Colombia: Selected Issues
Author: International Monetary Fund
Publication Date:
17 May 2005
eISBN:
9781451808872
Language:
English
Keywords:
ISCR; CR; government; labor market; bank; assets; private sector; balance sheet contagion; U.S. dollar; sector balance sheets; exchange rate; Financial statements; Public sector; Pension spending
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This Selected Issues paper examines conditions in Colombian labor markets, which present a big challenge to the country. At end-2004, the unemployment rate amounted to 12 percent, and about one-third of the labor force was considered underemployed. The paper reviews labor market developments leading up to the reforms. It examines structural issues in the labor markets, reviews the labor market reforms, and analyzes the impact of reforms versus stronger growth. The paper also analyzes various aspects of Colombia’s system of intergovernmental transfers.

Abstract

This Selected Issues paper examines conditions in Colombian labor markets, which present a big challenge to the country. At end-2004, the unemployment rate amounted to 12 percent, and about one-third of the labor force was considered underemployed. The paper reviews labor market developments leading up to the reforms. It examines structural issues in the labor markets, reviews the labor market reforms, and analyzes the impact of reforms versus stronger growth. The paper also analyzes various aspects of Colombia’s system of intergovernmental transfers.

III. Sectoral Balance Sheet Mismatches and Macroeconomic Vulnerabilities, 1996–20031

The chapter employs the Allen et al (2002) Balance Sheet Approach to analyze macroeconomic vulnerabilities since the mid–1990s. Weaknesses existing prior to the 1999 recession—high levels of private sector debt, large net foreign currency liabilities of the corporate sector, and banks’ exposure to stretched households and companies—have receded, owing in part to the floating exchange rate regime introduced in 1999. However, new vulnerabilities have emerged, in particular the high level of public debt, and the growing exposure of the financial sector to the sovereign.

A. Introduction

1. Several recent emerging market crises have originated in the build–up of currency and/or maturity mismatches in subsectors of the economy, such as the banking system, the corporate sector, or the government. Prior to the crisis, the size of these mismatches were often hard to assess for the outside observer—typical macroeconomic flow indicators, such as fiscal or current account deficits, provided only incomplete guidance. Once the imbalances unwound, other parts of the economy were affected by their exposure to the troubled sector. Examples include Mexico (1995), East Asia (1997/98), Russia (1998), Argentina (2001/02), and the Dominican Republic (2002/03).

2. This crisis pattern has fostered an interest in the systematic anaysis of sectoral balance sheets, with a view to identify balance sheet mismatches—situations in which a sector’s liabilties are not matched with assets of similar currency and/or maturity—and balance sheet interlinkages—vulnerabilities that arise from the exposure of sectors to one another. A general framework—the so–called Balance Sheet Approach (BSA)—has been proposed by Allen et al (2002) and applied to a number of country cases.2

3. This chapter summarizes key results from Lima et al. (2005), an application of the Balance Sheet Approach to Colombia carried out jointly by economists at Banco de la Republica—Colombia’s Central Bank—and the IMF. While this study builds on an extensive literature on vulnerabilities of specific sectors, 3 it is the first to analyze all sectors simultaneously, including their exposure to one another. The project also advances the BSA methodology in various ways: the data cover a period of seven years, which allows to study the development of vulnerabilites over time; and the breakdown of the economy into eight sectors yields unusually detailed insights into the economy’s financial structure (Box 1.).

Methodology and Data

The analysis is based on the aggregated balance sheets of eight sectors:

  • 1) the nonfinancial public sector, comprising the central government, local and regional governments, and public enterprises;

  • 2) the central bank;

  • 3) private banks;

  • 4) public banks;

  • 5) private nonbank financial institutions, such as pension funds, trust funds, and insurance companies;

  • 6) public nonbank financial institutions, including the bank restructuring agency Fogafin;

  • 7) large- and medium-sized nonfinancial corporations, i.e., companies that report information to Colombia’s superintendency for companies; and

  • 8) households and small nonfinancial corporations.

