Economy of Colombia

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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.

[edit] History

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. [1] 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 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%.

[edit] 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 nickel, 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.

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. A pipeline connecting western Venezuela to Panama through Colombia is also under construction, thanks to cooperation between presidents Alvaro Uribe of Colombia, Martín Torrijos of Panama and Hugo Chávez of Venezuela.

[edit] Human Rights Abuse in Mining Zones

The oil pipelines are a frequent target of extortion and bombing campaigns by the ELN and, more recently, the FARC. The bombings, which have occurred 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 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 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. Occidental Petroleum privately contracted mercenaries who flew Skymaster planes, from AirScan International Inc., to patrol the Cano Limon-Covenas pipeline. Many of these operations used helicopters, equipment and weapons provided by the U.S. military and antinarcotics aid programs.

On the morning of December 13, 1998, after two days of fierce combat between the army protecting Occidental Petroleum and the FARC in the region, a Colombian Air Force helicopter carried out an air attack against guerrillas, near the village of Santo Domingo, including the use of cluster-bombs. After the bombing was over, the bodies of seventeen civilians were found in Santo Domingo, including seven children.

When questioned about the matter by civilian prosecutors in Colombia, the helicopter crew argued that an AirScan Skymaster surveillance plane had provided them with incorrect coordinates for a planned bombing attack on guerrilla positions. The case was subsequently handed over to a Colombian military court, as the crime occurred during official military duty.

In September 2000, a non-binding informal tribunal was organized at Northwestern University in Chicago regarding this case. In December of the same year, the tribunal concluded that Occidental Petroleum, AirScan, the Colombian State, and Generals Fabio Velasco of the Air Force and Hernando Barbosa of the Army were mutually responsible for the attacks.

The decision also called for the case to be judged in civil court, for comprehensive reparations to the victims, special aid for the children and the suspension of U.S. military support for the military unit involved, in accordance with U.S. law, and a suspension of the human rights certification required for the approval of U.S. aid through Plan Colombia. The case was later brought before a Federal Court in California in April 2003.

Recent conflict in areas of wealth, such as Magdalena Medio, have seen the current neo-liberal economic process (supported internationally by the World Bank) be accompanied with violentence. Many actors are involved in the internal conflict. 68% of forced displacement in the country occurs in mining zones (mostly in mining municipios of Rio Blanco-Ataco in Tolima, La Gabarra and surrounding areas in Norte de Santander, the municipios of the South of Bolivar, and Barrancabermeja in Santander).

In 1996 and 2001, after new mining codes were written, huge increases in human rights violations in the zones affected by the legislation were reported. In Bolivar there was a 1000% increase in homicides, forced disappearances, injuries, torture, and arbitrary detentions. Between 1997 and 1998, forced displacements in the south of Bolivar grew by 1500%, as the paramilitary operation was implemented. The departements that showed the highest increase in human rights violations were also those that with the greatest concentration of mining operations: Antioquia, Bolivar, Norte de Santander, and Cesar. Others with high levels of oil and gas production, like Arauca and Putumayo, show the same rates. Over the past fifteen years in Colombia, a union leader has been assassinated every other day. During the government of Alvaro Uribe Velez the number has fallen slightly, to one every five days. The national union of mine workers Sintraminercol has been facing dissolution. Since Alvaro Uribe Velez's government has come into office, an indigenous person has been assassinated every five days, most of these in areas of natural resource exploitation.

Mining and Natural Exploitaton has had environmental consequences. The region of Guajira is undergoing an accelerated desertification with the disappearances of forests, land, and water sources, due to the increase in coal production.

Social Consequences or lack of development in resource rich areas is common. Eleven 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 ninety 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%. If the company, as is plausible, doubles or triples its production, the losses will be proportionally greater. The operational losses from the three large mining projects (El Cerrejon, La Loma, operated by Drummond, and Montelibano, which produces ferronickel) for Colombia to more than 12 billion. Just $10 billion would be enough to provide employment for Colombia's three million unemployed, to save the lives of the up to 160 children who die daily of hunger, malnutrition and curable diseases, and to have avoided the closing of over 20 hospitals around the country, which has created a humanitarian emergency in the poorest sectors of the population.

