Colombia

The Economy

A flower vendor in Medellín

DESPITE GROWING POLITICAL and drug-related violence, Colombia's economy retained its essentially capitalist, free-market orientation in the 1980s. The nation's strong public sector continued its commitment to liberalized trade and investment relations with foreign countries, and it worked toward development of a national economic program that would eradicate extreme poverty. This was accomplished, in part, by joint efforts involving both private business concerns and government agencies. The government continued to depend on entrepreneurial efforts and private capital (both foreign and domestic) as the sources of economic growth and limited its domestic role to coordinating fiscal and monetary policy, providing for public sector and infrastructure development, and establishing a political environment conducive to investment and industrial development.

Colombia's economic growth in the late 1980s resulted from the prudent development and use of the nation's economic endowments, as well as the existence of highly favorable external circumstances. The country enjoyed an abundance of natural resources and land, a skilled work force, healthy levels of investment and savings, and modern agricultural, manufacturing, construction, and service sectors. Rebounding international markets and the 1986 coffee boom also had an important effect on Colombia's growth in the late 1980s.

Colombia's collective economic attributes defined a middleincome developing country that had a strong and diverse resource base, as well as assorted production capabilities grounded in industry, manufacturing, agriculture, and various services. Services (including finance, transport, communications, trade, and public administration) accounted for almost 51 percent of the gross domestic product in 1987, agriculture almost 21 percent, industry over 25 percent, and mining and energy about 3 percent. In 1988 analysts contended that the Colombian economy could grow at an annual rate of 4 to 5 percent until at least the early 1990s, limited only by the ability of entrepreneurs, planners, and policy makers to employ the country's vast resources. Because of its high levels of foreign exchange earnings from coffee, petroleum, and mining, Colombia also was expected to remain among the more solvent of the Third World debtor states.

Despite the economic situation's many positive aspects, three fundamental problems remained in the late 1980s. First, despite sustained growth levels similar to those of other middleand upper-middle-income developing countries, Colombia had a highly skewed distribution of income and a relatively low per capita income. Indeed, in the late 1980s the economy appeared to become even more concentrated with the rewards of production remaining predominantly in the hands of a minority. Second, Colombia experienced chronic inflation and unemployment throughout the 1980s. Despite growth in manufacturing and mining, as well as continued support from more traditional sectors such as agriculture, the economy seemed unable to absorb enough workers to push unemployment below 10 percent.

Finally, the infamous drug trade, which was partially responsible for Colombia's economic growth during the 1970s and 1980s, caused numerous socioeconomic problems, not the least of which was that the political and economic power of narcotics traffickers rivaled that of the national government. Among other effects, the drug trade skewed income patterns in certain areas associated with cocaine and marijuana trafficking, which exacerbated inflation because of a steady influx of United States dollars, and disproportionately expanded the financial, real estate, and construction industries because of their capacity to absorb laundered money. The drug trade also spread corruption and violence through much of society, particularly the public sector, exacerbating economic and social problems.

Data as of December 1988

Colombia - TABLE OF CONTENTS