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Hi oldbart, I’m by no means an expert but I’ve got half a dozen small Eltos and Evinrudes from that period just not a 37, so maybe I can help?
Here’s a link to the parts list and diagrams:
http://www.austinsailor.net/manuals/ace/ace.html
While not detailed they do help.
The hole in the exhaust tube usually lines up with the water outlet (an expert will jump in and say something different 🙂 ) but I remember reading that it’s part of the pressure relief for starting. I’ll post the details if I can find them again. On later models it was riveted in place.
Your motor has a piston pump in the LU. It’s hard to tell from the youtubes but that type of pump usually has a good output and >I don’t think I’m seeing it. The pump itself is a brass or copper plunger that rides on a cam. I’d check the face of the pump for wear – especially pin holes and clean the check valve. The water tube and passages should also be clear. It think on that lower unit the water tube attached to the check valve with a flare-nut?
The Lower unit body has some drain holes to clear water when the motor isn’t immersed. From the pictures I’ve seen on line that looks to be factory but none of the pictures was high enough resolution to tell.
Hope that helps – apologies if I got it wrong. Couple of pictures of the Lower unit might help if I ‘m way off base.
Kev