Colombia - Financial Sector Reform (Vol. 2 of 2) : The Annexes

CONFIDENTIAL Report No. 11724-CO Colombia: Financial Sector Reform VOLUME TWO - ANNEXES Trade, Finance, Industry & Energy Division Country Department III Latin American and the Caribbean Region Washington, D.C. Annex 2.1: Requirements for Monetary Reserves, Reserve-Substituting Investments, and Obligatory Investments % of Relevant Liability December 1989 September 1990 October 1991 September 1992 Mone- Reserve Oblig- Mone- Reserve Oblig- Mone- Reserve Oblig- Mone- Reserve Oblig- tary Substi- atory tary Substi- story tary Substi- atory tary Substi- atory Reserve tuting Invest- Reserve tuting Invest- Reserve tuting Inves- Reserve tuting Inves- Invest. ments Invest. ments Invest. tments Invest. tment Commercial Banks Sight Deposits, Private 28.2% 10.8% 10% 33.5% 1% 10% 41% - 7% 41% - 7% Sight Deposits, Public 53% - 10% 52.5% 1% 10% 70% - 7% 70% - 7% Deposits > 30 days 21.5% 0.5% - 22% - - 22% - 7% 41% - - CDTs < 6 months - 10.5% - - 10% - - 10% 7% 10% - 7% CDTs > = 6 months - 10.5% - - 10% - - 10% 7% 5% - 7% Trad'1 Savings Deposits 0.5% 29.5% - 0.5% 29.5% - 0.5% 16% 7% 0.5% 9.5% 7% Caja Agraria 0.5% - - 0.5% - - 0.5% - 7% 0.5% - 7% Caja Social de Ahorros 0.5% 19.5% - From September 1990 on, same requirements as other institutions Banco Popular Same monetary reserve requirements as other institutions, different reserve-substituting investments CDATs - 22% - - 22% - 0.5% 16% 7% 10% - 7% Fiduciary Deposits 22% - - 22% - - 61% - 7% 41% - - Other 39% - - 33.5% - - - - - - - - Lending - - 15.5% - - 15.5% - - - - - - Corporaciones Financieras CDTs < 6 months - 10.5% - - 10% - - 10% 7% 10% - 7% CDTs > = 6 months - 6.5% - - 6% - - 6% 7% 5% - 7% Corporaciones de Ahorro y Vivienda CDTs 1-6 months (UPAC) - 10% - - 4.5% - - 4.5% 1% - 10% 1% CDTs 6-12 months (UPAC) - 2.5% - - 4.5% - - 4.5% 1% - 5% 1% CDTs 1 year (UPAC) - 1% - 1% - 2% 1% - 5% 1% Indexed deposits (UPAC) - 1% 3.5% - 1% 3.5% - 1% 1% - 10% 1% Unindexed deposits 6% 9% - 6% 9% - 7% 9% 1% 4% 6% 1% Compaifas de Financiamiento Comercial CDTs < 6 months - 10.5% - - 10% - - 10% 7% 10% - 7% : CDTs > = 6 months - 10.5% - - 10% - - 10% 7% 5% - 7% lz S Source: Banco de I& Repdbhlica. 0* ANNEX 2.2 Page 1 of 1 Instruments of Monetary Control. Banco de la Repblica June 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 (Billions of pesos) Stocks at year end: T Participaci6n!v 19 18 4 0 0 90 127 96 81 324 1,239 1,425 T Canjeables' 10 24 10 27 42 138 87 285 357 365 333 74 C de Cambio' 17 32 20 30 73 35 20 24 42 61 373 921 TREC and TREN' 0 0 0 0 0 87 116 139 214 244 0 0 Subtotal 45 74 34 57 114 350 349 544 693 994 1,945 2,420 Monetary Reserves 105 114 110 118 147 210 270 340 477 557 1,095 1,229 TOTAL 151 188 144 175 262 560 619 884 1,170 1,551 3,040 3,649 As a percentage of GDP (yearly average): T Participaci6n!y 0.7% 0.4% 0.1% 0.0% 0.7% 1.2% 1.0% 0.6% 1.0% 2.9% 4.0% T CanjeablesL 0.7% 0.6% 0.5% 0.7% 1.3% 1.3% 1.6% 2.1% 1.8% 1.3% 0.2% C de Cambiog 1.0% 0.9% 0.7% 2.1% 0.7% 0.3% 0.2% 0.2% 0.3% 0.8% 2.6% TREC and TRENV 0.0% 0.0% 0.0% 0.0% 0.6% 1.2% 1.1% 1.2% 1.1% 0.5% 0.0% Subtotal 2.4% 1.8% 1.2% 1.7% 3.4% 4.0% 3.8% 4.1% 4.1% 5.4% 6.8% Monetary Reserves 4.4% 3.7% 3.0% 2.7% 2.6% 2.7% 2.6% 2.7% 2.5% 3.0% 3.5% TOTAL 6.8% 5.4% 4.1% 4.4% 6.1% 6.7% 6.4% 6.8% 6.6% 8.4% 10.2% a/ Titulos de participaci6n: the primary instrument used for open-market operations. b/ Titulos canjeables: instruments given in exchange for dollars deriving from certain operations; a few varieties are used for open-market operations. c/ Certificados de Cambio: formerly, instruments given in exchange for dollars deriving from certain operations; now all dollars must be surrendered for these instruments. dI TREC and TREN: Titulos de Regulaci6n del Excedente Cafetero and Nacional; coffee exporters in 1986 and ECOPETROL in 1987, respectively, were required to invest in these instruments. Source: Banco de la Repiblica. ANNEX 2.3 Lending Rates of Sectoral Credit Funds to Final Borrowers (Nominal%) Page 1 of 1 Interest Rates (End of Period) June 1985 1988 1989 1990 1991 1992 Fondo Financiero Agropecuario (FPAP) a/ Small producers (less than ColS6 million) DTP4 b/ DTF-4 DTF-2 Short term 22.0 21.5 DTF-5.5 Semi-annual crops 21.5 21.5 c/ Medium term 22.0 26.5 DTF-0.5 Long term 22.0 28.0 d/ Large producers (more than ColS6 million) DTF+1 IDTF+4 DTF+6 Short term 22.0 28.0 DTF+1 Semi-annual crops 21.5 28.0 c/ Medium term 22.0 DTF+1 DTF+2 Long term 22.0 DTF+1 9 Marketing DTF+2 DTF+2 Fondo de Inversiones Privades (PIP) DTF+6 eIDTF+6 DTF+6 Small- and medium-size firms (less than Col$7,300 million) Large cities 27.0 DTF+3 DTF+3 Border cities DTF+0.5 DTP DTF DTF DTF Rest of the country 26.0 DTF+2.5 DTF+2 Large firms (more than ColS7,300 million) Large cities 29.0 DTF+4 f Border cities DTF+3 V Rest of country 29.0 DTP+4 V Fondo Financiero Industrial (FI) DTF+6 e/DTF+6 DTF+6 Small- and medium-size firms 26.0 Large cities DTF+2 DTF+3 Border cities DTF-1.5 DTF DTF DTF DTF Rest of country DTF+0.5 DTF+2 Capital goods DTF+2 DTF+3 Fondo de Capitalizacion Empresarial (FCE) DTF+6 eIDTF+6 DTF+6 Open stock corporations 19.5 Acquisition of stocks DTF+1.5 DTF+3 Acquisition of bonds convertible to stocks DTF+3.5 DTP+4.5 Other partnerships 26.0 Acquisition of stocks DTF+2 g Acquisition of bonds convertible to stocks DTF+3.5 L Stocks of limited liability companies DTF+2.5 9 PROEXPO h/ Short term 22.0 DTF DTF DTF+4 DTF+4 DTF+4 Investment 22.0 Small firms 18% t.v. 18% t.v. DTF DTF DTP Medium firms 22% t.v. 22% t.v. i Large firms DTF . DTF DTP+4 DTF+4 DTF+4 Fondo Financiero de Desarrollo Urbano i/ Small cities DTF-1 k/ DTF-1 DTF+3 DTF+5 DTF+5 Large cities DTF+3 1 DTF-3 DTP+5 DTP+5 DTF+5 Source: Banco de Ia Republica. / Now operating as FINAGRO, which is outside the Banco de Ia Republica. b/ Lending lines for small producers, as well as for big producers, have been merged. c/ Lending lines for the short-term and for semi-annual crops have been merged. d/ Medium- and long-term lending lines have been merged. T1 For FIP, FFI and FCE most lending lines have been consolidated; only lending for border cities by FIP and FFI continues to be at a different rate. L/ Lending lines for small and large firms have been merged. g/ Lending to different types of entities has been merged. h/ Now operating as Bancoldex, which is outside the Banco de Is Republica. i/ Lending for medium-size firms has been merged into the credit line for small firms. i/ This Fund has been taken over by FINDETER. I/ Rate applicable to beneficiaries of urban development bonds; nonbeneficiaries must pay DTF+2. Also, lending for medium cities is conducted at DTF+ 1. / Rate applicable to beneficiaries of urban developments bonds; nonbeneficiaries must pay DTF+5 (DTF+3 for medium cities). Annex 2.4 Page 1 of 2 ANNEX 2.4: SOURCES AND USES OF SECTORAL CREDIT FUNDS Current Pesos Billon Constant June 1992 Pesos Bilion Dec Dec Dec Dec Dec Dec Jun Dec Dec Dec Dec Dec Dec Jun 1980 1987 1986 1989 1990 1991 1992 196 1987 19 1989 1990 1991 1992 Fando Finanolero Agrpseasarta fFAP) if Gross credit I02.3 123.4 150.7 216.0 274.9 357.3 477.6 405.1 303.7 397.8 428.5 410.1 420.5 477.8 Forced investment and other resources 110.4 129.9 165.5 206.3 305.5 346.7 WA 437.2 414.4 412.3 407.4 455.8 406.8 N/A Net rediscount of Banco do io Repbllas (8.1) (6.5) (5.8) 10.7 (30.e) 11.6 N/A (2.1) (20.7) (14.5) 21.1 (45.7) 13.7 N/A Fondo do inveiriones Privedas flP) Gross credit 0.2 9.0 14.1 17.3 23.0 28.6 26.3 32.3 30.6 35.0 84.1 34.2 33.9 26.3 Forced inwestment and otr resources 9.0 10.4 132 2 18.7 20.6 NIA 85.6 3&3 32.8 21.0 25.0 24.3 N/A Net rediscount of Banco de Is Repilics 21 (0.8) (0S) 0.9 4.1 6.2 1.2 N/A (3.2) (2.8) 2.2 6.1 9.3 9.6 N/A Fondo Financiero industilal (F) Gross credit 7.9 8.7 129 18.5 27.7 25.0 21.5 31.1 27.8 32.0 36.6 41.3 30.5 21.5 Forcedinvestmentendothersouo,s 5.0 3.9 4.9 9.6 21.8 23,2 18.8 10.6 12.3 121 19.1 32.5 27.3 1.8 Net rediscount of Banco do to Repblis 2j 2.9 4.6 8.0 8.9 5.9 2.7 2.7 11.4 15.4 19.9 17.5 6.8 3.1 2.7 Fondo do Capiltaftaolan Enuessirlal (CE) Gross credit 6.7 13.4 14.7 11.5 10.5 8.3 7.4 34.4 42.8 35.7 22.8 15.7 9.8 7,4 Forcedinvestrentandotherressurces 2.5 15.5 14.8 15.2 15.8 8.1 7.3 9.9 49.5 36.9 30.0 23.6 9.5 7.3 Not rediscount ol Banco de la Republics .2 (2.1) (0.1) (3.7) (5.3) 0.3 0.2 24.5 (6.6) (0.2) (7.3) (8.0) 0.3 0.2 FAW Gross credit 35.6 44.2 31.4 48.8 8.8 0.0 0.0 141.0 141.1 762 92.1 12.9 0.0 0.0 Forced investmentand other resources 21.1 20.7 33.0 21.4 73.0 102.7 300.1 83.4 6.1 82.2 42.2 108.9 120.9 300.1 Net rediscount of Banco do la Repblica 14.5 23.5 (1.8) 25.2 (64.3) (102.7) (300.1) 57.6 75.0 (4.0) 49.9 (96.0) (120.9) (300.1) FDE Gross credit 0.0 0.0 2.2 2.6 0.0 0.0 0.0 0.0 0.0 .5 50 0.0 0.0 0.0 Forced investment and other resources 0.0 2.2 2.2 0.0 0.0 0.0 0.0 0.0 5.5 4.4 0.0 0.0 0.0 Not rediscount of Banco de la RepLilics 0.0 0.0 (0.0) 0.3 0.0 0.0 0.0 0.0 010 (0.0) 0.7 0.0 0.0 0.0 FGIF Gross credit 29.4 30.3 45.9 52.9 64.4 25.1 25.1 116.2 1159 114.3 104.5 96.2 2M5 25.1 Forced investment and other resources 0.0 0.0 0.0 0.0 0.2 -- -- 0.0 0.0 0.1 0.0 0.3 0.0 0.0 Net rediscount of Banco dea Republica 29.4 36.3 45.8 52.9 64.2 25.1 25.1 116.2 115.9 114.2 104.5 95.9 29.5 25.1 FFI (Fondo Forestal) Gross credit 0.7 0.6 0.0 O0 0.0 0.0 0.0 29 2.1 0.0 0.0 0.0 0.0 0.0 Forced Irwestment and other resources 0.1 1.2 1.7 2.3 0.0 0.0 0.0 0.3 8.5 42 4.5 0.0 0.0 0.0 Net rediscount of Banco dela Repulics 0.7 (0.5) (1.7) (2.3) 0.0 0.0 0.0 2.6 (1.7) (4.2) (4.5) 0.0 0.0 0.0 PROEXPO3/--Capitaland Reserves 104.4 1129 173.8 221.2 234.1 312.1 372.5 413.1 360.3 433.0 437.0 340.3 387.2 372.5 BancodelaRepublicacredit(net)2/ 0.7 1.8 2.9 2.8 3.4 9.8 $1.1 2.7 5.7 7.2 5.5 5.1 11.3 51.1 Other sources of funds 13.1 33.8 13.9 21.0 60.6 72.9 101.9 52.0 108.0 34.7 41.5 120.6 85.8 101.0 Total Assets 118.2 148.5 100.7 245.1 318.3 394.5 525.5 467.9 473.9 474.9 484.0 474.9 484.3 525.5 Ofwhich loans 67.5 108.7 153.8 226.4 300.7 366.1 441.7 287.1 340.6 382.5 447.1 448.7 454.3 441.7 Memorandum ltom Total Gross Credit 280.3 343.0 434.4 592.7 709.8 631.5 999.8 1,030.2 1,094.6 1,082.0 1,170.8 1,059.2 976.4 999.8 As%ottotallinancialcredLtsystem 11.5% 11.6% 11.4% 11.9% 10.7% 10.3% 10.9% 11.5% 11.6% 11.4% 11.9% 10.7% 10.3% 10.9% Source- Banco de la Replicas. 1/ Now operating as FINAGRO, which is independent of the Banco do la Republca. June 1992 gross creditfigure to provislonl. 2/ Includes multilateral financing. 3/ Now operating as BANCOLDEX. June 1992 figures are provisionaL Annex 2.4 Page 2 of 2 ANNEX 2.4: SOURCES AND USES OF SECTORAL CREDrr FUNDS AS % OF GDP June 1987 1968 198m 1990 1901 1992 Fondo Firanaleo Agropecuato (PFAP) Gross credit 1.2M% 1.22% 1.25% 1.19% 1.16% 1.34% Forced Investment and other resources 1.36% 1.27% 1.23% 1.24% 1.19% N/A Not rediscount at Banco de la Republic -0.08% -0.05% 0.02% -0.05% -0.03% N/A Fonda do Inverslons Pdvadas FP) Gross credit 0.10% 0.10% 0.10% 0.10% 0.09% 0.07% Forced Irwestmn and other resources 0.11% 0.10% 0.00% 0.07% 0.07% N/A Net rediscount at Banco do Ia Repuics -0.01% 0.00% 0.02% 0.03% 0.03% N/A Fondo Financiero industrIal (FF) Gross aredit 0.00% 0.09% 0.10% 0.11% 0.10% 0.00% Forced Irwesrnent and other resources 0.05% 0.04% 0.05% 0.08% 0.00% 0.05% Net rediscount of Banco de Is Repilais 0.04% 0.00% 0.06% 0.04% 0.02% 0.01% Fondo do CapitaizacIn Empsr ld FCE) Gross credit 0.13% 0.12% 0.00% 0.05% 0.03% 0.02% Forced irwestment and other resources 0.10% 0.13% 0.10% 0.00% 0.04% 0.02% Not rediscount of Banco do Ia Repuhlics 0.02% -0.01% -0.01% -0.02% -0.01% 0.00% FAVI Gross credit 0.45% 0.32% 0.26% 0.13% 0.02% 0.00% Forced investment and other resources 0.24% 0.23% 0.18% 0.23% 0.32% 0.84% Net rediscount of Banco de Is Repulice 0.22% 0.09% 0.08% -0.00% -0.31% -0.64% FDE Gross credit 0.00% 0.01% 0.02% 0.01% 0.00% 0.00% Forced irwestnent and other resources 0.00% 0.01% 0.01% 0.01% 0.00% 0.00% Net rediscount of Banco de Is Republics 0.00% -0.00% 0.00% 0.00% 0.00% 0.00% FGIF Gross credit 0.37% 0.35% 0.33% 0.28% 0.16% 0.07% Forced investment and othr resources 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Net rediscount of Banco do Is Repuaics 0.37% 0.35% 0.33% 0.28% 0.16% 0.07% FFII (Fnda Foret Gross credit - 0.01% 0.00% 0.00% 0.00% 0.00% 0.00% Forced irwestmentand other resources 0.01% 0.01% 0.01% 0.01% 0.00% 0.00% Net rediscount of Banco do Is Repulics 0.00% -0.01% -0.01% -0.01% 0.00% 0.00% PROEXPO -- Capi and Reserves 1.23% 1.23% 1.31% 1.10% 1.00% 1.05% Banco do Is Repulice credit (not 0.01% 0.02% 0.02% 0.02% 0.02% 0.14% Other sources of funds 0.27% 0.21% 0.12% 0.25% 0.28% 0.29% Total Assets 1.51% 1.46% 1.44% 1.37% 1.31% 1.48% Ofwhtd: loans 0.99% 1.12% 1.20% 1.28% 1.26% 1.24% Mernorandum thern Total Gross Credit 3.42% 3.34% 3.39% 3.10% 2.83% 2.81% e/ Ratio of average volurme of the year to GDP. Soure: Banco do la Repbllke. Annex 2.5 Page 1 of 1 Annex 2.5: Real Interest Rates (Deflated by 12-mo. CPI) Lending Deposit Lending Deposit Lending Deposit Rate Rate Rate Rate Rate Rate Nov 83 16.3% Nov 86 18.5% 10.9% Nov 89 12.7% 5.9% Dec 83 16.9% Dec 86 17.3% 10.2% Dec 89 13.7% 7.0% Jan 84 16.3% Jan 87 16.7% 9.0% Jan 90 13.7% 6.0% Feb 84 15.7% Feb 87 17.7% 9.0% Feb 