VIII. TRADE AND PROJECT FINANCING BRIEF DESCRIPTION OF BANKING SYSTEM The Colombian financial system is relatively large in comparison to the nation's gross domestic product (GDP). At the end of 1993 the deposits in all financial system entities were equivalent to 61% of the nation's GDP. In early 1994, the Colombian financial system consisted of 29 commercial banks, ten savings and housing corporations (CAVs), 69 commercial finance companies, 20 private finance companies and a state-owned mortgage bank. Smaller players in the financial system include leasing companies, reinsurance companies, securities brokerage companies and financial management companies. Financial assets of the Colombian banking system are concentrated in the commercial banks (57% of total assets) and in savings and housing corporations (20% of total assets). Colombia has modernized the legal and regulatory framework governing its banking and financial entities since the financial crisis of 1982. The crisis was brought on by, inter alia, inadequate capitalization, high-risk operations abroad, poor administration and low productivity. The Government of Colombia (GOC) responded to the crisis, which saw the failure of a number of banks, by nationalizing or intervening in banks which, in aggregate, controlled 85% of the financial system. In the late 1980s, as the health of the financial system improved steadily, the GOC began planning for the liberalization of the nation's financial system. That planning resulted in the enactment of three laws which laid the foundation for financial sector reform: Law 45 of 1990, Law 48 of 1990 and Law 9 of 1991. Those laws redefined financial institutions and the framework within which they operate and expanded financial operations within the Colombian economy. Reform measures did not stop in 1991. Law 35 of 1993 established the rules under which the Colombian government may intervene in the financial sector and the rules governing the instruments that may be used to effect such intervention. This law also provides for the transformation of leasing companies into commercial finance companies engaged in leasing activities. Furthermore, it permits savings and housing institutions to lend funds in areas other than construction-related areas and to participate as foreign exchange intermediaries. As a consequence of the legislation mentioned above and the much broader economic liberalization programs introduced by the administration of President Gaviria beginning in 1990, U.S. banks receive full national treatment in Colombia. FOREIGN EXCHANGE CONTROLS AFFECTING TRADING Colombia imposes no foreign exchange controls on trading. WHAT IS GENERAL FINANCING AVAILABILITY General financing is usually freely available in Colombia. However, in order to reduce inflation demands Colombia's Minister of Finance and the Manager of the Central Bank, Miguel Urrutia, announced on March 15, 1994 the passage of two resolutions aimed at restricting credit to the private sector. The first, Central Bank external resolution number 6 of March 15, limits the growth of lending portfolios of banks and other financial institutions to no more than 2.2% per month for the months of March, April, May and June, 1994. The second, Central Bank external resolution number 7 of March 15, requires private borrowers of foreign funds with repayment terms of three years or less to deposit between 50 and 93% of the value of the loan (depending on the repayment terms of the credit) with the Central Bank. Exempt from resolution 7 are foreign loans to finance Colombian investment abroad, foreign loans to finance Colombian exports which have repayment terms of six months or less and foreign loans incurred by Ecopetrol (the Colombian petroleum enterprise) or by Carbocol (the coal enterprise). Before the publication of resolution 7, borrowers of foreign funds with repayment terms of 18 months or less were required to deposit 47% of the loan amount with the Central Bank. There were no restrictions on foreign loans with repayment terms greater than 18 months. HOW TO FINANCE EXPORTS/METHODS OF PAYMENT Export financing is available through the Colombian foreign trade bank, Bancoldex, through both private and/or multinational lenders and through domestic sources. Methods, terms and conditions of payment are vary according to type of credit. Letters of credit are widely used in Colombia. Exporters can arrange for financing of their local suppliers through domestic back-to-back letters of credit. Terms include advance payment, cash on delivery, letter of credit, documentary collection of bills of exchange, consignment and open account. TYPES OF AVAILABLE EXPORT FINANCING AND INSURANCE Ex-Im Bank's short-term, medium-term and long term programs are available to support U.S. exports to Colombia. Ex-Im Bank does not require a commercial bank to be the obligor on all transactions. If the risk is with a non-bank company, its audited balance sheet and income statements must be very strong, and the company must have a well-established commercial record. Exports of capital equipment may be supported by Ex-Im Bank's long-term (up to 10-years repayment) loans and guarantees, or medium-term (up to 7-years total term including disbursement) loans, guarantees and insurance. Long-term business in Colombia has been concentrated in the natural resource, aircraft, power and petrochemical sectors. Exports of consumer goods, spare parts and raw materials may be supported under Ex-Im Bank's short-term (up to 180-days) credit insurance. Most of Ex-Im Bank's recent medium-term Colombian business has been under Credit Guarantee Facilities (CGF). A CGF is a medium-term line of credit extended by a U.S.