## _cr09153

## Source details

**Canonical URL:** [_cr09153](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09153.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09153.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09153.pdf.json)

---

### Strong performance, 2002–2008
- Major structural reforms after the late 1990s crisis: comprehensive reform of public finances, fiscal decentralization, a new pension system, a flexible exchange rate and inflation targeting framework, privatization of public banks, and strengthening of financial supervision.
- Growth and investment
  - GDP growth averaged 5½ percent during 2004–08.
  - FDI flows averaged 3.5 percent of GDP annually during 2004–08, fully financing the external current account deficit.
- External buffers and reserves
  - International reserves increased by more than US$10 billion to the equivalent of 8 months of imports (almost 200 percent of short-term debt at remaining maturity) at end-2008.
- Inflation and monetary policy
  - Annual inflation fell from 18.0 percent in 1995–99 to 5.7 percent during 2002–07.
  - Inflation spiked in 2007–08 due to oil and food price shocks; inflation was 6.1 percent as of the report’s reference and fell in late 2008.
  - Central bank tightened in 2006–07 and began easing in late 2008.
- Fiscal outcomes and public debt
  - Combined public sector deficit lowered from an average of 3 percent of GDP in the early 2000s to ½ percent of GDP during the last five years.
  - Public debt-to-GDP fell from 42 percent in 2004 to 32 percent at end-2008.
  - Authorities’ medium-term fiscal framework seeks to reduce public sector debt to 26 percent of GDP by 2019.
- Balance-sheet and external debt dynamics
  - Private external debt halved between 2003 and 2008 to 7 percent of GDP.
  - External public debt reduced to about 12 percent of GDP in 2008.
- Financial sector resilience and supervision
  - Capital to risk-weighted assets stable at about 14 percent during the past 5 years.
  - Progress since the 2005 FSAP: risk-based supervisory framework consistent with Basle II; reforms on derivatives; countercyclical provisions; enhanced liquidity risk regulations; high-level inter-agency contingency planning.

### Recent developments and policy response (update since Article IV, Jan 14, 2009)
- Activity and growth
  - Real GDP growth was 2.5 percent in 2008, 1 percentage point lower than projected at end-2008.
  - In Q4 2008, GDP was 4.1 percent lower than in the previous quarter and 0.7 percent lower than a year earlier.
  - Activity indicators through Q1 2009 suggest zero growth in 2009.
- External shock impacts
  - Exports down 4 percent and remittances down 14 percent in Q4 (y-o-y); further pronounced in Q1 2009.
  - Peso depreciated 20 percent vis-à-vis the U.S. dollar between September 2008 and March 2009.
  - Foreign exchange interventions small and rules-based: about US$0.2 billion on net terms since end-2008.
- Monetary easing
  - CPI inflation fell from 7¾ percent in November 2008 to 6.1 percent in March 2009; core inflation below 5 percent.
  - Central bank reduced policy rate by 400 basis points (to 6 percent) since December 2008.
- Fiscal developments and financing
  - Consolidated fiscal deficit in 2008 was 0.1 percent of GDP, 0.7 percentage points lower than envisaged at the Article IV consultation.
  - Recent tax revenue stalling: income and VAT revenues flat in early 2009 versus double-digit growth in 2008.
  - Authorities’ revised fiscal strategy: allow automatic stabilizers to operate fully and prioritize infrastructure and social spending.
  - External financing secured: US$2 billion in bond placements and US$1.95 billion in multilateral loans.
  - Staff projections for central government external disbursements (in millions of US$): Total 2009–2010 = 3,961 (Total), Multilaterals 1,952 (2009) and 1,512 (2010), Private Creditors (including bonds) 2,000 (2009) and 1,000 (2010); Bilaterals 937 (2009).
- Banking system and financial soundness
  - Largest 15 banks represent 87 percent of total assets.
  - Return on assets as of February 2009 was 2½ percent.
  - Capital to risk-weighted assets for the system about 15 percent.
  - Authorities’ actions since late 2008: raised deposit insurance coverage, secured external financing for BANCOLDEX, intensified liquidity monitoring, broadened eligible assets for repo operations, and worked on countercyclical provisioning regulations.
  - NPLs increased (consumer loans higher NPLs), but provisioning comfortable and profitability maintained.

### Outlook and key risks
- Growth projections
  - Staff expects zero output growth in 2009 and a modest recovery in 2010 of about 1¼ percent.
  - These projections are lower than the earlier Article IV projections of 2 and 4 percent for 2009 and 2010 respectively.
- External sector projections and risks
  - Current account deficit projected to reach 3.9 percent of GDP in 2009, narrowing over the medium term.
  - Exports projected to decline sharply by 30 percent in 2009.
  - Worker remittances projected to decline by 17 percent in 2009.
  - For 2010, current account deficit projected at 3.3 percent of GDP; FDI expected to be about 25 percent lower than in 2008 and remain subdued in 2010.
  - Private sector rollover rates expected to be 70 percent on average for 2009 and 2010.
- Fiscal outlook
  - Revenues projected to fall to 26.3 percent of GDP in 2009 (a 4 percent reduction in real terms from 2008 and 0.7 percent of GDP lower than envisaged at the Article IV consultation).
  - Staff projects a combined public sector deficit in the order of 3 percent of GDP in 2009–10.
  - Structural primary balances projected close to 2 percent of GDP, similar to 2008.
  - Public debt-to-GDP expected to increase moderately to above 37 percent by 2010, then resume a downward trend as recovery occurs.
- Vulnerabilities and stress scenarios (comparative metrics)
  - Gross reserves in percent of short-term debt at remaining maturity for Colombia 183.8 (median of 49 emerging market countries 152.0; median of investment grade countries 129.2).
  - Total gross external debt 24.6 percent of GDP (median for 49 EMs 41.2; investment grade 43.2).
  - Gross external financing requirement 8.3 percent of GDP (median 14.8; investment grade 20.5).
  - Public sector gross debt 35.7 percent of GDP (median 37.2; investment grade 32.9).
  - Public debt exposed to exchange rate risk 16.8 percent of GDP (median 14.9; investment grade 5.1).
  - Capital adequacy ratio 15.0 percent (median 13.6; investment grade 12.4).
  - Non-performing loans 4.5 percent (median 3.0; investment grade 2.7).
  - Return on average assets 2.5 percent (median 1.6; investment grade 1.4).
- Risk assessment
  - Main risks: deeper/protracted global recession reducing demand and commodity prices; renewed turbulence affecting capital flows and exchange rate; sharper domestic recession reducing revenues and stressing financing; higher credit risk increasing NPLs; sharp peso depreciation with exchange-rate pass-through to inflation.
  - Staff analysis indicates external debt sustainability robust to further shocks given low external debt levels and financing requirements; medium-term fiscal framework policies are sustainable and resilient to significant shocks.

### Request for FCL, rationale, and proposed access
- Authorities requested a 12-month FCL arrangement of SDR 6.966 billion (900 percent of quota, or about US$10.4 billion), to be treated as precautionary.
- Purpose: bolster confidence in the policy framework and provide assurance that Colombia could avoid major disruptions to its currency and financial markets and continue macroeconomic policies to support activity under a more adverse external environment.
- Staff view: Risks to the balance of payments justify the requested level of access.

