Transcript Colombia

1997-1999
Crisis
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Government: Republic
Capital: Bogota
Independence from Spain: July 20 1810
Legal system: Spanish law. However, a new
system that is modeled after U.S. law was
adopted in 2004.
Population: 43.6 million
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El Niño damages increased food prices and
exacerbated the agriculture sector.
Expansionary Fiscal Policy: pushed by new oil
discoveries and development.
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Healthcare
Education
Other infrastructure
East Asian Crisis
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Foreign investors feared of contagion throughout
LDC’s.
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Liberalization & Credit boom (1991-1997)
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Total credit rose from 29.1% to 43.1% of GDP.
Past due loans and non performing loans hit high
levels. This led to a 31.1% net worth loss in the
financial system.
Large fall in the price of oil, coffee, and coal.
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Price of oil Declined from US$ 18.2 per barrel in 1997
to US$ 11.5 in 1998. Oil exports did increase some
24% in terms of volume. However the increase was
not enough to offset the decrease in the price of oil
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The speculative attacks on the Colombian peso
lasted nearly two years: 1997 - 1999
In Millions of US$
Capital Account
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
-1,000
-2,000
Capital Account
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
-1.3
-777.3
239.8 2,619.0 3,393
4,560
6,683
6,587
3,314
-555
59
3,000
2,000
In Millions of US$
1,000
0
-1,000
-2,000
-3,000
-4,000
-5,000
-6,000
-7,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Current account 543.5 2,346. 875.6 -2,220 -3,674 -4,528 -4,642 -5,751 -4,858
671
764
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Contractionary monetary policy.
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1998: M1 contracted by 4%, whereas in 1997 it had
grown by 21.7%.
Lending rates increased from 33% to 45%, which was
the highest level observed throughout the decade.
Fixed-term deposit interest rates increased from 24%
to 36%.
Decreased the limits of the exchange rate band
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IMF bail out package of US$ 2.7 billion: (1999 -2002)
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Help conditional on
Tight spending policy
 Strong tax enforcement
 Control of resources under a fiscal decentralization
system.
 Adoption of a free float
 Inflation targeting
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6
5
4
3
2
%
1
0
-1
-2
-3
-4
Programed GDP Growth Rate
Actual Growth Rate
1995
1996
1997
1998
1999
2000
2001
2002
5.2
2.1
3.2
0.4
-3.5
3
3.8
4.8
2.9
1.4
1.5
25
20
15
10
Santafe de Bogotá,
Medellín y
Valle de Aburrá, 5
Barranquilla, Cali,
Bucaramanga,
Manizales y Pasto.
0
Unemployment
National
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
10.1
10.7
10.8
9.7
10.2
8.1
10.2
12.3
14.4
19.5
20.3
20.1
19.1
17.5
16.9
17.2
17.9
16.1
17.0
140
120
100
80
60
40
20
0
1990
1991
1992
1993
Real Wages 94.15
90.76
90.90
96.58
1994
1995
1996
1997
1998
1999
2000
101.00 103.41 105.95 109.66 114.33 111.71 119.25
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Inflation decreased from 9.5% in 1999 to 5.5%
in 2004.
The Colombian peso continues to devalue.
GDP has grown at a poor rate.
Financial institutions decreased from 110 in
June of 1998 to 57 by 2001. This is the largest
financial crisis that Colombia has faced during
the last century.