Colombia WT/TPR/S/172 
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                                                     I. ECONOMIC ENVIRONMENT 
(1) OVERVIEW  
1. Colombia's GDP grew at an average annual rate of 2.2 per cent from 1997 to 2005.  The 
economy's modest performance reflects to a great extent the severe economic and financial crisis that 
hit the country in 1998-1999.  The pace of economic growth has, however, picked up in recent years, 
reflecting the upturn in private investment, a recovery in private consumption and a favourable external context which has facilitated the expa nsion of foreign investment and exports.  
Unemployment has fallen to around 10.4 per cen t, after reaching a peak in late 2000. 
2. As a result of the crisis, the Colombian authorities undertook a number of fiscal reforms, 
authorized the floating of the exchange rate a nd made major efforts to strengthen the financial 
monitoring regime (Chapter IV(7)(ii)).  These reforms have significantly contributed to the improvement of macroeconomic indicators. 
3. International trade in goods and services repres ents around 40 per cent of GDP.  The balance 
of trade in goods has been positive since 1999.  This w as initially attributable to a fall in import levels 
in the context of the economic crisis, but imports have recovered since 2003 owing to the increase in 
capital goods purchases, which has gone hand-in-hand w ith the growth of private investment.  The 
trade-in-goods balance observed since 2003 is theref ore largely a result of the rise in exports, which 
have benefited from improved term s of trade and the economic growth of Colombia's main trading 
partners.  Increased investment flows have also played a major role and reflect greater investor 
confidence in the country. 
(2) MACROECONOMIC TRENDS  
(i) Structure, growth and employment 
4. The composition of the economy remained broadly stable from 1997 to 2005, with a few 
exceptions (Table I.1).  The mining sector doubled its share of GDP, largely reflecting increased foreign investment in coal production and higher intern ational prices.  The share of financial and real-
estate services in GDP declined substantially, partly as a result of several bank liquidations and 
mergers and the sharp fall in the value of assets in the wake of the 1998-1 999 economic and financial 
crisis. 
5. Informality is one of the characteristics of th e labour market.  It is estimated that around 
60 per cent of the working population is employed on an informal basis, main ly in the trade sector 
(Table I.1).1 
6. Colombia suffered a severe economic and financial crisis in the late 1990s.  This had its roots 
in the accelerated expansion of domestic demand as of 1992, aggravated by private capital flows from 
abroad.  A number of adverse factors, including intensification of the internal armed conflict, political uncertainty, worsening of the terms of trade a nd turmoil on the international financial markets 
triggered by the 1997 Asian crisis, le d to a sudden deterioration in the terms of external financing.  A 
dramatic reversal in the direction of external capital flows led the Bank of the Republic to raise 
 
1 Colombian National Administrative Department of Statistics (DANE), " Boletín de prensa:  Encuesta 
continua de hogares " (Press release: Ongoing household survey), 29 August 2005. Viewed at 
http://www.dane.gov.co/files /investigaciones/boletines/ech/ech_informalidad/bolet_ech_informalidad_IItrim05.
pdf. WT/TPR/S/172 Trade Policy Review 
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interest rates to protect the exchange-rate band to  which the peso was subject, a situation which put 
pressure on both the financial sector and the rest of the economy (see also Chapter IV(7)(ii)). 
Table I.1 
Basic economic indicators, 1997-2005 
 1997 1998 1999 2000 2001 2002 2003 2004a2005a
I. Gross domestic product 
 (GDP)b   
Current GDP (Col$ billions) 121,708 140,483 151,565 174,896 188,559 203,451 228,517 254,405 283,848 
Real GDP, growth rate (%) 3.4 0.6 -4.2 2.9 1.5 1.9 3.9 4.8 5.2 
Per capita GDP (US$ 1994)c2,265 2,235 2,102 2,126 2,120 2,123 2,168 2,234 2,312 
By branch of economic activity (percentage of current GDP) 
Agriculture, forestry, hunting and 
fishing 12.6 13.2 13.0 12.9 12.4 12.1 11.7 11.5 11.3 
Mining and quarrying  (including petroleum) 
3.5 3.2 5.3 6.2 5.0 5.0 5.9 6.5 7.1 
Electricity, gas and water 3.4 3.4 3.4 3.6 4.3 4.2 4.4 4.4 4.2 
Manufacturing  13.7 14.0 13.8 14.6 14.4 14.3 14.6 14.5 13.4 
Construction 6.3 5.8 4.2 3.6 3.6 3.9 4.4 5.3 6.2 
Trade, repairs, restaurants and hotels 
11.5 11.7 11.1 10.7 10.7 10.6 10.4 9.7 10.6 
Transport, storage and communications 
7.0 7.4 7.3 7.1 7.7 7.7 7.6 7.2 6.8 
Financial institutions, insurance, real estate and business services  
19.0 18.4 16.6 15.0 15.1 15.0 14.9 14.8 14.4 
Social, community and personal services 
21.0 21.5 23.3 22.4 22.5 22.4 21.5 21.4 21.0 
Financial intermediation services indirectly measured 
-6.1 5.7 -4.8 -3.9 -4.0 -3.9 -4.1 -4.4 -4.5 
Taxes and subsidies 8.1 7.5 7.2 8.1 8.6 8.6 9.0 9.3 9.6 
II. Employment          
Total national employment (thousands) 
15,174 15,310 15,256 16,169 17,363 16,878 18,119 17,712 18,786 
Unemployment rate (% of EAP) 9.8 12.3 16.3 16.7 13.5 15.6 12.3 12.1 10.4 
Underemployment rated (% of 
EAP) .. .. .. .. 31.3 30.2 31.9 30.6 31.2 
III. Memorandum items          
EAPe (thousands) 16,830 17,465 18,223 19,399 20,080 19,995 20,669 20,161 20,957 
Working-age population f 
(thousands) 29,731 29,830 30,655 31,387 31,684 32,377 33,075 33,782 34,478 
Total population (thousands) 39,057 39,323 40,045 40,755 42,035 42,746 43,463 44,187 44,889 
Not available. 
a Preliminary figures. 
b GDP with illicit crops in seasonally adjusted series. 
c Data provided by the Bank of the Republic. 
d Members of the labour force who work less than 48 hou rs per week or who earn less than the minimum wage. 
e Economically active population:  persons 12 years of age or ol der who work or are seeking employment during the survey 
period. 
f Persons 12 years of age or older. 
