Created: 12/1/1993

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2 S Directorate of InteUigence

Colombia: Sustaining^ Economic Reform

Intelligence Research Paper


Colombia: Sustaining



Colombia: Smlainine Economic Reform



Prendeni Carina almost certainly will be able lo sustain hbthrough the end of his term io August 1W, although impediment* ia wmc key area* will continue lo slow Impkmenution. Relatively few of the more thanieces oflegislation thai he haa poshed through Congress0 will fall victim to political trade-off* during ihe curreal election campaign. After tough sleddingc/orms ore beginning to lake hold;is declining steadily, ihe fiscal deficit is belag conraiaed. and rnde-nwably imports-i* surging. During hu laa year in office. Gaviria is likely io Keep ibe presaure onu> pass already submri-ted tegiilitior. and lo pursue international trade agreements that would make it more difficult for his successor to dismantle ihe, reform program. In addition, the PresideM will look to Washington to publicly acknowledge andangible ways for tbe bold step* Colombia has taken.

Gaviria will leave office in4 having finally seen ihe economy begin in respond to his far-reaching leforms.or example, economic acUvily slowed appreciably in response io ihe shock of his broad reform program, which included simultaneously implementing market-opening sieps andough inu-mfUtian policy. oneapected wt-backs ina severe drought, an energy crisis, and the escape of drug kingpin Pablo Escobar, .hich undercut the Presidrafs personal authoiitj-furthei slowed impkmenutuon. Some sectors of the economy finally began responding to the reforms byided by theshift from stringent, inflation-culling measures to looser, more Biowth-orienied policies. The continued improvement in "he demesne economyprimarily through the mainienancc of relatively low domestic inierestis enabling Gaviria lo achieve many of his macroecooomk targets:

Inflation has dropped from nearlyerccairorccsedercent this year.

Economic growth ban recoveredercent1 to anercent ihi*

We do not expect Bogota to reverse ils overall commiimeni to tradeor lo other major tenets of ihe reform program, although some minor backsliding is likely during the presidential campaign. The President realties that Ibe apenura program willey factor in judging his cresideacy, and we doubt lhat he would reireai un reform now lhal he is



beginning io see some of Ihe benefits accrue. Gavina seemsexample, lo keep inflation under control. Thb will reduce iheccoaomieilly inspired unrest might complicate electionpersistent criticism by (tiding presidential cnnHndera ol"effects Gaviria's rasrtot-open trig pragmn probably will causeto reimpose measure* to protect some etemesuctextiles and agriculturediUon. pork-barrel spending mayto loosen sMghHy hia previously tight conirol over

Gaviria's weakened political Handing and significant resource constraints are Bkely to impede efforts to address the structural problems that still handicap implementation of tbe President's reform program. Perhaps moss important. ColorabiVs decrepit infraamcturc will keep transpoitation coals nigh and interfere with local firms' tffent to improve their international competitiveness despite prodactiviryough union opporition is likely to continue to nail efforts to cat back the tareawiacy and tokey patruiataU -although sate*ew firms already in the pipeline maybe completed. The government increased social spending4 budget, but. as occurred in previousortion is likely to be diverted to the military and spending on beakh and education will remain Insufficieni, slowing development of ihe skilled workforce Colombia needs toore advanced economy.

Leading presidential candidates, noting the deficiences io Gaviria'sare using the optnura programlatform to express their own economic views. Indeed, how leading contenders view Gaviria's market-opening program and io what extent they would alter ii probably will be key issues in the campaign. The top candidates have questioned Gaviria's rapid pace of reform and are proposing that the country take lime to

rewie*assess ihe change* made lo date before porwing new structural reforms

Instead of pushing fot new reforms during Ihe remainder of hisprobably onsolidate tbe changes he has alreadyto taw approval for legislation Mill before Congress. Gaviria isa committee composed of leading Colombian industrialist* toaptmra and is likely to devote considerable attentioncapon expansion among businessmen to balancePreMttenf, priorities alsn

o expand economic cooperation with Mexico under Iha Group of

Three and with Chile in hopes of deterring any future backsliding on refomt by his successor. He probably will push hard Tor social security

reforms in the legislature, where strong onion opposition is delaying


Criomt-ao rrtooK* Cesareconomyad weatheredm bene. *ape "Mo American eeaatme.hen Oav>n. look,oin"-rtmuhngauahmiHeal deficrt. Although ihe iradllionally Wf> tea Cctonbunnabled Bogotactoal

