Economy of Colombia

Mother Earth Travel > Country Index > Colombia Map Economy History

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 Cesar Gaviria (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.

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 more than 20%. While unemployment remained at 20% in 2000, GDP growth recovered to 2.8%.

The administration of President Andres Pastrana, 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 2.8% during 2000, and inflation was 8.7%. The slight economic recovery lost strength in 2001, and growth was only 1.5% due to lower world prices for Colombian exports and domestic demand, which has not recovered in the face of continued high unemployment. Inflation was 7.7% in 2001, slightly lower than the official target of 8%. For 2002, the government has estimated that growth will be between 2.5% and 3.0%, with inflation projected to be 6.0%. Colombia's international reserves have remained stable at around $9.7 billion, and Colombia has successfully remained in international capital markets. Colombia's total foreign debt at the end of 2001 was $38.7 billion with $16.1 billion in private sector and $22.6 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.

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 oil reserves in 1995 were 3.1 billion barrels. It also possesses significant amounts of ferronickel, gold, silver, platinum, and emeralds.

The discovery of two billion barrels of high-quality oil at the Cusiana and Cupiagua fields, about 125 miles east of Bogota, has enabled Colombia to become a net oil exporter since 1986. Total crude oil production averages 620,000 b/d; about 184,000 b/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.

The country's oil pipelines are a frequent target of extortion and bombing campaigns by the ELN and, more recently, the FARC. The bombings have caused substantial environmental damage, often in fragile rainforests and jungles, as well as causing significant loss of life. During 2001 more than 70 attacks on the important Cano Limon-Covenas pipeline occurred, causing it to be shut down some 240 days, with revenue losses to Colombia of nearly $500 million.

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 Cerrejon--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.

Trade
Colombia's estimated balance of trade showed a surplus of $2.7 billion in 2000. Total 2000 imports were $11.5 billion, while exports were $13.0 billion. Estimated 2001 imports were $12.7 billion with $14.5 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 2001 it took 49.8% of exports and provided 40% of imports. The EU and Japan also are important trading partners, as are Andean Pact countries.

Foreign Investment
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 2000 were $3.9 billion, up from $2.0 billion in 1999. As of September 2001, foreign investment flows had reached $4.3 billion. In spite of the difficulties which include the perception of Colombia as a high-risk country, and a fall in privatization receipts, foreign investment has increased in the last years mainly due to investments in the oil sector.

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 26.3% of the total $23.0 billion stock of nonpetroleum foreign direct investment in Colombia as of September 2001. The petroleum and natural gas coalmining, chemical, and manufacturing industries attract the greatest U.S. investment interest.

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 (Document #1900). The document also is available at the Department of Treasury web site www.ustreas.gov.

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.

A 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; corn and other vegetables; and fruits such as citrus, pears, pineapples, and tomatoes. The cooler elevations--between 2,000 and 3,000 meters--produce wheat, barley, potatoes, cold-climate vegetables, flowers, dairy cattle, and poultry.

Narcotics Cultivation and Control
Colombia is the world's leading supplier of refined cocaine and a growing source for heroin. More than 90% of the cocaine that enters the United States is produced, processed, or transshipped in Colombia. The cultivation of coca more than doubled in 1999 to 302,500 acres from 125,700 acres in 1995, primarily in areas where government control is weak.

Despite the death of Medellin cartel drug kingpin Pablo Escobar in 1993 and the arrests of major Cali cartel leaders in 1995 and 1996, Colombian drug cartels remain among the most sophisticated criminal organizations in the world, controlling cocaine processing, international wholesale distribution chains, and markets. In 1999 Colombian police arrested over 30 narcotraffickers, most of them extraditable, in "Operation Millennium" involving extensive international cooperation. More arrests were made in a following "Operation Millennium II."

Colombia is engaged in a broad range of narcotics control activities. Through aerial spraying of herbicide and manual eradication, Colombia has attempted to keep coca, opium poppy, and cannabis cultivation from expanding. The government has committed itself to the eradication of all illicit crops, interdiction of drug shipments, and financial controls to prevent money laundering.

Alternative development programs were introduced in 1999. Corruption and intimidation by traffickers complicate the drug-control efforts of the institutions of government. Control and exploitation of narcotics trafficking has become a major source of revenue for the FARC, ELN, and AUC. Colombia passed revised criminal procedures code in 1993 that permits traffickers to surrender and negotiate lenient sentences in return for cooperating with prosecutors. In December 1996 and February 1997, however, the Colombian Congress passed legislation to toughen sentencing, asset forfeiture, and money-laundering penalties.

In November 1997, the Colombian Congress amended the constitution to permit the extradition of Colombian nationals, albeit not retroactively. In late 1999, President Pastrana authorized the first extradition in almost 10 years of a Colombian trafficker to stand trial for U.S. crimes. Since July 1, 2001, 19 persons have been extradited to the United States, most for narcotics charges, with cases against others pending in Colombian courts.
 

GDP - real growth rate: -5% (1999 est.), 3% (2000 est.)
GDP - per capita: purchasing power parity - $6,200 (2000 est.)
GDP - composition by sector:
agriculture: 19%
industry: 26%
services: 55% (1999 est.)
Population below poverty line: 55% (1999)
Household income or consumption by percentage share:
lowest 10%: 1%
highest 10%: 44% (1999)
Inflation rate (consumer prices): 9.2% (1999), 9% (2000)
Labor force: 18.3 million (1999 est.)
Labor force - by occupation: services 46%, agriculture 30%, industry 24% (1990)
Unemployment rate: 20% (1999 est.), 20% (2000 est.)
Budget:
revenues:  $22 billion
expenditures:  $24 billion (2000 est.)
Industries: textiles, food processing, oil, clothing and footwear, beverages, chemicals, cement; gold, coal, emeralds
Industrial production growth rate: -7% (1999 est.), 11% (2000 est.)
Electricity - production: 43.574 billion kWh (1999)
Electricity - production by source:
fossil fuel:  22.27%
hydro:  76.19%
nuclear:  0%
other:  1.54% (1999)
Electricity - consumption: 40.532 billion kWh (1999)
Electricity - exports: 27 million kWh (1999)
Electricity - imports: 35 million kWh (1999)
Agriculture - products: coffee, cut flowers, bananas, rice, tobacco, corn, sugarcane, cocoa beans, oilseed, vegetables; forest products; shrimp
Exports: $11.5 billion (f.o.b., 1999 est.), $14.5 billion (f.o.b., 2000 est.)
Exports - commodities: petroleum, coffee, coal, gold, bananas, cut flowers
Exports - partners: US 50%, EU 14%, Andean Community of Nations 16%, Japan 2% (2000 est.)
Imports: $10 billion (f.o.b., 1999 est.), $12.4 billion (f.o.b., 2000 est.)
Imports - commodities: industrial equipment, transportation equipment, consumer goods, chemicals, paper products, fuels, electricity
Imports - partners: US 35%, EU 16%, Andean Community of Nations 15%, Japan 5% (2000 est.)
Debt - external: $34 billion (2000 est.)
Economic aid - recipient: $40.7 million (1995)
Currency: Colombian peso (COP)

SOURCES: The World Factbook, U.S. Department of State

Mother Earth Travel > Country Index > Colombia Map Economy History