The balance sheets were assembled by sector specialists at the Colombian Central Bank, who aggregated the information of several thousands of public and private entities, and checked it meticulously for accuracy and consistency. Sector balance sheets were computed for every other year since 1996, plus for 1999—the peak of the crisis—and 2003—the latest available information.

A sector balance sheet displays the sector’s financial assets and liabilities with each other sector and the rest of the world. Intra–sector assets and liabilities are netted out (e.g., liabilities of companies with companies). Assets and liabilities are broken down by currency—domestic and foreign—and maturity—short term and long term. Short-term assets are debt instruments with original maturity of up to one year, including checking and savings deposits, certificates of deposits, fiduciary deposits, short-term securities, and trade credit. Long-term assets are equity and debt instruments with a maturity of more than one year. Equity is typically valued at market value, traded debt at face value, and all other assets/liabilities at historical costs.

Various indicators are used to gauge a sector’s vulnerability, including:

  • The net financial position, i.e., financial assets minus financial liabilites. A large negative net position can (but does not need to) point to solvency problems, especially if leverage— debt as a share of total liabilities (i.e., debt plus equity)—is high.

  • The net foreign currency position (foreign currency assets minus foreign currency liabilities). A sector with a large negative (positive) is vulnerable to exchange rate depreciations (appreciations). Most foreign currency assets/liaibilities in Colombia are in U.S. dollars.

  • The net Short-term position (Short-term assets minus Short-term liabilities). A large negative Short-term position indicates vulnerability to interest rate increases.

Importantly, the sector balance sheets include only financial assets; not real assets such as real estate. Also, off–balance sheet items—for example, a sector’s net exposure in forward markets—are not recorded. As a consequence, the net financial position can not be interpreted as a sector’s net worth or implied capital.

4. In the period covered by this chapter (1996 through 2003) three sub–phases can bedistinguished(see the table below):

(i) a pre–crisis period (1996–98), coming at the end of a prolonged boom in the early 1 990s that was driven by dometic absorption and financed by private capital inflows.

(ii) a crisis period or recession (1999 and 2000), 4 triggered by a sharp reversal in capital flows in the aftermath of the Russian and Asian crises. Among other things, this forced the Banco de la República to abandon the peso’s long-standing peg with the U.S. dollar, and ultimately set off a banking crisis. During and after the crisis, public debt increased rapidly, owing to large fiscal deficits and the depreciation of the peso.

(iii) a post-crisis or recovery period (2001–03).

Selected Macroeconomic Indicators, 1993-2003

(Annual averages)

article image

Exchange rate band with the US dollar.

The peso was floated in September 1999.

5. In these years, the financial structure of Colombia’s economy changed substantially. A first impression is given by Figure 1., which displays gross financial assets by sector. Most sectors’ assets grew faster than GDP, an indication of financial deepening. Especially impressive is the growth of nonbank financial institutions—pension funds, trust funds, and insurance companies—whose assets more than doubled. In contrast, the banking system shrank during the crisis, and has not regained its former importance.

Figure 1.
Figure 1.

Gross Financial Assets by Sector

(in Percent of GDP)

Citation: IMF Staff Country Reports 2005, 162; 10.5089/9781451808872.002.A003

6. The remainder of the chapter is organized as follows. Section B gives a brief overview of key trends. The sections following thereafter discuss some developments in more detail: consequences of the growth in public debt (Section C); corporate and household balance sheet adjustment during and after the 1999 crisis (Section D); and structural changes in financial intermediation (Section E). Section F concludes with a summary of macroeconomic vulnerabilities.

B. Overview: Key Trends

7. Colombia’s net financial position with the rest of the world followed a pronounced cyclical pattern: it deteriorated prior to the 1999 crisis (hence, Colombia accumulated net liabilities), improved during the recession; and deteriorated again after 2000 (Figure 2.). There were important sector-specific developments, however:

Figure 2.
Figure 2.

Net Financial Position

(in Percent of GDP)

Citation: IMF Staff Country Reports 2005, 162; 10.5089/9781451808872.002.A003

  • The position of the nonfinancial public sector worsened significantly, owing to the accumulation of public debt—especially after 1998.

