Colombia is a market economy with major commercial and investment links to the United States, and more recently to its neighbor countries in the Andean region. For close to a century the country was known as a "coffee economy." As the twentieth century came to close, Colombia remained a major coffee producer, though coffee was second to oil as a generator of foreign exchange earnings. By the end of the century, even chemicals had surpassed coffee in export earnings. In the last 25 years the country has also gained an unfortunate reputation as a haven for illegal drug cultivation and manufacture.
Colombia has attained greater diversification both in terms of production and exports, allowing the country to cushion the external shocks typically felt by less developed countries which are dependent on shifting world prices for their major exports. Apart from oil production, recent examples of success range from the export of fresh-cut flowers to the chemical industry, a leading exporter to other Latin American countries.
The net result has been an economy growing steadily—though moderately—over the last 50 to 60 years, with an important positive impact upon the welfare of the population measured by almost any indicator. Life expectancy, nutrition, and access to health and education have all improved. Major services such as electricity, urban sewage, roads, and telecommunications have increased substantially. Furthermore, GDP per capita has risen, although it is still unevenly distributed.
To continue this process, Colombia has required many technology inputs, both in terms of equipment, chemical products, and raw materials for production, as well as consumer products to match the needs of a sophisticated urban society. Colombia's growth has been close to the average of developing countries, but this growth has not been steady. Annual GDP growth in the 45 years after World War II was about 4.8 percent, but it varied from a high of 6.08 percent between 1967 and 1972 to a more modest 2 percent between 1990 and 1997. In 1999 GDP diminished by about 5 percent, the only negative result in close to 70 years as investment activity and demand plummeted.
Topographical conditions have made internal communications very difficult, isolating most regions from one another. For close to a century such difficulties prevented the consolidation of an integrated national market. Today, modern transportation infrastructure is still lacking, both for the internal market and for exports.
Unlike most other Latin American countries, Colombia was never very cut off from the world in economic terms. During the second half of the twentieth century, the country managed a mixture of relatively open and moderate economic strategies combined with industrial and export promotion policies. One good example is currency management. Up to 1967 the currency had several values through multiple exchange rates . The government then chose to have one rate, with its value fluctuating over time using a crawling peg mechanism. In addition, several other mechanisms were designed to promote exports. Following such changes, exports expanded, bring in new sources of foreign exchange.
Such policies—unusual in the region—allowed Colombia to avoid the hardship of the 1980s, known throughout the area as the "lost decade." One major difference was the national debt . During the 1980s Colombia managed to avoid the "debt trap" with a debt of roughly 7 percent of GDP, although in the last 7 years it increased to 30 percent. The country's total external debt by 1998 was US$35 billion. So when the times were ripe for major changes, Colombia was able to launch economic reforms without the strains suffered by other countries. The first 5 years of liberalization in the late 1980s and early 1990s were characterized by higher economic growth than the previous decade (between 4 to 5 percent annually). Subsequently, the GDP growth rate fell to 0.6 percent in 1998, and close to-5.0 percent in 1999 during the recession which affected all of Latin America.
Despite its comparative advantages, Colombia has suffered from the introduction and expansion of a powerful illegal drug industry that today stands as a major threat to the consolidation of the country as a democratic society and operates as a major fuel to social and political violence. Originating in the early 1970s, the narcotics business managed to profit from weak social and legal controls, political corruption, and the collusion of some authorities. With their headquarters established in the regions of Antioquia and Cauca, the Medellín and Cali cartels set up a vast international network of coca, marijuana, and poppy cultivation, the manufacture of cocaine and heroine, distribution channels, and money laundering .