90 12.6% 5.6% Mar 84 16.0% Mar 87 17.2% 8.4% Mar 90 12.5% 5.6% Apr 84 17.3% Apr 87 17.3% 9.2% Apr 90 12.8% 6.0% May 84 18.8% May 87 14.9% 6.6% May 90 12.8% 5.9% Jun 84 17.9% Jun 87 12.7% 4.7% Jun 90 12.5% 5.7% Jul 84 17.6% Jul 87 11.0% 3.4% Jul 90 13.5% 6.9% Aug 84 17.2% Aug 87 12.3% 4.7% Aug 90 13.5% 6.3% Sep 84 16.9% Sep 87 12.7% 4.9% Sep 90 12.2% 5.6% Oct 84 17.9% Oct 87 13.3% 5.6% Oct 90 12.5% 5.6% Nov 84 17.0% Nov 87 13.9% 7.0% Nov 90 11.6% 5.0% Dec 84 15.2% Dec 87 14.7% 8.4% Dec 90 10.6% 4.6% Jan 85 14.2% Jan 88 15.0% 7.5% Jan 91 11.4% 2.8% Feb 85 12.1% Feb 88 12.7% 5.9% Feb 91 10.7% 2.5% Mar 85 10.6% Mar 88 13.0% 6.8% Mar 91 11.3% 4.4% Apr 85 9.6% Apr 88 11.7% 6.3% Apr 91 12.3% 5.2% May 85 6.7% May 88 11.8% 6.3% May 91 12.2% 3.9% Jun 85 6.7% Jun 88 10.4% 4.8% Jun 91 11.5% 4.2% Jul 85 8.5% Jul 88 10.7% 3.8% Jul 91 11.4% 4.5% Aug 85 9.4% Aug 88 10.9% 3.8% Aug 91 12.9% 5.5% Sep 85 9.7% Sep 88 10.0% 2.5% Sep 91 14.2% 7.0% Oct 85 9.5% Oct 88 10.0% 2.5% Oct 91 14.8% 6.8% Nov 85 10.4% Nov 88 10.8% 3.5% Nov 91 15.5% 7.6% Dec 85 11.5% Dec 88 10.4% 3.3% Dec 91 15.7% 7.9% Jan 86 16.4% 9.3% Jan 89 10.9% 3.5% Jan 92 13.7% 3.6% Feb 86 13.1% 5.6% Feb 89 12.1% 4.7% Feb 92 11.0% 1.2% Mar 86 13.9% 6.4% Mar 89 12.9% 5.3% Mar 92 11.0% 0.8% Apr 86 13.7% 6.5% Apr 89 14.7% 7.1% Apr 92 10.3% -0.5% May 86 20.3% 12.2% May 89 14.8% 7.1% May 92 9.4% -2.5% Jun 86 23.5% 15.2% Jun 89 16.1% 8.3% Jun 92 5.2% -4.4% Jul 86 23.3% 15.5% Jul 89 15.8% 8.2% Jul 92 4.0% -5.0% Aug 86 21.2% 13.3% Aug 89 14.2% 6.6% Aug 92 4.8% -1.6% Sep 86 20.9% 12.4% Sep 89 13.0% 5.5% Sep 92 6.0% 0.3% Oct 86 19.4% 11.4% Oct 89 12.9% 5.9% - 1 - ANNEX 2.6 SAVINGS AND ITS INFLUENCE ON INVESTMENT 1. This Annex examines financial aspects of the savings process for evidence of structural change that influenced real investment. The study of structural change in savings is motivated in part by concern about the adequacy of real investment and by the height of interest rates. Moreover, there is some concern that private business may have devoted an increasing share of its saving to financial rather than real investment. Another concern is whether the domestic sectors placed a diminishing proportion of their savings in long-term instruments; that choice is a major determinant of the availability of long-term credit and hence of the ability of firms to undertake long-term investments without fear of liquidity problems. 2. The search for structural change in savings can be illuminated by detailed data . The Flow of Funds Account produced by Banco de la Republica record the sources and uses of funds by instrument for each sector.Yi The data is of special interest because it is relatively unexplored, with the notable exception of a series of papers by Olga Lucia Acosta.y The chapter combines evidence from the Flow of Funds Account, the National Income Account and other sources to build an understanding of the evolution of Colombian savings over the past twenty years. Adequacy of the Overall Level of Savings 3. The first question raised about savings in Colombia is whether their level is too low. The decline in the share of real fixed investment in GDP since 1982 is probably the principal reason for concern about savings. The share of real fixed investment is of central importance for economic progress because it measures the proportion of real resources that the economy devotes to new and better means of production and to its future well-being. A rise in the price of capital goods drove the nominal share of investment well above the real share from 1985 onward (Chart 1). Many capital goods are imported, so the real depreciation of the Peso contributed to the aggregate rise in the price of capital goods by increasing the Peso denominated price of imported capital goods. The rise in the nominal share of investment in GDP means that an increased share of nominal savings funded a smaller real share of investment. So the nominal savings share alone does not explain the weakness of the real fixed investment rate. 4. The scarcity of savings is usually measured by its price: the rate of interest on credit. Chart 2 shows that while the nominal bank lending rate moved upward with inflation, the real rate drifted downward. In short, the evolution of the lending rate over the 1980s does not signal a shortage of savings. Of course, more domestic savings and investment would always seem desirable. So, it would be more meaningful to judge Colombia's savings rate in a broader perspective, through an international comparison. 1/ Marion Pinot de Libreros, Adolfo Vinasco Medina and Jorege Enrique Riveros Mora."Metodologia de Las Cuentas Financieras de Colombia." Departamento de Investigaciones Economicas del Banco de la Republica, January 1981. 2/ See "Estructura Financiera de las Sociedades: Ejercicio de aplicacion de las Cuentas Financieras." Ensayos sobre Politica Economica, pp 133-181, December 1986. -2- ANNEX 2.6 5. An analysis of Colombian savings rates with those of other economies was prepared using the Department of Economics Analytical Data baseY The data emphasizes comparability: it was developed for use in global trade, savings, and capital flow studies. The data base is unique in its separation of private, public and foreign savings and in the scope of its coverage: it contains data drawn from national income accounts for 135 countries. 6. Some explanations and caveats should make the comparison more easy to understand. First, some definitions: gross domestic savings (GDS) is the part of domestic product which is not consumed; gross national savings (GNS) is gross domestic saving minus foreign savings; the national income account sets gross national savings identically equal to investment. The data for gross national savings match each country's data, but the use of International Monetary Fund data on transfers and net factor income lead to a difference with country data for gross domestic savings. The data base is ultimately subject to the measurement problems of the national sources. The extent of measurement error seems associated with two factors: (i) the size of the non-market sector; and (ii) the rate of inflation. 7. The non-market sector produces goods for home consumption or barter. These goods are rarely measured in the national income accounts; so when the non-market sector is large, measured consumption and production will be understated and the savings rate will be overstated. Underdeveloped agricultural and artisan activities are often within the non-market sector. Thus, the relative importance of the non-market sector may be associated with the general level of development, as measured by per-capita GDP. 8. High inflation increases the nominal component of the return on assets. The national income accountants regard the nominal component as income although asset-holders may spend little or none of the component because they regard it as principal. Furthermore, inflation erodes the value of goods-in-process and inventories, leading to an overstatement of profits and of business savings. 9. These difficulties are apparent and have to be taken into account in the comparison of the Colombian rate with rates of other countries. As shown in Table 1, Colombia's gross national savings rate in 1989 was a bit below the world average but there was a striking contrast in the composition of Colombian and world savings: the share of Colombia's private savings in GDP was 4 percentage points below the average while its public savings share was 4.6 percent above the average. The superior performance of public savings follows from the fiscal adjustment that started in late 1984. There does not however appear to be a clear message in the comparison of Colombia's private savings share with regions of the world: the share resembles that of Sub-Saharan Africa, the low- income economies of Europe and the Soviet Union, and is very substantially lower than the average for the Latin America and the Caribbean region. 10. Charts 3 and 4 picture the performance of the gross domestic and national Colombian savings rates over time in comparison with the rest of the Latin American and the Caribbean (LAC) region. Colombia's national and domestic savings rate ran below the regional average during the 1970s and broadly tracked the regional average in the 1980s. The private savings share ran well 3/ The database was developed by the International Economic Analysis and Prospects Division. Mr. Elliot Riordan prepared the comparison. -3.- ANNEX 2.6 Table 1: Comparison of Savings Rates in 1989 Colombia and Major Country Groups Total, Private and Public Savings Rates Percent of Nominal GDP Total Private Public Total GNS GDS GDS GDS WORLD....................... 22.6 19.3 3.3 22.6 COLOMBIA................. 20.5 15.3 7.9 23.2 ..................................................................... ..........-.--- ..----- .......---* HIGH-INCOME COUNTRIES.... 21.9 19.4 2.5 21.9 OECD High Income....... 21.8 19.4 2.4 21.7 G-7 Countries........ 21.5 18.9 2.4 21.3 United States...... 15.1 12.4 0.7 13.1 Japan.............. 32.9 26.6 7.8 34.4 Germany (FR)....... 21.9 23.6 3.8 27.4 LOW and MIDDLE INCOME.... 26.1 20.4 6.0 26.4 SUBSAHARAN AFRICA...... 15.0 15.0 -2.2 12.8 East/South Africa.... 15.8 15.2 -4.7 10.4 West Africa......... 14.3 14.9 0.2 15.1 ASIA................... 30.5 19.4 10.4 29.8 East Asia .......... 34.1 20.2 14.4 34.6 China.............. 36.4 10.3 25.4 35.7 South Asia........... 21.6 17.3 0.3 17.6 EMENA.................. 28.5 16.0 11.3 27.3 Europe............... 28.9 15.3 12.4 27.8 Middle East.......... 28.5 20.7 8.6 29.3 North Africa......... 26.7 9.8 11.1 20.9 LATIN AMERICA/CARIBBEAN 20.6 26.8 -3.1 23.7 SOVIET UNION.............. 21.6 15.8 5.6 21.3 Source: World Bank, International Economics Department DEC Analytical Database September 1991 -4- ANNEX 2.6 below the regional average through most of the 1980s while the public savings share outperformed the average, reinforcing the distinction that emerges from the previous comparison with the world (Charts 5 and 6). 11. One way to reduce measurement problems is to focus on economies with similar economic conditions. Table 2 compares Colombia with the other economies in the lower middle per- capita income (LMI) group in 1989, and in particular, the LAC members of the group. The comparison should reduce the distortion introduced by the non-market sector as economies within the same per-capita income group should have non-market sectors of comparable size. Colombia's total national and domestic savings are within similar levels to all LMI countries, with a slightly higher gross domestic savings and a slightly lower gross national savings. Colombia's rates are also similar to the average rates for the LAC's Region LMI countries. However, Colombia's private savings share in GDP runs well below both the average for the world's LMI countries and LAC's LMI countries. An important message from this comparison is that Colombia's private savings rate was far below those of the high inflation middle income LAC economies of Argentina, Mexico and Peru, suggesting that differing inflation rates greatly distort the comparison. 12. Charts 7 and 8 compare Colombia's private and public savings shares in GDP with the shares of economies that had similar inflation rates (20 to 40 percent per year) over 1985-1989. Table 3 compares Colombia's savings rates in 1989 with the rates of members of its inflation group - the mid-range inflation group. The group is defined as countries that experienced average inflation rates of 20 to 40 percent between 1985 and 1989. Colombia's private saving share tracks the group average over the late 1980s. Economies which are also members of the lower middle per-capita income group are marked with an asterisk. Colombia's private savings share resembles that of several other mid-range inflation countries which are also in the lower middle income group: Chile, Poland and Turkey. The implication is that Colombia's private savings rate is consistent with that of economies at a similar level of income and inflation. 13. In conclusion, the comparative study does not point out to the inadequacy of Colombian savings as the national savings rate is close to world and regional averages. It does indicate relatively high public savings. Moreover, the comparison hints that distortions associated with income and inflation explain part of the seemingly weak performance of Colombia's private savings. Finally, the comparison suggests a need for a better understanding of the performance of sectoral savings. Overview of Evolution of Savings and Investment by Sector and Type. 14. The National Income Accounts shows that the gross domestic savings rate has been set on an upward trend since 1983, climbing beyond rates recorded in the 1970s (Table 4). However, there was a capital outflow in the late 1980s which meant that some domestic savings freed goods for net exports. Colombia accumulated foreign assets but foreign savings reduced domestic investment. Therefore the investment share in GDP rose by less than gross domestic savings rate. The public sector savings share in GDP improved with the fiscal adjustment of 1984-1985. The largest component of the increase was in public administration, largely because of increased taxes. The savings share of Public Enterprises also improved as oil and coal projects contributed an operating surplus. -5- ANNEX 2.6 Table 2: Comparison of Savings Rates in 1989 Colombia and Lower-Middle Income Countries Total, Private and Public Savings Rates Percent of Nominal GDP Total Private Public Total GNS GOS GDS GDS ALL Lower-MiddLe Income (LMI) 22.6 19.4 3.5 22.8 COLOMBIA................. 