  • Conversely, households’ position improved. This development mirrors to a large part the deterioration in the government’s position, as Colombia’s financial system channeled an ever larger part of household savings into public debt.

  • Companies’ net position moved with the business cycle—worsening during expansions, and vice versa.

  • The central bank’s position strengthened, reflecting the accumulation of foreign currency reserves.

  • Finally, the net position of financial institutions—both banks and nonbanks—is roughly balanced (as may be expected).

8. Colombia’s net foreign currency positionimproved after 1999, reducing the economy’s exposure to currency fluctuations(Figure 3.). 5 Again, there are important differences between sectors.

Figure 3.
Figure 3.

Net Foreign Currency Position

(in Percent of GDP)

Citation: IMF Staff Country Reports 2005, 162; 10.5089/9781451808872.002.A003

  • The foreign currency position of the nonfinancial public sector worsened, owing to the accumulation of foreign currency debt. The buildup of reserves by the central bank compensated only partly for this deterioration.

  • In contrast, the private sector’s position strengthened. Companies halved net foreign currency liabilities during the crisis years, and preserved these gains thereafter. The improvement coincides with Colombia’s move to a flexible exchange rate system in 1999. Private nonbank financial institutions—especially pension and trust funds—built up a substantial long dollar position after 1999, which amounted to 5 percent of GDP at end–2003. As a consequence, nonbank financial institutions are vulnerable to an appreciation of the peso, while the public sector and companies are vulnerable to a depreciation.

9. The Short-term position improved for the public sector and households, but worsened for the private financial sector (Figure 4.).

Figure 4.
Figure 4.

Net Short‐term Position

(in Percent of GDP)

Citation: IMF Staff Country Reports 2005, 162; 10.5089/9781451808872.002.A003

  • The nonfinancial public sector successfully lengthened debt maturities, especially after 1998, thus reducing rollover risk. The improvement in households’ Short-term position reflects in part a reduction in (short term) consumer loans during and after the 1999 banking crisis.

  • The counterpart of these developments is a deterioration in the private financial system’s (banks and nonbank financial institutions) Short-term position, however. A large and increasing share of its assets is tied up in long–term government bonds. As a consequence, its vulnerability to interest rate shocks has increased.

C. Consequences of the Growth in Government Debt

10. Colombia’s high level of public debt is widely considered its main macro–economic vulnerability. Gross liabilities of the nonfinancial public sector more than doubled after 1996 (Figure 5), and reached almost 60 percent of GDP at end–2003. 6 This increase reflects inter alia

Figure 5.
Figure 5.

Liabilities of the Non–Financial Public Sector

Citation: IMF Staff Country Reports 2005, 162; 10.5089/9781451808872.002.A003

  • large fiscal deficits in the late 1990s;

  • the costs of recapitalizing the banking system after the 1999 banking crisis, which amounted to almost 5 percent of GDP; and

  • several revaluations of external debt due to repeated currency depreciations after the abandonment of the crawling peg in 1999 (Figure 6).

Figure 6.
Figure 6.

Exchange Rate Developments

Citation: IMF Staff Country Reports 2005, 162; 10.5089/9781451808872.002.A003

Concerns over public debt sustainability triggered the loss of the government’s investment grade rating in 1999, which has not been recovered since. In late 2002, the sovereign was temporarily excluded from domestic and international debt markets.

11. The increase in the debt level notwithstanding, the structure of public debt hasimproved. The share of debt denominated in foreign currency fell from more than 60 percent in 1996 to little more than 50 percent in 2003, thus containing the increase in exchange rate risk. Also, the average maturity of public debt increased from 3½ to 5½ years, reducing the government’s rollover risk.

12. Two-thirds of the public debt issued after 1996 was purchased by banks and nonbank financial institutions(Figure 7). As a consequence, the exposure of the financial system to the sovereign has greatly increased: at end-2003, private banks’ had one-third—and nonbank financial institutions one-half—of their assets invested in government debt, compared to less than one-fifth in 1996 (Figure 8).

Figure 7.
Figure 7.

Non-Financial Public Sector-Financial Liabilities

Citation: IMF Staff Country Reports 2005, 162; 10.5089/9781451808872.002.A003

Figure 8.
Figure 8.

