RESTRICTED Report No. WH- 148 inis report was prepared for use within the Bank and its amiiated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION CURRENT ECONOMIC POSTTTON A T1-|1 n TV n 1T A u~ OF GUATEMALA Western Hemisphere Department CURRENCY EQUIVALENTS 1 Quetzal = I U. S. dollar TABLE OF CONTENTS Page No. BASIC DATA MAP SUMMAARY AND CONCLUSIONS i I, INTRODUCTION 1 II. ECONOMI:C GROWTH 2 III. PUBLIC FINANCE 7 IV. PUBLIC INVESTMENT 13 V. MONETARY AND BALANCE OF PAYMENTS DEVELOPMENTS 16 VI. PROSPECTS AND CREDITWORTHINESS 20 ADOt1r1hT T OM~TAM70TcrTAT M1AflTIC JI I ±WLJ±A.j J .L -L J 0jt.±I.±o i.LJJI.Klj itllBi)l:J±.J A flTn]v I: TISTI ACAL TMnClfTMrlMC1 IlT Ar1TrfTTTmTTV HrrThriJiA 1±1: 1nn; srtnvinJ: Ai PRO±UVULL ARuI tL%Uu1 APPFJ1 IZIX iIII -L. im EVISDV N~ATlIONAL ACCOvuTNl BASIC -DA.TA Area: 42,100 square miles Population 4,278,341 (April 1964 census) Rsto of grroew,h 1955-~64:~ 3.1% Population density per sq. mile: 102 Other sig,nii'icant factors: UO,%v of population is Indian End is at low subsistence level. 90% il- l4iteracy.rr in J sctoxr, GGross nationall product 1964l. 1250n milio1 qutzle ijJ~LAL2J J~.1.JiIJi.J 1.L 7 J.704 * L )O_~ V IILJ-LJ.L..ALJ A.6LL U~. RateY- o oh ~195062 3.5% annual average (real terms) 1963-: 7 annual averaged (reaL termis Per rcairta. 196h, TTus .: 20n r',--r _nwc_ Y Gross domest:ic product at factor eost 1963:~ 1205 million quetzales of whiTchT,iln percent, Agriculture: 32 Mining: - Manufacturing: 13 I.> V1±iL z LA t11. X1aLJ V sectors: - Percent of GDP at market prices Long-term 1963 (190O-63) Gross investment 12 12 Ur - a-- --- 10L'6'I Balance of payments current account A-± I-- .1.U Investmen'4 income payments Go-vernrLien'Ll 'LaxatCULO rev-ueru o1r current revenues 8 8 Resource gap as % of investment 23 17 Money and credit (million quetzales) Relationship to large monetary or Member Central America Common Market customs area: Member Central America Clearing House Rate of chiange in recent years 1964 (% annual 1960-6h) TotaL money supply 15 Time and. savings deposits 71 25 Commercial bank credit to private sector 128 14 Other lending to private sector 21 -2 Rate of change in prices 2%o (est.) - BASIC DATA Page 2 Long-term rate of change 1963/64 (% annual 1955-64) Government current receipts 98 2 Government total expenditures 106 3 Surplus/deficit -8 - Government capital expenditures 26 - Public investment expenditures 32 4 Total external assistance to public sector (gross) 7 -20 (la;st three years) External public debt (US $ million)* 1962 1964 Total debt 63 58 Total annual debt service 12 16 Debt service ratio 9.8% 106' Balance of payments (TS tn milli on) Long-term rate of change 1964 (% annual 1955-64) Total exports 167 5.5% Total imports 183 7. 5% Net invisibles -22 et,c+ current account hb ll1n-c - 127 Past. average~ (1956-hl) ' 1 g0, Commoditv concentration of exports 80% 48% Gross foreign exchange reserves 55 59 or 5 months' or L months' imports OF orks External financial assistance (US $ million) Past average (1961-63) 196) Commitments Disburxsements Commitments Disbursements Total (gross) 18 15 13 13 Soft assistance 9 8 a 4 Hard assistance 9 7 13 9 IBRD and IDA Operations (US $ million) Past operations Amount committed Amount disbursed T-non 18.2 18. ° IDA iv Note: Tables 1 and 2 in Appendix I ar bi rve *Note: Tables 1 and 2 in Appendix I are being revised. -IIIATIUAI A UUIJ I Livi VLUi 0 20 40 60 80 l0OKm i | ._. ; PETEN 0 Tikol 7,k' Paved r-oads L Pe4n Itze | - _ All weather roads . 0 O'her roals r Roa3ds tinder construction ; ur proposed i I! Ra ilway,s I IIi 8 3;4 ~Volcanos | (>7 Lakes I - * -. -. - J ~csnad I Gulf of (, / (0Sebal Pfo. Menaez 4 ^ Sta. Eulolio j Bde ARRI05 N."~~~~(/~00~ LIo -de Goakez]t A~~ ~~~~~~~~ LoAt -.S U s pa a ~ ~ ~ an6s o,les Colotenonga o Los Am SAN < OUICHE A MARCO/ , MZ'ZACA_ A,.Ilo~~~ _, AW AL/ A o S I\ 5>4 rf~~~~~~~~~~~~t as EL, -OSLA R-- PATEN HOANNDURAS I _ci ~" - praeŽ MARCHo 9INLA LPA-"-,-\,IO, San Jose ~~~~~~~~~Santa A7ta ~'%~ PA CIFIC OCEAN MARCH 1965 lBRUD-IU9UR12 SUMMARY AND CONCLUSIONS 1. Until very recently, the Guatemalan economy has been growing very slowly. Real per capita income declined from Q271 in 1957 to Q266 in 1962. The lack of dynamism in the economy was largely the resalt of the stagnation of export values, due to the pronounced drop in coffee prices after 1957 at a time when coffee accounted for 65-70 percent of total export earnings, and the accompanying stagnation of investment. The gradual development of new products for export was not sufficient to offset the decline in coffee earnings. 2. Since 1963, there has been a marked recovery in exports and economic growth. GNP has been growing by about 7 percent per annum in real terms co.mpared with a 3 percent annual average during 1957-62. Ex- Dorts rose from $119 million in 1962 to $15L million in 1963 and $167 million in 1964. The main elements in this expansion were a bumner coffee crop; a rapid exnansion in cotton acreage for export, and the growth of minor exports, such as sugar, meat and exports of manu- facturres to Central Am.erica. In additions the new government which over- thrcow the regime of President Ydigoras Fuentes in March 1963 has been success'full ini retrnga to.sh re ofbusinessz ronfirdeno; -risingex port earnings have thus also been accompanied by a marked increase in private rct l -A -d,-s,i, i Ivsmet 3. iuaemalahas faed cF-o--c fiscal problems in ------ ----s j. \Ud.,~AId..d. 1d~ 1.dl.. U i UJ'I LJA L±>UdCL.L P dU.LVILIO ..LII 4 -'L~ AU J'~~'O. '0 Since 1957/58, revenues have been slowly declining because of a heavy del-pendec on-- t-xe 4 on,- forlg trde -epn -xedEue -o l ----wa,--4--- not enough to prevent the fiscal situation from deteriorating, and it uecami-ie particularly acute in 1962/63, forci;ng t guvu-lina to buo-r-uw abroad to pay its bills. The new government in mid-1963 successfully put into effect a number of tax measures which enabled the authorities to raise revenues substantially for the first time in several years and to significantly reduce the budget deficit for 1963/64. However, the situation has since deteriorated again, this time because of a rapid in- crease in current expenditures since mid-1964. At the recent pace, the authorities could be faced with serious financing difficulties in 1965. 4. The authorities should be able to overcome its current problem with a modest limitation on the expansion of current expenditures and a feasible improvement in tax administration, including the re-establish- ment of the coffee export tax on its former basis. Beyond that, the authorities should consider undertaking, preferably with some outside assistance, the preparation of a program of measures to raise the level of public revenues. The burden of Central Government taxation is low (about 8 percent of GDP), too low if Guatemala is to pursue even a moderate expanision of public investment and accompanying current expendiL- tures in the years ahead. 5. The authorities have prepared a public investment program for the period 1965-69. The targets of the program are ambitious and imply - ii - raising public investment from about 3 per cent of GDP in 1963 to 7 per cent of prosoective GDP in 1969. A substantial increase in public invest- men' 1is,4 deial 4ln- light4- ofP the+- stgalo fpblcivet- oe h ItIL L C ) LAC; ... d ,UJ..~ U ..U LJ L 'LJ1, LJL Ull~, C)Uar I L'..VLJL Wil .AU~.L J- VI ~ VIIU'.' v WV '..- --'~ last seven ye.ars and of the larger role the public sector should play in an econ,my in which half the population is in cultural and economic iso:La- tion. Howeve.r, the levels proposed in the program are excessive in the light of the present rhythm of project preparation and the prenULJ prospects for financing such a program. Significant increases in public savmings and in tne flow oT developmentu loans to the pDblic sector will be required even if only a moderate increase in public investment above the levels of recent years is to be achieved. As far as the sector composition of proposed investment is concerned, the program for education appears to be insufficient. Without a very substanti.al effort at all levels of educa- tion, Guatemala could within a decade face serious obstacles to its conti- nued economic developmnent. 6. Prospects for the growth of foreign exchange earnings are encour- aging. Guatemala should accurdingly be able to finance an adequate growth of imports of goods and services and at the same time gradually limit or reduce the p-esont fairly large current account deficit (which averaged 2.3 per cent of GNP in 1963-64). The very rapid growth of imports which occurred in 1963-64 after six years of declining import levels is not likely to con- tinue at the same pace in the next few years. 7. Ex-port earnings should grow at an average annual rate of about 6 per cent from $167 million in 1964 to about $23C million in 1970. Their composition should also improve as dependence on coffee is likely to be substantially reduced, :aking exnort earnings less vulnerable to a suabstan- tial drop in coffee pr.tces than they were in 1957-62. However, the pros- pects for exports and for continued economic growth require a minimunm degree of political stability. In the past fifteen years, pclitical turbulence has at tinmes serinusly affected the npace of ecornomic Pr-wth- lhe nolitical situation is likelv to be stable in the foreseeable future. 8. Ser,.rice on Guatemala's external plublic debt, which totalled an es- tima.ted $10 railion in lo(h ( n5 ner npnt. of exr,-rf. P.Prnin-.)_ rises to $16.9 million in 1965 ($21_9 million if a six-month budget suppo-t loan is included) and ! hereanter ri ersp -rqnid11r to 5. 7 mil]. on in 1970. The fairly high deDt service in 1965 is due to medium and short-term borrowings to finance budgetary def'cits in orevious years and to ," a iz fa:ng1 due on revolving credi:ts for industry and agriculture. If public savings are increased to n_event further coVI-i+ na- P of1 -'+,"l r1 ing capacity to finance current budgetary deficits, Guatemala should be able readily o ob+Gina subst3nti-_~ ' amount of new fore.g 4oncr,iset o high-priority projects. On the basis of the investment levels that now seem probable, such borrowing could be all on con ventional terms. oweveTr, if a major e1xpansion in investment expenditures is effected, some portion of n .e fr..gn assLsL'anc might J uL UL-fi" L lUy e IILmade availale on soft terms. 