Economy of Colombia Information

Colombia has 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 liberalism policies or "apertura economica" 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 then 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.^[5] Still, this policy makes food cheaper for the average Colombian than it would be if agricultural trade were more restricted.

Until 1997, Colombia had enjoyed a fairly stable economy. The first five years of liberalization were characterized by high economic growth rates of between 4% and 5%. The Ernesto 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 former president Álvaro 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%. By 2007, GDP grew over 8%.

Statistics

Economy - overview

Colombia's economy has experienced positive growth over the past three years despite a serious armed conflict. The economy continues to improve in part because of austere government budgets, focused efforts to reduce public debt levels, an export-oriented growth strategy, an improved security situation in the country, and high commodity prices. Ongoing economic problems facing President Uribe range from reforming the pension system to reducing high unemployment, and to achieving congressional passage of a fiscal transfers reform. New exploration is needed to offset declining oil production. International and domestic financial analysts note with concern the growing central government deficit, which hovers at 5% of GDP. However, the government's economic policy and democratic security strategy have engendered a growing sense of confidence in the economy, particularly within the business sector.

Household income or consumption by percentage share: lowest 10%: 0.8% highest 10%: 45.9% (2006)

Investment (gross fixed): 24.3% of GDP (2008 est.)

Budget: revenues: $83.22 billion expenditures: $82.92 billion; including capital expenditures of $NA (2008 est.)

Central bank discount rate: 11.5% (31 December 2008)

Commercial bank prime lending rate: 15.6% (31 December 2008)

Stock of money: $21.58 billion (31 December 2008)

Stock of quasi money: $26.57 billion (31 December 2008)

Stock of domestic credit: $89.69 billion (31 December 2008)

Market value of publicly traded shares: $87.03 billion (31 December 2008)

Agriculture - products: coffee, cut flowers, bananas, rice, tobacco, corn, sugarcane, cocoa beans, oilseed, vegetables; forest products; shrimp

Industries: textiles, food processing, oil, clothing and footwear, beverages, chemicals, cement; gold, coal, emeralds

Industrial production growth rate: 0.8% (2008 est.)

Electricity - production: 53.6 billion kWh (2007)

Electricity - consumption: 52.8 billion kWh (2007)

Electricity - exports: 876.7 million kWh (2007)

Electricity - imports: 38.4 million kWh (2007)

Oil - production: 588,000 bbl/d (93,500 m³/d) (2008 est.)

Oil - consumption: 267,000 bbl/d (42,400 m³/d) (2007 est.)

Oil - exports: 294,000 bbl/d (46,700 m³/d) (2008 est.)

Oil - imports: 12,480 bbl/d (1,984 m³/d) (2005)

Oil - proved reserves: 1,323,000,000 bbl (210,300,000 m³) (1 January 2008 est.)

Natural gas - production: 7.22 billion cu m (2006 est.)

Natural gas - consumption: 7.22 billion cu m (2006 est.)

Natural gas - exports: 0 cu m (2007 est.)

Natural gas - imports: 0 cu m (2007 est.)

Natural gas - proved reserves: 122.9 billion cu m (1 January 2008 est.)

Current account balance: $-6.761 billion (2008 est.)

Exchange rates: Colombian pesos (COP) per US dollar - 2,243.6 (2008), 2,013.8 (2007), 2,358.6 (2006), 2,320.75 (2005), 2,628.61 (2004)

Source:^[6]

Economic growth

Source:^[7]

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 (490,000,000 m³). It also possesses significant amounts of nickel, gold, silver, platinum, and emeralds.

The discovery of 2 billion barrels (320,000,000 m³) of high-quality oil at the Cusiana and Cupiagua fields, about 200 kilometres (120 mi) east of Bogotá, has enabled Colombia to become a net oil exporter since 1986. The Transandino pipeline transports oil from Orito in the Department of Putumayo to the Pacific port of Tumaco in the Department of Nariño.^[8] Total crude oil production averages 620 thousand barrels per day (99,000 m³/d); about 184 thousand barrels per day (29,300 m³/d) 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.

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 Peru, Venezuela and Panama to export to those markets as well. The Trans-Caribbean pipeline connecting western Venezuela to Panama through Colombia is also under construction, thanks to cooperation between presidents Álvaro Uribe of Colombia, Martín Torrijos of Panama and Hugo Chávez of Venezuela. The pipeline will be inaugurated by October 2007.

