Diapositiva 1

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Departamento Nacional de Planeación República de
Colombia
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COLOMBIAS ECONOMIC PERSPECTIVES

• Santiago Montenegro Trujillo
• Director National Planning Department
• March, 2006

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CONTENTS

• Introduction
• Government policies main results
• Fiscal adjustment and monetary policy
• Other selected results
• Middle and long term perspectives
• Conclusions

4
CONTENTS

• Introduction
• Government policies main results
• Fiscal adjustment and monetary policy
• Other selected results
• Middle and long term perspectives
• Conclusions

5
Introduction

• The country is blessed by one of the most diverse
  territories on earth
• Colombias area equal the sum of France, Germany
  and the United Kingdom combined
• There are 46 million people73 live in urban
  areas and 27 rural zones
• Colombias geography is one of the most
  fragmented on earth

6
Introduction
7
Introduction
Geographical fragmentation index
1.0
1-P Probability that two randomly selected
individuals belong to the same eco-zone
0.8
1 Geographical fragmentation index
0.6
0.4
0.2
Sample of 155 countries
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Introduction
Population concentration index for Latin American
Countries
0.75
0.70
0.65
0.60
0.55
0.50
0.45
0.40
Peru
Chile
Brasil
Bolivia
Mexico
Uruguay
Panama
Ecuador
Paraguay
. Dom. Rep.
Argentina
Colombia
Honduras
Nicaragua
Venezuela
Guatemala
Costa Rica
El Salvador
9
Introduction
Population distribution
Source DANE, Censo 1993
10
Introduction
Geographical dispersion and fragmentation of
Latin American countries
11
Introduction
Colombia

• Such territory gave Colombia strengths and
  weaknesses
• Strengths
• Strategic location for trade and business
• Vast natural resources and economic
  opportunities
• 10 of the worlds biodiversity
• One of the largest hydric sources of the world
• Half the country is covered by forest

12
Introduction
13
Introduction
14
Introduction
Colombia
Strengths By the dispersion of people and the
economy, the territory gave Colombia a political
system characterized by

• Civilian governments
• One of the longest electoral traditions of the
  world
• Limited use of power

15
Introduction
Colombia

• Weaknesses (and challenges)
• Weak an uneven governance
• Costly and slow infrastructure development
• Propitious environment for the location of
  illegal crops, drug trafficking and violent
  groups

16
Introduction
Colombia

• While preserving our institutions Colombia has
  to
• Take advantage of its potential
• Eliminate illegal crops and protect the
  environment
• Receive international cooperation and promote
  foreign investment
• Deepen ongoing economic and social reforms

17
Introduction
Colombia has a strong institutionality that has
guaranteed the countrys political, legal and
economic stability
Number of Constitutions in Latin America since
1880
Number and duration of military dictatorships in
Latin America since 1900
18
Introduction
Colombias economy has portrayed sustained per
annum growth for the last century, except for
three years

• Honored its foreign trade commitments
• Avoided hyperinflation
• Increased its export coefficient
• Economic performance throughout the 80s was
  positive and not negative for Colombia
• GDP increased by a factor or 100 and GDP per
  capita by 9 through the last century

Annual GDP Growth 1906 2004
Percentage variation
Source DANE DNP
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Introduction
Colombia has had consistent macroeconomic
policies throughout its history
Number of Central Bank directors vs. GDPs
standard deviation
20
Introduction
Institutional stability and continuous economic
growth have significantly improved the
populations well-being
Development Indicators 1830 2004
21
Introduction

• Colombian economy has recovered by large over the
  last four years the 90s crisis has passed
• There is still a long way to go
• For a long time various sectors have argued that
  
• Objective causes were behind high homicide rates
• The countrys historical failure
• A view of Colombia as a poor country

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Introduction

• Under President Uribes administration there is a
  renewed conscience about
• Colombias institutional strengths
• The importance of the rule of law and other
  fundamental rights
• The countrys previous achievements
• Burke society is indeed a contract, not only
  among those who are alive but also between
  those who are living, those who are dead, and
  those who are to be born

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CONTENTS

• Introduction
• Government policies main results
• Fiscal adjustment and monetary policy
• Other selected results
• Middle and long term perspectives
• Conclusions

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Government policies main results

• Two main objectives
• Preservation of life
• Poverty reduction

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Government policies main results
Homicides National
-37,4
Source Ministry of Defense
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Government policies main results
National Homicide Rate (per 100.000 inhabitants)
-40,4
Source DIJIN
27
Government policies main results
Kidnapping - National
-72,3
Source Fondelibertad
28
Government policies main results
Extortionary Kidnapping - National
-77,9
Source Ministry of Defense
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Government policies main results
Internally displaced
families National
(424.075 people)
-63,1
(131.716 peole)
Source Sistema Único de Registro (SUR) Red de
Solidaridad Social
30
Army and police members and homicide rate
Government policies main results

