4 3/4%, 1954-1971 $ 2,500 2,500

Loans from governments other than U.S. $ 11J21 13421

$900,000 C'vernrent of Venezuela 3%, 1946-1967 $ 758 758$809,423.08 Federicion de Cafeteros de Colombia 3%,1946-1967 $ 663 663

STERLING. DEBT i 60 9Bonds j/ ____60_ 169

47?,900 Republic of Ecuador First Series GuaranteedGold Condores Bonds 4%, 1901-1934 60 9/ 169

FRENCH FRANC DEBTBonds 1

fr 9,000,000 Co9pagnie Francaise de Chemins de Ferde LtEquateur 5%, 1909-1969 1/ fr 8,975 11/

Qfr 87 500 Republic of Ecuador 6%, 1913 (Portde BaAia de Coraquez) / fr 88 11/

See footnotes on next-pageb

Table 1 - Footnotes

Does not include the following:

a. An RFC loan outstanding in the amount of 653,000. Entire amountpast due.

b. $1l,080,000 non-interest bearing certificates of the Guayaquil andQuito Railway which were given to the holders of the First MortgageBonds under an agreement in 1908 in compensation for an interestreduction from 6% to 5%. These certificates are payable only outof excess profits of the railroad. They will not be included inthe debt settlement offer described in footnote 2.

c. The French Franc Debt. No dollar equivalent is given because noinformation is readily available as to the currency clauses in theoriginal contract. At the present French franc exchange rate, thedollar equivalent would be US $25,900. If however we calculate the87,500 francs Republic of Ecuador 6%, 1915, in terms of the goldfrancs, the total debt would amount to an equivalent of US 031,400.

The Guayaquil and Quito Railway bonds originally paid interest at 6%but this was reduced to 5% by an agreement of 1908 which also providedfor the surrender of coupons from July 1, 1907 to January 1, 1909,inclusive for $90. Interest was in default fron 1913 to 1925 but couponsdue January 2, 1913 to January 2, 1914 were paid from 1925 to 1929. Nopayments were made thereafter. Interest was paid regularly on the SaltBonds until 1929; no payments have been made since that time. As aresult of negotiations between the Council of Foreign Bondholders anda representative of the Government of Ecuador, the Ecuadorian Congreeshas approved the following offer to the bondholders:

a. Guayaquil and Quito Railway Bonds.

1. Interest to be resumed at the rate of 2% per annum in 1954,2 1/2% per annum in 1955, 2 3/4% per annum in 1956 and 3% perannum thereafter. Interest to be payable semi-annually startingon January 1, 1954.

2. A cumulative sinking fund at the rate of 3/4% per annum for 1954to 1958 inclusive and 1% per annum thereafter.

3. No payment on account of interest arrears.

4. A 5% cash bonus to be payable in five equal installments eachJanuary 1 in the years 1954 to 1958 inclusive. Bondholders,whose bonds are redeemed by the sinking fund, will not beentitled to receive the installments of the cash bonus fallingdue after such redemption.

Table 1 - Footnotes: (Cont.)

2/ (Cont.)

b. Republic of Ecuador Salt Bonds.

1. Interest to be resumed at the rate of 1 1/2% per annum in 1954,2% per annum in 1955 and 2 1/22 per annum thereafter. Interestto be payable semi-annually starting on January 1, 195h.

2. A cumulative sinking fund at the rate of 1 1/2% per annum start-ing in 1954.

3. Other provisions the same as for the bonds of the Guayaquil andQuito Railway described above.

2/ The interest rate and terms of repayment on this obligation are notreadily available at the present time.

