Colombia's growth record makes it a Latin American success story

Business America, May 20, 1991 by Rodrigo T. Soto

Colombian President Gaviria visited the United States in late February to promote his country's investment opportunities and to discuss pressing issues affecting both nations. In his visit to the White House, President Gaviria had a fruitful two-hour meeting with President Bush on bilateral issues.

During his stay, President Gaviria spoke at the Council of the Americas, an influential Latin American-oriented busines organization, where he promoted the investment portential of his country and discussed the reforms being undertaken to make it more receptive to U.S. investors. He also spoke to several CEOs from prominent businesses with interests in Colombia, at a breakfast hosted by Secretary of Commerce Robert Mosbacher. His message brought renewed attention to Colombia's economic successes in the past decade and its potential in the 1990s.

The economic record of Colombia in the past 10 years stands in stark contrast with the overall performance of its Lating American neighbors. Colombia stood apart from the rest of the region by achieving an average annual real growth of 4.2 percent during the 1980s, the highest in the region, while the overall regional performance fell by 14.5 percent during the same period. For the past three years, Colombia's annual economic growth has exceeded 3 percent; it is expected to maintain if not increase this rate in the near future. These achievements are due in large part to conservative fiscal policies, as well as to the development of non-traditional exports, thus diversifying the economy away from its dependence on coffee and, more recently, oil for foreign exchange.

Colombia's national debt is among the lowest in terms of GNP percentage in Latin America, and it has honored its foreign exchange obligations promptly. With an average population growth of just under 2 percent during the past five years and a per capita GDP growth of 13.9 percent in the 1980s, Colombia's per capita income also made one of the largest gains in the region. These are impressive figures in the context of the region and were achieved despite a back-drop of credit scarcity, fiscal austerity, drug-related violence, and terrorism.

Preparing for new challenges in the 1990s, Colombia is undertaking structural reforms that it hopes will make it more open and competitive internationally. Beginning in 1990, economic growth has been slowed by the government's efforts to control inflation through a stabilization program characterized by monetary and fiscal austerity. The tight monetary and credit policy is likely to slow down growth and probably bring a minor recession in 1991. Nevertheless, Colombia is confident it will emerge strengthened from this short-term "bitter medicine" and continue ahead with its ambitious economic reforms.

Colombia's trade liberalization process began in early 1990. The trade reform was first proposed by the Barco administration in February of that year and is currently being implemented by the Gaviria government. As the largest trading partner of Colombia, with a 40 percent import market share, the United States stands to profit handsomely from this development. The "Apertura," as the trade-opening process is known, seeks to internationalize Colombia's economy under a five-year plan by exposing its domestic industry to foreign competition and streamlining government regulations in the export and foreign investment sectors. The Colombian government estimates that growth rates will rise to 5-6 percent annually with full "Apertura" implementation. The most prominent features of the "Apertura" process are:

* Import licensing elimination--97 percent of all items can now enter Colombia free of licensing requirements;

* Lowered tariff duties and import surcharges, with the goal of reducing the tariff levels from 14 in 1990 to 4 in 1993;

* Elimination of the advance deposit requirement; and

* Liberalization of the financial, investment, exchange rate, and tax regimes.

Currently import licensing is required for only 3 percent of the tariff line items, down from 61 percent in early 1990. Articles that still require import licenses include those that could represent a threat to national security, including explosives and drug-related chemicals, as well as certain agricultural products.

The Colombian government is pursuing a gradual but progressive approach to trade liberalization. The maximum duty was reduced more than half to the current 60 percent (excluding luxury vehicles). The average tariff has been lowered to 22 percent (15 percent by 1994), the average capital goods tariffs to 12.6 percent, and the import surcharge was slashed to 13 percent. Tariffs will be reduced further during the second stage of "Apertura," scheduled for the 1992-94 period.

The "Apertura" offers great trade opportunities for U.S. companies. Among the most promising export prospects for 1991 are oil and mining equipment, automotive parts and accessories, computers and peripheral equipment, telecommunications, and construction products. Following is a breakdown of several of the most promising export sectors: