COUNTRY REPORT

COLOMBIA

December 2010
Danilo Quintero Rodríguez
Contents

Colombia

1 Summary

Outlook for 2011

The political scene
Economic policy
Foreign trade and payments

2 Basic data

3 Political structure

4 Trend charts

5 Political outlook

Domestic politics
International relations
Policy trends
Economic growth
Colombia: Forecast summary

6 2010 Monthly Review

Editor: Danilo Quintero Rodriguez

Editorial closing date: December 10 2010
 COLOMBIA

Summary

The government of President Santos finished 2010 with a high

Outlook for 2011
degree of public acceptance and good relations with other
major political parties in Congress. This will help to gain
approval in the second reading of proposed government
reforms, especially the reforms of oil and mining revenue
distribution, compensation for victims of violence, health care
system and a new anti-corruption statute. The reforms of oil
revenue distribution would allocate royalties more evenly across
departments, rather than the current concentration in oil-
producing regions, and may encourage investments throughout
the whole country. Less impunity and compensation for victims
of violence should remove the objections of the Congress of the
United States and Europe to ratify the free trade agreements
with Colombia. The anti-corruption statute should be the
subject of constant debate, especially after the scandal of the
National Narcotics Directorate (DNE) and its implementation
could help contain the high rate of embezzlement of public
funds. Annual consumer price inflation rate in September was
2.28%, a figure lower than expected by the market, and 2,59%
in November. The inflation rate will end 2010 at 2.76%. The
Central Bank defined the inflation target for 2011 in a range
between 2% and 4%. Available projections suggest that by the
end of 2011 inflation will be at a level near the lower limit of the
target range (about 3,19%). Colombian exports continue to
grow despite the crisis. This increase is primarily due to higher
sales and prices of commodities from mining and coffee. GDP
growth to 4.5% in the second quarter of 2010. The information
of the trends in the third and fourth quarters suggests that the
demand was similar, in general, as observed in the first half of
year. 2010 will end with growth of 4.4% GDP. No major
changes are expected in the external environment for next year.
Economic growth in 2011 may be slightly higher than in 2010,
this is close to 4.5%. The Colombian Peso has shown
throughout the year 2010 a trend toward appreciation. This is
due to Dollar depreciation and capital flows to Colombia. The
Central Bank will expand its purchases of international reserves
to 15 March 2011 in order to prevent a greater Peso
appreciation. However, some analysts estimate that at the end
of 2011 the Dollar exchange rate will be between 1740 and
1840 Pesos. The government will need an additional US$ 2.1
billions to meet the disaster caused by flooding in November
and December. For this reason President Santos left open the
possibility of amending the 2011 Budget. The central
government fiscal deficit this year will be 4.3 % of GDP from
4.2 percent in 2009. For 2011 is expected a deficit of 4.1% of
GDP.
The political scene The government ended the year skillfully managing domestic and
international politics. German Vargas Lleras, the Interior Minister,
is recognized for his leadership and for his staunch defense of
government projects in Congress. President Santos continues
with the policy of his predecessor, Alvaro Uribe, to extend security
throughout the country. However, the first months of government
were marked by attacks on Colombian armed forces. Colombian
army responded defeating senior leaders of the Revolutionary
Armed Forces of Colombia (FARC). Despite this, Santos has
submitted three propposals that pose a very different approach to
the conflict: a restitution law to return the lost land to families
who have been illegally expropriated by armed groups; a land
formalization law to facilitate the titling of land held by small
farmers; and the victims' law that should provide monetary
compenation for victims. The international agenda has also been
very active: President Santos has restored relations with
Venezuela and Ecuador, one of the major headaches of his
predecessor Alvaro Uribe.

Economic policy President Santos has made clear that he wants to continue with
the economic policy which has brought rapid growth in the last 8
years: promarket economic policies, promotion of foreign direct
investment and security as cornerstone. The goverment plans to
reduce the fiscal deficit by improving tax collection, reducing or
eliminating oil tax exemptions, redistributing mining royalities and
incrising levels of employment. Investors expected that domestic
demand drive the economy, especially because recovery of
consumer confidence in last quarter of the year.

Foreign Trade and Colombian exports are growing fast in 2010, mainly due to sales
of commodities from mining and coffee, as well as continued
payments efforts to increase trade relations with Peru and Chile. Also, there
has been a slight recovery in exports to the United States and a
sharp increase to countries like Ecuador and other countries from
Central America. According to a forecast of the Colombia's
CentraL Bank, 2011 do not expect major changes in the export
sector. Non-traditional exports would grow slightly due to the
recovery of the trade with Venezuela and increased demand from
the United States and China.
 Basic Data
Land area 1,141.748 km²

Population 45,6 Millions (DANE 2005 forecast. Estimated annual average

growth:1,18%)

Main Towns and Bogotá DC 7.392,241 (2010); Metropolitan Area: 9.600.000

population Medellin, 2.636.101 (2005); Metropolitan Area: 3.729.970
Cali, 2,232,158 (2005)
Barranquilla 1,148,506 (2005)
Climate
Tropical weather but cooler in the mountains

Whether in Bogota Subtropical highland. Average temperature: 14.0 °C (57 °F)

Languages Spanish

Border countries Panama 225 km, Venezuela 2,050 km, Brazil 1,644 km, Peru
1,800 km and Ecuador 590 km.

