The last two years have seen Colombia regain stability and consolidate foundations for greater sustainable growth in the future. The country has managed to shake off the crisis with relative ease and has laid solid foundations for high, sustained future growth. Testifying to this solidity are the recovery of the financial sector and the aggressive export policy adopted by the Colombian business sector. This outwards-oriented strategy has helped boost industrial exports.
There have also been notable successes in macroeconomic stability, with inflation at a single digit, 7.65 percent, interest rates kept at modest levels and a competitive and manageable exchange rate. All this renders the country less vulnerable to national and international disruption.
After Colombia's characteristically high rates of interest of the past decade, these have now fallen substantially since 1999 reaching relatively modest levels. The deposit rate remained stable in 2001 at around 12 percent, corresponding in real terms to an average of 4 percent, which is even lower than the historical average of 6 percent. On the other hand, the lending rate continued to be a high 22 percent, three points above the average for 2000. Consumer credit rates are the highest on the market, reaching real levels of almost 25 percent.
The exchange rate rose slightly until mid-2001, after which it stabilized at around US1 to COP 2 300, representing a devaluation of only 2.8 percent. With this devaluation and the favourable performance of inflation, the country lost very little competitiveness on international markets, as demonstrated by the effective exchange rate index which remained generally stable throughout the year, standing at 118.07 in November. The bilateral exchange rate continued to be favourable with the United States, Venezuela and Ecuador, the country's main trading partners.
The slow process of economic recovery that began in 2000 continued in 2001, and despite a complex regional and national environment, Colombia's GDP grew by 1.5 percent. Two important economic sectors on a downward trend, construction and the financial sector, rallied in the last quarter of the year but not sufficiently to produce overall growth for the year. The manufacturing industry grew 1.2 percent (0.7 percent with the exclusion of coffee processing). A large proportion of industrial growth was export-driven as domestic demand continued to be sluggish. Non-traditional industrial exports rose 13.5 percent in dollar terms. However, total exports fell 6 percent, mainly because of falling coffee and oil prices, the oil situation being further exacerbated by terrorist attacks that kept the pipeline out of action for more than half the year.
Total imports grew by about 12 percent. The balance of trade, which had been in equilibrium in 2000, posted a deficit of about 3 percent of GDP in 2001, which was financed through long-term financial flows.
On the fiscal front, the aim of reducing the year-2000 deficit of -3.6 percent to -2.8 percent in 2001 was not achieved because of low economic growth, producing a year-end fiscal deficit estimated at -3.3 percent of GDP, slightly lower than the previous year.
Unemployment fell to 16 percent but continues to be one of the highest levels in the Region. Economic performance in the last two years has helped curb the upward trend of this indicator but underemployment continues at levels of more than 30 percent, reflecting a difficult social situation and pointing to an urgent need for faster sustainable growth.
Total production of pulp for paper fell 4.8 percent from 2000. There was a greater fall for wood pulp, down 6.7 percent, than for sugar cane waste (bagasse), down 2 percent.
Domestic recycling of wastepaper increased 3 percent because more packaging materials were recovered, but there was less recycling of printing and writing paper because of the drop in domestic consumption of these two paper grades.
Domestic production of paper and paperboard increased 0.2 percent, but there was a relatively wide spread in individual performance. With regards to printing and writing paper (5 percent), the growth in production of uncoated paper of 8.8 percent contrasted with a fall in production of coated paper of 18 percent. This was due to changes to installed machinery to increase plant capacity that came online in the last quarter. Production of linerboard and corrugated medium also increased, as did wrapping paper. On the other hand, sack paper and boxboard fell by more than 10 percent. Production of tissue paper dropped 2 percent. A new producer started to operate in this sector at year-end with an installed capacity that will add more than one-third to present capacity.
Apparent consumption of paper and paperboard in the first three-quarters fell by about 5 percent, with drops in imports and in production for local consumption. Increased production was due to a 33 percent increase in exports. In this period, there was only an increase in consumption for tissue and wrapping paper.
Consumption of corrugated paper is essentially determined by the level of production of bananas for export, which fell from the previous year. There has also been a substitution of containerboard by plastic, as also occurred for folding boxes and in previous years for paper sacks. Consumption of sack paper continued to be limited by the recession in the construction industry, whose early signs of recovery were reflected more in consumption of bulk cement than cement in sacks.
By September, exports of printing and writing paper had grown 58 percent and tissue paper 43 percent, while packing and wrapping materials had fallen 6 percent. The countries of the Andean Community accounted for a greater share of Colombian exports.
Imports of paper and board fell 4 percent in the first nine months of 2001. The highest increase in imports was for tissue paper, mainly because of the introduction of qualities not available locally. There were also higher imports of paper for sacks and to a lesser extent boxboard. The greatest fall was corrugated paper, where imports dropped from 92 000 tonnes in 2000 to 79 000 in 2001. Most of this paper is used for to pack bananas for export.