• Total increase of 95.932 members of the army and
  the police

Source Dijin Ministry of Defense
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Army and police members and extortionary
kidnappings
Government policies main results
Source Dijin Ministry of Defense
32
Government policies main results
Security results
Source Ministry of Defense
33
Between 2002 2005 poverty dropped 7,8 points
2,3 millions less poor people.
Government policies main results
National Poverty Levels
Source Calculations MERPD- ENH and ECH
34
Extreme poverty dropped by 6 points (2,2 million
people) between 2002 and 2005
Government policies main results
Extreme poverty- national
Source Calculations MERPD- ENH and ECH
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Poverty - national US 1 and US 2 PPP per day
Government policies main results
Source DNP-DDS
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GINI Index felt by 2 points between 2002 and 2005
Government policies main results
Income distribution GINI Index
Source Calculations MERPD- ENH and ECH
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Government policies main results

• The 50 poorest have increased its participation
  on the income distribution to 14,2
• Participation of middle income deciles has stayed
  still around 24
• The 20 richest have slightly decreased their
  share of total income

Income distribution by households deciles
Poorest 50
Middle income
Richest 20
Source Calculations MERPD using ENH (III trim)
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Government policies main results
1.9 million new jobs created between 2002 and 2005
Employed National
Source DANE
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Government policies main results
Unemployment rate National (Annual average)
Source DANE
40
Government policies main results
Unemployment rate households heads National
Source DANE
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Government policies main results
Social Policy Results
1. Source Ministerio de la Protección Social. As
share of total employed people (ENH) 2. Source
Ministerio de Protección Social
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Government policies main results
Public Policy Results
Source ICBF, Minambiente, Mincomercio
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CONTENTS

• Introduction
• Government policies main results
• Fiscal adjustment and monetary policy
• Other selected results
• Middle and long term perspectives
• Conclusions

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Fiscal adjustment and monetary policy

• Objective Contractionary fiscal policy
  expantionary monetary policy
• Fiscal adjustment
• - Sustainable public finance
• - Sustainable public debt
• Lower spreads and interest rates
• Higher investment and economic growth
• Expantionary monetary policy
• - Lower interest rates
• - Lower inflation

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Consolidated public sector deficit has fell from
3,6 in 2002 to 0 in 2005 as a share of the GDP
Fiscal adjustment and monetary policy

• Increase on tax collection
• Regional finances adjustments
• Down-sizing public sector payroll
• Pension system adjustment

Prelim Projected Source Confis, FMI, Banrep
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Tax collection by the National Government
Fiscal adjustment and monetary policy

• The number of taxpayers increased from 395.000
  in August 2002 to 991.908 in December 2005

Source DIAN
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Local governments surplus
Fiscal adjustment and monetary policy
Source DNP Ministry of Treasury
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Fiscal adjustment and monetary policy

• Regional surplus increased due to
• Local governments fiscal adjustment reform Law
  617
• Economy recovery
• Information and control systems
• Property and land registry update

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Fiscal adjustment and monetary policy
As a result of a comprehensive State reform
program, current expenditures fell by 0,4 as
share of the GDP between 2002 and 2005
Central national government expenditures Share
of the GDP ()
0,4
Source Ministry of Treasury
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National government deficit as a share of the GDP
()
Fiscal adjustment and monetary policy
Preliminary Source Confis, FMI, Banrep
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Total and Net Debt of Financial Assets (Share of
the GDP)
Fiscal adjustment and monetary policy
Source Ministry of Treasury
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Spread (EMBI Colombia)
Fiscal adjustment and monetary policy
100 basic points 1 Source JP Morgan -
calculations DNP
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Fiscal adjustment and monetary policy

• Long term rates (TES 2014) in local markets
  dropped from 18 to 8.

Financing / Achievements in debt matters
TES (Treasury Bonds) Rates
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Confidence was recovered
Fiscal adjustment and monetary policy
Conditions for investment have improved
Nov-05
Source FEDESARROLLO
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Total Investment ( GDP)
Fiscal adjustment and monetary policy
Source DANE. Proyecciones de 2005 DNP-DEE.
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Public and Private Investment ( GDP)
Fiscal adjustment and monetary policy
Source DANE. estimations 2005 DNP-DEE.
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Capital goods imports (US million)
Fiscal adjustment and monetary policy
39.0
(p) Proyected Source DANE Calculations by DNP
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GDP growth quarterly
Fiscal adjustment and monetary policy
Source DANE
59
Fiscal adjustment and monetary policy
Inflation reduction goals have been achieved
Source DANE
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Real exchange growth index (Jan 2002 100)
Fiscal adjustment and monetary policy
Source Banco de la República Calculations DNP
61
Current Account Balance USA vs. China
Fiscal adjustment and monetary policy
(p) Projected Source FMI
62
US Public Debt vs. Chinas International Reserves
Fiscal adjustment and monetary policy
(p) Projected Source FMI
63
Fiscal adjustment and monetary policy

• Towards investment grade
• Fiscal adjustment (deficit) 0
• Growth 5
• Spreads are lower today than when Colombia had
  investment grade

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Spreads Colombia and Perú
Fiscal adjustment and monetary policy
100 basic points 1 Source JP Morgan -
calculations DNP
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Spread diferential Colombia - Perú
Fiscal adjustment and monetary policy
100 basic points 1 Source JP Morgan -
calculations DNP
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CONTENTS