4/ This obligation is the result of a contract for railway and port con-struction entered into in 1951 between the Autonomous Authority of theSan Lorenzo By. (La Junta) and the French Comptoir International d'Achatset de Ventes a l'Etranger CIAVE). The project is estimated to costapproximately the equivalent of $10,400,000. As the work progressesCIAVE will draw bills of exchange on La Junta. The bills will be heldby a trustee in New York for the account of a syndicate of French banks.The bills will be retired by the trustee out of U.S. dollars to be re-ceived from La Junta which will make nine annual payments of 41,155,000each to the trustee. Since the banks will not have to finance the fullconstruction costs at one time, the amount outstanding shown above isthe maximum amount of bills estimated to be outstanding at one time asshown below:

End of year Estimated bills outstandin

1 $ 663,7002 $2,698,0003 $3,263,0004 $5, 031,0005 04,,445 ooo6 $3,315,0007 $2,17 8, 0008 $1, 035,0009 _

In addition La Junta will pay CIAVE a commission of $1,000,000 over aperiod of five years. This commission is not included above as externaldebt.

The line of credit is secured by:

a. A first mortgage on the railway properties of La Juntabo A guarantee by the Zcuadorian Governmentc. A transfer guarantee by the Banco Central del Ecuador for all payments

to be made in U. S. dollars.

Table 1 - Footnotes: (Cont.)

$i/ Guaranteed by the Republic of Ecuador.

6/ The undisbursed portion of these loans was as follows:

Total $6 841 768671$4,000,000 Municipality of Quito 270.,000$2,720,000 Republic of Ecuador 2,321,768.71$1, 950,000 Republic of Ecuador 1,950,000.00$ 800,000 Republic of Ecuador 800,000.00$ 165,000 Republic of Ecuador 165, 000.00

$335,000 FRellblic of Ecuador 3,000.00pl; 000 Repuhlic of Ecuador 29jjX

The credit of $2j280,000 authorized on Sept. 16, 1953 was comrplotelyundisbursed on November 30, 1953. The new credit of *2,500,C00 wasauthorized on January 8, 195h.

,J ^.i aoaxtion there are b 170,000 6% Gold Bonds 1911-1945 of the CentralRailway. The "Memoria del Gerente General del Banco Central del Ecuador"for 1952 says that the Government of Ecuador was relieved of this obliga-tion by a contract of May 1, 1926 and that the bondholders must presentany claims to the company in London.

8/ This iqsue went into default in July 1912. Coupons due from July 1912to July 1920 were paid from July 1928 to January 1929; no payments weremade thereafter.

As a result of negotiations between the Council of Foreign Bondholdersand a representative of the Government of Ecuador, the Ecuadorian Congresshas approved the following offer to the bondholders:

a. Interest to be resumed at 1 1/2% per annum in 1954, 2% per amnum in1955 and 2 1/2% per annum thereafter. Interest to be payable semi-annually, the first payment to be on January 1, 1954.

b. A cumulative sinking fund at the rate of 3/4% per annum for 1954 to1958 inclusive and 1% per annum thereafter.

c. No payment on account of interest arrears.

d. A 5% cash bonus to be payable in five equal installments eachJanuary 1 in the years 1954 to 1958 inclusive.

Bondholders, whose bonds are redeemed by the sinking fund, will not beentitled to receive the installments of the cash bonus falling due aftersuch redemption.

9/ Converted to U.S. dollars at 1 1 = $2.80.

Table 1 - Footnotes: (Cont.)

LO/ This company was formed in 1909 to construct a railway in Ecuador.The Ecuadorian Government guaranteed the company interest of 6% on themoney spent for construction, up to an amount of fr 25,000,000 to theextent that the new profits of the traffic will not be sufficient tocover the interest. For this payment the Government pledged the proceedsof the Manabi customs.

These bonds were issued by the company in France. They were to beamortized over a sixty-year period by means of payments either by theguaranty of the Government or from the net receipts of the operationof the road. Interest and amortization payments were made to andincluding the coupon date of October 1913. Service has been suspendedsince that time. Because of internal difficulties the Government wasnot able to fulfil its guarantee and the company has not been able toservice the bonds. The government held the position that it had nodirect obligations to the bondholders. The claims of the company againstthe Government have been the subject of controversy for years withoutany settlement being effected. The "Memoria del Gerente General delBanco Central del Ecuador" for 1953 states that the claims should bethe subject of study to determine validity.