1. Guatemala, the northernmost of the Central American republics, has the largest population and the most varied physical environment among them. The high central mountain region has for hundreds of years been the traditional home of the descendants of the Mayan Indians, who compr:Lse half the population and to this day remain largely isolated from the main economic life of the country. The task of integrating them into modern times is a formidable one. The opening of new areas may in time help somewhat in this process, as has been the case in the relatively recent opening up of the rich Pacific coastal lands. But the Indian seasonal workers who have come to the coast, particularly for the cotton harvestl, have rarely settled and have almost invariably returned to their highland communities. 2. The opening up of the Pacific coast in the last six or seven years, as a result of road construction in the middle and late fifties, was one of the major recommendation of the Bank's 1952 Survey Mission, and is undoubt- edly one of the chief events of recent Guatemalan economic development. The authorities are now beginning to think of opening up the relatively under- develop,ed areas towards the Peten (the northern Jungle territory) and the Atlantic coast. But with more broken terrain, relatively long distances to commercial centres and ports and the consequent need for heavy infrastruc- ture investments, these areas will be much more costly to develop than the Pacific coast. As for the Peten itself, it remains a distant "far west" of unknown potential. 3. The recent political history of Guatemala has been characterized by the nredominant rnle of the army in the political life o)f the cmuntrv- Changes of government have rarely been smooth. In 1954, President Arbenz (himqelf originally an army colonel) was toppled hy Colonel Castillo Armas, whose successful period as president was cut short by his assassination in 1957. His successor, Colonel Ydigoras Quentes, was deose in March 1963 by a group of army officers under Colonel Peralta Azurdia, the present Chief o~f' (Th'nm.ent A constituent assemly was elected in 1QL Dpnding or the new constitution to be agreed on, presidential elections may be held later in 1965. L4. e I cl;) D ld4JF: -Ia 11 ,UV L U i tI1IC l J U LIdVtJ .L1 OUIlR iIj UdiJU;tic JlUdiJ 1,XUy .t dU- ical changes in public policies. The resulting uncertainty and instability hiave undoubteUdlYy Lbeen1 onle ofJ. WMe JUI1J mai U reason for U Ud aUtJi,ALu - I1 LU U hstte- nomic performance in the last fifteen years or so, unlike the record of ,the otherU Cen,tral .Jerican economies ln this period. Until 1963, the patte-rn' of slow economic expansion, normally less than the growth in population, was interrupted onLy by a shcrt-lived "tcoffee=induced" boom in 19,. ITI ECONOMIC GrROWTH 5. The growth pattern of the Guatemalan economy in the last decade h o o me; rbl ., f 1 4A 1---s5 . _-A. has manl;-y refl"Iected the ioemn n Ile~ level ol exor -CerinS- ,p ..o ssva] JX s |GbvW v1G llVVGIIII ' v tA 1 i Ci VC U _l WA1V as cuv earnings accoutnt for 12-15 per cent of total domestic product) and related private sector activity. The princlpal impact of the public sector, apart from the negat ive effect of political instability on private investment, has been to open up the Pacific coastal area to private developmenT initi- ative. 6. In the mid-fifties coffee accounted for two-thirds of export eern- ings, and was thus the main single factor determining the course of economic activity. After the sharp drop in coffee prices wh,ich began in 1957 (the average price dropped aImost 40% from 1957 to 1962), the continuation of US grant assistance begun under the Castillo Armas government, the slow growth of other exports and the strengthening of manufacturing wer-e not sufficient to keep income growth ahead of population growth. From 1957 to 1962 per capita GDP in real terms fell slightly as GDP rose by an average rate of' 3.0 per cent compared to a rate of population growth of about 3.1 per cent. (For the period 1950 to 1963, the national accounts show an average grotuth of GDP in c ons9tant prices of about 3.5 per cent, slightly ahead of popula- tion growth.4 7. The renewed advance of the economy in 1963 was the result mainly of domestic forces, as the private sector substantially increased production for export despite the fact that export price prospects had not, with minor exceptions, markedly inmproved. The substantial increase in the production of coffee, and particularly cotton led to revival of export growth and a renewal of business confidence with a resulting expansion in the construc- tion and building materials industries particularly. The renewal of econom- ic growth in 1963 involved a sharp recovery in the level of private domestic investment, which had fallen as a proportion of GNP since 1957. After having accounted for about 15-6 per cent of GNP in 1956-57. total gross domest-ic investment had. fallen to 10.3 per cent of GNP in 1961-62. Private invest- ment fell less sharply from 9.6 per cent of GNP to 7.5 per cent of GNP. The recovery of private investment in 1963 to 9.3 per cent of GNP was paralleled by an almost equal increase in domestic private savings= While the boom begun in 1963 has thus been largely the result of a sharp rise in exports, the increasing strength of manufnnctrnina for the domTstlA and Gentral Ame-rian market that has become evident does represent the beginning of a significant break with the tranitionn1 pattern of Influence of the external sector on the economy. 8. Preliminary information for 1964 indicates that the rapid growth bepmn in 1963 continued at a rapid pace GNP re by about 9 per cent i: current prices, and 7 per cent in real terms. The pattern of growth has been n r1^nn+.;nP+.inn nf flin l0oAR r%++ni--. +h,o -,;- fqr -r _ -av been - --- - ~ L tfA *J 4LI. JIa-~ v. OS. JUls 0 La w uvu C 0aCC IdS a a>, 1~e '..CL. v 1/ The analys-is here is based on the revised national accounts (tables 3-7 in Appendix I), which are the subject of a discussion in Appendix III. increase in cotton exports (a sloaer rate than the 60 per cent increase a- chieved in 1963) and the 8 per cent increase in total exports, and a higher level of activity in construction and manufacturing. 9. The recent expansion of the economy is not likely to have more than marginally affected the large subsistence sector of the economy, which re- mains relatively very poor. Since the Indian sector of the economy proba'bly stagnated in the fifties and early sixties, possibly with a per capita GDP of about $100, the per capita GDP of the modern sector is likely to have grown slowly frcm about Q360 in 1950 to about Q450 in 1963. While there are no statistics on income distribution, it is fairly clear that aside from the uneven distribution of incame between the Indian and modern sectors of the economy, there exist very substantial differences within the latter sec- tor itself. The growth of manufacturing has helped in the formation of a new middle class, but the noticeable disparities in income distribution con- tinue and could; unless gradually mitigatedj nnse serious threat tn the political stabi'lity of the country in the foreseeable future. There have rec.ent,lv heen signs of nniisiil qrinl unrestt in qnme isolated areas nf thfz country. Agriculture 10. Agricu'lture continues to be the largest sector in the economy. In csrn- +.,n rnf' +.hm er., -f.T+b -in T m if 1 v.nc7 i n roonn lY.t : -" - tc!±i- hi~ spite -f the growth in mnacuiginrecn yas the contribution of agriculture -to -the gross domestic product has not diminished (it represent;ed -33 pr cen+ Of IJnDp "O f1 and p2 per cen+ Jn 1963). J TIle coffee rema;ns the principa'L agricultural product (accounting for almost a quarter of the value of arcLulpr0duction) Gute,.l -osse 43 .mor I-le ------------------Ar V Q.U.C iJL LUU IJLJ. .L U U.' ULUJ ~ UO.t LK',iI3L La 0 1II'.1 K, ViU . 'L0L ,. J cultural production than the other Central American countries. This diver- s4 4 . . 4 - A -- 4 - -U - -- - ---Ah _ 4. _ - - - _-. 4. 1_ - - - :P _- -- - -_ _~ - - - -: - -4 _- _ _ .L Liy .L %ULi IJV jJ1iy;:)Lsad4 tIJV £UUliIII LJ U d,eJt La; ) u.LLJ L uLiV: uX UJ. Us UIIlJ U vl zone fruits) and to the endeavors of the private sector (as in the case of rubber, and citronella and lemon grass). li. Gua-temaia;s recent agricultuiral expansion reflects primarily the free response of private farmers to market developments domestically and auroad. The govrernmentJU Ihas not interfered with thLs process, and ha trLEdU to assist it mostly with credit facilities. The government owned Develop- ment Institute (INFOP), which functions as a development and agricultural bank, increased its lending for agriculture substantially in the period lQ61- 1963. The activities of the extension service maintained by the Ministry of Agriculture have been increased. The autonomous supervised credit agency (SCICAS) for small farmers was established in 1961 and has substantially in- creased its lencling in the last two years. While the expansion of the main commercial-scale crops has almost entirely been the work of the private sector, the Bank of Guatemala has been helpful as a channel for medium- ard long-term foreign loans to the private sector (mostly fram United States official sources and private banks), which have been important in the expan- sion of cotton, beef, and rubber production, among others. The contribution of the Bank of Guatemala has been important since it was able to obtain funds and terms from t;he foreign banks which might not have been available to the Guatemalan commercial banks. - 4 - 12. The develonment of cotton into Guatemala's second most important export is the most striking aspect of agricultural development since 1960.!! As prospects for coffee worsened in the late fifties, Guatemaian entrepre-. neurs took advantage of excellent natural conditions and proximity of avail- able land on the Pacific coast to begin a major expansion of production, starting in 1961/62. From 95,000 bales in 1960/61 production rose to 300,000 bales in 19163/64. The value of cotton exports rose from $5.8 million in 1960 to $33 million in 1964. Guatemala should be able to reach an exportable pro- duction of about 475,000 bales by the end of the decade (See -Appendix II). Beyond such a level, the availability of suitable land on the Pacific coast may pose a problem. 13. The production of coffee has grown rapidly in the last seven or eight years, largely becauseo-f improved yields. Because of a poor harvest in the 1964,/65 season, coffee exports fell from $77 million in 1963 to $71 million in 196h, but, with a normal harvest and the higher prices that have been prevaiLing since the end of 1963, they are likely to rise to about $85 million in L96'5. Beyond 1965 however, the value of coffee exports cannot be expected to grow substantially in the remainder of the decade partly because of a moderate decline in price and because the increased production is likely to create a surplus above likely future export quotas under the International Coffee Agreement. The output of bananas, the other tradition- al export product, has not been increasing, and7s=nceL'961 has suffered badly, because of bad weather, disease and the gradual dismantling of the plantations on the Pacific coast. 