-based bank to a foreign bank that is in turn guaranteed by Ex-Im Bank. Companies in Colombia wishing to purchase U.S. goods or services on credit can approach participating Colombian banks for credit. If the Colombian bank agrees to extend the purchaser credit, it will execute a transaction under the credit facility it has with a participating U.S. bank. The Colombian purchaser can then advise its U.S. supplier that financing arrangements have been concluded. The U.S. supplier can then present its export document to the funding U.S. bank and receive payment. The Colombian bank is the obligor under these facilities and the party responsible for repayment to the U.S. bank. PROJECT FINANCING AVAILABLE Colombia's Industrial Development Fund (IFI) has been heavily involved in project financing and has taken over most of the obligations acquired by the financial funds administered by the Central Bank before its restructuring of the Central Bank in 1992. IFI has equity in such major Colombian projects as Cerromatoso (ferronickel mine) and the Cerrejon open pit coal mine (the world's largest). Multilateral and bilateral organizations present in Colombia and involved in project financing include: the World Bank, the Interamerican Development Bank, the Andean Development Corporation, the Export-Import Bank of Japan, the Agency for International Development of the U.S. (and also those of Japan and Canada) and the U.S. Overseas Private Investment Corporation. For information on multilateral bank related business opportunities, please contact: Office of Multilateral Development Banks U.S. & Foreign Commercial Service U.S. Department of Commerce, Room H-1107 Washington, DC. 20230 Tel: (202) 482-3399 Fax: (202) 273-0927 The IBRD, a member of the World Bank group makes long-term loans at market- related rates primarily to developing countries. Loans are extended to promote broadly based economic growth and frequently focus on structural adjustment, sectoral reform and individual project lending. Typically, the World Bank does not finance the entire cost of a project, but instead covers components of a project purchased with foreign exchange, which on average is about 40 percent of the total project cost. Each project may cover a wide variety of sectors and can involve anywhere from one to hundreds of separate contracts providing export business opportunities for suppliers worldwide. For further information on IBRD business opportunities please contact: U.S. Department of Commerce Liaison Office of the U.S. Executive Director International Bank for Reconstruction and Development 1818 H Street, NW, Room D-13004 Washington, DC. 20433 Tel: (202) 458-0118 Fax: (202) 477-2967 The Inter-American Development Bank (IDB) provides funding to primarily public sector entities for the design and execution of projects. IDB projects afford U.S. suppliers of goods and services significant export opportunities, mainly in the transportation, environment, health, education, urban development, tourism, agriculture, and energy sectors. U.S. firms seeking information on IDB-financed commercial opportunities should contact: U.S. Department of Commerce Liaison Officer Office of the U.S. Executive Director Inter-American Development Bank 1250 H Street, NW, 10th Floor Washington, DC. 20005 Tel: (202) 942-8265 Fax: (202) 942-8275 LIST OF BANKS WITH CORRESPONDENT U.S. BANKING ARRANGEMENTS Virtually all Colombian banks have correspondent banks in the United States. The following are some major Colombian banks with correspondent banks in the U.S.: Colombian Bank U.S. Correspondent Banks Banco de Bogota Banco de Bogota, New York Banco de Bogota, Miami Citibank of New York Bank of America Colombian Bank U.S. Correspondent Banks Bank of Boston Bank One of Miami Commerce Bank of Miami Chase Manhattan Bank First National Bank of Miami Chemical Bank American Express Banco de Colombia Eagle Bank of Miami First Bank Corporation of New York Citibank of New York Chemical Bank, New York Standard Chartered of New York Philadelphia International of New York Banco Ganadero Banco Ganadero of Miami Chemical Bank of New York Bankers Trust of New York Citibank of New York Philadelphia Bank of New York Standard Chartered, Miami ABN Amro Bank of Miami Banco Popular Swiss Bank of New York Bank of America, San Francisco Bank of Boston, Miami Citibank of New York Barclays Bank of Miami Chemical Bank of New York Standard Chartered of Miami Banco Nacional Laboro of New York Bank of San Francisco Banco Cafetero Banco Cafetero Intl. Corp. New York Chemical Bank of New York Atlantic Bank of New York Swiss Bank of New York Standard Chartered Bank of New York Barclays Bank of Miami Philadelphia National Bank, Miami Citibank of New York Chase Manhattan Bank of New York Banco de Occidente Citibank of New York Chemical Bank of New York Barnett Bank of Florida According to the Federal Reserve Bank there are five Colombian banks which have branches in the U.S. Banco de Bogota has branches in Miami and New York City. Banco Cafetero has a Miami-based Edge Act bank. Banco de Colombia controls the Eagle National Bank in Miami. Banco Ganadero has operates a Miami-based Agency which is chartered by the Federal Government. Colpatria also has a Miami-based Agency, but it is chartered with the State of Florida.