Exposure of the Private Sector to the Sovereign

Citation: IMF Staff Country Reports 2005, 162; 10.5089/9781451808872.002.A003

13. With government debt largely long term, the Short-term position of the financial system has deteriorated. This is especially true for banks, whose liabilities (deposits) are mostly short term, while the maturity of their assets has lengthened (Figure 9). As a consequence, banks have grown more vulnerable to interest rate shocks. Importantly, interest rate volatility has fallen since 1999, however, as the move to a flexible exchange rate has permitted the Banco de la República to stabilize domestic financial conditions in the context of an inflation targeting framework (Figure 10). Thus, banks may have accepted the additional interest rate risk only because there is less of this risk to manage in the first place.

Figure 9.
Figure 9.

Private Banks - Term Structure of Assets

Citation: IMF Staff Country Reports 2005, 162; 10.5089/9781451808872.002.A003

Figure 10.
Figure 10.

Interest Rate Developments

Citation: IMF Staff Country Reports 2005, 162; 10.5089/9781451808872.002.A003

D. Corporate and Household Balance Sheet Adjustment During and After the Recession

14. As noted in the overview section, in 2002/03 net financial liabilities of the corporate sector had returned close to the levels before the 1999 recession (see Figure 2 above). Corporate vulnerabilities have receded nevertheless, owing to improvements in the companies’ financing structure.

  • First, corporate leverage has fallen. After 1998, companies sharply reduced debt levels, especially with the domestic banking system. The resulting loss in financial resources was compensated by higher equity financing from nonresidents (Figure 11). As a consequence, 49 percent of corporate liabilities consisted of equity at end-2003—compared to only 42 percent in 1998 7—implying better risk sharing between Colombia’s corporate sector and its financiers.

  • Second, the companies’ foreign currency position has strengthened, owing to the accumulation of external assets—notably, participations in foreign companies (Figure 12). On aggregate, however, the corporate sector is still short in dollars. 8

Figure 11.
Figure 11.

Large and Medium-Sized Companies - Liabilities 1/

Citation: IMF Staff Country Reports 2005, 162; 10.5089/9781451808872.002.A003

1/ In this and some of the following figures, the numbers inscribed in the columns denote percentage points of GDP
Figure 12.
Figure 12.

Large and Medium-Sized Companies ‐ Foreign Currency Pos

Citation: IMF Staff Country Reports 2005, 162; 10.5089/9781451808872.002.A003

Interestingly, both improvements also reflect greater integration of Colombia’s corporate sector into the global economy.

15. Households have built up a substantial positive net financial position, owing to two developments, one on each side of their aggregate balance sheet (Figure 13):

  • During the 1999 recession, household debt with the banking system fell sharply. To a large extent, this reflects defaults on mortgage loans. 9 Default triggered the liquidation of the collateral, however, and hence the loss of real assets. Thus, even though the mortgage crisis improved households’ net financial position, it is by no means certain that their net worthalso strengthened.

  • Since the introduction of private pension funds in 1993, households have accumulated substantial assets with nonbank financial institutions, most of them long term (Figure 14).

Figure 13.
Figure 13.

Households and Small Companies-Net Financial Position

Citation: IMF Staff Country Reports 2005, 162; 10.5089/9781451808872.002.A003

1/ Large and medium-sized companies and the non-financial public sector
Figure 14.
Figure 14.

Households and Small Companies - Term Structure of Assets

Citation: IMF Staff Country Reports 2005, 162; 10.5089/9781451808872.002.A003

1/ Large and medium-sized companies and the non-financial public sector

E. Structural Changes in Financial Intermediation

16. As mentioned in the introduction, the banking system shrank during the 1999recession, and has not recovered since(Figure 15). 10 Moreover, banks retreated from lending to the private sector, especially to households, and accumulated assets with the government instead. While this development owed in part to the effects of the recession and the associated banking crisis, it was reinforced by regulations that tightened lending standards (see Villar et al, 2005).

Figure 15.
Figure 15.

