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Backgrounds: Colombia Economy
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.
Unlike many of its neighboring countries, Colombia has not suffered any dramatic economic collapses. The Uribe administration seeks to maintain prudent fiscal policies. The administration has chosen to finance much of its increased spending on security through a one-time tax on the nation's wealthiest citizens. The administration also has pledged to invest heavily in the country's infrastructure. GDP growth for 2003 was projected to be 2.2% and as of October 2003, unemployment has declined to 14%.
In addition to the domestic goals of keeping inflation low and maintaining a stable currency (the Colombian peso), the administration has put a heavy emphasis on increasing trade liberalization. The administration's strong fiscal management helped it to obtain new loans from the IDB and World Bank. Additionally, in June 2003 the IMF approved a standby loan program worth $2 billion over the next 2 years. This agreement replaces a previous agreement negotiated by the Pastrana administration.
The Colombia economy, which has stagnated since 1999, is starting to rebound, as indicated by 2003 first quarter GDP growth of 3.8%. Much of this impressive growth can be attributed to the newly signed Andean Trade Preference and Drug Eradication Act (ATPDEA). The ATPDEA-benefited exports to the U.S. fueled industrial production during the first quarter ($700 million in exports in the first quarter of 2003 vs. $700 million annually since the late 1990s). New investments in sectors that benefit from expanded ATPDEA benefits could generate more than 250,000 jobs by 2004.
The petroleum, natural gas and 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.
Colombia improved protection of intellectual property rights through the adoption of three Andean Pact decisions in 1993 and 1994, but the United States remains concerned over deficiencies in licensing, patent regulations, and copyright protection.
Mining and Energy
The discovery of two billion barrels of high-quality oil at the Cusiana and Cupiagua fields, about 125 miles east of Bogotá, 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 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, in addition to 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 coalmine--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 the 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 nationally.
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 upgrade of 10 thermoelectric power plants, half of which will be coal-fired and half fired by natural gas. Additionally, the government has awarded contracts to begin construction on a natural gas pipeline system that will extend from the country's extensive gas fields to its major urban centers. Other projects underway include the $6 billion development of the Cusiana and Cupiagua oil fields and the development of coal fields in the north of the country.
The United States accounted for 26.3% of the total $23.0 billion stock of non-petroleum foreign direct investment in Colombia as of September 2001. The petroleum and natural gas coal mining, chemical and manufacturing industries attract the greatest U.S. investment interest.
Industry and Agriculture
Columbia's 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 lowlands 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; 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
Despite the death of Medellín 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 narco-traffickers, 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.
In December 1996 and February 1997, the Colombian Congress passed legislation to toughen sentencing for those convicted of narco-trafficking offenses, including 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, former President Pastrana authorized the first extradition in almost 10 years of a Colombian trafficker to stand trial for U.S. crimes. From August 1998 to October 2003, 146 persons have been extradited to the United States, most for narcotics charges.
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.
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