1997-1999 Crisis

Government: Republic Capital: Bogota Independence from Spain: July 20 1810 Legal system: Spanish law. However, a

new system that is modeled after U.S. law was adopted in 2004.

Population: 43.6 million

El Niño damages increased food prices and exacerbated the agriculture sector.

Expansionary Fiscal Policy: pushed by new oil discoveries and development. Healthcare Education Other infrastructure

East Asian Crisis Foreign investors feared of contagion

throughout LDC’s.

Liberalization & Credit boom (1991-1997) Total credit rose from 29.1% to 43.1% of GDP. Past due loans and non performing loans hit

high levels. This led to a 31.1% net worth loss in the financial system.

Large fall in the price of oil, coffee, and coal. Price of oil Declined from US$ 18.2 per barrel in

1997 to US$ 11.5 in 1998. Oil exports did increase some 24% in terms of volume. However the increase was not enough to offset the decrease in the price of oil

The speculative attacks on the Colombian peso lasted nearly two years: 1997 - 1999

Contractionary monetary policy. 1998: M1 contracted by 4%, whereas in 1997

it had grown by 21.7%. Lending rates increased from 33% to 45%,

which was the highest level observed throughout the decade.

Fixed-term deposit interest rates increased from 24% to 36%.

Decreased the limits of the exchange rate band

IMF bail out package of US$ 2.7 billion: (1999 -2002)

Help conditional on Tight spending policy Strong tax enforcement Control of resources under a fiscal

decentralization system. Adoption of a free float Inflation targeting

Inflation decreased from 9.5% in 1999 to 5.5% in 2004.

The Colombian peso continues to devalue.

GDP has grown at a poor rate. Financial institutions decreased from 110

in June of 1998 to 57 by 2001. This is the largest financial crisis that Colombia has faced during the last century.