Private Banks - Assets

Citation: IMF Staff Country Reports 2005, 162; 10.5089/9781451808872.002.A003

17. In contrast to banks, private nonbank financial institutions have grown strongly (Figure 16). By end-2003, their assets almost equaled those of private banks. Private nonbank financial institutions consist of pension and severance payment funds (assets of 14 percent of GDP at end-2003), trust funds (10 percent), insurance companies (4 percent), and other entities (3 percent). The growth of nonbank financial institutions since 1996 reflects in parts the rapid expansion of private pension funds since their emergence in 1993. It also owes to the outsourcing of the management of pension liabilities by several large public companies between 1999–2001 (e.g., the state oil company Ecopetrol).

Figure 16.
Figure 16.

Private Non-Bank Financial Institutions-Assets

Citation: IMF Staff Country Reports 2005, 162; 10.5089/9781451808872.002.A003

18. Nonbank financial institutions invest a large and increasing part of their funds in government bonds(Figures 16 and 17). 11 In contrast, investment in corporate assets—both corporate debt and equity—has remained sluggish. In 2002, the exposure of pension funds to the sovereign reached the regulatory limit of 50 percent of total assets, forcing the pension funds to look for other investment opportunities. However, most of the new contributions paid into pension funds in 2003 were placed in bank deposits, rather than invested with the corporate sector. This points to institutional obstacles to more investment in the nonfinancial private sector, notably an underdeveloped market for corporate securities.

Figure 17.
Figure 17.

Private Non‐Bank Financ. Institutions ‐ Net Financial Position

Citation: IMF Staff Country Reports 2005, 162; 10.5089/9781451808872.002.A003

1/ Public non-bank intermediaries and external sector.

19. Since 2000, nonbank financial institutions—and especially pension funds—have accumulated substantial U.S. dollar assets, accounting for 18 percent of their total assets by end-2003 (Figure 18). Most foreign currency assets are U.S. dollar-denominated bonds of the Colombian government. As practically all payment obligations of nonbank financial institutions are in pesos, the open dollar position appears speculative and reflects depreciation expectations of the peso. However, the peso started appreciating at end-2003, leading to capital losses of nonbank financial institutions. 12

Figure 18.
Figure 18.

18: Private Non-Bank Financial Instit. -Net Foreign Currency Position

Citation: IMF Staff Country Reports 2005, 162; 10.5089/9781451808872.002.A003

F. Key Lessons

20. The balance sheet of the nonfinancial public sector has deterioratedsignificantly.13 Net liabilities grew by more than 25 percentage points of GDP between 1996 and 2003, substantially increasing default risk—as reflected in the loss of the sovereign’s investment grade rating in 1999. The public sector’s net foreign currency position has also deteriorated, in spite of improvements in the currency composition of public debt. This renders the public sector vulnerable to a peso depreciation. In contrast, its liquidity position has improved, but only at the expense of domestic banks and pension funds. Experiences in other emerging markets suggest that financial sector stress can spill over quickly into the sovereign’s balance sheet.

21. Corporate sector vulnerabilities have receded. Relative to 1998—the year before the crisis—the companies’ foreign currency position has improved—possibly in reaction to the move to a flexible exchange rate system in 1999, which may have induced companies to manage foreign exchange risk more prudently. Also, companies are more equity–and less debt–financed than in the past, implying less leverage and more risk sharing with their financiers.

22. The results for households, banks, and nonbank financial institutions are mixed.

  • Banks’ main vulnerability prior to the 1999 crisis was their exposure to the stretched balance sheets of the corporate sector and of households. This risk has diminished, as banks have reduced credit to the private sector, and corporate balance sheets have improved. However, banks’ exposure to the sovereign has sharply increased, and with it liquidity and interest rate risk. While managing liquidity risk is a core banking activity, today, Colombia’s banks would be less able to handle a sharp increase in interest rates than they were in the late 1990s. A foretaste of such difficulties was experienced in late 2002, when domestic debt markets closed for several months, following a hike in interest rates due to contagion from neighboring Brazil.

