RETURN TO T1 A I -- - c REPORTS DESKI K E' " . R E P ,,, S D S Report No. W H- 132a vv I r""," I I CIRCULATING COPY flAW XAl=rc-rTO IBE RETURNED TO REPORTS DRSIK IN GENERAL FILES This report was prepared for use within the Bank and its affiliated organizations. Tk-u A- -at am.a ..onstbility Sa. It. a. o cm pnUaU . s i . J. heport ...-cap w .w. .ww re ssy Ww s u .u u yu vn w wa. Ire off r FuMuy not be published nor may It be quoted as representing their views. TMTDMkrTnMKAT AMAMW UT D DrMQTVTD 'KTCTTA ATT T1M1T tn1DkAVKrr TTVD DATTN AT iTVHTAMVAT A.QCIAT nM CURRENT ECONOMIC POSITION AND PROSPECTS f1% T- HONDURAS January 17, 1964 Department of Operations Western Hemisphere .TT WT. "- 1- ^TTTIT AT -T Le r C U. S. $1.O00 = Z Lempïras (li) rk A n T n fl n CATM m a0 rage vo. DATC DAmA CTT"'RADTY ATT1 CONTTUT TTrT' . lHlE SEUI UUG Recent Economic Trends 1 HI. AGRICULTURE AND FORESTRY 2 Land Settlement and Credit 3 Outlook for Major Crops 5 Forestry 8 !I!. INDLUSTRY AND MINING 8 IV. INTERNAL FINANCES AND PUBLIC INVESTMENT 10 A. Monetary Developments 10 B. Fiscal Developments 11 Expenditures 12 Revenues 12 C. Public Investment and Planning 1 Investment Planning 17 V. FOREIGN TRADE AND PAYMENTS 18 VI. ECONOMIC PROSPECTS AND CREDITWORTHINESS 23 BASIC DATA Aree: 44,480 square miles Populationi Estimated mid-1962: 1.95 million Rate of Growth: about 3, percent a year i JJZit Li_VUUUv; 1701 - tyo million lempiras 1962 - 8h0 million lempiras (estimated) Per CaEita GNP 1962: About $200 Originof Gross Domestic Product Percent of GDP Agriculture and Forestry 9 Manufacturing 11 Transport and Comerce 19 Public Administration and Other Services 17 Other 4 100 Government Finances Million Lempiras 1961 1962 Total Expenditures 77 TT Total Current Revenues 73 75 Deficit 5 8 Financed by: Net External Credit 2 3 Net Domestic Credit 3 4 Other - 1 Balance of Payments U.S. $ Millions 1961 1962 (Prelirr) Exports f.o.b. 84 2 Imports f.o.b. 66 7), Net Services and Donations - 8 -11 Current Balance - - Capital Inflow -1 3 Errors and Omissions -1 3 Surplus/Deficit -2 2 Composition of Exports by Value: Bananas Coffee Timber (Percent) 1961 i3 12 1n 1962 (prelim.) 16 14 9 Foreign Exchange Reserves Gross (Central Bank) Net December 1962 13.3 6.0 August 1963 14.8 10.3 37fternal Public Debt U.S. $ Millions Total outstanding December 31, 1962 39,8 Disbursed 19.1 1963 Service Payments as Percentage of 1963 est. export earnings 2.9% Cost of Living Index (1948=100) 1961 134 1962 136 QTTMADV AM10A PjMTTTQT0AMQ -0 ~ S LJAL _~ILkA~ kA1 VU )U UIM; Lt;Cc) UX;U.LU'U_U VU U1.u Central American countries, both in terms of natural and human resources. Ih cuntr±y s UL.)L UL_ VUuJ_iII t W 1L;:)L iicJAVq_ Ufz:;:i drr.CVCtUtU Uy C UU.LU,-.. lent political history that has been marked by frequent upheavals since it became independent in The most recent one took place in early October 1963, les3 than two weeks before the national elections were to have been held, f nThe democratically elected Administration that came to power in December 1957 was able to provide political stability after years of tur- moil, and tooK a number or important steps to strengthen and diversiry the economy. With substantial external assistance, roads were improved, a power development program was started, and the activities of the National Development Bank were expanded, The education system was centralized and its budget was greatly increased. 30 The Government's efforts to promote economic growth were thwarted in 1960-1961 by declining exports,and the rise in GNP during these two years barely matched population growth, Blowdowns, bad weather, and Panama disease cut down banana exports in 1960, and cotton exports fell sharply. In 1961, the recovery of banana exports was offset by lower shipments of coffee and timber, but in 1962 a marked recovery took place and GNP in- creased by five percent or more. This upswing has been due in large part to a record level of exports and a substantial increase in industrial in- vestment. The upward trend continued in 1963. 4. Agricultural production has grown somewhat faster than population during the past decade, with particularly large increases in corn and beans The chief source of this increased output has been an expansion of the area under cultivation, which should continue to Drovide an important source of agricultural expansion. But as the western lands become scarcer, more re- liance will have to be placed on improved techniques. Developments in the last year or two suggest that this change of emphasis is beginning to take place. Among these developments are the increased lending activity of the National Development Bank, particularly for tobacco, cotton and livestock, which are nroduced mainly on the larger farm iinits. . Another stimulus to agricultural exnansion hns been the Western Hiph_ way Extension which has been partly financed by IDA. This road is almost comnleted and will onnn a I rgp nnrt nf the wes.tern reaion, which shni stimulate agricultural production for the local market. Highway construction nnd imnrnvPmAnf in rainns of high agricutp1+.n e n+.ialn cntinue to Inesewre high priority. Other important developments have been the technical assis- t.,qn(-. hvx nfAfPP~ Pvnr+- +. gTr-Ters, and the lInn of extension actJy"t-Jes with the National Development Bankts lending. All of these developments are a.giu ltur a efavoal ou-Jo o Honuran agriculture. - ii - Til ver re'nly manfatuin has nrown -rathepr slrnly in 14rn_ duras. The main obstacles to industrial development were inadequate and neurial talerr that was due in part to the persistence of the "banana re -1-4 0SC - Si -4UIO 0±+ ii i. ,O U 01r country?s infrastructure has been providing the basis for accelerated in-- grOWth1 and the prouclon .oLI 01nIffULarL 1.J 0'.i1-L. 1 rapidly than the rest of the economy, and reached an estimated eight percent in 1562o The immediate stimulus iur this indusurial expansiou iS ouVm1n mainly from the formation of the Central American Common Market which is creating conditions that are making manufacturing more proituaUe than importing and merchandising in certain lines, 7. The principal development in Hondurast foreign trade in recent years has been the growing diversification of exports, This trend was especially noticeable in 1962 when total exports rose by nearly $8 million, while the recorded value of banana exports fell by $2 million. Other exports - notably meat, cotton, corn, beans, and a growing list of manufactured pro- ducts - increased by some $10 million over 1961, or nearly one-thirdL While the relatively large exports of corn and beans were the result of bumper crops, the general outlook for a continued growth in other exports is favorable, S., The Government has followed a conservative fiscal policy in recent years by limiting the budget deficit to an amount that could be financed by external credits and modest internal borrowing. Central Government expendi- tures have risen at a moderate rate in recent years, and have amounted to approximately ten percent of GNP. Expenditures for education, which deserve high priority, accounted for most of the increase in total expenditures be-- tween 1957 and 1962, and now absorb one-fifth of the budget. The Government has exercised commendable restraint in keeping down other outlays, notably defense and general administration. 14ost -f the rther categories of ex.- penditure, including those for health and housing, have hardly increased ,qi. ;III - 9. Tax receipts, which have amounted to 9-10 percent of GNP, have risen about three percent a year in recent years. A much more rapid growth in revenues can be expected during the next few years as a conseauence of an improvement in the financial condition of the banana companies (see para- granh 22) leading to higher income tax receints. and hicher inrt tax re- ceipts from substantial increases in dutiable consumer imports which have Inged behind the growth in incomes in recent years- These trends should produce an average annual increase in total tax receipts of L7-8 million. or +n prncent a venr Howmvr, thp PYnentR8 innrPnse in nrrent exnndi- tures will probably absorb most of this rise in revenues. The annual in- rease~o 11n ci-lreent oanyss ion~ .-nAiin,nI. n1na~- j1VT- +.nc_nur±-r qc7Pr-qc least L3 million a year over the next few years. Thus, while some increase n P +vo l nnn+ nm + c riince tn" hk rn .ed i+ T.T 11 m_kn nnly I m annr1qt contribution to the financing of public investment in the years ahead, In 4.. 1, 0 1 0 LL l AJ OV L 5± .LL.L.. 5*. SCt .flJLL. j J.. 55 . LAASA., C - iii - growing nronertion of its investment reauirements cut of the country's own resources, However, this is likely to occur only if the tax structure -.s Pr-ina1ly modified in simh a way that the growth of the economy will generate at least a corresponding growth in tax receipts, taking into account the strur-+n-r1 chonz in . then.onoi thit qrr A1reqv under wav. in- Ber-cue of +Thes lowr. leveal o)f publio znurcgq Vqriqatinns in the level of public investment in recent years have reflected mainly the supply and rater: of dis,U-See-nt of e~~nlcredits- Pn_ndur_-An Pulic in-vesfPn --U relied heavily on external financing, which is expected to amount to about concentrated mainly on highways and electric power. The high priority and the external financing agencies that these services were extremely the accelerated growth and diversification of the economy, ll If the infrastructure projects now under way are completed as planned and the sound economic management o the recent paus is conuinued, Honuras- growth prospects for the next few years are good. The export sector and in- dustrial production for internal consumption are expected to be the 1ain sources of growth. If the plans and programs now under way to expand exports ,b rn -- 1 1 are moderately successful, net export receipts could rise Irom 1J_L.mipn in 1962 to $85 million in 1967 (7.5 percent a year), 12, The industrial plants recently established, under construction, and being planned will reinforce the growth trends that have been set in motion by the export sector, The pulp and paper project and the production and processing of fruits and vegetables are expected to provide some of the impetus for continued and perhaps accelerated growth in the late 1960ts. Sizeable public outlays for roads, ports, and electric power will be neaded to facilitate and sustain these developments, At least $40 million of new external borrowing during the next couple of years will be needed for high priority projects in these sectors even if internal savings rise above thetr present level. 