### Baseline financing needs and adverse scenario
- Baseline annual gross external financing needs for 2009 and 2010 are estimated to be in the order of US$20 billion and would be fully financed.
- Illustrative adverse scenario yields ex-ante annual financing gaps in the range of US$6–8 billion during 2009–10.
- Box 1 adverse scenario specific assumptions (changes compared to baseline):
  - A 20 percent decline in fuel prices and a 10 percent decline in non-fuel commodity prices during 2009–10.
  - A further decline in FDI (15 percent in 2009 and 10 percent in 2010).
  - Aggregate rollover rates of 85 percent in 2009, and lower rollover rates in 2010.
- Under the staff’s alternative scenario:
  - Ex-ante external financing gap of US$5.8 billion (502 percent of quota) in 2009.
  - Ex-ante external financing gap of US$8.2 billion (about 709 percent of quota) in 2010.
- The adverse scenario does not include a drawdown of non-resident holdings of domestic financial assets (estimated at about US$4 billion) nor runs on bank deposits; proposed access builds in some margin relative to weighted average possible gaps.

### Reserve coverage and comparative metrics
- Proposed access level of 900 percent of quota would provide significant additional reserve coverage against shocks.
- Reserve position indicators:
  - Gross international reserves at end April: US$23 billion.
  - Reserves cover about 8 months of imports.
  - Reserves cover about 190 percent of short-term external debt on a remaining maturity basis.

### Qualification assessment against FCL criteria (paragraph 2)
- Sustainable external position
  - External debt-to-GDP ratio at end-2008: 19.3 percent (15 percentage points lower than in 2004).
  - Private sector external indebtedness about 7 percent of GDP.
  - External current account deficit expected to peak at 3.9 percent of GDP in 2009 and thereafter decline, financed mostly by FDI.
  - Staff DSA suggests external debt ratios would remain manageable even under significantly negative shocks.
- Capital account position
  - Dominated by private flows; FDI was 3.5 percent of GDP in 2008.
- Track record of sovereign access
  - Sovereign spreads and vulnerability indicators similar to countries with higher credit ratings; government has tapped global capital markets at reasonable terms.
- Sound public finances
  - Public debt about 32 percent of GDP at end-2008.
  - Rules-based fiscal framework commits to further debt reduction; staff DSA suggests public debt remains manageable under adverse scenarios.
- Low and stable inflation and credible monetary/exchange rate framework
  - Inflation targeting framework has curbed inflation and anchored expectations.
  - Flexible exchange rate regime has eased adjustment with limited pass-through to prices.
- Banking sector soundness and supervision
  - No systemic banking solvency problems posing imminent threat; financial soundness indicators remain strong.
  - Stress tests suggest systemically important institutions would remain solvent under a variety of extreme shocks.
  - Supervision unified under a single umbrella in 2005; superintendent would benefit from greater independence.
  - Financial safety net well established; operational coordination through a high-level committee.
- Data transparency and integrity
  - Overall quality of Colombian statistics is good per the 2006 data ROSC.
  - Colombia is a subscriber to the SDDS and publishes a wealth of data online.

### Access comparators and ratios (proposed access: SDRs 6,966)
- Average annual access: 900.
- Total access in percent of:
  - Actual quota: 900.
  - Gross domestic product: 55.
  - Gross international reserves: 44.
  - Exports of goods and nonfactor services: 33.
  - Imports of goods and nonfactor services: 29.
  - Total public debt stock: 15.
  - Total external debt: 22.
  - Short-term external debt (residual maturity): 84.
  - M2: 34.

### Impact on Fund finances, risks, and safeguards
- Manageability and liquidity
  - Access of 900 percent of quota (SDR 6.966 billion) would be manageable for Fund finances; Fund liquidity expected to remain adequate after approval.
  - Approval would reduce the one-year forward commitment capacity (FCC) by SDR 6.966 billion.
  - If fully drawn, GRA credit to Colombia would be about SDR6,966 (2009–2011 at 900 percent of quota) with scheduled declines thereafter.
- Debt service and external debt implications (if full drawing occurs)
  - External debt service would be 5¼ percent of GDP on average; peak external debt service at 5.8 percent of GDP in 2013.
  - Projected debt service to the Fund would peak in 2013 at about SDR 3.6 billion.
  - Total external debt, assuming full drawing (percent of GDP): 2008: 19.3; 2009: 29.6; 2010: 28.6; 2011: 26.7; 2012: 23.5; 2013: 19.8; 2014: 16.9.
  - Total Debt Service, assuming full drawing (percent of GDP): 2008: 3.4; 2009: 5.0; 2010: 5.3; 2011: 4.3; 2012: 5.5; 2013: 5.8; 2014: 5.5.
- Concentration and prudential metrics
  - If fully drawn, GRA credit to Colombia as a share of total GRA credit would be about 25 percent.
  - Fund credit to Colombia, in percent of current precautionary balances: 100.4.
  - Share of Fund credit outstanding held by the top five users would increase from 86.3 percent to 87.7 percent upon approval.
- Safeguards
  - Banco de la República publishes its balance sheet monthly, auditor’s notes, and the external auditor’s report, and would provide Fund staff with additional information and discuss audit findings with external auditors.

### Staff appraisal and recommendation
- Staff assessment
  - Colombia fully meets the qualification criteria set out for access to FCL resources.
  - Strengths cited: "Very strong fundamentals and institutional framework."; "Proven track record"; "Very strong rules-based policy setting."; "Colombia’s very strong record of debt servicing."; "Manageable external debt service profile."
- Recommendation
  - Approval of an FCL arrangement of SDR 6.966 billion for a period of 12 months.
- Policy implications and endorsement of authorities’ response
  - An FCL arrangement would bolster confidence during heightened global uncertainty, provide a backstop, and reduce likelihood of negative investor sentiment shocks.
  - Access of 900 percent of quota would provide important insurance and allow authorities some scope for countercyclical policies.
  - Authorities’ policy response characterized as prudent and appropriate:
    - Monetary policy eased to support domestic demand as inflation abates.
    - Automatic fiscal stabilizers allowed to operate while preserving medium-term fiscal sustainability.
    - Exchange rate acted as effective shock absorber with limited rule-based intervention and small reserve losses.
    - Authorities increased deposit insurance coverage and secured external financing to the state-owned foreign trade bank to provide loans to banks and corporations.

