Economy of Colombia

Colombia is a free market economy with major commercial and investment ties to the United States. Transition from a highly regulated economy has been underway for more than a decade. In 1990, the administration of President César Gaviria Trujillo (1990-94) initiated economic liberalization or "apertura," and this has continued since then, with tariff reductions, financial deregulation, privatization of state-owned enterprises, and adoption of a more liberal foreign exchange rate. Almost all sectors became open to foreign investment although agricultural products remained protected.

The original idea of his Minister of Finance, Rudolf Hommes, was that the country should import agricultural products in which it was not competitive, like maize, wheat, cotton and soybeans and export the ones in which it had an advantage, like fruits and flowers. In ten years, the sector lost 7,000 km² to imports, represented mostly in heavily subsidized agricultural products from the United States, as a result of this policy, with a critical impact on employment in rural areas. [1]

Until 1997, Colombia had enjoyed a fairly stable economy. The first 5 years of liberalization were characterized by high economic growth rates of between 4% and 5%. The Samper administration (1994-98) emphasized social welfare policies which targeted Colombia's lower income population. However, these reforms led to higher government spending which increased the fiscal deficit and public sector debt, the financing of which required higher interest rates. An over-valued peso inherited from the previous administration was maintained.

The economy slowed, and by 1998 GDP growth was only 0.6%. In 1999, the country fell into its first recession since the Great Depression. The economy shrank by 4.5% with unemployment at over 20%. While unemployment remained at 20% in 2000, GDP growth recovered to 3.1%.

The administration of President Andrés Pastrana Arango, when it took office on August 7, 1998, faced an economy in crisis, with the difficult internal security situation and global economic turbulence additionally inhibiting confidence. As evidence of a serious recession became clear in 1999, the government took a number of steps. It engaged in a series of controlled devaluations of the peso, followed by a decision to let it float. Colombia also entered into an agreement with the International Monetary Fund which provided a $2.7 billion guarantee (extended funds facility), while committing the government to budget discipline and structural reforms.

By early 2000 there had been the beginning of an economic recovery, with the export sector leading the way, as it enjoyed the benefit of the more competitive exchange rate, as well as strong prices for petroleum, Colombia's leading export product. Prices of coffee, the other principal export product, have been more variable.

Economic growth reached 3.1 % during 2000 and inflation was 9.0% although unemployment has yet to significantly improve. Colombia's international reserves have remained stable at around $8.35 billion, and Colombia has successfully remained in international capital markets. Colombia's total foreign debt at the end of 1999 was $34.5 billion with $14.7 billion in private sector and $19.8 billion in public sector debt. Major international credit rating organizations have dropped Colombian sovereign debt below investment grade, primarily as a result of large fiscal deficits, which current policies are seeking to close.

Several international financial institutions have praised the economic reforms introduced by current president Alvaro Uribe (elected August 7, 2002), which include measures designed to reduce the public-sector deficit below 2.5% of GDP in 2004. The government's economic policy and democratic security strategy have engendered a growing sense of confidence in the economy, particularly within the business sector, and GDP growth in 2003 was among the highest in Latin America, at over 4%.

Mining and Energy

Colombia is well-endowed with minerals and energy resources. It has the largest coal reserves in Latin America and is second to Brazil in hydroelectric potential. Estimates of petroleum reserves in 1995 were 3.1 billion barrels (493,000 m³). It also possesses significant amounts of ferronickel, gold, silver, platinum, and emeralds.

The discovery of two billion barrels (0.3 km³) of high-quality oil at the Cusiana and Cupiagua fields, about 200 km (125 miles) east of Bogotá, has enabled Colombia to become a net oil exporter since 1986. Total crude oil production averages 620,000 barrel/day (99,000 m³/day); about 184,000 barrel/day (29,000 m³/day) is exported. The Pastrana government has significantly liberalized its petroleum investment policies, leading to an increase in exploration activity. Refining capacity cannot satisfy domestic demand, so some refined products, especially gasoline, must be imported. Plans for the construction of a new refinery are under development.

The oil pipelines are a frequent target of extortion and bombing campaigns by the ELN and, more recently, the FARC. The bombings, which occur on average once every 5 days, have caused substantial environmental damage, often in fragile rainforests and jungles, as well as causing significant loss of life.

In 2002 there were 170 attacks on the 2nd largest pipeline, which travels 780 km from the Caño Limón to the Atlantic port of Coveñas. The pipeline was out of operation for 266 days of that year. The government estimates that these bombings reduced the GDP of Colombia by 0.5%. The government of the United States increased military aid, in 2003, to Colombia to assist in the effort to defend the pipeline.