13. The effect of the recent political changes on business confidence is difficult to judge. Thus far, the plans of the United Fruit Company and other private investors in Honduras seem to have been unaffectedo However, if the present Government fails to win popular support, there is a danger that business confidence could be damagedo At the present time, there is no evidence that either the basic trends in the economy or Hon- durast creditworthiness have been or will be adversely affected by the recent political developments. 1. The external public debt totalled about $42 million in mid-1963. Service payments in 1963 are $2,, million, or about four percent of ex- pected net exnort receints. Scheduled service payments average a little under $3 million during the remaining 1960's, or less than four percent of poet~ntenr eeps - iv - 15. In view of its low debt-service ratio and favorable growth pros- pects, Honduras should be able to finance a substantial portion of its external nnital ruirements on conventionn terms- At the same time. it would clearly be helpful if some blend of "soft" loans could be con- tinnip in nrrjair +.n m -or+ +ho rn+.gr nf u-rniath in thne nonntry.qs PYternql debt burden. If Honduras' estimated minimum requirements of $40 million for the next two years were supplied + r n n +n2l +.lrmn debt service would rise to some eight percent of export receipts by 1967, This uTnn(lA wo 4-nm .n Ankl a , n + 0 A ,nh+~ _narnn vo 4 v+hin +.T70 vo n Honduras will have to continue heavy external borrowing after 1965 if it cst or ary y ou Iue p-vLlc s ment program nrated eo pofmote a garowt factory rate of growth. i. THE BETTIIG The last economic report on Honduras (VH-95a) issued in May 1960, concluded that with political stability and sound fiscal and monetary policies, the growth prospects of the Honduran economy were reasonably good, The report projected an annual increase in national income of about five percent and a minimum growth in export receipts of three percent> Recent trends in the economy tend to confirm the overall appraisal in the report. Political and economic conditions were largely fulfilled, aac while the rate of growth has fallen short of the projected levels, exports have done somewhat better, 2,, Honduras is generally considered to be the least developed of the Central American countries, both in terms of natural and human resources0 Except for the fertile plains on the north coast, its terrain is very rugged, particularly in the western part where most of the population lives, Transport is difficult and expensive, and until recently, the western region had no road connections with the rest of the country0 Even the two main eccnomic and population centres - Teaucigalpa and San Pedro - are linked by a poor road, 3. Until recently, the two U.S-cwined banana companies played a pre- dominant and pervasive role in Honduras They formed an eonomv of their own on the north coast, with San Pedro Sula as its industrial and commercial centre. The banana cmoansP wrp by fnr the largest emploers, invewrs, and taxpayers in the country, but their importance went beyond their diret contributions to the econnmy_ For they were rai+innonl1 regardA an +h bellwether of the economy and the business community generally took its cue frOm them - a condiJ.ton oft en describDed as. the "banan..a repbli psycosi" However, this has been changing in recent years0 As communications improve, theww not coast1 isgaulybcmigitgae ithUL te rest ofL Ute economylu, and the expansion df agriculture and industry is reducing the predominance of h, nanna I- The countryts basiceooi-ekesshv----------a;u~ -- - --j Li~~t-UI.L c6& CVa1t Ut ,,UL bulent political history that has been marked by frequent upheavals since it became1__L idpnetn12111hemos recentu one- took place in1 ear-ly UOoer- 1963, less than two weeks before the national elections were to have been heli. Recent Economic Trends From 1948 to 1953, gross national product rose rapidly, with exports pruinUMg LIe main stimulus, Real income (which takes into account changes in the terms of trade) increased by an average of 6.5 percent per year during this period After 1953, however, the expansion was slowed by lower coffee prices and declining banana output caused by blowdowns, Panama disease, and labor difficulties. These unfavorable developments were aggravated by poli- tical instability from 1954 to 1957. Nevertheless, the gross national pro- duct did grow at an average annual rate of about four percent during this period. - 2 - 6 T-e lemoratc - I ly" el1ected A A Ai4-i_t-4tion that,4 c 4me -_ A December 19.57 was able to provide political stability after years of tur.- no g_ a _. UkJ'JX U IU5 lul Uq _ VL -lflpvl UJcuiu 0 Lq--P UV o U.L V:;116V1a-1 aUll U-LVU.L C- L the economy. With substantial external assistance, roads were improved, a power ueveupmenu program was started, and the actv±U.UL;i Vue it 1dUj1CL Development Bank were expanded, The education system was centralized and ius budget was greatly increased. t. The GovernmentIs efforts to promote economic growth were thwarred in 1960-1961 by declining exports, and the rise in GNP during these two years barely matched population growth, Blowdowns, bad weather, and Panama disease cut down banana production in 1960, and cotton exports fell sharply. But in 1961, the reouvnery of banana exports was offset by lower shipments of coffee and timber. In 1962, a marked recovery took place and GNP in- creased by five percent or more. This upswing has been due in large part to a record level of exports and a substantial increase in industrial in- vestment. The upward trend continued in 1963, II, AGRICULTURE AND FORESTRY 8. Agriculture and forestry account for nearly half the gross domestic product, produce about 90 percent of total exports, and employ about three- quarters of the labor force. As in most underdeveloped countries, agricul- ture is the least efficient sector of the Honduran economy; nevertheless, agricultural production grew somewhat faster than population during the past decade, with particularly large increases in corn and beanso 9. The chief source of increased production was an expansion of the area under cultivationj rather than higher vields. This is not surnrisin57 in view of the large number of small farmers in the production of most crops. which makes it very difficult to increase vields throiih the use of better techniques, 1O An increase in the area under cultivation should continue to pro- vide an imnortnnt source of agriclitural rnxansion Rutl. as the western lands become scarcer, more reliance will have to be placed on improved tenhniques_ Develnnments in the Int ar nor .n two e+.that +.his change of emphasis is beginning to take place. Among these developments are the i nrnqtmd 1Pl i na acivi tyi of thei nationrnl DePvelopmmennt e ank, A p ilanrl t for tobacco, cotton and livestock, which are produced mainly on the larger farm u1nits0z The PmnLk is promoting an expansion an+mroeet I,th output of these products which have good export markets, It is doing this by ~ .4 ledJ P^ oe . fetlzr an vD.U ree A.4 ~C.Jng1I stckU The official statistics, which apparently underestimate yields (par- ticularly in the case of grains), may also overstate the area under cultivation, - 3 - l1. Another stimulus to agricultural expansion has been the Western Highway Extensicn which has been partly financed by IDA, This road is aLnost completed an(d will open a large part of the western region, which should stimulate agricultural production for the local market. Highway construction and improvement in regions of high agricultural potential continue to deserve high priority. l2, Other important developments have been the technical assistance by coffee exporters to growers, and the linking of extension activities with the National Development Bank3s lending. All of these developments are of recent origin and provide the basis for a favorable outlook for Honduran agriculture, Land Settlement and Credit 13. In order to develop the unused but accessible, arable lands, the Government created an Agrarian Institute in 196l The Institute is re- sponsible for imDlementing the Agrarian Reform Law enacted in 1962, and is financed by annual budget appropriations (L1 million in 1962). It has started a small project to settle 100 families on about 1,200 hectares of state-owned land on the south coast, but progress has been disappoint.. ingly slow on this nroiect hecause of noor organization. About 10-000 hectares of additional unused state lands on the south coast could be settled. althourh a considrahl nmnnt of investment woild h P nired to clear these lands, The settlement of these and other lands will require rnibst.3ntinI finnncinl and tehia asfrrom -Hp mifccirlp nnri -;h Agrarian Institute would be well advised to use its modest appropriation n nrnare a onmnrehensive land settlemQnt +roram i.Th vion Il iP necessary. 14, The National Development Bank, a state institution created in 195-, J-s the chief So-ce-f arcltural crcdit, and has provided anincre----- ingly important stimulus to agricultural expansion, Although the commer.- Bank is the only lender for agricultural investment and the only source of cr di fo smnal Iid L ar er ± IJ. Mile 1.c a, 4-4 _-~ 1- 1IJ 4-Jue 44- .0-- IIdLU± losses because of high administrative costs and slow repayments, A new management has recently tUaen over the Bank, and tighter collectxon pro- cedures have been introduced. In addition to its credit operations, the cak owns and operates a rice plantation, two coffee plantations, two cotton gins, a milk products plant, storage bins, and a feed concentrate plant. Two loans irom the Inter-American Bank in lye amounting to 002 million have substantially increased the Bank7s lending capacity. Of the 8oy millon, "4 million will be used for a high priority, three-year live- stock program. Some of the rest will be used for investment, but most of it will be used for crop financing of tobacco, cotton, grains, sugar, and other crops. Up to a third of the IDB funds may be used to finance local costs. The terms of the National Development Bank loans vary, with amor.- tization periods up to twelve years; the interest rate is a uniform eight percent, will depend on whether it can provide the internal funds to complement 'te el -ns _1 eL. w o.~V fJ te 1--.fimiUttiAL.os o th BanOkIs a ully. U±,u4 4. L.*OO Ut bonds and on its ability to compete with private banks for deposits, it w x av U U vu iuLliuu ou qe .Ly mIC1L1ll.Y Ull cun uILIUCLl vuu8u tpe jj up l.ia-L U-ull of L2 million. 160 The effectiveness of the Bank's lending to small farmers will depend largely on tne extensiun ser-vies provided by the Servicio Tecnico inter- americano de Cooperacion Agricola (STICA) which is an autonomous unit in the Ministry of Natural Resourceso STICA receives financial and technical assistance from the US., and employs about 200 extension workers" Its efforts are being concentrated on corn, beans, and livestock. Under an agreement with the National Bank, it provides technical assistance to re- cipients of Bank loans, as well as farmers generally. An even closer in- tegration between the Bank1s credit operations and STICA's technical assis- tance would enhance the effectiveness of both, LOANS BY THE NATIONAL DEVELOPMENT BANK, 1961-1963 Number of T,oans Proi 1962 1961 1962 1963 (million lPnnir qI Agriculuirp. 