Economic studies
Colombia

Colombia

Population 48.7 million
GDP per capita 5,792 US$
A4
Country risk assessment
A4
Business Climate
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Synthesis

major macro economic indicators

  2015 2016 2017(f) 2018(f)
GDP growth (%) 3.0 1.9 1.7 2.8
Inflation (yearly average, %) 5.0 7.5 4.3 3.3
Budget balance (% GDP) -3.4 -3.0 -3.2 -2.7
Current account balance (% GDP) -6.4 -4.3 -3.8 -3.6
Public debt (% GDP) 50.6 50.2 48.5 48.6

 

(f): forecast

STRENGTHS

  • Ports on two oceans
  • Large population (almost 50 million)
  • Plentiful natural resources (coffee, oil and gas, coal, gold)
  • Significant tourism potential
  • Cautious economic policies
  • Institutional stability
  • Healthy banking system

WEAKNESSES

  • Sensitivity to raw material price movement and US economic situation
  • Shortcomings in road and port infrastructures
  • Problematic security situation due to drug trafficking
  • Relatively undiversified economy
  • Size of the informal sector (60% of jobs)
  • Shortages of skilled labour and poor productivity
  • Cumbersome legislative, judicial and administrative systems; corruption
  • Structural unemployment, poverty and inequality, deficient educational and health care systems

RISK ASSESSMENT

Upturn in growth in 2018 but remaining below potential

Following two years of weak growth, economic activity is likely to pick up again in 2018. The slowing of inflation, expected to fall below the target level set by the Central Bank (2-4%), should provide the bank with more room to continue its relaxation of monetary policy. This will help stimulate domestic demand – and household consumption in particular – thanks to low interest rates. An increase in public infrastructure investments is also expected to further add to growth. Under its Agenda 4G transport infrastructure program, the country is working towards rectifying its deficiencies in this area. Although behind schedule, these projects will help open up certain regions, particularly rural areas, taking advantage of the recent peace treaty signed with the guerrilla organisation Revolutionary Armed Forces of Colombia—People’s Army (FARC-EP). These investments should benefit the construction sector, alongside the vitality seen in the agricultural sector that is being stimulated by rising coffee prices and favourable weather conditions. The financial sector is also expected to do well, bolstered by low interest rates. The trade balance is not expected to make any contribution to growth as the increase in coffee (volume and price) and oil (price) exports will not compensate for the increase in imports (strength of domestic demand). However, despite these improvements, the economy is still growing at a rate below its potential (currently estimated by the government at 3.9%), held back by low levels of confidence among investors and consumers, despite a slight improvement since the peace treaty.

 

A strict budget policy generating revenues

The 2016 tax reforms (VAT raised from 16 to 19%, extension of the tax base, and simplification of the tax regime) are beginning to bear fruit, resulting in increased receipts and a reduction in the deficit. The increased rate of growth in 2018 should make it possible to end the countercyclical fiscal measures implemented by the government to stimulate the economy. The central bank is likely to further relax its monetary policy following the surprise reduction of its key lending rate in October 2017 to 5%, made possible thanks to slowing inflation. Another cut to rates is expected in 2018, even if the reduction in the differential with US Federal Reserve key rates is likely to limit the scope of this. This same reduction in the differential rate, together with the degree of uncertainty surrounding the congressional and presidential elections scheduled for March and May 2018 respectively, is liable to drive the Colombian peso down. This is likely to limit any appreciation of the peso resulting from relative increases in oil prices.

In terms of the external account, the price of oil, which remains unfavourable, will continue as a drag on the balance of trade in goods and services (-4.7% of GDP in 2016) faced with rising imports (strength of domestic demand). The increase in remittances from expatriate workers, boosted by the relatively positive conditions in the United States, should help hold the current account deficit steady. This deficit is mostly being financed by foreign direct investments (3.2% of GDP in 2016) and other portfolio investments (1.6% of GDP).

