Colombia achieves medium overall compliance with international standards and codes, with a score of 40 out of 100 in our Standards Compliance Index. Colombia's compliance in the area of macroeconomic fundamentals is fairly high, but it lags seriously behind international standards in the areas of market infrastructure and financial supervision. Colombia's accounting and auditing practices are not aligned with international codes and represent a serious departure from international best practices for financial reporting and transparency. One area showing better compliance include money laundering and securities regulation, where recent legislation has strengthened supervisory and prosecutorial authority. Others include corporate governance, the insolvency framework, payment systems. and banking supervision, where Colombia is reforming its laws and practices to move closer to international standards.

Macroeconomic Policy and Data Transparency

Colombia is a subscriber to the Special Data Dissemination Standard (SDDS) and meets SDDS specifications for the coverage, periodicity, and timeliness of the data and for dissemination of advance release calendars for most data categories. In 2005 the IMF noted that both the timeliness and comprehensiveness of fiscal data needed improvement, in addition to, more timely and reliable data on the finances of local governments. More »

Monetary policy in Colombia remained transparent throughout 2004. If President Alvaro Uribe is re-elected in 2006, his re-election could compromise the independence of the central bank given that the president would be able to appoint an additional two members of the Monetary Board of Directors (two are elected per presidential term). A clause will need to be written in the constitution to protect against this occurring. The roles and responsibilities of the Bank of the Republic (BanRep) are clearly set out in the Central Bank Law, which provides an appropriate legal framework for establishing the central bank's institutional objectives and its relationship with the government. The BanRep has consolidated its inflation-targeting mechanism, which is complemented by clear monetary and foreign exchange intervention rules. The BanRep has continued to improve the communication and transparency of its inflation-targeting framework during 2004. More »

Over the past two years, the government has taken several steps to improve fiscal planning, budgeting, availability of information, spending execution and follow-up processes at all levels of government. The Fiscal Responsibility Law, approved in July 2003, sets fiscal stability rules that limit the fiscal deficit and provide for long-term sustainability of the public debt. It establishes principles of fiscal discipline across all levels of government and organizes the budget process at the sub-national level. It is a major step forward in terms of fiscal discipline and transparency. Congress is currently considering a revised Budget Code. It will require, inter alia, that the annual budget law include information on contingent fiscal liabilities, tax expenditures, quasi-fiscal activities, subsidies, medium-term fiscal projections, and a fiscal sustainability analysis. A Medium Term Fiscal Framework (MTFF) was produced for the first time in June 2004. More »

Institutional and market infrastructure

The framework for insolvency procedures and the protection of creditor rights was extensively reformed in 1999, in order to accelerate the very protracted Concordato proceedings under the previous law. Law 550 on reorganization was introduced in an emergency context, and approved under pressure to protect distressed debtors' interests. It is excessively tilted against creditors and, more specifically, against financial creditors' rights, providing a potentially harmful effect on bank lending and on the financial deepening of the Colombian economy. The current project of reforms of all insolvency laws before Congress, and the widespread movement toward reform of laws on individual actions, provide a clear opportunity to incorporate international standards into Colombian law. More »

According to the assessment conducted in 2003 by the World Bank on the accounting and auditing practices in Colombia, the Colombian government, in an attempt to improve the corporate financial reporting regime, proposed a new law which, among other things, would fully adopt the International Financial Reporting Standards (IFRSs), formerly the International Accounting Standards (IASs). However, in 2005, the IMF noted that the accounting requirements in Colombia still had not been aligned with IFRSs which represented a serious departure from international best practices for financial reporting and transparency. Although based on the IFRSs and US GAAP, Colombian GAAP fails to incorporate many areas covered by the international standards and it has not been updated to reflect IFRSs and US GAAP requirements since 1993. More »

Family groups and conglomerates largely control Colombia's corporate sector. Colombia is moving towards the creation of an environment in which medium-sized companies can raise capital in the market and help them make the transition from tightly-controlled family firms, to public companies. Colombia has put a minimum corporate governance disclosure regime in place for companies that wish to be eligible for pension fund investments. In general, private sector efforts in Colombia have been led by Confecamaras (the Confederation of Chambers of Commerce). The Confecamaras Corporate Governance Project has organized numerous events to raise awareness of governance issues throughout the private sector, inviting companies, investors, the mass media and national and international experts to participate. In August 2003, the Colombian Corporate Governance Code for Listed Companies was published. This code is not mandatory. The Capital Markets Law 964 was enacted on July 8, 2005. Its purpose among others is to regulate measures of corporate governance. It introduces the concept of independent directors. However, Colombia needs to adopt internationally acceptable auditing and accounting standards and improve minority shareholder rights. More »

