The Colombian balance of payments paralleled overall trade and economic trends, fluctuating from a surplus in the late 1970s to a deficit in the early 1980s, only to rebound strongly in 1986. The reasons for these swings ranged from changes in domestic production capabilities to external factors such aÍÍÍÍs the international price of coffee and the health of Colombia's export markets (see table 12, Appendix).

Following the coffee boom years, Colombia found itself with unusually high levels of foreign exchange reserves. These reserves grew to US$4.6 billion by 1980. From 1981 to 1983, however, Colombia experienced a turnaround in its reserves balance, owing to deficits in both merchandise trade and services. Capital receipts were insufficient to cover the shortfalls in the current account, and Colombia was forced to draw down its reserves. To mitigate the effects of this action, Colombia imposed import controls and continued to devalue the peso, which eventually caused a reduction in the import bill in 1985. At that time, manufacturing production was recovering and coffee prices were rising, which once again produced a credit balance in merchandise trade.

From 1984 through 1987, the services account, by contrast, remained in deficit each year by some US$2 billion. This resulted from lower interest income on the reduced foreign reserves balance, a decline in tourist receipts, and reduced remittances from Colombian laborers working abroad, particularly in Venezuela. In addition, Colombia had higher interest payments on both private and public debt. Although there were signs that the services account might improve in the late 1980s, many analysts expected it to remain negative well into the 1990s.

In the 1980s, the trade and services imbalances combined to generate annual long-term current account deficits, with the exception of 1986. Although this was a major problem during the recession years of the early 1980s, when debt and equity capital were scarce, Colombia traditionally covered its current account deficit with capital inflows. This was again the case from 1985 to 1987, when Colombia recorded a positive difference between longterm capital and the current account--sometimes referred to as the basic balance. Although Colombia's ability to attract foreign capital counterbalanced the current account deficits, it also threatened the national economy with even higher current account deficits in the future because more funds would have to be set aside to service the expanding debt.

Data as of December 1988