Luxner News Inc, Stock Photos of Latin America & the Caribbean

Article Search

Colombia: Robust Economic Fundamentals Woo Foreign Investors
The Wall Street Journal / July 18, 1997

By Larry Luxner

BOGOTA, Colombia -- Foreign petroleum executives are routinely threatened -- even kidnapped -- by left-wing guerrilla groups, yet Colombia holds so much promise that they continue to pour billions of dollars into oil and gas exploration. Tourists are warned to stay away from Colombia, even as luxury business hotels ranging from Embassy Suites to Radissons sprout up all over Bogotá.

The president of Colombia, Ernesto Samper, is strictly forbidden from visiting the United States because of his suspected ties to drug dealers -- yet the U.S. remains Colombia's largest trading partner and accounts for 44% of all direct foreign investment in the country.

Perhaps no South American republic gets as much negative press or is as misunderstood in the United States as is Colombia, whose 37 million inhabitants make it the continent's second-largest nation; only Brazil is more populous. The wave of bad publicity reached its height last year, when the Clinton administration "decertified" Colombia's efforts to crush the drug trade and revoked Samper's visa for life, pointing to his alleged acceptance of $6 million in campaign money from the Cali cocaine cartel. In February 1997, Colombia was once again decertified, lumping it with such pariah nations as Afghanistan, Burma, Iran and Syria -- and sparking outrage throughout Latin America.

"I think decertification was a terrible decision," says Ambler Moss, director of the University of Miami's North-South Center. "It's understood by Latins to be hypocritical, arrogant and counterproductive. The whole law which sets the U.S. up as policeman of the world -- particularly when it comes to drugs -- is preposterous. One can get a lot further by cooperation."

Michael Skol agrees. He's president of the U.S.-Colombia Business Partnership, a Washington-based non-profit organization supported by 11 of America's biggest manufacturing and energy conglomerates: Bechtel Enterprises Inc., Caterpillar Inc., Colgate-Palmolive Co., Drummond Co., Enron, Occidental Petroleum Corp., United Parcel Service, Chubb Corp. and Compaq Computer Corp.

"Our role -- and we're very specific about this -- is educating about the effects of sanctions," said Skol, a former U.S. ambassador to Venezuela. "One of the insanities of this legislation is that if you take away Export-Import Bank financing and guarantees under OPIC [Overseas Private Investment Corp.], you're hurting American companies and exporters rather than Colombians, and opening up the Colombian market to the French and other overseas competitors."

Indeed, Carlos Ronderos, Colombia's new foreign trade minister, says it's time to shift U.S. emphasis from drugs and decertification to Colombia's new role in the Andean Community and an eventual Free Trade Area of the Americas.

Ronderos, who was president of the Bogotá World Trade Center before being appointed to his current post earlier this year, points out that Colombia is the fourth-largest Latin trade partner of the United States after Mexico, Brazil and Venezuela.

"We're a very stable democracy," Ronderos recently told U.S. executives in Washington. "We've had over 40 years of uninterrupted growth. It's surprising that a 12% unemployment rate and 2.9% GDP growth is considered our worst economic crisis in many years."

As if to back up the trade minister, Moody's Investors Service in May upgraded its rating of Colombia's long-term foreign-currency debt to Baa3, noting the country's "record of uninterrupted growth, prudent macroeconomic management and political stability."

In its annual report on Colombia, Moody's urged the Samper administration to preserve a competitive exchange rate and stem the growing trade deficit, which has "placed undue presure" on Colombia's central bank. The report says "this pressure is expected to be partially alleviated by the revised 1997 budget, which incorporates measures directed at restraining public spending and addressing other areas contributing to the fiscal imbalance."

Meanwhile, Samper's economic advisers claim Colombia's economy has bottomed out and will start showing growth soon, ending the year with GDP growth of 3.8% and inflation of 20% (compared to 22% inflation for 1996).

The prognosis for 1998 is even better, with most estimates projecting 5% growth. The Economist Intelligence Unit, which in April sponsored a roundtable between Samper and 60 multinational executives, predicts 3.8% and 4.5% GDP growth in 1997 and 1998, respectively, while projecting a drop in inflation to 18.8% and 16.8% over the same years.

"Despite current pessimism among some Colombian businessmen and private consultants, foreign analysts trust that the economy will recover during the second half of this year," says government economist David Ramírez. "Not only growth will be higher than in 1996, but in addition, inflation will decline, the currency appreciation process will slow down and the balance of payments will strengthen."

In fact, private investment in Colombia's infrastructure reached $2.2 billion in 1996, a 31.3% jump over 1995 figures, said the country's National Council on Economic and Social Policies. Of the total, $1.8 billion was spent in mining and energy sectors (up 40%) and $140 million in transportation (up 43.5%). Likewise, the Colombian Council of American Companies says its 85 members -- who represent 40% of U.S. investment in the country -- spent $290 million in 1996, a 56% jump over the $185 million invested in 1995.

In an attempt to lure even more investment, the Samper government last October signed Decree 1295 into law. That makes it easier for foreign investors to do business here -- particularly in the public health, water and sewage, power, postal and telecom sectors. For one thing, the decree eliminates the need to get prior approval from the Ministry of Energy and Mines to invest in hydrocarbons and mining. Also, investments of $100,000 or more will no longer need authorization from the National Planning Department.

Colombian-based subsidiaries of foreign firms are now allowed to transfer supplement capital -- either working capital or equipment -- from their parent companies without restrictions. Before, only subsidiaries in the hydrocarbon and coal sectors had this freedom.

As the law now stands, only three sectors are still off-limits to foreign investors: defense and national security; processing, storage and disposal of hazardous waste not produced in Colombia, and the purchase, sale or rental of real estate.

Another of Colombia's attractions is its regional and bilateral agreements. Free trade pacts have already been signed with Chile, while its membership in the Andean Community gives favorable treatment to products going to or coming from Bolivia, Ecuador and Venezuela. Colombia is also a signatory to the G-3 Accord with Venezuela and Mexico.

In addition, a system of free trade zones has lured multinationals, according to the non-profit Invest in Colombia Corp. (known as Coinvertir). The Barranquilla FTZ, currently Colombia's biggest, moves $200 million of products annually; companies located there include Shell, Union Carbide, Saint Gobain, Murex and Cyanamid. The Bogotá FTZ is expected to be handling at least $500 million worth of goods by 2000.

Late last year, the Japan Bond Research Institute gave Colombia a score of 6.3 on a 1-10 scale. Compared to other Latin nations, only Chile (which scored 7.6) outranked Colombia, while Ecuador, Venezuela, Uruguay, Peru and Mexico all came out worse. The study gives Colombia the following scores: social disorder risk (7.1); consistency and stability (7.1); major economic problems (6.0); investment policy (6.6); susceptibility to war (8.1); international environment (6.2) and industrial maturity (5.8).

Notes the U.S. Embassy: "Colombia has a tradition of orthodox macroeconomic policies as well as a long history of political stability. Because of this, it has an attractive and positive competitive position both with foreign investors and high exposure with international lending institutions."

Luxner News Inc, PO Box 938521 - Margate, FL 33093 USA tel=301.365.1745 fax=301.365.1829 web site design washington dc