### Key macroeconomic and fiscal indicators (selected figures preserved exactly as in source)
- Population (millions), 2008: 48.3
- GDP per capita (US$), 2008: 4,982
- GDP, 2008 in billions of Col$: 479,264
- GDP, 2008 in billions of US$: 240.7
- Gini index, 2003: 58.6
- Unemployment rate, February 2009 (percent): 12.5
- Life expectancy at birth (years), 2005: 72.3
- Poverty rate, 2006: 45.1
- Extreme poverty rate, 2006: 12.0
- Under 5 mortality rate (per 1,000 live births): 221.0
- Real GDP growth (percent): 2005: 5.7; 2006: 6.9; 2007: 7.5; 2008: 2.5; 2009: 0.0; 2010: 1.3
- GDP deflator (percent): 2005: 6.1; 2006: 6.8; 2007: 4.8; 2008: 8.2; 2009: 2.4; 2010: 4.8
- Consumer prices (average, percent): 2005: 5.0; 2006: 4.3; 2007: 5.5; 2008: 7.0; 2009: 5.4; 2010: 4.0
- Central government balance (percent of GDP): 2005: -4.1; 2006: -3.4; 2007: -2.7; 2008: -2.3; 2009: -4.2; 2010: -4.3
- Nonfinancial public sector balance (percent of GDP): 2005: 0.0; 2006: -1.0; 2007: -0.8; 2008: -0.3; 2009: -2.8; 2010: -3.4
- Public debt (percent of GDP): 2005: 38.8; 2006: 35.8; 2007: 32.6; 2008: 32.2; 2009: 35.7; 2010: 37.0
- Current account (deficit -) (percent of GDP): 2005: -1.3; 2006: -1.8; 2007: -2.8; 2008: -2.8; 2009: -3.9; 2010: -3.3
- External debt (percent of GDP): 2005: 26.6; 2006: 24.7; 2007: 21.4; 2008: 19.3; 2009: 24.3; 2010: 23.5
- NIR in percent of short-term debt: 2005: 108.1; 2006: 147.0; 2007: 198.1; 2008: 190.7; 2009: 183.8; 2010: 207.0
- External debt service (percent of exports): 2005: 45.8; 2006: 35.4; 2007: 25.4; 2008: 21.9; 2009: 31.0; 2010: 31.1
- Exports, f.o.b. (US$ millions): 2005: 21,729; 2006: 25,181; 2007: 30,577; 2008: 38,546; 2009: 27,495; 2010: 29,730
- Petroleum products exports (US$ millions): 2005: 5,559; 2006: 6,328; 2007: 7,318; 2008: 12,204; 2009: 6,529; 2010: 8,000
- Gross official reserves (US$ millions): 2005: 14,634; 2006: 15,109; 2007: 20,607; 2008: 23,672; 2009: 23,425; 2010: 24,173
- Gross official reserves (in months of imports of goods and services): 2005: 5.8; 2006: 4.8; 2007: 5.5; 2008: 7.8; 2009: 7.4; 2010: 7.2
- Oil Price (Colombian mix): 2008: 90.2; 2009: 48.3; 2010: 58.1 (Memorandum item)

*Source: IMF staff report excerpt, CR09153 (IMF staff note and associated materials).*

### 1. Strong Performance, 2002-2008 .......................................................................................

### _cr09153 - 1. Strong Performance, 2002-2008 .......................................................................................

### I. A decade of strong fundamentals
- Major reforms after the late 1990s crisis: comprehensive reform of public finances, fiscal decentralization, a new pension system, a flexible exchange rate and inflation targeting framework, privatization of public banks, and strengthening of financial supervision.
- Growth and investment
  - GDP growth averaged 5½ percent during 2004–08.
  - FDI flows averaged 3.5 percent of GDP annually during 2004–08, fully financing the external current account deficit.
- External buffers and reserves
  - International reserves increased by more than US$10 billion to the equivalent of 8 months of imports (almost 200 percent of short-term debt at remaining maturity) at end-2008.
- Inflation and monetary policy
  - Annual inflation fell from 18.0 percent in 1995–99 to 5.7 percent during 2002–07.
  - Inflation spiked in 2007–08 due to oil and food price shocks; inflation was 6.1 percent as of the report’s reference and fell in late 2008.
  - Central bank tightened in 2006–07 and began easing in late 2008.
- Fiscal outcomes and public debt
  - Combined public sector deficit lowered from an average of 3 percent of GDP in the early 2000s to ½ percent of GDP during the last five years.
  - Public debt-to-GDP fell from 42 percent in 2004 to 32 percent at end-2008.
  - Authorities’ medium-term fiscal framework seeks to reduce public sector debt to 26 percent of GDP by 2019.
- Balance-sheet and external debt dynamics
  - Private external debt halved between 2003 and 2008 to 7 percent of GDP.
  - External public debt reduced to about 12 percent of GDP in 2008.
- Financial sector resilience and supervision
  - Capital to risk-weighted assets stable at about 14 percent during the past 5 years.
  - Progress since the 2005 FSAP: risk-based supervisory framework consistent with Basle II; reforms on derivatives; countercyclical provisions; enhanced liquidity risk regulations; high-level inter-agency contingency planning.

### II. Recent developments and policy response (update since Article IV, Jan 14, 2009)
- Activity and growth
  - Real GDP growth was 2.5 percent in 2008, 1 percentage point lower than projected at end-2008.
  - In Q4 2008, GDP was 4.1 percent lower than in the previous quarter and 0.7 percent lower than a year earlier.
  - Activity indicators through Q1 2009 suggest zero growth in 2009.
- External shock impacts
  - Exports and worker remittances declined: exports down 4 percent and remittances down 14 percent in Q4 (y-o-y); further pronounced in Q1 2009.
  - Peso depreciated 20 percent vis-à-vis the U.S. dollar between September 2008 and March 2009.
  - Foreign exchange interventions small and rules-based: about US$0.2 billion on net terms since end-2008.
- Monetary easing
  - CPI inflation fell from 7¾ percent in November 2008 to 6.1 percent in March 2009; core inflation below 5 percent.
  - Central bank reduced policy rate by 400 basis points (to 6 percent) since December 2008.
- Fiscal developments and financing
  - Consolidated fiscal deficit in 2008 was 0.1 percent of GDP, 0.7 percentage points lower than envisaged at the Article IV consultation.
  - Recent tax revenue stalling: income and VAT revenues flat in early 2009 versus double-digit growth in 2008.
  - Authorities’ revised fiscal strategy: allow automatic stabilizers to operate fully and prioritize infrastructure and social spending.
  - External financing secured: US$2 billion in bond placements and US$1.95 billion in multilateral loans.
  - Staff projections for central government external disbursements of MLT debt (in millions of US$): Total 2009–2010 = 3,961 (Total), Multilaterals 1,952 (2009) and 1,512 (2010), Private Creditors (including bonds) 2,000 (2009) and 1,000 (2010); Bilaterals 937 (2009) [table-style figures preserved as in source].
- Banking system and financial soundness
  - Largest 15 banks represent 87 percent of total assets.
  - Return on assets as of February 2009 was 2½ percent.
  - Capital to risk-weighted assets for the system about 15 percent.
  - Authorities actions since late 2008: raised deposit insurance coverage, secured external financing for BANCOLDEX, intensified liquidity monitoring, broadened eligible assets for repo operations, and worked on countercyclical provisioning regulations.
  - NPLs increased (consumer loans higher NPLs), but provisioning comfortable and profitability maintained.