A survey conducted in December identified weak demand and low profitability as the two problems of most concern to the pulp, paper and paperboard industry.
Although not all companies have yet issued their financial statements, a sectoral survey suggests that most companies saw lower profits in 2001 than in 2000. The industry expects a generally positive outcome, but down from 2000 because of price differences.
This will not be an easy year for the Colombian economy. One of the basic criteria determining the outlook is the future health of the North American economy, over which there are conflicting opinions. Some analysts anticipate a recovery from the second quarter, while others expect a continuation of recession or similar growth to this year.
Another element causing uncertainty is that this is an election year, with elections for Congress and President of the Republic in the first six months. An election year has traditionally seen little investment activity, although there is an increase in paper consumption. Developments in Colombia's internal conflict will also influence economic activity, and the recent breakdown of dialogue and the termination of the demilitarized zone suggest an upsurge in terrorist activity that will hamper growth.
Also important, however, is the progress made in building macroeconomic stability to lay the groundwork for greater sustainable growth in the future. In this regard, the financial and construction sectors are expected to continue to recover and strengthen. Another positive feature is the extension of the Andean Trade Preference Act (ATPA), which is currently under discussion in the United States Congress and should be concluded in the first quarter of 2002. This is an important stimulus for the Colombian economy.
In general terms, moderate economic growth is expected in 2002, slightly up from 2001. No major upsets are expected in the key macroeconomic variables, with interest rates likely to stay at present levels, inflation to continue in the single digits and the exchange market to remain calm.
The challenges for the immediate future concern the consolidation of economic recovery embracing all activities. In this broader perspective, higher growth is needed for improvement on all economic and social fronts, including public finances, employment and quality of life. The country has managed to achieve favourable international recognition that now needs to be capitalized on, especially at difficult moments such as these. The major continuing concerns are the high levels of unemployment, the weakness of domestic demand and the problems of public order.
Expectations of growth in the paper industry are modest, mainly because of the role now played by exports in paper mill production. With regards to printing and writing paper, the greater installed capacity for coated paper could reduce the supply of uncoated paper, which could in turn lead to a reduction in exports from the replacement paper that was hitherto imported. With regards to packaging materials, the new preferences applied by the United States under the ATPA should translate into higher demand. The increase in installed capacity for tissue paper is expected to lead to higher exports, with a diversification of supply, but availability of wastepaper is a factor limiting growth.
The possibility of negotiating clean development mechanisms and carbon sequestration has raised expectations in the country, which have translated into research such as that of the Public Corporations of Medellín and the National University to measure the carbon storage capacity of natural forests and forest plantations.
Colombia adhered to the Kyoto Protocol on 30 November 2001 and began to develop its national policy on climate change. This has not yet been approved and is still under discussion at the National Department of Planning, the Office of the Vice-President and the Ministry of Environment. A National Office of Climate Change is expected to be set up at the Ministry of Environment in mid-2002, charged with co-ordinating evaluation of emissions, administrative follow-up and negotiations. The objective is to have Colombia implement the policies adopted by the Conference of Parties held in Marrakech, Morocco, from 29 October to 9 November 2001.
The National Forest Development Plan was approved in December 2000 by the National Environment Council, representing government policy for consolidation of the sector as it calls for the integrated implementation of programmes of management, conservation and rehabilitation of forest ecosystems, the restructuring of production chains and institutional strengthening - all within a 25-year time frame.
When implementing this plan in 2001, the Ministry of Environment emphasized the dissemination and the discussion with regional actors of appropriate project implementation mechanisms. The National Corporation for Forest Research (CONIF) proposed a number of forest zoning and evaluation projects in the north of the country (Magdalena, Córdoba, Antioquía, and other departments) and several regional forest plantation projects have now been formulated (Antioquía, Córdoba, Caldas), but none of these had actually been initiated by year-end.
The construction sector continued to be in crisis for much of 2001, rallying slightly in the last quarter. Demand for timber therefore remained sluggish as did prices of wood products. There was no noticeable increase in reforestation and only marginal use of the Forest Promotion Certificate (CIF) because of inherent administrative difficulties, high initial cost to reforesters and problems of security in rural areas. The total national territory covered by forest plantations amounts to barely 140 000 hectares.
As for voluntary forest certification, the appointed taskforce (GTCFV) followed the guidelines of the Forest Stewardship Council (FSC) and, with minor preconditions, succeeded in securing approval of Colombia's standards for voluntary forest certification in natural forests and forest plantations. The only company in Colombia to have received the certificate from FSC is the manufacturer of plywood and chipboard, Pizano S.A.