11/ No dollar equivalent is given because no information is readily avail-able as to the currency clauses in the original contract.

12/ This obligation is part of an issue which was authorized in the amountof Gfr 10,000,000 of which only Gfr 87,500 was issued. The bonds wereto be issued through the agency of La Compagnie Francaise des Cheminsde Fer de l'Equateur in connection with the development of the Port ofBahia de Caraquez. The company commenced the issuance of the bonds in1913. In October of that year when the Government failed to make pro-vision for service of the bonds, the Company discontinued issuing them.No interest or amortization has been paid on them. The "Memoria delGerente General del Banco Central del Ecuador" for 1953 states thatthe claims of the bondholders should be the subject of study to deter-mine their validity.

Table 2

Ecuador - Forecast Service on External Public Debt(Expressed in thousanis of U.S. dollars)

Total Summary by currency Total U.S. dollarsYear Debt out- Payments during year U.S. Pounds Debt out- Payments during year

standing Amorti- In- Total dollars sterling standing Amorti- In-Jan. 1 zation terest Jan. 1 zation terest Total

1953 38,606 2,892 654 3,546 3,546 _ 38,437 2,892 654 3,5461954 39,672 2,820 1,055 3,875 3,871 4 39,503 2,819 1,052 3,8711955 40,452 2,993 1,288 4,281 4,276 5 40,286 2,992 1,284 4,2761956 38,550 3,158 1,245 4,403 4,397 6 38,387 3,156 1,241 4,3971957 36,493 2,878 1,i99 4,077 4,071 6 36,332 2,876 1,195 4,0711958 34,116 2,877 1,133 is 01 0 4,004 6 33,958 2,875 1,129 4,0041959 31,192 3,010 1,115 4,125 4,119 6 31,037 3,008 1,111 4,1191960 28,107 3,055 1,041 4,096 4,090 6 27,956 3,053 1,037 4,0901961 24,945 3,106 962 4,068 4,062 6 24,799 3,104 958 4,0621962 21,855 1,999 880 2,879 2,873 6 21,713 1,997 876 2,8731963 19,744 1,958 802 2,760 2,754 6 19,607 1,955 799 2,7541964 17,667 1,739 718 2,457 2,451 6 17,535 1,736 715 2,4511965 15,804 1,696 640 2,336 2,330 6 15,677 1,693 637 2,3301966 13,977 1,652 563 2,215 2,209 6 13,855 1,649 560 2,2091967 12,185 1},516 491 2,007 2,001 6 12,069 1,513 488 2,0011968 10,521 1,527 419 1,946 1,940 6 10,411 1,524 416 1,9401969 18,P838 1,534 343 1,877 1,871 6 8,735 1,531 340 1,8711970 7,137 1,062 274 1 , 3 3 g 1,330 6 7,040 1,058 272 1,301971 5,899 934 222 1,156 1,150 6 5,809 930 220 1,1501972 4,779 900 169 1,069 1,063 6 4,696 896 167 1,0631973 3,681 914 116 1,030 1,024 6 3,606 910 114 1,0241974 2,557 456 75 531 525 6 2,490 452 73 5251975 1,883 218 57 275 269 6 1,825 214 55 269L976 1,447 232 43 275 269 6 1,397 227 42 2691977 983 246 29 275 269 6 943 241 28 2691978 491 235 15 250 244 6 461 230 14 244

Table 3

Exports(Value in US $ millions)

19j6 19k7 19l8 1949 1950 1951 1952

Dananas 0.5 .7 2.7 k.9 7.9 11.2 21.4

Coffee 2.6 3.8 7.0 5.4 18.8 15.7 20.2

cacao 5.5 ih.0 13.2 3.8 IsA 17.7 17.0

Rice 51 .0 ILA4 13.2 5.3 8.1 1.0 11.3Panama Hats 6.i 3.6 3.8 3.8 3,8 3.2 2.8

Balsa Wocod 0.5 0.2 0.3 O.4 0. 1,2 1.0

Phamaceutical Products 0.2 0.3 o.4 0.3 O 0.6 0.8Tagua Nuts 0.8 0.9 o.6 0.6 0.7 o.6 o.4

Others h._ 3.8 2.8 1.5 h.3 3.6 4.1

TOTAL 35.2 42.7 14.0 31.0 63,1 54.8 79.0

SOURCE: Central Banks The values indicate the foreign exchange receiptsof the Central Bank, namely about B0% of the total value of ecrorts.