### III. Outlook and key risks
- Growth projections
  - Staff expects zero output growth in 2009 and a modest recovery in 2010 of about 1¼ percent.
  - These projections are lower than the earlier Article IV projections of 2 and 4 percent for 2009 and 2010 respectively.
- External sector projections and risks
  - Current account deficit projected to reach 3.9 percent of GDP in 2009, narrowing over the medium term.
  - Exports projected to decline sharply by 30 percent in 2009.
  - Worker remittances projected to decline by 17 percent in 2009.
  - For 2010, current account deficit projected at 3.3 percent of GDP; FDI expected to be about 25 percent lower than in 2008 and remain subdued in 2010.
  - Private sector rollover rates expected to be 70 percent on average for 2009 and 2010.
- Fiscal outlook
  - Revenues projected to fall to 26.3 percent of GDP in 2009 (a 4 percent reduction in real terms from 2008 and 0.7 percent of GDP lower than envisaged at the Article IV consultation).
  - Staff projects a combined public sector deficit in the order of 3 percent of GDP in 2009–10.
  - Structural primary balances projected close to 2 percent of GDP, similar to 2008.
  - Public debt-to-GDP expected to increase moderately to above 37 percent by 2010, then resume a downward trend as recovery occurs.
- Vulnerabilities and stress scenarios
  - External vulnerabilities: gross reserves in percent of short-term debt at remaining maturity for Colombia 183.8 (median of 49 emerging market countries 152.0; median of investment grade countries 129.2).
  - Total gross external debt 24.6 percent of GDP (median for 49 EMs 41.2; investment grade 43.2).
  - Gross external financing requirement 8.3 percent of GDP (median 14.8; investment grade 20.5).
  - Public sector gross debt 35.7 percent of GDP (median 37.2; investment grade 32.9).
  - Public debt exposed to exchange rate risk 16.8 percent of GDP (median 14.9; investment grade 5.1).
  - Capital adequacy ratio 15.0 percent (median 13.6; investment grade 12.4).
  - Non-performing loans 4.5 percent (median 3.0; investment grade 2.7).
  - Return on average assets 2.5 percent (median 1.6; investment grade 1.4).
- Risk assessment
  - Main risks: deeper/protracted global recession reducing demand and commodity prices; renewed turbulence affecting capital flows and exchange rate; sharper domestic recession reducing revenues and stressing financing; higher credit risk increasing NPLs; sharp peso depreciation with exchange-rate pass-through to inflation.
  - Staff analysis indicates: external debt sustainability robust to further shocks given low external debt levels and financing requirements (Table 7); medium-term fiscal framework policies are sustainable and resilient to significant shocks (Table 8).

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09153.pdf*

### 17.      To be in a stronger position to withstand downside risks to their balance of

### 17.      To be in a stronger position to withstand downside risks to their balance of payments, the Colombian authorities have requested Fund support in the form of a 12-month FCL arrangement in the amount of SDR 6.966 billion (900 percent of quota, or about US$10.4 billion)—which they intend to treat as precautionary.

### Request, rationale, and proposed access
- Authorities requested a 12-month FCL arrangement of SDR 6.966 billion (900 percent of quota, or about US$10.4 billion), to be treated as precautionary.
- Purpose: bolster confidence in the policy framework and provide assurance that Colombia could avoid major disruptions to its currency and financial markets and continue macroeconomic policies to support activity under a more adverse external environment.
- Staff view: Risks to the balance of payments justify the requested level of access.

### Baseline financing needs and adverse scenario
- Baseline annual gross external financing needs for 2009 and 2010 are estimated to be in the order of US$20 billion and would be fully financed.
- Illustrative adverse scenario yields ex-ante annual financing gaps in the range of US$6–8 billion during 2009–10.
- Box 1 adverse scenario specific assumptions (changes compared to baseline):
  - A 20 percent decline in fuel prices and a 10 percent decline in non-fuel commodity prices during 2009–10.
  - A further decline in FDI (15 percent in 2009 and 10 percent in 2010).
  - Aggregate rollover rates of 85 percent in 2009, and lower rollover rates in 2010.
- Under the staff’s alternative scenario:
  - Ex-ante external financing gap of US$5.8 billion (502 percent of quota) in 2009.
  - Ex-ante external financing gap of US$8.2 billion (about 709 percent of quota) in 2010.
- The adverse scenario does not include a drawdown of non-resident holdings of domestic financial assets (estimated at about US$4 billion) nor runs on bank deposits; proposed access builds in some margin relative to weighted average possible gaps.

### Reserve coverage and comparative metrics
- Proposed access level of 900 percent of quota would provide significant additional reserve coverage against shocks (Figure 4 references).
- Reserve position indicators cited:
  - Gross international reserves at end April: US$23 billion.
  - Reserves cover about 8 months of imports.
  - Reserves cover about 190 percent of short-term external debt on a remaining maturity basis.
- Staff notes economic concept–based metrics for Colombia’s proposed access level would be broadly in line with previous high-access cases.

### Qualification criteria for the FCL (assessment against FCL decision paragraph 2 criteria)
- Sustainable external position:
  - External debt-to-GDP ratio at end-2008: 19.3 percent.
  - This is 15 percentage points lower than in 2004.
  - Private sector external indebtedness about 7 percent of GDP.
  - External current account deficit expected to peak at 3.9 percent of GDP in 2009 and thereafter decline, financed mostly by FDI.
  - Staff debt sustainability analysis suggests external debt ratios would remain manageable even under significantly negative shocks.
- Capital account position:
  - Dominated by private flows; FDI was 3.5 percent of GDP in 2008.
- Track record of sovereign access:
  - Sovereign spreads and vulnerability indicators similar to countries with higher credit ratings.
  - Government has tapped global capital markets at reasonable terms even in unsettled conditions.
- Sound public finances:
  - Public debt about 32 percent of GDP at end-2008.
  - Authorities’ rules-based fiscal framework establishes commitment to further debt reduction.
  - Staff debt sustainability analysis suggests public debt would remain manageable and on a downward trajectory under adverse scenarios.
- Low and stable inflation and credible monetary/exchange rate framework:
  - Inflation targeting framework has curbed inflation and anchored expectations.
  - Flexible exchange rate regime has eased adjustment with limited pass-through to prices.
- Banking sector soundness and supervision:
  - No systemic banking solvency problems posing imminent threat.
  - Financial soundness indicators remain strong; stress tests suggest systemically important institutions would remain solvent under a variety of extreme shocks.
  - Supervision unified under a single umbrella in 2005; supervisory, legal, and institutional framework adequate though superintendent would benefit from greater independence.
  - Financial safety net well established; operational coordination through a high-level committee (ministry of finance, central bank, financial sector superintendency, deposit insurance agency).
- Data transparency and integrity:
  - Overall quality of Colombian statistics is good per the 2006 data ROSC.
  - Colombia is a subscriber to the SDDS and publishes a wealth of data online.

### Access comparators and ratios (Colombia: Proposed Access, 2009 table highlights)
- Access in millions of SDRs: 6,966.
- Average annual access: 900.
- Total access in percent of:
  - Actual quota: 900.
  - Gross domestic product: 55.
  - Gross international reserves: 44.
  - Exports of goods and nonfactor services: 33.
  - Imports of goods and nonfactor services: 29.
  - Total public debt stock: 15.
  - Total external debt: 22.
  - Short-term external debt (residual maturity): 84.
  - M2: 34.

