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Colombia Foreign Trade
Colombia's foreign trade regime underwent numerous
changes
after it began to flourish around the turn of the century.
Following a period of high coffee exports that continued
through
the 1920s, Colombia enacted strict foreign exchange
provisions and
instituted a restrictive trade program to stimulate
economic growth
during the Great Depression, when global markets dried up.
This was
a common response by Latin American nations during the
Great
Depression; in Colombia's case, the extent to which these
controls
were loosened or tightened depended largely on the
prevailing price
of coffee and the country's willingness to expand coffee
exports
for higher returns.
In the aftermath of the Great Depression and World War
II,
Colombia employed protectionist trade policies in full
force as
part of an import substitution industrialization strategy.
From
1950 to 1967, Colombia implemented a sophisticated system
of
exchange rate controls, tariffs, quotas, and licensing
designed to
shelter the fledgling industrial sector from foreign
competition,
a technique that was still espoused by a minority of
industrialists
in the 1980s. This policy served to restrict the
importation of
manufactured goods that competed with Colombian-made
products;
however, the undervalued peso penalized the agricultural
sector by
reducing coffee revenues. Because Colombia required
expensive
capital goods to build its industrial base, cheap coffee,
which was
the main source of funds for the purchase of foreign
goods,
eventually induced serious balance of payments problems.
Besides financial problems, import substitution
industrialization caused inefficiencies in Colombia's
manufacturing
sector, inhibited the efficient allocation of resources,
employed
fewer workers than export industries, and further skewed
the
distribution of income. Collectively, these difficulties
forced
Colombia to change its economic course; policymakers
shifted from
import substitution industrialization to export promotion
with the
reforms of 1967. The economy was redirected toward
producing for
export markets in order to solve the problems created
under import
substitution industrialization. Because opening the
economy to
international markets fostered greater competition from
abroad,
economic planners expected a more efficient manufacturing
sector to
emerge as it responded to stronger market forces. A
crucial element
of this strategy was the adoption of a "crawling peg"
exchange rate
system.
The results of the market-oriented policies were
quickly
realized: export manufacturing became the fastest growing
sector,
which, in turn, encouraged employment growth, the
diversification
of markets and products, and the overall expansion of the
economy
in the 1970s. This continued until the late 1970s, when
the
expansion in coffee production devastated manufacturing by
reallocating resources to the agricultural sector and by
overvaluing the peso.
The fall in manufacturing exports, the subsequent
decline in
coffee prices, and the global recession of the early 1980s
once
again caused balance of payments problems for the
government, which
reinstated import controls in 1983 to prevent the draining
of
foreign exchange reserves. The economy did not begin to
recover
until 1984, when policies were adopted that were aimed at
reemphasizing international competitiveness and a
diversified
export structure. The more open trade polices were
approached
timidly at first for fear that the manufacturing sector
would not
recover at a sufficient rate, rekindling trade imbalances
and
capital flight. Between 1984 and 1986, however,
nontraditional
exports grew at a healthy pace.
Despite the existence of a few remaining import
controls in
1987, policymakers, business leaders, and international
consultants
agreed that the economy's growth was linked to increased
international competitiveness in industry, mining, and
agriculture.
Programs were in place in 1988 under the Barco government
to phase
out the final deterrents to free trade, and Colombia
approached the
1990s with a firm commitment to open international
economic
relations.
In the late 1980s, Colombia's exports were still based
on
natural resources, with coffee and petroleum the two
largest
foreign exchange earners
(see
fig. 8). Crude and refined
petroleum
products represented 12 percent of total exports in 1986;
the
Colombian Foreign Trade Institute (Instituto Colombiano de
Comercio
Exterior--Incomex) reported that petroleum and its
derivatives were
the fastest growing export commodities in 1987.
In addition to legal exports, the shipment of marijuana
and
processed cocaine abroad had an important effect on
Colombian
trade. Colombia was the largest supplier of illegal drugs
in Latin
America in the 1980s, although estimates of the value of
these
drugs varied tremendously. From 1981 to 1986, annual
receipts from
the drug trade ranged from US$1 billion to US$4 billion.
The actual
amount of money that was laundered back into the economy
each year,
however, was much lower; estimates varied from US$200,000
to more
than US$1 billion. Regardless of the precise dollar
figure, most
analysts agreed that drug money had a significant effect
on foreign
exchange reserves. Many believed that narcotics accounted
for as
much as the equivalent of 50 percent of officially
recorded
exports. Although the drug trade was highly lucrative, the
government made significant efforts to restrain the
production and
export of this dangerous contraband
(see Drugs and Society
, ch. 2;
Narcotics Control and Interdiction
, ch. 5).
Data as of December 1988
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