Table 4

Imports(Value in US $ minions)

1946 1947 1948 19h9 1950 1951 1952

i4achinery & Vebieles 8.2 121 4 15i4 15t7 12.5 17.5 16.0

Foods, Beverages, -Tobacco and Fats 4.h 6.3 5.9 5.8 5.6 8.2 9.6

Textiles 4.8 7.2 6.9 6,0 5.O 6.8 7.9

Xetals andManufactured Goods 321 5.4 6,3 6.3 5.9 6.4 6.8

Chemicals 2.6 3.6 4.h 4.3 4.7 5.5 5.3

Wood, Paper 1.0 1.5 2.0 i.4 1.7 2.l 2.4

Other 6.9 8.4 8.8 6.6 6.3 8.2 8.5

TCTAL 30.7 44.8 49.7 46,1 l.l7 5.0 56.5

SOURCE: Central Bank data - unadjusted.

Table 5

Distribution of Land in the Sierra

Area Number of Percent Of Percent of NWbers(in hectares) Proprietors Arable Land of Proprietors

0 - 1 2,709 0.1 10.21 - 5 10,9l8 1.5 h7.45 - 20 5,813 3.1 24.2

20 - 50 1,613 2.8 6.650 - 200 1,791 9.4 7.5

200 - 500 581 9.9 2.45wo - 1,o0o 21h 8.5 0,8

1,000 - 2,000 130 10.2 o.42,000 and more U2 541.5 0.5

SOURCE: Central Bank

Table 6

Foreign Exchange ReservestFigures in US $ dflions)

Value Surplus Reserves Value Reservesof or Total Percent of .,

Year Exports Deficit As of Dec.31 Change Imports Imports

191s$ 38.1 4s.7 29.4 6.9 30.7 95.81947 h.2 -fl.1 25.6 -12.9 47.9 53.19h8 48.6 1.0 26.9 5.i 44.o 61.11949 35.8 -12.0 14.8 b-5.o 45.o 32.91950 73.7 20.6 35.5 139.9 !2.0 8S.51951 67.0 - 8.4 27.0 23.9 54.3 149.81952 106.5 12.3 39.4 L5.9 66.1 59.6

SOURCE: Central Bank

Table 7

Exports, Imports, Terms of Trade, and Capacity to Import

(Values in US $ million)

Price of Price of Terms of Capacity to ImportPeriod Exports Imports Exports Imports Trade Total Per Capita

1928-29 184 16,7 100.0 100.0 100.0 100.0 100.0

1930-34 11.3 8.0 78.2 97.3 80.4 69.8 63.8

1935-39 12.8 10.8 131.2 202.3 64.5 72.1 58.5

1940-44 20.8 14.6 264.0 333.1 78.1 96.6 69.9

1945-49 39.6 39.0 491.9 478.4 102.8 127.7 81.2

1950 73.7 41.3 637.1 449.2 141.8 234.0 136.9

Source: Central Bank

Table 8

Production, Export and Refining of Petroleum

(In millions of US Gallons)