### Impact on Fund finances, risks, and safeguards
- Access of 900 percent of quota (SDR 6.966 billion) would be manageable for Fund finances; Fund liquidity expected to remain adequate after approval.
- Risks to the Fund expected to be contained; authorities intend to treat the FCL as precautionary.
- Even if full drawing occurs shortly after approval, Colombia’s external debt service would remain manageable:
  - External debt service would be 5¼ percent of GDP on average.
  - Peak external debt service at 5.8 percent of GDP in 2013 (Table 9 reference).
- Colombia has an outstanding track record of meeting obligations to all creditors and strong commitment to macro stability; growth prospects remain strong over the medium term.
- Safeguards: Banco de la República publishes its balance sheet monthly on its website, auditor’s notes, and the external auditor’s report, and would provide Fund staff with additional information and discuss audit findings with external auditors.

### Staff appraisal and policy implications
- An FCL arrangement would help bolster confidence during heightened global uncertainty, provide a backstop, and reduce likelihood of negative investor sentiment shocks.
- Access of 900 percent of quota would provide important insurance and allow authorities some scope for countercyclical policies.
- Authorities’ policy response to the global crisis characterized as prudent and appropriate:
  - Monetary policy eased to support domestic demand as inflation abates.
  - Automatic fiscal stabilizers allowed to operate while preserving medium-term fiscal sustainability.
  - Exchange rate acted as effective shock absorber with limited rule-based intervention and small reserve losses.
  - Authorities increased deposit insurance coverage and secured external financing to the state-owned foreign trade bank to provide loans to banks and corporations facing reduced external credit access.

*Source: IMF staff report excerpt, CR09153.*

### 26.      The staff assess that Colombia fully meets the qualification criteria set out for

### The staff assess that Colombia fully meets the qualification criteria set out for

### Staff assessment and recommendation
- The staff assess that Colombia fully meets the qualification criteria set out for access to FCL resources.
- Recommendation: approval of an FCL arrangement of SDR6.966 billion for a period of 12 months.
- Colombia fully meets the qualification criteria for use of GRA resources under the FCL, consistent with the Executive Board’s assessment in the 2008 Article IV consultation.

### Rationale and risk containment
- Strengths cited:
  - "Very strong fundamentals and institutional framework."
  - "Proven track record" giving confidence authorities will maintain sound policies.
  - "Very strong rules-based policy setting."
  - "Colombia’s very strong record of debt servicing."
  - "Manageable external debt service profile."
- Risks to the Fund are contained by the above elements and by the positive policy assessment from the Article IV consultation.

### FCL arrangement specifics and authorities’ intent
- Proposed FCL amount requested by authorities: SDR 6.966 billion (900 percent of quota).
- Coverage period requested by authorities: 12 months.
- Authorities intend to treat the arrangement as precautionary.
- Authorities’ stated objective: bolster confidence that Colombia can withstand a wider range of adverse external shocks.

### Key macroeconomic and fiscal indicators (selected figures preserved exactly as in source)
- Population (millions), 2008: 48.3
- GDP per capita (US$), 2008: 4,982
- GDP, 2008 in billions of Col$: 479,264
- GDP, 2008 in billions of US$: 240.7
- Gini index, 2003: 58.6
- Unemployment rate, February 2009 (percent): 12.5
- Life expectancy at birth (years), 2005: 72.3
- Poverty rate, 2006: 45.1
- Extreme poverty rate, 2006: 12.0
- Under 5 mortality rate (per 1,000 live births): 221.0
- Real GDP growth (percent): 2005: 5.7; 2006: 6.9; 2007: 7.5; 2008: 2.5; 2009: 0.0; 2010: 1.3
- GDP deflator (percent): 2005: 6.1; 2006: 6.8; 2007: 4.8; 2008: 8.2; 2009: 2.4; 2010: 4.8
- Consumer prices (average, percent): 2005: 5.0; 2006: 4.3; 2007: 5.5; 2008: 7.0; 2009: 5.4; 2010: 4.0
- Central government balance (percent of GDP): 2005: -4.1; 2006: -3.4; 2007: -2.7; 2008: -2.3; 2009: -4.2; 2010: -4.3
- Nonfinancial public sector balance (percent of GDP): 2005: 0.0; 2006: -1.0; 2007: -0.8; 2008: -0.3; 2009: -2.8; 2010: -3.4
- Public debt (percent of GDP): 2005: 38.8; 2006: 35.8; 2007: 32.6; 2008: 32.2; 2009: 35.7; 2010: 37.0
- Current account (deficit -) (percent of GDP): 2005: -1.3; 2006: -1.8; 2007: -2.8; 2008: -2.8; 2009: -3.9; 2010: -3.3
- External debt (percent of GDP): 2005: 26.6; 2006: 24.7; 2007: 21.4; 2008: 19.3; 2009: 24.3; 2010: 23.5
- NIR in percent of short-term debt: 2005: 108.1; 2006: 147.0; 2007: 198.1; 2008: 190.7; 2009: 183.8; 2010: 207.0
- External debt service (percent of exports): 2005: 45.8; 2006: 35.4; 2007: 25.4; 2008: 21.9; 2009: 31.0; 2010: 31.1
- Interest payments (percent of exports): 2005: 11.8; 2006: 9.4; 2007: 9.0; 2008: 8.5; 2009: 10.5; 2010: 9.3
- Exports, f.o.b. (US$ millions): 2005: 21,729; 2006: 25,181; 2007: 30,577; 2008: 38,546; 2009: 27,495; 2010: 29,730
- Petroleum products exports (US$ millions): 2005: 5,559; 2006: 6,328; 2007: 7,318; 2008: 12,204; 2009: 6,529; 2010: 8,000
- Gross official reserves (US$ millions): 2005: 14,634; 2006: 15,109; 2007: 20,607; 2008: 23,672; 2009: 23,425; 2010: 24,173
- Gross official reserves (in months of imports of goods and services): 2005: 5.8; 2006: 4.8; 2007: 5.5; 2008: 7.8; 2009: 7.4; 2010: 7.2
- Oil Price (Colombian mix): 2008: 90.2; 2009: 48.3; 2010: 58.1 (Memorandum item)

### External financing and vulnerabilities
- Table 3 baseline and adverse scenario highlights (selected):
  - Gross financing requirements (2007 baseline): 21,228; 2007 adverse: 19,479.
  - Gross financing requirements (2008 baseline): 19,828; 2008 adverse: 21,903.
  - Gross reserves accumulation (2007 baseline): 4,714; (2007 adverse): 2,638.
  - Available financing (2007 baseline): 21,228; (2007 adverse): 19,479.
  - Foreign direct investment (net) (2007 baseline): 8,136; (2008 baseline): 6,276.
- Financing gap analysis (in US$ millions):
  - Current account shock: 2,075 and 1,716 (two entries shown).
  - Capital account shock: 3,741 and 6,499.
  - Combined shock: 5,816 and 8,215.
  - In percent of quota: Combined shock entries: 502 and 709.