Colombia has 6.6 billion tons of proven coal reserves, and its coal production totaled 21.7 million metric tons (mt) in 1995. Production from El Cerrejón--the world's largest open-pit coal mine--located on Colombia's Guajira Peninsula, accounted for 65% of that amount. Colombia's exports of 18.4 million mt of steam coal in 1994 made it the world's fourth-largest exporter of this commodity. Private and public investments in Colombia's coal fields and related infrastructure projects are expected to enable the country's exports to grow to about 35 million mt.

While Colombia has vast hydroelectric potential, a prolonged drought in 1992 forced severe electricity rationing throughout the country until mid-1993. The consequences of the drought on electricity-generating capacity caused the government to commission the construction or upgrading of 10 thermoelectric power plants. Half will be coal-fired, and half will be fired by natural gas. The government also has begun awarding bids for the construction of a natural gas pipeline system that will extend from the country's extensive gas fields to its major population centers. Plans call for this project to make natural gas available to millions of Colombian households by the middle of the next decade.

As of 2004, Colombia has become a net energy exporter, exporting electricity to Ecuador and developing connections to Perú, Venezuela and Panama to export to those markets as well. A pipeline connecting western Venezuela to Panama through Colombia is also under construction, thanks to cooperation between presidents Alvaro Uribe of Colombia and Hugo Chávez of Venezuela.

Trade

Colombia's estimated balance of trade showed a surplus $910 million in 1999, up from a $3.8 billion deficit in 1998. Total 1999 imports were $10.6 billion, while exports were $11.5 billion. Estimated 2000 imports were $11.2 billion with $14.0 exports. Colombia's major exports continue to be petroleum, coffee, coal, nickel, gold and nontraditional exports (e.g., cut flowers, cocaine, semiprecious stones, sugar, and tropical fruits).

The United States remained Colombia's major trading partner in 1999, taking 48.5% of exports and providing 42.1% of imports. The EU and Japan also are important trading partners, as are Andean Pact countries.

Foreign Investment

In 1990, to attract foreign investors and promote trade, an experiment from the IMF known as "la apertura" was adopted by the government as an open trade strategy. Although the analysis of the results are not clear, the fact is that the agricultural sector was severely impacted by this policy.

In 1991 and 1992, the government passed laws to stimulate foreign investment in nearly all sectors of the economy. The only activities closed to foreign direct investment are defense and national security, disposal of hazardous wastes, and real estate--the last of these restrictions is intended to hinder money laundering. Colombia established a special entity--CoInvertir--to assist foreigners in making investments in the country. Foreign investment flows for 1999 were $4.4 billion, down from $4.8 billion in 1998.

Major foreign investment projects underway include the $6 billion development of the Cusiana and Cupiagua oil fields, development of coal fields in the north of the country, and the recently concluded licensing for establishment of cellular telephone service. The United States accounted for 26.5% of the total $19.4 billion stock of nonpetroleum foreign direct investment in Colombia at the end of 1998.

On October 21, 1995, under the International Emergency Economic Powers Act (IEEPA), President Clinton signed an Executive Order barring U.S. entities from any commercial or financial transactions with four Colombian drug kingpins and with individuals and companies associated with the traffic in narcotics, as designated by the Secretary of the Treasury in consultation with the Secretary of State and the Attorney General. The list of designated individuals and companies is amended periodically and is maintained by the Office of Foreign Asset Control at the Department of the Treasury, tel. (202) 622-0077 (ask for Document #1900). The document also is available at [http:/www.ustreas.gov the Department of Treasury web site].

Colombia is the United States' fifth-largest export market in Latin America--behind Mexico, Brazil, Venezuela, and Argentina--and the 26th-largest market for U.S. products worldwide. The United States is Colombia's principal trading partner, with two-way trade from November 1999 through November 2000 exceeding $9.5 billion--$3.5 billion U.S. exports and $6.0 billion U.S. imports. Colombia benefits from duty-free entry--for a 10-year period, through 2001--for certain of its exports to the United States under the Andean Trade Preferences Act. Colombia improved protection of intellectual property rights through the adoption of three Andean Pact decisions in 1993 and 1994, but the U.S. remains concerned over deficiencies in licensing, patent regulations, and copyright protection.

The petroleum and natural gas coal mining, chemical, and manufacturing industries attract the greatest U.S. investment interest. U.S. investment accounted for 37.8% ($4.2 billion) of the total $11.2 billion in foreign direct investment at the end of 1997, excluding petroleum and portfolio investment. Worker rights and benefits in the U.S.-dominated sectors are more favorable than general working conditions. Examples include shorter-than-average working hours, higher wages, and compliance with health and safety standards above the national average.

