After a poor start, the different economic sectors began to show improved performance from the third quarter, reversing the downturn trend since 1996. Gross Domestic Product increased by 3.2 percent as compared to 2.0 percent in 1996. The sectors contributing most to economic growth were private and public services, the financial sector, trade and industry. Industry was a key contributor to economic growth, but mainly because of share of GDP than vitality. The growth in demand was export driven, particularly with the accelerated devaluation of the second semester.
Industrial production rose 2.2 percent compared to the 3.8 percent decline in 1996. The main factors behind this were the increase in domestic price of coffee, accelerated devaluation which spurred exports, the relatively low levels of interest; and a general recovery of domestic demand which increased by 3.1 percent against 1.9 percent in 1996.
External trade also showed signs of recovery, with total exports rising by just over 10 percent compared to the modest 4.2 percent of 1996. Imports also increased, by 7.7 percent against 3.0 percent in 1996. This increase in imports was led by consumer goods which rose 27.5 percent in contrast to the 25.3 percent fall in 1996.
Inflation dropped from 21.6 percent in late 1996 to 17.7 percent, the lowest level since 1984. This kept price increases below the 18 percent target set by the authorities at the beginning of the year.
The exchange rate band was maintained with a gradient of 15 percent and a range of 7 percent. The exchange rate remained near its floor until July because of strong revaluation pressures. It then moved close to its ceiling for the rest of the year. As a result, the exchange rate showed a real depreciation of 9 percent for the year.
This removed the difference in interest rates, to the point where the cost of foreign currency credit is now higher than the domestic market, without taking into account the 30 percent deposit required by the Central Bank for external credit. There is no doubt that a favourable exchange rate is an important determinant of economic recovery, particularly for the export sector.
The marked difference in domestic and external interest rates until July 1997 encouraged external borrowing, although the domestic rate was on a downward trend. This prompted the Central Bank to impose a reserve requirement on private external borrowing.
The enhanced liquidity of the economy lowered interest rates by ten points to 24.4 percent and 34.3 percent, respectively, by year end.
The gap between domestic and external interest rates was bridged in 1997. Assuming an unchanged level of devaluation, yield from external deposits is ten points higher than from domestic placements.
The level of unemployment is a major socio-economic problem, with poor economic performance reflected in a rise in unemployment from 11.3 percent in December 1996 to 12 percent one year later. This was due more to a larger potential workforce than to a reduction in new work opportunities.
Fiscal policy is another problem affecting the Colombian economy. In 1997, the government had an overall budgetary deficit (excluding privatisations) equivalent to 3.72 percent of GDP. The public finances should improve in 1998 as the electricity sector and other decentralised bodies are expected to perform better.
The general outlook for 1998 is therefore relatively optimistic as the country may be entering a more substantial expansionary phase. Realization of macroeconomic targets requires action within reasonable parameters rather than drastic measures. The most difficult task will be for the central government to control its expenditure and balance its books. Also, economic policy decisions will need to be coordinated among the authorities, taking care to provide public opinion with transparent management .
Although the national situation has improved, it is still not satisfactory if seen within the context of overall Latin American economic development in the last two years.
Apparent consumption of pulp in 1996 amounted to 381 000 tons, with 242 000 as woodpulp and the remaining 139 000 tons as other fibre pulp (98% sugar-cane bagasse pulp). Colombia’s woodpulp is from plantations or sawmill waste.
The paper and paperboard market increased by 4 percent to 931 000 tons. Imports covered 34 percent of apparent consumption while 11 percent of national output was exported.
The largest consumption (37%) was for corrugated containerboard amounting to 344 000 tons (36% imported). The growth of almost 10 percent in 1996 was largely due to increased exports of packaged goods. Production did not increase because of a strike in one of the mills.
Consumption of printing and writing paper (excluding newsprint) rose to 218 000 tons, of which 67 000 were imported. A total of 54 000 of the 205 000 tons produced were exported (26%). Imports rose more than exports for this grade of paper.
All newsprint used in Colombia is imported. The total fell by 24 percent in 1996 because of stock changes and low demand.
In contrast to the general economic trend, the paper industry performed better in the first semester than in the second.
First semester
The first semester of 1997 was good, with pulp production increasing by 17 percent and apparent consumption by 18 percent. Paper and paperboard consumption increased by 13 percent and production by 7 percent. The highest consumption increases were for printing and writing paper (including newsprint) with about 20 percent; tissues 8 percent; linerboard and corrugated medium 17 percent. Consumption fell for kraft sack paper, folding boxboard and other paper for bags and wrapping.
There were lower increases in local production.
Whole year
Apparent consumption cannot be estimated as trade figures are not yet available. However, the paper and paperboard sector is very sensitive to changes in the real exchange rate, which has fluctuated strongly in recent years.
Paper and paperboard production rose by 1.8 percent in 1997, which is below this sector’s average historical growth in Colombia.
The highest growth levels were for printing and writing paper (5% or 11 000 tons more than 1996); tissues (5% or 5 000 tons more); and speciality paper and board at 4 000 tons and 30 percent higher.
This increase was virtually offset by falls of about 10 000 tons (23%) for kraft sack paper and almost 5 000 tons (15%) for paper for bags and wrapping.
The crisis in the construction sector and changing consumer patterns caused the lower consumption of kraft sack paper and small paper bags.
The paper and paperboard market was affected by strong competition, with manufacturers reducing prices to increase market share, by the difficulties of client industries, which depressed demand for paper and paper board, and, in the first semester, by an overvalued exchange rate. Rapid devaluation in the second semester heightened competitiveness with imports for the local market and of exports for other markets. Nevertheless, companies with extensive dollar-nominated debts found themselves with unexpected higher liabilities.