0 c)n nAAq Cotton _1786 2,78 3,90 nfloff' 1,894 l19 1 l. lAn Corn 2,o0n8 033 0.47 0.55 0pnrlc n 10 00 Tobacco 88 0,01 0037 2,00 4.7 0V, u %u u *u Sugar Cane 3315 00c6 0.08 olo 1hih+. Ev--+on-m 1 / - 1 10I Cattle Fattening 37 0.81 0.66 n,a, Industry 164 023 0,85 1.30 Discounts n.a, 0,98 1.20 1100 Agriculture 0>J U4, n.aa Industry o.41 0.67 nna. TOTAL 7.70 13.75 17.15 / Including loans for repayment of debts to private suppliers. Source: Banco Nacional de Fomento. ~[0 3 L s LAN nos F tJ _L jr LfJ±~ IU~ tL~U~ U_'k. L-L Upj _LII 11VILkULa O -4U L0 6 -1 1 small plots, ranging from one to eight acres. Because of these snall unitS, Storage and distribution are highly inadequateo The storage facilities of A-1-n . the National Development BLnk can Only aCcummoudate about n ptrcentu an- nual commercial production. But even this capacity is not always used be- cause farmers are forced to sell their output at low prices to meel their immediate needs, In the western regions, corn is shipped by dealers to El Salvador and Guatemala for storage, and then reimported at mid-year uen prices reach their peak, The National Bank has been trying to support prices in order to even out seasonal fluctuations; but it has not beer. successful because of inadequate storage and buying capacity. Additional storage faGilities and an effective price support program with adequate crop finan- cing would provide strong incentives for increasing production 180 A bumper crop and the Western Highway Extension to the El Salvador border helped to produce a record volume of corn exports, mostly to El Salvador, which reached 40,000 tons in 1962 (13 percent of total production)o The completion of the A1estern Highway, together with the feeder roads now being studied, will significantly lower transport costs to El Salvador and facilitate exports. 19. Under the stimulus of rising prices in the local and neighboring export markets, the production of beans increased rapidly in the last decade. Exports have risen sharply in the last few years: out of a total production of about 37,000 metric tons in 1962, about 13,000 with a total value of $1,7 million were exported, Beans can be grown easily, even on poor landso Thus, with prices in El Salvador continuing at their present level, production and exports could rise considerably during the next few years, through a mode:-ate expansion in acreage and the use of better seed and cultivation methods, 20, Honduras is almost self-sufficient in rice, which is grown without irrigation on units which are relatively small for rice cultivation. Pro- duction increased slowly during the past decade and is unlikely to (in runi-i better in the future, unless suitable new lands are brought into production, But this will reanire qibtantin1 investment_ Additional qt.onP fAeilitiPq particularly in the western part of the country, would stimulate production: rice nroducers now sell their outnut to Salv9orPn dealers. who qtnrt. it nnri resell it when prices are high. 21. Honduras has traditionally been an importer of sugar, but has become sel f~~f'fI ~i (it dring, the pnat +rTwion-yea b7lihereo morsacune o about half of internal consumption in the early 1950ts, they were less than teonth in 1961, nd i-n 1963 there, mayr be a 1 ----4 exprts_plu01-rt of "panela" (brown sugar loaf) vary from year to year, but consumers are be flVAUraul h g ua sard i prodce csin weoeils on be falling., Virtually all the granulated sugar is produced in two mills on thJ noth Zoat.L UnerIth stimulus of protection andu igh6 intlernla-l priLes,' - 6 - capacity has been expanded in recent years. A substantial increase in sugar production for the internal market, partly at the expense of panela, can be expected. However, unless the abnormally high world prices continue, exports are unlikely to be significant because Honduras is a high-cost producero 22. The production and export of bananas have not grown during the past decade because of the problems of the United Fruit Company, The recently initiated expansion programs of the two banana companies should give the economy a strong psychological lift, The Standard Fruit Company has 11,000 acres of disease-resistant varieties in production and plans to add 2,500 acres to be cultivated by independent producers. This addition, together with a very successful program to raise vieldsl should raise shipments from six million stems in 1962 to eight million stems (about twelve million boxes) within a few vears. The United Fruit Company., which had about 1L,000 acres in production at the end of 1962, has started a program to produca disease- resistant varieties and to increase total acreage to 30.000 acres over a five-year period0 This should raise production above the present level of six million stems to a minimum of ninn to t.-n million stems of the disnase-. resistant variety by 1967, when the $15 million program is due to be com- nleted. All the hananan will be hoed within a vy or tvn The nroximity of Honduras to the United States market, the excellent banana lands, and the lnvpstmnta nf"hn.h r-nypanies in lands,q buiild1ing, railroads,z aqndl othrr facilities provide a solid basis for expansion. The amendments to the land and irritation to the banana companies. Despite some difficulties in recent 'Y -- - - U* JjCs~ J~ L ~ 4~~UV~ LLrAJ. 1 LAI %,VAL C2%dA,U0 -"1 V-L~U.L their respective unions which account for about 60 percent of total trade iuo us tne uL± ±L go in noncura Un very snaLL plots: there are about 40,000 producers for some 100,000 hectares, The trees planted at the end of the period of high prices started to yield in 1960, and produc- tion rose from 330,000 bags (60 kg,) in 1958/59 to 415,000 bags in 1962/630 Part of this expansion was stimulated by exporters, who have financed a me=. jor share of the crop. They are also providing technical assistance and feuilizers to their producers, and have succeeded in substantially increa- sing yields. 24. The unadjusted basic quota for Honduras under the new International Coffee Agreement is 285,000 bags. However, increased production in 1962/63 raised exports to an estimated 340,000 bags. Part of this increase is the result cf a reduction in clandestine exports through Guatemala and El Sal- vador (which have amounted to about 40,000 bags in recent years) because the Western Highway has given producers access to Puerto Cortes. Produc-, tion can be expected to rise by 5-10 percent a year over the next few years, To export this higher output, Honduras will have to obtain a higher quota under the Agreement; otherwise, exports will have to be cut back to the level of the quota, Increased production would come from new plantings and higher yields, Technical assistance from private sources and from the Cof- fee Office in the National Development Bank are helping to improve quality and yields, The Office receives $1 for each 100 lb. bag of coffee produced, =7 2!, Cotton has been grown in Honduras on a small scale for some time, the Comayagua valley, north of Tegucigalpa, grew rapidly in i956-57, But UU.:~U. U±.. i)_Lc-. L_1L ailu UdU ~ Ieu WU U1q_LLu P1-U LLU UL I _L UJ1 _L0.UU U"LU1) .L." 1957 to less than 4,000 tons in 1960, When cotton was planted on more Suau.e Z.iUz in ne south, prouuction recovereu oua eu1l ±eve.L 11 1961. It is estimated that up to 60,000 acres can be put into cotton: plantings amounted to luQou acres in 1961, 15,000 in 1962, and are expeu- ted to reach 20,000 acres in 1963, The National Development Bank has been the prime mover in the growth of cotton production, I, as seems likely, the present rate at which new land is brought into cultivation continues, production could more than double in the next five years. 2 o Tobacco is grown in the westernmost highlands, in the vicinity of Copan. Until 1961, it was produced almost exclusively for the local mar.- ket. In the last two years, however, two projects have been started to produce Cuban-type cigar tobacco: one is sponsored by the National Develop- ment Bank and the other by a group of United States, Cuban and Honduran -in vestors. A small but growing quantity of high-quality tobacco is being shipped to the U.S. for cigar-making. Costs of production are low, and with an expansion of acreage, exports could reach several million dollars within a few years. 27 Honduras is well suited for growing fruits and vegetableso A cucumber farm was started in 1961, but after an initial success, it ran into distribution problems in the U.S. STICA has been investigating the possibilities of exporting fresh pineapples which are now produced in abundance. The Standard Fruit Company which exports a small quantity of citrus fruits has been growing pineapples on an experimental basis, and the results are promising. 28. Meat exports have grown rapidly in recent years from $o5 million in 1959 to T2.6 million in 1962. These exports have been coine mainly to the United States where prices have been good, Exports of live cattle and hogs to Guatemala have been rising steadily and reached a level of about $3 million in 1961. 29, There are 1,7-1.8 million head of cattle in Honduras. Car.:ass weights average about 250 lbs.. and could be increased substantialIv- The purch:ses of cattle on the basis of weight rather than height by the newly established slaughterhouses i. bringing heaviPr animals tn the market_q The National Development Bank has recently begun a three-year livestock program to improve the stock through the imnnrt;tin nf hreding cattle and to develon mannaed pastures. 