Industry and Agriculture
The most industrially diverse member of the five-nation Andean Community, Colombia has four major industrial centers--Bogota, Medellin, Cali, and Barranquilla, each located in a distinct geographical region. Colombia's industries include textiles and clothing, leather products, processed foods and beverages, paper and paper products, chemicals and petrochemicals, cement, construction, iron and steel products, and metalworking. Its diverse climate and topography permit the cultivation of a wide variety of crops. In addition, all regions yield forest products, ranging from tropical hardwoods in the hot country to pine and eucalyptus in the colder areas.

Cacao, sugarcane, coconuts, bananas, plantains, rice, cotton, tobacco, cassava, and most of the nation's beef cattle are produced in the hot regions from sea level to 1,000 meters elevation. The temperate regions -- between 1,000 and 2,000 meters -- are better suited for coffee; certain flowers; maize and other vegetables; and fruits such as citrus, pears, pineapples, and tomatoes. The cooler elevations -- between 2,000 and 3,000 meter -- produce wheat, barley, potatoes, cold-climate vegetables, flowers, dairy cattle, and poultry.

Economy - overview: Colombia's economy suffers from weak domestic and foreign demand, austere government budgets, and serious internal armed conflict, but seems poised for recovery. Other economic problems facing President Alvaro Uribe range from reforming the pension system to reducing high unemployment. Two of Colombia's leading exports, oil and coffee, face an uncertain future; new exploration is needed to offset declining oil production, while coffee harvests and prices are depressed. On the positive side, several international financial institutions have praised the economic reforms introduced by Uribe, which includes measures designed to reduce the public-sector deficit below 2.5% of GDP in 2004. The government's economic policy and democratic security strategy have engendered a growing sense of confidence in the economy, particularly within the business sector, and GDP growth in 2003 was among the highest in Latin America.

GDP: purchasing power parity - $263.2 billion (2003 est.)

GDP - real growth rate: 3.7% (2003 est.)

GDP - per capita: purchasing power parity - $6,300 (2003 est.)

GDP - composition by sector:
agriculture: 13.7%
industry: 32.1%
services: 54.2% (1999 est.)

Population below poverty line: 60% (2000 est.)

Inflation rate (consumer prices): 7.1% (2003)

Labor force: 20.34 million (2003 est.)

Labor force - by occupation: services 46%, agriculture 30%, industry 24% (1990)

Unemployment rate: 12.5% (2005 est.)

Budget:
revenues: $24 billion
expenditures: $25.6 billion including capital expenditures of $NA (2001 est.)

Industries: textiles and garments, chemicals, metal products, cement, cardboard containers, plastic resins and manufactures, beverages, food processing, oil, clothing and footwear; gold, coal, emeralds

Industrial production growth rate: 3.5% (2003 est.)

Electricity - production: 42.99 billion kWh (2001)

Electricity - production by source:
fossil fuel: 30.11%
hydro: 69.25%
nuclear: 0%
other: 0.64% (1998)

Electricity - consumption: 39.81 billion kWh (2001)

Electricity - exports: 210 million kWh (2001)

Electricity - imports: 40 million kWh (2001)

Agriculture - products: coffee, bananas, cut flowers, cotton, sugar cane, livestock, rice, maize, tobacco, potatoes, soybeans, sorghum, cocoa beans, oilseed, vegetables; forest products; shrimp

Exports: $12.96 billion f.o.b. (2003 est.)

Exports - commodities: petroleum, coffee, coal, gold, bananas, cut flowers, ferronickel, chemicals and pharmaceuticals, textiles and garments, sugar, cardboard containers, printed matter, cement, plastic resins and manufactures, emeralds.

Exports - partners: United States 47.1%, Ecuador 6%, Venezuela 5.3% (2003 est.)

Imports: $13.06 billion f.o.b. (2003 est.)

Imports - commodities: industrial equipment, transportation equipment, consumer goods, chemicals, paper products, fuels, electricity, grains, mineral products, consumer products, metals/metal products, plastic/rubber, aircraft, and supplies.

Imports - partners: United States 29.6%, Brazil 5.5%, Mexico 5.4%, Venezuela 5.2%, China 5%, Japan 4.6%, Germany 4.4% (2003 est.)

Debt - external: $38.26 billion (2003 est.)

Economic aid - recipient: NA

Currency: 1 Colombian peso (Col$) = 100 centavos

Exchange rates: Colombian pesos per US dollar - 2,877.65 (2003), 2,504.24 (2002), 2,299.63 (2001), 2,087.9 (2000), 1,756.23 (1999)

Fiscal year: calendar year

See also

• Colombia
• Economy of South America