III.  ECONOMIC TRENDS AND OUTLOOK

MAJOR TRENDS AND OUTLOOK

    In 1993 the Colombian economy registered real GDP growth of 5.3%, up from
3.5% in 1992.  These results came as a pleasant surprise to government
economists who, as late as October 1993, had been predicting growth of
between 4-and-4.5%.  The economic liberalization reforms which began in 1991
continued to spur the importation of large amounts of capital goods which
have improved efficiency and have made Colombia's industrial sector more
competitive in global markets.  Colombia's large holdings of foreign
reserves have kept the peso strong, and the nation's exporters have been
vocal in requesting the government to depreciate the currency more quickly.

    The outlook for Colombian exports in 1994 has brightened somewhat, thanks
to sharp increases in world coffee prices, and to a lesser extent, higher
prices for petroleum, coal and ferronickel.  In the second quarter of CY1994
government officials were predicting GDP growth for 1994 of 5.5-6% with
inflation coming down to 19%.  Increased government revenues from
privatizations in 1994 plus cutbacks in government spending indicates that
Colombia will run a 2-3% fiscal surplus in 1994.  Private economists are
somewhat less sanguine than their government counterparts about 1994
economic performance.  They foresee GDP growth of about 5%, neither a fiscal
deficit nor a surplus and inflation of 22% (based mainly on the unexpectedly
high inflation rates recorded the first four months of 1994).

PRINCIPAL GROWTH SECTORS

    Sectors which recorded strong growth in 1993 included construction (up
9.5%), financial services (up 6.7%) and transportation and communications
(up 6.1%).  The public utilities sector, while accounting for only 1% of
GDP, grew by 12.8% because of the rebound in electricity production
following the 1992 drought which cut deeply into hydroelectric output.

    The manufacturing sector, which accounted for 21% of GDP, grew by 1.8%
in 1993, down from the 4.9% growth it recorded in 1992.  The principal
reason for the modest growth seen in 1993 was the 16% decline in coffee
processing, an activity which grew by 31% in 1992.  The manufacturing
sector, excluding coffee processing, grew by 5% last year.  Leading
manufacturing sub-sectors were those associated with the diminished, but
still strong growth in construction: glass, cement and other non-metallic
minerals, plastics and ceramics.  The automotive industry showed significant
growth in 1993 as domestic demand for cars soared.  Assembly of automobiles
and industrial vehicles during the first 8 months of 1993 was 73% above the
corresponding period in 1992.     Some manufacturing sub-sectors did not prosper
in 1993.  Textiles, paper, industrial chemicals, tobacco and leather lagged
because of competition from legal imports and contraband and from a revalued
peso, which diminished the competitiveness of such exports.

    The extractive industries (oil, natural gas, coal and other minerals)
registered growth of 0.3% in 1993.  The nearly stagnant performance in this
sector was mainly attributable to declines in production of iron ore, gold
and silver.  There were some bright sides to this sector in 1993:
Colombia's giant Cerrejon open-pit coal mine, a joint Exxon-Colombia
venture, boosted production by 16% thanks to increased demand in the U.S.
due to a major coal miners strike.  Production of crude oil, natural gas and
platinum also rose.

    Hydrocarbons continue to be the second most important export for Colombia
(US752 million in 1993).  The petroleum industry is dynamic and its share
in the GDP fluctuated around 3.5 percent during 1990-1992, a period lacking
new oil deposit developments.  In 1993, significant new investments were
made in exploration and development at Cusiana and Cupiagua.  The
projections are that these combined fields hold 1.5 to 2 billion barrels and
that these activities will involve investments of around USD 5 billion for
development.  Total investments in the oil and gas sector may exceed USD 10
billion during the rest of the 1990s, including refineries, storage
facilities, and new exploration.  Hundreds of millions of dollars have
already been invested in this project by BP Exploration, the operator, and
Total (France) and Triton Energy (US).  Growth in oil and gas production was
up 3.2 percent over 1992 in spite of numerous guerilla attacks on the
pipelines.  These attacks resulted in losses of nearly 115,000 barrels of
crude oil.  The government put the total cost of these attacks at USD 86
million or equivalent to about 0.2 percent of the national GDP.