Source: Colombian National Admini strative Department of Statistics (DANE) and the Bank of the Republic. 
7. Following the replacement of the exchange-rate band by a floating-exchange-rate system in 
September 1999, the peso was devalued, which increased the pressure that the high interest rates were 
exerting on economic operators, who had high le vels of foreign borrowing.  Financial system 
performance indicators continued to decline.  GDP fell 4.2 per cent in real terms in 1999, an 
unprecedented situation for the Colombian economy. Colombia WT/TPR/S/172 
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8. A fragile economic recovery began to take root in 2000.  Colombian authorities have 
indicated that recovery was relatively slow, partly  as a result of the impact of economic and political 
developments in Venezuela, including the impos ition of exchange controls.  Economic performance 
has, however, significantly on the Colombian exte rnal sector improved since 2003 (Table I.1). 
9. Since 2003, economic growth has been driven mainly by private domestic demand, in 
particular investment.  A significant acceleration of domestic consumption can also be noted as of 
2004.  The investment rate rose to 21.6 per cent of GDP in 2005, exceeding the average investment 
rate over the past 25 years, equivalent to 17 per cent of GDP (Table I.2).  The Ministry of Finance and 
Public Credit attributes the strong investment perform ance to financial market stability bolstered by 
ample liquidity (both domestic and external) and low interest rates; consolidation of property rights 
and stability of the rules of the game obtained by m eans of democratic security policies and investor 
confidence; and tax incentives for investment in capital goods.2 
Table I.2 
Structure of GDP by expenditure, 1997-2005 
 1997 1998 1999 2000 2001 2002 2003 2004a2005a
Percentage of constant GDP          
Total consumption  84.8 84.2 85.1 83.8 84.5 84.7 83.0 82.2 81.8 
   Privateb64.3 63.3 62.5 61.9 62.7 63.3 62.4 61.9 61.6 
   Public 20.6 20.9 22.6 21.9 21.8 21.4 20.5 20.2 20.2 
Gross capital formationc21.3 19.9 12.7 13.9 13.9 15.0 16.6 18.1 21.6 
Exports of goods and services 15.8 16.9 18.7 19.3 19.4 18.1 18.4 19.6 19.8 
Imports of goods and services 21.9 21.0 16.5 17.0 17.9 17.8 18.0 19.9 23.1 
Annual real growth (percentage)         
Total consumption  5.3 -0.1 -3.2 1.4 2.3 2.2 1.7 3.8 4.7 
   Privateb2.3 -0.9 -5.5 2.0 2.7 3.0 2.4 4.0 4.7 
   Public 15.6 2.1 3.7 -0.2 1.1 -0.3 -0.3 3.3 4.8 
Gross capital formationc-0.6 -6.3 -38.7 12.3 1.9 9.9 14.7 14.5 25.2 
Exports of goods and services 3.2 7.4 5.9 6.1 2.4 -5.0 5.7 11.3 6.3 
Imports of goods and services 6.2 -3.9 -24.7 6.0 6.8 1.7 4.7 15.8 22.6 
a Preliminary figures. 
b Includes purchases of goods abroad by re sidents and excludes purchases of goods in the national territory by non-residents. 
c Gross fixed capital formation plus changes in inventory. 
Source: Colombian National Administrative Department of Statistics (DANE). 
10. As economic growth has accelerated, per capita  GDP has expanded, reaching a level of 
US$2,312 in 2005.  This, however, represents a leve l barely even reaching that recorded in 1997 
(Table I.1), thus reflecting the stagnation of per capita GDP from 1997 to 2005.  As a result, almost 
half of the population is still below the poverty line.3 
11. Labour productivity rose steadily prior to the 1998-1999 economic crisis, but slowed 
markedly in 1999 and 2000 and remained stagnant un til 2003.  Growth rates have subsequently been 
between two and four per cent. 
                                                      
2 Ministry of Finance and Public Credit (2006). 
3 Economic Commission for Latin Ameri ca and the Caribbean , ECLAC (2005). WT/TPR/S/172 Trade Policy Review 
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12. The unemployment rate reached almost 17 per cent in 2000 (Table I.1).  Although the 
employment situation has improved as a result of good economic performance in recent years, the 
unemployment rate remains at a relatively high leve l, equivalent to 10.4 per cent in 2005.  This 
reflects a number of structural factors, including high labour costs and an excess supply of low-skilled 
workers.4  The employment rate scaled 55 per cent in the last quarter of 2005, the highest since 1993. 
13. During the period 1997-2005, the IMF provided support for Colombia by means of a 
US$2,700 million credit approved in 1999 as part of  a three-year extended facility arrangement.5  In 
January 2003, the IMF approved a US$2,100 million stand- by credit, followed by a further such credit 
of US$613 million6 in April 2005.  According to the Colombian authorities, there has been no 
recourse to these resources. 