20.5 15.3 7.9 23.2 .............................................. ... - ---. -**********-----. --********-***---***--***-* LATIN AMERICA LMI........ 19.8 23.8 -1.9 21.9 Argentina.............. 12.0 21.9 -0.5 21.3 Bolivia................ 12.8 2.6 6.7 9.3 Chile.................. 20.4 13.9 9.9 23.8 Costa Rica............. 24.4 16.9 3.9 20.8 Dominican Republic..... 25.8 18.9 2.6 21.5 Ecuador................ 21.6 21.7 5.4 27.1 El Salvador............ 16.3 13.9 -8.0 5.9 Guatemala.............. 13.5 6.5 1.6 8.2 Hondurs............... 12.9 12.7 -1.5 11.2 Jamaic................ 29.4 22.7 -2.3 20.4 Mexico................. 23.0 29.9 -6.0 23.9 Panama................. 2.6 19.5 -11.0 8.5 Paraguay............... 22.7 19.5 4.0 23.5 Peru................... 15.3 24.2 -6.0 18.3 ASIA LMI................. 27.0 21.1 5.0 26.1 Malaysia............... 29.6 28.7 5.3 34.0 Papua New Guinea....... 23.5 17.7 -1.7 16.0 Philippines............ 18.6 13.2 3.4 16.6 Thailand............... 31.1 22.3 6.2 28.5 EMENA LMI................. 25.3 12.3 10.7 22.9 Algeria................. 30.7 5.0 26.3 31.3 Bulgaria................ 29.5 20.3 16.5 36.8 Egypt................... 23.6 19.3 -11.7 7.6 Jordan.................. 18.4 7.4 -8.9 -1.5 Morocco................. 24.1 5.2 13.5 18.7 Poland.................. 29.2 14.0 15.5 29.5 Syria................... 13.2 18.4 3.0 21.4 Tunisia................. 22.8 12.1 7.0 19.1 Turkey.................. 22.4 12.5 8.9 21.3 Yemen................... 12.2 8.8 -11.6 -2.8 AFRICA LMI................ 16.6 18.3 0.7 19.1 Angol a.................. 12.1 11.3 2.8 12.1 Botswana................ 23.9 29.2 20.1 49.3 Cameroon................ 18.0 13.5 5.0 18.4 Congo................... 14.4 19.8 3.7 23.5 Cote D'Ivoire........... 8.5 20.5 -7.0 13.5 Mauritius............... 29.3 18.3 3.3 21.6 Namibia................. 16.6 16.4 -1.0 15.4 Senege................. 16.1 13.1 -2.4 10.7 Zimbabwe................ 20.7 23.9 -2.5 21.4 Source: World Bank, International Economics Department DEC Analytical Database September 1991 -6- ANNEX 2.6 Table 3: Comparison of Savings Rates in 1989 Colombia and MidRange-Inftation Countries (20%-40%] Total, Private and Public Savings Rates Percent of Nominal GOP Total Private Public Total GNS GDS GOS GOS ................................-----------------****-**--- .-------***---*- - . -------------***---. - ALL MidRange-Inf.ation (MCPI) 20.0 15.0 5.1 20.2 COLOMBIA................. 20.5 15.3 7.9 23.2 .................................***************--***************************************************** HIGH-INCOME MCPI......... 16.2 22.6 -10.0 12.6 Ice and................ 20.1 18.3 4.8 23.1 Israel................. 15.7 23.1 -11.7 11.4 ................................................................................. *.................... LATIN AMERICA MCPI....... 20.6 14.1 8.8 22.9 SCChite.................. 20.4 13.9 9.9 23.8 *.Paraguay............... 22.7 19.5 4.0 23.5 . ,Dominican Republic..... 25.8 18.9 2.6 21.5 ASIA MCPI................ 12.6 10.2 1.1 11.3 Myanmar ................ 12.6 10.2 1-.1 11.3 EMENA MCPI................ 24.6 13.6 11.3 24.8 Po tand.................. 29.2 14.0 15.5 29.5 Syria................... 13.2 18.4 3.0 21.4 )A.Turkey.................. 22.4 12.5 8.9 21.3 AFRICA MCPI............... 12.7 15.0 -1.0 14.0 -Botswana................ 23.9 29.2 20.1 49.3 Ghana................... 14.1 7.7 -1.0 6.7 Namibia................. 16.6 16.4 -1.0 15.4 Niger................... 9.5 7.5 -5.2 2.4 Nigeria................. 12.5 14.6 5.2 19.8 Sudan ................... 9.1 14.9 -10.8 4.1 Tanzania................ 27.7 14.8 -14.4 0.4 Zambia.................. 9.1 21.5 -7.8 13.7 Source: World Bank, International Economics Department DEC Analytical Database September 1991 ---**----------- ---------- --- --- -- -- - -- ----- ----- ---- -- - --- -------- -- -- -- ---- ---- - -- -- - -- ----------- -- - Table 4: SAVINGS AND INVESTMENT BY SECTOR OF ORIGIN (percentage point shares of GDP) 1970-79 1980-89 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 Gross Domestic Savings 18.1 18.6 19.6 16.9 15.1 14.7 15.5 17.1 22.0 21.0 22.5 22.0 PRIVATE 12.5 13.0 13.4 12.3 11.8 12.1 11.7 12.2 13.8 13.2 14.7 14.5 Financial Institutions 0.4 0.3 0.4 0.3 0.2 0.3 0.2 -0.2 0.1 0.2 0.6 0.7 Private Business 3.6 4.8 3.9 3.9 3.5 3.2 3.3 5.3 5.7 6.0 6.4 6.3 Households 8.5 7.9 9.0 8.0 8.1 8.6 8.3 7.1 8.0 7.0 7.7 7.4 PUBLIC 5.6 5.7 6.2 4.7 3.2 2.5 3.8 4.9 8.2 7.8 7.8 7.5 Public Administration 3.5 2.5 3.1 1.3 0.4 -0.7 0.6 2.6 5.2 3.4 4.6 4.4 of which: National Coffee Fund 0.6 0.4 1.0 -0.5 -0.2 -0.3 0.7 0.9 2.7 0.0 0.0 0.0 Public Enterprise 1.4 2.2 1.5 1.6 1.5 2.0 2.4 1.5 2.5 3.6 2.8 2.3 Financial Institutions 0.7 1.0 1.6 1.8 1.4 1.2 0.7 0.8 0.5 0.8 0.4 0.8 INVESTMENT 18.7 19.9 19.1 206 20.5 19.9 19.0 19.0 18.0 20.0 22.0 20.5 PRIVATE 12.5 11.1 11.4 12.0 11.1 11.0 10.0 9.4 9.6 12.0 13.1 11.8 Financial Institutions 0.2 0.2 0.2 0.2 0.1 0.2 0.2 0.3 0.2 0.1 0.1 0.2 Private Business 7.1 5.9 6.2 6.9 6.0 5.5 5.0 5.0 4.9 6.6 7.0 6.2 Households 5.2 5.0 5.0 4.9 5.0 5.3 4.7 4.2 4.4 5.3 6.0 5.5 PUBLIC 6.3 8.7 7.6 8.6 9.4 8.9 9.0 9.6 8.4 8.0 8.8 8.7 Public Administration 3.3 3.5 3.5 4.6 4 1 4.3 3.4 2.6 2.3 3.0 3.7 3 5 Public Enterprise 2.7 4.9 3.7 3.5 4 8 4.0 5.4 70 60 4.7 4 8 s 0 Financial Institutions 0.3 0.3 0.4 0.5 0.4 0.6 0.2 -0.0 0.2 0 3 0 3 0 I FOREIGN SAVINGS a/ -0.6 -1.2 0.5 -3.7 -5.4 -5.2 -3.5 -2.0 40 1.0 05 I S a/ Gross Domestic Savings - Investment Source: DANE National Income Account and World Bank. -8- ANNEX 2.6 15. Private savings drifted upward from the early 1980s, mostly because the share of private business savings in GDP rose sharply beginning in the mid 1980s. The surge of the private business savings share was partly offset by a downward trend of the household share. This is the central statistical fact which explains the sluggish advance of the private savings share in the late 1980s. The main reason for the increase in private business savings relative to household savings appears to be a shift in the distribution of nominal GDP toward gross profits and away from wages from 1983 onward (Chart 9). 16. The savings share of the Table 5: STANDARD DEVIATION OF SAVINGS RATES household and business sectors were (percentage point share of GDP) relatively stable sources of savings, judging from the standard deviation of Household 1.14 savings rates from 1975 through 1988 Private Business 1.10 (Table 5). Public Administration was a Public Enterprise 0.61 relatively volatile source; the foreign Public Administration 1.80 sector was the least reliable of all. The Foreign 2.91 lesson may be that the economy should rely more greatly on household and Source: National Income Accounts (DANE). business savings. Otherwise it would not prove possible to expand government spending (lower government savings) in an emergency without crowding out investment. Household Savings 17. The Flow of Funds Account records the sources and uses of funds of the household sector (Charts 10, 11, 12 and 13). Charts 10 and 11 are stacked bar graphs; use of each type of financial instrument is measured relative to GDP, so that an increased height of the component bar represents deepening of the use of the instrument by the household sector; the total height of the stacked bars then represents the relative importance of the sector's demand on and supply of financial funds per unit of GDP. Charts 12 and 13 show the relative importance of each type of financial instrument used by households. 18. Short-term borrowing lost part of its share of household borrowings while commercial credit increased as a source of funds (Chart 12). In this case commercial credit is the exchange of a good today for money at a later date; it is commonly used by enterprises to finance the sale of their own goods. 19. Ml (currency and sight deposits) and savings accounts (mainly in CAVs) were an important use of household funds; quasi-money such as -the high yielding certificates of deposits (CDTs) gradually became an important use of funds after their launching in 1974 (Charts 11 and 13). The size of loans and miscellaneous in the 1970s and early 1980s partly reflect wages owed to workers who are hired on a short-term basis and treated in the statistics as service producers. 20. What lessons can be learned about household savings? The decreasing use of financial funds by households in the 1980s compared to the 1970s is consistent with a slower rise or a reduction in household debt. (The Colombian flow of funds report only flow and not stock data such -9- ANNEX 2.6 as debt). Acting alone, this would eventually improve the household savings rate. However, this was accompanied by a simultaneous decrease in the provision of financial funds by households in the 1980s. In addition, the accounts do record a clear move to higher yielding instruments such as indexed savings accounts and certificates of deposit (CDTs) from the 1970s onward. This could increase savings by offering a higher return to savings and also by increasing income. Despite these developments, the household savings sagged in the late 1980s. 21. The main causes of the relatively weak performance of household savings seem to be (i) an end to the advance of real wages and (ii) increased tax payments. This does not refer to legal tax rates but rather to realized tax revenues drawn from the national income account. Chart 14 illustrates how the rapid progress of real wages ended in 1984; since 1986 real wages have been virtually flat. The social security tax rate had been edging upward while the direct tax rate turned upward after 1983 (Chart 15). The sales tax rate also spiked upward after the increase in the value- added tax in 1986, though it is not known what proportion of the tax was borne by households (Chart 16). 22. The difficulty of earning a positive real return through financial investment may have discouraged savings. The unit of deposit in savings accounts (the UPAC) was less than fully indexed so that it lost real value through much of the 1980s (Chart 17). In recent years the return on savings accounts has been the monetary correction (the change in the UPAC) plus four percent, putting the real return around zero. Business Savings Table 6: DEBT TO EOUITY RATIO OF MANUFACT- 23. Over recent years an increasing URING COMPANIES LISTED ON THE BOLSA share of the gross profits of total business were 1987 1.17 retained for investment, i.e. saved. The 1988 1.11 private business sector even became a net 1989 0.88 1990 0.86 supplier of savings. Chart 18 demonstrates that the major reason for the increase in the total Source: Bolsa de Bogota business sector's savings out of profits since the mid-1980s was the decline of interest payments. A longer term trend towards less distributions of earnings also made a significant contribution to savings. 24. The main reason for the decline of interest payments appears to be a reduction of business indebtedness. Table 6 records the decline in the debt to equity ratio of major manufacturing companies in recent years. The restructuring and dissolution of enterprises that followed the financial crisis of 1983-1985 and the macro-economic adjustment of 1984-1985 probably contributed to the reduction of the debt to equity ratio (Table 7). Indeed, one motivation for increased savings probably was to work down debt to lessen the risk of business failure. 