1965 production is expected to fall to 2.5 million stems, less than half the annual average for the past decade. With the present expansion plans on the Atlantic coast, banana production and exnorts are expected to recover to about 5 or 6 million stems in five! years. 14. The production of staple foods for the domestic market, particularly corn and beans- has over the last decae7 barely kpnt un with nonulation. Conditions of cultivation for corn and beans are primitive, production iE; aLmost exclusively in the hands of small holders. Farmers suffer from wide seasonal price fluctuations, the sharpest declines occurring during their mn-rL-o+ina ni:ri' A Thn ar.rrpnmrnf ;p c- nt. nroqonf. rnnnqi irin a a nlan t.n in- crease storage capacity for these products in order to reduce these fluc-. tuat ions and m-ike production of these crops more rerr.nerative for the farmer. Due to effective high support prices, wheat production has risen rapidly. ODver th~e next f"ew years, Ih output,4 ofP staple food -is -1 +_l to e- UVL LII~L~ t, .L W 5. UISL'U LUjJAU U IL O UCjJ.Lt5 IJIVUO A.L UIJ.LL ~ ~ major dynamic element in the economy, although if sufficient storage is bU.it ar,U ULAL DppLY ol credit rema-inIS a-UljudeUte, it coUUlU grc,w at aL fast rate than popuLation. 1/ For a more detailed account of trends and prospects in the main crops, see Appendix II. 2/ The official statistics, which show a 23 per cent increase in corn production between 1961 and 1963, probably overstate the increase that actually occurred. 15.~ ~~9-4 -Aea and sugar4-- prA on have -4-3edrpdl ice 1960, an -r- V1i=CXU CLJLA OJUrCXL VJ -LVUU.L,UJ. AIJ EtC O i .i ~ tL .LIJ-~C £I7QV', U.EtJUt 1 the stimulus of demand in the IJ.S. market. The livestock industry has also benefi te d from med iu--termII credit from-n abroad, which has been channelled through the Bank of Guatemala. Prospects for the continued growth of meat and sugar production are good, uDUt because of uncertainties in export markets, the domestic market will increasingly determine the course of output for these products. The rapid growth of rubber production for the domestic market has been helped by intensive public and private research programs: by the beginning of the seventies, Guatemala is likely to be able to begin exporting natural rubber. 16. Over the next five years or so, agricultural output should increase on average by 4 to 5 per cent annually (or about the same as the rate in the last decade), with a possible slowing down towards the end of the decade if the expansion of cotton production ceases, and production for export should continue to grow faster than production for the domestic market. In addition to cotton and some recovery in bananas, there are some minor products such as essential oils (citronella and lemon oil) and fruits and vegetables, which are likely to be developed further. The authorities are providing some technica:L and financial assistance in this respect. Beyond 1970, ilow- ever, the outLook is uncertain since the Pacific coastal lands, where most of the recent increases in production have taken place, will no longer be plentifully available. The authorities have already begun to investigat;e new products and new areas: a four-year study of marginal coffee areas and possible substitute products began in November 1964, a forest survey of part of the Peten is in progress, disbursements on a loan for rubber production are being accelerated, the colonization institute has prepared somle blue- Drints for settlement projects near the southern Peten region, and a survey of possible areas for irrigation is in progress. It is not yet clear, how- ever, how ePnonraping the resnlts of these varisus surveys are likely to be. Mining, Manufacturing and Construction 17. Guatemala possesses a variety of minerals whi-c have been explcited on a small scale. These activities do not appear likely to increase. h[ow- ever, the large deposits of nickel nre in the Lake Tzhabl area do offer an important prospect of diversifying and increasing Guatemala's total exports: once fiullir in onnpeArati on a mining e could eprt about $ 1 million (annual gross value) of nickel-iron product. A project has been formulated and L was: b_e uri er 14 c ss: f _ ._ Z. - 1 _ _ . __--~ 1- -L -_: l: ~- _ _ I - iLcl+s t-';LI U.L1IU _O ULdULLjULJ - Ui- 5UisiC Uiut UWeUis uiiU dUL£0rAIUIeU ina a icreign firm, but decisions have still to be taken on a new mining code, a concession, anlu onthe Ifinacin of. ic prUJojcU - VVII.Lch is CestiatUedu to require an invest- ment of almost $60 million. Guatemala could not expect to begin to export nickel. u.is 3_± )o 5) years afLtUer UdciLs.LJions diar reachdtAi Uon V1.hes ponJtU. In the meantime, the authorities are about to begin a general mineral survey 01 bLWi U Lthe aread WiLhL fILJIJnanclal assistanceu from bfle ULLLUUU INaU.Lulon SpeULciLdJ Fund, Also, production of small quantities of magnesite for export should begin shortly. 18. The manufacturing sector, which in 1964 accounted for about 13 per cent of GDP, grew at an average rate of 5.5 per cent from 1960 to 1963. rrhe rate of growth accelerated to a rapid 10 per cent in 1964. The development of znanu- - 6- Development Law, and by the increasing opportunities for export to the other c auntries of- the Cen tra.LJliZ L,,erCAn ^o,01LU11o market7,. TtlU.L m&xyorts k,lslv.ULy ;£L manufactures) irom Guatemala to the other fcur countries have risen from about U$9 i-I.iLonin tn n 1 uO LU in 1963) dju i mlllion in l9Vc4. The processing of food products has grown particularly rapidly, followed by clothlng and textiles, and crlemicals. Finance for investment in industry has come in part from direct foreign investment, which has been especiall.y Important in providing technical know-now and orand names, Also important have been profits transferred from other sectors such as coffee and ccmmerce, the loan funds from U.S. banks channelled through the Bank of Guatemala, and more recently, funds from the IDB and the Central American Bank. A private development bank has recently been formed. and is about to begin operations with the help of an AID $5 million loan. 19. Guatemala possesses a dynamic entrepreneurial class whose ranks are growing as distributors and wholesalers switch from merchandising to manu- facturing. There are still plenty of opportunities for reasonably economic import-substitution; expansions or new plants for such items as higher-qual- ity textiles, glass products, sanitary equipment, processed foods, vegetable and animal fats are already under way. Through the provisions of the Indus- trial Development Law, other industries such as synthetic fibers and ferti- lizers are also being encouraged but the prospects for such industries *re uncertain unless they can obtain miarkets in othcr countries of the Central American market. The stimulus to manufactures of exports to other Central American countries may eventually diminish as some of the other countries, which started their industrial development later, set up compe- ting plants, but overall the prospects for continued industrial development are good. The expansion that has taken place to-date has received little financial assistance from Guatemalan banks for the financing of sales; the banks have not generally been willing to grant credit for this purpose, nor has the Bank of Guatemala been ready to rediscount such paper. 20. The contribution of the construction industry to GNP rose from 023 million in 1.962 to Q40 million in 1964 - a level higher than the previous record of Q37 million in 1957. A large part of the construction boom has been for residential construction, particularly middle-income housing. The ranid increase in the loanable funds of savinFs and loan associations has in large part made this possible" Foreign investors have now become interest- ed in housingc imrPq+m.etn and, with an AID-guarantee, $8 million from pri- vate US lenders has been obtained by the private sector. While this boom- let in middle-income housing is encouraging, increasing care is now required to prevent overbuilding, which could shake the confidence of local investors 1/ The Industrial Development Law of 1959 provides for certain exemptions on profits and income taxes, and import duties on equipment and raw material imports, for new industries or existing industries expanding their capa- citv * In the first 10 months of 1964, the savings deposits of the two main savings and loan associations rose fromIQ!7.1 million to Q6.8 million (the average deposit was of Q145) and ouitstanding mortgage bonds of these -ax.ri ngc2 lnst.+itutions rose~ frcr Q3.5 ml 0t Q7.1 mlio TTTI PTTUT.TL. FTNhANGF. 21. Ihe public sector finances in Guatemala reflect primarily those of" th e C entJr a'l uovernment. T*,4i1Le 4t1here are a few autonor.Iou agenc4es wi 4 their own revenues, a large proportion of their resources are received as transfers frrom the central government. 22. Fron fiscal year 1957/510 to 1962/63 central governmlent current revenues steadily declined as coffee prices, and total exports and imports fell and no new taxes were introduced to make revenues less dependent on foreign trade. Even though expenditures were kept from rising, an increas- ing budget, deficit appeared. Table I: Fiscal Position of the Central Government 1961-1965 (mnillion quetz.als) July-Dec. Budget P=oj. Fiscal year 1961/62 1962!63 1963/(Ih 196L 1965 1965 Current revenue 87.2 82.8 97.8 50.2 113.2 110 Total cash expenditures 101.1 97.2 105.6 65.1 149.h 130 Deficit -13.9 -14.4 -7.8 -14.9 -36.2 -20 Financed by: Foreign grants i1.9 2.6 2,5 0.4 2.8 Net foreign borrowing -3.2 6.7 - 3.9 -4.0 Net domestic borrowing 3.2 5¢2 9.0 14.6 35.6 Other 2.0 -0.1 -3.7 -.4.0 1.8 Change in floating debt 8.0 -3.6 17 -623 - .oc Table 13 1 Appendi' T* 23. Up to 1961/62, the major part of the deficit wfas fi:-lanced by U.S. grant assistancen uift in 19q0/S1 and even mnr - .in ..6,- 6 . h-£.ipes were faced with a substantial fall-off in U.S. grants. The Dank o2 Guate- mala limited the amount of its hnbdet financing. but the gcver'lment.. inrble to cut its expenditures or to borrow private savings in Guatenala, 2was forced to borrow at short- anr mediulm- term frnm TT baq- nks. This borrowing created a fairly heavy external debt service burden up to 1965 (see para.60). 