Coastline 3,208 km (Pacific Ocean 1,448 km and Caribbean Sea 1,760 km)

Internet TLD com.co, and .co

Calling code +57

Currency Colombian Peso (COP)

GDP (PPP) 2010 IMF estimate

Total $413.841 billion
Per capita $9,091

GDP (nominal) 2010 IMF estimate

Total $268.107 billion
Per capita $5,890
Time
(UTC-52)

Religion Roman Catholic

 Political Structure
Official name Republic of Colombia

Form of government Presidencial Republic

Head of state
President Juan Manuel Santos (Social Party of National Unity
"Partido de «la U»"), took office on the 7th August 2010 . The
next elections are due in 2014.

The executive
The president and also the vice-president are elected for a four
year term by the people.

President: Juan Manuel Santos Calderón

Vice-president: Angelino Garzón

Administrative divisons: 32 departments and 1 Capital district (Bogotá D.C)

Cabinet:

Interior and Justice: Germán Vargas Lleras

Foreign Affairs: Maria Angelica Holguin
Defence: Rodrigo Rivera
Finance and Public Credit: Juan Carlos Echeverry
Technology: Diego Molano
Agriculture and Rural Development: Juan Camilo Restrepo Salazar
Transportation: Hermann Gutiérrez Cardona
Culture: Mariana Córdoba Garcés
Mines and Energy: Shot Carlos Noriega
Education: María Fernanda Campo
Environment: Sandra Bessudo Lion
Housing: Beatriz Uribe
Commerce, Industry and Tourism: Sergio Diaz Granados
Social Protection: Mauricio Santamaría Salamanca.

Central Bank Governor: José Dario Uribe

National legislature The Congress of the Republic is the bicameral legislature of Colombia
formed by the Senate and the Chamber of Deputies. Congress has its seat in the National
Capitol in Bogota. The Congress consists of 102 senators and 166 representatives, which each
has equal power and responsibility. Both Senators and Representatives are elected through
direct election held every 4 years, with the possibility of being reelected. During this election 5
Anden Parlamentarians are also elected. The last election was on March 14, 2010. The next will
be in 2014. Departmental governors and mayors are also elected for direct popular election.

Legal system Based on Spanish law. Since January 1, 2005 came into effect a new model of
justice (Adversarial system or Sistema acusatorio), with prosecutors and public defenders. The
judiciary comprises the Supreme Court, the Constitutional Court, the State Council, the
Supreme Judicial Council and the courts. The Attorney General's Office, who act as a
prosecuting body, is also considered part of the judiciary.
National elections The last presidential elections were held on May 30, 2010; the next is
due May 2014. The last congressional elections were held on March 14, 2010 .
National government Juan Manuel Santos won the Colombian presidential election on 21
Juni 2010 for a 4 years term and beating Antanas Mockus of the Green Party, garnering
69.06% of the vote.

Main political organizations

Government: Partido Social de Unidad Nacional (Partido de la U)

Pro-government coalition: Partido Conservador Colombiano; Partido Liberal Colombiano;

Partido Cambio Radical.

Opposition: Polo Democrático Alternativo (PDA)

Independents: Partido de Integración Nacional (PIN); Partido Verde; Movimiento

Independiente de Renovación Absoluta (MIRA).
 Trend Charts

GDP Forecast 2010 – 2011 Projection of inflation 2012

Source: Central Bank Colombia Source: Central Bank

Total Exports 2007-2010 Exchange rate 2010

 Political Outlook

Domestic politics The government finished the first 4 months with a high degree of
public acceptance. President Santos won the loyalty of the political
party leaders, especially the chairmen of the Congress. The major
goverment projects have been discussed at the scheduled time.
However, the acid test will come in 2011 during the second debate.
Relations with the Supreme Court are on track. After 16 months of
indecision, the highest judicial body elected Attorney General,
which is for some Colombian analysts “the second most important
posittion in the State, after the President”. In January 2011, will
take office Viviane Morales, the first woman in the history of
Colombia in practice as Attorney General. Reduce official corruption
will be among top priorities for Presidente Santos. The scandal of
the National Narcotics Directorate (DNE) will be the subject of
constant debate. Nearly two dozen congressmen and former
congressmen have been linked by police to the illegal appropriation
of properties seized from drug traffickers.

Moreover, the floods during the last quarter of the year will force
the government to keep emergency measures. The two million
victims should require additional budget allocations, as well as
assistance to affected farmers, manufacturers and rehabilitation of
roads. The attention of the disaster requires more than US$2,1
billions. The country will have to import more food than normal in
the second quarter of 2011.