    Agricultural production (which includes livestock, hunting, fishing and
forestry) grew 2.8% in 1993, despite a decline of 8% in the area cultivated.
The improvement resulted from a combination of favorable weather and certain
steps taken by the government to help farmers.  Among the latter were the
government's decision to buy an important percentage of the cotton crop and
to reestablish subsidies for cotton exports.  The government also bought
enough of the rice harvest to keep producer prices at an acceptable level.
The situation regarding cotton and rice brightened in late 1993 when
international prices for those commodities began to rise.  The government
announced floor prices for other agricultural products, before planting
time, to limit farmers' risks, thereby boosting production.

    There was little change regarding production of wheat, corn and sorghum.
Low international prices coupled with a strengthening peso caused imports
of these crops to continue rising.  Corn imports exceeded one half million
tons in 1993 as they did in 1992.  Sorghum producers were adversely affected
by continuing low prices for their crop combined with the substitution of
yellow corn for sorghum by the concentrates industry.  Wheat producers saw
some improvement in their lot in 1993 thanks to a domestic agreement between
growers and millers.  Colombian banana growers saw the price of their
product drop nearly 4% in 1993, a development exacerbated by the effective
revaluation of the peso.  In addition, import restrictions imposed by the
European Community on bananas from Latin America, beginning in July 1993,
led to a price war in the U.S. market.

    At the close of 1993 the government's massive plan to refinance the
agricultural sector, which was begun in 1993, had shown positive results.
A total of US$162 million had been provided to the agricultural sector:
US$87 million went to restructure coffee producer credits while US$75
million went into restructuring producer credits for banana growers and
other producers.  The agricultural sector also looked to certain chapters
in the Agrarian Law to provide more, and less expensive, farm credit.  This
would ease one of the principal problems affecting Colombia's agricultural
sector: easy access to institutional credit.

    Performance in the coffee sector was disappointing in 1993.  Production
of parchment coffee was down 13.2% compared to 1992 while coffee processing
showed a 16.1% decline.  Low international coffee prices were exacerbated
in Colombia by crop disease.  Prices in 1993 ranged from a low of
US$.569/pound in April to a high of US$.80 in December.  Colombia exported
13.6 million sacks of coffee in 1993, down 18.1% from the 1992 level.
Receipts from coffee exports in 1993 totaled US$1,337 million, 6.8% lower
than corresponding receipts in 1992.  As a consequence of the above,
Colombia's National Coffee Fund recorded losses of approximately US$96.4
million, serious, but less than half the nearly US$200 million loss recorded
in 1992.

    The government's domestic coffee policy was strongly criticized by the
Colombian Association of Coffee Exporters in November 1993.  The association
supported the coffee retention quota among producing countries (established
in September 1993) as well as the creation of the association of coffee
producing countries, but criticized the government for not developing a
long-term, stable and sustainable coffee policy.

    Colombia's public utilities sector recorded growth of 12.8% in 1993.  The
principal reason for the strong performance was the recovery of electricity
production, which was hard hit by a severe drought in 1992.  Additional
production from new hydro plants as well as construction of thermal plants
in 1993 resulted in an adequate supply of electricity for the nation's
economy.  Electricity rationing, which had caused widespread disruptions to
economic and personal activities in 1992, was eliminated in early 1993.

    Colombia's construction sector posted 9.5% growth in 1993, down slightly
from the 11.5% growth it showed in 1992.  In response to the ongoing
strength shown by this sector, savings and housing corporations (CAVs)
channeled US$1.9 billion into it in 1993, a remarkable 93 percent increase
over 1992.  The bulk of credit went to finance large construction projects
(62%) while 38% went to individual projects.  Only 3% of total resources
went to finance social housing projects (housing units valued at US$13,000
or less).  The CAVs plan to lend US$2.2 billion in 1994 and construction
growth should reach 6% in 1994..

GOVERNMENT ROLE IN THE ECONOMY

    Since taking office in August 1990, the Gaviria Administration has
undertaken a program of sweeping economic modernization and liberalization.
A package of legislation enacted since the end of 1990 revised Colombia's
trade, financial and tax laws, the exchange regime, and the labor code.  It
also eliminated almost all prior import license requirements; simplified
import/export procedures; established a free market exchange regime;
liberalized foreign investment; clarified the rules to allow creation of new
financial entities; and reoriented tax collections from external to domestic
sources.