25. Charts 19 and 20 picture the sources and uses of financial funds in the total business sector. Chart 19 pictures an improvement in the quality of funds raised in the 1980s, as business reduced the risk of a liquidity crisis by switching away from short-term borrowing and toward long- term borrowing. Chart 20 shows the dominant role of commercial credit in the uses of funds. -10- ANNEX 2.6 Table 7: TOTAL BUSINESS: RESTRUCTURING AND DISSOLUTION (capital is in billions of pesos) Restructured Dissolved Year Number CapitaP' Number CapitaP' 1983 3878 65 654 2 1984 3757 55 942 2 1985 4504 73 1152 3 1986 4763 130 1191 3 1987 5303 310 1704 35 1988 5392 178 3180 10 1989 6044 382 2791 13 a/ Authorized capital. Source: DANE. 26. More limited data are available on the private business sector. Chart 21 shows the sources of financing for investment, expressed as a percentage of GDP. This is all sources and includes gross savings, not just the financial sources drawn from the Flow of Funds. The Chart shows that in the 1980s gross savings (retained earnings) rose as a source of financing while borrowing fell and equity had no clear trend. The Flow of Funds data show that borrowing continued to be the most important source of external financial funds; equity was briefly important in the mid 1980s but had lost much of its share of total funding by 1988 (Chart 22). Loans were the main use of funds although there was an uneven upward trend in the importance of deposits and interest bearing securities (Chart 23). Fixed versus Financial Investment 27. In recent years there has been a widespread suspicion that some long-term structural development in the Colombian financial system has been leading (private) business to place an increasing part of their savings in financial rather than fixed investment. In fact, if this were true it need not necessarily be a concern. A greater proportion of financial investment might result from the development of a more efficient financial system, with the financial instruments in turn financing higher yielding fixed investment. A greater proportion of financial investment would be more of a concern if it resulted from a financial bubble. The theory expounded by Hyman Minsky associates a long-lasting financial bubble with an increase of indebtedness, a boom of the stock and real estate markets, and a general increase of wages and real interest rates: yet none of those symptoms appear present in Colombia.y 28. Moreover, an examination of the data reveals no evidence of a long-term trend towards greater investment in financial assets after 1975. The ratio of fixed to financial investment of private 4/ For instance, see Can "It" Happen Again? M.E. Sharpe, New York, 1982. -11- ANNEX 2.6 business does not trend downward over 1975-1988, the period for which data are available (Chart 24). The ratio has even recovered between the recession of 1985, and 1988, which should allay concern of a structural move away from saving in the form of fixed investment. In addition, the data on the composition of the financial investment of private business suggest that most investment was probably not speculative. The largest component is loans (Chart 23), which usually have a direct business purpose, such as to finance fixed investment in other companies within the same industrial group or to finance purchases of the enterprise's product. In contrast, potentially speculative instruments like equity are of lesser importance. 29. It is possible, perhaps even likely, that there was a shift of savings of private business into financial investment during 1990 and 1991. This would be associated with macroeconomic efforts to sterilize capital inflows through the massive issue of central bank paper at increasingly higher real interest rates. It would not be surprising if enterprises responded to an increase in yields on relatively low risk assets by shifting some savings out of fixed investment. Even if this were the case, the phenomena would be transitory rather than structural. Short Versus Long-Term Savings and Investment, 30. Some analysts are concerned that there may have been a structural shift of savings away from investment in long-term instruments. The evidence from the flow of funds is not conclusive but does suggest a stable flow of long-term credit. Furthermore, the data hint that there may be more long-term credit than is readily apparent. 31. Record from the flow of funds. The flow of long-term lending as a percentage of GDP increased over 1980-1986 and then dropped off in 1987; thus the data show no sustained trend away from long-term lending (Chart 25). The chart also shows the composition of long term lending: the commercial bank and insurance sectors that provide long-term loans in industrial countries are nearly absent here'; most long-term loans came from the foreign sector, other financial institutions such as Savings and Loan and Financial Corporations (CAVs and CFs), and the Public Administration. Chart 26 displays the composition of long-term borrowing: business and public administration absorbed the largest shares. 32. Commercial credit. Long-term lending may be larger than it appears given that commercial credit is likely to include a long-term component, defined as maturity greater than 1 year. One example of long-term commercial credit are three year loans offered by finance companies (CFCs) for auto purchases. Chart 27 illustrates the evolution of commercial credit expressed as a percentage of GDP. Total commercial credit represents a high share of GDP relative to other forms of credit. The largest source of commercial credit is the business sector. Unfortunately, it is hard to determine the extent of this kind of commercial credit (LT credit) within the business sector, since the available data do not provide a picture window into the nature (term) of the contracts between enterprises. But many may also extend over one year, especially if the borrower and the lender shared membership in a common ownership structure, or long-standing business relationships, reduce the risk of long-term lending. This is not an unexpected result, since commercial banks were mostly barred from long-term lending and insurance companies did not have significant long-term resources. -12- ANNEX 2.6 Summary and Conclusions. 33. The domestic data on investment and savings does not imply that an ex-ante shortage of savings was responsible for the decline of real investment. One reason for the decline in real investment's share of GDP was an increase in the price of capital goods rather than a structural decline of the nominal savings rate. The international comparison showed that Colombia's savings rate was at about the world average in 1989: the savings rate was not low by international standards. Colombia did have a relatively high public savings share in GDP and a low private savings share in the late 1980s compared to the world averages. But a closer examination of the data suggest that comparison is distorted by statistical factors. Once these are taken into account, Colombia's private savings share is similar to that of several countries in its per-capita income and inflation class. 34. There is no evidence that fixed investment has suffered from a structural shift toward increased placement of private business savings in financial instruments. In any event, a long term trend toward greater financial investment might reflect a more efficient financial system, so long as there was no financial bubble. It is possible that there was a recent -as opposed to a structural- increase in the proportion of private business savings devoted to financial investment. But that seems linked to the accelerated issue of central bank paper (OMAs) in 1991. Moreover, there is no evidence of a decline in the availability of long-term credit. Furthermore, it is possible that further long-term credit than the one explicitly labeled as such in the flow of funds has been available in the form of commercial credit. -13- ANNEX 2.6 Chart 1 Fixed Investment: Real vs. Nominal (Shares in GDP) 20 19 -. 18 - 16 - 15 14 o < <~ ~u ~ i- - - - - - - -~ - o - - - - - Real ------ Nominal Chart 2 Interest Rate: Bank Lending (annual percentage rate) 48.00% 43.00% 38.00% 33.00% 28.00% 23.00% 18.00% 13.00% - -- 8.00% N- 0 Nominal - Real -14- ANNEX 2.6 Chart 3 COLOMBIA GROSS NATIONAL SAVING RATE (GNS) Contrasted with Latin America/Carribean Group Percent of GDP 26 26 Latin Americo/Corib 24 -24 22 -22 20 oo20 18 g 161 14 14 12 12 10 1 i i i i i i i1 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 Source: World Bank Inti Economics Department Chart 4 COLOMBIA TOTAL SAVING RATE (GDS) rcent of GDP Contrasted with Latin America/Caribbean Group 26 26 24 2atin America/carib Colombi4 22 I22 20 20 18 18 16 ~16 14 14 12 -112 110 70 71 72 73 74 76 77 78 79 80 81 82 83 84 85 86 87 88 89 Source: World Bank Inti Economics Department -15- ANNEX 2.6 Chart 5 COLOMBIA PRIVATE SAVING RATE (GDS) Contrasted with Latin Anerica/Caribbean Group Percent of GDP 28 - - 28 26 - 26 24 - 24 22 - - 22 20 -20 20 - ~Colombia -2 18 - 18 Latin Arnerfcc/Carib 16 16 14 - 14 12 12 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 Source: World Bank Intl Economics Department Chart 6 COLOMBIA PUBLIC SAVING RATE (GDS) Contrasted ith Latin Arnerica/Caribbean Group Percent of GDP 12 12 10 10 Colombia 8 --8 6 -'- 6 4 4 2 2 Latin Arnerica/Carib -2 -2 70 71 72 73 74 75 76 77 78 79 80 81 82 83 64 85 86 87 88 89 Source: World Bank Intl Economtes Department -16- ANNEX 2.6 Chart 7 COLOMBIA PRIVATE SAVING RATE .(GDS) Contrasted with MidRange Inflation Group (20 -407) Percent of GDP 20 -20 Colom bia 15 -15 MidRange Inflation 10 10 55 0-0 70 71 72 73 74 75 76 77 78 79 0 81 82 83 84 85 86 87 88 89 Source: Warld Bank Intl Economics De~atment Chart 8 COLOMBIA PUBLIC SAVING RATE (GDS) Percent of GDP Contrasted hith MidRange Inflation Group (20z-407) 14 - 14 12 - 12 10 - MidRange Inflation 10 8 8 6 6 4 4 22 0 7 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 Source: World Bank Intl Economics Department -17- ANNEX 2.6 Chart 9 Distribution of Nominal GDP 100% 90% 80% 70% 60% 0 GROSS PROFITS 50% E WAGES 40% * IND. TAXES + SUB. 30% 20% 10% 0% N co r O c » o- c. c on C r, CO r- r% r- r- r- r- r% r- r- to co ao æo æ co co c - - - - - - - - - - - - - - - - - - Chart 10 Households: Sources of Funds (flow per unit of GDP) 8 7 6 5 4 3 OO N O COC SCommercial credit Short-term borr. Long-term borr. Misc - 18 - ANNEX 2.6 Сhап 11 Households: Uses of Funds (Flow рег unit of GDP) 12 10 с $ 'о а Ф 6 Ф Ф С Ф 4 � Ф � �����Г� • yi�:�ii .л�п {l ' �.�п� �i�r '�пЬ �� � . с 2 'г?'ti,i� „��,п,�г, t��г�' � � � Е'ь�i; �гi , � �,,, � ,�- ,г �..�а,: ,и чг, р,� о _ о Г и м v и т n т и о и м v и т n 1� 1� Р Р Р Р Р Р Р Р Ф Ф Ф OD °0 °0 Ф °0 '2 м Of 4) т 01 01 О! Q! О! Of О) Qf Of 01 01 О) О) Т Г Г Г Г Г Г Г Г Г Г Г Г Г Г Г Г Г Г ® М1 � Sav Act ® СОТ ❑ Equity&Bonds ® 1пв ® Loans&Misc Chart 12 Households: Sources of Funds (percentage point shares in flows) 1 оо°� 90°k 80°/о 70°�6 60 °�Ь 50 °/о 40°/о 30°/о 20°/о 10°�6 о% . -10 °/о о N м v и т n ао т о N м v и т n n n n n n n n г� г� n °о ао w ао °о ао °о °о и и т т т и т и т и и и и и а� т и т Г Г Г Г Г Г Г Г Г Г Г Г в� Г Г Г Г Г Commercial Credit ❑ Long-term ® Shoп-term � Misc -19- ANNEX 2.6 Chart 13 Households: Uses of Funds (Shares in flow) 100%_- 90% -- 80%-- 70%-- 60% 50% æn 40% 30% 20% 10% 0% -10%10 CO CG CO <ø CO w m 01 0> 0) 01 111 111 m m m emi El Sav Act 10 CDT Equity&Bonds Ins LoansWisc Chart 14 Real Wage Index (1980 100) 123 121 119 117 115 113 111 109 107 105 1982 1983 1984 1985 1986 1987 1988 1989 -20- ANNEX 2.6 Chart 15 Average Tax Rates on Household Income 4 3.5 ------------------------ s 3 2 1.5 c. 0.5 0 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 Direct -------- Social Security Chart 16 SALES TAX RATE* (Taxes paid per unit of GDP) 3.5 3 2.5 . CL CL 1.5 0.5 1971 1973 1975 1977 1979 1981 1983 1985 1987 *Sales taxes (including VAT) divided by GDP Source: DANE National Income Account -21- ANNEX 2.6 Chart 17 Real UPAC (yearly real % change) 5 4 3 2 @1 CL0 -1 -2 S -4 -5 -6 -7 - 1 e c<) t O o 00 ) 0 0C 00 CO 00 00 00 0 CO D 0 (n a) CD 0) a) CM ) M a) a) CD Chart 18 Total Business: Uses of Gross Profits (Shares in total gross profits) 100% 90% 80% 70% 60% 50% 40% - 30% 20% 0% %N V) I U) 1 11 1 0 0 1 N 1 1) 1O 1W 0 r,wn e e m O <O C O n o rC O 0 0) ~~0) 0n M 0 0 0 0) U Direct Taxes E Distributed earning Interest O Misc 0 Implicit gross savings -22- ANNEX 2.6 Chart 19 Total Business Sector: Sources of Financial Funds (flow per unit of GDP) 20 15 .5 a. C 1 0 S - Ju l I- 11a to it. f- I.I r-p UimU 0 N m It in 0 0 0 0 m 0 0 N 0o W 0 N I- M - P G G 0 -5 SLong-term bor Conerial credit IM Short-tem bor Bonds & CDT, 0 Equity C3 misc Chart 20 Total Business Sector: Uses of Financial Funds (flow per unit of GDP) 14 12 10 ms am, S8 O. 0 -i 1 . 1 iD i0 i i ' ~ 4 I 0 m It W N m m 0 N m W U UN 0- 0 N 0 00 0 0 0 0 0 Go GO 00 0 -23- ANNEX 2.6 Chart 21 Private Business: Financing of Investment (flow per unit of GDP) 12 10 - 8 6- 4- 2~ 0. - 0 61--- - -2 mf D r- æD m~ li w ~ CD r- N 0 Gross savings Net transfers -- Equity ---- Borrowing Chart 22 Private Business: Sources of Funds (Shares in total) 00% 90% 80% 70% 60% 50% 40% 30% 20% 10% 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 l Borrowing 1 Equity M Bonds&Notes -24- ANNEX 2.6 Chart 23 Private Business: Uses of Financial Funds (Shares in total) 100% - 90% 70% 60% 50% 40% 30% 20% 10% 0% 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 Loans U Deposits & Sec.s O Equity O Mi Chart 24 Private Business: Ratio of Fixed/Financial Investment 2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 111111111111 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 -25- ANNEX 2.6 Chart 25 Long-Terr Lending by Sector of Origin (Flow per unit of GDP) 14 12 10 Hous Bus Cm Bk+lns SAdm 4 Oth Fin 2 *Foreign 0 -0 Bs Hr- ruh r a CO Fin n O or O -2 !! m -0 > > < > ø Chart 26 Composition of Long-Terrm Borrowing (Shares in flow) 100% 90% 80% 70% 60% 40%-- 40%-.~ 20%. 