.rated rffon. io promote mnrtPie.ide* Wrgilioad grown onlyeanwhtle. infioeniul unionsio Kalebein. hloMedPubbc socio,wage com

l lk Ucdellmmptied governmentawmf c.1

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ccnpenli^ne" Colombia', porf.

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reform, coilocdver, refenad lo

orete to combat mfWdon and the fiscal

he economy.

markel-oclcateduse ttesideni strongly

behead mm *.

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percent permrapw

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The mea-mesby Osviriaalmost every .re. of eeonomic activtty. from tradeio^stfiem io Uhotand MM

ad been pMM mrooift.ISh/wflbout change The keyh.iedrder ofof changesach shown mlheappeeAaj

Gavin. lH*ed

b^ KC^maed raat theies were impaifing more taptd econonvceod aceected tseforaving noted in his inHgwal addtw itaanation*vercome *cir


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emaM for

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increuin,barethe nxUtary and


Cevtrnoienl BudgetGowrnment Revenues

and Expenditures

In their fight! against insurgentthe irsarch fo*Pablo Escobar. Despite efforts tooutlays2ogotaforced to make larger than plannedstate-owned firms and the perenniallysector andontinue fending asocial security lyrlem until reformThe budget deficit has been wideningii likely toercent of GDPGaviria pumps up spending onduring ihe election year0 million cotleeted2 anda special "warthat was

Economic acimty in Colombia, which slowed in the wake or initial anu-lnilitlon measures, is only new regaining0 level. High Interest rateslong wiih general uncertainty about the

course of GawnVt economic pobclei. slowed ODP growth loercent. The economic team'sto puth down Domestic interest rates inowever, leduick recovery in capital investment connruction activity, and consumer Spending. Business efforts to increase sales abroad, however, have been thwartedtronger peso. Finance Nubisler Horames hat allowed the peso to appreciate during the past two years because he is cowcemeflaster pace ol devaluation would creolc additional inflationary pressures. Problem! were compounded2evere drought, which lowered reservoir levels and dramatically curr ailed hydroelectricthe source ofercent of Colombia's ecorgy supply'esult, major chiei across the country incurred blackouts

HW.oikttet.ud*yll t'u HsflbstctCWMI nlto Fxifi< num.fmimi. rnssMm. ad IHW ttews (U)

(MqM [OKniwi fua a> its pATU tcip)II KKM or <MlSNoef Iis (iui /font, (ul


figure 6

I Moot Kates

P Growth


up0ay. Nevertheless,-ore able to adapt, aided by lowerlhat made it eaiter for them togeoeraiioc equipment from abroad.result. GDP growth reboundedercentarid is expected In reacho J

Weakened Tr-de

Uberaliraiion has reversed Colombia's tongsland-mg trade economic slowdown deterred local firms from taking advantagewet duties, resulting inpercent dropparts. The country'i stronger perfotmanceowever, coupled with the implementation of trade agreements wiih Vmeiueta and Ecuador -nd progress in eliminalbg trade barriers with other Andean Pact couaeriei. caused import! to jumpercent, eorrlracung Ihe trade surplus by S2 billion,2 million. Attempting lo satisfy penl-up demand for foreign goods, firms and

individuals purchased nil types of product!,machinery and equipment,and jewelry. Colombian officialsprojecting unpens lo increase byear and to exceed cipoils Iui Hie first

Exports, ia contrast, begin to stagnate is Bogota cut subsidies, global commodity prices fell, and the peso appreciated Sales abroad fellercentrimarily the result of falling prices for traditionalcoffee, and coal, which accounted for nearlyercem of2 export earnings. Some nontraditionalas chemicals, plastics, andgains last year, but overall growth of eontraditional exports remained flai because of the monger Cntombiaa peso.