24. The steady deterioration in the fiscal situation ended in fiscal the new government which came into power in March 1963 put into effect a nim.ber of 'ne.w) t-ax mleansures, 1Revcnues rose .from J7J.I17 per cent of GMJP in 196 to 8.4 per cent in GNP, although this is still well below the 10 per cent l preva£iJl,Lng in the Uoom f t. 11e mIid-fU ift. Les. ±The budget UUe.LcUlU wa;3, atL -8- the same + reduced to ..ore e.si1y ..n....ble proportions. Since the second half of 1964, however, expenditures have begun again to rise consid- LrabLy ± than reVetnue, padrtly because tUhe uusual sixK-month transtin-i al budget -. was used to satisfy political demands for a number of low-prior- ity current expenditures. Late in 1964, therefore, the government again had recourse to short-term foreign borrowing for budgetary deficit financing. Revenues 25. The tax structure of Guatemala has changed very little in the last decade. Taxes on foreign trade, various exrcise taxes and other indirect taxes have typically accounted for three-quarters of total current revenues. MlWile a num'ber of sound fiscal practices have been continued over the years (such as strictly limiting the earmarking of certain taxes to the amount necessary for debt service), hardly any significant new revenue measures were taken in recent years until 1962/63. The tax measures taken in 1962 and 1963 did not reduce dependence on indirect taxes; however, they will make the revenue structure less dependent on foreign trade. 26. The chief measures taken were the following: i) A personal income tax was established for the first time in Guale- malan history in December 1962 by the Ydigoras government. ii) The stamp and stamped paper tax was raised in July 1963. iii) At the same time, export taxes were placed on cotton and essential oiLs. iv) The tax on gasoline was changed from an import to an excise tax in July 1L963, and a tax placed on diesel fuel. v) In order to improve the adiinistration of the property tax, a general declaration of nronerties was rlecreed in September 1963= 27. The income tax. applicable for the first time in fiscal 1963/AL.. replaces the Biisiness profits tax in effect since 1935. In its immediate imnlications. the change is not great_ The nrofits tax was sinmnle to andmirnis- ter since the number of contributors was relatively small and deductions and exemptions were severelv limitedp The new income tax is not likely) at e-ast. in the firs-t two or three years, to bring in higher revenues than the former nrofits tax, The nrofits tax applied basically to the larger commercial and industrial enterprises, excluding the agricultural sector. The agricultural sector cont-inuies to be virtulally excluded from the new income tax since gross agricultura:L incomes below Q15,000 are exempt (leaving out most of the pIro- dncers for the local market) andi poue can rieduir+. epo-rt-. t.aes frnm t:helr income tax :Liability: with present income tax rates, this is virtually tanta- mount to an exemption from paYing income tax. A num"ber of fair> csiistantial deductions are allowed industrial enterprises, such as for net profits rE!- invested, use of local raw marA.a etc.- Thes A--- - - -ew A -re likely to lead to a smaller intake in the next year or two from the industrial scLtor than unle dtax, even though tLhle nomIinal rates l Care 'unchangeJ1d.U* 1 / ml- fiPc_l T-1ea 1 +_-. T,,o - Jun 30.ISart J 1 19o6f +1he I iuc L. L0 OCLRL 00±-,t. 1 LUJI L IS*L ~U 14 VW .. U. u 141 i '.* I'1,4 ~ 1~ ~ ~ fiscal year will coincide with the calendar year. A transitional budgPet covered the period July 1 to December 31, 196h. -9- leUuctions n -the case of personal inicome are substantial. Table I1: Central Government Current Revenues 1960/61-1965 July-Dec. Proj. 1960/ 1961/2 1962/3 1963/h 1964 1965 Business Profits Tax 6.3 7.6 7.7 8.6 4.6 9.5) Property tax 1.4 1.6 1.8 2.4 1.2 3.5 Import duties 28.1 26.5 25.4 27.3 i4,1 30.5 Export taxes 8.3 8.9 6.2 6.4 1.8 6.10 Liquor and Tobacco taxes 15.9 15.0 15.4 16.6 8.5 18.5 Stamp tax 5.6 5.8 6.5 12.4 6.9 14., Other indirect taxes 4.6 3.5 3.8 7.4 ( 9.5 Earmarked taxes 9.3 9.0 8.6 9.0 (12.9 9.5 Other 7.8 9.3 7.5 7.7 ( 8.5 TOTAL 87.3 87.2 82.8 97.8 50.2 110.0 * Includes income tax starting in 1963/64. Source: Table 14 in Appendix I. 28. The income tax does, nevertheless, offer the possibility of sub- sta nt1 i rT vc,' -l rTr in +he ftuir a the reveniu fron iret +trxes. In Trhn meantime,iit is difficult to assess its likely yield since in 1963/64 revenue from the profits tax was still -'-4 in, bt i-t is unl;'ely that the new tax will reach much more than Q10 million annually in the ne:.t two or three years. The authorities have 4been. c i n s e u to 4; the income tax into a bigger revenue earner. Such measures should be based on --; -r; m. ' F1 _ ;,. -.I;- --P; 4- ---- . .Xi ; . 41 + ..rod 1960/1-1963/h 1965-69 Program Actualn Program Road Construction 16.8 6.3 ( 21.6 Oorts 1.7 1.3 ( Telecommuni- cations 0.5 0.6 4.3 Power 3.8 1.9 11.2 Agriculture 7.2 5.8 17.3 Health and welfare 3.1 4.5 8.6 Housing 1.8 2.8 8.6 Public works (incl. schools) 4.8 5.1 ( 1).7 79 Other 1/ 3.2 1.h ( -' TOTAL 42.6 29.5 86.3 1/ Cadastral survey and Regional Plan for the Peten region. °/ TI-ludingL-J l '1OJ ., ll io4n f.or educatioA -4 . h4. The: 15'65-69 program correctly places increased emphasis on e- lectric power and agriculture. Investment in electric power facilities definitely deserves high priority, since some areas outside the capital have for some time experienced rolatively small shortages and the area of the - 15 - capital city itself mav face shortages by 1966-1967 unless generating capacity is increased rapidly. One 13 iP,q facility is at present being com- pleted, and studies exist for the next stage of power expansion: however, substantiatl further progress is needed in management and administration if the present public power agency is to be effective in building and operoting the new f:tcilities. 45. Perhaps the most striking feature of the investment program is its relative neglect of education in relation to Guatemala's unusually backward educational situation. The authorities have made a competent analysis of the deficiencies in the present situation, but the proposed education p:rogram does not reflect the conclusions of this analysis. Its main feature is the construction of 6,000 primary school classrooms: even if these wereto be built on time, their capacity (some 180,000 children) would only give room to increase primary school enrollment from b5 per cent of primary school-age population to a little over 50 per cent. If the high drop-out rate is taken into account, together with the fact that no firm pro,ect yet exists for the proposed schools,. the program is insufficient. The overall illiteracv rate is reported to be 72 per cent, with illiteracy of 82 per cent in rural areas and 90 per cent among the Indians. For a countrv reaching Guate,mala's stage of development, this situation calls for a massive education effort at all levels _nness the gro-Arh of the economy is tor encointer serious obst3clos within a decade. A Bank/UNESCO mission will study the education situatiuon and program shortly. 46. Be cause the deficient status of project preparation males the real- ization of program expenditure quite improbable, "probable" p,I)` ic inveStments for 1965-57 have been estimated independently (Table 17), for tae most part on the basis of projects already under construction or about to bc start;ed. Tn the case. of ds, the es'-'--' asswmes the complet -on w "ritl two or tree years of the projects being financed by Eximbank and DILF/A I, tre beginning of the major construction and improvement oF the Ranchc.vColoi road , and the purchase of t5 million of new maintenance equipment. For pcrLts, it essi-;mes the coaple1tion -within three years of the Atiantic port ir- -,ment f inanced with the help of an Eximbank loan already approved. In the cme of power and telecomtmunications the com,pletion of the present pr.j -t -.n L.7U is assumed, together with the initiation of the next stage of e_-p3n ioln in 1966 - which would require obtaining new foreign loan carirricO i The projections for public housing and water supply snCulc' ce rea s-t.c heceuse of the undisbursed foreign loans available (see Table 1) in Aik,enW'ix I) although the very slow rate of disbursement on these loans iiill have to be accelerated. Projections for other sectors, such as educat-ion and agriculture, are not based on firm projects. 47. These "probable" levels of investment for the period 1965-67 are fairly conservative staff estimates and imply no major new proTect p-eoaration effort for the time being. Even the conservative leve]s prc,j'oted$ L.ever, are likely to confront the authorities with a financing probh>m (Table -i). On the basis of requirements for public investment and amortization averaging * See 11ap. - 16 - Q52 mill-on anriuall- for the- 3)-ye3 p1eriod, a maidjor inc-rease -. public savings will be required. Disburse ents on loans already committed or likely to be - - - -, --- - - - ~ ~ ---- I1 n approved plus accompanying'lgrants are likely to a-verage guauout Qlf miLLio, leaving about Q35 million to be financed internally. In the absence of un- expectedly adverse developments, the government should be able to borrow do- mestically from non-inflationary, mostly private, sources at a rate similar to tnat of 1964, or about Q5 million annually. After allowing for a small amount of borrowing from other sources, the public sector would therefore have to generate savings of about Q25 million annually. Central government current account, savings (virtually tantamount to public savings), reached about Q18 million in fiscal 1963/64. 48. The achievement of a level of Q25 million annually will require a significant effort. But an appropriate combination of tax and expenditure measures yielding this increase should be manageable, especially if autonomous agencies such as the power agency and the social security institute can gradu- ally generate additional savings of their own. However, if no action is taken to raise tax revenues and to limit the growth of current expenditures to a much more moderate rate than that implied in the 1965 budget, a serious financing problem will soon emerge and even the modest levels of investment envisaged in Table 17 may not be achieved. This could have serious effects on economic growth, since a major part of the proposed investment is to expand basic services - such as power, transport and education - to permit the con- tinued growt.h of the Guatemalan economy. V. MONETARY AND BALANCE OF PAYMENTS DEVELOPMENTS Monetary Developments 49. The Bank of Guatemala has traditionally followed a cautious mone- tarv nplicy- While allowing adequa.tely for the credit need.s of the nrivat'e sector, it avoided a volume of credit expansion which might jeopardize the foreign exchange position. This policy has been successful in maintainin;7 price and exchange stability: the domestic price level did not rise at a:Ll from the mid.