822.51/5–2947
The Chargé in Ecuador (Shaw) to the Secretary of State
Sir: I have the honor to report that in a conference in Guayaquil on May 26 in which I participated, together with the Minister of Treasury, Enrique Arízaga Tora; the Minister of Public Works, Pedro Concha Enríquez; Mr. Vincent Johnkoski, U.S. Public Roads Administration; and Mr. Edwin R. Kinnear of the Export-Import Bank, the matter of financing the Quevedo–Manta Highway was discussed and the following points were brought out. (Figures approximate—see note in last paragraph of this despatch).
- 1)
- A sum of $780,000 is presently available in the Banco Central del Ecuador to be used for this work. (See memorandum of conversation between Acting Commercial Attaché Alvord L. Boeck and Mr. V. Johnkoski of the Public Roads Administration—dated April 28, 1947, attached hereto.51 Regardless of the seeming authenticity of Mr. Johnkoski’s statement, the Minister of Treasury stated in the conference of May 26 that the $780,000 was intact.)
- 2)
- The sum of $1,000,000 previously approved by the Export-Import Bank for engineering studies has been set aside and earmarked for the construction of the Quevedo–Manta Highway.
- 3)
- Preliminary estimate by Mr. Johnkoski of the cost of completing this highway was about $3,100,000.
- 4)
- In view of the above, it has been accepted that additional financing of at least $1,320,000 would have to be arranged.
- 5)
- It now appears, in light of the experience of the Jones Construction Company on the Guamote–Tambo Highway, (Despatch No. 5273 of May 28, 194752), the rising cost of material and labor, and the fact that the calculations were made from incomplete data on actual terrain, the estimate of the total cost of completing the road, according to Johnkoski, probably should be nearer $3,500,000 than the original figure of $3,100,000.
- 6)
- Mr. Johnkoski was asked to review his original estimates in light of the additional information available, and it was anticipated that his revision would result in an estimate of cost of approximately $4,000,000. However, he has just submitted his letter dated today (May 29) a copy of which, with enclosure, is attached,52 showing his revised estimate to be only $3,500,000.
- 7)
- The Minister of Treasury made the statement, concurred in by the Minister of Public Works, that while all available funds for road construction for the fiscal year 1948 were already obligated, it would be possible for the Ecuadoran Government to provide an additional $400,000 contemplated by the increased estimates in its regular budget for 1949. It would appear, therefore, that the Ecuadoran Government is prepared to assume the responsibility of providing funds for the completion of the highway over and above the $3,100,000 originally estimated, and it is willing to accept the fact that the cost of terminating the road probably will be in the neighborhood of three and a half million dollars.
- 8)
- Regardless of the statement made in paragraph 7 above, both the Ministers were in agreement that the matter of setting aside $400,000 in the regular budget of 1949 would be a somewhat difficult task and, while they would not admit the possibility that the Ecuadoran Government might fail to provide these funds, they both stated it would be much more desirable if the Export-Import Bank would agree to finance the additional $400,000, which would make a total of $1,720,000 to be considered instead of the amount mentioned in paragraph 4. The Ministers desire a statement, if possible, as to whether the Bank would look with favor upon an application for this additional financing. (It is the opinion of this Embassy that, with the prospect of lower world prices for its exports and a general return to a normal level of economic activity, it would be more difficult for the [Page 695] Ecuadoran Government to set aside $400,000 in 1949 than it would be at the present time.)
It probably should be pointed out at this time that some difficulty may be expected in getting an experienced American construction company to accept a contract for the completion of this road with one of the terms being the payment of the last $400,000 under the ordinary budget of the Ecuadoran Government two years hence. It may be assumed that an experienced company would suggest some such arrangement as setting up a $400,000 revolving fund which would remain intact or be securely blocked for the completion of the work after the original $3,100,000 portion of the work had been completed.
It is respectfully recommended that this phase of the situation be considered carefully in any final arrangement that is made in order to avoid future embarrassment to the United States Government and possible loss of prestige for American engineering and construction companies, not to mention any political repercussions which might result.
Note: As a matter of fact the conversations of May 26 were held without having documentary references at hand. The first assumptions were based on the following figures:
| Sum presently available | $780,000 |
| Sum earmarked by Eximbank | 1,000,000 |
| Additional sum needed | 1,720,000 |
| Present estimated cost to complete Quevedo–Manta Highway | 3,500,000 |
| Guess that revised estimate would be | 4,000,000 |
| Guarantee or additional financing needed for | 500,000 |
Although the conversations were conducted on the above assumption that the present estimate was $3,500,000, Mr. Johnkoski did not mention the fact that his figure was about $3,100,000 until he submitted his letter of May 29. Therefore, while his estimate has been raised some $400,000, the total as revised is $3,500,000. Mr. Johnkoski says that this works out about $23,000 a kilometer and is his best estimate. Also, the figures have been checked and concurred in by the Director of Public Works of Ecuador.
Regardless of the above it is desired to point out that the so-called estimates are not based on accurate engineering studies and are really only considered guesses. Therefore, in light of the experiences of American engineering companies on works of this kind in Ecuador and in consideration of the costly operating difficulties that probably will have to be overcome, the final cost of the work to be done may well be nearer $4,000,000 than $3,500,000.
Respectfully yours,