Composition of1



CrtTff iu


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firm* alio bave beta stow lo develop export strategies and to exploit their prtferenlial access io the US market under the Andean Trade Preferenceexports under AlTA amounted to lew thanillionbey also failed to lake majorrepare for more competitive marketecovery In some commodityuch ai coil, it helping lo boost exportsercent, but the gain is nut enough to offset the continuing surge in imports. I


Although Gaviria's significant liberalisation ofinvestment reguluioni has helped foreign investment rebound somevtut since he took office, it icmains weak exceptew specific sectors, such as petroleum.oreign0 million, with lest than half

avina alio nil men

tecDon of Intcllcctuil property

going to noapctrolcum sectors. In response, Carinaommission inomposed of various senior government and private-sector representatives, to develop new ideas to attract foreign investors. Bogota slso hasthe creation of foreign- managed Investment funds to attract portfolio investmeni.nly .HO million was received, although the funds aro capitalized at mote0 million. Nonpetroleum Investment is projected to0 million thisarge portion of which is going into the financial sector J


'slcp. to irtiF

through the AoCm Pait. bta they still fall short In some key areii

Gaviria Pursues Regional Integration

conjunction wiih his sweeping trade reforms at 'write, Gaviria has aggressively pursued closer economic tiesegional tradingGaviria Is using regional trade to diversify the country* export markets and to help prepare local producers for the rigors of globalIn addition, ihr President probably hopes nor the creation of regional trade arrangements will impairfforts byeverse his ma-ketopening programi

The most rignlficant accomplishment has been the economic opening between Colombia and Venetuela. Iuhe two countries established the only operational customs union in tlie region,ommon external tariff rangingotnvtt. Withew exciptions-tariffi on vegetable oils and automobiles andon some steeltworee movement of goodi across their border. Total bilateral trade ballooned fromillion0 to SI billionn the first quarterenetuela, exports to Colombia increased byercent over the same period lost year, mat-ing Colombia second only ie tht Unittd Statesettlnation af Venezuelan products The two econo--ties haveealthy (omplemeniarirj. Examples abound of sectors taking advantage of ihe bilateral opening to form joint ventures, madermtc to compete, and Mutt across ihepetroleum, chemicals,iron and steel, and financial senicti In addition, Colombia and Venezuela jointly nitcndret trade agreement with ihe

Ihe Colombia-Veneiuela agreement has strength-rued bilatcraleeonomlc tlti In other areas as well Venezuela* financial institutions, for example, have purchased Colombian banks to help support the wing number of Vtntiuelan firms active in the Imarket and have incited in various rtmmmlal and industrial sectors. Theonetary agreement this spring toncreased cross-border use of their curren-etei and an open-skiti agreiment lhat has mulled

inefold increase In passenger flight* between the two countries, according to press reports. Harmoniting macrotconomic policies, such as exchange rales and price stabHisy, is the next major step, but ii also will be the most difficult. Vmetuela, deteriorating fiscal account could causi Inflation to exceedercent thismuch higher thanpercmt target Further discussions also art needed over health and phyiosanitary reaulrtmcnn, differing technical norms, administrative delays, and firm Ugaifoun-daiionsfoe some

President Gaviria haseading advocaterenewal of trade cooperation amongmembers. Inhea consensus on common externalwill enable the Pact to begin functioningtnssuming all

members enact the necessary legislation. Furthermore, inilateral fne trade agreement was otuiated -irt Ecuador. Recent efforts to eliminate remaining barriers, homtver. have been frustrated by distention and delays among Andean Pact members. |

Colombia. Urz.rti.Wo, and Mexico-acting as At Group of Threeafree tradein3 that wiU gradually be implemented overears. Colombia hopes that lowering trade barritrs with Mexico will bring additional tconomk benefits aad pave its entry into an expanded North American Free Trade Agreementhe potential for increased trade and OntUment between the three member* ii1 the share of total trade accounted forartners hot onlyercent forercent for Veneoda. andS ptrcentfor Colombia. Negotiations addressed almost every topic covered inenergy, agriculture, environment, tourism, science and technoleiy, duty drawbacks, safeguards, revem-procurement, and technical ttandcirds