Human rights abuse in mining zones

The oil pipelines are a frequent target of extortion and bombing campaigns by the National Liberation Army (ELN) and, more recently, the Revolutionary Armed Forces of Colombia (FARC). The bombings, which have occurred on average once every 5 days, have caused substantial environmental damage, often in fragile rain forests and jungles, as well as causing significant loss of life. In April 1999 in Cartagena de Indias, Clinton's Secretary of Energy Bill Richardson spoke before investors from the United States, Canada and other countries. He expressed his government's willingness to use military aid to support the investment that they and their allies were going to make in Colombia, especially in strategically important sectors like mining and energy.

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 gross domestic productP 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.

Social consequences or lack of development in resource rich areas is common. 11 million Colombians survive on less than one dollar a day. Over 65% of these live in mining zones. There are 3.5 million children out of school, and the most critical situation is in the mining zone of Choco, Bolivar, and Sucre.

Economic consequences of privatization and liberal institutions have meant changes in taxation to attract foreign investment. Colombia will lose another $800 million over the next 90 years that Glencore International operates in El Cerrejon Zona Media, if the company continues to produce coal at a rate of 5 million tons/year, because of the reduction of the royalty tax from 10-15% to .04%.. The operational losses from the three large mining projects (El Cerrejon, La Loma, operated by Drummond, and Montelíbano, which produces ferronickel) for Colombia to more than 12 billion.

Coal production has grown rapidly, from 22.7 million tons in 1994 to 50.0 million tons in 2003.^[9] Over 90% of this amount was exported, making Colombia the world's sixth largest coal exporter, behind Australia, the People's Republic of China, Indonesia, South Africa and Russia.^[10] From the mid-1980s the center of coal production was the Cerrejón mines in the Guajira department. However, the growth in output at La Loma in neighboring Cesar mean that this department has been the leader in coal production since 2004. Production in other departments, including Boyacá, Cundinamarca and Norte de Santander, forms about 13% of the total.

Foreign investment

In 1990, to attract foreign investors and promote trade, an experiment from the International Monetary Fund.

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 amendeded 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 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, particularly lingerie, 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 beans, 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 and coca; 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.

Notes

- Colombia, a top emerging country in the CIVETS: the new BRICs

1. ^ ^{a b c d} "Colombia". International Monetary Fund. http://www.imf.org/external/pubs/ft/weo/2010/02/weodata/weorept.aspx?sy=2007&ey=2010&scsm=1&ssd=1&sort=country&ds=.&br=1&c=233&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC%2CLP&grp=0&a=&pr.x=41&pr.y=8. Retrieved 2011-02-22.
2. ^ "Doing Business in Colombia 2010". World Bank. http://www.doingbusiness.org/ExploreEconomies/?economyid=46. Retrieved 2010-08-20.
3. ^ "Sovereigns rating list". Standard & Poor's. http://www.standardandpoors.com/ratings/sovereigns/ratings-list/en/eu/?subSectorCode=39. Retrieved 26 May 2011.
4. ^ "International Reserves and Foreign Currency Liquidity - COLOMBIA". International Monetary Fund. 23 May 2011. http://www.imf.org/external/np/sta/ir/IRProcessWeb/data/col/eng/curcol.htm. Retrieved 31 May 2011.
5. ^ Plan Colombia: Colombia: Peace Agreements: Library and Links: U.S. Institute of Peace
6. ^ https://www.cia.gov/library/publications/the-world-factbook/geos/co.html
7. ^ http://www.dane.gov.co/files/comunicados/cp_pib_Itrim07.pdf
8. ^ "BOST project". UNCO United Refineries. http://www.uncounitedrefineries.com/content/bostproject2.php. Retrieved 2008-06-08.
9. ^ Unidad de Planeación Minero Energética - UPME (2004), Boletín Estadístico de Minas y Energía 1994 - 2004. PDF file in Spanish.
10. ^ World Coal Institute (2004), Coal Facts - 2004 Edition. PDF file.

See also

• Colombia
• Colombia Economy report - Official Investment portal
• List of Colombian companies
• Economy of South America
• Emigration from Colombia
• A U.S.-Colombia Free Trade Agreement: Strengthening Democracy and Progress in Latin America

Categories: World Trade Organization member economies | Economy of Colombia

Related 'Economy of Colombia' Searches:

See Also:

• Society: Organizations: Student: Aiesec: Colombia