(ii) Fiscal policy 
14. The Ministry of Finance and Public Credit is  the entity responsible for formulating and 
overseeing the implementation of fiscal policy.7  Law No. 819 of 2003 requires that the Government 
establish on an annual basis "a goal of a primary su rplus for the non-financial public sector in keeping 
with the macroeconomic programme"8; the goal set by the Government for 2006 is 3.1 per cent of 
GDP. 
15. The growing fiscal imbalances observed during the 1990s significantly contributed to the 
1998-1999 economic and financial cr isis.  The Government adopted a number of measures designed 
to strengthen its fiscal position in 1997, including the temporary increase by up to five percentage 
points of the tariff rates on most products and the establishment of controls to reduce tax evasion.9  
Although these measures led to an improvement in collection levels, the non-financial public-sector 
deficit continued on an upward trend from 1997 to 1999, largely owing to the rapid expansion of central Government spending (Table I.3). 
Table I.3 
Central government finances, 1997-2005 
(Percentage of current GDP)  
 1997 1998 1999 2000 2001 2002 2003 2004 2005a
I. Total revenue  12.4 11.9 12.5 13.0 14.6 14.9 15.1 15.7 16.2 
Tax revenue  10.8 10.6 10.6 11.2 13.2 13.3 13.7 14.4 14.9 
   Domestic taxes 8.1 7.7 8.4 8.8 10.4 10.7 11.0 11.6 11.8 
      Revenue  4.2 4.3 4.1 4.1 5.1 5.0 5.1 6.0 6.1 
      Domestic VAT  3.1 2.9 3.1 3.4 3.7 3.6 3.9 4.0 4.0 
      Tax on financial transactions   0.0 0.0 0.6 0.6 0.8 0.7 0.7 0.9 0.8 
      Petrol 0.5 0.5 0.5 0.5 0.6 0.5 0.4 0.4 0.4 
      Property tax n.a. n.a. n.a. n.a. n.a. 0.6 0.5 0.2 0.2 
Table I.3 (cont'd) 
 
                                                      
4 IMF (2005b). 
5 IMF, "IMF Approves Three-Year Extended Fund Facility for Colombia", 20 December 1999.  
Viewed at http://www.imf.org/external/np/sec/pr/1999/pr9963.htm. 
6 IMF, "IMF Approves a US$2.1 Billion Stand-By Cred it for Colombia", of 15 January 2003.  Viewed 
at http://www.imf.org/external/np/sec/pr/2003/pr 0304.htm and "IMF Executive Board Approves 
US$613 Million Stand-By Arrangement for Co lombia", of 29 April 2005. Viewed at 
http://www.imf.org/external/np/sec/pr/2005/pr0595.htm. 
7 Decree No. 246 of 2004. 
8 Article 2. 
9 Law No. 383 of 1997. Colombia WT/TPR/S/172 
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 1997 1998 1999 2000 2001 2002 2003 2004 2005a
      Other domestic taxes 0.3 0.0 0.2 0.3 0.3 0.3 0.2 0.2 0.2 
   Foreign taxes 2.7 2.9 2.2 2.4 2.8 2.6 2.8 2.8 3.1 
      Foreign VAT 1.6 1.7 1.3 1.4 1.6 1.6 1.8 1.9 2.1 
      Tariffs 1.0 1.2 0.9 1.0 1.1 1.0 0.9 0.9 1.0 
Non-tax revenue 0.4 0.2 0.2 0.3 0.2 0.2 0.1 0.1 0.1 
Special funds  0.3 0.3 0.3 0.2 0.1 0.2 0.1 0.1 0.2 
Capital revenue 0.9 0.9 1.4 1.2 1.1 1.2 1.1 1.0 1.0 
   ECOPETROL 0.2 0.2 0.2 0.5 0.5 0.5 0.5 0.5 0.5 
   Other companies 0.3 0.2 0.8 0.2 0.2 0.2 0.3 0.3 0.2 
   Other capital revenue 0.5 0.4 0.4 0.6 0.4 0.5 0.3 0.3 0.3 
Accrualsb0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.0 0.0 
II. Total expenditure 16.9 17.2 20.1 18.6 20.4 21.0 20.1 21.2 21.0 
Current expenditure 13.5 15.1 17.1 16.8 18.4 18.3 18.5 18.7 19.3 
   Interest c2.0 2.9 3.3 3.8 4.0 3.9 4.2 4.0 3.5 
      Foreign 0.6 0.9 1.0 1.3 1.7 1.8 1.9 1.7 1.5 
      Domestic 1.5 2.1 2.3 2.5 2.3 2.1 2.3 2.3 2.0 
   Operations 11.4 12.2 13.8 13.0 14.4 14.4 14.3 14.7 15.8 
      Personal services  2.3 2.5 2.7 2.7 2.8 2.8 2.7 2.6 2.6 
      Transfersd6.4 6.9 8.2 7.4 8.1 7.9 8.0 8.1 8.2 
      Pensions 1.7 1.8 2.0 2.2 2.5 2.8 2.7 3.1 4.0 
      Overheads 1.1 0.9 0.9 0.8 0.9 1.0 0.9 0.9 1.0 
   Floating debt 0.6 0.3 0.9 -0.3 -0.5 0.4 -0.2 0.9 (0.2) 
Investment 2.6 1.6 1.5 1.5 1.5 1.5 1.3 1.2 1.5 
Net loan 0.2 0.2 0.6 0.5 0.8 0.6 0.4 0.1 0.1 
Accrued liabilities  0.0 0.0 0.0 0.0 0.1 0.2 0.2 0.2 0.2 
III. Balance (4.4) (5.3) (7.6) (5.5) (5.8) (6.1) (5.0) (5.5) (4.8) 
Costs involved in the restructuring of 
the financial system  0.0 0.0 0.0 0.4 0.7 0.7 0.4 0.4 0.4 
IV. Deficit to be financed (4.4) (5.3) (7.6) (5.9) (6.4) (6.8) (5.5) (5.9) (5.3) 
V. Memorandum items          
Consolidated public sector results -4.5 -3.4 -5.5 -3.3 -3.2 -3.6 -2.7 -1.3 0.0 
Central Government domestic debte11.7 13.3 19.7 24.4 26.3 30.5 29.8 30.7 34.1 
Central Government domestic and external debt 20.2 24.5 34.6 42.7 48.4 55.9 54.9 51.6 50.8 
n.a. Not applicable. 
