Colombia economy sees brisk growth

Times Staff Writer

To say 2006 was a good year for the Colombian economy is to describe native pop phenomenon Shakira as a reasonably successful singer.

With exports, confidence and investment soaring, economic output here could finish the year having grown 6.3% from 2005, a full point above the robust expansion projected for all of Latin America.

Like most other Latin American economies that just ended a banner year, Colombia was boosted by the boom in commodities.

Exports of its coal, highly coveted by U.S. utilities because of its low sulfur content, have doubled in three years, bringing in close to $3 billion in foreign exchange.


Colombian oil revenue of about $6 billion is up 80% from 2004, thanks to global energy demand. And coffee growers are enjoying a tripling of bean prices since 2002, a result of worldwide consumption growth and severe weather that cut harvests last year in Brazil and Vietnam.

Even better news for Colombia and the rest of Latin America is that prices for a broad range of commodities -- notably gold, cooper, soybeans and cotton -- are expected to remain high in 2007, said economist Ken Shwedel of Rabobank in Mexico City.

That’s because of the continued demand for raw materials and foodstuffs from Asia as well as the rapidly expanding biofuels industry, which has tightened supplies of sugar, corn and other crops.

“In a sense, the commodities boom is a favorable moment for Latin America, but it’s a moment that could last several years,” said Osvaldo Kacef, an economist at the United Nations’ Economic Commission for Latin America and the Caribbean in Santiago, Chile.


Just as crucial to the surge in Colombia is the increased confidence that foreign and domestic investors have in its finances -- and thus its ability to weather the inevitable downturn in the market for those raw materials.

Colombia, like several other countries in the hemisphere, has used the windfall in foreign exchange generated from commodity sales to reduce its foreign debt and its fiscal deficit, said Lisa Schineller, a Standard & Poor’s analyst in New York who specializes in Latin American bonds.

S&P; recently gave Colombian bonds a positive outlook, meaning they might soon be upgraded.

The nation of about 45 million inhabitants is also revamping its tax system to reduce red ink further. It will impose a $4-billion wealth tax on its 6,000 richest citizens and biggest companies starting this year to finance the continuing war against leftist rebel groups.


Although that decades-long conflict is far from won, President Alvaro Uribe can claim significant progress after demobilizing some 31,000 right-wing paramilitary troops and by improving security on the highways and in most cities. In May, Colombian voters reelected Uribe to a second term in a landslide.

The sense that the country has improved security and put its fiscal house in order has resulted in a doubling of investment here since 2002 by foreigners and Colombians when figured as a percentage of total economic output, said Finance Minister Alberto Carrasquilla in an interview last week.

“Confidence reflects better expectations for the future and has had an effect on the pricing of all Colombian assets, from land and houses to bonds and the currency,” he said.

Also priced higher are Colombian stocks, which after rising 119% in 2005 posted a 17% gain in 2006. Other Latin American stock markets, likewise fueled by high commodities prices, grew even more: 49% in Mexico, 33% in Brazil, 37% in Chile and an eye-popping 168% in Peru.


Signs of confidence abound. Drummond Corp. of Birmingham, Ala., and Swiss company Glencore International are plowing hundreds of millions of dollars into northern Colombia mines to double their coal production capacity.

From no investment in 1999, foreign energy companies committed $1.5 billion to explore for crude oil and natural gas in 2006, said Armando Zamora, general director of the National Hydrocarbons Agency, a government office charged with energy development.

To reverse declining production, Colombia enticed 30 foreign energy companies to explore in its borders by offering what consultant Arthur D. Little has called the most attractive terms of any Latin American government.

Construction grew 18% last year from 2005, and industrial output and retail sales each rose 13%, Carrasquilla said.


Economist Juan Carlos Echeverry of the University of the Andes in Bogota lauded the government’s decision to partially privatize government-controlled entities, including lending institution Bancafe, energy distributor Ecogas, the Bogota airport and oil company Ecopetrol.

“The state is now out from under money-losing enterprises but, in keeping a financial interest in them, will benefit from the virtuous cycle once they make money,” Echeverry said.

Another factor adding to investor confidence is that Colombia, one of the slowest among the hemisphere’s countries to open itself to free trade and outside investment, has signed agreements to reduce barriers and encourage business with the United States, Chile and five Central American nations. All of the pacts await approval by Colombia’s Congress.

Although regionwide statistics show a slight reduction in poverty and unemployment in the last few years, economist Jorge Ivan Gonzalez of the National University of Colombia said the country was still not producing jobs fast enough, nor was it closing the yawning gap between rich and poor.


Carrasquilla acknowledged that what he called the “stagnation” of job creation was the government’s biggest challenge and that it loomed as a major factor in Colombia’s social problems.

Economic growth is expected to moderate to a still-healthy 5% in Colombia this year, and in Latin American overall to 4.7%, according to the U.N. economic commission for the region.

That scenario could go haywire, however, if Asian demand for commodities falls or if the economic slowdown expected for the United States becomes a “hard landing.”

Economist Shwedel believes that the chances of a sudden drop in commodities prices are remote, given the fundamental changes in the market caused by the entry of big consumers China and India.


Kacef of the U.N. agrees: “This is not a fleeting trend.”

Economist Echeverry sees Colombia’s biggest risk as a political one: that President Uribe could yet be sucked into an unfolding scandal involving the complicity of members of Congress with outlaw paramilitary groups.

“If it touches Uribe, it could impact the economy because all this confidence depends so much on him,” Echeverry said. “Colombia has become ‘Uribe Central.’ ”