-fifties to 1963, and the quetzal has been at par with the dollar since 1922. The public sector demand for credit during this period was modest. eO. h~~urn L19 f78-2utotal credi grow at a modert ae(y1 ecn J'.. ~ 'Ui.LJe, L7~LIL~- ~J ~.L -1 UJ LI . V~ JI'.JA-f-. P - \.- ~-'- 1- ~y-'-" over the four years) with most of the increase to the private sector, par- 4ticu,' ar-1y for cotton- crop MInacnrD ---e mony spp.y e -Aindvr*a U-L' U.Ld.±4.Ly 4.UJ. UUUtULJ UIUJ £JCZ.LJU.JLJ6. ±i±V 1ILU1JC.Y C j.VLLy .1UtiIia.1LJEU VJ-LL;LQ.~ constant during the period. But with the revival of exports and the change of go-vernment in 1963, this stationary situation was sharply altered. The very rapid exp3nsion of privnte sovings through the banking systcom permitted a rapid e:xpansion olf credit to takc pl ace. ..inhie the expansio-n in cred.it to the public sector was more th3n offset by the rise in public sector deposits, 1/ Two-thirds of expenditures on the construction and improvement of the Inter-American Highway are met out of U.S. grants: the remaining third is normally made available by the U.S. Government on a loan basis. - 17 - credit to hne private sector increased oby 15 percent in 1963 and again by 15 percent in 1964 (Table 20), with cotton, coffee and cattle accounting for a major part of the increase. Parall el with this rise went an average annual increase of 8 percent in the money supply, and an even faster rise in time and savings deposits, by 73 percent over the period. The expansion of credit has been accompanied by some rise in prices in 1964. Domestic prices (the wholesale price index) rose by 4.8 percent in the first eleven months of 1964 and the consumer price index by somewhat less. 51. ILmports rose by 22 percent in 1963, and by a further 21 percent in 1964; but the recovery of exports has not been the sole force accounting for the extraordinary growth of imports; a very rapid growth of foreign supplier credits to the private sector appears to have taken place in 1963 and 1964.. 1/ Balance of Payments 52. After six years of stagnating exports and declining imports, imports of goods and services are likely to have been particularly sensi- tive to rising incomes in 1963-1964. Travel abroad rose to a reported average of about $11 million compared to an estimated average of $4 mil-- lion during the previous four years. Data on import composition* show a rapid increase in the major categories of merchandise imports. In 19633, consumer goods; nnd rnw materials sho1wed the lnrgest increases- Tn 1964; imports of capital goods rose by 37 percent, entirely accounted for by private sctrnr inreqtmPent, and no doubt in large part made possibi hy the relative ease in obtaining the supplier credits referred to above. If travel is takein i.nto accou-n Jt, the impot+ boomr of 1963-64 has to a sig- nificant extent been a consumer import boom. In the next few years, it gee 1;l1rnlr +hne+ -1 -;4r. -ro4 nn A_nI- n ,7 ;1 + C'] -t%Tf+l sssJ `-U. -. V1A 6s C04. 6 Le). w CJj%.,j. o n. a u CL QaJVM'iL 1 a v' than in the last two years, but the rate of growth of imports is at the same te also likely to slo-w down. 5J ge tgntinofezoMlprort 19634 .ras the s-esul of 4the Llt QULt~,IIdU-LV1± . 0 :-.1 P. e iL-U jJJ..-L.L0L UV) £L7vU) VaI- UIA1 .U~L L 04L.U U 41 ,.IV sharp drop in coffee prices. The volume of coffee exported rose by 30 p from;s 1 { 956l 77v V t 1VC Uu2bt tlie priUce dr op was proportDionately lalrger,l falling from a peak of 68 U.S. cents/lb. in 1956 to 38 cents in 1962 and 36 -ens iLn 1963u Th xasolo e x Dpoucts s-ue' as cotton and shrimp did begin during the period, but was not sufficient to raise ith lvel VI rnercnansCLe exports. The renewed growth Of exports in iYO- was due to a nearly 20 percent increase in coffee production, the moderate 1/ No estimatess of the amount outstanding on these credits or of their purpose is available: the increase shown in text table V of "other private capital" indicates the orders of magnitude, however. The aut.hor- ities should endeavor to obtain the fullest possible information on the repayment. sshedules for these credits, and to regulate their inflowT so that repaynents do not bunch together. See Table 25 in Appendix I. These data should be taken as indicative only of general trends in the various categories. - 18 - Taule V. Balance of PayeunutS l7U96U2-6 (mil2lion U.S. dollars) PFroj. 1962 1963 1964 1965 Ijj-,J LJ J"7 O.b ,4.LaL4S.L I6.3' *-+ Imports f.o.b. 122.9 150.4 182.5 198 Net service- s -19.7 -2. =-'2' =2" Balance on trade and services -23.6 -20.6 -36.7 -36 Grants 7.9 2.4 2.0 2 Direct investment 9.3 5.0 8.o 1(2 Other private capital (net) 7.0 18.5 27.1 15 Loans to nublLc sector (net) i -2.9 117 5 6 Total non-compensatory capital 21.3 37.6 42.7 35 Errors and omissions -11.0 -6.9 -3.7 Surplus or deficit -13.3 10.1 2e3 -I _/n VdrA de frelp.eloans p1, rnel11cn+ed~i 4 t.vog Ba~rv of Cuate~mala. expansion of meat and sugar production for export, the rapid extension of Ui,ss CU^-t=dC "lJAUt-11- UUU V b9A u1sW ^Uliz d U 11 V'j CA-d0. iLDU | V %J. J1 C,: D LLiv av LL- factures, to other Central American countries. These last two elements a e n ew anrid d:id not exis t in the late fifties.* Even though it is likely that the increase in cotton production will slow down in the next few years and thalt exports of manIufactures to Central America may not contin-ue to grow at the recent rate, both cotton and total exports to the regional market are likely to ensure that in the next few years Guatemala wi' build up a more diversified and resilient export structure. The outlook for merchandise exports in the next few years is encouraging. On the basis of the projection belcw (see text table VI), exports should grow at an average annual rate of 6 percent between 1964 and 1970. By 1970, coffee would accoumt for a little over a third of total exports compared to about 70 percent in the middle and late fifties. Even if coffee prices were to drop to a Jevel of, say, US/ 33-34 per lb. in 1970, Guatemala should still be able to achieve a reasonable rate of export growth averaging about 5 percent cmnmully over the next five years or so. If prices were to drop this sharply in the immediate future - an unlikely occurrence, however -- export growth could well cease or greatly slow down in the next couple of years. 54. Other foreign exchange earnings amounted to $30 million in 1963, of which $4 million was attributable to tourism . Ifith its proximity to the United States and Mexico, its unusual and easily accessible scenic and 1/ Tourism earnings averaged $6.5 million annually in 1959-62. - 19 - histo,,-al sit4es, and colorful folklore, C-uatemal3 shouldn -4+h modest 4= provements in existing f2cilities, be able to achieve a very substantia:L iLLJ l n uuur±isu earnlngs. Fr eign exchAn1LJe earnAing on Or!lnvislbies and services c2n thus be expected to increase to at least $40 million by 1970, iwih total exports of goods an-d suerviues reaching $270 rmillion compared to $174 million in 1963 and about $195 million in 1964. Table VI: Guaternala: Exports 1963-70 (million US dollars) Acu Actual Projectpe" 1963 1964 1965 1970 Coff'ee 77. 71. 830 8' Volume ('o00 60 kg. bags) 1,637 1,250 1,500 1,650 Price (U.S. cents per lb.) 35.7 43.0 42.0 39.0 Bananas 11.5 8.1 5.5 13.0 Volume (:illo stms 5. 43.I 7 2. ,f4 VU..I' \.LL..L.LU.JJ JL~-Uha j I j I '-.-J.) Price (U.S. $ per stem) 2.2 2.2 2.2 2.0 Cotton 24.4 32.7 36.0 49.5 Volume (tOOO quintals of 100 lbs.) 1.020 1.310 1;500 2,250 Price (U.S. cents per lb.) 24.0 25.0 24.0 22.0 Sugar 6.1 6.1 3.0 3.5 Meat 4.4 3.7 4.5 6.0 Essential oils 3.2 2.1 2.5 6.0 Shrimp, chicle, and lumber 3.2 4.3 4.5 8.0 Other (incL. manufactures) 24.2 39.6 45.0 60.0 154.1 167.2 184.0 230.0 *, The export projection is based on the assumptions discussed in paras 12-13 and Appendtc II. 55. The international reserve position is adequate. The Bank of Guate- maia was able to increase its gross gold and foreign exchange reserves f'rom $46.2 million at the end of 1962 to $58.6 million at the end of 1963. The reserve position did not change in 1964, since the increased current account deficit ($37 million cornpared to $21 million for 1963) was compensated f'or (and in part caused) by a heavy inflow of private capital. In itself the large size of the current account deficit in 1964, amounting to 2.9 per cent cf GNP and 22 per cent of export earnings, is likely to be temporary, since' it was the result; of an exceptionally large increase in imports, in part brouglht about and financed by foreign private capital inflows. - 20 - t6. Gua temala has fa-ced ba1ance of payments +;f' iicl+i in th recent past. At the end of 1962, the authorities had to cope with severe reserve losses a a reLu O-LJ a conUbination of fJ actor s, lncldin --y repay= ments fa]ling due on loans made in 1960 by U.S. banks for the government Uudget. ExA.LIch1age cLon LroLs were J_1lIUtU CdLJU an i 1 Ud Uthesi u J Wt w aiX.JL'Ly c- rected with the export boom of 1963. However, the danger of a similar situ- ation arising in future exists as long as the current account deficit is allowed to continue at its high 1964 level. With a deficit of such m^gritude, heavy repayments on supplier credits, for exampie, mignt result in a reduction of reserves to an imprudent level. The projected net inflow cf foreign loeans and grants to the public sector (Table 18 in Appendix I) would not on present expectations be likely to offset a substantial reduction in net private capital inflows, if such a reduction were to take place. 