• Introduction
• Government policies main results
• Fiscal adjustment and monetary policy
• Other selected results
• Middle and long term perspectives
• Conclusions

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Other selected results
Agriculture and farming
Preliminary. Includes forestry commerce
areas January November, 2005
68
Other selected results
Transportation
Source Ministry of Transportation
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Other selected results

• In progress
• - Paving 2.500 km
• - La Línea tunnel
• - Second lane construction Bogotá
  Girardot
• - Masive Transportation systems MTS in seven
  cities
• About to start
• - Upgrading to second lane in 10 main
  roads
• - Rumichaca-Pasto-Chachaguí

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Other selected results
Mining and Energy
Source Ministry of Mining and Energy
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Other selected results
Telecommunications
Fuente Mincomunicaciones
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CONTENTS

• Introduction
• Government policies main results
• Fiscal adjustment and monetary policy
• Other selected results
• Middle and long term perspectives
• Conclusions

73
Perspectives

• The government is developing a comprehensive long
  term strategy known as Vision 2019 targeted to
  build
• An economy that assures a better level of
  well-being to the population
• A more egalitarian and mutually binding society
• A society of free and responsible citizens
• An efficient citizens oriented State
• The plan has defined goals for 2019, when
  Colombia will celebrate two centuries of
  political independence

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An economy that assures a better level of
well-being selected goals
Perspectives

• Reach a sustainable growth rate of at least 6
  per year
• Reach investment as share of the GDP of at least
  25
• Increase the relative weight of exports in the
  GDP to 25 (currently at 17)
• Add more than two million hectares to the
  country's cultivated land
• Increase by a factor of eight the percentage of
  international tourists
• Add 2,554 km of roads to the current
  infrastructure
• Increase the area planted with commercial
  forestry from 145,000 hectares to 1.2 million
  hectares
• Increase the public and private investment in
  science and technology to 2 of the GDP (public
  plus private investment in these areas around 0.7
  of GDP)

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Perspectives
Macroeconomic projections and goals
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Perspectives
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Perspectives
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A more egalitarian and mutually binding society
selected goals
Perspectives

• Reduce poverty levels, as measured with
  subsidies, to 15 (currently standing at 45)
• Reduce the unemployment rate to 5,0 (average
  unemployment rate in 2004 was 13,6)
• Achieve and maintain universal basic education
  coverage (currently at 88,1)
• Build 3,9 million new homes
• Increase the public areas in cities with a
  population of more than 100,000 inhabitants from
  4 to 10m2 per inhabitant
• Increase the number of books read per person per
  year from 2,4 to 5

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Perspectives
A more egalitarian and mutually binding society
selected goals
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A society with free and responsible citizens
selected goals
Perspectives

• Eliminate the production of illicit drugs in the
  country
• Reduce homicide rate to at most 8 per 100,000
  inhabitants
• Increase the average participation at electoral
  processes to 58 (currently at 45,4)
• Reduce the congestion level of the judicial
  system from 62,6 to 32,5
• Increase to 75 the percentage of people who
  believe the law ensure their constitutional
  rights (currently at 60,7)
• Increase to 95 the percentage of people who do
  not accept violence as a means to achieve
  political goals (currently at 73,5)

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An efficient State at the service of its citizens
selected goals
Perspectives

• Consolidate a results-oriented State
• 100 of the territorial entities will be
  economically viable (currently only 70 are)
• Integrate Colombia to the world, leveraging its
  geographic position to play an articulating role
  in the continent
• All interaction with the government will be done
  on line and all levels of government will be
  accountable for their actions

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CONTENTS

• Introduction
• Government policies main results
• Fiscal adjustment and monetary policy
• Other selected results
• Middle and long term perspectives
• Conclusions

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Conclusions

• At the end of 2005 Colombia
• Lowest homicide rate in 20 years
• Lowest kidnap numbers since 1996
• Lowest poverty rate since 1991
• Lowest extreme poverty rate since1991
• Lowest unemployment rate since 1997
• Lowest consolidated public sector deficit
  since1995

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Conclusions

• At the end of 2005 Colombia
• Lowest net debt level since 1999
• Lowest spreads since 1995
• Lowest nominal interest rates in 34 years
• Lowest inflation rates in 42 years
• Highest investment levels since 1994
• Highest growth since 1995

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Introduction
Conclusions

• Crisis is left behind
• Economy is growing at a high rate
• It is important to maintain and accelerate growth
  to generate employment, reduce poverty
• For that goal, it is necessary
• -Consolidating fiscal adjustment Revenue
  statutory reform
• -Growth pushed by investment and exports.

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Conclusions
Conclusions

• Reaccomodate offer towards economic sectors with
  comparative advantage
• - Develop competitive advantages increase
  investment in science, technology and investment.
• FTA (TLC) is a must for Colombia.
• Visión Colombia 2019 and Internal Agenda
• In the future
• - A better country for our children.
• - Hope that the best days for Colombia are yet
  to come.