Ecopetrol announced that its Board of Directors has approved an

investment plan for 2011 of US$6.738 billion. The Colombian
Petroleum Company will reach 697 thousand barrels of oil per day
on average in 2011.

International Reestablish diplomatic relations and trade with Venezuela and

relations Ecuador will be a priority for the Colombian government in 2011.
The first steps towards this goal have already been taken. Santos
and Chavez met in Santa Marta and Caracas in 2010. In these
meetings the two leaders decided to meet again every three
months from November 2010 to review the progress made by the
 bilateral commissions. The presidents announced the creation of
bilateral committees for projects in textil production, farming,
energy and supply of fuel. Venezuela’s PDVSA and Ecopetrol from
Colombia will joint exploration and production, especially in
Venezuelas’s Orinoco Belt, one of the largest crude reserves in the
world. UNASUR remains very important for Colombia. Part of the
trade and political integration strategy may depend on the
success of this initiative. Asylum granted by the Panamanian
government to former DAS director, María del Pilar Hurtado, does
not seem to hamper the relations between the two nations.
Relations with Nicaragua continue without improvements.

The government of President Santos began with an ambitious

Policy trends
reform agenda: lower the fiscal deficit, improve the
competitiveness of the productive system, improve tax collection,
more equitable redistribution of oil and mining royalties, an
agrarian land reform, and a reform bill aiming to eliminate tax
deduction for investment in 2011, among many others. The reform
package has passed the first stage in Congress. The government
does not expect major delays in the proceedings in 2011.
However, the problems of corruption involving members of
Congress from the traditional Conservative Party, an ally of the
government, may slow the debate. To improve the finances of the
country the government must reduce the high deficit, estimated at
4.3% of GPD this year. Santos has promises to reduce the
structurally high spending.

Economic growth I expect the economy to remain strong in 2011 with GDP growth
forecast to average 4.5%, a bit slightly higher than in 2010 (4.4%
of GPD). The main engine of the economy in 2011 will remain on
export of raw materials, foreign direct investment and remittances
from Colombians living abroad. Investor are looking for
opportunities in Colombia's oil and mining sectors attracted by
increased security that former President Uribe implemented in
most areas of Colombia. Severe flooding at the end of the year will
force the government to invest in the reconstruction of large areas
and assistance to victims. The cost of damage is estimated in
US$2,1 billons.
Colombia: Forecast Summary

(% unless otherwise indicated)

2008 2009 2010 2011

GDP Growth 2.8 0.8 4.4 4.5
Consumer price inflation 5.69 7.67 2.76 3.19
Exports fob (US$ m) 37.626 32.853 32.548
Imports cif (US$ m) 39.669 32.898 29.273
Exchange rate 2142 1974 1909
Investments -5.0 6.7 8.1
Fiscal Deficit -4.2 -4.3 -3.6
Current Account -2.3 -2.5 -2.3
 2010 Monthly Review

• Juan Manuel Santos takes office as Colombia's president.

• The government introduced the Development Plan 2010-2014.
• FARC leader Víctor Julio Suárez Rojas, known as Mono Jojoy, killed during military
operation in the Colombian jungle.
• President Santos and his Venezuelan counterpart Chavez made the first steps towards
restore relations between the two nations. Chavez visited port of Santa Marta in
Colombia.
• Venezuela paid $336 million in debt to Colombian exporters.
• Government intervention to prevent appreciation of the Peso.
• Severe flooding in the country. Losses estimated at US$ 2.1 billons.
• Colombia's spy scandal: DAS, Colombian Presidency’s intelligence service, spied judges
of Supreme Court, opposition politicians, journalists and human rights defenders.
• Panama granted territorial asylum to former director DAS, Maria Pilar Hurtado.
• Corruption scandal at Colombia's drug enforcement agency, the National Narcotics
Office (DNE).
• Democrats continue to oppose ratification of US-Colombia Free Trade Agreement
(CFTA), especially because anti-union violence and impunity.
• Colombia waiting for the U.S. Senate ratification of the ATPDEA, The Andean Trade
Promotion and Drug Eradication Act (ATPDEA). This is a trade preference system by
which the United States grants duty-free access to a wide range of exports from four
Andean countries: Bolivia, Colombia, Ecuador, and Peru.
• Viviane Morales elected as the new Attorney General, after the Supreme Court chose
her for the job. She is the first women to hold this position.
• Colombia, Chile and Peru first phase stock market integration took place in Dicember
2010. Second and final stage expected for December 2011.
• Ecopetrol's production will reach 697 thousand barrels of oil per day on average in
2011. Approved an investment plan for 2011 of US$6.738 billion.
• The government of President Santos is negotiating five free trade agrements in 2010:
USA, Canada, European Union, Panama and South Korea.
• Colombia received US$3.9 billions remittances in 2010. 2.122 million Colombians are
living abroad.