57. The authorities should be able in the immediate years ahead to keep the growth of imports of goods and services more or less in line with tl-e growth of foreign exchange earnings, particularly in view oI' the encouraging prospects for foreign exchange earnings. The recent rapid growth of :inorts should slow down, if credit expansion is kept within bounds and some form of restraint is implemented on the inflow of private foreign supplier credits. With these prospects and policies, the autihorities should be able to gradually reduce the current account deficit below the level of recent years, and defi- nitely to keep it below the 1964 level. VI. PROSPECTS AND CREDITWORTHINESS 58. With a modicum of political stability, the Guatemalan economny should grow ata satisfactoq rate in the next few yearsr IfT as is likoly the private sector continues its dynamic performance of recent years, the gross domestic pro-n ct can reasonablyrbe expected to grown at an average rate cf 5 per cent annually in real terms. Exports are likely to grow somewhat faster (about 6 per cent annually compared to stagnation in the period 1957-62 and a 4O per cent rise in 1963-6h), while agricultural production for the local make ilyircesata sllhl-fser ratte th1-an po.pulto (a continuato md±k~ U iiioY LI;L_v:LC :~:~ci U Jioi L L -I Ly dL Uci . ~ U LO ~UJU~ U±UIJJ la UUI UJ -Jt LI of the tendency in the last 7-8 ye2rs). While the growth of exports may slow d,4ow,n ta,4arldS thle end 0of 4-1- sixties, sufflcient- possibilities fxs or -eTv ~JWLJ U ~V~0± UQ ULi UIJU UJ I L.J 1,1 ~ U± i U £&U U C LU9 ~wU 1- products, such as nickel ore, rubber and industrialized lumber, so that diversified export gro-wth could continue into the seven ties. ~9. On the basis of these prospects the preservation of Guatemalas creditworthiness will depend primarily on future fiscal policies. If the authoritles, by raising revenues and limiting the growth of cur rent Uxperidi- tures, avoid further recurrence to short-term external borrowing to finance budgetary deficits, Guatemala should be able to borrow substantial sums abroad for high-priority projects over the next few years. The fiscal measures called for to achieve this goal do not represent radical changes, and should be manage- able. 60. The external public debt of Guatemala totalled $74 million at the end of 1964; about $42 million of this had been disbursed. Actual service on the external public debt amounted to about $10 million in 1964, or 6.5 per cent of merchandise exports. Estimated service rises to $21.9 million in 1965 (or 11.9 - 21 - ,per cent- of Dro4ectedu r,aerchand ise ex,worts), includir, amiort-zati n of a s-.x- J UUAL1IILU AAJ ,.9 1f LUU.U L dUL I'.d ULUL10 d month budget support loan obtained at the end of 1964. After 1965, all of the past borrowing for the budget Will be paid off, an' serv±ue on 'he (axist ing debt falls to $7.1 million in 1966, and $5.7 million in 1970 (or 2.,' per cent of projected export earnings). 61. Guate:mala could thus comfortably borrow more abroad to finance its investment plans, On present expectations, the relatively limited size of the external capital requirements of Guatemala over the next three years or so (see paras.h6-h7) should enable it to pnrdently borrow these funds on conventional termls, Is, however, the authorities launch on mruch larger programs than those projected for high-priority sectors such as education, the resource gap could become significantly larger and could warrant the provision of external assistance on soft terms. APPENDIX I LIST OF TABLES Table No. External Public Debt 1. External Public Debt Outstanding 2. Estima-ted Contractual Service 1964-1978 Population, National Income and Production 3. Population L. Trends in Gross National Product 1950-1963 5. Gross National Product at Current Prices, 1950-1963 6. Sector Or:igin of Gross Domestic Product 7. The Financing of Gross Domestic Investment 1950-1963 8. Land Us and Yiplds sf TMzin Crons 9. Agricultural Production 1950-1964 10. Trtenr1- in TnPi-1t'i rn7 m-+n -nned fnn.Czi-tio--+An 11. Electric Power and Transport 1954-1963 12. Trends in Educati on 9419..i63 _ublic Finance and In.vestm-ent 13. ~ ~ ~~AML Gentr< GoverHe, Fisca Oprtin 15i/9193 14. Central Government Current Revenues 1954/55-1963/64 15. Cfent -Ir-,' oe rrar=, e nIt- E+ntues 195/5-936 16. Holders of Central Government Domestic Bonded Debt 1961-1964 ' 17 Th-___ TZ^ I. _ _ _ ^,! n I - 1. - _ __: - g n n/D -- £ ruu.L±tL LIIUWlUIlEU ±tU/U.L-±yU)/UL4U aiid Projection to .uLY 18. The Financing of Public Investment 1960/61-1963/64, and Projection to 1967 19. Disbursements on Principal Foreign Development Credits to Public Sector 1962-1964 Monet=r Developments and Prices 20. Summary Accounts of tne Banking System I96C-19614 21. Purpose of Credit to the Private Sector 22. Wholesale Price index in Guatemala City Balance of Payments 23. Balance of Payments 1956-1963 24. International Reserves 25. Compositicn of Imports 1956-1963 26. Composition of Exports 1950, 1955-64 27. Terms of Trade 1955-1964 TA:L. E 1 GUATEMViLA - EXTEIMAL PUBLIC DEBT OUTSTANDI]NG INICLUDIN--.G UiTDISBISMD AS OF JjTTTT -30, 19 '!-TIPT ',If TnTD DT't,-1-DrnT h rVO , fM7~1-rm7'TCI:T TTTTV% I - V'T~ -.nlT.'t 'II 1 rN - I I .J.YU L4, ±I iL.)~ILLU,LJ iJJ. U.L,.L .. - iI iL J 2,h I -.IUL4. Debt Rent=a-'-'- 7o - CunL e^ nn r -1A Q - a- S E,J ¼*.L5f ' .1 s .L'w ] O (thousand U.S. dollar equivalents) Debt outstandi9ng M'ajor repDorted Item _ Jiue 300 196L4 additions Net of Including July 1 - undisbursed undisbursed December 31, 1964 TOTAL EXTERAIL PUBLIC DEBT 35.537 58,278 235 Privately-placed debt 12,613 12,899 IBRD loaI 11.080 11.080 'mR lrn, "-Is 1 ry71 17 'I r U.S. Government loans 10,063 27,199 Export-Import Bank 4,391 15,944 AID 5,672 11,255 J Does not include the following two loans: a) s6l,1000,00 from iMeadow Brook N1ational Bank 5i%, 1963. b) 'Al,0(0,000 from Philadelphia i\ationl& Bank 5 7/8/J, 1963. c) Includes $4,962,000 drawn and outstanding of lines of credit. Excludes '9,840,000 not yet drawna. Source: Statistics Division IBRD -- Economics Department TABLE 2 GUATEIaOILA - EPSTIMA TERI) CGOTRACTUAL SERVICE PAY,4E,AT.S ON EXTEIMAL PUBLIC DEBT OUTSTANDIMG IILCGILLMI1N UIIMISBU'1ED AS OF J1JNE LO, L264 .IH ILrTH LH OREPO01TED ADDIT1011S JULY 1 -- DEIJE IBER 314 1 Debt; Repayable in Foreign Currencies (thousand U.S. do'llar equivalents) Debt Out-. bi:lted Staten. Gcvf3.rrimont standing Payments durinip.SeeLr Pri vately Export Year plus tin- - disbursed Amorti-. In- Placed IBRD IDB Import January 1 zat,ion terest Total Debt Loans -Loans Total Bank A ID 1964 58278 2J 14-,202 2, 09o) 16,211 83033 1,994 312 5,872 5,497 ?76 1965 53,146 7,845 ,637 10,4,82 !5,253 1993 529 2,707 2,064 643 19C6 6 .45,201 5,504 2' ,440 7, 944 2, 432 1,993 796 2,723 1,993 730 1967 39,798 5,912 2,220 8,132 2,15( 1,993 930 3,009 2,267 741 1968 33,886 5,477 1,847 7,324 1,484 1,993 9r2 2,907 2,154 753 1969 28,409 4,201 1,576 5 ,777 1,993 982 2 802 2,037 764 1970 24,208 4,316 1.,344 5,660 1,9392 981 2,687 1,911 776 19,71 19,892 2,310 1,130 3,440 855 2,585 1,798 787 1972 17, 582 3,835 96i 4., 801 810 3,991 1,684 2,308 1973 13,747 ,901 739 4,639 773 3,866 1,570 2,296 1974 9,846 3,549 489 4,0o38 281 3,757 1,455 2,302 1975 6,297 1,874 286) 2,160 271 1,889 1,331 558 1976 4,423 837 196 1,033 260 '773 527 246 1977 3,586 719 1 59 878 250 62 8 333 246 1978 2,8367 518 126 6:44 240 405 316 39 2/ Includes all debt listed in Table 1 prepaled April 22, 1965. ?j Amount outstanding is as of June 30, 1964; paymTents are for the entire year. So'arce: Statistics Division IBRD - Economics Department. TABLE 3 GUATEMALA: POPULATION Mid-year population 1950 2,805,157 (census data) 196032800 etmwd 1960 3,765,039 (estimated) 19U64. (Aprl±J 1U-26) 4,270,34i0 (census) Average annual rates of growth 1950-1964 % 3.06 1950-1955 % 3.04 1955-1960 % 2.94 1960-1964 % 3.25 Source: Direccion General de Estadistica. TABE 4 GUAT]iMALk: TRENDS IN GROSS NATIONAL PRODUCT 1950-1963 2! Pre:Limn. 1'50 195:l 191 2 1953 195)4 1955 1956 1957 1958 1959 1960 1561 1962 196L3 Gross National Product at current prices (million quetzales) 6)41 684 687 7:28 775 807 896 933 962 984 1,010 1,031 1,080 1,164 Rate of' growth (percentage) - 6.7 0.4 6.0 6.3 4.2 11.1 4.2 3.1 2.2 2.7 2.1 4..8 7.8 Gross NationaL Product in 19!'8 prices (million quetzales) '731 742 7514 781 i806 828 908 9)47 962 999 1,027 1,C)54 1,085 1,159 Rate of' grcwth (percentage) - 1.5 1.6 3.6 3.2 2.7 9.7 4.3 1.6 3.8 2.8 2.6 2.9 6,8 Per capita GNP irL 195,8 prices (quetzales) 257 252 250 2'51 251 251 267 271 268 270 269 267 266 2-73 Rate of growth (percentage) --2.0 -1.:L 0.6 - - 6.15 1.3 -1.0 0.7 -0.4 -0.7 -0.,3 2,.7 I/ New revised series. Source: 'Working Party of' Bark of' Guatemala, Plannirg CounciL and ECLA. TAKBE 5 GUATEMALA: GFROSS NATIONAL PRODUCT AT' CURRENT PRICES. 1950-1963* (maillicn quetzales) 1950 1951 1 952 15,53 1954 1955, 1-956 1957 L9,58 1959 1960 1961 1962 1963 Private ecnsurrption 546.6 5780C) 571.6 6]I6-2 666,5 668.8 719. 2 755.2 807.5 B26.B 8,52.1 861e5 922.1 970. 8 Public consumption 32.9 38.5 46. 9 48.9 50.,1 49.2 57.1 64o3 70.4 78.4 79.9 83.1 77.2 81.5 Gross domestic f:ixed investment 66.8 71.7 62.6 59.6 59,,7 79.9 134.,4 150.2 137.1 112.6 103.2 108.6 108.2 139-8 Public (15.4) (17.;5) (20.8) (21.8) (22.9) (31.5) (48.2) (607) (49.9) (36.6) (26.6) (31.9) (27.3) (32.3) Private (51.5) (5401.) (41.8 ) (37'.8) (36.l8) (48.4) (86.2) (89.4) (87.1) (76cO) (76.6) (76v7) (80.59) (107.5) Change in inventoQy -1.4 -11 l. 7,0 1.2 0-4 14. 1 7.1 3.7 -1.1 -0.65 5.6 7.7 5.2 8c4 Exports of goods and services 85.2 89.2 599.2 104.1 108.,4 ]L1205 133.1 128.5 121.7 :122.3 131.9 128.7 130.-4 170.0 Less imports of g,cds and services84.7 89.7' 83i9 90.7 1014,2 111.6 149.7 161.9 165.1 3148 .1 152,2 146.2 150.59 196.1 Groiss Domestic Preduct 645.4 686.6 689-3 737.5 783.,8 812.9' 901,3 940,1 970.5 991.14 1,020.5 1,0,43. 13092.1 11.74.4 Net income trans- fers abroad -4.O -2.21 --23 -9.1 -9.,3 -6i2 *-5,4 -6.9 -8.7 -7.9 -104 -12.4 -11.59 -l10l. Griss National Prcduot at cur- rent prices 641,4 684.4 687.1 728.4 77465 806.7 895.9 933. 2 962.2 983.6J1010.1 1,031. Cz lc&.364,4 RateD of grawth (ipercentage) - 6.7 0.4 6.0 6.,3 4.2 .11 14.2 3.1 2.2 2.7 2.1 4.8 7.8 * New revised series. Sour_E: lWorking Party of Bank cf Guatemala, Plana-ing C(cunil and E]CLAG TABLE 6 GUATEMAIA: SECT'OR ()RIGI]N OIF GROSS DOHiESTIC PRODUCT (nu.llion quetzales of L958) :1950 19,51 1L952 1953 1954 1955 L956 1957 1958 1959 1960 1961 1962 196,3 1/ Agriculture and fishirng 239.4t 236.4 242.4 25L.4 252.8 248.6 :264.9 269.3 284.8 310.0 319.4 324.4 339.,8 378.,8 Mining 1. 5 1L7 1.'7 1L4 1.2 :1.9 2.4 2.6 2.2 1.3 2.0 1.3 0.i4 0,.4 Manufacturing industry 86.6 89 .3 91.'7 93.4 98.-9 913.3 106. 8 1165.8 123.0 126.9 132.8 1-40.5 146.,7 153.16 Construction 21.7 2L.0 19.0 18.7 18.6 2:L.9 29.3 36.7 31.7 24.2 21.6 25.9 23,,1 30441 Public utilities; 3.4 3.7 4.1D 3.9 4.6 4. 9 5.1 5.7 6.4 6.9 7.3 8.3 8,,9 9,.3 Transport and communications 26.3 27.7 27.3 30.3 30,9 39.9 42.3 48.8 49.4 49.9 50.3 55.3 67.,5 72.6 Corarerce L92.'7 193.2 194.5 203.0 :210. 5 217.4 239.9 255.1 265.4 277.1 289.3 295.4 2934,3 315,,0 Banking, insurance, real estate 9. 2 9.7 9.8 lo0O 8.6 10.8 14.3 13.1 13.7 14.1 15.5 17.,0 20..9 22,.7 Real. estate rent 60.14 63.0 65.2 67.2 69.5 71.6 73.7 75.9 78.0 80.1 81.9 83,43 84.7 87.4 Public administration and defence 41.'7 45.1i 48.9 50.5 47.1 44.0 51.7 52.4 56.6 64.8 63.7 70-.8 62.,0 63.8 Other services 39,16 4:1.7 43.2 45.5 47.0 49.9 52.3 56.2 59.8 63.0 64.1 65449 68-.3 71.7 Total GI)P expenditwres '722.3 73;2.5 '747.7 775.3 '789.6S 809.1 882.7 932.5 970.9 1,018.1 1,047.9 1,088.1 1:,1154.6 1,205.3 Terms of trade aLjustment 14.L 1:2.0 9.1 115.2 26.3 25.4 31.1 21.7 - -10.5 -9.3 -21.1 -174.5 -36.5 Gro;ss Domestic Product '736.14 7W4.5 '756.8 790.5 B15.9 83145 913.8 954.2 970.9 lG,07.6 1,038.,5 13,067,.0 1,,098.2 1,168.8 1/ Preliminary.. Source: Working Party of Bank of Guatemala, Planning Council and ECLA. ThBLE 7 GUATE]MALA: THE FINANCING OF GROSS DOMESTIC INVESTMENT 11950-1963 (million quetzales) P:relim. 