Economic history of Colombia

[2] Because Spaniards came to the New World in search of quick riches in the form of precious metals and jewels, mining for these items became the pillar of the economy for much of the colonial period.

Assuming that the land and its inhabitants were entirely at its disposal, the monarchy envisioned the encomiendas as a means of administering humane and constructive policies of the government of Spain and protecting the welfare of the indigenous people.

[2] Under the influence of church figures such as Bartolomé de las Casas, the crown promulgated the New Laws in 1542 for the administration of the Spanish Empire in America.

Although the crown initially restricted licenses to Spanish merchants, it eventually opened up the slave trade to foreigners as demand outstripped supply.

[2] By the end of the 1700s, the high price of slaves along with increasing antislavery sentiment in the colony caused many to view the system as anachronistic; nonetheless, it was not abolished until after independence was achieved.

[2] Colombia's contemporary economy, based on coffee and other agricultural exports, did not emerge until after independence in 1819, when local entrepreneurs were free to capitalize on world markets other than Spain.

[3] Socioeconomic changes proceeded slowly; the economic system functioned as a loosely related group of regional producers rather than as a national entity.

[3] In the late nineteenth century, tobacco and coffee export industries developed, greatly enlarging the merchant class and leading to population expansion and the growth of cities.

The concentration of economic activity in agriculture and commerce, two sectors that focused on opening channels to world markets, continued slowly but steadily throughout the nineteenth century.

[3] Following the War of the Thousand Days (1899–1902), Colombia experienced a coffee boom that catapulted the country into the modern period, bringing the attendant benefits of transportation, particularly railroads, communications infrastructure, and the first major attempts at manufacturing.

Unprecedented amounts of foreign capital found their way into both private investment and public works during this period because of the strong performance of coffee and other exports.

[4] The rapid growth and development of the economy in the early twentieth century helped to strengthen the country so it was largely resistant to the Great Depression that began in 1929.

Before the 1950s, because of the steep terrain and a relatively primitive transportation network, local industries that were only loosely linked to other regional businesses dominated the manufacturing sector.

The expansion of production and exports boosted the income and purchasing capacity of the thousands of households involved in coffee cultivation, thereby increasing consumption rapidly and allowing the GDP to expand at an average annual rate of more than 5 percent during this period.

Foreign finance flowing to the region diminished significantly at the beginning of the 1980s, and Colombia was the only major Latin American economy that did not default on or restructure its public debt.

[8] In the 1980s, the government played a simultaneous role as a legislator, regulator, and entrepreneur, particularly in the provision of public utilities and in the exploitation of major natural resources, such as oil and coal.

Consequently, and notwithstanding a tradition of prudent fiscal policies, for a long period Colombia was characterized by a moderate, albeit stable, rate of inflation.

Consequently, a black market for foreign exchange emerged, which would eventually be the vehicle of choice to bring back to Colombia part of the proceeds flowing from the sale of illicit drugs in the United States and Europe.

In addition, the increasing internal conflict, in which guerrilla groups, paramilitaries, and drug cartels were major players, had negative economic effects, primarily by displacing legal and productive agricultural activities.

The insecurity fostered huge investments in sectors inconducive to economic efficiency, such as low-density cattle raising on some of Colombia's most productive land, and created a very unfavorable environment for domestic and, especially, foreign investors.

Rather, it took place within a complex political scenario, including a peace process with the Nineteenth of April Movement (M–19) guerrilla group and the debate over how to bring major drug lords to justice.

[11] Important provisions in the 1991 constitution would have lasting effects on the economy, particularly the articles that aided the overarching goal of facilitating progress toward long-awaited peace and political reconciliation.

Furthermore, a profound political crisis emerged because of allegations that drug traffickers had partially financed the presidential campaign of Ernesto Samper Pizano.

On the one hand, the government tried to enhance its popular support through initiatives that were very costly in fiscal terms, including significant wage increases for civil servants, particularly for members of the very powerful teachers' union.

Inasmuch as this change in policy came when confidence in the peso was very low, there was a distinct possibility that the currency would weaken to an extent that could make foreign debts—both of the government and of the private sector—unpayable.

This agreement, with minor variations, was extended twice and served as an important guiding framework for economic policy making, particularly in reestablishing Colombia's reputation as a fiscally sound economy, a long-standing positive tradition that was lost in the 1990s.

Major international credit rating organizations have dropped Colombian sovereign debt below investment grade, primarily as a result of large fiscal deficits, which current policies are seeking to close.

Several international financial institutions have praised the economic reforms introduced by former president Álvaro Uribe (elected August 7, 2002), which include measures designed to reduce the public-sector deficit below 2.5% of GDP in 2004.

The government's economic policy and democratic security strategy have engendered a growing sense of confidence in the economy, particularly within the business sector, and GDP growth in 2003 was among the highest in Latin America, at over 4%.

[19] Recent economic growth has led to a considerable increase of new millionaires, including the new entrepreneurs, Colombians with a net worth exceeding US$1 billion.