30. The recent increase in beef exports has been achieved at the cost of loweTPr domestc! supplies wichn have fallen fro 1 - lbs0 p -inrl9 to an estimated 12 lbs. in 1962. In Honduras, there seems to be a strong a continuation of favorable prices in the U.S. and a reasonably successful livestock program, exports of frozen meat should rise from about 4,500 m~lluu'-U W'iiti _L11 L±Pvr WA) OVPIVZ jjptJUV 111t5I-L.L. UV~L10T .i.J1 L/ SJj. V. % animals are unlikely to increase,, The expansion in the production of pork -ould be auequate to meu te gruwt in inuernal uemand, Forestry 31. About nail cf Honauras is coverea oy forests; tnese incluue some tw million hectares of pine, and about 2.5 million hectares of tropical hard- woods, particularly mahogany and cedar. Cutting has been confined almaSt entirely to pine. There are about 75 saw-mills, but only a few are of sig- nificant size. Although a modern Forestry Law was enacted in 1961, there is still no effective forest service because of the scarcity of funds and personnel. The FAO is carrying out a survey of forest resources, which will be completed in two years. This survey together with a previous one done in 1958, will provide a complete inventory of Hondurast pine resources, which could be the source of sizeable exports of timber products, including paper, 32. Timber exports now consist almost entirely of pine. High quality pine goes to Europe, but most of the large amount of lower quality pine is sold in neighboring countries and in the Caribbean area. The loss of the Cuban market and the very sharp drop in sales to Venezuela, due to import restrictions and the decline of construction activity, have depres- sed exports. While these losses have been partly offset by larger ship- ments of high quality timber to Britain and Germany, and by increased sales (often at unprofitable prices) to El Salvador, the future outlook for tim- ber exports is not encouraging unless the Venezuelan market is restored or new markets are found, III. INDUSTRY AND MINING 33. Until very recently, manufacturing in Honduras has grown rather sl.Tlv and has been limited almost entirely to processed foods, beverages, tobacco products, textiles, and furniture. The main obstacles to industrial develoPnment iupre innennate and costly transnort and electric power. as well as the scarcity of entrepreneurial talent. However, in recent y-ears, the eannsion and imrovement in the nountryt. infrq.at.rnture has been nrovidine the basis for accelerated industrial growth, and the production of manufac- tured goods has grown more annjly than the rent of the Ponomy and reached an estimated eight percent in 1962. 34. The immediate stimulus for industrial expansion is coming mainly from -he, A-OMlain of th1.,. Central frnmy,ny) MvIr+ %Tnil i n-rp 1nC? tnnr- ditions that are making manufacturing more profitable than importing and inec han1U~.O.LLIr, LJt1±UL11 ain Une o V UAJ.4 W04 MI Commont101 - k-.L% ta - f -JSJ man-a- . tured goods have in many cases been set at levels above the highest rates pre~vadling in any Of the member countriE;S. Tariff unifictio hVas given-- Honduras particularly heavy protection because its tariffs have generally been lower than those of tne ouner Ceua I ua n ovan-r2.- e -r .As, - 9 - tariffs together with free trade within the Cormon Market are providing ,nih . !1i h -fnntive for the rpoent iidstril u nn in Honduras. New or greatly expanded plants are being established to produce chemicals, tev+i100 cha~-2 o.ni.+n r-nmnt- vcrthlo nil - flnnr. rrd aiv.. Tn 1962, investment projects amounting to over L5 million received the bene- enterprises frcm import duties and income taxes for specified periods of 2963o 35. The local business community seems to have overcome some of its CL. Ler fer tht1c~ H1onLdura wold deriVe LU t~ L CU10 U6,1U- A V I11 U i l , trial development in the Central American Common Marketo Indeed, many of tnl nonuuran importers and Imnercanlub are parU.)Lkpau In Une lUUSUUL. expansion either as ovmers and entrepreneurs, or sizeable shareholders, A notable feature of this trend is the emergence of a small group of dyni- mic young entrepreneurs who are organizing and managing several of these new industrial enterprises, One of the by-products of the industrial ex- pansion is the development of an informal capital market for the buying and selling of shares among the small group of investors. The recent in- dustrial investments are being financed by private savings, some loans from commercial banks, and $4 million of loans from the Central American Bank for Economic Integration (CABEI) which has been the major source cf industrial credito 36, Honduras does not have any obvious economic advantages over other Central American countries except for the transport advantage in the manu facture of certain bulky products for the local market and the opportunity for exploiting the countryls abundant timber resources. But it is over, coming some of its major disadvantages, not the least of which has been the business communityts feeling of inferiority vis-a-vis other Central American countries. 37* The growing entrepreneurial class is gaining more and more confidence in its ability to exploit particular economic opportunities. A case in point is the cement plant which is greatly enlarging its capacity to take advantage of the high quality, abundant. and accessible raw materials. and is Selling some. of its output in other Central American countries. Other i:impvrtant examples of entrenreneurial resourcefulness could be cited in the mnufn - ture of textiles and chemicals. As these new and expanded industrial plants demonstrate their ability to meet the competition from other Central Ameri- can producers both in the Honduran market and other common market countries, industrial exnansion in Hondiras will gather ner momentum and shouil make a major contribution to over-all economic growth during the next few years. 38. Looking ahead for potential sources of industrial growth, there are and canned pineapple. The plywocd project is the most advanced and would be a very large expansion of a small plant now operated by a U.S pLywViou manufacturer under an option agreemento The results of the inventory and testing of the timber resources are expected to be favorable. If satis- fac~tory arrangemnts an be worked out with the Government on timber con. cescions and tho construction of transport facilities which are estimated +.0 at ilnim +,p mrlirnr nAny .e .nrtpamn1ist ;;n investment of $3-^ million in plant, equipment, and penetration roads, and to begin ful roucio i ::6~ hprojec -Y.n;nn -n( i-c mi. + _qnil change earnings of $2_23 million. 390 The pulp and paper project which has been studied by several pros- A,ecOOUIV 'n e 4- - st LlJ U04rlyr ''J to be completed by the end of 1963. The major new element in the picture Uitz Iii. ±' uuo 0 UU1U:o VtI t- U'Ui1 I: LO UIUZ V' -10 ~ 'y'~'- to ship virtually all their bananas in boxes. The box factories in the vide the great bulk of the market for the project. At the present time, the boxes are eitner oeing imported or manufacuured with iUported pae o The pulp and paper project which would require a public outlay of about 4 millon for roads and port improvement, would provide a major new suuxce of income and employment in northeastern Honduras, and generate tax revenue and foreign exchange, o. Another potentially important industry is fruit-processing. A UseO company is now growing Hawaiian-type pineapples on a pilot basis for canning, and if these experiments prove successful, the company plans to p.Lant about 5,000 acres beginning in 1965 and to establish a plant for canning pineapples and other fruits. This project would employ well over a thousand people con the north coast and produce a significant amount of foreign exchange, 4lo The only mineral being produced on a sizeable scale is silver, with lead and zinc as by-.products, Annual production of silver has averaged around three million ounces during the past few yearso But with the recent sharp increase in the world price, production is expected to rise substan-, tially through an expansion in the output of existing mines and the openirg of new ones, 1V0 INTERNAL FINANCES AND PUBLIC INVESTMENT A. Monetary Developments 42. The Honduras banking system consists of five private commercial banks and three savings and mortgage banks. A semi-public municipal bank was created in 1962 to give technical and financial assistance to municipalities, The National Development Bank has traditionally been the principal lender to agriculture and the Central American Bank has recently become the largest source of industrial credit. (See paragraph 14,) The nine percent ceiling on interest rates has kept the commercial banks from making risky loans. Partly as a result of this limitation, a private group is sponsoring a small indiitri,l dPv-onment bank- whirh would obtain mcqt of its funds abroad and would therefore be exempt from the interest rate ceiling because it would - 11 - 43, The Honduran authorities have followed fairly conservative monetary nolici'l 4n ninra 1948 have pavsned thqp nolicies in cooneration with the Intornational Monetary Fund, From 1959 to 1961, credit to the private sect-or was the main SoUrce of lrnrth in the rnrnv qnnnly- whichb rosf mnr- or less pari passu with the gross national producto But in 1962, the mo:.ley money holdings (largely savings deposits) rose by 16 percent to L44 milliono 01hile tre w s a - -- - - 1, -+- -1 --1 - ,f ~r - e,+.-r -zr th increase in the money supply was considerably greater than would normally e expecte on the basis of the grow,"n te vlume of business transaoedQ Part of the increase in the money supply may be due to the growing moeti- zLtion o t1e eunvuly which was o .olecoLeui. wit-, oa.uvw rJuVwuil -L1 vU money supply in earlier years. Part of it may be temporary and could lead to Iigher 1.111PUL'ti andu Uau-Ltl- flliht, UdPecia-lLy in; viel =w Of thetrecent 11U litical changes. Thus, the increase in the money supply is a possible source of pressure on the country*s thin foreign excanage hodingSa 44o The credit expansion in 1962 originated mainly from increased bor- rowing by the public sector through the Central Bank and the sale of bonds to the commercial banks, and from increased lending by the National Develop- ment Bank, There has been a moderate rise in borrowing from the Central Bank to finance budgetary deficits since the first IMY standby agreement in 19590 To protect Hondurast weak foreign exchange position the credit ceiling under the most recent standby renewal that expires in mid-196L allows for only a very modest expansion of borrowing from the Central Banko B. Fiscal Developments 45. The Government has followed a responsible fiscal policy in recent, years by limiting the budget deficit to an amount that could be financed. by external credits and modest internal borrowing, During the five-year period 1958-1962, the cumulative deficit was Lh2 million (or about ten percent of expenditures) of which L29 million was financed by net external borrowing3 most of the internal borrowing was from the private sector, During the past few years, a moderate but steady rise in current expendi tures without a corresponding increase in tax receipts reduced Central Government savings to less than L3 million in 1962. Thus, the level of capital outlays has come to depend mainly on the volume and rate of dis-, bursement of external credits. The failure of revenues to keep pace with the growth in current expenditures is threatening to wipe out the very thin public savings margin, 46 The 1963 budget contemplated a L5 million increase in current expen 3 ditures which was to be accomnanied by a corresnonding incre-'c in rrvrn1ps Capital outlays by the Central Government were expected to more than double. with the increase to he financed almost entirelv throngh fnrpian redi+. But in view of the drop in receipts from import taxes during the first half of 1961 