  • The most important fact about nonbank financial institutions is their impressive growth in recent years. Similar to banks, they are heavily exposed to the sovereign; a stronger diversification of exposure to other sectors appears desirable. Also, between 2000 and 2003, nonbank financial institutions built up a substantial, speculative long foreign currency position, which rendered them vulnerable to the peso appreciation that set in late 2003.

  • Households’ net position has improved, due to the accumulation of assets with pension funds and other nonbank financial institutions. However, as nonbank financial institutions pass most household savings on to cover the government’s financing needs, households are indirectly exposed to the sovereign.

23. The absence of mark-to-market data for some assets as well as of information on how much balance sheet exposure is hedged (although indications are that it is little) prevent an exact simulation of how macroeconomic shocks would feed through the Colombian economy. A rough, qualitative assessment is possible, however, and suggests the following.

  • A peso depreciation would hurt the public sector, as well as private nonfinancial corporations—even though corporations’ vulnerability to a depreciation is smaller than in the late 1990s. Nonbank financial institutions would benefit. Obviously, the opposite is true for an appreciation.

  • An interest rate hike would hurt the financial system. In particular banks’ liquidity position appears stretched. This suggests the need to avoid policies that may increase interest volatility, such as excessively stabilizing the exchange rate. The other sectors, including corporations, appear better equipped than in 1998 to deal with the immediate impact of higher interest rates.

  • An “autonomous” banking crisis (i.e., not caused by balance sheet contagion from other sectors) would be less harmful than it was in the late 1990s, as both households and corporations have sharply reduced assets with the banking system. Nonetheless, the share of households’ financial assets placed with banks is still more than 40 percent. A similar amount is invested with non–bank financial institutions, rendering the latter’s solvency critical.

  • An “autonomous” corporate crisis would, obviously, affect aggregate demand and therefore impact on other sectors, notably households. Direct balance sheet contagion would be limited, however, as two–thirds of corporate equity and one–half of corporate debt is held by nonresidents.

  • Finally, a sovereign crisis would critically affect banks, nonbank financial institutions, and households. Exposure of all these sectors to the sovereign has—directly or indirectly—increased in recent years.

24. The analysis suggests the following policies to reduce macroeconomicvulnerabilities.

  • Reduce the level of public debt, both to decrease the public sector’s own vulnerability to a debt crisis and to limit exposure of the financial system to the sovereign. Increasing the length of debt maturities is a double–edged sword, at least to the extent that it is not accompanied by a reduction in debt levels: while it reduces rollover risk for the government, it increases interest rate risk for the financial sector.

  • Maintain the exchange rate float. The move from a quasi–peg with the U.S. dollar to a flexible exchange rate in 1999 has not only induced corporations to increase assets in foreign currency and therefore improve risk management, it has also reduced interest rate volatility.

  • Promote the development of domestic securities markets to permit households and financial institutions to diversify assets away from the sovereign and to invest more into the private sector.

  • Promote market–based hedging mechanisms that would allow sectors to close inverse open balance sheet positions. An example is foreign currency risk, where the public sector on the one hand and nonbank financial institutions on the other appear to be natural hedging partners.

References

  • Allen, Mark, Christoph Rosenberg, Christian Keller, Brad Setser, and Nouriel Roubini (2002): “A Balance Sheet Approach to Financial Crisis,” IMF Working Paper 02/210 (Washington, International Monetary Fund).

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  • Arbelaez, Maria Angélica, Maria Lucia Guerra, and Nouriel Roubini (2004): “Debt Dynamics and Debt Sustainability in Colombia,” in: J. Poterba (ed.) Fiscal Policy, Taxes and Public Debt in Colombia; MIT Press 2004.

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  • Cepeda, Freddy, and Carlos Varela (2002): “Estimación del Efecto Ingreso Sobre los Balances Financieros de los Sectores Público y Privado: 1996–2000,” Borradores de Economía 209 (Bogotá; Banco de la República de Colombia).

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  • Echeverry, Juan Carlos, Leopoldo Fergusson, Roberto Steiner, and Camila Aguilar (2003): “’Dollar debt in Colombian firms: are sinners punished during devaluations?,” Emerging Markets Review, Vol. 4 No. 4, pp. 417–449.

