. 500, 0 4. 800 3. 300, 0 4. 600 3. 100, 0 4. 400 2. 900, 0 4. 200 2. 700, 0 4. 000 2. 500, 0 3. 800 2. 300, 0 3. 600 2. 100, 0 3. 400 1. 900, 0 3. 200 1. 700, 0 3. 000 1. 500, 0 e x te rn a l in d e b te d n e s s 5. 000 2 0 0 7 - 0 1 2 0 0 7 - 0 2 2 0 0 7 - 0 3 2 0 0 7 - 0 4 2 0 0 7 - 0 5 2 0 0 7 - 0 6 2 0 0 7 - 0 7 2 0 0 7 - 0 8 2 0 0 7 - 0 9 2 0 0 7 - 1 0 2 0 0 7 - 1 1 2 0 0 7 - 1 2 2 0 0 8 - 0 1 2 0 0 8 - 0 2 2 0 0 8 - 0 3 2 0 0 8 - 0 4 2 0 0 8 - 0 5 2 0 0 8 - 0 6 2 0 0 8 - 0 7 2 0 0 8 - 0 8 2 0 0 8 - 0 9 2 0 0 8 - 1 0 2 0 0 8 - 1 1 2 0 0 8 - 1 2 2 0 0 9 - 0 1 2 0 0 9 - 0 2 2 0 0 9 - 0 3 2 0 0 9 - 0 4 2 0 0 9 - 0 5 2 0 0 9 - 0 6 t ra d e total trade ( x + m ) subject to foreign finance and external indebtedness through the financial system ( us $ million ) trade external indebtedness meanwhile, the global economy slumped, terms of trade dropped and the external demand for colombian products slowed down. consumer and business confidence indicators collapsed thus driving domestic spending down. policy makers were then left facing the dilemma of high and increasing inflation on the one hand and a growing deterioration of both the external and domestic economic outlook on the other. thus, while the picture became clearer, monetary authorities started to relax policy gradually. capital controls were lifted in october and domestic reserve requirements were reduced in november. liquidity provision was increased substantially as reflected by the negative and decreasing spread between the overnight interbank interest rate and the policy rate as the end of the year approached ( chart 6 ). finally, policy rates were lowered by 50 bps in december, the first such move

jose dario uribe : the colombian monetary and exchange regime under stress speech by mr jose dario uribe, governor of the central bank of colombia, at the money and banking conference “ lessons and challenges for emerging countries during the crisis ”, central bank of argentina, buenos aires, 31 august 2009. * * * let me first thank bcra for organizing this very interesting seminar and for inviting us to share our experience in these turbulent times. the mere comparison of the shocks our economies have undergone and our policy reactions, let alone the insights of the distinguished economists who join us in this timely event, is of great value for our future policy making. after the lehman brothers bankruptcy in september 2008, the colombian financial and foreign exchange markets came under stress. however, the outcome of the shock was less severe than for other countries in the region. in what follows, i will briefly describe the macroeconomic context in which the shock occurred, the effects of the shock and the policy response by banco de la republica. while doing so, i will advance some reasons for the relatively low impact of the shock on colombia. most of them are related to the prevailing regulatory framework. by the third quarter of 2008, the colombian economy was experiencing a deceleration of growth. consumption growth was weakening as a result of the previous tight monetary policy and the effect of the relative price increases of raw materials and foodstuffs on costs and real household income. public investment fell drastically due to delays in public works programs. nevertheless, according to our estimates, there still remained a positive output gap inherited from several years of strong aggregate demand growth. as another consequence of the relative price shocks, inflation was moving well above its target range for the year ( 3. 5 % - 4. 5 % ). at the same time, inflation expectations started to rise which threatened to permanently unleash inflation. hence, policy was further tightened in july. the sharp appreciation of the currency observed in the first half of the year was correcting itself possibly due to changing global risk perceptions and the daily purchases of fixed amounts of dollars by banco de la republica in the foreign exchange market. immediately after the lehman failure, the colombian sovereign risk premium jumped around 500 bps, an increase similar to the one which occurred in other countries ( charts 1 and 2 ). the currency moved along, depreciating by 15 % between september 12th and october 29th. again, this reaction was comparable to the behavior of other currencies in the region. domestic