Coal production has grown rapidly, from 22.7 million tons in 1994 to 50.0 million tons in 2003.^[1] 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.^[2] 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. The coal industry is largely controlled by international mining companies, including a consortium of BHP Billiton, Anglo American and Glencore International at Cerrejón, and Drummond Company at La Loma, which is undergoing a lawsuit in the U.S. District Court in Alabama for union assassinations and alleged paramilitary links.

[edit] 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, 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 and Venezuela.

[edit] 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 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, 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.

[edit] 2006 Quarterly Economic Growth

Source: [2]

[edit] Statistics

Economy - overview: 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.

GDP (purchasing power parity): $366.7 billion (2006 est.)

GDP (official exchange rate): $105.5 billion (2006 est.)

GDP - real growth rate: 5.4% (2006 est.)

GDP - per capita (PPP): $8,400 (2006 est.)

GDP - composition by sector: agriculture: 12% industry: 35.2% services: 52.7% (2006 est.)

Labor force: 20.81 million (2006 est.)

Labor force - by occupation: agriculture: 22.7% industry: 18.7% services: 58.5% (2000 est.)

Unemployment rate: 11.1% (2006 est.)

Population below poverty line: 49.2% (2005)

Household income or consumption by percentage share: lowest 10%: 7.9% highest 10%: 34.3% (2004)

Distribution of family income - Gini index: 53.8 (2005)

Inflation rate (consumer prices): 4.3% (2006 est.)

Investment (gross fixed): 22.8% of GDP (2006 est.)

Budget:

revenues: $50.7 billion

expenditures: $52.29 billion; including capital expenditures of $NA (2006 est.)

Public debt: 45.3% of GDP (2006 est.)

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: 5.8% (2006 est.)

Electricity - production: 46.93 billion kWh (2004)

Electricity - consumption: 42.01 billion kWh (2004)

Electricity - exports: 1.682 billion kWh (2004)

Electricity - imports: 48 million kWh (2004)

Oil - production: 512,400 bbl/day (2005 est.)

Oil - consumption: 269,000 bbl/day (2004 est.)

Oil - exports: NA bbl/day (2003)

Oil - imports: NA bbl/day (2003)

Oil - proved reserves: 1.282 billion bbl (2006 est.)

Natural gas - production: 6.18 billion cu m (2004 est.)

Natural gas - consumption: 6.18 billion cu m (2004 est.)

Natural gas - exports: 0 cu m (2004 est.)

Natural gas - imports: 0 cu m (2004 est.)

Natural gas - proved reserves: 114.4 billion cu m (1 January 2005 est.)

Current account balance: $-2.219 billion (2006 est.)

Exports: $24.86 billion f.o.b. (2006 est.)

Exports - commodities: petroleum, coffee, coal, nickel, emeralds, apparel, bananas, cut flowers

Exports - partners:US 41.8%, Venezuela 9.9%, Ecuador 6.3% (2005)

Imports: $24.33 billion f.o.b. (2006 est.)

Imports - commodities: industrial equipment, transportation equipment, consumer goods, chemicals, paper products, fuels, electricity

Imports - partners: US 28.5%, Mexico 8.3%, China 7.6%, Brazil 6.5%, Venezuela 5.7% (2005)

Reserves of foreign exchange and gold: $16.5 billion (2006 est.)

Debt - external: $37.21 billion (30 June 2006 est.)

Economic aid - recipient: $NA

Currency (code): Colombian peso (COP)

Exchange rates: Colombian pesos per US dollar - 2,382.9 (2006), 2,320.75 (2005), 2,628.61 (2004), 2,877.65 (2003), 2,504.24 (2002)

Fiscal year: calendar year

[edit] Notes

1. ^ Unidad de Planeación Minero Energética - UPME (2004), Boletín Estadístico de Minas y Energía 1994 - 2004. PDF file in Spanish.
2. ^ World Coal Institute (2004), Coal Facts - 2004 Edition. PDF file.

[edit] See also

• Colombia
• Companies of Colombia
• Economy of South America

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