    Other reforms created a more autonomous Central Bank, restructured the
export promotion agency into an export-import bank, and created two new
ministries: foreign trade and the environment.  These measures were
complemented with decrees which sharply cut tariff duties and strengthened
the financial system by reducing forced investments and increasing capital
requirements.  Colombia's Constitution was rewritten in 1991.  Despite fears
of leftist influence, the rewritten Constitution preserves the traditional
market-oriented economy based on private ownership.

    The government pushed ahead with its privatization program in 1993.
Lengthy preparations for the privatization of the Banco de Colombia bore
fruit early in 1994 when the bank was sold to private bidders for US$509
million.  The government subsequently divested itself of holdings in two
other financial institutions, Corpavi and Bancoldex, and plans to liquidate
its holdings in Banco Popular and Banco del Estado before the end of July
1994.  The privatization of Colombia's ports was concluded in March 1994
when Colombia's President handed over the Pacific port of Buenaventura to
the private sector.  Buenaventura was the last port pending privatization,
and it is billed as Colombia's door to the Orient.  Colombia turned over
cellular telephone operations to private bidders when it awarded the second,
and final,  round of cellular telephone licenses to joint ventures comprised
of public telephone companies and private operators.  After having granted
the first round of licenses to private operators in January 1994, the stage
is now set for the introduction of this service in Colombia during the
middle of 1994.  Other assets which the government wants to privatize are
its 50% percent share in the US$3 billion Cerrejon coal mine and its 48%
interest in the Cerromatoso ferronickel mine.

    The government carried out several other reforms in 1993.  By far the
largest was the reform of the social security system.  In December 1993,
after long, heated debates, the social security system was approved by
Congress.  The Government's monopoly on pension funds and health service
through the Social Security Institute (ISS) has been eliminated and the
allotment system modified.  A dual pension fund system has been approved
with contributions going to either a private pension fund or to the ISS.
The ISS will continue with its obligations to retired beneficiaries and
beneficiaries near retirement.  Other beneficiaries can voluntarily transfer
to private pension funds under the individual capitalization scheme.  The
individual capitalization scheme is favored by most Colombians because it
promotes personal savings, offers better coverage and overcomes the lack of
equity of the current social security system.  Under the new pension funds
the retirement age will be 62 years for men and 60 for women.

BALANCE OF PAYMENTS SITUATION

    Colombia's balance of trade fell from a US$397 million surplus in 1992
to a US$2,730 million deficit in 1993, the largest trade deficit recorded
by Colombia since 1982.  Total imports reached US$9,841 million while total
exports amounted to US$7,111 million last year.  In 1993 imports
skyrocketed, growing by 51.1%, reflecting strong domestic demand and the
maturing of the nation's economic liberalization program.  Export growth was
up only 2.9% 1992.  Although much blame for the weak export performance has
been placed on the appreciation of the peso, the drop in traditional exports
(coffee and oil) was also a major factor.  Colombia's major trading partner
is the U.S., which purchased 39.9% of Colombia's exports and supplied 32.8%
of its imports in 1993.  Other important trading partners are Venezuela,
Japan, Germany and Brazil.  Colombia's major exports continue to be coffee,
petroleum, coal, ferronickel and non-traditional exports such as cut
flowers, semi-precious stones, sugar and tropical fruits.

    The value of non-traditional exports rose by 11.8% in 1993, thanks
largely to a 118% increase in the value of mineral exports and a 10% rise
in the value of industrial exports.  Non-traditional exports accounted for
56% of all Colombian exports in 1993.  Coffee exports, which in the 1960s
accounted for 60% of export earnings, represented 16% of total exports in
1993, a clear indication of the success Colombia has had in diversifying its
export base.  The volume of coffee exports dropped 16% in 1993 and the value
of those exports was down 9.5%.  Crop disease and weak incentives to coffee
growers were the main reasons for the declines.

    Petroleum and petroleum derivatives exports were down 5.2% in 1993 even
though daily production rose by 3.4% to 453,000 barrels/day.  The nearly 10%
decline in world oil prices was responsible for last year's decline in
petroleum export earnings.  Nevertheless, petroleum exports totaled US$1.3
billion in 1993, making it the single most valuable export category from
Colombia.  Coffee had held that title until the early 1990s.  Export
revenues from coal exports amounted to US$567 in 1993, 2.1% above the 1992
figure.  Seventy-five percent of coal exports last year came from the
Cerrejon mine in Guajira Department.