10%- 0% -10% j, 0 1* :n <D p O 0>U *Bus Househid E*adm ElFin Inet *For- - 26- ANNEX 2.6 Chart 27 Commercial Credit by Sector of Origin (Flow per unit of GDP) 14 12 4 10 0 8 2 0 -2 o B Oth 0 Is - H h M Mi s c 4 SBusiness ElPub Adm UComm Bks IM Oth Fin Inst Households IM Misc Annex 4.1 Page 1 of 1 COLOMBA' FINANCIAL SECTOR STUDY Annex 4.1: In*ntary of Financial Institutions with State Participation TOTAL Direct Indirect Total Goverrmnent 200.587 11,940 212,527 FOGAFIN 29.144 118 29,262 FEDCAFE 49,323 9,755 59,078 Other 12,269 545 12,834 Total 291,343 22.358 313,701 % of Total Direct and idirect by Owner Goverrnent 94.4% 5.6% 100.0% FOGAFIN 99.6% 0.4% 100.0% FEDCAFE 83.5% 16.5% 100.0% Otw 95.8% 4.2% 100.0% Total 92.9% 7.1% 100.0% % of Total by Direct and Indirect Ownership Goverrinent 68.8% 53.4% 67.7% FOGAFIN 10.0% 0.5% 9.3% FEDCAFE 16.9% 43.6% 18.8% Other 4.2% 2.4% 4.1% Total 100.0% 100.0% 100.0% Soce: Superintendencla Bancaria. 10-Nov-92 COLOMBA: FINANCIAL SETOR STUDY AnneO 4.2: State Onral 01 Financial inethuien by Own 000 Mmin Psg" Caital Rat~as Equty Rayos Aa'e R~s htdi wom?d Wahd vM Jnm30, 1992 State utate Stats % .% Avg. Avg. % % Avg. Avg. Cepl Cep C of of stat, mats of of Bat. tats Nunfer of Total Total Total Total Total Parl PaØV Total Total Par¥ PawV Indkuton state Total C@piia CtaIl Stats Ste- Fin Ttal Fkt St- Fin Total Total Cop. CaP. Total Tatal 01 b lnwt- Se.o Syate Sa~- systn øae~ Syan St- oFi Financlal Inet1hAløn Parnit/otatua # % 1 il Equty Aaaen Finn Skar nit Equiy Equky ader Equiy Asse Aas~k er npetm BANK8Sa I COLOMBIA Tobo aold1993 1 40.7 40.7 295 973.0 100.0 13.1 12.g7 8.3 1.1 3.8 1.1 12.8 6.9 l2a 6.9 2 GANADERO I 0.2 18.1 88.8 073.2 1.0 0.1 0.06 0.6 3.1 0.1 0.0 12.8 6.9 0.1 0.1 3 CAMAAGRARIA Toe Ration~ttad 1 71.0 71.5 (20.2} 983.4 90.2 22.0 22.63 -2.2 -0.7 -2.2 -0.7 12.7 6.0 12.6 6.8 4 CAFETERO Patial Priv. Dec. lastues 1 42.7 42.7 8.6 0.4 100.0 13.8 13.63 9.8 3.2 9.8 3.2 12.0 6.6 12.0 6.5 5 POPULAR GovtPlqNotDlined I 21.9 22.3 75.1 633.1 *6.8 7.1 6.90 8.3 2.7 8.2 2.7 8.3 4.5 5.2 4.4 6 ESTADO Toes old1913 1 0.8 5.2 35.7 310.1 15.2 0.3 0.25 4.0 1.3 0.6 0.2 4.2 2.3 0.6 0.3 7 CALDAS FEDCAFE/Mancocaeare 1 0.5 4.2 10.4 106.7 11.3 0.2 0.15 1.2 0.4 0.1 0.0 1.4 0.8 0.2 0.1 2L ékl. a".. *~~~8 - K*~ *. ' ~ . t .. 'é ' -TOTAL~ -aO tnlmW -______ lm100 00*0 0. .0. . . .0 0* 4..' 4' '0 .0.' 4 . 0,4 FINANCE CORPORATIONS a/ i VALLE 1 0.1 0.4 54.5 279.7 21.0 0.1 0.02 14.3 2.0 3.0 0.4 18.5 2.0 3.0 0.4 2 I.F.l. a 2. 92.1 142.7 230.8 100.0 82.5 10.81 37.4 5.2 37.4 5.2 15.3 1.6 15.3 1.6 3 COLOMIANA Coonble 1 0.1 0.7 21.4 121.7 9.8 0.1 0.02 5.6 0.8 0.8 0.1 8.1 0.0 0.8 01 4 NORTE 1 0.0 1.0 11.7 87.2 3.2 0.0 0.01 4.1 0.8 0.1 0.0 5.8 0.6 0.2 0.0 5 POPULAR Nat'lGovt. 1 2.4 5.9 8. 57.4 40.9 2.1 0.77 2.2 0.3 0.0 0.1 3.8 0.4 1.6 0.2 6 CALDAS FEDCAFE 1 1.8 2.0 9.6 53.0 90.2 1.5 0.87 2.5 0.3 2.3 0.3 3.5 0.4 3.2 0.3 7 COF»AGRO I 03 3.1 6.4 40.5 0.4 0.2 0.0M 1.7 0.2 0.2 0.0 3.3 0.4 0.3 0.0 8 SANTANDER 1 0.2 1.9 0.4 47.3 10.2 0.2 0.08 2.5 0.3 0.3 0.0 3.1 0.3 0.3 0.0 9 ORIENTE FEDCAFE l 2.8 2.6 4.4 32.6 90.1 2.2 0.84 1.2 02 1.1 0.2 2.2 0.2 2.1 0.2 10 OCCIDENTE FEDCAFE 1 1.5 2.2 4.7 20.8 71.8 1.3 0.49 1.2 0.2 0.9 0.1 2.0 0.2 1.4 0.2 11 TRANSPORTE Nat'lGvt. 1 2.5 2.5 2.5 28.9 100.0 2.1 0.80 0.7 0.1 07 0.1 1.8 0.2 1.8 02 12 TOLIMA FEDCAFE 1 0.2 0.6 3.3 20.4 27.8 0.1 0.08 0.9 0.1 0.2 0.0 1.3 0.1 04 0.0 13 øOYACA 1 0.2 2.0 3.5 18.2 0.4 0.2 0.06 0.0 0.1 0.1 0.0 1.2 0.1 0.1 0.0 14 CUNDINAMARCA Dept.deCundlnamarca 1 1.0 1.0 1.8 5.8 99.2 0.8 0.31 0.6 0.1 0.8 0.1 0.4 0.0 0.4 0.0 18 TURISMO NatlGvL l 10.2 10.2 3.8 4.0 100.0 8.6 3.25 1.0 0.1 1.0 0.1 0.3 0.0 0.3 0.0 18 GRANFINANCIERA NatliGovt. 1 10.7 10.7 NÅ NA. 100.0 9.0 3.41 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 NOUSING SAVINGS AND LOANS ti 1 CONCASA FEOCAFE 1 3.5 3. 17.4 304.0 90.3 14.3 1.13 122 0.6 11.0 0.6 11.8 2.8 10.7 2.3 2 CORPAVI 1 3.1 4.8 11.3 250.6 64.9 12.5 0.90 7.7 0.4 5.0 0.3 8.5 1.8 8.5 1.2 StU6TOTN. -100 Otate P:trdiŠteo ..2 2. *. ..' $7 .' .0. -Ó30.5 7,4 .' 28 . .'.jg.g :. .# :p g..... TOTM.- CAV's . :: • .' 100.0 0,0' ' .4.5 0672~ 0A * .00 1.0~4~: 0. 0. -8 g0. 9,0* 0* COMMERCIAL FINANCE COMPS al I PRONTA Nat1Govt. 1 8.7 8.7 (1.0) 65.3 100.0 81.4 2.78 -1. -0.1 -1.8 -0.1 8.7 0.5 8.7 0.5 2 COMERCIA 1 0.0 2.0 4.8 31.2 1.9 0.3 0.01 4.5 0.2 0.1 0.0 4.2 0.2 0.1 0.0 SUBTOTAt,- W*h' at Par*~ ~ðo 2 B5~, ·O, 3.6 :mi.i. «, * .76, G:i$. (ig s I1R.G 10, g TOTAL - 0Fie .-- . . · · .30 100.0 9.0 :46,3 100.8 749.1 0.0'æ .0?0.00 .100.0 3. O D 00 .00 .0 B. 0 , 0 GENERAL DEPOSIT WINDOWS af I ALMACAFE FEDECAFE 1 1.1 1.2 9.2 43.5 96.9 13.8 0.36 10.8 0.3 10.5 03 32.3 03 31.3 0.3 2 ALMACENAR BancoColofibl 1 02 0.3 7.1 9.4 93.5 3.0 0.08 84 0.3 7.9 0.2 7.0 0.1 8.5 0.1 |$ 3 ALMADECO FEDCAFE 1 0.9 1.0 6.5 9.1 90.8 11.1 0.29 7,7 0.2 6.0 0.2 6.8 0.1 61 0.1 4 ALMAGRARIO Ca> Agraua/DEMA 1 1.2 1.8 8.7 7.1 65.4 14.6 0.37 7.0 0.2 5.2 0.2 5.3 0.1 3.5 0.0 5 ALMAPOPULAR BancoPopular 1 0.6 0.8 3.0 43 78.8 7.3 0.19 3.5 0.1 2.7 0.1 3.2 0.0 2.4 0.0 6 ALCALDAS BancoCa~aa 1 0.1 0.5 1.1 1.6 12.0 0.7 0.02 1.2 0.0 0.1 0.0 1.2 0.0 0.1 0.0 '0JBTOTA-.WMatte.PatkiGa#l ø 50* 4.. 5.. 30.'A 76.0 7.40 80* †A"t0'' .20A % .fit d ' gé 0*. ..g TOTAL-~~~~u -1"j2 0. .... *~ 00 ~ 00 0.0 . i: '.0*4 _~00 t *..0h0 FIDUCIARY COMPANIES al 1 FIDIVALLE 1 0.2 2.0 2.9 3.4 10.7 0.7 0.07 9.8 0.1 1.0 0.0 0.9 00 1.1 00 2 FIDUCAFE FEDCAFE 1 1.8 2.0 2.6 32 89.7 8.8 0.57 8.8 0.1 7.0 0.1 0.5 0.0 8.6 0.0 3 PREVISORA CAJANAL I 00 0.0 1.7 2.0 øge 2.0 0.29 5.8 0.1 5.8 0.1 6.0 0.0 6.0 0.0 4 CALDAS 1 0.0 0.3 0.5 0.7 7.7 0.1 0.01 1.7 0.0 0.1 0.0 2-1 0.0 0.2 0.0 5 POPUAR Banco Popular 1 3.9 4.0 N/A N/A 98.5 12.8 1.26 0.0 0.0 0.0 0.0 0.0 0,0 0.0 0.0 � Annex 4.2 Page 2 of 2 ' pi�л�sE о'ь'О oO�D е�т�о?��► ооо�О ор{� ооооооооо.р 3 ¢Т!в о�о о•е:б оооооо-о оодо� о�е оооооооо�ба а о��р оа4 н�о�о•то оо�еа и•�Со о�вн�,.в�о1r�0 ���� i��� о.& �i о.р.-т �.: д � o:R р � а о р� � �i �..а д о н д б б б б о.д д � G ~ . : :г:. ;` `. . .- � �■ опр ���п�+ ow��op1� �ооь�iр wд:ip ��.-ooooooR+� н5�� isa обб о:рsь ооооов�iе оооат ооы ооооооооооаа r eie•b� w:iь��a овонеwо е�н�а�а и�дд онооеввоnее во $ о д� �са�о авi +.9д����оо М$Е3 �.� •�� � т� Г„� '��_� Н� Н 9 � О .цw. 0;;1'F> онИОО�WО О�о�{; �т{� ООООоООООт'�р � �< � i �� О� а О д� о С О С G iF С С О С р О С� е G С G С С G С С О{�р "а � е �•� н•31{ � в О н н О е` А�0 О Т С о О"b о N О вD �. 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Pnversiones реппвпепtев. увгiоа deudes дес.2008/8в 4/ Negaciecioг�ea де сегtего, оtrев exibibilidndeв, esteЫecimientaв afiliedoв. 5/ Sobnэgiп�a bencarioa, oЫigecioneв bencariaв, creditoв �edbidos дв оtrов eeteЫeмmientoe де cгedito oЫigecioneв hipotecarian. в/ Donecior�eв в teroeroв Ра Рв9вг, сева гпеtга. Paaivo contingente, висигввlвв У еВепсiев, деиде С�оЬiепю nacionel, ebonos у а4гоа dileгidoa. Ревivов вstimadoв у pn�viaioneв у оевепhав сопадiдадев. 7/ V� пеtвв. 8/ Rеаегvл Pob акРелаюп �вУ 75/ев, euperevit допедо, guerenteed cspital. 8оите: Веlвпсеа Revhte 8 ntenderкie Bnncerin. Amex 4.6 Page 2 of 2 TarALCkS CM ~ kb~ 1987 1~ lom 19W 1991 EOY ~ 78 100 125 187 213 A~ % Change 0.3 0.3 0.3 0.2 Cumm~ % Ch~ 1.54 1.05 0.84 0.24 0.00 AV9 ~ 71 91 114 147 195 A~ % Ch~ 0.3 0.3 0.3 0.3 Cuwmd~ % Ch~ 1.74 1.14 0.70 0.32 0,00 Av~ Equity 1067 190 1~ 19M 1991 Nu 0~9 ma gb NM' TM T« NUA-n, i AfterTm Offl~ 215 En~ 3,022 A-at~ (000 &Mon) A-eftjEmpk~ (OW Uffilon) Por~ Ckomffk~ No 84.7% Subn~ 9.6% Def~ 1.5% DaubtM 1.5% Lan 1.8% cOLOY8IA: F1иANC1AL 8ЕСтОд aтUDY Апмк 4.7: Fiars�sl 8�lвтагд апд lndiasLмs gипп�вry _ С�С Ргдrв QxroгR Рааов (АА1n1оп) х д то0в1 Asseb �rR /оУ1 Рввр (M1fNon) % Сlапре 1087 1088 /о80 1Уо0 1оо1 1оВ7 1оВ8 1080 1Уо0 10р1 10В7 1о88 1oBD 1оУ0 1о01 1о8в 10во 1W0 1оЯ1 А88ЕТ8 сааnепдОедовпвlпсвгтвlвапк Эо7 ея 161 г5г e1s 1л o.s о.в о.а 1.2 в1z t4г г4в s1г еrв -в2.в 73л 2е.8 о7.9 lnveatmeпtв Required 1,781 1,200 3,OD7 4,121 7,474 8.0 4.4 8.9 8.о 14.1 �,70в г.180 Б,Од1 6,002 7,174 -47.9 104.2 0.6 4в.в Vdur>гагу 1/ вге аее г.оsв sse2 о1� 2.е 1.� Б.в 1г.1 1.7 1,еео рв1 3,3е3 в,еов ot7 -ыг.1 г4о.о 106.1 -ев.7 тогеl 2,аоо 1,ев8 6,16э о,7о3 1о,7вг 1о.о в.1 13.в г1.0 ю.3 е,9вв 9,441 е,4г7 11,оев 1о,7в2 -вБ.о 1м,о 42.г -10.2 �oanaend аlасоипtв г/ о,еов 12,ег4 1а,sве 2a,s32 эЭ,ео7 4в.е 47.1 44.4 в1.7 е3.6 ю,16в 2e,4w г7,оw эа,24о s9,eo7 1.1 2.в 9о.1 -4.7 Deudorea Verioв ?А3 В34 1,8в0 о23 1.9 3.1 Б.О 2.0 0.0 774 1,721 9,012 1,140 0 122.4 7в.8 -в2.б -100,0 DeudsвDudoaoRecaudo 1,т 1,о,4 se1 е1 г,евг е.о 9.7 1.е о.1 6.4 4,eos г,102 oso 7в г,ее2 -6s.2 -ы.е -ог.о хвlл Provfsбon Deud. Dud. Raceudo В21 474 372 1в8 2,504 9.7 1.7 1.0 0.4 4.7 2,178 о78 в0о 232 2,604 -65.1 -37.8 -в1.о 07о.в AesetвДeceiredinLaenForecloeuree 1,105 1,6� 2,Бв1 2,031 372 В.О 6.8 О.о 1.4 0.7 2,021 9,23в 4,18В 2,610 972 10.В 2д.4 -40.1 -86.2 F1xedAeaeta 104 321 в58 3в$ 3>к! 0.7 1.2 1.В 0.8 0.7 439 вв9 1,07в 461 9о9 63.0 в2.4 -68.1 -12.о йhегАвавtа3/ 7.07г 0.�7 10.120 4.561 9,087 91.0 34.6 Z7.2 0.8 6.8 1В,вВ7 10,9в0 1в,Бв4 6,022 9,f187 9.7 -1в.6 -вв.1 -45.1 Та0в1 AssaE� 22,201 27,228 97,28о 4в,232 62,020 100.0 100.0 100.0 100.0 100.0 бв,вв6 бв,1бв в0,о7В 67,116 62,о2о -1.9 8.0 -в,9 -7.9 ы,гог UA9L171ES 7i д То>л! lhbдltlев Docuп�enaosparpeg�r 17,�о 2г,78о 91,12о г,491 44,о7е w.e о2.6 оо.7 6.9 ев.о 4в,74в 4в,ов2 Бо.0о/ 9,оо3 ы,о7е о.в 8.э -о4.1 13о7.в СОТ 0 0 0 9В,в77 0.0 0.0 0.0 В4.8 0.0 0 0 0 47,789 0 0,0 0.0 0.0 -100.0 йhе►детвпдs 4/ 159 вв2 0 0 о0 О.о 2.7 0.0 О.О 0.2 420 1,9в6 0 0 о0 224.7 -100,0 0.0 0.0 Exipib otr eat�b де credito 5/ в5 201 684 913 279 0.9 0.8 1.7 0.7 0.6 173 416 о56 988 273 13о.0 130.9 -Бо.6 -2о,3 BR Сирое 0 50 0 0 0.0 0.2 0.0 0.0 0.0 0 104 0 0 0 0.0 -100.0 0.0 0.0 BR Rediлoounb 65 0 0 0 0.3 0.0 0.0 0.0 0.0 146 0 0 0 0 -100.0 0.0 0.0 0.0 еЧтоиl 55 ЬО 0 0 0.9 О.г O.D 0.0 0.0 1вв 1W 0 0 0 -28.6 -100.0 0.0 0.0 йг,вгиаЫlкlеав/ 7гэ огt г,Бяг 4,1ег в.оев sя 3.7 7.в о.2 7.е 1,о1о t,еяо в,2зо 6,tae в,оее -о.в 123.2 21.о -21.э То6в1 L1eЫlkieв 18,бо3 24,в14 34,303 4S,Q09 52.286 100.0 100.0 10D.0 100.0 100.0 40,9о4 60,7в5 6в,0о7 вв,39В 62.285 2.9 10.6 ОА -7.2 ЕОIЛТУ 1i д То1в1 Араbв P41d-1n Chpital 4,141 4,141 4,141 8,868 8,вв6 /8.2 11.1 18.7 16.2 11.1 10,043 8,ы1 0,772 10,70D В,ы6 -22.0 -20.7 8В.1 -1о.1 Lega1 Reaervea 0 0 0 0 0 0.0 0.0 0.0 0.0 0.0 0 0 0 0 0 0.0 0.0 0.0 0.0 Reaerьe Eventиl 0 0 0 0 0 0.0 0.0 0.0 0.0 0.0 0 0 0 0 0 0.0 0.0 0.0 0.0 Восева 0 0 0 0 0 0.0 0.0 0.0 0.0 0.0 0 0 0 0 0 0,0 0.0 0.0 0.0 surplus7/ ыг 7эо 2,1а 2,авг 1,473 г.7 Б.в в.6 z.7 Б.е 1,�в 1,624 3,мо г,вn 1,473 -10.г 12s.e -ге.0 -4х.г йhег8/ 4,627 4,327 в,Ог7 0 0 1в.в 10.2 0.0 1в.в tв.2 11,ов2 о,33в о,8Sв 0 0 -22.0 Б.в -100.0 0.0 Accimuleted Рп�1tв (4,801) (5,80� Iв.7о',i) (о,287) (10.101) -21.9 -1в.2 -20.1 -21.9 -18.2 (12,023) (11,Овв) (11,10� (11,474) (10,101) -7.4 -7.2 9.9 -12.0 РегiодРгота rot1l (яд1) (2,4о4) (е14) в01 -3,в -б.7 -1.8 -3.в -0.7 (2.4ое) (2,044) (4А7� I1.005? � -16.1 со.б -76.4 -1в0.1 То>ев1 Equtqr 3,608 2,вt4 2,ое4 в2о в40 О.в 8.0 1.А о.0 8.0 о,27о 5,3о1 4,880 т ыЧ -41.В -р.6 -ев.1 -17,1 Таев{ uвbi8tles+ Е 22.201 27.228 э7 28о 4вд3г sг,о2о 1ао.о 1оо.о 1оо.о 1оо.о 1оо.о ье,ва5 Бе.16в во,о7е 67116 62,ою -4.3 е.в -e.s --7.э 1/ lnveatmenta TrenaRorlea, Voluntery lnveetrnenta. 2/ Portfolb ИероtмНам, loans end dlacouria. 9/ CredRos а otroe евfаЫедтlепtов де credito, дегег�оs вдисЬгiов, Ьiвпев гвЮвв реге 1в ventn, nvenoea сотр�е дв lnmsuЫee, дМвАдоа, aucurenba у ерегкдев. юbгlтдогие neLm,lnverabneв permnnentes, vnrbe деидаа дес.2008/80 4/ NegoclncЮneв де mrtera, otrea ех{ЫЫliдедев, estaЫeelmlentoв еПllадов. Ь/ 8obnэglros bвnanrioa, oЫlpecionea bencerkte, creditoa гвсfЫдов де otrae eatыЫeclmlentoв де рвдRо оbП�сlопее hfpoteoerlea. �� в/ Doгncbnee е tегсегов рог ре�►, тве пetriz, paalvo oonGngвnte, аиси�еlее у epencbe, деидв OoЫemo годопвl, еЬопов у otros дNмlдое. рвеlюе eatlmedos у proMsbnsa 1D у ceaentfea сопваПгhдва. i� w 7/ ValortmcЮnes пейв. А В/ Чеаегvе регв expenefon Ley 75/80, вирв�вvR домдо, puarantead тр1Ев1. М �1 Source: Ваlепсеа ReNste 8и erinteпdende Benmria. N Annex 4.7 Page 2 of 2 WC PRONTA cpl PrIOD l 1987 1988 l~ 1990 199,1 EOY l 78 100 125 167 213 Annmi % Ch~ 0.3 0.3 0.3 0.2 CUMUhøff % Change 1.84 1.06 0.64 0.24 0.00 Avg in~ 71 91 114 147 195 A~ % Change 0.3 0.3 0.3 0.3 C~ bø % Change 1.74 1.14 0.70 0.32 0.00 ^~99 E~ 1987 19« løff IMO IMI Nut Operaffing Margin Not Inc~ B~ Tax Tax Nal Inamne A~ T« CX~ 2B Ewp~ 320 Ganch W (000 Mulkm) 1,890 ^=~ n~ 99 (000 Million) 161 Pa~ Ckgaffl, NN Har~ 86.3% Subnorml 27.2% Def~ 1.1% Da~ 3.e% �g��'i"S k'�"S +g'•�Е „ °_� L ЕУ•! 7�'N� уΡц 5g�g[[ Qg g g� g� дг Fп g1 rQ gq � У �j � � Q � � � � п С � � � � � � � � �!t � � � � � � � � а S � 3 ; � � i � � � ` С ! � � ё � ? д ! � � � �s 4 � � !� i � � � � ! � < � � �'�В�цца RH$�°�����`�+a�ne�$g �6�$ з'����� � g �� s� � 7��Я � �,��� Ё + � ,_л п � � �"� 6 �� .г�А �'Jëi �� �g�! YcF���� ���� ✓+����8 �°'�� к� � ��3�� � � �� �� 3 �8 �� � � � � ���� � ����� �� �g� �gs5 ��� �' � + � Е � а �� � ��' ¢�� � s° ����5 .� �� g+k' R� �� � п � �� � ! 8�� ��. 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Р�� уΡ уΡ:�� Q g } Н� �� ����� �г°�� 8S� 8 8о vo д � i!i ���3 N � U9 Ф N• � О А � � N I あ h 1( 】I I 『 I 乞算 aな トコ Annex 4.9 Page 2 of 2 OMCO G~DERO TOW Aa~ l~ IW.55 ToM Equky 1~ 11.85 CR PAm k~ 1057 IOM 1~ IMO 1~ 1902 EOV x 78 100 125 107 212 249 A~ % Chwek 21114 2e% W% 27% la% Ouw~ % C~ 219% 1"% W% 4^ 18% 0% Avg Index 71 01 114 147 105 235 A~ % Chwee 211% 211% 29% 32% 21% cum~ % C~ 251% 150% 105% W% 21% 0% % AY~p E~ 1m7 lam 1~ 100 looi 1111102 HM Fk~ Margin &S L7 25.1 3Z1 34.0 25.1 ~ PMM &0 &5 19.3 24.4 25.9 10.0 OM~ 142 144 150 1W ER~~ 4,400 4,455 4,719 4~ E-~ RMO (U"X-1 P~ W3 50 533 755 Amscesl~ (Us$ mison) 8.4% 8.40 L083 8.15116 AM~ MPIDYCQ (Us$ M11110r4 0.267 0.272 0.257 02M Lamns P~ DUWT~ LO~ 5.7% 0.0% 7.0% Pvvvk§oneffiast Duo Laans 22.1% 17.2% 1&9% pmvkd~ ~ L~ 1.3% 1.0% 1.1% PD11110110 Ckmar~ Nonam 119.4% 81.0% 8&8% autm~ 0.3% 133% 11.2% 0.21% 1.0% 1.0% D~ 1.2% 1.11% Zl% LOM Z2% 12% 10% Total AM*WIS 321 450 012 765 AV~ A"~ 390 536 00 Index G~ LM»P~ 47.8% 40.0% 43.1% L~r Coste 13 Ie 24 DeneininsWr of Indbes 25 41 57 index AdnOnk C~Iz m 61% 711% Adm~ Co~ 25 33 43 Adrnim CD~Avg A~ 5.9% 4.1% 0.2% % of 8~ Aa~ 9.5% 10.3% 11.2% II.C% 12.5% 1Z8% % of 8~ Equity 7.0% 7.3% 7.9% 9.7% 11.2% 9.0% 8~ Asswes ZWO 3,112 4,115 5,181 6,157 7581 Gy- Equity 200 2M 417. 