a Preliminary figures. 
b Corresponds to the amounts received in relation to m obile cellular and long-dist ance telephony concessions.  
c Includes profits or losses on the placement of securities and the cost of foreign borrowing. 
d Includes transfers to  regional authorities. 
e Adjusted domestic debt. Excludes i ndexed bonds. Includes budgetary backlog. 
Source: Ministry of Finance and Public Credit. 
16. The deterioration in public-sector finances prior to the 1999 economic crisis also reflected in 
part the intensification of the fiscal decentralization process resulting from the adoption of the 1991 
Constitution.  Implementation of the constitutional provisions on fiscal  decentralization "entailed a 
loss of control over central Government revenue, gi ven that the Constitution and legislation tied the 
amount of regional transfers to the nation's current revenues".10  Consequently, efforts concentrated 
on boosting revenue proved ineffective in the absence of  reforms of the fiscal decentralization regime.  
The creation of new bodies, including the Office of the Public Prosecutor, was another factor 
contributing to increased spending. 
                                                      
10 Bank of the Republic (2001). WT/TPR/S/172 Trade Policy Review 
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                                                     17. In the wake of the 1999 economic crisis, the Government embarked upon a fiscal adjustment 
programme encompassing reforms of the fiscal decent ralization and pension regimes.  Limits were 
placed on the operating expenses of a number of regional authorities and a constitutional amendment 
established that, as of 2009, transfers would increase at a rate equivalent to the average rate of current 
Government revenue over the previous four years.11  Furthermore, the tax on financial transactions 
was definitively introduced, the VAT rate was rais ed and additional controls were introduced to 
reduce tax evasion.12 
18. The fiscal situation has shown sustained improvement since 2002.  Although the central 
Government deficit remains high, the decentralized sector has recorded a si gnificant surplus in recent 
years, reflecting to a great extent the accumulation of resources in certain social security funds, 
mainly the ECOPETROL Fondo de Pensiones del Nivel Territorial y Patrimonio Autónomo  (regional 
and independent equity pension f und), and the favourable situation with regard to regional finances 
and ECOPETROL (Table I.3).  This resulted in a situation bordering on fiscal balance for the 
consolidated public sector in 2005.   
19. Non-financial public-sector debt increased shar ply from 1998 to 2002, partly reflecting the 
costs associated with the injection of capital into the banking system at the time of the financial crisis, the revaluation of external debt owing to the depr eciation of the peso and the deterioration of the 
fiscal situation (Table I.3).  Sovereign debt in fore ign currency lost its investment-grade rating in 1999 
and the Government was temporarily excluded fro m international capital markets in 2002.  Non-
financial public-sector debt dropped from 71.5 per cent of GDP at the end of 2002 to 59.9 per cent of 
GDP at the end of 2005.  This partly reflects the improvement in the fiscal situation and the 
appreciation of the peso. 
(iii) Monetary and exchange-rate policy 
20. The Bank of the Republic is responsible for formulating the monetary and exchange-rate 
policy.13  Managing and executing the functions of the Bank of the Republic are the responsibility of 
the Board of Directors, which is made up of seven  members, including the Minister of Finance and 
Public Credit, who acts as chair. 
21. The Constitution establishes that the Bank of  the Republic is required to supervise 
maintenance of "the purchasing power of the currency" and to exercise its functions "in coordination with the general economic policy".
14  The Bank of the Republic considers the objective of monetary 
policy to be "the achievement of inflation rat es consistent with the constitutional mandate of 
guaranteeing price stability, in coordination with  a general macroeconomic policy encouraging 
growth of output and employment".15  Coordination with economic  policy is conditional upon 
maintenance of the purchasing power of the currency.16 
22. Within its mandate, the Bank of the Republic est ablishes annual inflation targets in terms of 
the Consumer Price Index produced by the Departamento Administrativo Nacional de Estadística – 
DANE  (Colombian National Administrative Department of  Statistics).  Intervention interest rates and 
the purchase and sale of foreign currency on the fore ign-exchange market are the main instruments 
used to achieve such targets; according to the Colombian authoriti es, the exchange rate plays a 
 
11 Chapter II, Law No. 617 of 2000 and Article 3, Legislative Act No. 01 of 2001. 
12 Law No. 633 of 2000. 
13 Article 372 of the Political Constitution of Colombia. 
14 Ibid, Articles 371 and 373. 
15 Urrutia Montoya (2000). 
16 Bank of the Republic (2001). Colombia WT/TPR/S/172 
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secondary role.  Inflation targets are between four  and five per cent for 2006 and three and 4.5 per 
cent for 2007.  The long-term inflation target is two to  four per cent.  The inflation targets established 
for 2004 and 2005 were achieved. 
