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Colombia
 Colombia's
economic freedom score is 62.3, making its economy the
72nd freest in the 2009 Index. Its overall score is 0.2
point higher than last year, primarily reflecting improved
trade freedom and business freedom scores. Colombia is
ranked 15th out of 29 countries in the South and Central
America/Caribbean region, and its overall score is higher
than the regional average.
Colombia
is now one of South America's most stable economies and
scores relatively well in business freedom, trade freedom,
and financial freedom. Improvements in the business
environment and trade because of reforms aimed at steady
growth and monetary stability have led to economic growth
of over 5 per cent in recent years. The vibrant economy
has reduced Colombia's unemployment rate to its lowest
level in a decade.
Colombia's
overall economic freedom would advance if lingering
institutional weaknesses were addressed. Despite nominal
openness to foreign investment, regulations are complex
and uncertain. The rule of law remains uncertain. Business
contracts are generally respected, but judicial corruption
undermines legal transparency. State ownership is limited
to a few utilities, but public expenditure commitments are
high because of large transfers from the central
government to regional state-owned enterprises.
Background
Colombia
is one of South America’s oldest continuous democracies.
President Alvaro Uribe, elected in 2002 and re-elected by
a landslide in May 2006, has ended years of appeasement of
Marxist guerrillas, vigilantes, and drug traffickers. By
enforcing the law against both the Revolutionary Armed
Forces of Colombia (FARC) and its anti-Communist nemesis,
“the paramilitary,” Uribe has restored security. The
lives of Colombians have improved substantially, and
unemployment has been cut by at least 5 percentage points
in the past five years. The economy depends heavily on
exports of petroleum, coffee, and cut flowers. A trade
agreement with the U.S. that would encourage economic
diversification and stimulate further growth was submitted
to the U.S. Congress for action in 2008.
Business
freedom 77.4%
The
overall freedom to start, operate, and close a business is
relatively well protected by Colombia's regulatory
environment. Starting a business takes about the world
average of 38 days. Obtaining a business license requires
less than the world average of 18 procedures and 225 days.
Closing a business is relatively easy.
Trade
freedom 72.4%
Colombia's
weighted average tariff rate was 8.8 per cent in 2006.
Import bans and restrictions, import price bands for
certain goods, some service market access limits, some
restrictive standards and regulation, some restrictive
import licensing, issues involving the enforcement of
intellectual property rights, non-transparent customs
administration and valuation, export promotion programs,
and corruption add to the cost of trade. Ten points were
deducted from Colombia's trade freedom score to account
for non-tariff barriers.
Fiscal
freedom 72.9%
The top
income and corporate tax rates were reduced from 34 per
cent to 33 per cent beginning in 2008. Other taxes include
a value-added tax (VAT) and a financial transactions tax.
In the most recent year, overall tax revenue as a per
cent-age of GDP was 23.0 per cent.
Government
size 65.9%
Total
government expenditures, including consumption and
transfer payments, are moderate. In the most recent year,
government spending equaled 33.7 per cent of GDP.
Monetary
freedom 70.6%
Inflation
is relatively moderate, averaging 5.2 per cent between
2005 and 2007. The government controls prices for ground
and air transport fares, some pharmaceutical products,
petroleum derivatives, natural gas, some petrochemicals,
public utility services, residential rents, schoolbooks,
and school tuition, and the Agriculture Ministry may
intervene temporarily to freeze prices of basic foodstuffs
through agreements with regional wholesalers. Fifteen
points were deducted from Colombia's monetary freedom
score to adjust for measures that distort domestic prices.
Investment
freedom 60.0%
Foreign
investment is granted national treatment, and 100 per cent
foreign ownership is permitted in most sectors. The legal
and regulatory systems are generally transparent and
consistent with international norms. The largest obstacles
to investment are frequent changes in business rules,
complex arbitration procedures, and weak enforcement of
awards. Foreign investments must be registered with the
central bank's foreign exchange office within three months
of the transaction date to allow repatriation of profits
and remittances and to access official foreign exchange.
Residents who work in certain internationally related
companies may hold foreign exchange accounts.
Financial
freedom 60.0%
Colombia’s
relatively large financial sector has become more stable
and modern. Banking has undergone significant
consolidation and privatisation since the 1998–1999
financial crisis. The government has strengthened
regulations and seized some banks for falling below
solvency requirements. Two private financial groups
account for about 45 per cent of bank assets. In
comparison to other countries in the region, Colombia has
a smaller presence of foreign banks, which collectively
account for less than 20 per cent of total banking assets
in 2008. Credit is allocated on market terms. All
financial institutions nationalised during the crisis were
privatised or liquidated by mid-2006; as of early 2008,
the government retained 15 per cent of total banking
assets. Foreign companies are prominent in the insurance
sector, and competition has intensified since 2003.
Colombia’s small capital market has constrained broader
access to long-term credit. Additional financial reform is
expected, and several measures to boost the capital market
have also been discussed.
Property
rights 40.0%
Contracts
are generally respected. Arbitration is complex and
dilatory, especially with regard to the enforcement of
awards. The law guarantees indemnification in
expropriation cases. Despite some progress, the
enforcement of intellectual property rights is erratic.
Infringements, especially the unauthorised use of
trademarks, are common. In areas controlled by terrorist
groups, property rights cannot be guaranteed.
Freedom
from corruption 38.0%
Corruption
is perceived as significant. Colombia ranks 68th out of
179 countries in Transparency International's Corruption
Perceptions Index for 2007. Although Colombia has made
notable improvements in fighting corruption and narcotics
trafficking in general, concerns remain over the influence
of criminal organisations, especially on the police,
military, and the lower levels of the judiciary and civil
service.
Labour
freedom 66.0%
Colombia's
restrictive labor regulations hinder employment and
productivity growth. The non-salary cost of employing a
worker is high, but dismissing a redundant employee can be
relatively inexpensive. Regulations controlling working
hours are relatively flexible.
—
Courtesy: The Heritage Foundation
Quick
Facts
Population
45.6 million
GDP
(PPP)
$290.6 billion
6.8% growth
4.4% 5-year
compound
annual growth
$6378 per
capita
Unemployment
11.2%
Inflation
(CPI)
5.5%
FDI
Inflow
$6.3 billion
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