452 054 501 藝 么 訕 9 !- • 奮 露 ！寫 鼠藝 卜J Annex 4.10 Pa文e 2 OfZ 日A馴CO IIOA月L禹開 丰 ооi.оУви: F.wrcu� весroп вTwr Аппех 4.11 Ми,.к..,,: Fi,.ndH 8f.авп.п. ид пдlе.тоЧ lио.пу - Сегропда, FY�вnew.. � Page 1 of 2 Cunвnt Рввов (000 YП1eq) 1<М ТаRв1 Аввоb Cenatвnt Jи 1УУ2 Рввов (о00 Y�bN 1< Сlrпрв 1ее7 lвве /0еУ /УУ0 1001 J 1оУ2 1Уе7 100е /ое0 1УУ0 /001 J 1eYQ 1ее7 10ве 1оеУ 10е0 1eYt J 1ее2 10ве 1Уlе /УУ0 1ео1 .11еег АвеЕ'Г8 с.вв ма о.ро.а м ад е,.мс 1/ о.е о.е о.е 1.е а7 в.е о о о о 1 о 2о 21 1.2 2в а7 в.а в -@ Ув 1е1 -аа ьи«u�rnr и..«wд.qиь.�,wпо.рмг.гqг о.в 1о.а 1а.о ге.в 1аа 1г.е а а а в 1 1 ао.г гыа а7.е ва.а /в.е 12е -1а ва 17 -м -1о То1в1у а1.7 аа7 ве.7 71.0 ее.г 111.0 11 10 о 0 10 10 101.0 Уе.9 ее.2 10в.У 11в.0 11в.0 -5 г е У -1 .. . .... . сгва рогиеыо s/ 7Xt.1'. �32.ё,"4а7.? �.! )'Ы �' а2f.б ";. : о1 ' •81i • ' • 7�.'.. 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Екеhвпрв оиlаfщвв, оопвврепавlво в#гвп)Уов, ид цubs ем jвЫа), W 1qulda ид оtl�и (рое�вео ггее/7Л. тош mr.scnrпr (lаео-1 оо1) ькwм мигигу м..мпа, c.pfv ьив.ипмь. г.гlииь.д ьпrви,ид., ое,.г (r�cwd» ду�а+е �ьиу меои.ад мr..vмгд.), ид pпv4bn (hкlиаа pпvYOn tltubв дв �.м. пМ (1зе7► ма ргоrьмп ег„м, д. гид. v.rroь (1 эев). а/ (1ев7-1одо) 1nUUdи bвго ид dYeourb (диооМадов BR,1F1, Ьогюв дв ргоnдд, own гиоитr, деtдов о1Мг ooryerabnв. Fвдивtbп о1 СаМапt, Rов 271/7У, FEN, Чорое4еlоnи дв Grba), двиди дидою nквидо (епklвl dobb по�в tlиn 1 уовг, wtl� nи1 мд рогвемl оиwпи), ид pгovYbn dwdr dudow nевидо. (lооо-1ео1) Мсlидв г1ohL te nDUy г�г0ив порееiвдв (1 в36). И(1 ее7-lово) Dоидоги wЬго М Миbг, рог obos оогюврwв, por с�вдtо у аарtвдопи, Уrtог••1, oommlpbn ид еtlюг ид вхоипb рвуаЫв. Owdoгos рог авдАов ид мрвеbnи �No, дwдопи и n1lo nМ+ддов в iryYpвL 6/ FMrcв Rв�,1ипlun, mкhkиry ид oqulpnwd ид vвbм mo4fnbв ид оtlиг. ы�вп4 ео,вlгиеlbл вvмоа еопргв до вdrldos, oaaebro ма Упро�wпи�в, bиддпу�, пвемьиry ид оqирпм� whklвв, игором ма опlев вqulpnrnL 7/ Olhor Nиb (1 ев7-1Уе� У�диди оЪоо ир �Мiсiдвв в тlвувl ид овw виоb (др У� о11иг Oвnb Yi еоипlу, povbbnr двровb 1n BR� Мивпмb te гкоМв ви•ва�вд adbro, Yrvмtary, •иеилвlи мд оримJr, еевb о1 оогоludon ид еговп�вlоn, еовb ид дUов м�4bп of Еиb, мпЬоУв01и м MIE, опиг studlи ид ргоjкlв, Миов1 ид овiи втlеlрвtвд рвупмb, otMr вввоb ид nN vвluatbп. (1Уер-1 ее1) tiдидв овw дУреnбlв (У�диди Ьвлоов у оtrвв мtltlдвди пмnеМги, оlкеов дв еоЬго lппrдlпо у iмwo м trамМо (1130)). A1so i+Wdw МиWМс iилдв ид опжвивb. ТМ дrlывпов Ьоlwвм /ое7-1ео0 пву rMict ви 1ncWbn о1 вieAtly drMoid axourb. ы тоw а.ро•м ыаиа• сот, Ьопа., ид о+мог (ыwди Fldвbondw Сиnдв (2t в�, ввroо ид еопвроnевМв (гtв�, •ркltl дровb (2teo), вх1рО рог ввnrьдов bмевмов (г1 еб), игvьдw евnеиlов а neaudo (г17о). W 1пеlиди DУооимв (гв0в06), ordnary авдt (гвовl0). аодltов ешwгдУигbо (гв0в16), ид uвdltw aonиnb (гвов20). 1о/ p�wda �А (гвОвавl, FFl (гвоы0), Flp (гвоыв). FCE (rs0666), Fо�ирп ппвпеW ььппtbго ргв0вво), ыап,в�оп.i orqвnpгrwro (гвовев) ид Рьои�рро (гаа). 11/ Оt1иг YвbYklr еУ YiWdв вхlgbiдвди пуо ndue в пуlвевl(У+Wди оопюгваW вадлпjиов, аовр4еbгrв, пnидкbп рог воврtвеiоп у/о wиer, оЬУрвсbпи м[fдвдов Моп, др в tвпNга, дор иркW BR. вхМвгqв вд), опж дор ид Wp1E Ьвbл ид аПвг э0 двув). oooebn пдиеlвгlо (двр у веrидоiвв пеидвгbs, оиводом vubв. пдиеfвry bondв) ид оtlиг (двр eob оепигдвtrадоп •¢ороеwАв,..). 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ОUиг oquNy е01W У�диди оnиг гимгsв (мвnrвв опвпtадвв (a21Q) ма пмыvа оnвЬпвlм (921�)+ vв4вцоп о1 �ввмги + oquMy rвvWвtbn + ре�иро вд� + ргУпв м cobcвcbn до восЬnи (а106), вирмАt рог допвдопи (а410)) + оциг (дИlдмдов м ассbпи (а7). 1 al lnдиди Удииt, мwrtКвд дlкоипt, ид oommYSbro вп4bг овlвгW 1п 1рв1 ог bгNpi wласу. 1М lnдиди Мвгаt, имгt�вд pnmlun, commYsbro У� biвlqn идkг Уqв1 еипмеу ид p�oacYbn о1 подlt porlbeo. 1SJ F1мneW lnoonr ni�w ппвпеW в�опдkшвв. 1е/ hidudи топМвгу вдJьntrпид, ргопls 1гот lтовtпм�, ваМ о1 ерhвЕlв уоод�. вксhвnрв, дЧlдмb мд portlelpвebna, Мввиhмb, дУеоипb о1 provfdм, дИмоs, аиrtи гвропо арвпtbмl ид nоп-орвгвbмl вхропдkиrвв. 17/ 4+дида hoгюwrbs, tвхвs, Мвsв, coMr�utbro ид dlYвtbm. ид lгоилпео. 1 е/ 1nNuda еипвпу вдМаUпвп� btвp hom Yrvatmomв, oxehвnqв, пдпомnав мд гвреМ, addltbro ид knlвrвпon ot оllkвв, provYbro, doproefвtlon, вmoRtratbra, евр•в1 оовв, dNaso, oost о1 ввМ of емhвЬN ooob. oosl о1 vмцв итоvМпв, еiигtи npoM воееУив иродвW ид поп-оропbп оовb. 1У/ f3ioa liиnеlвl пrrpln + nоп-пмпеУl4юепо - adrnln4tratNo eosb - опиг ифопдkиги. го/ УииlкLгlпр, аугlа�Nв, пlпlпр, .podN вLлдвN�. 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Амек 4.13 pacte 1 of 1 - ----- ---- - � � Е �а _ - � � Г -- � � � 7 Т. � I ( � RС.�мЧи - � ^1 1 1 ( w1C I1вY + , � • � ` tr--1 1 _ -- - - - - - - -- � СомгiсАи � � \ рв ВЕвиП07 i0н00 CESAN1Mi I G!А AOMh1� И вЧЕVt8М� ---^ - I свивосм � DEVтO 8 � � У r н в � NнОмвв�АЧсА - tl САИдСА I а -�- � �� вьУц.дЧ1�0 ' ,1� � i Г - - 1 1 � ' �¢цмо �° е с сЕи � � а.нАхЧо 1 � � т�° �O� М,^ � =.��� �-�� � воо. wиоело �J° wиow �оед GOe�ERиO � с с v. ( NACIONAL +~ � !r 1 � - J ' � . р - ----- - --- - �--- ! „ ~ Еар� � � � � � s � � �с о тиюsие � � ои � FФисиди О � �g � I а�++�м ' �аа \ � � as .о.vии �д + \,� es оЕ '°л 1 � 1 � r ' � р � \\ тмюvа+п � � � 1 � =1 8 ° �� � ' 8 w 1 �: � � I i всо. ►avuMn � uaswc � о п воrвU � - � � -1 + �� � I 1Ф.0 I �„ _� �с0 00. 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GAEWEi ' � � ' ' �вi� � С) cALЛAf tO --' - � � � 7FOUiиoMAA I • I I - � - -� - � = = � I ' � е, � ! I , � fEDEЧAC�ON � ОИ sOWALLE � � � i о� 1 ' � ыл ne eAVtтeaos � а°е � i Ala�.cAi� � а и �[с иов 1� и в_ �,� --= т=. $� _ J� 1 паисиоАиА � � I � � �о ь� � �' � � 1 � t � �ЕАаж � � с � � � ' ' / ` \ � � � wuE[ 1 ( Lt �- _ o.n s[с.� � �л I .� _ р,�лаwтм М� � / � ` � \ �� � ! t 1 ое всоwов �� � �� \ а 1 � � � � Е,�л ** �� \,� � � ; саиsтв I ' � � rp � L - f" - -�'- - oaswxeomm �.и .- .r - .1- _ .J 1 � +� \ � г \ rm � мv. о�+естА � � 1 1�J�,r , ` wпс�оn�иг¢ '� - i МV.М01ЕГ.сА...... � i � �И �r--� '-"'�'- °°+ .� i О-- - -- Т - - - мvЕя9о�.г►А , ' � � i � 1 1 L-�_ �RaW i t, � иtтписои � � � I i 1 � sиА.свЕ. � 1 д � 1 rooo uwsr+c � алвоwоrевиsв�wа � � 1 сс.� !� w, I � � �' I воаовоw �- � - � - - - - - - - -- - - - - -� са°�оо � 1 ± L------ -------------� i �------------------ ------__� �КОЧМАСК�'� � дСг[мВRЕ tК 1l9� iIA�OM00 �W1 Ос�СИА ОЕ ESTUO�OS [СОм'•в SWFЧMTEND� •К �в °Ar.! в5 в Colombia: Financial Sector Study CHART (Measures Taken and Recommended in (he Restructuring and Privatization of State-Owned Financial Institutions) Institution of Fin. Actions Taken in Actions taken in Actions RecoZended o Recommended Me re Recommended Measure r A.::-.,. 1991 1"2 to be taken in 1992 1"3 1994 Commercial Banks Caja Agraria 6.9% Restructuring Measures Capitalization and Adopt measures indicated in Continue Restructuring Begun Guarantee Capital Provided Corporate Plan. Measures of Corporate Plan. Banco Cafetero 6.5% Operational Restructuring Continue Restructuring Initiate. privatization Continue restructurization Measures begun. Program measures consistent with and privatization strategy. Complete valuation overall strategy of the mle of Clarify privatization objectives the State as an owner in the and strategy sector and consistent with Develop p"ualification privatization strategy of other criteria and prospectus institutions. Banco Ganadero 6.9% Most of remaining shams Continue process of divestiture of Remove special legal and (10.6%) sold to remaining shams. economic advantages/ Venezuelan and Colon"n disadvantages. investors. 1.5% of shares remain to be sold to employees, previous shareholders and retimes. Banco Popular 4.3% Financial and Operational * Determines objectives and Initiate privatization Restructuring Begun strategy. Measures consistent with 0 Continue financial and overall strategy of the role of Operational restructuring. the. State as an owner in the motor wW consistent Vith privatiz-ation strategy of other institutions. Banco do Colombia 6.9% Legal resolution and e Resolve Legal Issues (Early) Offer for Sale valuation initiated. 0 Complete valuation Banco del Fstado 2.3% Ugal resolution and * Resolve Legal Issues (Eady) Offer for Sale valuation initiated. e Complete valuation Banco del Comercio 1.8% Privatization Begun Privatization completed. Banco Tequendarris 0.4% Privatized 1.0 $0 OQ Banco do los 0.0% Privatized Tr abajadores Fnince, Corporations 0 IR 1.6% CF del Valle 2.0% Banco Cafetere participation sold. CF Popular 0.4% Financial and Operational Majority ownership Sell IFI, Bancoldext and Banco Sell remaining Government Restructuring Begun transfered to the private Popular holdings. Holdings. sector through new share emission. CF Caldas 0.4% Undertake preparation for public Offor shares for sale. offering. CF del Oriente 0.2% Banco Cafetere participation sold. CF del Occidente 0.2% Init Program to sell ____________ __________________ ___________________ ________________________ hodins. ______holdings.____ Conmercial Financial Companies CFC Pronta 0.5% * Resolve uncertainty over * Offer for Sale merger with Banco de Colombia * Complete valuation Housing Savings and Loans CONCASA 2.6% * Undertake valuation Initiate Privatization * Complete design of Program. Privatization Strategy CORPAVI I 8% Government has initiated * Undertake valuation Initiate Privatization measures to undertake * Complete design of Program. privatization. Privatization Strategy General Insurance Companies La PIe ..* Complete valuation Other Inastilutionae Banco Central N.A. Government has decided to Hipotecario retain ownership. to (D O ANNEX 5.1 ANALYSIS OF FINANCIAL MARGINS 1990 Percent of Average Assets Percent of Financial Martin Net Net Non- Infl. Income Net Non- I. Income Net Fin Fin Fin Fin AdminOther Adjst- before Tax/ Income Fin Admin Other Adjat- before Tax/ Income Revs. Costs Mrgin Revs. Subtot Costs Costs Subtot ments Tax Prvan Revs. Costs Costs Subtot ments Tax Prven Il 2/ 3/ 4/ 5/ 6/ 7/ 4/ S/ 6/ 7/ (a-b) (c+d) (f+g) (e-h+i) 0-k) (f+g) (e-h+i) G-k) (a) (b) (c) (d) (e) () (g) (h) (i) 0) (k) (1) (d) (t) (g) (h) (i) 0) (k) (1) ANGLO COLOMBIANO 24.3 11.8 12.5 1.4 13.9 5.3 3.2 8.5 5.4 1.6 3.7 11 43 25 68 43 13 30 BOGOTA 20.3 9.5 10.8 2.0 12.8 5.2 3.1 8.3 4.5 1.1 3.4 18 48 29 77 42 10 32 CALDAS 21.8 14.6 7.2 2.3 9.5 6.0 3.0 8.9 0.6 0.0 0.6 33 83 41 .124 9 0 8 CAFErERO 17.5 10.9 6.6 1.3 8.0 5.9 3.1 9.0 (1.1) 0.3 (1.3) 20 89 48 136 -16 4 -20 CIAL. ANTIOQUERO 22.4 11.1 11.3 1.5 12.8 6.6 3.1 9.7 3.1 0.9 2.2 14 58 27 86 28 8 20 COLOMBIA 17.5 12.3 5.2 3.8 8.9 4.6 3.1 7.7 1.2 0.0 1.2 74 39 61 150 24 0 24 COLOMBO AMERICANO 29.8 23.7 6.1 2.3 8.4 2.6 1.4 3.9 4.5 1.3 3.2 38 42 23 65 73 21 52 COLPATRIA 22.6 16.2 6.4 1.5 7.9 3.4 -2.4 5.9 2.1 0.6 1.5 24 54 38 92 32 9 24 COMERCIO 20.0 12.2 7.7 2.1 9.8 5.7 2.8 8.5 1.3 0.1 1.2 27 74 36 110 17 2 15 CREDITO 22.1 14.3 7.3 1.5 9.2 3.0 2.3 5.4 3.9 1.2 2.7 19 39 30 69 50 16 34 CREDITO Y COMERCIO 21.0 14.8 6.1 1.7 7.8 6.2 43 10.5 (2.7) 0.1 (2.3) 27 100 70 171 -44 2 -45 ESTADO 18.8 8.9 9.9 2.2 12.1 4.8 3.2 8.0 4.1 1.1 3.0 22 48 32 81 42 11 30 EXTEBANDES DE COL. 13.9 12.3 6.6 1.6 8.2 3.4 4.0 7.4 0.9 0.2 0.7 25 51 60 111 13 3 10 GANADERO 16.3 8.7 7.6 0.9 8.5 4.2 2.0 6.2 2.3 0.6 1.8 12 55 27 82 30 7 23 INDUSTRIAL COL. 21.6 10.3 11.3 1.5 12.7 4.9 2.8 7.7 5.0 1.4 3.6 13 44 25 68 45 12 32 INTERNACIONAL 26.3 16.5 9.7 1.8 11.5 5.5 3.6 9.1 2.5 0.3 1.7 19 56 37 93 26 8 18 OCCIDENTE 20.1 8.6 11.5 2.3 13.8 5.1 3.9 9.0 4.8 1.4 3.4 20 44 34 78 42 12 30 POPULAR 19.3 8.2 11.0 1.2 12.2 6.5 3.4 9.9 2.3 0.7 1.7 11 59 31 90 21 6 15 REAL DE COLOMBIA 21.2 13.0 8.1 1.8 10.0 4.1 2.9 7.0 3.0 0.9 2.0 23 50 36 86 36 12 25 UNION COLOMBIANO 21.3 11.8 9.5 2.1 11.6 5.8 3.1 3.9 2.7 0.8 1.9 22 61 32 93 28 8 20 SANTANDER 20.7 13.3 7.3 4.5 11.8 5.6 5.3 11.0 0.9 0.2 0.6 62 77 73 150 12 3 9 SUDAMERIS 20.6 10.6 10.0 1.1 11.1 4.6 2.1 6.3 4.3 1.3 3.0 11 46 21 68 43 13 30 TEQUENDAMA 15.9 9.7 6.2 17.7 23.9 4.5 3.2 7.7 16.2 0.8 15.4 285 73 5t 124 261 13 248 TRABAJADORES 21.2 12.8 8.4 2.1 10.5 6.7 4.3 11.0 (0.5) 0.2 (0.7) 25 80 51 131 -6 2 -8 GRAND TOTAL 14 1. 