There are no auditing standards in Colombia to set the requirements and guidelines for auditing financial statements. According to the assessment conducted in 2003 by the World Bank on the accounting and auditing practices in Colombia, the Colombian government, in an attempt to improve the corporate financial reporting regime, proposed a new law which, among other things, would fully adopt International Standards on Auditing (ISAs). However, in 2005, the IMF noted that there still was the lack of audit standards and this represented a serious departure from international best practices for financial reporting and transparency. One of the main recommendations of the Update was an adoption of ISAs and reform of the auditing profession. More »

In October 2004, GAFISUD (the Financial Action Task Force style regional body for South America) conducted a mutual evaluation of Colombia to assess compliance with the FATF 40 plus 8 Special recommendations on AML/CFT. The assessment indicates that the Colombian authorities are deeply committed to combating money laundering and have achieved a significant number of convictions. Colombian AML legislation makes money laundering an autonomous offense and covers most serious predicate offenses. The financial intelligence unit (UIAF) is one of the leading authorities in AML/CFT controls in Colombia with adequate powers and systems. Nevertheless, despite comprehensive anti-money laundering legislation regulations which have allowed the government to refine and improve its ability to combat financial crimes and money laundering, enforcement continues to be a challenge in Colombia. Limited resources for prosecutors and investigators have made financial investigations problematic. Congestion in the court system, procedural impediments, and corruption remain as continuing problems. In addition, the government has not specifically criminalized the financing of terrorism, although terrorist financing crimes can be prosecuted under other sections of law. More »

Payment services in Colombia are carried out through a variety of entities, types of institutions, and service suppliers that in turn come under the umbrella of multiple regulating entities. The check system has significantly reduced its "systemic importance" but the Central Bank of Colombia (BRC) should continue its effort to reduce the use of checks among intermediaries and broaden the use of electronic payments. Law 964 of 2005 entitled "Law of Securities Market", was enacted on July 8, 2005. In its 2005 FSSA Update, the IMF observed that the law addresses most of the weaknesses identified in the legal framework for the payment system and improve compliance with CPSS standards. However, it does not address the lack of legal basis for the central bank's oversight function and therefore, the BRC should seek clear legislative authority for the oversight of clearance and settlement systems. More »

Financial Regulation and Supervision

The quality of bank supervision and regulation in Colombia has improved since the 1999 IMF's Financial Sector Assessment Program (FSAP) as indicated by progress in Basel Core Principles implementation. The banking system has been recapitalized, and the supervisory framework has been revamped. The revision of the banking law has improved solvency requirements, while also creating a framework conducive to more effective supervision. Nevertheless, the banking system still faces considerable challenges. The Superintendency of Banks lacks sufficient autonomy and independence, while the current legal framework fails to effectively protect either bank supervisors or the Superintendent. Risk-based regulation and consolidated supervision remain key issues going forward. Although solvency and profitability of commercial banks have improved, provisioning for nonperforming loans remains low relative to international standards. The substitution of government bonds for private sector loans in bank balance sheets has shifted the balance from credit risk exposure into market and sovereign risk exposure. Notwithstanding a general revision and improvement of the legal and regulatory framework, weaknesses remain. More »

The Financial System Stability Assessment update, conducted by the IMF in 2005, reported that the regulatory framework is being amended toward best international practices, placing a special emphasis on protecting investor's rights, promoting market efficiency, integrity and trustworthiness among parties, and preventing systemic risks. Among the short term recommendations were the following points: Strengthen the regulatory regime by implementing the new Capital Market Law .Take measures to harmonize responsibilities, avoiding the current regulatory and supervisory overlap. Ensure that Securities Superintendency (SVC) should have sufficient resources for supervision, enforcement, and securities settlement. Promote local and international cooperation to share information. The new Capital market law was enacted in July 2005 and is supposed to bring Colombia in line with the Principles of Effective Securities Regulation developed by the International Organization of Securities Commissions (IOSCO). More »

The Financial System Stability Assessment update, conducted by the IMF in 2005, reported that, insurance supervisors have improved technical skills and updated procedures consistent with emerging international best practices. However, staff numbers diminished dramatically and have reached the point where constraints on available technical knowledge, experience, and skills are becoming a concern. However, there is no further information publicly available regarding Colombia's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS). More »

Legend:

Credit Ratings

Moody's Ba1/Stable

Fitch BB+/Stable

Standard & Poor's BB+/Stable

Macroeconomic Data

2007 GDP (Current Prices): 171.6 billion USD (IMF)

2007 GDP (Per Capita): 3,611 USD (IMF)

2008 GDP (Growth Forecast): 4.6% (IMF)

2008 Inflation (CPI): 5.5% (IMF)

2007 Unemployment: 10.6% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 6.3 billion USD (UNCTAD)

FDI (Outward): 1.1 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): 988 million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)