23. In 2000, the Bank of the Republic introduced a monetary policy strategy "with objective 
inflation and a flexible monetary target".  By means of the new strategy, the Bank of the Republic 
sought to enhance the transparency of its decision-making process.17  In the framework of this 
strategy, decisions on monetary policy are taken on the basis of the Bank of the Republic's inflation 
target, an evaluation of the overall health of th e economy, inflation trends and prospects and the 
unemployment situation, and the monitoring of the behaviour of the money supply with regard to 
previously defined reference values, taking the inflation target into consideration.18 
24. Colombia recorded average annual inflation ra tes of 22 to 24 per cent in the two decades 
preceding the 1998-1999 economic crisis.  In the context of a strong contraction in domestic demand 
in 1999, inflation fell to 9.2 per cent (Table I.4).  It has since seen a consistent decline, reaching 
4.9 per cent in 2005.  The IMF attributes this to the economy's excess production capacity and the effective implementation of the new monetary policy strategy.
19 
25. Colombia has maintained a floating-exchange-rate system since September 1999.  The Bank 
of the Republic intervenes in the foreign-exchange market with a vi ew to "maintaining an adequate 
level of international reserves which reduce the ec onomy's vulnerability to external shocks ..., limiting 
excessive exchange-rate volatility in the short term and regulating excessive appreciation or 
depreciation which jeopardize the achievement of future inflation targets and the external and 
financial stability of the economy".20 
26. Prior to the adoption of the floating-exchange-ra te system, Colombia maintained the nominal 
exchange rate within a periodically adjusted band.   Strong exchange-rate pressure in September 1999 
led the Bank of the Republic to abandon its defence of the band and the peso depreciated sharply in 
real terms (Table I.4).  In mid-2006, the real exchange  rate had returned to a level approaching that of 
September 1999.  
27. The Bank of the Republic increased interest rates until late 1998 in response to strong 
exchange-rate pressure on the peso.  Interest rates ha ve subsequently fallen gradually (Table I.4).  The 
intermediation margin has, however, remained at around seven per cent, with the exception of 1998 
and 1999 when it fell as a result of losses associated with the financial crisis.21 
Table I.4 
Leading monetary indicators, 1997-2005 
 1997 1998 1999 2000 2001 2002 2003 2004 2005 
Monetary aggregates           
Monetary base (Col$ billions) 8,287 6,923 9,740 10,710 11,648 14,107 16,442 19,260 22,804 
M1 (variation over 12 months) 21.7 -3.9 21.7 30.5 12.1 15.5 15.2 16.8 17.8 
M3a (variation over 12 months) 26.7 7.8 6.9 3.6 9.3 8.2 12.1 16.8 15.9 
Table I.4 (cont'd) 
 
                                                      
17 Urrutia Montoya (2000). 
 18 Idem . 
19 IMF (2005b). 
20 Online information of the Bank of the Republic. Viewed at: http://www.banrep.gov.co/ 
politica_cambiaria/index.html [19 June 2006]. 
21 National Association of Financial Institutions (ANIF) (2006). WT/TPR/S/172 Trade Policy Review 
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 1997 1998 1999 2000 2001 2002 2003 2004 2005 
Interest rates          
Bank of the Republic intervention rate b27.0 33.0 18.0 17.0 12.3 9.0 11.0 10.3 9.8 
Term deposit certificate (CDT), total, 90 
days c24.1 32.6 21.6 12.1 12.5 8.9 7.8 7.8 7.0 
Lending rated.. .. .. .. 18.6 15.2 15.9 14.9 13.3 
Inflation (variation over 12 months)           
Consumer Price Index 17.7 16.7 9.2 8.8 7.6 7.0 6.5 5.50 4.9 
Producer Price Index  17.5 13.5 12.7 11.0 6.9 9.3 5.7 4.6 2.1 
Exchange rates           
Representative market rate (annual average:  
Col$/US$) 1,141 1,427 1,759 2,087 2,299 2,508 2,878 2,626 2,321 
Exchange rate variation e (December-
December) 28.7 19.2 21.5 18.9 2.8 25.0 -3.0 -14.0 -4.4 
Real exchange rate index (total trade, 
December) (increase = depreciation) 94.2 98.3 108.4 118.5 118.4 132.7 131.5 113.6 104.2 
.. Not available. 
a Includes cash, current account deposits, near-money, demand deposits, fiduciary deposits and financial system bonds. 
b The rate at which the Bank of the Republic provides unlimited li quidity for financial institutions (also known as the Lombard  
expansion rate).  
c Annual weighted average. 
d December. 
e A minus sign denotes appreciati on; a plus sign, depreciation. 
Source: Bank of the Republic. 
(iv) Balance of payments 
28. The abrupt change in the direction of cap ital flows which supported the expansion in 
domestic demand during most of the 1990s forced an adjustment in the current balance-of-payments 
account, which had traditionally been negative.  In 1999 and 2000, the current account recorded a 
surplus of just under one per cent of GDP (Table I.5).  The account once again become negative as of 2001. 
29. The balance of trade in goods was negative in 1997-1998 (Table I.5).  A surplus of between 
0.3 and 3.1 per cent of GDP was recorded from that  period up until 2005.  This was initially a result 
of the fall in imports in the context of the econom ic crisis at the end of the 1990s.  Imports have, 
however, strengthened since 2003, reflecting to a great extent the increase in  capital goods purchases, 
which has gone hand-in-hand with the growth of private investment.  The trade-in-goods balance as of 2003 is, to a considerable extent, a response to the rise in exports, which have benefited from 
improved terms of trade and the stronger economic gr owth of Colombia's main trading partners.  The 
services balance has been negative since 1998, reflec ting a significant deficit in the transport and 
financial services accounts. 
