page_title: Economic history of Colombia
section_title: 1990-1999
hierarchical_section_title: Economic history of Colombia / 1990-1999
caption_attribution_description: Español: Quito, Ecuador, 17 nov (ANDES).- Pavel Muñoz (d.) titular de SEMPLADES, se reunió con Ernesto Samper Secretario General de la UNASUR, en la que abordaron temas relacionados con la planificación como un instrumento fundamental en la construcción de los procesos de integración regional. Foto: Micaela Ayala V./Andes
context_section_description: In 1990, the country elected a Constituent Assembly in order to write a new constitution that would replace the 1886 charter. The drive toward this major change was not  related to economic issues. Rather, it took place within a complex political scenario, including a peace process with the Nineteenth of April Movement (M–19) guerrilla group and the debate over how to bring major drug lords to justice.
  Important provisions in the 1991 constitution would have lasting effects on the economy, particularly the articles that aided the overarching goal of facilitating progress toward long-awaited peace and political reconciliation. Of particular importance were the promotion of fiscal decentralization and the social role of the state. The aim of fiscal decentralization was to complement the process of political decentralization that had been initiated in the mid-1980s, with the popular election of city mayors. The social role of the state was deemed a necessary supplement to recent economic reforms, in order to ensure that the benefits resulting from these reforms would reach the vast majority of the population. The manner in which these critical issues were eventually handled had profound implications for the constant increases in public expenditure. Inasmuch as the growth in government outlays was not matched by increases in taxes or other government revenue, the fiscal provisions in the constitution had a negative effect on the public debt. The new constitution also made the Bank of the Republic independent, with a mandate to strive for a low and stable rate of inflation.
  Between 1989 and 1992, Colombia went through an unprecedented period of change in economic policy and institutions. These reform processes, which might not seem particularly ambitious when compared with other experiences in Latin America, were rather exceptional within Colombia, given the country's long tradition of moving very slowly and cautiously on reforms. One set of policies—including trade liberalization, labor and financial sector reform, and independence of the Bank of the Republic—was geared toward promoting trade and competition, enhancing flexibility, and increasing productivity. Another set of policies—especially fiscal decentralization and the constitutionally  mandated social role of the state—was mostly driven by political and social considerations. In the context of a favorable international environment, these principles served the country well until 1995. However, after 1996 several factors conspired to make the two sets of policies somewhat inconsistent and quite costly. Furthermore, the reform momentum had largely evaporated, so that several of the identified policy inconsistencies were not addressed.
  Colombia enjoyed a fairly good economic performance in the first half of the 1990s because of an initial increase in public spending, and the wealth effect resulting from increased oil production, which, however, peaked in 1999, and a greater role for the private sector. However, continuous fiscal deficits led to higher public debt, and the increases of both private and public foreign debt made the country vulnerable to negative international shocks. Furthermore, a profound political crisis emerged because of allegations that drug traffickers had partially financed the presidential campaign of Ernesto Samper Pizano. The political crises that ensued had two serious consequences for economic policy. On the one hand, the government tried to enhance its popular support through initiatives that were very costly in fiscal terms, including significant wage increases for civil servants, particularly for members of the very powerful teachers' union. On the other hand, the government's ability to engage the Congress of the Republic (Congreso de la República) in meaningful reform vanished. As a result, a much-needed push to enhance public revenues, including thorough changes to the tax code, did not happen.
  Unsurprisingly, in the midst of  the Asian and Russian economic crises of the late 1990s, Colombia had its first economic recession in more than 
caption: The political crises arising from the election of Ernesto Samper Pizano (pictured) had serious consequences on Colombian economic policy.
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