Economic Reform and the ftatxotki Industry

President Gaviria's economic reform program ii creasing unintended benefits for narcotics traffirk-tri. including facilitating the movement afabroad and the repatriation of drug profits to Colombia. The liberalization of foreign exchange controls, along with the limited tax amnesty and initially high domestic real interest ratesesulted in over S3 billion being repatriated to Colombia during ihe past three years, toneof whkh it clearly drag related.

tariff FAJMcti&ii-

nahling traffickers lo more easily use drugto purchase abroad and impart finished goods, which are then sold at below cost on the i- market to obtain Colombian pesos.

The lack of hard economic and financial data, however, makes il difficult to draw broaderregarding the impact of narcotics: money on ike Colombian economy. Various academic studies have attempted to quantify the amount of narcodol-lots repatriated into Colombia each year, but ihe results hare yaried considerably. Estimates range0 million to as math3 billion annually, making It among the largest exportfar the Colombian economy. Traffieken increasingly are seeking productive investmentstheir repatriated earnings. Including theIndustry, drugstore chaint. radio stations, restaurants, bars, Ond sports teams, tn Ihe pan, purchases of realruralluxury apartments, and cattlecommon.!


3 IZ3

ul tifa Trade


Net Korrki*

unci. agaMii cil faaliDei are delaying ciploraoea andof new fetch- lawietei anadte.idimcf. casoageal reneranesj^

DaBWtBc lavtstmmrt Rebounding

Many Columhiin companies finally have begun implementing rumcluiiag and mode mi ration plans In reipome IB Gaviria'i trade and investment liberalisationecent aurvey of more thaa MO Coloer-birr, companies conducted byeading Colombian economic think tank, noted that nearly esnc out ofespondents believe that loweror industrial tepots arempart Rirtner. to maintain conv pcntivcnati. almou one-third of ibose surveyed are introducing new icckaology. andercent have .mpo.ed their plast. and trualily control Followng three yean ef decline caused bytft rsrsaaeing costs, andovor the eowse of eecooensc poocy under


Attack* Ag.lnit Petroleum Sector


Private Idvhlmml

pnvatc domestic investment explodedpercent in real terms2 and il expectedhy aboutercenthe behestof Investment have gone Into tbeequipment,nd transportation

Agriculture Sector!

Colombia's agriculture sector hasarticularly hard time adapting to the liberalized domcitk environment. Oavsrin's mariet-opening measures diirnanlled much of Ibe farm sector's tariffsubsidies, and preferential access to credit. The rough measures, coupled with tbe weretronger peso, and record low prices for tome commodities resetted in stagnant agriculture sector growthn addition, guerrilla- and narcotics-inspired violence in rural areas kept beef production stagnant. In recent months, various agriculture associations have successfully lobbied Bogota to reinstate some protectioniston poultry and textiles, forchannel

oew financial aid to the sector. Agricultural output is expected to recover lorscwlm thii year, with growth of

Impediments to Further Progress

Delayed Infrastructure Investment

Gaviria has consistently diverted resources away from improving the cosntry's transportation and energy sectors to support Other priorities, such as the military and judiciary. The lag in infrastructure developmem is honing domestic firms' ability so exptoil tbe competitive gains they are making through increased capital investments. Colombia's National Planning Deptrtmeot estimates that over S2 billion is needed to improve Colombia's trans-portaiwn infrastructure, including SI billion for roads0 million each for railroads, poets, and airports. Bogota has increased budget


Sector Production

and Energy is now authorized lo contract with private companies for ihc generation, uins-mission, and distribution of electrical power

to theseach year but hasibe resources to cover unexpectedtHiitays for increased security and tocaused by gtierhlla attack!.