Production Exports Gasoline Otherof of Crude Refined Produced derived

Period Crude Pet. Crude Domestically U.S. Gls. products

1938 94.6 75.5 15.5 4.6 10.7

1939 97.1 69.8 17.7 5.1 12.3

1940 98.6 67.8 23.0 6.2 24.4

1941 65.4 37.0 25.9 6.5 19.9

1942 95.7 66.8 24.5 7.2 21.8

1943 97.2 63.4 34.6 8.1 25.9

1944 121.5 77.3 38.1 8.9 28.6

1945 109.8 75.5 38.7 10.0 25.3

1946 97,6 50.5 45.2 12.3 32.4

1947 99.1 41.6 53.9 16.6 36.7

1948 107.7 60.4 57.7 18.7 38.6

1949 107.6 37.3 66.5 21.6 44.3

1950 fl0.5 41.9 67.9 22.9 44.6

1951 113.7 42.2 71.5 24.0 47.1

1952 119.3 35.7 74.4 24.5 49.4

Source: Ministry of Economy, Departnent of Mining and Petroleum

Table 9

Estimate of Gasoline Consumption

(In thousands of U.S. gallons)

l4anistry ofYears Ing. J. Pons Beyster Co. Public Works

1950 241845.17

1951 28,182.506

1952 32,163,174

1953 37,500

1954 38,000 40,000 44,300

1955 41,000 45,0400 48,000

1956 44,9000 50,000 52,000

1957 47,000 55,000 56,000

1958 5oJOOO 60,000 6oo,coo

1959 53,000 60,000 61,000

1960 56,000 60,000 62,000

1961 59,000 60,,000 63,000

1962 62,000 60,000 63,000

1963 65,000 60,000 64,000

1964 68,000 60,o00 64,ooo

Sources: Central BankMinistry of Public Works

Table 10

Sources of Changes in Money Supply,January - August of each year

(in million sucres)

Principal SourcesCentral Ban Credit

Changes Variation of Governiment Commercialin Money International and Bank Credit

Year Supply Reserves Total Entities Banks Public to the pub-

1 2 3 4 .6 7 . , lic

1948 + 38.3 - 30.2 + 24.8 - 23.5 +14.0 +34.3 + 38.1

1949 + h7-3 -136.5 +153.0 , 19.6 +134.2 - 0.8 ± 41.5

1950 ±133.4 J-1hO.4 - 3.3 f 29.3 - 63.0 t30.4 I 25.8

1i51 -19.1 - 9o.5 t64.6 . 15.6 - 4.9 p53.9 + I1.2

1952 ±157.8 L- 77.4 4103.1 t 29.8 t n.h j61.9 1 41.5

2953 ± 85.o -122.8 +192.2 t 75.1 i 37.5 t79.6 I 475

Source: From Central Bank data.

Columns 3, 5 and 8 do not add to 2, because of changes in items notincluded in money sueply such as variations of official deposits andtime deposits held by the public.

Table 11

Expenditures of the Central Government(in million sucres)

__ 1941 1943_l9fl194 19146 1946 19? .1948 - 12949 1950 1951 -192

Legislative 0.5 0.6 0.8 2.3 1.7 2.0 1.5 3.5 - 4.6 4.5 4.6

Judicial 2.6 2.6 2.9 3.3 4.1 4.9 5.3 4.6 7.0 9.7 9.7 9.7

Executive 98.6 112.3 142.6 191.7 223.1 271.9 343-.8 331.5 353.2 325.6 386.1 398.9

Various Organ. 0.9 1.0 1.3 2.2 2.8 3-3 20.8 - - 4.6 5.2 5.6

Public Debt 2.2 3.3 13.0 8.5 6.7 14.4 17.6 20.3 20.3 21.0 31.6 35.2

Electoral 0.6 - - - 0.7 1.1 2.5 2.6 2.6 1.4 1.0 1.6

Total 109.0 117.8 161.4 209.1 252.6 297.5 391-5 373.2 390.6 388.7 438.1 455.6

Index 100.0 108.1 148.1 171.8 231.7 272.9 359.2 341.4 358-3 356.6 401.9 418.0

Price Index(quito) 100.0 392.0 338.0 354.0 385.0 377.0 369.0 427.0 435.0

Source: Official Statistics.