 

Uncertainty in the political situation

The political situation is dominated by the disagreements arising from the peace treaty with FARC-EP, approved at the end of 2016. The legislative measures needed for its application have been held up in Congress, with the mutiny of former President Álvaro Uribe, who was opposed to the treaty. The scope for action by President Juan Manuel Santos is severely restricted as he approaches the end of his term of office in August 2018. The next presidential elections will be extremely fragmented (26 possible candidates). At the time of writing, Sergio Fajardo (centre-left, former Governor of Antoquia and Mayor of Medellin, running as an independent) and Vargas Lleras (Cambio Radical, Vice-President until March 2017) are leading the polls. The newly created FARC (Fuerza Alternativa Revolucionaria del Comun, a successor to the FARC-EP) party, led by Rodrigo Londoño, has published its list of candidates for the congressional elections (March 2018) for the seats allocated to it under the peace treaty. This announcement stirred up much debate as a considerable number of the candidates were former guerrilla members awaiting the outcome of legal action. In addition, negotiations with the National Liberation Army (ELN), the other guerrilla organisation, are ongoing following the implementation of a ceasefire last September – another area of uncertainty.

In terms of the business climate, there are many outstanding corruption cases, including the most recent ones of Francisco Ricuarte (Head of the Supreme Court between 2008 and 2012) and Bernardo “Ñoño” Elías (majority Senator). At the same time, security threats associated with drug trafficking and organised criminal gangs, are also undermining the business climate.

 

Last update : January 2018

PAYMENT

The Colombian laws that talk about payment guaranty have been developed under general guideline known as “Proyecto INTAL” which is LATAM based. It has been slightly modified, taking into account orientation of AngloSaxon system of general law of Geneva 1930.

The rules of securities in Colombia, ruled under title II of decret 410 of March 27 1971 became effective in January 1/ 1972 known as “Codigo de Comercio”.

The invoice is the security tittle which is most frequently used as main for debt collection inColombia. In event of default, as long as invoices contain all law regulations it should be effective for Collection. In case of refusal payment from debtor is mandatory original invoice to legal processes.

When a sale has been done the seller ought to issue one original invoice and two copies. The original one must be kept by the seller to be used for legal issues, other copy handed to buyer and the other is used for accounting record.

Other securities that could be used are bill of exchange, Check, promissory note, payment agreement, bond, bill of landing, or waybill. By invoices or any other security an executor procedure can be started by lawsuit before a judge who issues a writ of execution. Then debtor is notified, if the debtor refuses to pay up the court officer will issue a property order attachment, this order can also be executed on vehicles, bank accounts, shares or some contracts.

For transactions of high value, payments are made through a national interbank network called SEBRA (Electronic bank of the republic) It uses a system of real time settlement. SEBRA turns use two systems CEDEC (Check Clearing System) and CENIT (National Electronic interbank compensation.). For low payments cash and check are used primarily, although the use of electronic payments has had high growth in recent years.

 

 

DEBT COLLECTION

 

Recovery for the extra-judicial form begins with telephone contact to the debtor, along with sending a letter by e-mail or certificated mail, we request the payment of the debt immediately. In this first phase we indicate to the debtor that if he pays in this moment he will be saving the penalty interest, charges and legal fees.

In this instance we get the payment of the debt or else the signing of a settlement agreement, which is best option considering the cost and complexity of the legal Colombian system.

If debtor is not contacted by telephone or written, we review the feasibility of a visit to the debtors address in order to verify the physical condition of his company and initiate the study of a legal process if the payment is refused.

When debtor does not make the payment of the debt, we do the study of the securities, estates, bank accounts of the debtor or his co-debtors, legal budges study, and judicial history of the debtor.

The case is submitted to the attorney who is responsible for establishing the executive process making a seizure of property prior to the notice of demand.

For the application of the demand, the lawyer is responsible for delivering the judge all the facts and documents justifying the debt, which then the debtor will be required to conciliation. In these processes the defendant may appeal and for that reason the process is long and costly in Colombia.

The code of civil procedure, in the third book rules the presentation of claims classifying them according to minimum account, lowest amount and highest amount. According to that classification it designates the instance that is going to handle the claim.

In case of insolvency or bankruptcy, the process must be filed with the “Superintendencia de Sociedades”with the requirements of the law 1116 of 2006, who ought to assign the case to an agent or liquidator according to the situation of the debtor company.

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