revenues for 1963 are nor.T ex +.d to be only slightly higher than 1962 and capital expenditures are expected to fall considerably short of the L2 Ge eillin cal b foaine th bud milo Because this shortfall in ref venues, the Government obtained a $2 million budget support loan from A'M -T IA. .7-'I 01D - 12 - ErnenCtna-l_ovrnmnt ependitures have risen at a noderate ra recent years. and have amounted to approximately ten percent of GNP, The In current expenditures and fluctuations in the level of capital outlays that have been financed mostly by- extera rdt0 Epniue o d. cation, which deserve high priority, accounted for most of the increase - U_U__ __.P I U tLLZ; DE-6wt;1 .L;/-? dliU L;;UCULg dIIU IIUW dUbO.E'U UEI(II.LUI0I1 UI the budget. The Government has exercised commendable restraint in keeping down other outlays; notaUly defense and generaL administraZlon, Most of the other categories of expenditure; including health and housing; have hadl increasg hett anahuliglhv u0 Higher salaries for a growing number of primary school teachers have accounted for most of the increase in the education budgeto Current outlays on secondary education have not grown since 150b, while expenditures for school construction have varied from year to year. A general salary increase fcr puoblic school teachers will go into effect in 196, and will increase education expenditures by L5 million in 19640 The need to accommodate the increasing flow of pupils into the secondary schools will further increase the education budget which could easily reach L25 million by 1966, compared with 1a6 million in 1962. Other current expenditures will almost certainly rise over the next few years, though it is hard to say how much. Revenues 490 Tax receipts, which have amounted to 9-10 percent of GNP, have risen about three percent a year in recent years, A much more rapid growth in revenues can be expected during the next few years as a consequence of an improvement in the financial condition of the banana companies (see para- graph 22) leading to higher income tax receipts, and higher imnort tax re- ceipts from substantial increases in dutiable consumer imports which have lagged behind the growth in incomes in recent yea-s--Thetrehds shouid produce an average annual increase in total tax rec'eipts of L7-8 million or ten percent a year. However, the expected increase in current exnendi.. tures will probably absorb most of this rise in revenues, The annual in- crease in current outlays on education alone is exoected to average At lease L3 million a year over the next few years,,- Thus, while some increase in Central Government savings can be exnected. it will make only a mondst contribution to the financing of public investment in the years ahead, In the longer-run. however, the public sector should bt ahl fn finnnnp n growing proportion of its investment requirements out of the countryts own resources. However, this is likely to occur only if t.ax +. t-m n11r'in -o gradually modified in such a way that the growth of the economy will generate at least a corresnonding growth in tax reeint.s taking iy)+n aount th structural changes in the economy that are already under way, - 13 - $0. Revnues from imprttaes whch accournt for ab u haf of total revenues, have been rising much more slowly than imports in recent years, Fromri 1960 o 1962, the value of m ros th i i pre ihile imprt-rn' tax receipts increased by only three percento, Between 1961 and 1962, the relationship was 12 percnt and c rn Te uI r of import taxes was due to the fact that virtuall.y all o1 the increase in though some of these goods are subject to an eight percent consular fee. In addA Ji onU ct a genera Uty-e ist L oL d Uwos iUr vIUalue UWb L19 million in 1962., there are several special categories of inports that are dutISy-freIe th Most --imotn of thes ar th folwig importsx ----- .u- ---2-- i C.L~~~u' ,Le0 111c- VIUdU ±llpU.-Uällb VI UIICbC dl-C WIC I LU 1J.Llä; -Ufli)U.L ý,: by certain firms and industries such as the banana and mining companies, and agriculture, which have received special exemptionWs; iportS Cf public agencies; imports by industrial firms that are exempt from the payment of duties under the Industrial Development Law; and imports from other Central American countries that are either duty-free or subject to preferential rates. Between 1961 and 1962, the major increases in imports took place in the duty-free categories, particularly imports of official agencies which rose frem L12,5 million to L20 million, accounting for haI the ir- crease in total imports, IMPORTS AND DUTY CATEGORIES,296 17t 962 (million lempiras) Value of Imports T n r -.!,Sinj r+ . Tlnciil!2-r nl1,~, __ Typort_be oPreferential Duties h. 26 From U.S., Canada, Netherlands 3 From El Salvador, Guatemala, Nicaragua 1 i TmrrrtgNot ubject to Duty 69.9 83c2 Generally Duty-Free 779 195 Treaties with U.S , Canada, Netherands 2. - Treaties with-Commoriarket-Coüntiiés' 10.7 14.3 Speci al ron--essionsý 25. 2h.1 .t -- - 2/ C>,O L4.0 Exemptiöns under Laws and Decreqs- 1.0 1.1 Imports by Official Agencies 12.D 20.0 Exemptions Under Industrial Development Law 1.6 4.2 TOTAL 144.0 159.,6 1/ To the banana and mining companies and others. 2/ To farmers and others. Source: Ministry of Economy and Finance. 51. While import tax receipts are expected to rise much more rapidly in the near future than they have in the recent past without signimicaint changes in tax levels; there may be some opportunities for raising import uax rates in the longer run, Tariff unification under tne Common Mare prohibits unilateral changes in items having a uniform tariff, But a cursory review of selected tariffs suggests that the rates on certain consumer durables could be raised either through higher tariffs where there is no uniform rate or by introducing or increasing ex=ise taxesp without pruducing significant inequities since these items are purchased almost entirely by the middle and upper income groups. A comprehensive study should therefore be undertaken as soon as possible to determine the revenue-producing possibilities of modifications in import duties and ex- cise taxes, 520 Production and sales taxes which yield about 30 percent of total revenues, together with the income tax which yields about 15 percent are the other major sources of revenue. While production and sales tax re- ceipts have more or less kept up with trends in production in recent years, income tax revenues have fallen since 1957 due to the financial difficul. ties of the fruit companies: the United Fruit Company accounted for 40 percent of total income tax payments in 1957, their last big year, while in 1962, their tax payments were negligible. Income tax rates are the same for firms and individuals, and range from three percent on incomes below L5:000 a year to a marginal rate of 15 percent on incomes from L100.000 to L200-000. and 30 nercent above I1 million. About 80 percent of the taxes are paid by business firms and 20 percent by individuals. ovpr 134000 indiviails nnid inrome tax in 1962. and of the anroximately 1,400 firms that paid, six or seven accounted for most of the total. A 90 nprcent snr (annlied .i tho ta+.xnI +.h-y il ) on all innomes above L20,000 was imposed in the spring of 1963, and is expected to yield some C5l The P-overnment- h-as ben trigt mp-rv +Inn ~ t~t~r collection of income taxes and was considering steps to broaden the coverage +r. in y,liiA jnr% wh 'nr- nn n-f I i i- A nrv- l nnr.l +.n. rnnrii fir +3in q+7r1.-m ture, though not necessarily the level, of rates to increase the yield. Bt - it wiltake some time fPor the hiJgher yield11s to materiAlize. Th ryr.~ ment was also thinking of introducing a property tax on the basis of a pre- _L.1Ij_11L Oulvuy ~ U.J ± VUL 11CI a-L±uau CJ ~ ~ JLjJ~L LIAA a moreL thorough one which is being planned. The present property tax yields little morue thanU UIIe cotJ o collecting it- 0 C. Public Investment and Planning 54. Because of the low level of public savings, variations in the level of public investment in recent years nave reflected mainly the supply and rate of disbursement of external credits. In 1962, public investment reached a peak of L2On million with two-thirds financed by external loans, and according to a preliminary estimate at mid-year, it was expected to reach some L43 million in 1963, but will probably be less than L4O million, Principal External Development LDans i lac, n d o.2_11a.r o) Undisbursed Ug.ua Lening vDisoursea v1soursea as oi Dec5L mut Agency 1961 1962 1962 Hig'hways 9T0DA 1.377 5. IBRD l,3 0.4 o.6 5 0i ,LF 1,6 1.1 019 2. IADB 0.3 2.2 Power 1.5 1BRD 04 O.h 0.1 8.8 IBRD 0.3 3.3 5,2 2.8 DLE - 110 1.8 Aqrlculture (National Development Bank) IADB 0.6 5.5 2.5 IADB - 2.5 Other 1.0 (housing) IADB 1 0 2.2 (water) IADB 2.2, 1.1 (water) AID - LEI TOTAL 3.5 8.3 30.8 l/ Loan made in 1963 55, Public investment has been concentrated mainly on highways and electric power. The high nrioritv given to these sectors reflPnt+ +.h' belief of both the Honduran Government and the external financing agen- cies that these services were etremely inienunate and that their an. sion and improvement were essential for the accelerated growth and diver- sification of the nennomy The mainr nnilin invest.men+.nrniets in thee sectors are the Western Highway extension to the El Salvador border, and the firqt t (na 2 97 MAT) of t.he ake Yja-i i hydPiroe TltAnrc pwer project. The cost of the W.estern Highway extension will total $7,5 to 8 million and +he hydrn nrnictr will oset 1Al 1 million. the mplion1- c2 both projects is expected in early 19640 A $3.5 million telecommunicat.Ions F~'J -~ JA.S 1..AJ. L t.. J~ Qt~LI L)J - 16 - Comrosition of Public Investment, 1931-1963 (million lempiras) 1961 1962 Est. 1963 Highuays 9.U 9.1 - Tolecommunications - 0.4 6.5 Electric Power 3.0 13.0 Lo Agriculture 0.4 1.1 1.6 Education 0.5 0.4 0.8 Health 0.1 0.4 0.5 Local Governments 3.0 4U4.U . Other -47: O6 23 Total 21.5 29.0 43.5 Finance b: Central Government Saving 5.4 2.4 -/ Local Government Saving 1.4 1.7 Saving of Autonomous Entities (net)+ -1.9 -3.0 - L/ Nrht External Credits 7.2 18,6 29.0 Net Internal BorrowingV/ 8,0 101 nA/ 1. 0.7 - h/ Tntl 21.5 29.0 29.0 L/ ,Ow Wr +b n e n+o t rn-r hy Child Wlfare Agencv. 2/ This is an estimate based on partial data: The purchases of Cent:ral "An T nirrnmAnt honds by the banking system amounted to L3.1 million in 1962. 2/ se '-~'-n frm aftr a in calculation of Central Government saving. LW HMU ca.,4Idvaao arc -4n-w --P V;"p en -,TnAAn Vnenmnnin Cnuncil. and IBRD Staff. e4" Juli r-ete has resl J ed hea~i ~r p-t.Prn I fi nq~n~ which is expected to amount to 75 percent or more of total public inves-. miont -L1 +J./-m_,)et on nv io. 1h in n ir l in n by a Japanese supplier credit for seven years at seven percent interest. Inle wv tern n1Louwcly Liao scocavo av u g / ,su the hydroelectric project 80 percent0 The water resources agency, estab- _Lish[ed inr jdauay LIUC, is,- beg-11innig athe-arrvstc pgri wt - 17 - about 80 percent financed by loans from the IDB and AID. The Housing institute has started a ,1.