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  • IMF (2005): “Debt-Related Vulnerabilities and Financial Crises: An Application of the Balance Sheet Approach to Emerging Market Countries,” IMF Occasional Paper, forthcoming.

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  • Lima, Juan Manuel, Enrique Montes, Carlos Varela, and Johannes Wiegand (2005): “Sectoral Balance Sheet Mismatches and Macroeconomic Vulnerabilities in Colombia, 1996–2003,” IMF Working Paper, forthcoming.

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  • Martinez Torres, Jorge (2003): “Crédito, Inversión y Apalancamiento de las Empresas en Colombia,” Unpublished Master’s Thesis; Universidad Nacional de Colombia.

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  • Uribe, José Darío, and Hernando Vargas (2002): “Financial Reform, Crisis and Consolidation in Colombia,” Borradores de Economía 204 (Bogotá; Banco de la República de Colombia).

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  • Villar Gómez, Leonardo, David Salamanca Rojas and Andrés Murcia Pabón (2005): “Crédito, Represión Financiera y Flujos de Capitales en Colombia: 1974–2003,” Unpublished Manuscript, Bogotá, Banco de la República de Colombia.

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1

Prepared by Johannes Wiegand (PDR).

2

A survey of recent applications is given in IMF (2005).

3

Examples include Echeverry et. al. (2002) and Martinez Torres (2003) for the corporate sector; Uribe and Vargas (2002) and Villar et al (2005) for the financial sector; and Cepeda and Varela (2002) and Arbelaez et al (2004) for the public sector.

4

The recession itself began in the second half of 1998 and ended in early 2000. As the following analysis will show, balance sheets adjusted throughout 2000, however.

5

The difference between Colombia’ net financial and its net foreign currency position are investments of nonresidents in Colombian equity and in peso–denominated Colombian debt.

6

The concept of “total financial liabilities of the nonfinancial public sector” is somewhat wider than the concept of “debt of the nonfinancial public sector” used in the context of Colombia’s IMF–supported program. For details, see Lima et al (2005).

7

The share of debt financing increased to 66 percent in 2000, reflecting the fall in equity valuations during the recession

8

Echeverry et al (2003) report that dollar debt is held almost exclusively by exporting companies that earn foreign currency.

9

To a lesser extent cuts in consumer lending.

10

Figures 15 and 16 depict private (as opposed to public) financial institutions only, which account for more than three–quarters of Colombia’s financial system.

11

Regarding the funding based of nonbank financial institutions, at end-2003 two–thirds of their liabilities were with households, a quarter with the public sector, 5 percent with companies, 4 percent with private banks, and 3 percent with nonresidents.

12

Otherwise, dollarization in Colombia is low, owing to legal restrictions on holding bank deposits in currencies other than the peso. At end-2003, only half a percent of bank deposits owned by domestic residents were denominated in foreign currency

13

Public debt started to fall at end-2003, however, and has decreased further in 2004.

Same Series

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Cover IMF Staff Country Reports
Colombia: Selected Issues
Author: International Monetary Fund
Volume/Issue:
Volume 2005: Issue 162
Publisher:
International Monetary Fund
ISBN:
9781451808872
ISSN:
1934-7685
Pages:
66
DOI:
https://doi.org/10.5089/9781451808872.002

Gross Financial Assets by Sector

(in Percent of GDP)

Net Financial Position

(in Percent of GDP)

Net Foreign Currency Position

(in Percent of GDP)

Net Short‐term Position

(in Percent of GDP)

Liabilities of the Non–Financial Public Sector

Exchange Rate Developments

Non-Financial Public Sector-Financial Liabilities

Exposure of the Private Sector to the Sovereign

Private Banks - Term Structure of Assets

Interest Rate Developments

Large and Medium-Sized Companies - Liabilities 1/

Large and Medium-Sized Companies ‐ Foreign Currency Pos

Households and Small Companies-Net Financial Position

Households and Small Companies - Term Structure of Assets

Private Banks - Assets

Private Non-Bank Financial Institutions-Assets

Private Non‐Bank Financ. Institutions ‐ Net Financial Position

18: Private Non-Bank Financial Instit. -Net Foreign Currency Position