### External debt structure and dynamics
- Gross external debt (US$ millions): 2004: 39,497; 2005: 38,507; 2006: 40,103; 2007: 44,553; 2008: 46,392.
- Public sector external debt (US$ millions): 2004: 25,835; 2005: 24,189; 2006: 26,299; 2007: 28,819; 2008: 29,447.
- Private sector external debt (US$ millions): 2004: 13,662; 2005: 14,317; 2006: 13,803; 2007: 15,734; 2008: 16,945.
- Share of external debt (percent of GDP): Gross external debt: 2004: 34.7; 2005: 26.6; 2006: 24.7; 2007: 21.4; 2008: 19.3.

### Debt sustainability indicators (selected entries from External and Public Sector DSA tables)
- External debt-to-exports ratio (percent): 2004: 202.8; 2005: 157.9; 2006: 140.4; 2007: 130.2; 2008: 109.1; 2009: 152.6; 2010: 141.6.
- Gross external financing need (US$ billions): 2004: 9.6; 2005: 15.0; 2006: 16.2; 2007: 16.1; 2008: 17.0; 2009: 20.1; 2010: 19.3.
- Public sector debt-to-GDP (percent): 2004: 42.4; 2005: 38.8; 2006: 35.8; 2007: 32.6; 2008: 32.2; 2009: 35.7; 2010: 37.0.
- Change in public sector debt (percent of GDP): 2004: -3.8; 2005: -3.6; 2006: -3.0; 2007: -3.2; 2008: -0.4; 2009: 3.5; 2010: 1.3.
- Gross financing need (percent of GDP): 2004: 7.3; 2005: 9.0; 2006: 10.5; 2007: 9.0; 2008: 6.8; 2009: 8.1; 2010: 8.3.

### Fiscal operations of the combined public sector (selected percent of GDP)
- Total revenue: 2005: 26.1; 2006: 27.3; 2007: 27.1; 2008: 26.3; 2009: 26.3; 2010: 25.1
- Tax revenue: 2005: 14.9; 2006: 19.3; 2007: 19.3; 2008: 19.2; 2009: 19.0; 2010: 19.0
- Nontax revenue: 2005: 11.1; 2006: 8.1; 2007: 7.8; 2008: 7.1; 2009: 7.2; 2010: 6.1
- Total expenditure and net lending: 2005: 26.2; 2006: 28.2; 2007: 28.2; 2008: 26.6; 2009: 29.1; 2010: 28.5
- Current expenditure: 2005: 21.2; 2006: 22.6; 2007: 21.8; 2008: 21.6; 2009: 23.1; 2010: 22.7
- NFPS primary balance (percent of GDP): 2005: 3.4; 2006: 2.9; 2007: 3.2; 2008: 3.5; 2009: 0.6; 2010: 0.2
- Combined public sector balance: 2005: 0.0; 2006: -0.7; 2007: -0.7; 2008: -0.1; 2009: -2.9; 2010: -3.1

### Financial sector soundness (selected indicators)
- Regulatory capital to risk-weighted assets (percent): 2004: 14.2; 2005: 14.7; 2006: 13.1; 2007: 13.6; Feb-08: 14.5; 2008: 13.4; Feb-09: 15.0
- Nonperforming loans to gross loans (percent): 2004: 3.3; 2005: 2.7; 2006: 2.6; 2007: 3.3; Feb-08: 3.6; 2008: 4.0; Feb-09: 4.5
- Provisions to nonperforming loans (percent): 2004: 149.7; 2005: 166.9; 2006: 153.6; 2007: 132.6; Feb-08: 121.0; 2008: 120.5; Feb-09: 112.9
- ROAA (percent): 2004: 2.7; 2005: 2.7; 2006: 2.5; 2007: 2.4; Feb-08: 2.1; 2008: 2.4; Feb-09: 2.5
- Loan to deposit ratio (percent): 2004: 78.8; 2005: 79.0; 2006: 89.7; 2007: 95.8; Feb-08: 95.9; 2008: 95.3; Feb-09: 92.9

### IMF credit indicators and debt service implications of full drawing under the FCL
- Fund credit (stocks from prospective drawings, end of period): 2008: SDR6,966; 2009: SDR6,966; 2010: SDR6,966; 2011: SDR5,225; 2012: SDR1,742; 2013: SDR0; 2014: SDR0
- In percent of quota: 2008: 900; 2009: 900; 2010: 900; 2011: 675; 2012: 225; 2013: 0
- In percent of GDP: 2008: 5.3; 2009: 5.1; 2010: 4.8; 2011: 3.3; 2012: 1.0; 2013: 0.0
- Debt service due on GRA credit (millions SDR): 2008: 132; 2009: 204; 2010: 204; 2011: 1,939; 2012: 3,584; 2013: 1,753
- Total External Debt, assuming full drawing (percent of GDP): 2008: 19.3; 2009: 29.6; 2010: 28.6; 2011: 26.7; 2012: 23.5; 2013: 19.8; 2014: 16.9
- Total Debt Service, assuming full drawing (percent of GDP): 2008: 3.4; 2009: 5.0; 2010: 5.3; 2011: 4.3; 2012: 5.5; 2013: 5.8; 2014: 5.5

### Authorities’ letter and institutional commitments (excerpted highlights)
- Date and place: Bogotá, April 30, 2009.
- Authorities’ request: FCL arrangement for Colombia in the amount of SDR 6.966 billion (900 percent of quota), covering a period of 12 months; arrangement intended to be precautionary.
- Authorities’ rationale emphasized:
  - Flexible exchange rate regime as effective shock absorber.
  - Public debt relatively low; fiscal policies anchored on a medium-term framework geared toward further debt reduction.
  - Inflation targeting regime anchored inflation expectations in single digits.
  - Reserve coverage in terms of imports and short-term debt is comfortable.
  - External debt-to-GDP relatively low and on a declining path.
  - Prudential fiscal stance allowing automatic stabilizers to operate; monetary easing since last year including lowering reserve requirements and policy rate by 300 bps.
  - Strong supervisory and regulatory framework; banks’ balance sheets strong, capital well above requirements, banks profitable and provisioning comfortable.
- Safeguards: Banco de la República will provide all needed information and send requested authorizations to the bank’s external auditors in accordance with the safeguards policy for the FCL.

*International Monetary Fund—Colombia: Assessment of the Impact of the Proposed Flexible Credit Line Arrangement on the Fund’s Finances and Liquidity Position (Prepared by the Finance and Strategy, Policy and Review Departments). Approved May 5, 2009.*

### 1.      This note assesses the impact of the proposed Flexible Credit Line (FCL)

### This note assesses the impact of the proposed Flexible Credit Line (FCL) arrangement for Colombia on the Fund’s finances and liquidity position

