Chapter

COLOMBIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2000
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Status Under IMF Articles of Agreement
Article XIVYes.
Exchange Arrangement
CurrencyThe currency of Colombia is the Colombian peso.
Other legal tenderVarious commemorative gold coins are also legal tender.
Exchange rate structureUnitary.
Classification
Independently floatingThe Banco de la República (BR) conducts foreign exchange transactions with the MOF and authorized financial intermediaries. The BR announces the upper and lower limits of a band 10 days in advance for indicative purposes. Effective June 28, 1999, the central parity of the trading band was depreciated by 9% against the dollar. The upper and lower limits of the band were also widened to allow for a maximum daily fluctuation of 20% in the value of the peso, and the slope of the band was changed to 10% from 13%. On September 25, 1999, the BR abandoned the crawling band and allowed the peso to float. Monetary policy is now guided to pursue an inflation target and uses the monetary base as an intermediate target. The exchange rate arrangement of Colombia has been reclassified to the category independently floating from the category crawling band.



The BR quotes buying and selling rates for certain other currencies daily on the basis of the buying and selling rates for the dollar in markets abroad. All foreign exchange operations take place at a market-determined exchange rate. The Superintendency of Banks calculates a representative market exchange rate based on market rates (i.e., the weighted average of buying and selling effected by foreign exchange market intermediaries, excluding teller transactions and forward transactions). The government purchases foreign exchange for all public debt payments and other expenditures included in the national budget under the same conditions as other authorized intermediaries.
Exchange taxSurtaxes include a 7% surtax on remittances of earnings on existing oil and non-oil foreign investments, unless earnings are reinvested for five years. Also, a 3% withholding tax on foreign exchange receipts from personal services and other transfers is applied.
Exchange subsidyNo.
Forward exchange marketResidents are permitted to buy forward cover against exchange rate risks with respect to foreign exchange debts in convertible currencies registered at the BR on international markets. Residents may also deal in over-the-counter forward swaps and options in dollars.
Arrangements for Payments and Receipts
Prescription of currency requirementsPayments and receipts are normally effected in dollars, but residents and financial intermediaries are allowed to carry out operations in any currency.
Payment arrangements
Regional arrangementsSettlements between Colombia and the other LAIA countries may be made through accounts maintained within the framework of the multilateral clearing system of the LAIA.
Clearing agreementsColombia maintains reciprocal credit agreements with China.
Administration of controlThe MOF enforces ex post control and supervision over trade transactions and is responsible for applying penalties for any violation of the trade regulations. The Superintendency of Societies and the Superintendency of Banks are also responsible for the enforcement of exchange regulations. The authorized foreign exchange intermediaries are commercial and mortgage banks, financial corporations, commercial finance companies, the Financiera Energética Nacional, the Banco de Comercio Exterior de Colombia (BANCOLDEX), and savings and loans corporations. Exchange houses are authorized to carry out a limited range of foreign exchange activities (buying and selling foreign currency and, in some cases, transferring money). The BR keeps an accounting record both of foreign investments in Colombia and of debts abroad and tracks the movement of foreign capital as well as the transfer of profits, dividends, and commissions.
International security restrictionsNo.
Payment arrearsNo.
Controls on trade in gold (coins and/or bullion)
Controls on domestic ownership and/or tradeThe BR makes domestic sales of gold for industrial use directly at a price equivalent to the average quotation in the London gold market during the previous day; this price is converted into pesos at the representative market exchange rate.
Controls on exports and imports of banknotes
On exports
Domestic currencyExcept for the BR, all imports and exports of domestic currencies should be effected through authorized financial intermediaries. For travelers, the maximum amount allowed is the equivalent of Col$l million. This limit is increased annually based on the consumer price index. For amounts exceeding this limit, a customs report must be filed.
Foreign currencyYes.
On imports
Domestic currencyYes.
Foreign currencyIndividuals entering the country with foreign exchange or securities denominated in foreign currency in excess of the equivalent of US$7,000 must report it to customs.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallySuch accounts are restricted to travel agencies, international transport companies in bond stores, and companies in free-trade areas.
Held abroadResidents may maintain foreign accounts registered at the BR (compensation accounts), funds from which may be used to pay for imports, to invest abroad in financial assets, or to carry out any other foreign exchange operations. Proceeds from services (except interest and profits) and transfers may be used to maintain foreign accounts abroad; these accounts do not have to be registered at the BR. Special foreign accounts (special compensation accounts) are authorized for transactions among residents.
Accounts in domestic currency convertible into foreign currencyn.a.
Nonresident Accounts
Foreign exchange accounts permittedCredit institutions are authorized to receive current account deposits in foreign currency from nonresident individuals or firms; these deposits are freely available to the holders, but banks must report transactions through these accounts to the BR.
Domestic currency accountsDeposits in these accounts need not be registered at the BR; they may be used only for trade-related transactions. Banks must report transactions through these accounts to the BR.
Convertible into foreign currencyYes.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsImporters may purchase foreign exchange directly from the exchange market. In addition, they may use the proceeds from deposits held abroad. However, foreign enterprises in the oil, coal, and natural gas sectors are not permitted to purchase foreign exchange from financial intermediaries.
Documentation requirements for release of foreign exchange for importsAll imports must be registered at the Colombian Institute of Foreign Trade (INCOMEX).
Preshipment inspectionYes.
Letters of creditYes.
Import licenses and other nontariff measuresMost imports are free and require registration only with INCOMEX if the f.o.b. value exceeds US$1,000. There is a global free list applicable to all countries, a national list applicable only to LAIA member countries, and special lists applicable only to LAIA member countries and the Andean Pact countries. Imports of medicines, chemical products, and weapons and munitions are subject to licensing requirements.