artial solution. Bogota has impleiitensed tkseguUtion measures lhat encourage competiticn sed inveitment by private corapaniei tn the traw-portaiion, communications, and energy sectors, waieh traditionally hue been controlled by state Owned firms. In the Importation sector,ieple, the National Railway Company replscedixed wterprise, while the opera-tiuns of Colombia's large* ports were transferred io private operators. Tbe monopoly of domeiiic telecommunications services by the staie-owaed company. Telecom, was struck down, allowing ihe parastaral to enter into joint vnrorei wiihd domestic companies. At the lame time,r. now can provide domestic lelecommBrica-tiiu services, cellular (clcphooy, and some said-fite communications. Similarly, the Ministry of

Ubor Opposition

Union resistance has limited Gaviria'? progress in priviiizlng major state-owned companies and streamlining the bureaucracy. Although slate ownership in Colombia historically has been lets extensive than in other countries In Ihe region, Gaviria't plan to sell oil Ihe country's largest pruastalalsajor setback inhen he pulled hack legislation proposing the isle of Telecomave of Strikes and labor pro-setts culminated in workers shulting down Colombia's international telecommunications linkseek inlthough less (banercent of Cotoenbsa's lutal work force is imtoniied, fully one-third of Telecom workers are union members, accounting for their clout.Q

Instead, the administration shifted its focus away from sectors heavily influenced by unions and loward less coniroversifll projects. These included reprivalizing three of five financial institutions nationatircd during ananking crisis and selling rhe government's slakesumber of smallernaviria announced an initiative io earn up ioillion from the sale oftate enterprises before ha term expires inlthough most of the firms listed were already scheduled for sale. Bogota's decision io coordinate the proposal among government agencies and publicize Itingle, comprehensive plan thai more effectively Challenged union oppositionarked shift from Iu earlier, ad hoc. prisatiution efforts j

Gaviria has had even less success in his efforts to cut back the government bureaucracy.etate modemiiation program that

la.Hinwai brnoo*.

Wf..BtuBnil frmi t)




j 1


foe the elimination ofublic in Ihe restructuring of nine ministries, and tbeof various agencies. Because these reforms would0 public-sector jots, they remain bogged down by stiff union oppomlcn and cimrtlimits on foreignenabled Colombia's large firms to further increase their control. Government attempts to limit the size of tbe industrial giants have been stymied byantitrust legislation, limited enforcement capabilities, and the lobstantial political influence of these groups,!-

presence of large industrial groups, which dominate major sectors, has helped to undercut Presideni Gaviria's goal ofote dynamic, competitive economy. Ownership In Colombian industry traditionally has been concen traiedew families andhich over the years have aggressively expanded both bcrixontally end vertically within industries ami then diversified into unrelated sectors. Tbe small size of the domestic market, combined with economics of scale, encouraged the growth of these oligopolies,avorable niia oftable domestic economic environ mem and

Important Colombian industries arc dominatedandful of large conglomerates. The largest of these, the Sanio Domingo Group, consists of moreompsniex. most of which are controlled by multimillionaire industrialist Jalio Mario Samo Domingo. Santo Domingo's holding! range from beer to banks and include radio and televisioninsurance and finance compaenea, and the country's flagship airline. Avianca.he group's total sales exceeded S2 billion, with profits of0 million.""

ombia'i second largest group,lullr. oocrtroll much ul thr domesticmarket, own* the country'!he

second-largeit employer in korocneua rjemna ihe national governmentess hul carnallyIs Sindlcato Antiojiieno. which ll composed ofoinpinies fioin the Medeltm area. Member firm* lepteieot diverse Industrie I. locludi finance, cement, and food

i-jitr.n. iccludmg prodtxooal

Besides their extensive holdings scroti industries, these conglomerates (end toirtualon one Ot mote local sectors. In the cement Industry, for example, Ccmentern deember ofost of Colombia'suiibr-'inore, the top four firms in the industry accounted furercent of productionnd almost all cement firms belong to one of three conglomerates, accordingorld Bank study. Similarly, within the beverage industry, beer protection is concentrated among five firms that belong to the Santo Domingo group, while only three farms cueuol the nonalcoholic beverageIn the chemical sector,ercent ofwat accounted for by tbe top four plants tn