86 L 10.6 5.2 3.1 8.3 02 1 26 19 Simple Average 20.9 12.3 8.5 2.6 11.1 5.0 3.2 8.2 3.0 0.7 2.2 35.5 61.0 39.1 100.1 35.4 8.1 27.3 Std. Dev. 3.0 3.3 2.1 3.2 3.3 1.1 0.8 1.7 3.4 0.5 3.2 54.0 17.3 14.5 29.8 52.5 5.2 49.9 STD/Avg 14% 27% 24% 125% 29% 22% 26% 21% 115% 67%141% 152% 28% 37% 30% 148% 65% 183% ANALYSIS OF FINANCIAL MARGINS 1991 Percent of Averare Assets Percent of Financial Margin Net Net Non- Infl. Income Net Non- In8l. Income Net Fin Fin Fin Fin AdminOther Adjst- before Tax/ Income Fin Admin Other Adjst- before Tax/ Incom Reva. Costa Mrgin Reva. Subot Costa Costa Subtot mente Tax Prvan Reva. Costa Costa Subtot ments Tax Prvan 1/ 2/ 3/ 4/ 5/ 6/ 7/ 4/ 51 6/ 71 (a-b) (c+d) ( C+) (-h+i) Q-k) (f+g) (O-bh+i) Q-k) (e) (b) (c) (d) (e) (f) (g) (b) (1) 6) (k) (1) (d) (1) (g) (h)) 0) (k () ANGLO COLOMBIANO 25.4 13.0 12.4 5.4 17.9 5.7 3.7 9.4 8.5 2.7 5.8 44 46 30 76 68 21 47 BOGOTA 20.5 8.3 12.2 2.5 14.7 5.5 3.0 8.4 6.3 1.7 4.5 20 45 24 69 51 14 37 CALDAS 26.4 17.8 8.6 3.6 12.1 7.2 4.2 11.5 0.7 0.1 0.6 42 85 49 134 8 2 7 CAFETERO 14.6 7.6 7.0 0.9 8.0 5.2 2.1 7.4 0.6 0.2 0.5 14 74 30 105 9 2 6 CIAL. ANTIOQUEÑO 21.9 10.7 11.2 2.6 13.7 6.0 3.2 9.2 4.5 1.3 3.1 23 54 29 83 40 12 28 COLOMBIA 19.9 12.8 7.1 4.3 11.4 5.0 3.0 8.0 3.3 0.0 3.3 61 71 43 114 47 0 47 COLOMBO AMERICANO 29.9 21.8 8.1 2.6 10.6 2.6 0.9 3.5 7.2 2.3 4.9 32 32 11 43 89 28 61 COLPATRIA 22.6 15.7 6.9 2.6 9.6 3.9 2.2 6.1 3.5 1.1 2.3 38 56 32 88 50 16 34 COMERCIO 21.0 12.0 8.9 2.7 11.6 5.7 3.1 8.8 2.8 0.1 2.7 30 64 35 99 31 1 30 CREDIO 22.8 14.5 8.3 2.2 10.5 3.4 2.5 5.9 4.6 1.5 3.1 26 41 30 71 55 17 38 CREDrIO Y COMERCIO 22.7 15.4 7.3 6.1 13.4 8.1 3.9 12.0 1.4 0.1 1.3 83 tål 53 163 19 2 17 ESTADO 18.9 8.2 10.7 2.8 13.5 5.1 3.7 8.8 4.7 1.4 3.3 26 48 35 82 44 13 31 EXTEBANDES DE COL. 20.8 13.3 7.5 1.9 9.5 3.6 2.4 6.0 3.5 1.1 2.4 25 47 32 79 46 15 32 GANADERO 13.1 5.9 1.9 1.5 9.4 4.2 2.3 6.5 2.9 0.7 2.2 19 53 29 82 37 9 28 INDUSTR1AL COL. 22.2 10.1 12.1 3.2 15.3 5.5 3.0 8.5 6.8 2.0 4.8 27 46 24 70 57 16 40 INTERNACIONAL 33.9 22.5 11.4 3.8 15.2 6.9 4.5 11.4 3.8 1.1 2.6 33 60 39 100 33 10 23 OCCIDENTE 20.6 9.3 11.3 3.4 14.7 5.0 3.9 8.9 5.8 1.7 4.1 30 45 34 79 51 15 36 POPULAR 20.1 8.3 11.8 2.3 14.0 7.3 4.2 11.5 2.5 0.7 1.8 19 62 36 98 21 6 15 REAL DE COLOMBIA 24.7 13.0 11.7 4.4 16.0 4.7 2.7 7.4 8.6 2.7 5.9 38 41 23 64 74 23 51 UNION COLOMBIANO 23.5 12.1 11.3 4.7 16.0 6.2 3.3 9.5 6.5 2.0 4.5 41 55 29 84 57 17 40 SANTANDER 21.3 12.2 9.1 3.8 12.9 7.9 5.7 13.7 (0.8) (0.1) (0.7) 42 87 63 130 -9 -1 -8 SUDAMERIS 22.6 11.6 10.9 1.8 12.8 4.8 2.2 7.0 5.7 1.7 4.0 16 44 20 64 52 16 37 TEQUENDAMA 22.6 8.4 14.1 4.6 18.7 4.7 3.2 7.9 10.8 2.7 8.1 33 34 22 56 77 19 57 TRABAJADORES 20.3 13.7 6.6 4.3 10.9 8.9 3.9 12.8 (1.9) 0.2 (2.1) 65 135 59 194 -29 3 -32 GRANDTOUAL .6 L09 1.. L.7 38 9 L simple Average 20.5 11.5 9.0 3.0 13.0 5.1 3.0 8.8 3.9 1.1 2.8 34.5 59.7 33.9 93.6 40.8 11.6 29.2 Std. Dev. 7.1 5.1 3.3 1.5 2.7 2.1 1.3 2.4 3.1 0.9 2.3 16.0 23.9 12.0 34.8 26.7 8.0 20.3 STD/Avg 35% 45% 37% 49% 21% 41% 43% 27% 79% 82% 80% 46% 40% 35% 37% 65% 68% 69% ANALYSIS OF FINANCIAL MARGINS Jan-June 1992* Percent of Average Assets Percent of Financial Margin Net Net Non- Infl. Incorne Net Non- In8l. Income Net Fin Fin Fin Fin AdminOther Adjet- before Tax/ Income Fin Admin Other Adjet- before Tax/ Income Revs. Costa Mrgin Reva. Subtot Costa Costs Subtot menta Tax Prvn Revs. Costa Costa Subtot ments Tax Prvon 1/ 2/ 3/ 4/ 5/ 6/ 7/ 4/ 5/ 6/ ' 7/ (&-b) (c+d) (f+g) (c-h+i) 0-)(f+g) (e-h +i) G-k) (a) (b) (c) (d) (e) (f) (g) (h) (1) 0) (k) (1) (d) (1) () () (i) () (k) (1) ANGLO COLOMBIANO 26.0 14.0 12.0 6.3 18.4 6.4 3.6 9.9 (1.6) 6.8 2.1 4.7 53 53 30 83 -13 57 18 39 BOGOTA 17.6 7.8 9.9 8.9 18.7 5.6 5.4 11.0 0.0 7.7 2.1 5.6 90 57 54 112 0 78 21 57 CALDAS 23.2 15.9 7.3 5.1 12.4 7.1 3.3 10.4 0.3 2.3 0.2 2.1 69 96 46 142 4 31 2 29 CAFETERO 19.5 11.2 8.3 3.4 11.7 7.4 2.8 10.2 (0.1) 1.4 0.2 1.1 41 89 34 123 -2 16 3 14 CIAL. ANTIOQUEÑO 24.2 13.6 10.7 4.5 15.2 7.4 4.6 12.0 (0.2) 2.9 0.9 2.0 42 69 43 112 -2 27 9 19 COLDMBIA 19.9 12.7 7.1 5.4 12.5 5.8 2.4 8.2 2.2 6.5 1.0 5.5 75 82 33 115 31 91 14 77 COLOMBO AMERICANO 31.6 19.4 12.1 5.2 17.3 3.6 1.1 4.7 (5.0) 7.6 2.4 5.2 43 30 9 39 -41 62 29 43 COLPATRIA 20.1 14.2 5.9 40.8 46.7 3.7 38.2 41.9 (1.5) 3.3 1.0 2.3 692 63 648 710 -26 56 18 39 COMERCIO 21.2 11.3 10.0 4.3 14.2 7.4 3.1 10.5 (1.2) 2.6 0.2 2.4 43 74 31 105 -12 26 2 24 CREDITO 21.3 14.5 6.8 9.0 15.8 4.2 5.5 9.6 (1.4) 4.7 1.5 3.3 133 61 81 142 -21 70 22 48 CREDTID Y COMERCIO 22.5 15.2 7.3 7.2 14.4 9.3 3.3 12.5 (1.0) 0.9 0.1 0.7 99 128 45 172 -14 12 2 10 ESTADO 17.2 8.9 8.2 5.3 13.6 5.9 5.5 11.4 (1.4) 0.7 0.3 0.4 65 72 67 139 -17 8 4 5 EXTEBANDES DE COL. 20.4 14.8 5.7 4.7 10.4 3.7 2.3 6.0 (1.7) 2.7 0.8 1.9 83 66 41 107 -30 47 14 34 GANADERO 13.3 6.4 6.9 3.1 10.0 4.6 2.3 6.9 (0.8) 2.3 0.6 1.8 45 67 33 101 -11 34 8 25 INDUSTRIALCOL. 22.1 11.0 11.0 5.6 16.6 6.2 2.9 9.1 (2.0) 5.5 1.2 4.3 51 56 26 82 -18 50 11 39 INTERNACIONAL 30.3 18.9 11.4 5.8 17.2 5.2 3.6 8.7 (1.1) 7.4 2.3 5.1 51 45 31 77 -10 65 20 45 OCCIDENTE 21.9 10.3 11.6 6.3 17.9 6.0 5.5 11.4 (1.3) 5.2 1.4 3.8 54 51 47 98 -11 45 12 33 POPULAR 17.2 9.0 8.2 3.7 11.9 8.0 3.9 11.9 (0.9) (0.9) 0.2 (1.1) 45 98 48 145 -11 -11 2 -13 REAL DE COLOMBIA 24.3 12.1 12.2 7.6 19.8 5.0 2.8 7.8 (4.6) 7.4 2.3 5.1 63 41 23 64 -37 61 19 42 UNION COLOMBIANO 23.0 11.4 11.5 9.2 20.8 8.0 3.8 11.7 (1.7) 7.3 1.6 5.7 80 69 32 101 -15 63 14 49 SANTANDER SUDAMERIS 22.7 12.6 10.1 5.2 15.4 6.2 2.4 8.6 (2.8) 3.9 1.1 2.8 52 61 24 85 -28 39 11 28 TEQUENDAMA 21.4 8.8 12.6 9.1 21.6 4.8 4.3 9.0 (3.8) 8.8 1.8 7.0 72 38 34 72 -30 70 15 55 TRABAJADORES 18.0 10.9 7.0 9.0 16.1 10.1 4.4 K8.A) (0.8) 0.2 (1.0) 128 144 63 206 -34 -12 2 -14 GRANDTOTAL 19.5 1 87 8 15 62 . 10.3 a.S 31 09 8 66 g g Simple Average 20.8 11.9 8.9 7.3 16.2 5.9 4.9 10.8 (1.4) 4.0 1.1 2.9 94 70 66 130.6 (15) 43 11 32 Std. Dev. 5.8 4.0 2.9 7.3 7.7 2.1 7.1 7.1 1.5 2.9 0.8 2.2 130 26 125 127.8 15 27 7 21 STD/Avg 28% 34% 32% 101% 48% 35% 145% 66%-108% 73% 75% 75%138% 38% 189% 98% -102% 63% 61% 67% • annualized fi ANALYSIS OF FINANCIAL MARGINS SIMPLE AVERAGE 1990-1992 (June) Percent of Average Assets Percent of Financíal Margin Net Net Non- In8. Income Nel Non- M. Income Net Fin Fin Fin Fin AdminOther Adjst- before Tax/ Income Fin Admin Other Adjst- before Tax/ Income Revs. Costa Mrgin Revs. Subtol Costa Costs Subtot menta Tax Prvan Reva. Costa Costa Subtot menta Tax Prvan 1/ 2/ 3/ 4/ 5/ 6/ 71 4/ 5/ 6/ 7/ (a-b) (c+d) (f+g) (e-h+i) £-k) (f+g) (eh+i) 0-k) (a) (b) (e) (d) (e) (f (g) (h) (i) <) (k) ( () (d) (f) (g) (h) (i) O) (k) (1) ANGLO COLOMBIANO 25.3 13.0 12.3 4.4 16.7 5.8 3.5 9.3 (0.5) 6.9 2.1 4.7 35.8 47.2 28.4 75.5 (4.4) 55.9 17.4 38.5 BOGOTA 19.5 8.5 11.0 4.4 15.4 5.4 3.8 9.2 0.0 6.2 1.6 4.5 42.8 49.9 35.8 85.7 0.1 57.1 15.2 41.9 CALDAS 23.8 16.1 7.7 3.7 11.4 6.8 3.5 10.3 0.1 1.2 0.1 1.1 47.9 88.0 45.4 133.3 1.3 15.9 1.3 14.5 CAFETERO 17.2 9.9 7.3 1.9 9.2 6.2 2.7 8.9 (0.0) 0.3 0.2 0.1 24.8 84.0 37.2 121.2 (0.6) 3.0 3.0 0.0 CIAL. ANTIOQUEÑO 22.8 11.8 11.0 2.9 13.9 6.7 3.6 10.3 (0.1) 3.5 1.1 2.5 26.2 60.6 33.1 93.6 (0.8) 31.8 9.6 22.2 COLOMBIA 19.1 12.6 6.4 4.5 10.9 5.1 2.9 8.0 0.7 3.7 0.3 3.3 70.0 80.5 45.7 126.3 10.5 54.1 4.9 49.3 COLOMBO AMERICANO 30.4 21.7 8.8 3.4 12.1 2.9 1.1 4.1 (1.7) 6.4 2.0 4.4 37.5 34.6 14.4 48.9 (13.8) 74.7 22.8 51.9 COLPATRIA 21.8 15.4 6.4 15.0 21.4 3.7 14.3 17.9 (0.5) 3.0 0.9 2.0 251.5 57.4 239.2 296.7 (8.5) 46.3 14.2 32.0 COMERCIO 20.7 11.9 8.9 3.0 11.9 6.3 3.0 9.3 (0.4) 2.2 0.1 2.1 33.3 70.7 33.9 104.7 (4.0) 24.6 1.7 22.9 CREDI70 22.0 14.4 7.6 4.2 11.8 3.5 3.4 7.0 (0.5) 4.4 1.4 3.0 59.4 47.1 46.9 94.0 (7.0) 58.4 18.4 40.0 CREDrM Y COMERCIO 22.1 15.1 6.9 5.0 11.9 7.8 3.8 11.7 (0.3) (0.1) 0.1 (0.3) 69.4 112.9 56.0 168.9 (4.8) (4.3) 1.8 (6.1) ESTADO 18.3 8.7 9.6 3.4 13.1 5.3 4.2 9.4 (0.5) 3.2 0.9 2.2 37.7 55.9 44.8 100.7 (5.8) 31.3 9.4 21.9 EXTEBANDES DE COL. 20.1 13.5 6.6 2.8 9.4 3.6 - 2.9 6.5 (0.6) 2.3 0.7 1.7 44.5 54.8 44.3 99.1 (9.9) 35.5 10.4 25.1 GANADERO 14.5 7.0 7.5 1.8 9.3 4.3 2.2 6.5 (0.3) 2.5 0.6 1.9 25.5 58.3 29.8 88.1 (3.8) 33.7 8.1 25.6 INDUSTRIAL COL. 21.9 10.5 11.5 3.4 14.9 5.5 2.9 8.4 (0.7) 5.8 1.5 4.3 30.1 48.4 25.2 73.6 (6.1) 50.4 13.3 37.1 INTERNACIONAL 30.2 19.3 10.8 3.8 14.6 5.8 3.9 9.7 (0.4) 4.6 1.4 3.2 34.3 54.0 35.8 89.8 (3.2) 41.3 12.7 28.6 OCCIDENTE 20.9 9.4 11.5 4.0 15.5 5.4 4.4 9.8 (0.4) 5.3 1.5 3.8 34.9 46.7 38.4 85.2 (3.7) 46.0 13.1 32.9 POPULAR 18.9 8.5 10.3 2.4 12.7 7.3 3.8 11.1 (0.3) 1.3 0.5 0.8 25.1 72.9 38.1 111.0 (3.6) 10.5 4.9 5.5 REAL DE COLOMBIA 23.4 12.7 10.7 4.6 15.3 4.6 2.8 7.4 (1.5) 6.3 2.0 4.4 41.0 44.1 27.4 71.5 (12.5) 57.1 17.8 39.2 UNION COLOMBIANO 22.6 11.8 10.8 5.3 16.1 6.7 3.4 10.0 (0.6) 5.5 1.5 4.0 47.6 61.6 31.3 92.9 (5.0) 49.7 13.2 36.5 SANTANDER 14.0 8.5 5.5 2.8 8.2 4.5 3.7 8.2 0.0 0.0 (0.0) 34.4 54.7 45.3 100.1 1.0 0.6 0.4 SUDAMERIS 22.0 11.6 10.4 2.7 13.1 5.2 2.3 7.5 (0.9) 4.6 1.4 3.3 26.3 50.5 21.9 72.4 (9.3) 44.6 13.1 31.6 TEQUENDAMA 20.0 9.0 11.0 10.5 21.4 4.7 3.5 8.2 (1.3) 11.9 1.8 10.1 129.8 48.0 35.9 (89.9) 135.8 15.7 120.1 TRABAJADORES 19.8 12.5 7.3 5.1 12.5 8.6 4.2 12.8 (0.8) (1.1) 0.2 (1.3) 72.9 119.7 57.7 177.4 (11.3) (15.8) 2.4 (18.2) GRAND'TOTAL 193 10.6 8.9 3.5 12.4 6 J4 .2 39¡1 630 38.5 2L= É 3. . 2. Simple Average 21.3 12.2 9.1 4.4 13.4 5.5 3.7 9.2 (0.5) 3.7 1.0 2.7 53 63 45 108 (5) 39 10 29 Std. Dev. 3.8 3.5 2.0 2.8 3.3 1.4 2.3 2.6 0.5 2.8 0.7 2.3 47 21 42 49 5 30 6 26 STD/Avg 18% 28% 22% 63% 24% 25% 62% 28%-108% 75% 67% 83% 88% 33% 91% 45%-106% 77% 61% 89% 1/ Includes Intereses (4105), Descuento amortizado (4107) y Comisiones y/o Honorarias (4115)ca M/1egaly M/extranjera 2/ Inchades Intereses (5105), Prima amortizada (5107), Comisiones (5115) en M/lega y M/extra~teasy Proteccion Cartera de Creditos (517010). 3/ Ingresos Fmancieros - Egresos Financieros 4/ Includes Correccion monetaria (4110), Utilidad venta de inversiones (4125). Venta bienes reslizabes (4130), Cambios (4135). Dividendos y participaciones (4140), Arrendamienta(4145), Descuentos (M de proveedores (4150), Diversos (4195). Cuentas reporte Ingresos Operac. (4197) e Ingresos no operacionales (42). 5/ IncIudes Gastos de personal (5120), Honorarios (5130). Impuestos (5140), Arrendamientos(5145), Contribucionesy afiliaciones (5150) y Seguras (5155). 6/ Includes Correccion Monetaria (51lo), POrdida en venta de inversiones (5125), Cambios (5135), Mantenimiento y Reparaciones (5160). Adecuacion e instalacion de oficinas (5165). Provisiones (5170 - tJ^ 517010). Depreciaciones (5175). Amortizaciones (5180). Gastos capitalizables (5185). Diversos (5190). Costo de vnts bienes realizables (5194). Casto de ventas semoviente (5195). Cuentas reporte .a secciones especiales (5197) y Gastos y costos no operacionales (52). 7/ Margen Financiero Bruto + Ingresos no financieros - Gatos administrativos - Otros egresos Source: Asociacion Bancaria de Colombia. ANNEX 6.1 DISTRIBUTION OF THE VALUE OF SECURITIES TRADED ACROSS SECURITIES MARKETS (EXCHANGES) (In Millions of Pesos) YEAR BOGOTA % OF MEDELLIN % OF OCCIDENTE % OF TOTAL TOTAL TOTAL TOTAL 1986 262,431 73.4% 64,320 18.0% 30,924 8.6% 357,675 1987 412,171 74.8% 95,068 17.3% 43,535 7.9% 550,774 1988 357,124 69.6% 100,117 19.5% 55,858 10.9% 513,099 1989 394,252 60.6% 143,347 22.0% 113,454 17.4% 651,053 1990(a) 301,153 59.7% 109,702 21.8% 93,286 18.5% 504,141 TOTAL 1,727,131 67.0% 512,554 19.9% 337,057 13.1% 2,576,742 (a) Through Ist semester of 1990 only. SOURCE: Informe de Labores, CNV, 1989-90. TQ I ANNEX 6.2 VALUE OF TOTAL TRANSACTIONS ON COLOMBIAN SECURITIES MARKETS (IN MILLIONS PESOS) 1970 180 l85 1088 1989 1990 1991* % of %of % of % of %of % of % of Value Total Value Totdl Vole Total Vah Total Valko Total Vah- Total Valhm Total PRIVATE SECTOR 8623 24.2% e384 16.5% 34678 10.6% 258170 60.2% 472163 72.4% 743869 65.0% 687905 30.7% SHARES 7932 21.8% 8846 14.6% 4776 1.6% 21085 4.1% 31675 4.8% 44350 3.9% 70199 3.1% BOCEAS 0 0.0% 0 0.0% 66 0.0% 296 0.1% 1980 0.3% 111 0.0% 299 0.0% ORDINARY BONDS 0 0.0% 0 0.0% 422 0.1% 10672 2.1% 40377 6.2% 12732 1.1% 9842 0.4% C.D.T. 891 2.4% 539 0.9% 28506 8.7% 167905 32.7% 239748 36.7% 418996 30.6% 220389 9.8% COMMERCIAL PAPERS 0 0.0% 0 0.0% 3 0.0% 877 0.2% 1982 0.3% 0 0.0% 6463 0.3% PROMISSORY NOTE 0 0.0% 0 0.0% 907 0.3% 27966 5.4% 69133 10.6% 9046 0.8% 236 0.0% BANKERS ACCEPTANCE 0 0.0% 0 0.0% 0 0.0% 29467 5.7% 87368 13.4% 2568834 22.6% 380477 17.0% PUBLIC SECTOR 27598 76.8% 51313 84.5% 292806 89.4% 255885 49.8% 160317 27.6% 400363 35.0% 1550650 09.3% OFFICIAL BONDS 390 1.1% 319 0.6% 239 0.1% 5284 1.0% 9173 1.4% 10823 0.9% 26773 1.2% CAT & CERT 2120 5.8% 2368 3.9% 12489 3.8% 18220 3.5% 29749 4.6% 44449 3.9% 40806 1.8% CEDULAS 1BCH 1014 2.8% 1207 2.1% 6451 2.0% 7494 1.5% 7881 1.2% 8164 0.7% 5691 0.3% CERTIFICADOS CAFETER. 0 0.0% 0 0.0% 7398 2.3% 1 0.0% 0 0.0% 0 0.0% 0 0.0% CERTIFICADOS DE CAMS. 19564 63.7% 19062 31.4% 21836 66.7% 27427 5.3% 32380 5.0% 42781 3.7% 376488 16.8% TITULOS DE DES.TURI. 14 0.0% 43 0.1% 272 0.1% 26 0.0% 29 0.0% 0 0.0% 0 0.0% TITULOS CANJEABLES 0 0.0% 0 0.0% 1079 0.3% 64836 10.7% 50834 7.8% 79159 6.9% 12067 0.5% TITULOS DE PARTICIPA. 