    Imports showed a 51.1% growth as the government's economic liberalization
program shifted into high gear.  Imports of capital goods amounted to US$3.8
billion in 1993, a 75.7% increase.  Consumer goods' imports totaled US$1.7
billion last year, up 82.3% over 1992.  About two-thirds of the consumer
goods' imports were classified as durable goods.  Imports of intermediate
goods, mostly for industry, totaled US$4.2 billion, a 26.2% increase from
1992.

    In 1993, the United States posted a US$395 million trade surplus with
Colombia, while in contrast, in 1992 Colombia ran a US$467 surplus with the
United States.  This dramatic turnaround in the balance of trade between the
two nations was due to rapid growth in U.S. exports.  U.S. merchandise
exports to Colombia grew 43.3% to US$3.2 billion in 1993.  Principal U.S.
exports to Colombia in 1993 were boilers and machinery, vehicles (excluding
railway), electrical machinery, organic chemicals, plastics and cereals.
Colombia is the fifth-largest market for U.S. exports in Latin America.

TRADE AND INVESTMENT BARRIERS

    Import licensing:  While all imports must be registered with Colombia's
Foreign Trade Institute, all but three percent of 5,162 products are on the
free list of imports, and are not subject to licensing or prior approval
requirements.  Products which still require licensing are generally
"sensitive" security or national defense items.  The exceptions are poultry
meat and certain dairy products which, for phytosanitary reasons, are
subject to prior import licenses.  Prior import licenses are also required
for used trucks, buses, and automobiles; used tires, used clothing, and used
textiles, all of which are effectively denied from entry into the country.

    Import Duties:  Colombia's economic liberalization program substantially
consolidated and reduced tariff duties.  There are presently five tariff
levels:  0, 5, 10, 15, and 20 percent.  The average tariff duty is now
11.57% ((as of August 1994), compared to 35.5 percent in December 1990).
A duty of 0 or 5 percent is levied on raw materials, intermediate and
capital goods not produced nationally.  If the aforementioned products are
produced in Colombia, the duty levied is 10 or 15 percent.  A 20 percent
duty is levied on most other items, principally final consumer goods.
Exceptions to these tariff levels include automobiles (35 and 40 percent),
pick-up trucks and jeeps (40 percent) and agricultural products subject to
the "price band" flexible tariff system.

    Other Import Fees:  The import surcharge was eliminated in 1992.  The
VAT, which is levied on imports as well as domestically produced goods, was
increased from 12 to 14 percent effective January 1, 1993.  Value added
taxes on automobiles range from 14 to 35 percent.

Services Barriers

    Royalties:  The royalty committee was abolished in 1992. Ceilings on all
types of royalty remittances (including film) were eliminated.  The only
requirement is for royalty contracts to be registered with Colombia's
Foreign Trade Institute.

    Banking:  Law 9 and Resolution 49 (January 1991) opened up Colombia's
financial sector to foreign investment.  The new laws permit foreign
investors to own up to 100 percent of financial institutions (the former
limit was 49 percent).  This liberalization allowed Citibank and Bank of
America, for instance, to convert their holdings to 100 percent
subsidiaries.  It has also allowed several of the weaker banks to become
affiliated with more experienced and financially stronger partners, and it
has increased competition and technological improvements.  U.S. banks enjoy
full national treatment in Colombia.

    Maritime Transportation:  The Colombian government eliminated cargo
reserves and other restrictions on maritime trade with decree 2327 of
October 15, 1991.  In addition, maritime tariffs, chartering services and
route assignments were deregulated.

    Insurance:  Goods transported within Colombia must be insured by
companies with commercial presence in the country.

    Audiovisual:  Colombian law limits broadcast of foreign-produced
television programs to not more than 40 percent of air time.

    Advertising:  Colombian law requires at least 50 percent local content.

    Standards, testing, labeling, and certification:  The certificate of
origin is not required, except for imports from Latin America Integration
Association (ALADI) and Andean Pact member countries.  Certain types of
imports require permits from specialized agencies in Colombia.  For example:
some agricultural commodities require phytosanitary certification from the
Colombian Agricultural Institute.  Imports of foodstuffs, pharmaceutical
products, cosmetics and certain other products require a license from the
Ministry of Health (these are frequently issued only after protracted
delays).