Table I.5 
Balance of payments, 1997-2005a
(In US$ millions)  
Description 1997 1998 1999 2000b2001b2002b2003b2004c2005c
Current account -5,751 -4,858 671 779 -1,089 -1,359 -974 -938 -1,978 
 A. Goods -2,638 -2,450 1,775 2,648 579 238 555 1,346 1,595 
       General trade -2,768 -2,686 1,664 2,444 407 141 141 1,119 1,387 
         Exports 11,534 10,930 11,563 13,099 12,233 11,794 12,933 16,442 20,818 
         Imports f.o.b.  14,302 13,616 9,900 10,655 11,826 11,653 12,792 15,324 19,431 
Table I.5 (cont'd) Colombia WT/TPR/S/172 
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Description 1997 1998 1999 2000b2001b2002b2003b2004c2005c
       Special foreign trade operations 130 236 111 204 172 96 414 227 208 
         Exports 531 550 474 639 615 521 879 782 911 
         Imports 401 314 363 435 443 425 466 554 703 
 B. Services  -1,501 -1,462 -1,204 -1,259 -1,412 -1,435 -1,439 -1,679 -2,100 
       Exports 2,155 1,955 1,940 2,049 2,190 1,867 1,921 2,255 2,666 
       Imports 3,656 3,416 3,144 3,308 3,602 3,302 3,360 3,934 4,767 
 C. Factor income -2,326 -1,697 -1,355 -2,283 -2,610 -2,867 -3,398 -4,332 -5,562 
       Income 920 949 923 1,054 919 717 553 671 1,076 
         Interest 859 885 850 991 846 603 417 499 877 
         Profits and dividends  45 47 59 31 38 88 120 152 166 
         Employee remuneration 16 18 15 32 35 26 16 20 32 
       Expenditure 3,246 2,646 2,278 3,337 3,529 3,584 3,951 5,003 6,637 
         Interest 2,583 2,571 2,511 2,651 2,579 2,501 2,413 2,498 2,930 
         Profits and dividends 649 61 -247 674 938 1,070 1,525 2,486 3,689 
         Employee remuneration 13 14 14 12 12 14 12 19 19 
 D.  Current transfers  713 750 1,455 1,673 2,354 2,706 3,309 3,727 4,089 
       Income  931 912 1,703 1,911 2,656 3,010 3,565 3,996 4,349 
         Workers' remittances 758 788 1,297 1,578 2,021 2,454 3,060 3,170 3,314 
         Other transfers  173 124 406 333 634 556 504 826 1,036 
       Expenditure 217 162 248 238 302 304 256 270 260 
Capital and financial account 6,587 3,314 -555 59 2,458 1,304 703 3,239 3,384 
 A. Financial account 6,587 3,314 -555 59 2,458 1,304 703 3,239 3,384 
       Long-term financial flow s 8,348 4,522 2,654 2,077 5,046 -1,391 966 2,469 3,971 
         Assets 814 810 121 324 13 851 932 136 4,620 
           Colombian investment abroad 809 796 116 325 16 857 938 142 4,623 
             Direct 809 796 116 325 16 857 938 142 4,623 
             Portfolio 0 0 0 0 0 0 0 0 0 
           Loans 6 15 0 -1 -2 -5 -5 -5 -2 
           Trade credit 0 0 0 0 0 0 0 0 0 
           Other assets -2 -1 5 -1 -1 -1 -1 -1 -1 
         Liabilities 9,180 5,347 2,797 2,441 5,095 -510 1,927 2,656 8,639 
           Foreign investment in 
  Colombia   6,966 3,971 2,356 3,727 5,905 1,109 1,862 3,860 10,211 
             Direct  5,562 2,829 1,508 2,395 2,525 2,139 1,758 3,117 10,378 
             Portfolio   1,404 1,142 848 1,332 3,381 -1,031 104 743 -167 
           Loans   1,784 687 65 -1,175 -549 -1,436 403 -1,076 -1,671 
           Trade credit   -52 58 136 -18 -42 -20 -1 -53 68 
           Financial leasing 482 632 240 -93 -219 -162 -337 -76 31 
           Other liabilities   0 0 0 0 0 0 0 0 0 
         Other long-term financial 
movements  -19 -15 -23 -40 -35 -30 -30 -51 -48 
       Short-term financial flows -1,761 -1,209 -3,209 -2,019 -2,588 2,695 -263 770 -587 
         Assets 2,402 479 2,111 1,677 3,203 -2,335 83 1,017 1,721 
         Liabilities 641 -730 -1,098 -341 615 360 -179 1,786 1,134 
Net errors and omissions -559 154 -430 33 -152 193 87 241 322 
Variation in international reserves 277 -1,390 -315 870 1,217 138 -184 2,541 1,729 
Table I.5 (cont'd) 
 WT/TPR/S/172 Trade Policy Review 
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Description 1997 1998 1999 2000b2001b2002b2003b2004c2005c
Balance of net international 
reserves  9,906 8,740 8,101 9,004 10,192 10,841 10,916 13,540 14,957 
Memorandum items          
Current account (as a percentage of GDP) 
-5.4 -4.9 0.8 0.9 -1.3 -1.7 -1.2 -1.0 -1.6 
Net external debt  of the non-financial 
public sector (as a percentage of GDP, December) 
14.5 17.4 21.7 24.0 26.9 30.3 28.9 23.7 19.1d
a In accordance with the methodology set out in the fifth edition of the IMF Balance of Payments Manual.  
b Provisional data. 
c Preliminary data. 
d September. 