1950 1951 1952 1953 15954 1955 19>56 195,7 19,58 1959 19R60 196:L 1,962 1963 Gross Domestic Fixed Investment 66.8 71.7 62.6 59.6 559.7 79.9 134.4 150.2 137.1 112.6 103.2 108.6 108.2 139.8 Change in Inventory -104 -1.1 -7.0 1.2 0.3 14.1 7.-1 3. 7 -1.1 -0.6 5.6 7.7 5.2 8.4 Gross Domestic Investment 65.4 70.6 55.6 60.5' 60.1 94I.C) L4106 153.9 136.O 1L12.() 108.3 116.3 11.3.4 148.2 Financed by l. Gross Domestic Savings 61.7 68.5 6802 64.8 59.1 91.1 121.2 114.8 85.14 80.2 81L.2 91.14 814.7 113.,5 Depreciation 29.9 33.9 35.4 35.0 35.9 36.2 42.8 43.4 47.4 44.2 48.7 50.14 50.6 51.8 Net Savings 31.7 34,6 32e8 2909 23.1 54.c 78.3 71,4 3800 36.0 32 .5 41.0 34.1 61.7 PuDblic Sector 1/ 15.5 18.3 18.1 22.3 30.9 40.1 38.9 36.9" 3203 21.8 2:L.1 18.6 21D.9 25.5 Private Sector 16.2 16.4 14.5 7.5 -7.7 14.8 39c.5 34.6 5.7 14.2 11 .4 22.4 1.3.1 36.2 2,. Clarrenat Account Deficit 3.7 2.1 -12.6 -4.0 a.0 2 .9 20).4 39.1 50.6 31.8 2'7.6 24.9 28. 8 34.8 (- Surplus) Revised series. _! Apparently includes grants as part of Central Government current revenues. Source: Working Party of Bank of Guatemala, Planning Council and ECLA. TABLE 8 GUATEMALA: LAND USE AND YIElDS OF MAIM CROPS 1 9 5 0 1 9 6 1 Przduction Area, Yield Procduction Area. 1000 quintals 1000 manzanasl/ quintals 1,000 quintals 1000 xanzanas:l/ quintals 2/t 1,120 I, 371- Ccrn 9,639 662' 15 13 ,683 '758 15 Whieat 477 53 9 536 48 11 Beans 1,292 106 12 1,752 :L44 12 Potatoes 1.51 a 42 308 5 58 Vegetables 1,755 2 924 2,59( 3 996 FruiIts 3/ 2,005 46, 44 2,848 63 4.5 Coffee (green) 1,471 182. 8 2,171 236 9 CoLtton 41 2 18 IL,343 45 30 Bananas (t000 stemrs) 7,621 25) 259 7,241 20 357 Lemon tea and citronella igrasses 3,4,61 6' 577 3,739 8 456 Sugar cane 23,4L24 22 1,060 38,109 31 1,237 Tobacco 39 7 48 6 8 Rubber ('000 lbs) 4.22 1 602 L,14( 4 300 1/ 1 manzana a 1.73 aLcres. 2/ This represents about 10% of t,he total area cf the country. 3/ Deciduous fruits; apples, pears, etc., Source: Working Party of Bank of Guatemala, Planniing Council and ECLA. TABLE 5 GUAT:EMALA: AGRICULTURAL PRODUCTION 1950-1964 J (thousand quintals of approx. 1C)1 1bs) Est.1963 19!50 1951L 1952 1953 1954 1955 1956 1957' 1558 19' 9 1 960 1961 1962 1963 Value 2/ Preim. (nillion 1964 quetza- _ _ _ _ _ _ _ _ les) _ Mainly for Domestic Use Corn 9,639 10,863 10,198 9,485 8,637 8,299 9,668 C1,870 10, 391 11,152 :L,42 1:L,683 12,159 12,789 27.6 14,452 Rice L87 2,47 214 236 2:12 198 224 243 254 318 2<95 273 344 356 1.8 390 13ean, 1,292 1,416 '1,438 1,395 1,3:18 1,169 1,357' 1,3446 1,560 1,667 1,724 1L,752 1,787 2,04,4 18.2 2,122 Wheat 477 572 485 431 400 318 1434 40C) 469 469 461 5365 561 621 4.1 736 'Sugar cane7',208 6,021 7,59'3 9,055 11,338 11,432 12,086 13,413 14,716 14,850 21,105 20,045 28,033 28,777 9.0 31,787 Rubber ('000 lbs) 422 733 733 1,020 1,037 1,053 1,068 1,079) 1,115 1,140 1,140 -L,140 2,457 3,331 0.7 4,031 MaJ'n-iy for Export Coffee 1,1471 1,374 1,606 1,535 1,462 1,612 1,710 1,706 1,934 2,237 2,222 2,171 2,240 2,501 98.6 2,075 Cotton 15 28 57 94 144 185 212 242 316 :344 357 479 727 1,223 30.9 1,477 Bananas (mi:Llionl stems) 7.6 6.0 4.6 7.9 7.1 6.1 6.1 6.1 5.6 6 .3 8.2 7.'2 4.5 5.6 14.6 n.a. Chicle 15 26 22 - 8 24 15 117 16 28 31 35 10 18 0.9 25 Citrone Llaa and Lemon tea grass 3,461 5,046 3,463 3,148 1,485 2,847 5,974 7,448 3,,429 2,1434 2,252 '3,739 5,704 8,091 1.8 8,447 This; revised series has been used f'or the computation of the revised GNTP dcata shown in TabLes Source: Working Party 2/ 195'8 prices: prices of products for domestic use have not changed markedly sinlce then, of Bank of Guatemala, - ~~~~~~~~~~~~~~~~~~~~~Planning Counci", and ECLA. TABLE 1.0 GUATELAIA TRENDS IN INDUSTRIAL PRODUCTION AND CONSTRUCTION 1957 1958 1959 1960 1961 1962 1963 Indices (15946 100) Non-durable goods 1T9 161 173 17) 18) 186 210 Food 163 159 179 172 198 185 213 Beverages 137 139 1)1 138 136 131 136 Tobacco 151 152 155 167 6L4 168 176 CGhPmi c1I 200 239 321 383 42v3 4.I67 664 Textiles 99 115 102 108 1.24 131 152 Clo+hing 14h 226 219 215 191 168 183 Electric pojer 262 302 385 374 427 484 553 Durable goods 218 256 242 221 237 208 252 TL,-mber -1 5"7 11.1.1 -i4 -i'- 2 - QI. 0. _L1~ I -L1LV4 ±14') .UU ±) u14 UL4 Non-metallic minerals 285 380 355 348 572 345 437 Individual items Cement (1950 = 100) 235 283 278 270 301 279 378 Ciga--.e..es (,nillion unX ~ sj 1,707 1,724 1,752 1;889 1,5h 1,912 1,997 P3zr (n,iili(n liters) 15]- 18.7 20.2 1(,,6 1 i 1 15.4 17.9 F'LowLz (tlho.sand tons) 27.5 32.1 37.0 48.8 52.5 52.6 52.1 Value of private construction during year in city of Guatemala (m: I rin qu,etzaJes) .47 4.9 5.2 6.1 6.o 5.8 6.e Source: Direccion General de Estadistica, G ll.t,., 2a er 4,. fns. The Eireccion is preparing a revised industrial production index. TABLE 11 GUATEMALA: ELECTRIC POWER AND TRANSPORT 1954-1963 195)4 1955 1956 1957 1958 1959 1960 196). 1962 1963 Power L/ Installed capacity (MW) 41 42 48 56 517 67 76 79 84 91 Power gene:rated (million kwh) 154 165 171 193 219 238 259 281 315 336 Transport Freight moved by railroad (thousand tshort toins) 978 1,081 1,105 1,101 991 875 1,o18 886 809 798 Port traffic (thousand metric tons of merchandise 2/) 704 913 911 933 935 J 99]9 J 1138 1 125 11 144 1,354 Puerto Barrios 3/ 395 469 492 44 2 7c h 91 439 49,B i4atiias die Galvez 3/ - - 45 41 26 48 82 92 147 194 San Jose 4/ 249 367 273 284 346 349 364 381 416 445 Champerico 4/ 17 3 36 50 57 59 52 60 43 75 Motor vehicles 5/ (thousands) 19.1 22.3 27.9 259.4 34.3 37.4 41.0 44.5 48.1 Passenger cars 9.7 10.9 15i.2 15>.7 19.,9 21.' 25 237TT0- 200 Trucks 4.0 5.3 5.5 5, 7 5.9 6.7j 7.1 7.6 8.1 Other 5.4 6.1 7.2 8.0o 8.,5 9-5 7L0.4 1:1.2 11.9 1/ Including plants for private service. 2/ Foreign trade only. 3/ Atlantic coast. Ii/ Pacific coast. §'/ Excludes vehicles owned by armed forces, and motorcycles. Source: Instituto Nacional de Electrificacion (INrDE), Direccion General cle EstadiLstica, ]Direccion de Transito. TABLE 12 GUATEMALA: TRElNDS IN EDUCATION 1954-1,963 (State schools oiily) 1954 1L955 1956 1957 1958 1959 1960 1961 1962 1963 Primary Education Number of schools 2,80:3 2,828 2,864 2,884 2,915 2,943 2,965 2,991 3,049 3,120) Number of teachers 6,663 6,814 7,099 7,189 7,550 7,597 7,820 8,082 8,404 8,615 Pupils enrolled (thousands) 189 196 209 226 233 253 267 280 304 324 2/ SecondaLry Schools Number of schools 39 43 48 53 56 61 61 57 56 57 Number of teachers 1,188 1,207 1,366 1,401 1,618 1,701 1,811 1,832 1,818 1,843 Pupils enrolled (thousands) 12.0. :12.4 1:3.2 13.9 14.4 16.0 17.5 18.2 20.3 20.7 3/ Technical and Vocational 1l Number of teachers 114 106 107 106 106 113 113 114 111 111 Pupils enrolled (thousands) 2?. 2.8 3.0 3.4 2.2 2.6 2.8 2.8 3.2 3.4 1/ 18 schools. / There were in addition abolut 37,00( pupils enrolled in private primary schools in 1963. The total en-- rellment of 36L,000 represents 45% of the total population of 800,000 aged 6 to 12 (six grades). i/ There were in addition about 19,000 pupils enrolled in private secondary schools in 1963. The totaal enrollmient of :39,300 represents 10.3% of the total population of 380,000 aged 13 to 18 (five grades). Source: Ministry of Education and Direccion General die Estadistica. TABLL] 1f GUATEMALA: CENTRAL GOVERNMEqT FISCAL OPERATIONT 19559-1963/6l4 (mill:ion quetzales) July-De.- 1958,'q59 1959/60 1.96C0/61 19 61,22 192,6 943 :963/61 196h Currenit Revenues 89.9 88.3 87.3 87*2 82. 8 97,.8 50. 2 Czish ExpediLituires 104.6 93.0 100.6 101.1 9 7.2 1o5,6 65.1 Author-ized during fiscal yesar 101.9 87.3 90.2 9L4.5 86.6 99,,3 59.7 From previous fiscal years 2. 7 5.7 10.4 6.6 10.6 5. 534 Def:icit 2 -14.7 -4.7 -13.3 -13.9 Ilt.h -7.8 -)Jo.9 Financed by Foreign grants 8.5 5.7 8.0 11.9 2.6 2,.5 oDL4 Nelt foreign borrowing 1.1 -0.9 9.0 -3.2 6.7 - 3.9 Development loans (gross) 1( 7 0.3 ) 3.9 o.6 2.6 4.7 Other loans (gross) ( 1 ) 6.3 7.0) - Akrortization -O. 6 -1.2 -1.2 -3.8 -2. 9 -44 7 Net internal b,arrowing -2o2 -3. C0 1.2 3. 2 5.2 9. 0 1h.6 New bond iLssues 4h4 1.6 6.o 8.1 11.4. 15.4 Amortization -6.6 -4..6 -4.8 -l4 9 -6. 2 -6.4 Decrease in depos:its ( - increase) 7.3 2.9 -4h.9 1.5 -1.7 -5.2 -1.9 Di'sc rena n cy - - - (.5 -1. 6 1.5 -2.1 1/ A speciaL transitional budgetary per:icd. 2/ 'See text Tab.le III for estimate of current account savings. Source: Banco de Guatemala, and Annual Statements of General Accounting Office,, TABLE 14 GUATEMALA: CENTRAL GOVEfUTNVENT CURRENT REVENUJES L954,/55-1963/64 (nu.llion quetzales) 54/55 55/56 56/57 57/58 58/59 59/6S0 60/151 61/62 62/63 63/64 July-Dec. 1964L/ Business Profits Tax 1/ 5.IL 5.7 6.3 7.( 7 .1 6. 4 6.3 7.6 7.7 8.6 4.6 Property Tax 0.9 0.9 0.9 1.L 1.:2 1.3 1.4 1.6 1.8 2.,4 1.2 Inheritances and Donations Tax 0.L 0.3 0.3 0.2 0.2 0.2 0.3 0.2 0.3 0.3 0.2 Import Duties 21.4 23.7 27.6 29.5 31.3 28.2 28.1 26.5 25.4 27.3 14.1 Export Taxes (mostly coffee) 14.8 14.() 15 .4 11.7 10.5 9.7 8.3 8.9 6.2 6.4 1.8 Liquor and Tobacco Taxes 12.7 12.'9 1.4, 15.5 15.9 16.1 15.9 15.0 15.4 16.6 8.5 Stamp Tax 4.() 4.9 5.6 6.0 5.7 5.5 5.6 5.8 6.5 124.4 6.9 Other Indirect Taxes 2.41, 2.'3 3.5' 4,3 3.8 4.0 4.6 3.5 3.8 7.4 _1( Non-tax RevenLues 2/ 5.15 9.( 10.8 7.6 5.9 7.0 6.8 6.9 6.9 7.@2 (12.9 Earmarked. Taxes 37 4.9 4.7 6.6 8.7 8.2 9.0 9.3 9.0 8.6 9.,0 0 Other 4/ 7.:3 0.6 - - 0.1 0.9 0.7 2.2 0.3 0,o2 _ Total Currernt Revenues 79.1 79.l6 91.14 91.6 89.9 88.3 87.3 87.2 82.,8 97,8 50.2 1/ Starting 1963/64, includes income tax established in July 1963. 2/ Includes sales of' public services, employee contributions to pension funds. 3/ Various excise taxes earmarked for debt amortization. 0/ Inclu,des sales of public properties. g/ Includes tax on petroleurm, previously co:llected as an import duty. 6/ A transitional budgetary per-iod. Source: Banco de Guatermla, Boletin Estadistico. IAPLLE 1 5 GUATEMALA: CENTRAL G_0VERNIENT EXPENDITURES* 1554/55-1563/64 (million quetzales) 54/55 55/56 56/57 57/58 58/59 559/60 60/61 61/62 62/63 63/64 Current Expefnditures 1/ 49.8 55,7 63.2 64.2 659.7 76c9 72.0 74.1 73.1 74.6 Administration 24.9 27.2 30.2 29.8 36.5 38.¢7 36.1 38.5 33.6 30.0 Education, Health and Other SociaL 15.9 17.3 21.3 21.3 19.5 24. 5 22.2 21,5 214.6 26.8 Defence 7.4 8.6 8.9 9.7 9.9 9.6 c.2 9.1 9.4 Ll2 Pensi.nzs 1.2 1.8 1.4 1,6 I.. 1.9 2.1 2.3 2,4 2.6 Interesit on the Public ]Debt 0.4 0.8 1,3 1.7 2.0 2.1 2.3 22.7 3.1 3.8 Investment Expenditures 1/ 29.4 44.5 50.7 49.4 37.7 24.5 25. 9 35 .4 20.6 32.2 Equipmenit 1.1 1.1 lol 1.1 2.4 003 0.2 0.6 M ()8 Stuclies and Supervision 1.4 2c8 2.1 3.2 4.4 2.9 c)o6 0.5 o).6 - Roads (incl.some ma:intenance) 12.8 27.4 35.7 30.9 114.7 7.5 L4.9 11.9 9.3 12',4 Other Public Works 9.5 10,8 8.o 9,5 9.6 7.7 9.0 8.9 4.2 8.3 Other 2/i 4.6 2.5 3.8 4.8 6.7 6.0 11.2 1:3.5 6.4 1c).5 Tntal 79.2 100,2 113.9 113.6 107.4 101.4 97.9 109.5 93.7 106.7 * Excluding debt amortizatJion, These data represent obligations incurred, not cash paymernts actually mad(e, 1/ The division between Current and Investment expenditures is not strict, but indicates orders of magnitude. 