    Investment Barriers:  In 1991, the Andean Pact eliminated the remaining
restrictions on foreign investment by adopting Decision 291, which provides
equal access by foreign investors to regional trade preferences.  Colombia
has significantly opened up its economy to foreign investment through new
regulations which are based on the principles of national treatment,
universality and automaticity for foreign investors.  The new regulations
also eliminated the ceiling on profit remittances, which previously were
limited to 25 percent of registered capital.  Remittance taxes will be
reduced over the next four years from 20 to 12 percent.

    Law 9 of 1991, Resolutions 49, 51, 52 and 53 of the Council of Economic
and Social Policy and Resolution 57 of the Central Bank are the principal
regulations governing foreign investment.  They grant national treatment to
foreign investors and permit 100 percent foreign ownership in virtually all
sectors of the Colombian economy.  The few exceptions include national
security and the disposal of hazardous waste products.  There are also
numerous restrictions in the services sector, especially banking and
transportation.  The Colombian government approved regulations authorizing
the operation of country investment funds, permitting foreign capital to
invest directly in the Colombian stock markets.

    Despite these investment reforms, some barriers remain. Investment
screening has been largely eliminated, and those mechanisms still in place
are generally routine and nondiscriminatory.  Prior approval by the National
Planning Department for foreign investment is required only for investments
a) providing a public service (i.e. energy, water, health, communications),
or b) amounting to more than USD 100 million in activities related to mining
or petroleum.  Investment that entails coverage by international or
bilateral insurance/risk protection requires subsequent government
notification.  The Ministry of Communications must approve investment
applications in that sector, and the Ministry of Mines must approve all
applications for foreign investment related to hydrocarbons.  All foreign
investments must be registered with the Central Bank's foreign exchange
office within three months in order to assure their right to remit profits.
All investors, foreign or domestic, must obtain an operating license from
the Superintendent of Companies and register with the nearest Chamber of
Commerce.

    Government Procurement Practices:  In June 1993, Decree 222 regulating
procurement practices was reformed, attempting to eliminate corruption, to
give clarity to public bidding and to impose disciplinary, criminal and
civil sanctions for failure to complete projects as scheduled.  It allowed
the private sector to render public services when the government could not.
The law expedited the contracting process and established a single national
application format and gave equal treatment to foreign companies on a
reciprocal basis.  The 20% surcharge for foreign companies was eliminated
as well as the obligation for contracting 40% of the contract value with a
Colombian firm.

    Customs Procedures:  A new customs law was implemented recently which
speeded up the payment of customs duties by allowing payment through local
banks and expedited the clearance of imports by reducing documentary
requirements.  Nevertheless, much more can and should be done to speed the
customs clearance process.  Colombia intends to adhere to the GATT Customs
Valuation Code.

LABOR FORCE

    Urban unemployment in Colombia, as measured by employment data from the
country's 7 largest cities, fell to 7.9% at the end of 1993.  The
unemployment rate at the end of 1992 was 9.9%.  This was the best employment
data recorded by Colombia in recent times.  Bogota recorded the lowest
unemployment rate at the end of 1993 (5.8%) among the seven largest cities
and Pasto the highest (10.9%).  The number of unemployed was cut by 103,000
in 1993, but the number of economically active persons fell by 27,600.

    Seventy-five thousand new jobs were created in 1993, about one-third the
number of new jobs created in 1992.  The population of citizens of working
age increased by 2.1% in 1993 while the number of economically active
persons dropped by .5%.  There was an increase of 6.4% in the population of
inactive persons in 1993.  The bottom line is that the decline in
unemployment in 1993 must be tempered by the fact that it came about less
as the result of new jobs and more as the result of the reduction in those
seeking employment.

    On January 1, 1994 the Colombian government increased the minimum wage
by 21.1% to 98,700 pesos per month (about US$120).  About 4 million
Colombian workers earn the minimum wage.  The government raised the minimum
wage by decree because it could not reach agreement with Colombian labor
unions.  The minimum monthly wage for 1994 is equivalent to US$123.  Labor
unions had called for a 28% increase but government authorities claimed that
the approved 21.1% increase was in line with their macroeconomic goals for
1994.

    According to the latest Ministry of Labor statistics, there were 886,446
unionized workers organized into 2,435 unions, less than 8% of the total
labor force of nearly 13 million.  Most unionized workers belong to one-
company unions or to professional associations.  Strong union traditions
persist in the larger industries such as petroleum, coal, cement and
textiles.  The major agricultural unions are concentrated in the sugar and
banana industries.