> million three-year project for which it has received a $1 million loan from the IDB. 57. As noted in paragraph 49, the prospects for substantially increa- sing public savings during the next couple of years are not promising. Honduras will therefore have to obtain external financing for the great bulk of its public investment requirements because any more than a very modest amount of borrowing from the banking system would jeopardize monetary stability. This means that the external agencies will have to finance a substantial share of the local currency costs. Investment Planning 58. The Secretariat of the National Economic Council has prepared a two- year public investment program for 1963-1964 that calls for total invest- ment of L60 million in 1963 and L65 million in 1964, of which L45 and L46 million, respectively, would be financed abroad. About 80 percent of the 1963 program is for transport. telecommunications,a nd electric power, and consists almost entirely of projects that were started before 1963, and for which the external financing hPA already been obtained. The remaining 20 percent is divided about evenly between local government outlays and pro- iects in agriculture. education, health, and housing, Actual investment in 1963 will fall far short of the L60 million contemplated in the program, but will still be considerably higher than the neak level of 1962. 59. With the comnletion of the nnwer and telecommunications nroiects.. and the Western Highway, public investment will probably decline in 1964 hnAnsp majnr new nroio.t arp iinlikply to pt inlr wy hfore the latt.r part of 1964. These include the highway from Tegucigalpa to Buffalo that It will cost $20 to $25 million, depending on the specifications, and will account for abDout h1I f the proos- inet"n nods dJ,i'iJnr thei four" years that will be needed for its construction. The basic studies for the hi Y4YITa'r n-a inra %Tir q)r i f- flnnn-in nn- nar n~ rrna pA, r--nq+.-P11r-+Ann t-mlI begin in the latter part of 196ho The addition of two new berths to Puerto Cortes, the chief port of Hol-n,-_a O the ~ort co-nSt iS W-ther project. Its total cost would be about $6 million, and, if external and internal financing can b0earra-iged wo,r'k couldA be -ell unde -oAl' The second stage of the Lake Yojoa-Rio Lindo hydro project will be needed El Salvador that could begin in 1967 and reach an estimated annual value z- 6 -) i. _- t ,I.. !. 'I Q-7n A f- * -1-4. _. - _ _D .-- -. - --4 1~-,- - pleted early in 1964; its cost is estimated at $8.5 million, of which $6 million would e foreign exchange. Uter high priority projecus looming up are roads and ports costing about $14 million for the plywood and pulp and paper projects. 00, The above projects, which add up to some 0S million could be started before the end of 1965. The program prepared by the Economic Council called for total investment of L645 million in 1964, including L12.5 million for - 18 - land reform, But the land reform program has not yet been prepared and the pulp and paper project is still under study, Public investment in 1964 will therefore be substantially below the level projected by the Councl-0 6L To maintain public investment during 1964-67 at the estimated 1963 level, total outlays of L160 million would be required during this period, This would not be excessive in the light of the countryys needs and the present and prospective availability of high priority projects. The undis.- bursed external credits at the end of 1963 together with the estimated cost of the projects listed above add up to approximately L140 million which would leave a very modest L20 million for other public investment during 1964-67 if all these projects were carried out. After taking account of some $15 million of undisbursed external credits at the end of 1963, $40 million of new external borrowing in 1964-65, would still leave a very sub- stantial $25 million, or nearly one-third of the total, to be raised from internal sources and perhaps additional external borrowingo It is there fore clear that heavy external borrowing will be required to finance a reasonable public investment effott. 62. In view of Hondurast staRe of development, it is reasonable to expect that a continued high level of public investment will be needed after 1967, The Secretariat of the Economic Council is working on a lone-term rublic: in- vestment program that would begin in 1965. But its efforts seem to be un- necessarilv elaborate in relation to its orimarv task. While the Councilts two-year program has been helpful in pulling together the projects under way and in identifvins7 those that seem to deserve hiah oriority. it has not paid sufficient attention to the country's financial, physical, and adminis- trative capacnityT toe- carry ouit. the progrram, AI~ Then Concnil has "Ynn--A rr u icfi mmatoriml ri incliv~ii1n qiP+r:=!_ but it should do more, particularly in agriculture where the lack of a land sett+lent P-0 --varnn .--Sr to 'rr +1,n na+ ~ * rnrao-n+~ field. In its preoccupation with the preparation of investment programs, the Councl(' SeM too,~ '-w.e M.r--de t1ne a+.-Air ^-P t,%nnrnmie nl r'r m-ia(z+. r%nc! even where they directly affect the countryts capacity to carry out an in,- vestmnt4 .progra. 'Tpl- _hac+ -1h-4 - -ail. a,nn -,1a _ +__ n~l4n 'Tlo n0nf'r careful study of import taxes has already been emphasized (see paragraph . Lj i Ull L:Jconomd 1 .JU.o n -.., W..lJi DV111t; CLOLs a c U L0 ±.L U 110 _L%U. V7444 0 , W 11U 1-" be the appropriate agency to undertake such a study as part of an over-all 4 V. FOREIGN TRADE AND PAYMENTS 64. In recent years, the public authorities have followed internal fi- nancial policies that have helped to maintain balance of payments equili- brium and the free convertibility of the lempira. The cumulative deficit in Honduras! balance or payments during the past three years, has amounted to $3 million. At the end of 1962, net exchange reserves were down to $6 - 19 - rights under a 705 million standby agreement with the IMF, this low level their fiscal and monetary policies. Efforts should therefore be made tu ~ U. ~iaUJ.ci Ui ~ U. L ty'Z JJ.U t.61 J U ,,'_;1d3U6t PUZ).LU_LU11c ' o III Lp;. up;IL± _L1. E1U1iUULaZ1jL~ u: u L11 £L_UUUiU Yt:;d1"b has been the growing diversification of exports. This trend was especially not ceuabe in 192 when total expots rose by nearly o mil.on, wnle tne recorded value of banana exports fell by $2 million. Other exports notably meat, CotU> corn, beans, and a growing list of manfaactured products - increased by some $10 million over 1961, or nearly one-thirdo While the relatively large exports of corn and beans were the result or Dumper crops, the general outlook for a continued growth in other exports is favorableo 66, The importance of bananas in HondurasT export trade has declined in recent years as compared with the 1950'3 aid earl 150's., But Cven when the value of banana exports accounted for three-quarters of total exports in the early 1950's, their direct contribution to the economy was ofton exaggerated, because the estimated value of banana exports is not the mea- sure of their contribution to the economyo The sales of foreign exchange for lempiras by the banana companies to the Central Bank for the payment of wages and salaries, taxes, and local purchases of materials and services are the proper measure of the direct contribution of the banana companies to the Honduran economy, These sales of foreign exchange have amounted to a little over half of the estimated value of banana exports in recent yearso The difference between export value and foreign exchange receipts is ex- plained by the banana companiest imports of materials and equipment; de.. preciation; and profits. INTERNATIONAL TRANSACTIONS OF BANANA COMPANIES Tillon dolars Sales of Foreign Exchange by Banana Cos. 1803 16.5 18.7 18.0 18,2 rnn +.i, nPf ('rrrl s ,-1 Q- 4 -~, 1-, n__.... -I~. -I '. -In 1. -1-1 91 -1 1~ n i nz -L-.i ans I.,a D VY ki JC211CUa d UO9 .L a'U JVvI4 _" .LJ .L4ou J_U f'i Source: Banco Central. ./ Gross reserves of the Central Bank were $13.3 million, a slight in- crease over 1961 (see Table 17). - 20 - 67, To obtain a measure of Honduras capacity to finance its import re- quirements and external debt service. only the sales of foreign exchango to the Central Bank rather than the recorded value of banana exports should ic included in esiimting total fornign exchange rer.eints.. This a2so nnnlie to mineral exports where foreign exchange receipts are about one-third of the value of' exports: inl10-2- -for example- A5 Mrllion of minerals exports produced $1,7 million of foreign exchange0 6%0 An estimate of Honduras future import requirements should exclude by the export proceedso Moreover, if net export earnings are the measure (1I!J' imor caaiy imIportU requiement sh uld be 1~ limte toIU thos impots that would have to be financed out of these earnings, and should therefore cx-!:0 L u-dc imprt by I the' baana andineal companies. Balanc ofpyet estimates adjusted for the transactions of the banana and minerals companies care shownJ± oni page 2. 6 Foreign exchange receipts from banana exports averaged about one- third of total export receipts during 1958-62, but the recorded value of banana exports averaged nearly one-half of the total value of exports The former is clearly the more significant indicator of the relative impor- tance of bananas in Honduran export trade, 70, imports, like exports, were relatively stable from 1958 to 1961, and rose substantially in 1962, Speculative factors arising from expectations of exchange controls and tariff changes have played an important role in the year-to-year movements of imports, Nearly all the increase that took place in 1962 seems to have been the result of heavier purchases by the ba. nana companies and imports of capital equipment for the public sector Since the former were financed out of the receipts of the banana companies and the latter by foreign credits, these imports did not produce any direct pressure on the balance of payments, 71, Looking to the future, an appraisal of export prospects suggests that by 1967, export receipts should rise by over hO percent as shown in the table on page 22, Bananas and coffee are expected to account for half the increase, with the rest spread among several products0 The projected inorease in exports should be adequate to finance the growth in imports that will be needed to produce the expected expansion of the economy and the rise in imports that will be induced by the income generated by this expansion. Virtually all of capital goods imports, whether for the public or private sector, will be financed from abroad0 Thus, the bulk of the increase in export receipts will be available to finance higher imports of raw materials and consumer goods. This would allow these imports to rise at a much more rapid rate than in the recent past, when they seem to have lagged behind the growth in incomes0 S21 BALANCE OF PAYIENTS ADJUSTED FOR THE TRANSACTIONS BY THE BANANA AND MINERALS COMPANIES (million dcllars) Unad. Adjus- Unad- Adjus- Unad- Adjus- Unad- Adjus- Unad- Adjus- justed ted justed ted justed ted justed ted justed ted Exports (f,,cab,) 1/ 710 5003 70,3 52.5 640. 