Colombia is a free market economy – the fifth largest in Latin America- and major commercial and investment ties to the United States.
Its transition from a highly regulated economy has been underway for more than a decade. In the early 1990s, Colombia unilaterally initiated economic liberalization or “apertura” which has included tariff reductions, financial deregulation, privatization of state-owned enterprises and the adoption of a more liberal foreign exchange regime. Almost all economic sectors have been opened to foreign investment. Colombia has been a signatory of the GATT since 1981 and a member of the World Trade Organization (WTO) since that institution’s creation in 1994. Under the framework of this organization, the country has implemented a series of reforms in the areas of trade remedies, subsidies, exchange rate controls, foreign investment, intellectual property, and customs valuation, among others.
Unlike many countries in Latin America, Colombia has never suffered any dramatic economic collapses or periods of hyperinflation. Indeed, the Colombian economy produced uninterrupted positive growth since the early 1930’s to the late 1990’s. The country has a long history of sound macro-economic management, which continues today. The administration of President Uribe has sought to maintain prudent fiscal and monetary policies. The administration is investing heavily in improving security and law and order throughout the country, but is also investing in the country‘s economic infrastructure to ensure sustainable growth.
In addition to domestic goals of keeping inflation and interest rates low and maintaining a stable currency (Colombian peso), the Uribe administration has put a heavy emphasis on developing international trade. The administration’s strong fiscal management helped it to obtain new development loans from the Inter-American Development and World Bank that will address poverty and underdevelopment. Colombia’s reputation for always honoring its international financial obligations has enabled it to maintain access to global capital markets to finance its public debt. In June 2003 the International Monetary Fund approved a standby loan program of $2 billion over the next two years. This agreement replaces an agreement negotiated by the previous administration.
The Colombian economy, which experienced its first recession in nearly 70 years in 1999, is on the rebound. Growth in 2005 was led by the rise on domestic demand and investing. A renewed and expanded Andean Trade Preference Act (ATPA) aided Colombia’s economic recovery. New investments in sectors that benefit from expanded ATPA access could generate more than 250,000 jobs in Colombia by 2004.
Industry and agriculture
Colombia is the most industrially diverse member of the five-nation Andean Community. It has four major industrial centers-Bogotá, Medellín, 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. Colombia’s diverse climate and topography permit the cultivation of a wide variety of tropical crops including coffee, fresh flowers, vegetables, tropical fruits, forest products and livestock.
Services have the largest share of Colombia’s economy, accounting over 50% of total GDP. The services sector is also the fastest growing sector of the economy and has great potential for creating new employment. The most dynamic areas are government services, real estate leasing, retail, financial services, and transportation services. Colombia is a net importer of services from the world, with over $3 billion in total imports in 2004.
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. The country’s oil reserves total about 1.4 billion barrels. However, these are estimated to represent less than 20% of the country’s actual oil potential. The discovery of two billion barrels of high-quality oil at the Cusiana and Cupiagua fields, about 125 miles east of Bogotá, enabled Colombia to become a net oil exporter since 1986. Colombia also possesses significant deposits of nickel, gold, silver, platinum, and emeralds.
Colombia’s external sector
The United States is Colombia’s largest trading partner. In 2005, the U.S. received 40% of Colombia’s exports and provided 40% of its imports. The EU, Japan, and the Andean Pact countries also are important trading partners. Colombia’s strategic location at the crossroads of the Western Hemisphere makes it an ideal export platform. Colombia-U.S. bilateral trade has more than doubled over the past decade, from $5 billion a year in the early 1990s to over $14 billion in two-way trade in 2005. The United States accounts for 41% of Colombia’s total trade with the world. Colombia is the United States’ fourth largest trading partner in Latin America, behind Mexico, Brazil and Venezuela. Here you can also read about the Free Trade Zones in Colombia.
Bilateral trade between Colombia and the United States is highly complementary, reflecting different levels of development between the two countries. U.S. exports to Colombia include agricultural commodities like corn, wheat and soybeans and industrial goods and machinery needed to support Colombia’s industrial sector and its progress up the development ladder. Colombia’s exports to the United States include natural resources like oil and coal-energy exports not subject to the volatility of Middle East politics-and products like fresh flowers, coffee, bananas and tropical fruits not grown in the United States. Colombia’s vibrant apparel industry depends heavily on inputs such as cotton, fabrics and yarns originating from the United States.
There also exists a vibrant investment relationship between Colombia and the United States. More than 200 American companies today operate in nearly every sector of the Colombian economy, including energy, manufacturing, telecommunications, transport, agro-business and business and financial services.