### Background
- Proposed arrangement:
  - Coverage period: 12-month period.
  - Amount: SDR 6.966 billion (900 percent of quota).
  - Full amount available throughout arrangement period, in one or multiple purchases.
  - Authorities intend to treat the arrangement as precautionary.
- Colombia’s recent IMF engagement:
  - Colombia had three Fund arrangements during the past decade but has not drawn on Fund resources since 1971.
  - Past arrangements include: a three-year Extended Arrangement (EA) under the EFF approved in 1999 (no drawings), followed by two precautionary SBAs, the last of which expired in November 2006.
- External debt profile (Table 2, totals and shares):
  - Total External Debt (In Millions of US Dollars): 2005: 38,507; 2006: 40,103; 2007: 44,553; 2008: 46,392; 2009 1/: 48,227.
  - Private (In Millions of US Dollars): 2005: 14,317; 2006: 13,803; 2007: 15,734; 2008: 16,945; 2009 1/: 14,345.
  - Public (In Millions of US Dollars): 2005: 24,189; 2006: 26,299; 2007: 28,819; 2008: 29,447; 2009 1/: 33,882.
  - Total External Debt (In Percent of GDP): 2005: 26.6; 2006: 24.7; 2007: 21.4; 2008: 19.3; 2009 1/: 24.3.
  - Private (In Percent of GDP): 2005: 9.9; 2006: 8.5; 2007: 7.6; 2008: 7.0; 2009 1/: 7.2.
  - Public (In Percent of GDP): 2005: 16.7; 2006: 16.2; 2007: 13.9; 2008: 12.2; 2009 1/: 17.1.
- Staff assessment: External debt is relatively low, declining as a share of GDP in recent years, with the bulk long-term and owed by the public sector; private sector external debt about 7 percent of GDP. Debt sustainability analysis suggests external debt ratios would remain manageable even under significantly negative shocks.

### Impact on the Fund’s finances and liquidity position
- Scale and exposure:
  - In SDRs, the proposed FCL would be more than three and a half times Colombia’s largest arrangement to date.
  - If fully drawn, Colombia’s outstanding use of GRA resources would reach SDR 6.966 billion—an individual country exposure previously exceeded only for seven members.
- If the full amount were purchased in 2009:
  - External debt composition and ratios:
    - Total external debt would rise to about 30 percent of GDP initially.
    - Public external debt would rise to about 22 percent of GDP.
    - Fund credit would be about 5 percent of GDP.
  - Peak implications (2009–11):
    - Colombia’s outstanding use of GRA resources would account for about 18 percent of total external debt.
    - GRA credit would account for slightly less than one-quarter of public external debt.
    - GRA credit would be close to one-third of reserves.
  - Debt service implications:
    - Projected debt service to the Fund would peak in 2013 at about SDR 3.6 billion, or about 2 percent of GDP.
    - In terms of exports of goods and services, debt service to the Fund would peak at about 12 percent, accounting for slightly over half of total public external debt service.
- Liquidity and concentration effects:
  - The proposed arrangement would reduce Fund liquidity by the full amount of available access.
  - Approval would reduce the one-year forward commitment capacity (FCC) by SDR 6.966 billion.
  - Supplementary resources: the Fund also has supplementary resources under the borrowing agreement with Japan.
  - If fully drawn:
    - GRA credit to Colombia as a share of total GRA credit would be about 25 percent.
    - Concentration: the share of Fund credit outstanding held by the top five users would increase to about 88 percent (from 86.3 percent before approval to 87.7 percent upon approval).
    - Potential GRA exposure to Colombia would be roughly equivalent to the Fund’s current precautionary balances.
- Key figures from Table 3 (Capacity to Repay Indicators), assuming full drawings upon approval:
  - GRA credit to Colombia (In SDR millions): 2009: 6,966.0; 2010: 6,966.0; 2011: 6,966.0; 2012: 5,224.5; 2013: 1,741.5.
  - In percent of quota: (2009) (900.0); (2010) (900.0); (2011) (900.0); (2012) (675.0); (2013) (225.0).
  - Charges due on GRA credit (In SDR millions): 2009: 131.9; 2010: 203.7; 2011: 203.7; 2012: 197.0; 2013: 100.8; 2014: 11.6.
  - Debt service due on GRA credit (In SDR millions): 2009: 131.9; 2010: 203.7; 2011: 203.7; 2012: 1,938.5; 2013: 3,583.8; 2014: 1,753.1.
  - Total external debt (In percent of GDP): 2008: 19.3; 2009: 29.6; 2010: 28.6; 2011: 26.7; 2012: 23.5; 2013: 19.8; 2014: 16.9.
  - Public external debt (In percent of GDP): 2008: 12.2; 2009: 22.3; 2010: 22.4; 2011: 21.2; 2012: 18.4; 2013: 15.2; 2014: 12.7.
  - GRA credit to Colombia (In percent of GDP): 2009: 5.3; 2010: 5.1; 2011: 4.8; 2012: 3.3; 2013: 1.0.
  - Total external debt service (In percent of GDP): 2008: 3.4; 2009: 5.0; 2010: 5.3; 2011: 4.3; 2012: 5.5; 2013: 5.8; 2014: 5.5.
  - Debt service due on GRA credit (In percent of GDP): 2009: 0.1; 2010: 0.1; 2011: 0.1; 2012: 1.9; 2013: 2.1; 2014: 1.0.
  - GRA credit share of total external debt: 2009: 17.8; 2010: 17.8; 2011: 17.9; 2012: 14.2; 2013: 5.2.
  - GRA credit share of public external debt: 2009: 23.5; 2010: 22.7; 2011: 22.6; 2012: 18.0; 2013: 6.8.
- Key figures from Table 4 (Impact on GRA Finances) as of 4/24/2009:
  - Current one-year Forward Commitment Capacity (FCC) 1/: 66,704 (In SDR millions).
  - Japan borrowing agreement, available resources: 66,809.
  - Reduction in FCC on approval of FCL: 6,966.
  - Prudential measures, assuming full FCL drawing:
    - Fund credit to Colombia, in percent of total GRA credit outstanding 2/: 25.4.
    - Fund credit to Colombia, in percent of current precautionary balances: 100.4.
    - Fund credit outstanding to five largest debtors, in percent of total GRA credit outstanding, before approval: 86.3.
    - Fund credit outstanding to five largest debtors, in percent of total GRA credit outstanding, upon approval of the FCL 2/: 87.7.
  - Memorandum items:
    - Current precautionary balances (end-April 2008): 6,939.
    - Total FCL commitments, including proposed FCLs: 52,184.
    - Quota of FTP members with actual and proposed FCLs, in percent of total quota of FTP members: 3.0.
  - Notes:
    - The FCC measures the Fund's capacity to make new credit commitments over the next 12 months.
    - Does not include proposed commitments to Romania (SDR 11.4 billion) and Poland (SDR 13.7 billion).
    - Based on current Fund credit outstanding plus full drawings under the proposed FCL.
    - Current precautionary balances figure dated end-April 2008.

### Assessment and policy implications
- Overall assessment:
  - The proposed arrangement would have a large but manageable impact on Fund liquidity.
  - Fund liquidity has declined rapidly in recent weeks and is likely to continue to decline as the Board considers forthcoming requests for arrangements.
- Policy recommendations and implications highlighted in the note:
  - Continued close monitoring of Fund liquidity is necessary.
  - Expedite efforts to bring new borrowing agreements into effect to supplement the Fund’s resources.