52.5 74.1 4900 81>8 5502 Impcrts (f.c.b.) 0 %670 -0 -63.4 -53.0 -65,5 -54. 6. 923 -70 40 Trade Balance 3.8 - 57 6,9 - 05 - 1,1 - lo9 708 - 303 7.4. 1.4 Other Transactions and Errors and Omissions - 901 C, - 5.6 1,8 O08 106 97 1c - h:3 1.7 Surplus or Deficit - 5o3 - 53 13 13 - 03 - 003 - 1,9 - lo9 3,1 3:L 1/ Adjusted exports include only sales of f:reign exchange by the banana and minerals companies rather than the estimated value of their experts which are included in the unadjusted experts. 2/ Adjusted iports = Unadjusted Imports - Imports of Goods and Services by the banana companieso Imports by the minerals companies have not been deducted because the data are not available. The incluaion cf imports of ser- vices (mainly freight and insurance) by the banana companies offsets partLy or holly the failure to deduct the imports of the minerals companies. Thus, the adjusted imports are ze2sonbly accurate estimates of merchandise imports, excluding those of the banana and minerals companies. Scurca: IMRD Staff - 22 - PROJECTION OF EXPORT RECEIPTS, 1962_1967 I/ (million dollars) Actual i-Iro"ec*eCL 196t 1967 Bananas 1802 2500 Cofrfe 11,5 17.5 Silver, lead and zinc l,7 2ol Timber 7,ol 7,0 Plywood 2,0 Cattle and hogs 300 30 Meat 2,6 6 6 Cotton 2l 4,0 Corn 300 2,7 Beans l>8 302 Cemient Oo6 1,2 Tobacco o6 3,0 Vegetable Oils >1 1.8 Others 5__9 800 Note: See the section on Agriculture and Forestry for explanations of the projections of the main itemso 1 For bananas, minerals, and plywood, the receipts are net export p2o ceeds accruing to the Honduran economyo - 23 - vi~ UU1VI~Li rnu1IS ANDI CREiil iunnnc .c If the inirastructure projects now under way are completed as planned and the sound economic management of the recent past is con- tinued, Hondurast growth prospects for the next few years are goodo The export sector and industrial production for internal consumption are expected to be the main sources of growth. if the plans and pro- grams now under way to expand exports are moderately successful, net export receipts could rise from 55!9 million in lb2 to 5S million in 1967 (7,, percent a year). 73c The industrial plants recently established, under construction, and being planned will reinforce the growth trends that have been set in motion by the export sector, The pulp and paper project and the pro- duction and processing of fruits and vegetables are expected to provide some of the impetus for continued and perhaps accelerated growth in the late 1960s. Sizeable public outlays for roads, ports, and electric power will be needed to facilitate and sustain these developments. At least $40 million of new external borrowing during the next couple of years will be needed for high priority projects in these sectors even if internal savings rise above their present level. 74. The effect of the recent political changes on business confidence is difficult to judge. Thus far, the plans of the United Fruit Company and other private investors in Honduras seem to have been unaffected, However, if the present Government fails to win popular support, there is a danger that business confidence could be damagedo At the present time, there is no evidence that either the basic trends in the econnomy or Honduras' creditworthiness have been or will be adversely affected by the recent noli-ti-rl rivelonments Service payments in 1963 are $2.5 million, or about four percent of ex npctpd net Prnrt rpnpints. qnhP8ii11 qprvinp nnyments aver a littie under $3 million during the remaining 1960's, or less than four percent of1 -pr jetedr4o ne expo1 rt. recl,.eits ord-4 A P,v.,J. jf cds and ee 12 -6 -1 -1- 7 Gross Demestic Product 665 68Pv8 725 751 76 801 Less net factor income from abroad -2h ~2 -9 -2 23 --3 Gross National Product 641 687 716 749 779 798 Source: Banco Central. T ABLE HONDURAS: COMPOSITION OF GROSS DOMESTIC FRO'UCT, 19 2-1961 (nillion lempiras at 1948 prices) 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1/ Agriculture and Forestry 202 209 190 193 220 225 228 245 244 268 Mining 8 10 10 6 4 5 6 5 6 6 Manufacturing 41 47 42 48 53 55 58 60 64 69 Construction 23 27 21 22 23 23 23 18 16 16 Transport, Storage & Communications 26 27 28 29 30 31 31 34 36 38 Cornerce 46 51 50 52 53 56 59 62 63 67 Various Services (incl. utilities) 53 55 56 58 61 64 69 71 74 77 Public Administration and Defense 11 13 13 14 15 18 18 19 19 20 Discrepancy 2/ -9 -8 -9 -8 -10 -- 1 -2 -2 -9 Gross Domestic Product 401 430 401 413 449 477 493 517 520 552 1/ Preliminary. / The discrepancy arises because GDP is calculated from the expenditure rise, which is considered more ac-urate, Socarci: Banco Cent.ral, IBRD Staffo TADLE 6 HONDURAS: AGRTCULTTJURAL, FORESTRY, AND FOODSTUFF PRODUCTION, -1952-1962 Approx. value of Est. production at pro- Calendar Years 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 ducer level, 1961 (Million lempiras) Corn (COO metric tons) 197 219 199 210 235 2146 26L 281 288 294 304 41.3 Beans (1000 metric tons) 21.6 21.3 23.3 2208 27,0 28.4 31.3 33.6 3148 38,2 37.3 11.7 Rice 1/ ('000 metric tons) 11.0 11.7 10.9 12.3 13.3 13.9 12.3 13,9 14.7 15.0 15.1 5.6 Yucca ('000 metric tons) 12,0 12,3 12.7 12.7 13.3 1,3.9 14.4 14.8 15.3 15.8 15.5 2.1 Bananas for export (million stems) 12,6 12,4 9.2 7,8 12.6 11.4 13..1 12.1 10.8 12.7 11.3 78.8 Coffee 2/ (!000 60 kg. bags) 250 300 298 294 297 308 315 386 396 397 409 28.8 Seed. CoTton ('000 metric tons) 1.5 1.5 1.7 2Q6 4.3 11.1 9,2 4.5 3.8 110 14,0 4.8 Tobacc (1000 metric tons) 309 141 4.2 3.5 4.o 4-5 3.7 3.7 3.7 4.2 4.5 3.2 Timber 3/ (000 cubic meters) 551 535 561 587 569 641 607 676 678 658 n.a. 29.5 Milk (million liters) 97 98 99 99 102 105 108 112 115 122 124 27.0 Cheese (:000 metric tons) 8.8 90O 9,0 .1 .3 9.6 9.9 10,2 107 10 9 n.a. (15.0) Eggs (million dozens) 12Q2 12,5 12c5 12,0 12.9 13.3 13.5 1142 14,7 15.1 n.a. 10.9 Beef / ('000 metric tons) 10.,9 11.2 11.3 11:.2 11.0 11.2 11.6 12.5 13.4 15.1 n.a. 14. 9 1 Milled rice. 2/ These estimates differ from those mentioned in para. 24 of the text which refer to crop years. About 2/3 pine; does not include wood used as fuel. Carcass weight basis. Source: Direccion General de Estadistica y Censos, Banco Central, and Banco Nacional de Fomento. TVTE 7 HONDUMS: YIELDS OF MAJOR CRPS 10952-1961 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 Corn A 295 292 244 278 309 323 342 357 353 356 Y o,67 0.75 o.81 0.76 oM76 0.76 o,76 0.79 0.82 o,83 PiIce A 10.3 10,9 10,0 1L3 12 3 12,7 11.0 12.6 13.2 13.3 Y 1.07 107 1.09 1.09 1,08 1.10 1.11 1.11 1.11 1.13 Peans A 49.4 50.6 47.1 51.3 59.8 63.3 69.7 74.8 77,1 80.2 y 04 0.42 0.50 0.44 0.45 0.45 0.45 0.45 0.45 0.48 Yucca A 3n4 3.5 35 3.5 3,7 3,8 4,0 4.1 4.2 4.3 Y 3.56 3.57 3.59 3,60 3.60 3,61 3.62 3.63 3.64 3.65 Potatoes AT. 0.9 0,9 1.0 1.0 1.0 loo 1.0 0.9 o.8 0.9 Y 2,02 2.06 2.o4 2.06 2.08 2.08 2.09 2.l 2.17 2.17 Coffee A 71l8 86.2 85.8 86.1 86,,4 89.3 91,0 92.3 92.7 93.0 Y C21 0.21 0.21 0.21 0.21 0.21 0.21 0.25 o.26 0.26 Cotton A 1,6 1.6 1.9 2.3 5.2 9.8 8.1 2.1 1.7 4.5 Y CI,93 0.91 0.911 1.21 0. 82 1.13 1.13 2.20 2.1L6 2.ýý2 A - Area planted in thousand hectares. Y - Yield in metric tns per hectare, Source: Dir-_crion c-neral de Estediatica y Censos, Anurio adistico, and Banco Central. TABIÆ 8 HONDURAS: PRODUCTION OF MAJOR INDUSTRIAL GOODS, 1952-1962 (thousand metric tons unless otherwise specified) Approx. value of Est. 1961 production. 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 at producer level (million lempiras) Flour 2.2 5.2 hL9 6.2 5.2 5.2 5.h 5.2 6.6 3.5 10.9 3,9 Granulated sugar 6.1 7.4 7.3 8.2 11.C 11.9 12.5 14.1 18 h 22.h 21.3 3/ 6.0 Panela 1/ 20.7 20.4 20,0 18.8 17.1 17.0 16.5 16.7 16.7 17.3 n.a. n.a. Soap 4.0 3.0 2.1 2.1 2.3 2.3 2.8 3.9 5.0 5.0 n.a. 3.0 Rum 2/ (million liTers) n.a. n.a. n.a. n.a. 1.3 1.9 1.2 1.2 1.7 1.7 1.8 6.5 Beer (million 12 oz. bottles) 22.8 26.4 28ý4 37.0 45.4 50.0 43.9 41.8 39.2 39.2 42.3 14.0 Soft drinks (million 6 oz. bottles) 33.8 37.5 40.1 44.5 49.9 64.9 74.0 71.5 74.5 93.5 101.7 6.2 Cigarettes (million packs) 2123 35.8 41.8 42.0 48.9 46.4 47,4 52.0 53.2 53.4 56.2 8.6 Cloth ('000 yards) 439 603 607 769 726 656 1,630 2,341 2,471 2,737 2,638 1.7 Shirts (000 units) 806 893 976 1,061 1,377 1,356 1,262 1,315 1,300 1,407 n.a, 4.9 Cement - - - - - - .1 36.8 41.7 54-3 3.2 of which exports - - - - - - - 1,0 9.9 17.1 22.8 (0.8) 1/ Brown sugar l,af: production data are rough estimates, 2/ Factory production only: there is substantial clandestine production. 7/ 26,2 in 1963. Liuc : Direccion General de Estzadistica y Censos, Eanco Centra~L Banco Nacional de Fcmento, and Cementos de Honduras. TADT2 9- HONDURAS: POWER AND TRANS PORTATION, -956-1962 1956 1957 1958 1959 1960 1961 1962 Total Electric Power Consumption (1000 kw.h.) 6536 76,745 88,h58 93,166 101,000 Industrial h6,037 48,558 52,798 55,259 58,762 Residential and comnercial 20,146 24,307 30,758 32,674 36,210 Public lighting 1,643 1,901 2,h77 2,648 2,954 Goverrment and municipalities 1,710 1,979 2,225 2,585 3,074 Central District 1/ Installed capacity (5000 kw) 6.8 7.6 7.6 7.6 7.6 9.8 9.8 Peak load ('000 kw) 2.7 3.2 3.8 4.5 5.3 6.3 7.5 Motor Vehicles 8,188 8 568 9,90 11,656 13,481 14,000 16,255 Automobiles 3,93: ,,20 ,21 534 291 n,a. 7,706 Buses and Trucks 4,224 4,304 4,842 5,793 6,686 8,290 8,488 Port Traffic ,2/ (f000 metric tons) 99 9,64 1005,00 1,0400 1,118 1,087 Total Exports 596 592 640 664 671 73h 707 Puerto Cortés 419 367 398 400 371 410 319 Total Imports 313 372 365 340 333 384 380 Puerto Cortés 123 168 161 151 15h 200 176 Teguc:igapa, Comayagiela and immediate surroundings. 2, Foreig-n' trade only. Sorirce, Empresa Naciona de Energía Eléetrica, Dircccin Gonceral de Estadística y Censos, and Stanford Research InstitJe, A Ty Proprgam f,)r Hcridu.ac, TAB-J1 HONDURAS: CONSUMER PRICE INDEX FOR TEGUCIGALPA,1953-1962 1/ (1948-100) Total Index Food Clothing Housing (Electricity) Other 1953 120 139 87 115 100 92 1954 127 155 80 117 100 90 1955 138 163 101 124 100 95 1956 133 149 104 130 66 96 1957 130 142 103 132 55 93 1958 133 146 102 133 55 94 135 144 92 149 45 93 1960 132 134 104 149 45 99 1961 134 137 105 149 45 101 1962 136 139 106 150 45 101 1/ Although the overall trend is roughly similar for San Pedro Sula, the second largest city, there are numerous variations within the various categories. There is no price index for the country as a whole. Source: Banco Central, Boletin Mjensual. TABLE i. HONDURAS: SUIARY ACCOUNTS OF THE BANKIN14G SYSTEM, 1955, 1958-1962 (million :Lempiras)T 1955 1958 1959 1960 1961 1962 International Reserves b0.3 15.7 17.9 16e2 12.3 12C) Assets h1.6 19,0 26,6 2dd 6. 