2/bIncLudes "capital transfers' tc autonomous agencies. Part of these should be considered as current expendi- tures, Soo-;u.e: BDaco cLe Guatemala, Boletin Es-tadistico. rT A nrv D1 L GUATEMALA: HOLDERS OF CENTRAL GOVERNMENT DOMESTIC BONDED DEBT 1961-1964 nlbt ntstaniin' at endi of year 1941 1062 1963 195 Held by: Banco de Guatemala , 30.2 25.8 37.3 41.5 Institutional .Fudsl/ 5.6 11.8 11.3 8.0 State Agencies2/ 1.5 0.9 1.4 .4.8 Private Sector 4.5 5.h 7.3 11.9 Insurance companies 0.9 1.1 1.3 1.7 T1.111 4 3. 4 . Z 6. 10. C U .L.LL- _ ).O £4,) U. u U Total outstanding b1.9 43.9 57.3 66.2 1/ "Institutional Funds" are government deposits in the Banco de Guatemala held for debt amortization. The funds are invested in government bonds. 2/ Includes the 3 state-owned banks, the Social Security Institute, and various autonomous agencies. Source: Banco de Guatemala. TABLE 17 GUATEI4kLA: PUBLIC I1NV1TESTMENT 1960/6-1967 (million quetzales) Fiscal years 196DO/1 L961,/2 :1962/3 1963/4 1965 1966 1967 Plan Pro'able Plar Proba.ble P1! ~n Probable R S5 .6 7.8 4.6 7.2 24.3 11 17.3 10 17.8 9 Ports and i-irports 72.0 1.3 0.8 1.2 5.7 2 8.1 3 7.3 3 Teleccimmuriications( 0.1 - 0.9 1.4 2.9 2 3.3 2 4.2 2 Electric Power 0.5 0.2 2.6 4.2 7.5 4 8.6 5 10.9 6 i-griculture 4-.7 7.4 4.,2 6.7 11.5 5 13.3 5 16.7 6 Health. and l[elfareX 2/ 7.1 5.9 2.0D 3.1 5.7 4 6.6 4 8.4 4 IousiLng 3.1 2.9 2.0 3.1 5.7 3 6.6 4s 8.4 4 Education ( 7 6.9 4 8.0 4 10.0 5 Pu.blic works ( (2.9 2 3.4 3 4.2 3 Ot,her 1.3 1.8 1.0 1.4ID TOTAL 3(D.9 34.4 20.6 32.2 57.5 37 66.4 40 83.7 42 * No data available on the transitional period in the second half of 1964. 1/ Excludes maintenance, except for purchases of major maintenance equipment. 2/ Includes water supply and sewerage. Source: Actuals and Plan: Planning Council:; Projections: I!BRD staff estirrmates. TABLE 18 GUATEMALA: THE FINANCING OF PUBLIC INTESTMiLNT ANT) DEBT REPAYMENT (nrillion quetzales) P R C J 2 C T I G N 1960/1 1961/2 1962/3 3963/h4 1'76 - 7 19665-- T157 Financing Required Total Public Inves-tment 30.9 34.4 20.6 32.2. 17 40 42 Ahortizatiofnl/ 6.o 8.7 9.1 11.1. 17 12 :L4 Foreign debt 1.2 3.8 2.9 4.7 1.0 4 4 Domestic clebt 4.8 4.9 6.2 6.4 7 8 IO Total F'inancingt Recuired 36,.9 43.1 29.7 43.3 54 52 'j6 Sources of FinEncirng Foreign grants 8.0 11.9 2.6 2.5 2 4 5 Drawings on foreign loans 10.,2 0.6 9.6 4.7 154/ 134/ 124/ Public savings 2/ 12.3 10.1 5.7 18.2 37 35 9 Other 3/ 6.4 20.5 11.8 1(.9 ) I/ Central Govt. only for period 1960/1-1963/4-autonomous agencieS, excluding banks, would not substantially alter data. For period 1965-67, data differ from debt service tables because latter include borrowing 'by public sector banks. 2/ Public savings are current revenues, (Table ) less Current expenditures (as s'hown on Table ) less transf'ers to autnonmous agencies (as showrrn in text Table II1'). 3/ Balanci:ng it.em.The movements of' this item generally agree with the combined movement of the government s floating deht and other internal borrowing (as shown in text; Table I).The large increase in 1961/62 is partly explained by a Q3 million increase in the floating debt. J Based on drawin,gs on existing loans, plus loans likely to be approved at present pace of project preparation. Source: Planning Council, Banco de Guatemala, and! IBRD staff., TABLE 19 GUATEMATA: DIS*IJEIENTS ON PRflCIPAL FOREIGN DEVELOPMENT CREDITS TO PUBLIC SECTOR* (million U.S. dollars) Date of Source Purpose and Signature 1962 1963 1964 Undisbursed amount or Approval balance Highways Edxmbank 7.5 Aug. 1960 0.5 1.9 1.6 3.6 / i 3.0 Dec. 1960 - - - 3.0 DLF/AfD 2.1 Jan. 1961 0.1 0.3 0.5 1.3 It 5.4 Jan. 1961 0.4 2.0 1.2 1.8 Power and Utilities IDB 3.2 June 1964 - - 0.2 3.0 IDB 3.5(water supply) Aug. 1962 - 0.1 1.1 2.3 Housing IDB 5.3 Oct. 1962 - - 0.1 5.2 Credit to Agriculture and Industryv 1/ Eximbank 5.0 Dec. 1959 o.6 1.1 - CancelIed DLF/AID 5.o j Aug. 1959 0.8 0.2 0.2 3.9 lOB 5.0 Sept. 1961 0.4 1.2 0.4 2.9 Ht 2.5 Apr. 1963 - - 0.3 2.2 U.S. com- mercial banks 21.5 A/ Various, dates 309 3 7 1.7 ,/ na.q gross disbursements. g/ Channelled through the Banco de Guatemala, for use by the private sector. 2/ For rubber production. y/ Only loans with at least 3 years' maturity included. The amount shown is the original amount of the lines of credit: not all is necessarily expected to be used. January-June on:Ly. v In addition, there is an Eximbank loan of $4.6 million for port improvemelnt made in June 1964 and not yet used. Source: Statemenlts of individual agencies, and Banco de Guatemala. TABLE 20 GUATE111LA: ------ 7. ACCOINTS O THF 12,'KTNG SYSTT71 196O--196h (million quetzales) End of Period 1960 196). 1962 1963 196c4 International Assets (net) 47.6 42.6 30.3 40.6 38.0 Bank of GuatemEciaa 5O, 48.3 41.9 48.9 48.3 Other Banks -3.1 -5.6 -11.6 -8.6 -10.3 Domestic Assets 159e4 172.0 186.1 217.8 255,9 Credit to Public Sector 30.5 37.5 32.3 14.6 55.2 From Bank of Guatemala (26.6) (33.2) (28.8) (4loO) (44.8) Credit to Private Sector 104.2 108.8 112,6 129.5 148.6 From Deposit l;oney Banks (79.9) (87.1) (95.5) (108.5) (127.9) From State Development Banks (24.3) (21.7) (17c1) (21.0) (20.7) Unclassified Assets 24.8 27.8 41.2 143.8 51.5 Interbank Float - 0.1 0.1 - 0.6 Total 207.0 216.6 216.4 258.14 293.9 Domestic Liabilities to Private Sector 152.0 156.2 163.4 188.0 215.6 Currency in Circulation 61.5 62.2 62.9 67.0 71.7 Monetary Deposits 1.0 40.9 LL.L 52.0 51.5 Quasi-monetary Deposits 31.2 35.6 41.3 51.0 70.6 Deposits in Foreign Exchange 0.1 0.1 0,i 0.1 0.1 Bonds 8.8 7.9 4.4 6.7 7.2 Capital 9=3 9.5 1O1 11.2 11=5 Other TLiahiliti 55.0 60.4 60.0 70o.4 78.3 Public Sector Deposits 18.0 25.1 12.9 28.9 33.5 Offici' Capitall 25 .8 22. 8 25 9 21 .8 27 Unclassified Liabilities 10.4 12.5 14.1 16.6 16.9 Interbank Float 0.7 0.1 Source: International Monetary Fund. on basis of balance sheets of Bank of Guatemala and other banks. TABLE 21 GUATEMALA: PURPOSE OF CREDIT T'O THE PRIVATE SE CTOR 1/ (million quetzales; loans outstanding at end of year) - ~ ~ Sept. Sept. 1958 1959 196C! 1961 1"62 L963 1963 1964 Ccttori 6.8 6.o 6.3 9.5 1.4.0 18.4 11.9 CoffeE 13.4 10.5 11.9 22.1 15.2 14.0 16.5 Cattle 10.4 11.7 12.8, 10.5 11.6 ;L5.o 13.0 16.0 Other agri.culture 7.7 8.1 7. 59 10.3 5. 7 1-0.5 10.5 Total agriculture 38.3 36.3 38.9' 52.4 50.5 5 7.9 51.9 58.3 Commerce 17.5 14.9 16.5 17.3 16.0 17.5 15.1 17.0 Industry and mining 8.8 10.2 10.7 12.8 12.8 16.5 15 4 19. 1 Construction 7.3 8.5 9.5 8.2 8.4 8.9 10.9 10.4 Various 23.6 215.3 28.6, 18,1 24.9 28.7 22.5 25.9 Totail 95.5 95.2 104.2 108.8 112.6 129.5 115.8 130.7 1/ includercredit, from the depos.it money banlcs and the state development banks only. Source: Bank of Gtuateniala., TABLE 22 GUATEMALA: WH0LESAIE PRiICE IIDEX IlN GlIATFi AL;. (:i / (195c) = 1.0o) 1957 1 956Et 1959 1960 1961 1962 1963 1964 INov. Dome sic products 105 106 10 7 105 I04 105 105 .10 Focid andi dr:ink 107 110 111 108 106 109 107 117 Textiles 101 98 98 519 ]L01 99 99 94 Construction materials 103 104 104 102 104 104 101 106 Impc: ted products 110 109 107 )109 112 114 1114 116 Focd and dr-ink 114 114 116 121 ]131 135 1365 139 FueIs 102 100 89 64 81 81 79 77 Wholesale priLce index 105.2 106.3 107.1 105.7 1.4'5 106.1 105.6 11G 4. 1/ The trend of the consunmer price intdex does not,si:nce the mid-fifties,differ significant1y from tl-at of the wholesale price index show-n hlere. Il) 196L4, ho-wever, consumer prices aprear to have risen less than wholesale prices. Source: 'ank of Gruatemala, Doletin Estadistico TABLE 2 GUATE1Y'IiLA: BALANCE OF PJYMIEFTS 195f-196- (million U.S. dollars) Prelim. 1956 1957 1958 1959 1960 1961 1c962 1963 1964 Exports f.o.b. 122.5 115.9 107.7 103.9 115.5 114.0 119 .0 15;4.1 167.3 Imports f.o.b. 126.9 136.6 38.1 124.3 124.8 120.6 122.9 1'50.4 182.'5 Tradle balance -.4.4 -20.? -3°0.4 -20.4 -8.51 -6.6 -. 9 3.7 - 15.2 Freight and merchand-ise ILnsurance -14.1 -15.0 -15.0 -15.1 -11.8 -12.1 -12.3 - 14.2 - 17 2 Other transport and travel O0. 1 0.6 - 0.2 - 1.4 - 2.7 - 0.8 1. 0 - 9.0 Investment income -2.4_ - 2.1 - 3.4 - 4.7 - 5.0 - 6.7 - 8.6 - 4.7 - 3.0 Other services and private transfers - 3.8 - 2.4 - 0.9 0.5 0.3 2.1 0.2 3.6 Tota l net services -20.2 -18.9 -19.5 -18.7 -16.6, -15.9 -19.7 - 24.3 - 21.5 Balance on trade and services -24. 6 -39.6 -49.9 -39.1 -25.5 -22.5 -23 .6 _ 20.6 - 36.,7 U. S. zrants 16.8 19.7 11.7 10.5 114.5 14.6 7.9 2.4 2.0 Direct investment 6.9 17.8 14.9 19.5 16.8 7.6 9.3 5.0 8.0 Other private capital (net) 4.0 ° 0.7 2.3 4.0 2.6 5.6 7.o 1.8.5 27.1L Loans to public sector (net)L/ 8.4 7.6 4.9 1.1 3.4 -3.5 -4.8 8.8 1.8 Total non-compensatory capiLtal-/ 36D.1 45.4 33.8 35.1 37.3 24-.3 19.4 34.7 38.9 Erroi s and ormissi.ons 2 .7 -2.3 -9. 8 -1.8 -6.2 -5.4 -11. 0 -.6.9 -3 .7 Sur, ulus or deficit 14.2 3.5 -25.9 - .8 5.6 -3.?7 -15.2 7.2 ,/ Excludes development loans channelled thr-ouglh the Bank of Guatemala, amounting to $3,1, 1.9, 2.9) ancd 3.8 million respectively in 1961--64. Source: International Monetary Fund, BPrLancje of Payments Ye,rboook, and ID5' staff (1964. TABLE 24 GUliTEMaiLA: INTERMJ.TIO'i$iAL 'RESERVES (million U.S. dollars) End of year 1956 1957 1958 1959 1960 1961 1962 1]963 1964 A-~. IA ' .L uck .4C ~ l x Net gold and foreign exchange 6f8.7 7.2 4237 43. 592 _ 68 1) Gross gold and foreign exchange 69.9 73.8 47.8 40.3 50.2 51.1 46.2 58.6 55.8 2) Net IMNF position 1.3 1.3 1.3 3.8 3.8 3.8 -1.2 -.0.1 3.8 3) Reserve liabilitiesL! -2.5 -1.9 -0.4 -0.5 -0.8 -1.3 -2.3 -.2.6 -2.8 Other Banks Net reserves (1-2) 1,4 0.7 1.2 -0.6 -..3 _ .6.0 -6. 6 1) Foreign assets 2.9 1.8 2.1 2.0 2.C 3.2 2.8 2.5 3 .6 2) Reserve liabilities -1.5 1.1 1.4 0.8 2.6 6.5_/ 8.2 8.5 10.2 Total net reserve,j 70.1 73.9 49.4 45.8 52.6 50.3 37'3 49-9 50.2 i/ Excludes liabilities of the Bank of Guatemala for development loans. 2 The! increase in foreigni liabilities of the banks a.fter 1960 reflects increasing use of foreign acceptance financing of the cotton and coffee harvests. I The! slight discrepancy between these data and the reserve movements in Table 23 is due to presentation o. the different sources used. Source: I:nternational Mdonetary Fund. T.ABLE 25 GUATThiPLA: COOPOSITION OF INlPOtTS 195ti-1963 (milaion U.S. dollars c,i.f,) Prelim. 1956 1957 1958 Js5 59 1'?60 1?61 1962 1963 1964 Consumor gods 54LL7 5_ 8 61.9 5.2- 2 5-Lf7 5o,7 )9l,3 60b4 _693 Food anad drink 12.1 11.11 13.o5 10.1 9.7 9.3 10.9 11.9 Te:Ktiles aixl clothing 15,3 15.9 16)09 1.2.2 1265 1209 10O1 11.8 Other consumer non-durables 1205 1L,.3 15 >6 12.9 1:2-9 1265 12.7 16,2 Automobiles 3.4 L.0 4.2 14.6 3.5 4.0 3.6 5.2 Other consLmer durables 12.5 14.5 15.7 1265 131 1:2e0 12.0 15.3 Raw ma teri-als ZL.7 25.3 26. 8 2698 317 33.1 34.5 46.4 5o. Yarn and fibers 1.7 2.3 2e3 2?.4 4. 2 14.1 4.5 5.8 Wheat and flour 3q.6 4. 2 5S.I 55. 2 4.3 4.8 4.5 5.3 Chemicals and fertilizers 7. 2 8.8 6.1 8.7 12? 0 12.9 13. 2 18.5 et