Consequently, as Gaviria's reform programs hive Increasingty threatened the protected status of some of ibeie groups, they have begun using iheir near mumpoly control, collusion, and political influence to stem increased domestic competition. Success at limiting this backlash to economic reformougher response than Gaviria hat mounted to date, including active enforcement of anticompetitive practices and penalties to drier Mich behaviorirsi step. Gaviria reslructored ilic Super! ntendeocy of Industry ind Commerce lo Mrengthen its aoihoriiy and more clearly defineare considered anticompetitive practices, but .nmprehensive antitrust legislation, which would reinforce the Supeiinicndency'amtio* bugged dnwn in Ihe Congress [

Cosily Social Security System

The Social Security Institute continue* to run an annual deficit, which now totals about SI billion, handicapping Bogota's ability to balance die budget. The social security system covers less thanercent of the population but has one of tbe Vighcw riprnd:lnre levels per iniured among iLmi-'irly dnrbped eountric*tin America, accord, ingorld Bank study. Despite strong government lobbying, legislation to overhaul ibe bankrupt social security system and extendto all Colombians, as required under1 Com tl tu lion, remains bogged down in ihe Congress. The bill colls for establishing anprivately operated pension system, separate* the health care system from the retirement system. and raises tola! contribution* byercent.I


Other budgetary priorities and an unresponsive Congress heve forced Gaviria to scale back bis goal of significantly expanding resources to social sectors, especially health and education, in order toora productive, capable work force. Accordingecent study, (br cent of ISO businessmen interviewed said the Colombian education system does not adequately educate. As pan of his "peaceful revolution" announced inhe Presidentgreatly expanding government expenditures on primary and secondary education, healthaad low-incomeovernmeni study reports, however, that Bogota's budget for social spending declined6 percent of govern-meat spending07 percent


Budgeted Serial3


Gaviria^ Popularity

a compromise proposal that would help boost global coffee pricesuid pro quo for Colombia's incensed antidrug effort t.

The public has been critical of the adminUtra-tioo's Inability to curtail guerrilla activities and remains skeptical that the increased funding is being used efficiently, even though it generally has supported GaHria't hard line towsrd the 1

Gaviria wasy the escape of drug kingpin Pablo Escobar and Colwnhia'i failure to recapiure him and by revelations lhal Escobar continued his trafficking activities from wiihln the luxurious confine* of Envigado "prison."

In addition, ax the initial effects of economicthe rajtd growth ofbegan to threaten Ihe dominant role of local firms


somenfluential business leadersgroup! became increasingly vocal inadministration to slow trie pice ofpopularity improved somewhatfor various reasons, including Ibe endrationing, stronger economicthe decline in narco-reUied

Campaign Debate Over Reform Ibe future of Ganria's aperture, program isup as the major issue in the presidentialAccordingecent poll, mosl Colombians believe tha inflation and unemployment are still the key economic problems facing tbe country, despite Gaviria's reform efforts. All leadingcsriticised Gaviria's rapid pace of reform and are suggesting thai the country take lime lo iclew and assess the changes made to due before moving ibead with additional structural rcfoimi.

Various factors, bcih domestic and fnreigo, are likely to emerge during the campaign aaioo that will shape ihe content andf debate on economic issues. At home, questions overihe social security system, how to mosl effectively utilize the expected windfall oil profits, mo (tic efficacy of concluding economicoccoids with Mexico and other countries in tlie region, win dominate. External developments likely to influence the debate ovei economic diieo-titms include the favorable vole in the US Congress on the North American Free Trade Agreement (NAFTA) and the success of rhe GATT Uruguay Round. Candidates almost certainly will fiiihlkiy evaluate iNe extenthich Colombia has rained quid pro quos in terms ol greater access lo Mreign marketsesult of Gaviria'srket opening)-