29.0 Liabilities - 1.3 - 3.3 - 8.6 -12.6 -l4.3 -17.) Gold and Foreign Currency Subscriptions to International Organizations 13 3.9 ho3 6.4 7.6 8.h Domestic Credit 1/ 54,3 89,0 92.5 96.1 102.8 117,5 To Public Sector (nlet) 22.6 22,2 20.9 21.W 28.6 To Private Sector 45-3 58.9 63.0 '65.1 69.8 76,0 Official Capital -10.9 -15.6 -16.6 -17.7 -18.2 -18.8 Interbank Float 0.5 1,5 1.2 - 0.3 0.9 110 Unclassified Assets (net) 11.1 21.6 22.6 28.1 29.8 30-7 Liabilities to Private Sector 95 9 108ý6 114.7 118.7 122.7 137.9 Currency in Circulation 33 36.1 37 35.0 34.2 38.0 Demand Deposits 27.2 26.h 28.7 28,,4 29.7 3L.3 Time Deposits 5.9 9.1 11.6 17.2 18.8 22.9 Savings Deposits 5-6 6.h 6.3 h.1 4.3 6.8 Deposits in Foreign Currency - 0.6 1.1 1.6 2,3 2.7 Specialized Savings 9.2 13.7 12,2 12.3 12.7 12.6 Ca-pital and Reserves 14.5 16.3 19.1 20.1 20.7 20,6 1/ Includes small amounts of National Development Bank securities and private sector securities. Source: Banco Central, Boletin Mensual, and International Monetary Fund. TABLE 12 HONDURAS: OUTSTANDING BANKING SYSTEM LOANS BY PURIPOSE (million lempiras) 1954 1955 1956 1957 1958 1959 1960 1961 1962 A1riculture 4.1 6.7 8.8 13.6 14.3 12.5 10.h 11.h, 11.1 BNF i 2.8 4.6 5,7 8.8 9.1 7.7 5.9 6.2 8.9 Cattle and Livestock 1.0 1.6 2.1 2.2 2.3 2.5 2.6 3.1 5.1 BNF 0.9 1.3 1.8 1.7 1.9 19 1.7 1.9 3.2 Industry 2.1 h.2 5.1 6.4 6.1 5.2 6.h 7.h 7.1 BNF 1.0 1.6 2.1 1.8 1,8 1.3 1.0 0.9 1.4 Real Estate 12.9 1h.6 16.8 20.1 20.2 23,2 22.9 23.1- 203 Banco de la Propiedad 2.3 3.8 4.0 5.7 6.0 7.1 6.6 7.0 6.5 Comnerce 14.9 14.9 15.3 12.6 10.2 13,.4 16.2 17.5 20.4 Consumption and Services 2.9 3.3 4.5 4.6 5.8 6.2 6.5 7.1 9.3 Total 37.9 45.3 52.6 59.5 58.9 63.0 65.0 69.7 73.2 1/ Banco Nacional de Fomento. Source: Bene CentraLo TABLE 13 HONDURAS: FISCAL OPERATIONS OF THE CENTRAL G01RNT, l953-1962 (million lempiras) 1953 1957 1958 1959 196o 1961 1962 Current Revenues hhh 69.3 64.5 67.2 71.1 72.8 74.6 Total Expenditures 48.4 73 2 75.0 77.7 79.2 77.3 82.6 Curren '. expenditures n.a. n.a. n.a. n.a. n.a. (67,4) (72,2) iIveciment n .n.. n.a. n.a. n.a. n.a. (9.5) (lo.4) DefQci0 -3. -10o.5 -10.5 -6.5 -4.5 -Ei.0o Financed by: Net external Credit -O 3.2 4.8 9.7 5.9 2.6 4_.1i UtiliZ ation- 3o7 5.8 10.8 8.h 6.0 6.7 Ariortization -0.4 -0.5 -1.0 -1.1 -2.5 -3.4 -2.6 Net domestic credit 3.2 1 5.1 0.6 0. 8 2.3 3.3 Utilization 4.8 h.0 9.8 h.h 5.3 7.3 9.5 Amortization -1.6 -2.6 -4.7 -3.8 -4.5 -5.0 -6.2 Usc of cash balances 12 -0.7 0.6 0.2 -0.2 -0.4 0.6 Source: Ministerio de Economia y Hacienda; Direcciin General del Presupuesto, and Inter- rationfal M~oneCtar2y Fund.X TABLE 14 HONDURAS: CENTRAL 0OVER2MENT EXPENDITURES 1953-1-962 (million lempiras) 1953 1957 1958 1959 1960 1961 1962 Defens e 6.1 10.0 9.1 9.3 8.2 ) . Security and justice 2.9 4.4 4.3 4.5 5 )1.5 19.7 General administration 8.8 1h.6 13.3 13,3 12.6 13.2 15.0 Public health 3.4 6e3 6.7 7.2 6.7 6.8 6.9 Urban services and housing 2.4 2.0 3.2 L7 l6 1.4 1.2 Education 5.5 8.4 11.5 13.9 14.9 15.5 16.3 Welfare and social security 0.5 0.8 0.5 0.5 1.7 2.6 2.3 Communications 2.0 1.5 1.1 1.4 1.3 1.2 3.4 Transport 11.3 14.7 16.9 15.2 17.9 13.9 1.8 Agriculture and natural resources 2.6 5.8 4.0 3.1 2.6 2.8 2.7 Other functions 3.1 3.4 3.1 2.9 2.7 2.5 2.4 Unclassified 0.3 1.3 1.3 1.7 3.1 2.9 2.9 Total 48.4 73.2 75.0 77.7 79.2 77.3 82.6 Source: International Monetary Fund, Banc-o Centra1ý TABLE15_ HONDURAS: CENTRAL GOVERNMENT CURREl,f REVENUES, 1953-142 1/ (million lempiras) 1953 1957 1958 1959 1960 1961 962 Direct taxes 8.2 14.8 10.3 11.3 11.2 10.3 10.0 Income tax 7.8 13.7 9.4 10.7 10.4 9.5 9.2 Social security tax - 0.1 0.1 0.1 0.1 0.1 0.1 Property tax 0.4 1.0 0.8 0.5 0.7 0.7 0.7 Indirect taxes 33.7 49.8 50.6 53.2 56. 56.3 58.9 Production and sales taxes 10.7 16.3 17.5 18,0 19.1 18.9 20.6 Other indiLreb taxes 0.2 0.1 0.1 0.2 C).2 0.1 0.1 Import taxes 21.4 30.7 30.2 31.5 33.7 3k.3 34.8 Export taxes 1.h 2.7 2.8 3.5 3.4 3.0 3.h Mi scellaneous 3.9 6.3 5.5 5.6 5.4 8.1 7.7 Port, airport and customs charges 1.6 2.2 2.2 2.0 2.1 2.0 2.4 Proceeds from public operations and services 2.1 3.5 2.8 2.8 2.9 2.8 3.0 Transfers from abroad - - - - - 3.0 - Private transfers 0.2 0.4 0.3 0.4 0.4 0.3 1.2 Adjustments - 0.2 0.2 0.h - - 0.1 Total 46.3 71.8 66.7 70.1 73.5 75.2 75.6 1/ Thoso data differ from those in Ta 1,3 ,3 in that the miscellaneCus items here are for gross revenues, some of which are returned to various semi-autonmous agencies: these revenues are es.luded fr:m Table 13. Source: Interniational Monetary Fund, and Banco Cen.tral, TABLE 16 HONDURAS: BALANCE OF PAY[ENTS 1955-1962 (million dollars) 155 1956 1957 1958 1959 1960 1961 1962t E.xports, f£oub, 53,8 75.3 66,1 71.4 70Q3 64:4 74.1 81,8 Imports, f. oob. -553 -6o,2 -70,2 -67,6 -631 -65o5 -663 -7hc Trade Balance - 15 -15,2 - 3.8 3,8 6,9 - 101 78 7.4 Service transactions ard private donations (net) - 604 -22,3 -10.7 --13,8 - 9.2 36 7,8 ~i-h2h Direct Investment (net) 2 1 03 2 9 - 51.0 - 26 - 7,6 - 6<2 -,8 Balance on goods, services, private donations, and dLrect investment - .58 - 6,8 -iic6 -15.0 - 4.9 - 5.2 - 6,.2 - Private long-term borrowing (net) - - o8 019 - 0.5 - - 001 - Other private capital (net) - o8 - 1.3 - 2,3 - 1:5 - 12 - o,8 - 0o4 - o2 Loans and e conomic aid to the of ficial sector (net) L,5 1-7 3,3 4.7 8co 6.7 7.0 99 Other official capital (net) 05 - - Oci - 1.0 - 0Z4 - o9 - 13 Errors and omissions (net) -_o1 46 . S8 5.7 _ 9 - Oc7 - 1c3 3,2 SurpIus or Deficit - 107 - 108 - hO - 5.3 1,3 - 0,3 - 1.9 - C2 1/ Preliminary, Surce: Intern,tional Moneta~y Fund and Bancc Central, TABLE 17 HONDUJRIS: INTENATJIONALRESEIRVES OF THEý BANKING SYSTa, 1953-1963 (million dollars) Aug. Aug. End of Year 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1962 1963 Central Bank (1) Gross Gold and Foreign Exchange 1/ 22.1 23.7 19.h 17.7 16.1 8.0 12.4 13.3 12.4 13,3 lh.ci 1..8 (2) Liability to I - - - - 3.8 - 3.8 5.o 6.3 7.5 5.C) 5.0 (3) Other Liabilities 0.3 oc8 0.6 0.7 o.6 o.5 0.3 0.2 0.2 0.2 0.4 0.2 (4) Net Gold and Foreign Exchange (1-2-3=4') 21.8 22,8 -18.8 17.0 11.8 7.5 8.3 8.1 5.9 5.6 8.6 9.6 Other Banks (5) Net Foreign Exchange 1.5 2.0 1.4 1.5 1.4 0.3 o.6 - C,.3 0.4 07 0.7 Total (6) Net International Reserves (h+5) 23.3 24.9 20.2 18.4 13.2 7.8 9.0 8.1 6.2 6,0 9.3 10.3 xeluding gold subscription paymnriTr to the IMF and dollar subscription payment to the Central Énerican Clearing House, but iincluding credit balance with the Clearing House, Source: International Monetary Iad. TABLE 18 HONDURAS: COMPOSITION OF EXPORTS 1952-1962 Prelin. 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 Value ($ million) Bananas 40.6 .411 28.3 23.2 43.9 33.7 37.6 32.1 28.2 39.4 37.5 Co.ffee 9.5 :12.1 14.2 11.1 13.6 12.0 11.1 11.9 11.8 9.0 11.5 Silver, lead and zinc 1/ 2.8 4.9 3.0 3.3 2.6 3.1 3.2 3.4 3.8 5.1 5.0 Timber 3.6 3.6 .3.3 5.4 4.8 7.9 6.6 8.2 8.2 7.5 7.1 Live cattle and hogs 1.5 1.7 L.6 1.9 2.3 2.4 2.5 2.5 2.h 3.0 3.2 Frozen meat - - - - - - - 0.5 1.1 1.6 2.6 Cottori 0.2 0.2 0.1 0.1 0.4 0.4 2.6 2.6 0.6 0.3 2.1 Corn n.a. n.a. n.a. n.a. 0.8 0.h 0.9 1.8 1.0 0.5 3.0 Beans n.a. n.a. n.a. n.a. 0.7 0.5 0.9 1.1 0.9 1.3 1.8 Other exports (incl. ) re-exports) ) J. 3.9 3.5 4.3 5.2 48 6.1 6.1 ( 4.0 4.7 6.5 Balance of payments ) adj us tment ) ( 2.4 1.7 1.7 Total 62.3 68.1 5>4.6 50.5 75.3 66.4 71.8 70.2 64.h 74.1 81.8 Volume Bananas (million stems) 12.6 12.4 9.2 7.8 12.6 11.5 13.5 12.1 10.8 12.7 11.3 Ccffee ('000 60 kg bag-s) 147 189 155 149 199 174 189 255 258 210 266 Silver (1000 troy ounces) 3.7 5.6 :3.4 3.8 1.9 3.0 2.8 2.8 2.6 3.3 2.9 Tinber ('000 cubic meters') 137 129 110 18>4 171 239 202 265 258 228 204 Head of cattie ('000 units) n.a. n.a. n.a. n.a. 80 86 86 82 97 103 89 Frozen meat ('000 mt. tons) - - - - - - 0.7 1.7 2.4 4.5 Cottorn (1000 metriLc tons) n.a. n.a. n.a. 1.2 0.8 3.6 CCn (1000 metric tons) n.a.r n.a. n.a. n.a. 12.7 5.5 13.2 25.2 17.5 9. L 40.2 Bears (i000 metric toris) n.a. n.a. n.a. n.a. 5.7 5.6 7.5 9.1 9.h 12.0 13.5 1/ Shipments of lead and zinc arJse because the silver is refined abroad. .ource: Banec Central, Banco Nacional de Fomento. TABLE 29 HONDURAS: MINOR EXPORTS., 169- 62 Volume A-prox. Value (thousand US$) 159 1 1961 12 17 197 19 2 Cement (000 metric tons) 1 0 909 17.1 22.8 20 200 L400 550 Tobacco (metric tons) 1,380 1,340 1,720 1,770 470 h90 430 600 Margarine and vegetable shortening (metric tons) 470 1;050 1,890 2,230 230 .530 970 1,130 Seed ('000 metric tons) 7.2 3.2 3.0 6.9 460 260 180 370 Leather (metric tons) 200 550 750 990 50 90 210 350 Plantains (000 stems) 300 260 :340 $10 120 120 190 210 Coconuts (million units) 6.6 6.1 1 .1 3. 270 280 240 160 Fruits and vegetables ('000 metric tons) 2.6 It.6 3.6 14.1 120 210 310 2h0 Cheese (metric to?1s) 140 200 190 250 50 80 80 160 Fish and shrimp (metric tons) 200 210 130 220 240 180 120 190 Total Value 2,030 2,440 3,130 3,960 TABLE 290( HONDUIU ESTiTION OF EXPORTS, 195:12 (million dollars) 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 United States 52.9 43.0 33.1 47.8 41<.5 43,0 36,1 35.5 47.5 65.1 West Germany 0,3 0.h 3.2 4.3 4.3 3,7 5.8 4.5 3.9 5.7 Holland 0.7 2.3 13 0,5 06 1,3 1,6 2.0 1.3 3.0 Canada 5.4 2,2 0.8 6.7 3.2 3,h 1.8 1.5 2.8 2.2 Cuba 1.7 1.2 1,8 1.6 1.9 1.9 2.2 1.6 0.3 - Venezuela 0.9 0,6 1.2 1.2 3.0 1,5 2.7 1.7 1.4 0.9 Central mierica (.ncl. Panama) 4,.2 h.l 4.,7 6.6 6.0 6.7 8.0 8.2 8.7 12.5 El Salvador 3.,9 3,7 4.0 6.1 5.1 5.3 6.3 6.3 6.2 8.9 Guatemala 0.1 0,.2 0.6 0, 0.8 1.0 1.3 1.6 2.1 3.0 Other 1.1 1.8 2.0 3.7 3.h 7.2 9.0 7.4 6.b 7.8 Total J/ 67.2 55.6 48.1 72.4 63.9 68.7 67.2 62.4 72.3 77.2 1/ Exclu.ding re-exports and balance of payments ad.justments, Sourcc: Direccicn General ds Estadstica y Censos, _ome_ aterior. TABLE 21 4ONDURAS: TMPORTS 1918-1962 1958 1959 1960 1961 1962 C' A.. l17 1 0)'7 1 ")ol ~ 2) I Beverages and tobacco 0.5 0.6 0.5 0.6 0.6 r,C 1 .1 -i nInI 1 ) - 1) r- 11. 0 Furniture and fixtures 2.9 2.8 3.8 3.7 4.1 goods for the home 3.5 3.8 4.2 3.8 3.6 vehicles and other consumer goods 4.2 3.7 3.7 3.9 3.8 Construction materials 4.9 3.8 4.6 4.0 5.5 Raw materials 20.7 19.5 16.0 17.3 18-3 Canital equioment 14.9 12.9 16.7 14.2 17.7 Machinery and attached parts 9.4 7.7 10.4 8.4 12.0 Vehicles 3.8 3.5 3.6 3.1 3.0 Parts for vehicles 0.9 0.9 2.0 2.0 2.1 Other 0.9 0.8 0.7 0.7 0.7 TOTAL F.O.B. 67.6 63.3 65.5 66.3 74.4 Source: Ministry of Economy and Finance. TABLE 22 HONDURAS: TERNS OF TRADE 1953-196 Export Import Terms of Prices (Bananas) (Coffee) Prices Trade (E-I) 1953 104 112 121 93 112 1954 109 104 175 93 117 1955 114 106 111 94 121 1956 116 118 132 97 120 1957 n.a. 100 132 n.a. n.a. 1958 100 100 100 100 100 1959 91 90 90 101 90 1960 90 90 88 102 88 1961 89 89 82 102 87 1962 n.a. 102 83 n.a. n.a. Source:~V inentca Fiaca Statitics