Source: Bank of the Republic. 
30. The current accounts and current transfers expe rienced significant changes in the period 
1997-2005.  Foreign earnings and dividend payments have seen such a significant increase that this 
item exceeded payment of interest on the external debt in 2004 and 2005 (Table I.5).  Furthermore, 
the rise in emigration as a result of the economic crisis was accompanied by a sharp increase in 
workers' remittances.  Such remittances, which gr ew by almost 350 per cent from 1997 to 2005, have 
become one of the main sources of current account income. 
31. Direct investment flows have been one of the main sources of financing of the current account 
deficit since 2001.  The privatization of a number of State-owned companies has made a major contribution to strong investment performance during this period.  Another major source of financing 
of the current account deficit has been the public debt. 
32. Total external debt represented just over 31 per cent of GDP in September 2005.  The share of 
external debt in the GDP has significantly declined since the beginning of 2003, when it stood at nearly 48 per cent of GDP, partly as a result of the appreciation of the peso in real terms. 
33. From May 1997 to 2000, foreign borrowing was subject to an 18-month reserve requirement 
in the national currency.22  The amount of the reserve requirement was gradually reduced during this 
period from 30 to 10 per cent.  Although the corres ponding regulation is still in force, the amount of 
the requirement has been zer o per cent since May 2000.23 
34. At the end of 2005, net international reser ves totalled around US$14,947 million, a level 
which the Bank of the Republic considers to be "adequate".24 
(3) TRADE AND INVESTMENT FLOWS  
(i) Developments in trade in goods25 
35. Imports grew at an average annual rate of al most four per cent from 1997 to 2004 and exports 
at an average annual rate of 6.4 per cent, althou gh both showed significant fluctuations during this 
period.  In 2004, imports a nd exports were at their highest level since 1997, totalling 
                                                      
22 Article 26, Resolution No. 8 of 2000. 
23 Ibid, Article 83. 
24 Bank of the Republic (2006). 
25 Data in this section are from the Comm odity Trade Statistics Database (Comtrade)  of the United 
Nations Statistics Division.  Data for 2005 were unavailable in mid-2006. Colombia WT/TPR/S/172 
 Page 11 
 
 
US$17,100 million and US$16,730 million (Tables AI .1 and AI.2).  Overall trade in goods 
represented 34.7 per cent of GDP in 2005. 
(a) Breakdown of trade in goods 
36. Mining sector products represent around 38 per cent of  Colombian exports (Table AI.1), with 
crude oil and coal accounting for most mining exports.  The share of the agricultural sector has 
significantly declined since 1997, although agricultura l products still represent just over a fifth of total 
exports.  The fall in the share of coffee has been particularly sharp, to just under six per cent in 2004.  Apart from coffee, the main agricultural export products are flowers and bananas. 
37. The manufacturing sector represents 37 per cent of exports, almost seven percentage points 
more than in 1997 (Table AI.1).  The growing im portance of this sector largely reflects the rise in 
exports of iron and steel and machinery and transpor t equipment and, to a lesser extent, clothing.  
Although the export share of chemicals has fallen since 2002, they continue to be the main manufacture exported by Colombia. 
38. As far as imports to Colombia are concerned, the share of manufactures has increased since 
1996, totalling around 82 per cent in 2004 (Table AI.2).  The main categories of imported 
manufactures are machinery and transport equipmen t and chemicals.  The share of agricultural 
imports has fallen since the late 1990s and stood at 12.6 per cent of total imports in 2004. 
(b) Direction of trade in goods 
39. Although its share of Colombian imports has falle n significantly, in particular since 1999, the 
United States continues to be the main source of  imports, accounting for 28 per cent of the total 
(Table AI.3).  The European Union and the And ean Community follow, although their shares have 
also decreased.  Meanwhile, the sh ares of China, Brazil and, to a lesser extent, Mexico, have recorded 
major increases since 1997. 
40. The United States is the main export destination, representing 42 per cent of the total 
(Table AI.4).  Next in line are the Andean Comm unity, with almost 20 per cent, and the European 
Union, with 14 per cent.  The export shares of Me xico and the Dominican Republic have recorded 
increases, whilst those of the United States (in rela tion to 1999), Japan and the European Union have 
declined.  The Andean Community share has experienced significant fluctuations. 
(ii) Trade in services 
41. Colombia traditionally has a negative trade-in-services balance, reflecting the significant 
deficit in transport services and, to a lesser exte nt, the deficit in financial services and business and 
construction services (Table I.6).  The transport services deficit has increased rapidly since 2003 
owing to strong growth in trade in goods.  The aver age balance of the classifi cation of travel services 
was also negative from 1997 to 2005.  The average balance of communications, data and information 
technology services was positive from 1997 to 2002 a nd negative thereafter.  Trade in services was 
adversely affected by the economic crisis of 1999, bu t has exceeded its pre-crisis level in recent years. WT/TPR/S/172 Trade Policy Review 
Page 12 
 
 
Table I.6 
Trade in services, 1997-2005 
(US$ millions) 
 1997 1998 1999 2000a2001a2002a2003a2004b2005b
Services balance -1,501 -1,462 -1,204 -1,259 -1,412 -1,435 -1,439 -1,679 -2,089 
   Total income 2,155 1,955 1,940 2,049 2,190 1,867 1,921 2,255 2,666 
      Transport 647 621 604 588 567 539 623 680 779 
      Travel 1,043 928 927 1,030 1,217 967 893 1,058 1,218 
      Communications, data and 
 information technology  249 179 169 186 190 152 150 200 237 
      Insurance and finance 104 95 100 74 53 36 36 31 31 
      Business and construction  45 58 55 78 68 74 113 170 273 
      Other services 67 73 85 93 96 100 106 117 128 
   Total expenditure 3,656 3,416 3,144 3,308 3,602 3,302 3,360 3,934 4,755 
      Transport 1,311 1,295 1,167 1,307 1,414 1,202 1,260 1,613 2,105 
      Travel 1,209 1,120 1,013 1,060 1,164 1,075 1,062 1,108 1,127 
      Communications, data and 
 information technology 152 142 178 169 154 142 180 210 265 
      Insurance and finance  526 379 315 317 375 395 338 344 434 
      Business and construction  334 341 320 291 329 307 354 481 598 
      Other services 124 140 151 165 167 183 167 178 227 
a Provisional data. 
