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Colombia's Economy: Past and Present

In the latter half of the 20th century, with the emergence of cocaine as a major international commodity, probably no other country in the world has suffered the slings and arrows of outrageous economic fortune as much as Colombia. A country rich in natural resources, Colombia nonetheless has had grave economic inequalities among its population from the very beginning. Mestizos and indigenous‚ÄĒwho make up the most of the population‚ÄĒhave experienced the most marginalization: low wages and few opportunities for upward mobility. This conflict between a mostly poor majority and an affluent minority has always been an ongoing source of political conflict and economic instability, but it took the new cocaine market to bring Colombia to the verge of financial and social chaos.

This new wealth was a boon for the already affluent, who were eager to launder these ill-gotten gains into real estate, construction and other investment ventures. This, in turn, provided well-paying jobs and marginal benefits for the middle-class and to a lesser extent, the poor. But it also wreaked havoc on the overall economy. The influx of U.S. dollars accelerated inflation. Decades-long extreme violence profoundly damaged Colombia’s infrastructure. Drug cartels not only had the firepower to wage war on law enforcement and society, they also financed left and right-wing terrorist groups. The unstable climate, which included attacks on petroleum drilling operations, discouraged foreign investment.

Despite this, Colombia’s economy was remarkably stable and productive in comparison to that of its Latin American neighbors. This was in part because of its wealth of organic and mineral resources. Another factor encouraging steady growth was Colombia’s commitment to a free and open market. During the 1980s Colombia was the only Latin American country not to default on its international loans.

During the 1970s, in an ambitious attempt to improve the quality of life for Colombia’s vast poor while maintaining a strong economy, President Alfonso López (1974-1978) initiated a development plan centered on exports, farming, regional growth and manufacturing. Julio César Turbay (1978-1982) invested public resources in Colombia’s energy and mining sector, and improving communication and transportation services, while decentralizing the economy.

However, by 1982, an economic crisis, in part brought on by the growing social disorder wrought by the drug trade, forced President Belisario Betancur (1982-1986) to issue decrees revising banking and fiscal guidelines before the Virgilio Barco (1986-1990) administration attempted to reduce unemployment while promoting economic growth.

In 1990, President César Gaviria Trujillo (1990-1994) reduced tariffs, deregulated many private markets, and privatized state-owned industries, including airports, seaports, power plants, banks and highways, as a means of drawing foreign investors. Gaviria forged regional trading blocs like the Latin American Integration Association (LAIA), a free-trade agreement between Chile and the G-3 (Colombia, Mexico and Venezuela). With tariffs lowered and increased trade with the U.S., jobs were lost in certain sectors, but food prices were kept low and the economy grew at a rate of 4.5 percent.

President Ernesto Samper (1994-1998) inaugurated more progressive social policies for the poor, but higher public spending expanded the fiscal deficit. A recession resulted and unemployment rose to 20 percent. By the end of 1999 Colombia’s total foreign debt was $34.5 billion; credit rating organizations ranked the country as a poor risk investment.

Andrés Pastrana Arango (1998-2002) devalued the peso and accepted a $2.7 billion International Monetary Fund loan contingent on fiduciary restraint and restructuring. Nonetheless, with the influx of borrowed money, new austerity policies and the competitive price of its petroleum and other exports (due to the peso’s devaluation), the economy began to recuperate. In 2000 the U.S. loaned Colombia $1.3 billion in military aid against the drug cartels and leftist rebels, but right-wing, left-wing and criminal violence still prevailed in 40 percent of the country.

It was against this background of fear that √Ālvaro Uribe (2002-2010) was elected, promising to restore peace and security. In his first term, defense spending nearly tripled. U.S. troops were sent in to guard the country‚Äôs largest pipeline. With loans from international agencies, social spending was increased, but this necessitated cutting pensions and other social programs in order to moderate the deficit.

By 2003, GDP growth reached as high as four percent, and continued to increase ever. His 2004 plan involved shrinking the public-sector deficit to less than 2.5 percent of the Gross Domestic Product (GDP); he was able to reduce it to 1.5 percent. The economic growth, along with increased security, improved investor and business confidence. In 2007, foreign investment reached a record $5 billion. However, with the onset of the world financial crisis in 2009, the Colombian peso weakened by 6.4 percent and the overall economy declined as foreign exports failed. Colombia was one of the hardest hit Latin American countries. In 2010, the markets began to recover, notably in the oil sector.

President Juan Manuel Santos (2010- ) has vowed to continue Uribe’s promarket policies, stimulating growth in agriculture, extractive and innovative industries, while investing in infrastructure and housing. He introduced legislation to use some oil revenue to recompense Colombians who lost land due to the Civil War violence. The U.S. continues to be a major trading partner; Colombia is its third larger supplier of oil. A free trade agreement between the two countries continues to be stalled, with strong opposition from labor and human rights groups. Santos is encouraging market expansion to Canada, Europe and Latina America.

Still a vast number of Colombians live in extreme poverty‚ÄĒ11 million live on less than a dollar a day. Working conditions, particularly in the mining sector, are dangerous. Reportedly, right-wing paramilitaries have routinely assassinated union organizers. While the powerful Medell√≠n and Cali cartels have experienced significant losses in the last twenty years, the very law of supply-and-demand has kept the lucrative cocaine trade active, which in turn continues to fund any attempted subversion of Colombian security.

Here are some related tips to help plan your trip to Colombia: Colombia's Economy, Colombia's Current Political Situation, Environmental Issues in Colombia, Colombia's Political System and Colombia's Social Issues.

26 Sep 2011

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