Volume 5, Number 11, Page 3

Report on Colombia

Colombia Confronts Massive Fiscal Deficit

Four months before leaving office, Colombian President Samper has initiated measures to combat the huge fiscal deficit that has plagued the Colombian economy. The government’s actions are at least partly in response to pressure from the private sector as well as in response to opinions voiced by Colombian economists.

As a first step toward reducing the deficit, the government cut public spending by Col.$ 500,000,000 (approximately U.S.$ 400 million). The budget cuts were aimed at the ICBF (Colombian Institute of Family Welfare), the INVIAS (Colombian Institute for the Development of Roadways), and TELECOM (Colombian National Telecommunications Company). The measure was not only a response to pressures on the domestic front, but is also intended to reassure international credit rating agencies and avoid a reduction in Colombia’s credit rating due to the deficit problem. The cut in public spending is expected to reduce the deficit for 1998 by 1.6 percent. This change would be a significant drop in light of last year’s 4 percent deficit and should shore up foreign investors’ confidence in the Colombian economy.

However, some critics believe that the measure is inadequate, noting that it merely suspends payments to the ICBF, INVIAS and TELECOM. The incoming government will eventually be required to pay the delayed amounts to those agencies. In the critics’ view, the measure provides only temporary relief from the problems of growing unemployment, high interest rates and foreign exchange rate pressures that Colombia is now experiencing.

Colombian Power Company Corelca to Privatize

The Corporación Eléctrica de la Costa Atlántica (Corelca), Colombia’s Atlantic coast region power generating company, will soon be privatized. Corelca serves seven million end users and has a generating capacity of 1,300 megawatts. It has assets of approximately U.S.$ 2 billion, making it the third largest power generating enterprise in Colombia.

The privatization process will entail several steps. First, assets of Corelca’s wholly-owned subsidiaries engaged in distribution, transmission and generation of electrical energy will be transferred to newly-created private enterprises. The new enterprises will retain the labor force employed by the Corelca subsidiaries and will become the assignees of all existing contracts held by the Corelca companies.

The privatization of Corelca is expected to generate at least U.S.$ 1 billion. This will be one of the largest privatizations to take place in 1998. A considerable number of foreign investors is expected to participate in the bidding process.

Gómez Pinzón & Asociados is located in Bogotá, Colombia. Areas of specialization include international finance, investment and corporate law.