Table 12

Holdings of domestic bonds(million sucres)

Bonds ofthe government

Mortgage MFunicipal and officialHIolders Bonds Bonds Entities Total %

Social Security 89.7 4o.2 31.3 16 1.1h 39.9

Insurancecompanies 19.3 3.1 22.4 5.6

PrivateBanks 28.0 2.8 30.8 7.6

DevelopmentBanks 0.8 0.8 0.2

StabilizationFund 54.4 54-4 13.5

Public 134.3 134.3 33.2

Total 272.1 46.3 85.7 404.1 100.0

Source: Central Bank

Table 13

Investment of Central Government andPublic Entities

1950 - 1952(in million sucres)

1950 1952fo t-al Total Y

Central Government 52.0 87.4 20.4

Municipalities 75.7 102.2 23.9

Provincial Councils 10.5 17.9 4.2

Juntas 23.8 61. 8 14.5

k.gricultural Institutions 20.9 16.6 3.9

State Railways 15.9 39.2 20.8

Public Assistance Board 5.5 5.2 1.2

Firemen 0.9 9.1 2.1

Red Cross - 0.5 0.1

Social Security 12.5 5.8 1..h

Public Health 5.2 19.8 4.6

Sports Associations 9.0 10.0 2.3

?ublic Services 2.6 2.4 o.6

234.5 100 428.1 100.0

Source: Central Bank

APPENDIX A

ECUADOR 0 c C oTRANSPORTATION SAORN O

ESMERALCAS ' $/

ALL WEATHER ROADS

OTHER ROADS CARt lULCAN /44444+ RAILROADS IN I

OPERATION TAIAZO....... PROVL.... / ..

INTERNATIDNAL ... .--7.ISARRABOUNDARIES > , IND

MOUNTAINS 3000 M.'. AND OVER ' \ ,_+i ..... - ' .

c. .coi,ti50 QUITO

MnME

IA ... :-- I.TN>'>AS0LpGA-- PORiOVIEJO OLPEI fTENA

\ ' 5,' ,' . .... AMbA \\- W

% \IJIPIJAPA * RA.LkA ,

F \\ PAL iSTINA . , ,. /'.i > .'

R s . z , 6~~~UARANDAw h - I

\;;---- wlz *,,BT, (BABAHO" .RL, OBDTAMBA

SALINS 4 GUAYAO i; ,,' ,Mt.i -

Bouc~~~~~~e ~MACAS

B ( ; v b < 'l~~~~CUNG.''*,G

. ~~~~~~PLERTD8IV RAHL , PROVINCESA'~~~~~~~~~~~~~~~~~~~~~~~~CSA

1. ESMENALDAS

1>/ ~~~~@ s Ro6^A ^ I E u~~~~~~2 tMoANARBIo

J, &~~~~~~~~ALOS RtIDS4. GUAYAS

I ' 5~~~~~~~~~S EL 0RO

P ,{ .......... . ..... , \ ... I k , SIERRA:3. ~~~~~~~~~~~~~& OARCMI

CATACOCHA/.? rGj IMBA8URAJ PIOHINCHA

St COTOPAXIL7 IS i 1t T-I-.Q'- 10 TUNGURAHUA

/-N CfI 11~~~~~~~~~~~~~~~I. BOLIVAR

k7 MACARW-\ OARIAMAN8A IP CHIMBORAZO|'-..-\ 13 . / I1 CANAR

/ ~~~~~~~4. AZUAY

IS LOJA( ~~~~~~ORIENrE.;

\' 9 ' 6It NAPOPASTAZA,f \l r ZAMORA,SANTIAGO

APPENDIX R

07

V* II, i

, C ,,,'

0 i,10 j DAIRt .g X ~~~AGRICULTURAL PRODUCTION

S t ~ ~~,/'EUAO

S T 2> /! Imm G~~~EREALS, POTATOES

K @1 >,/ :-SGRCANE

A -''_' S.: . .: CAGOTT BANANAS

or AND CO CONUTS

(/~~~~~~~~ C OFFEE