(Javiria's Umcduett Strategy

Despite campaign prcssuics. wc believe Gaviria will strive to ensure tkal his major reforms remain intact. The President, who has invested it great deal ol personal effort and political capital in the


implementation of Ihe apertara program,that the success or failure of his prEsidency will be judged, at least io pan, by whether hisreformi arc sustained Furthermore,itful! start, his reforms are beginningaveimpact on the economy, which probably will redouble Gaviria's commiirosni to sustain his reforms so they can become (irmly entrenched The recent slight upturn in nil personal popularity, moreover, givesittle more breathing room to resist pressure from speeid-interest groups to pull back on some aspects of reform Nevertheless, some minorid ing is likely during the runup to ihe presidential election. Senxilive industries, such as textiles, leather, and agriculiare, that are being battered by surging Imports probably will aggressively lobby the President far additional impoii protection.

Gaviria. aware that his political Strength remains impaired, piobably will fucui on consolidating the economic reforms he has already enacted and on gaining congressional approval lor some items still pecding, rather than introducing new legislative proposals during his final year in office:

President plans toommitteeof some of Colombia'selp institutionalin his apumra

With Gariria's esveouragesnen. senior Cclombun officials are undertaking media campaigns and citablishiiig assistance programs to help increase exports and motivaterd-looking business communily to look abroad for new sales.

The governntea) is likelyrivatise some Stateas Ihe remaiaing two banks nationalized during thend gasoline stations owned by Rcopetrol to ingrain new ownership patterns.

The President's priorities Include concluding regional integration efforts withart nf ihe Group of Three and with Chileay to lock in aspects of his liberalization program

3 !3

Views of Leading Presidential Ceattnden on Economic Reform

candidate of Ihe ruling Liberal Parly. Ernesto Sampir. favort slowing, if nol reversing, tome of the economic reforms implemented by Gaviria.opulist, he most likely would iry to boost social spending and would be lets concerned than Gaviria aboutight rein on inflation and the fiscal deficit. He hits promised, for example.ow-income houses per year during his term in office, according tt ptesi reports. In the trade area Samper has publicly critktied Gaviria lor accelerating the pact of long cuts and exposing domesiic industries to foreign competitors before completing ruber aspects of ihe reformsuch at improving the infretmeture and thl efficiency of the custom's terrier. He resigned as Gaviriai first Development Minuter, arguing thai the reduction of rang lovels should have been more gradual. |

The other leading candidate, Andres Pattruna of the Conservative Party, generally is moreof Gaviria's market-oriented policies. However, as with Samper. Pastrana has expressedabout the pace af economic opening and. if elected, would probably rethink the rapid tariffPastrana favors an expanded role of the private sector in the economy and wouldcontinue, to the litem possible. Goviitas privatization efforts Pastrana also most likely would maintain Gaviria's conservanre fiscal approach and focus on catting inflation.esult. Pastrana neuld be more likely than Samper to lima social spending in the face of budgetary constraints. One ofloser, edvittrt, Development MtnUter Atbeno Moreno, supports Ubiratkation of the economy and strengthening intellectual propert, righlt protection, and like Potman, hot clou tier to the business community.

Gaviriaempi to gain coogre*-sional approval ol bis pending social security reform legislation, although prospects for passage are increasingly uncertain. Labor groups, who are opposed to some aspens of the legislation, almost certainly will drag out congressional debate of therticles, particularlyrca*ng employee contribution and eslendlng theto implement low-key measure* that sustain the reform program but do not icquire legislative approval orreat deal of controversy.odest gesture toward addieising transportation problems, for example. Gaviria recently decided to broaden the scope of road concession to allow private firms to constract aew toll roads and rcpsii eiisung highways, r

The President also may take some steps luwaid addressing, ot st least circumventing, some of the impediments to his reform program fly developing alternative approaches ind looking for unexpected opportunities, his economic team-most Of whom are expected to remain In their jobs through the end of the President'sbe

In the month* ahead, before Gaviria leavei office. Colombia's economy, on balance, should continue io benefit from tht reform measures already implemented. Strong domesiic will probably continue as Industries pursue their moder-niiatioa eflort* and promising oil fickli areThis, in turn, will probably enture GDP

Indicators of Backiliding on Reform Program

CdnVto item, /irmly committed to supporting apenurs through the tnd of his term indjustments art littly to be limittd tomotivated, but economically inconsequential, imparl proteeiloni for certain domestic sectors. tVonithtlea, denlopmenti over the next year could undercut his efforts lo consolidate re/arms, leaving iht program in some disarray and therefore more open to reconfiguration by his

The high-probability, lew-impact indicators of backsliding would include:

The low-probability, high-impact Indicators of backsliding would include:

Enactment cf braad-bssed trade barrier, that impede importside spectrum of products.