Reimbursable imports involve purchases of official foreign exchange from a financial intermediary, including imports of machinery and equipment financed by international credit institutions. Nonreimbursable imports consist mainly of aid imports under grants and commodities constituting part of a direct investment. Import registrations are granted automatically. However, import registrations by some public sector agencies are screened by INCOMEX to determine whether local substitutes are available. Both import licenses and registrations are valid for six months, except those for agricultural and livestock products and for capital goods, which are valid for three months and for 12 months, respectively. Import licenses may be extended only once.
Import taxes and/or tariffsWith certain exceptions, imports are subject to the CET of the Andean Pact.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsNo.
Surrender requirementsAll proceeds that are repatriated must be surrendered to authorized financial intermediaries within six months or must be maintained in foreign accounts registered at the BR. Foreign enterprises in the oil, coal, and natural gas sectors and firms in free-trade areas are not required to surrender their foreign exchange. On surrendering export proceeds in the foreign exchange market, exporters of products other than coffee, petroleum and petroleum products, and exports effected through special arrangements (such as barter and compensation) may receive tax credit certificates at any of four rates—2.25%, 3.6%, 4.5% and 6.5% of domestic value added—depending on the product, the country of destination, and the date of shipment. These certificates, which are freely negotiable and are quoted on the stock exchange, are accepted at par by tax offices for the payment of income tax, customs duties, and certain other taxes.



Exports of coffee are subject to the following regulations: (1) a minimum surrender price is the sales price shown on the export declaration; (2) exporters pay a coffee contribution on the basis of international market prices; (3) the National Coffee Committee (composed of the Ministers of Finance and Agriculture and the Managing Director of the Federation) may establish a physical coffee contingent on the basis of international coffee prices; and (4) the National Coffee Committee establishes a domestic price for export-type coffee expressed in pesos per cargo of 125 kilograms.