b Preliminary data. 
Source: Bank of the Republic. 
(iii) Foreign direct investment 
42. The amount of foreign direct investment increased sevenfold fro m 1996 to 2005, reaching 
US$37,551 million in December 2005. 
43. Average annual net foreign direct investment flows from 1997 to 2005 amounted to 
US$3,558 million.  The trend in foreign investment was relatively stable durin g this period, with the 
exception of 1997, when major privatizations were undertaken in the electricity sector, and 2005, the 
year in which the acquisition of several public and private companies by foreign interests was 
completed. 
44. The relative importance of different sectors as recipients of foreign direct investment in 
experienced major fluctuations during the peri od 1997-2005 (Table I.7).  The manufacturing and 
mining sectors have been the main recipients of fo reign investment, followed by the financial sector 
and the transport, storage and communications sec tor.  The recent increase in investment in the 
mining sector partly reflects the sale of a number of mines belonging to the State-owned company Carbocol.  The share of the manufacturing sector in foreign investment recorded a sharp increase in 
2005, to a large extent as a result of takeovers  of domestic firms by multinational companies. 
Table I.7 
Net foreign direct investment by economic sector, 1997-2005 
(US$ million) 
 1997 1998 1999 2000a2001a2002a2003a2004b2005b
Total 5,562 2,829 1,508 2,395 2,525 2,139 1,758 3,117 10,192 
Petroleum sector 382 92 -511 -384 521 449 278 528 1,237 
Agriculture, forestry, hunting and 
fishing 12 24 30 0 12 -5 8 3 27 
Mining and quarrying (includes co al) 302 -6 464 507 524 466 627 1,246 1,981 
Table I.7 (cont'd) 
 Colombia WT/TPR/S/172 
 Page 13 
 
 
 1997 1998 1999 2000a2001a2002a2003a2004b2005b
Manufacturing 514 785 505 514 244 314 326 256 5,433c
Electricity, gas and water 2,962 672 -306 13 -71 135 68 88 -208 
Construction 124 -52 -1 -21 84 -4 -8 74 143 
Trade, restaurants and hotels 116 191 334 10 205 116 222 202 216 
Transport, storage and 
communications 43 263 189 876 416 345 -47 481 1,106 
Financial institutions 1,072 665 674 792 560 293 243 244 243 
Community services  37 195 129 88 30 31 40 -6 14 
a Provisional data. 
b Preliminary data. 
c Includes the purchase of the Bavaria brewery by SABMiller.  
Source: Bank of the Republic. 
45. The European Union has traditionally been Colo mbia's main source of foreign investment, 
representing around 37 per cent throughout the period 1997-2005 (Table I.8).  The United States is 
also a major source of investment, accounting for approximately 17 per cent of the total. 
Table I.8 
Net foreign direct investment by country of origin, 1997-2005a
(US$ million) 
 1997 1998 1999 2000 2001b2002b2003b2004b2005b
Total 4,956 3,206 2,331 3,224 1,656 1,687 1,235 2,035 8,154 
European Union c1,533 962 715 1,258 647 140 413 176 4,735d
United States 221 413 545 85 223 784 274 874 1,399 
Mexico 47 34 6 23 12 21 19 16 1,063 
Cayman Islands and Bermuda 942 862 421 321 284 250 13 519 254 
Panama 1,620 125 180 218 111 46 172 79 223 
MERCOSUR 7 17 8 5 7 16 12 14 47 
Other European countries 90 143 27 69 40 20 71 32 41 
Andean Community -15 73 46 -19 21 33 18 74 31 
Other 512 577 382 1,265 310 377 244 251 361 
a Excluding the petroleum sector and without re-investment of profits. 
b Preliminary figures. 
c Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, 
Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Po rtugal, Spain, Slovakia, Slovenia, Sweden, and United Kingdom, 
d Includes the purchase of Bavaria by SABMiller, classified by the Bank of the Republic as a British-held company. 
Source: Bank of the Republic. 
(4) OUTLOOK  
46. The Memorandum of Economic Policies , formulated by the Government in May 2006 in the 
context of the April 2005 stand-by arrangement with the IMF, projects real GDP growth of 4.5 per cent in 2006 and four per cent in 2007.
26  In the same Memorandum , the Government states its 
intention to continue to target its fiscal policy at reducing the public debt to 40 per cent of GDP in 
2010 and saving most of the extraordinary revenue from high oil prices.  The Memorandum sets a target for the consolidated public sector deficit of 1.5 per cent of GDP for 2006, with a primary 
surplus of 3.2 per cent of GDP, and predicts inflation in the range of four to five per cent in 2006.  It also forecasts that the current account deficit will reach 1.3 per cent of GDP. 
 
                                                      
26 Bank of the Republic and Ministry of Finance and Public Credit (2006).