*Source: IMF staff note on the proposed Flexible Credit Line (FCL) arrangement for Colombia (content unit: _cr09153).*

### 8.      Colombia intends to treat the FCL arrangement as precautionary, but if it did

### _cr09153 - 8.      Colombia intends to treat the FCL arrangement as precautionary, but if it did

### FCL arrangement, Fund exposure, and institutional assessment
- IMF Executive Board approved a one-year SDR 6.966 billion (about US$10.5 billion) arrangement for Colombia under the Flexible Credit Line (FCL).
- The Colombian authorities have stated they intend to treat the arrangement as precautionary and not draw on the line.
- If it did prove necessary to draw, the Fund’s credit exposure to Colombia would be large.
- The authorities’ proven track record and commitment to maintaining sound policies provide very strong assurances they would react appropriately to any balance of payments difficulties.
- Risks to the Fund are contained by:
  - very strong rules-based policy setting;
  - Colombia’s very strong record of debt servicing;
  - a manageable external debt service profile, even if the authorities were to draw the full amount available under the arrangement.
- Nonetheless, the scale of the Fund's potential exposure to Colombia—in conjunction with recent commitments to other members and prospects for further credit expansion in the pipeline—underscores the need to strengthen the Fund’s precautionary balances.

### Press Release summary and purpose of the FCL
- The FCL was created in the context of a major overhaul of the Fund’s lending framework on March 24, 2009.
- The FCL is available to countries with a very strong track record of sound macroeconomic policies and institutional frameworks.
- The FCL is designed to help countries’ crisis prevention efforts by providing flexibility to draw on the credit line at any time; disbursements are not phased nor conditioned on compliance with policy targets.
- The arrangement for Colombia is the second commitment in Latin America and the third overall under the IMF’s FCL (following arrangements for Mexico and Poland).
- The one-year arrangement will bolster confidence in the authorities’ policy framework and strategy at a time of heightened global uncertainty.

### Executive remarks on Colombia’s recent macroeconomic performance (statement by John Lipsky)
- Over the last decade Colombia maintained a very strong macroeconomic performance, underpinned by solid institutional policy frameworks.
- GDP growth has been robust; the inflation-targeting regime brought inflation down to single digits.
- Anchored on its medium term fiscal framework, Colombia’s debt ratios have declined substantially.
- The flexible exchange rate regime and prudent debt management have helped reduce balance sheet vulnerabilities.
- Strong supervision and regulation have kept the financial system sound.
- Near-term outlook adversely affected by the global environment:
  - Flexible exchange rate absorbed first-round effects of the global crisis.
  - Weak external demand led to contraction of exports and a considerable slowdown in economic activity.
  - The financial system has not experienced major strains since the onset of the global crisis.
  - The Government of Colombia has maintained access to international capital markets at favorable terms.
- Authorities’ policy response:
  - With inflation abating, monetary policy has been eased.
  - Authorities are allowing automatic fiscal stabilizers to operate fully, while preserving medium-term fiscal sustainability.
  - Exchange rate has been an effective shock absorber with limited rules-based intervention; reserve losses have been small.
  - Increased deposit insurance coverage to protect the financial system.
  - Secured external financing to the state-owned foreign trade bank to provide loans to banks and corporations facing reduced access to external trade credit.

### Authorities’ position and request (statement by María Inés Agudelo)
- The authorities welcome the FCL as support for countries with strong fundamentals to weather the international crisis.
- The external crisis has severely affected the Colombian economy; growth is expected to slow significantly but not fall into negative territory.
- Key domestic effects noted: plummeted consumer and business confidence, higher unemployment, lower remittances, lower terms of trade, falling exports, and weakened domestic demand.
- Concerns exist about risks of financing constraints that could limit policymakers’ room for maneuver; the FCL aims to reduce those risks and avoid pro-cyclical policies.
- With the FCL announcement, spreads and interest rates on domestic treasuries lowered, boosting investor confidence.
- Access requested: 900 percent of the quota, which the authorities intend to treat as precautionary.
- Historical precedent: ten years earlier Colombia requested the EFF and subsequent stand-by arrangements, did not draw on resources, and pursued a strong reform agenda that gained market confidence.

### Monetary and exchange rate policies
- The inflation-targeting framework brought a reduction in inflation and a credible commitment to low inflation.
- Monetary policy response history:
  - In 2007 and 2008, monetary policy was tightened and interest rates increased by 400 basis points to contain second-round effects of food and fuel prices.
  - Since last December, authorities have reduced interest rates by 400 basis points.
- Headline and core inflation have been falling since the fourth quarter of last year; inflation expectations and projections support a lower inflation rate within the target by the end of this year and a continued downward trend toward the long-term objective.
- Exchange rate policy:
  - Built international reserves in previous years and allowed orderly peso-depreciation recently.
  - Policy toolkit includes automatic interventions to reduce volatility, direct interventions to build reserves, restrictions on capital inflows, and regulations on financial institutions’ open net foreign exchange positions.
  - Financial sector and corporate sector have low risk of exposure to exchange rate movements; households are not exposed to foreign currencies.
  - Exchange rate has floated freely with no significant Central Bank intervention throughout the year and has functioned as an absorber of the external shock.

### Fiscal policy
- The medium-term fiscal framework sets the short-term fiscal target consistent with a reduced path of public debt and provides flexibility to accommodate shifting conditions.
- Revenue impacts from global and national changes implied originally approved budgets for fiscal years 2008 and 2009 would have resulted in larger deficits than specified in the framework.
- Fiscal adjustments:
  - In mid-year 2008 and in January 2009, fiscal authorities cut expenditures by around ½ percentage point of GDP each time, leading to close to fiscal equilibrium at the end of last year.
  - For 2009, after the January budget cut, authorities decided to let automatic stabilizers operate and the fiscal deficit will be larger than originally expected.
- Financing conditions constrained short-term fiscal expansions; authorities have been active in securing external and domestic financing:
  - Even under stressed conditions, the Colombian government tapped external markets this year for US$ 2 billion with reasonable financial conditions.
  - At the end of April the Treasury had already met more than half of the domestic financing target for the year.
  - Authorities have obtained support from other multilateral institutions.

### Financial sector developments
- Institutional framework and policies were significantly strengthened after the late-1990s crisis.
- Since the FSAP update in 2005, Colombia has maintained bank capitalization, improved financial legislation, and revamped supervisory framework.
- Oversight:
  - Committee of Financial Stability now meets once a month.
  - The Central Bank publishes a report on the stability of the financial system twice a year assessing stability and evaluating main risks.
- Financial indicators:
  - Credit growth and deposits are still growing at real positive rates, though dynamics are weaker than previous years.
  - As the economy decelerates, NPLs have deteriorated somewhat, but banks remain solvent and profitable.
  - Replacement of private sector loans with government bonds in bank balance sheets has shifted risks from credit to liquidity.
  - Given strict regulation on foreign exchange exposures, the financial sector has low exposure to peso depreciation.
  - Financing to the corporate sector continued to flow in the local bond market with new bond issuances of more than US$ 1 billion during the first three months of this year.

### Conclusions and commitments
- Authorities commit to keeping the track record of sound macroeconomic policies and the solid institutional framework that has supported response to changing conditions.
- The FCL arrangement, treated as precautionary by the authorities, is expected to boost confidence and provide insurance against further deterioration in the global environment.
- Authorities consent to the publication of the paper.

*IMF Press Release No. 09/161 and accompanying statements, May 11, 2009.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09153.pdf_