Ktimposition of extensive foreign exchange

A wave of nationwide labor protest! to various aspects of the markti-opemng program

A slowdown or halt to economic inttgration with Venetaela undtr its new president after

ajor insurgent campaign thai causes foreign investor) to rethink jOiM petroleum ventures, reducing near-term profits that Bogota couldr infrastructure development and other key prog'

Implcmeniaion of narrow Import protections for tuch stnsiiive sectors as agriculture, textiles, plasties, and paper.

Umtttd subsidits targtted at specific sectorsincreased Import competition.

Letulattve inaction on social security reform.

Accelerated government spending and transfers io municipalities and departments.

Umiitd progress in tht privatization program

growth of alercentui ing an umpected drought ihu wuuld cause food price*annual inflation not year may dipercent for the firsi timerospects (oi Colombia* trade lector and budget deficit are leu certain, however. Unlets Bogota successfully rerives eiport growth. Ihe country's trade balance ii likely to woneo as mparts of all lypea of goods corrinoe unabated. Similarly, constitutional require-rrcrrit that the central government iranifer irvcreas-icg levels ol resources lo local nuihontes.ith mounting pressures to significantlyoctal, military, and juetaal spending, may cause itr budget deficit to growercent of GDP currentlyercemccord!

GDP currentlyercenlccordingpreliminary government

Implication* for Ihe United Stales

Before Gaviria leaves office inoron almost certainly will press US officials for greirer lecognltioa of the extensive economic reforms already undertaken. Given tho rapid growth in bilateral tradeesult ofthe potential for farther increases ia exports to ihe United States as major oilfields come on line, and Colombia's cooperation in eotwemarcot-Ki operations with the United States. Cosrmvbia is likely to push hardilateral free trueor consideration as an eventual candidate for NAFTA accession. Already, senior Colombian offi. rials have raised the possibilityree trade agreement wiih US officials during variousMeanwhile, Colombian officials are likely to hold back on strengthening intellectual property rights andnlaietal investment irealy until they test Washington's wiliingnen tn grant new trade privileges.


US-Cftlonhtai. Trade


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IMO 91

Despite Colombia's long-term infeictl in enhancing trade trillioni with the United Statei. tome frie-iloni re likely during the election year at Gjviila comet under pressure lo aid domestic tec roestougher competition at home- He already haa reaponded to intense lobbying by local gioupi by

banning pcoliry irnporu in April and by pursuing jmidnmping allegation] more aggressively. The President also has become increasingly vocal in cribdiing what he viewi as diaciiminatory actions by tbe industrialised their failure toa newcoffee agreement, the European Community's impositionanana quota, and ihe continuing deadlock in tbe Uruguay Round thai is delaying trade measure* of benefit to developing rutieas. Nonetheless, the inauguration Of Colombia's new president nest August willboth countries wilh an opportunity to clear the air and reaffirm long-term metloal economic

Meanwhile, US firms are well positioned to retain their growing share of Colombia's import market, ahhoagh over lime compeiition from Japan, the European Community, and Andean irading partners may atiffen. Colombia now is tbe fourth-largest market for US goods in Latin America, after Mexico, Bruil. and Venezuela Colombian businessmen and consumers seem to prefer the high quality of US products, and kmgstanding buw-oess Lies should facilitate moreased cooperation. US industries currently are scoring strong sales in comtnoditiet such as aircraft, electrical generators, lutomobiles, and agricultural goods. Nevertheless,coming yean, competition from Japanese and West European firms it likely io increase in key


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