Foreign exchange proceeds earned by the public sector may be surrendered to financial intermediaries.
Financing requirementsNo.
Documentation requirements
Preshipment inspectionYes.
OtherYes.
Export licensesNo.
Export taxesA 3% withholding tax on foreign exchange receipts for personal services and other transfers is applied.
Payments for Invisible Transactions and Current Transfers
Controls on these transfers
Trade-related paymentsContracts involving royalties, commissions, trademarks, or patents should be registered with INCOMEX for statistical purposes only.
Investment-related payments
Prior approvalCapital must be registered with the BR before profits may be repatriated. Annual transfers of profits abroad and repatriation of capital are not restricted, but they may be temporarily restricted if international reserve holdings of the BR fall below the equivalent of three months of imports.
Quantitative limitsThe limit on contractual interest rates for public debt is determined by the BR, which sets the maximum applicable rate.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital and money market instrumentsPurchases of these instruments, whether locally by nonresidents or abroad by residents, must be registered with the BR.
On capital market securities
Shares or other securities of a participating natureNonresidents must establish an investment fund to participate in the stock market. Any portfolio investment must be registered with the BR.
Purchase locally by nonresidentsThe purchase of 10% or more of the shares of a Colombian financial institution requires the prior approval of the Superintendency of Banks. Foreign investments in the form of placement of shares in a fund established to make investments in the stock exchange and in debt papers issued by the financial sector are permitted.
Purchase abroad by residentsThese transactions must be registered with the BR.
Sale or issue abroad by residentsThese transactions must be registered with the BR.
Bonds or other debt securities
Purchase locally by nonresidentsNonresidents must establish an investment fund in order to purchase these securities.
Sale or issue abroad by residentsThese transactions must be registered with the BR.
On money market instruments
Purchase locally by nonresidentsYes.
Sale or issue locally by nonresidentsYes.
Purchase abroad by residentsYes.
On collective investment securities
Purchase locally by nonresidentsYes.
Sale or issue locally by nonresidentsYes.
Purchase abroad by residentsYes.
Controls on derivatives and other instruments
Sale or issue locally by nonresidentsOnly foreign financial institutions classified as category A and belonging to the Group of Seven (G-7) countries, except for Italy, are authorized to engage in these types of transactions.
Controls on credit operations
Commercial credits
By residents to nonresidentsYes.
To residents from nonresidentsCredits must be registered with the BR. The nonremunerated deposit requirement for external financing is 10% of the disbursement of any loan and the period is six months. Export credits over US$10,000 that are longer than four months are subject to a 10% deposit in dollars for 12 months. Exempted from the deposit requirement are imports financed for less than six months; short-term loans granted by BANCOLDEX to Colombian exporters for up to 12 months for the maximum amount of US$550 million; credit card balances; and loans destined for Colombian investments abroad. Prepayment of the loan is permitted with the authorization of the BR. In case of prepayment of the export credits, exporters must prove that over 85% of the declared value has been in fact exported. All public financing (borrowing and bond issues) in foreign currencies, including by the central and local governments, is also subject to nonremunerated deposit. There is a limit determined by the BR on contractual interest rates for the public sector. Foreign loans for government entities in excess of specified amounts require prior authorization from the MOF. For loans to the government, or guaranteed by the government, the following are also required: prior authorization from the National Council for Economic and Social Policy, prior consultation with the Interparliamentary Committee on Public Credit, and ex post approval from the President of the Republic. Such loans are also subject to the executive decree that authorizes the initiation of negotiations.
Financial credits
By residents to nonresidentsAll residents are allowed to engage in international lending through the formal exchange market. The transactions must be reported to the BR.
To residents from nonresidentsYes.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Controls on direct investment
Outward direct investmentInvestments should be registered with the BR.
Inward direct investmentUp to 100% ownership in any sector of the economy—except in defense and waste disposal—is allowed. Special regimes remain in effect in the financial, petroleum, and mining sectors.
Controls on liquidation of direct investmentRepatriation of proceeds must be registered with the BR.
Controls on real estate transactionsPurchases should be registered with the BR.
Purchase abroad by residentsYes.
Purchase locally by nonresidentsYes.
Sale locally by nonresidentsYes.
Controls on personal capital movements
Loans
To residents from nonresidentsOnly loans transacted with foreign financial intermediaries are to be reported to the BR, and these must be channeled through the foreign exchange market.
Provisions specific to commercial banks and other credit institutions
Lending to nonresidents (financial or commercial credits)Banks must inform the BR.
Lending locally in foreign exchangeYes.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsDeposit accounts in foreign exchange are not subject to reserve requirements.
Investment regulations
Abroad by banksCredit institutions may invest only in short-term assets abroad or in the capital of foreign financial institutions.
In banks by nonresidentsNonresidents may purchase up to 100% of a local financial institution.
Open foreign exchange position limitsEffective February 26, 1999, the limits are 20% and 5% of the net worth. There are no regulations governing the net foreign exchange positions of exchange houses; they may sell their excess foreign holdings to authorized financial intermediaries because they do not have access to the BR.
Provisions specific to institutional investors
Limits (min.) on portfolio invested locallyYes.
Other controls imposed by securities lawsn.a.
Changes During 1999
Exchange arrangementJune 28. The central parity of the trading band was lowered by 9% against the dollar. The upper and lower limits of the band were also widened to allow for a maximum daily fluctuation of 20% in the value of the peso, and the slope of the band was changed to 10% from 13%.



September 25. The central bank abandoned the crawling band and allowed the peso to float. Thus, the exchange rate arrangement of Colombia has been reclassified to the category independently floating from the category crawling band.
Capital transactions
Provisions specific to commercial hanks and other credit institutionsFebruary 26. The limits for the open foreign exchange position were set at 20% and 5% of the net worth.

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