3781 10.4% 28110 48.3% 0 0.0% 91320 17.8% 3237 0.5% 132924 11.6% 765697 34.2% TITULOS FEN 0 0.0% 0 0.0% 26930 7.9% 23036 4.5% 32346 6.0% 21783 1.9% 206923 9.2% TAN 0 0.0% 0 0.0% 20382 6.2% 18169 3.5% 10231 1.6% 24373 2.1% 12912 0.6% TAC 711 2.0% 108 0.2% 0 0.0% 9160 1.8% 4387 0.7% 287 0.0% 0 0.0% OTHERS 4 0.0% 6 0.0% 0 0.0% 920 0.2% 70 0.0% 35620 3.1% 104296 4.7% TOTAL 36421 100.0% 60697 100.0% 327284 100.0% 614056 100.0% 652400 100.0% 1144232 100.0% 2238565 100.0% * DATA UNTIL SEPTEMBER 1991. SOURCE: COMISION NACIONAL DE VALORES, DIVISION TECNICA COLSTOCK. WR1 Annex 6.3 Page 1 of 1 ANNEX 63 EVOLUTION OF PUBLIC OFFERINGS 1987 -1991 PUBLIC OFFERINGS 1987 1988 1989 1990 1991 (CURRENT BILLION PESOS) SHARES 25.663 24.295 22.164 29.506 56.522 CONVERTIBLE DEB 7.062 2.900 9.350 0 3.000 ORDINARY BONDS 3.798 3.424 30.950 15.000 600 PUBLIC BONDS 0 2.000 4.000 12.642 36.600 COMMERCIAL PAPER 0 3.000 0 0 21.450 EDUCATION BONDS 0 0 0 5.000 0 TOTAL 36.523 35.619 66.464 62.148 118.172 PUBLIC OFFERINGS (CONSTANT 1987 BILLION PESOS) SHARES 25.663 19.752 13.766 13.852 20.934 CONVERTIBLE DEB 7.062 2.265 5.807 0 1.111 ORDINARY BONDS 3.798 2.675 19.223 7.042 0.222 PUBLIC BONDS 0 1.562 2.484 5.935 13.555 COMMERCIAL PAPERS 0 2.343 0 0 7.944 EDUCATION BONDS 0 0 0 2.347 0 TOTAL 36.523 27.827 41.281 29.177 43.767 SOURCE: CNV and Stock Exchanges ANNEX 6.4 COMPOSMON OF FLOW OF SAVINGS FINANCIAL SYSTEM CAPITAL MARKETS 1 2 3 4 6 6 7 8 9 10 11 12 13 MONETARY GOVERNMENT CONTRACTUAL DCC D/ SAVINGS E/ CDTe F/ UPACs 01 TOTAL STOCKS PRIVATE CONVERT. PUB ENTRP TOTAL CONTROL SECURITIES BI SAVINGS Cl (Aee0n BONDS BONDS BONDS H/ (9eio*it+i2 SECURITIES Al 1965 9.5% -2.4% 14,0% 47.9% 26.4% 11.3% 0.0% 63.0% 14.4% 0.0% 1.4% 0.0% 15.9% 1970 17.0% 2.5% 18.8% 46.9% 1.0w 3.5% 0.0% 51.4% 10.4% 0.0% 0.0% 0.0% 10.4% 1976 -6.8% 11.9% 16.0% 35.8% 12.0% 4.4% 23.8% 76.6% 3.2% 0.0% 0.0% 0.0% 3.2% 1980 13.1% -0.9% 12.3% 17.0% 7.1% 31.4% 17.3% 72.8% 2.7% 0.0% 0.0% 0.0% 2.7% 1985 12.8% 8.9% 3.9% 15.5% 6.2% 21.7% 24.3% 69.8% 1.7% 0.0% 2.9% 0.0% 4.6% 1990 16.3% 3.0% 7.9% 14.0% 5.4% 26.4% 23.9% 69.6% 1.6% 0.7% 0.0% 0.8% 3.1% A/ Includes certicamblo, omas and depositas prevlos de giro. B/ Includes TREC. TREN, TAN, etc. Cl Includes technical reserves of private Insurance, social security, and capitalization funds; not value of Investment funds and mutual Investment funds; and fiduciary savings. DI Curent accounts El Saving Deposits F/ Certificates of Deposit O/ Indexed Deposits In CAVs H/ Bonds issued by public enterprises Source: Boisa de Bogota. tv M Annex 6.5 Page 1 of 1 ANNEX 6,5 COMPARATIVE STOCK MARKET OVERVIEW AS OF DECEMBER 31, 1991 NUMBER OP M I FE ARLYE/ MARKET COMPANIES CAPITAL TRADING RATIO BOOK CONCEN- k_ LST_-D mkVOLUME VALUE TRATION ( - (US $ MILLIONS) - Argentina 174 18,509 19.53 38.89 2.29 70.7 Brazil 570 42,759 54.14 7.65 1.48 31.9 Chile 221 27,984 7.63 17.38 2.46 49.3 Colombia 83 4,036 0.87 26.07 3.36 76.3 Mexico 209 98,178 127.40 14.56 2.60 55.0 Venezuela 66 11,214 13.39 30.50 5.49 69.8 A/ Share of Market Capitalization held by ten largest stock. Source: Emerging Stock Markets Factbook, IPC, 1992. Annex 6.6 Page 1 of 3 AMNEX 6.6 ISSUANCE OF ORDINARY BONDS VALUE OF AMMTJSSUED NOMINAL RATE EFFECTIVE MATURITY IN COMPANY Col$ RATE MONTHS Leaaing Bolivar 110 30% T.A. 36.6% 12 L~asing Union 68 30% T.A. 36.6% 12 178 36.6% 12 1986 Con~tora Bolivar Aladu 270 31% T.V. 34.8% 24 Leasing Bolivar 159 30% T.A. 36.6% 12 Proveauto 55 28% T.A. 33.7% 12 Coltjer 3000 30.12% M.V. 34.6% 36 Lasing Union 184 29% T.A. 35.1% 24 Consu~tcora Bolivar Aiadas 80 30% T.V. 33.6% 12 20 31% T.V. 34.8% 24 Confecciones Colombia 300 31.15%T.V. 35.0% 36 3,798 . 34.8% 22 Prefabricados y Vivienda Social.Previ 80 29.0% T.V. 32.3% 12 30.0% T.V. 33.5% 12 Lzasing Bolivar S.A. 249 31.0% T.V. 34.8% 12 33.0% T.V. 37.3% 24 Confecciones Colombia S.A. 470 31.5% T.A. 38.8% 36 Conructora Bolivar Aliads S.A. 100 30.0% T.V. 33.6% 12 31.0% 34.8% 24 Distrito Especial de Bogoté _______________2,000 36.5% 12 Siderurgica de Medellin S.A. 1,000 31.0% T.A. 38.1% 36 Carton de Colombia S.A. 1,000 33.5% T.V. 38.0% 36 Financiera Mazdacredito S.A. 525 29.5% T.A. 35.9% 24 5,424 35.8% 22 Annex-6.6 Page 2 of 3 VALUE OF AMMT.ISSUED NOMINAL RATE EFFECTIVE MATURITY IN COMPANY Col$ RATE MONTHS Hoteles Estelar do Colombia 600 32.0% T.A. 39.6% 36 Carton de Colombia 2,000 33.5% T.V. 38.0% 36 Prod. Nal. do IUantas-Uniroyal de ll&nt&,-Unifoyal 1,000 32.0% T.A. 39.6% 36 Prod. do Papeles-Propal 2,000 33.% T.V. 38.0% 36 Enka de Colombia 3,500 31.0% T.A. 38.1% 36 31.84% M.A. 38.1% Ingenio Central Castilla 1,000 31.5% T.A. 38.8% 30 Carvajal 1,000 33.5% T.V. 38.0% 36 Cia. Colombians de Tejidow- ColtsJer 5,000 33.0% T.V. 37.3% 36 33.0% T.V. 40.0% 60 Industrial Col. de LIanta- Icollantas 1,000 31.5% 38.8% 36 Fabricato 4,000 33.0% T.V. 37.3% 24 33.5% T.V. 38.0% 36 38.6% T.V. 38.6% 48 Confeccionas Colombia 350 31.5% T.A. 38.8% 36 Leasing del Valle 200 32.0% T.A. 39.6% 36 Leasing Mundial 100 29.5% T.A. 35.9% 15 Crecer S.A. Ca. do Fin. Cial. 1,200 30.5% T.A. 37.3% 24 Gran Cad. de Almac. Col.- Cadenalco 2,000 30.8% T.A. 37.7% 30 31.6% M.A. 37.7% 30 Manuclita 1,900 31.5% T.A. 38.8% 12 Ingenio Central Castilla 700 31.0% 38.1% 36 Crecer S.A. Cia. Fin. Cial. 1,000 30.5% T.A. 37.3% 24 BASF Quimica 1,800 31.0% T.A. 38.1% 36 Constructora Bolivar Aladas 200 31.0% T.V. 34.8% 12 Distrito Especial de Bogod 4,000 30.5% T.A. 37.3% 31.7% T.A. 39.1% 400 31.5% T.A. 38.8% 36 34,950 38.1% 33 Annex 6,6 Page 3 of 3 VALUE OF AMMT.ISSUED NOMINAL RATE FFECTI MATURITY IN COMPANY Col _ RATE MONTHS Siderurgica de Boyaca 2,500 39.6% 36 General de Equipos de Cria 600 31.5% T.A. 38.8% 24 Colombina 500 31.5% T.A. 38.8% 36 Fbca. Col. de Mater. Eéctrico* 1,000 31.5%T.A 38.8% 36 Previsocial 60 36.1% 12 Municipio de Medellin 5,000 31.0% T.A. 38.1% 36 D.T.F.+5% T.A._______ E Paia 482 39.5% 36 Caon Colombia 5,000 38.0% 36 Maizena 1,500 38.8% 36 Fruco 1,000 38.8% 36 Dismrio Especial de Bogotá 10,000 D.T.F.+5% T.A. 84 D.T.F.+4.5%T.A. 60 D.T.F.+4%T.A. 36 Departamento del Valle 5,000. D.T.F.+4% T.A. 36 D.T.F.+5.5%T.A. 48 El Paio 600 33.0% T.A. 41.1% 36 Departamento del Valle 5,000 D.T.F.+4% T.A. 36 DT.F.+5%T.A. 48 Municipio de Santiago de Cali 4,000 D.T.F.+4%T.A. 36 il D.T.F.+5.5% T.A. 48 14,600 41.12% 41 SOURCE: REGISTRO NACIONAL DE VALORES T.A. INTERESES PAGADEROS POR TRIMESTRE ANTICIPADO T.V. INTERESES PAGADEROS POR TRIMESTRE VENCIDO D.T.P.: TASA PROMEDIO DEPOSIO M.A. INTERESES PAGADEROS POR MES ANTICIPADO M.V. :INTERESES PAGADEROS POR MES VENCIDO Annex 6.7 Page 1 of 1 ANNEX 6.7 CONCENTRATION OF TRADING IN STOCKS SHARES VALUE NEGOTIABLE PERCENTAGE (COL$ MILLION) BAVARIA 18,292.3 11.52 BCO. GANADERO 16,958.0 10.68 BCO. INTERNACIONAL 15,820.7 9.96 BCO. BOGOTA 9,758.2 6.14 CIA. COL. DE TABACO 9,264.4 5.83 CIA. SUR. DE SEGUROS 8,579.8 5.40 BCO. INDUS. COLOMBIANO 8,368.5 5.27 BCO. DE OCCIDENTE 7,031.1 4.42 CIA. DE CEM. ARGOS 7,015.0 4.41 CADENALCO 5,257.1 3.31 TOTAL 106,345.10 66.94 SOURCE: SV Annex 6.8 Page 1 of 1 ANNEX 6.8 COLOMBIA: INDICATIVE COSTS OF FUNDS AND RETURNS ON INVESTMENTS AS OF MID-MAY 1992 ANNUALIZED MATURITY EFFECTIVE RATES COSTS OF CAPITAL BEFORE TAX _ 1) Financial Corporations (CF) 1 year loan 33.54% 2) Commercial Bank Loans 1 year loan 36.20% 3) Bonds 1 year issue 29.63% 4) Inter-Company Loans 1 year 28.00% 5) External Borrowing E 1 year or less 24.20% RETURNS ON INVESTMENT _ 1) Libor 180 days 4.06% 2) Prime Rate 180 days 6.50% 3) Certificates of Deposit 90/180 days 22.00% 4) Bankers Acceptances 90/180 days 21.20% gL The rates shown are as of May 14, 1992. bL Computed as the annual effective rate combining expected devaluation of 15% and Prime + 1.5% gL The returns on investments in these financial assets are as of May 20, 1992. Annex 6-9 Page 1 of 2 ANNEX 6.9 INCOME TAX AND CAPITAL GAINS TAX TREATMENT BY TYPE OF INVESTOR AND INSTRUMENTS AS OF JANUARY 1992 ' TYPE OF INSTRUMENT RATE (%) APPLIED TO A. Commercal Bank Liabilities 1) Income Tax Individuals 0-30% real interest d/ Companies 30% flat real interest (under the new inflation accounting guidelines) 2) Capital Gains: Individuals 0-30% real capital gain el Companies 30% flat real capital gain el (given new system of inflation accounting) B. NonBank Debt Instruments 1) Income Tax: Individuals 0-30% same as in A. 1. Companies 30% flat same as in A.1. 2) Capital Gains Individuals 0-30% same as in A.2. Companies 30% flat same as in A.2. C. Equity and Dividends 1) Income Tax bl: Individuals 0% dividends Companies 0% dividends 2) Capital Gains: Individuals Exempt if gain obtained on same as in A.2. Bolsa. 0-30% otherwise Companies Exempt if obtained on the same as in A.2. Bolsa 30% otherwise Annex 6.9 Page 2 of 2 TYPE OF INSTRUMENT RATE (%) APPLIED TO D. Government c/ Securities 1) Income Tax: Individuals 0-30% same as in A.1. Companies 30% flat same as in A.1. 2) Capital Gains: Individuals 0-30 % same as in A.2. Companies 30% flat same as in A.2. a/ Treatment shown in this table for resident individuals and companies is the same for foreign investors. The exception is when a foreign investor decides to remit after-tax profits. In this case the remittance tax will apply. b/ The normal rule is that the shareholder is exempt except in cases where the company does not pay tax on distributed earnings. c/ Some government securities are tax exempt. d/ Real interest is computed by adjusting the interest payments for inflation in the case of individuals. el Special adjustments exist in taxing the capital gains associated with original issue discount securities. Annex 6.10 Page 1 of 1 ANNEX 6.10 TAXES EFFECTING MARKET LIQUIDITY AND TRANSACTIONS COSTS TYPE OF TAX RATE PAID (%) PAID BY LEGISLATIVE STATUS OR I I RECOMM4ENDATION TRANSACTION TAXES 1. Fiscal Stamp Tax 0.6% The borrower pays the Recommend elimination. stamp tax which is levied upon all financial contracts that are documented. WTHHOLDING TAXES 1. On nominal as opposed to real 1% to 7% withheld in Applies to the Purchaser of Recommend that i)withholding return in the case of fixed income advance. The highest securities where the Bank rates be reduced because under the securities and on interest only in rate applies to all or underwriting institution new indexed tax system taxes will the case of liabilities issued by securities of maturity less (e.g. CF) acts as the only be paid on real interest commercial banks. Applied to all than a year and the rate withholding agent. This income so that withholding rates securities where the rate is falls as maturities are withholding tax does not currently applied to nominal graduated downwards depending lengthened. apply to any transactions returns or interest payable will be on the maturity of the securities undertaken on the Bolsa. too high and () that the treatment purchased. Withholding taxes can Withholding of 7% also be the same for transactions be deducted from final year end applies to all service undertaken on and off the Bolsa. income tax liability. The income obtained in withholding tax rate also applies providing different types of to the discounts of the face value financial services. in the case of fixed income securities. REMITTANCE TAXES The remittance taxes apply only to 19% Paid by entities remitting To be reduced to 12% by 1996 and the post- domestic tax income that earnings or capital abroad to 0% by 2001. is remitted. WEALTH TAXES 1) Net Worth Tax for Individuals. Progressive rates By individuals only Abolished as of the beginning of Applied to net value of assets depending upon value of the 1992 tax year. owned domestically and abroad. net worth where the rates per 1000 rangea from 2.4 to 17.42. 2) Presumptive net-worth tax for 6% Individual or Company To go down by 1% per annum Individuals and companies. Only until 1994 where rate will be 4%. applies if the tax liability implied is greater than computed income tax. Amount of tax paid in excess of income tax liability when this tax is greater can be credited against income tax liability in future years. Investors in equity are exempted from this tax. Annex 6.11 Page 1 of 1 ANNEX 6.11 SUMMARY OF COMMERCIAL CODE DECISION QUORUMS REQUIRED OF THE GENERAL ASSEMBLY OF SHAREHOLDERS OF SOCIEDADES ANONIMAS COMMERCIAL CODE ARTICLE DECISIONS QUORUM NEEDED 455 Payment of Dividends through use of 80% of the shareholders free shares of the company. represented in person or by proxy. 382 To approve the well-known privileges 75% of the subscribed of shareholders prior to the setting up shareholders must approve. of the company. 383 Reduction or supervision of well- 75% of the subscribed known privileges of shareholders. shareholders. 396 For the acquisition of their own shares 70% of the subscribed by the company. shareholders. 420 Distribution of shares without right of 70% of the shareholders Dresent. preference. 155 Changes in dividend distribution policy 70% of the shareholders that would result in a percentage of represented in person or by proxy. profits distributed as dividends that is less than reired under the law. 425 In extraordinary assemblies for treating 70% of the shareholders issues not included in ordinary days represented or by proxy. agenda. 147 Capital reduction. 70% of the shareholders I__ Irepresented or by proxy. Annex 6.12 Page 1 of 1 ANNEX 6.12 VALUE OF STOCK-EXCHANGE OPERATIONS VS. EQUITY AND GUARANTEES OF THE EXCHANGES ACTUAL SITUATION (1) VALUE OF THE TRANSACTIONS ON THE EXCHANGES IN 1990 (COLS MILLIONS) 1,144,232 (2) VALUE OF 3 GUARANTEB FUNDS AS OF DEC. 31, 1991 (COLS MILLIONS) 938 (3) NET WORTH OF BROKERS AND EXCHANGES AS OP JUNE 30, 1991 (COL$ MILLIONS) 5,679 (4) PARTICIPATION SHAREHOLDERS' EQUTTYMrRANSACTIONS [(3)/(1)] 0.49% (5) TRANSACTIONS 1990/NLT WORTH OF EXCHANGES (TIMES) [(1)/(3)] 205 (6) TRANSACTIONS 1990/GUARANTEE FUNDS (TIMES) [(1)/(2)] 1,242 SOURCE: CNV. Annex 6.13 Page 1 of 3 ANNEX 6.13 BOLSA DE BOGOTA FINANCIAL STRUCTURE OF MEMBER BROKERS* (MILLIONS OF COL) CURRENT OTHER TOTAL PAID TOTAL NET WORTH/ NAME OF BROKER ASSETS ASSETS ASSETS CAPITAL RESERVES NET WORTH TOTAL ASSETS AFIN S.A. 116.3 197.4 313.7 10.0 237.1 247.1 78.8% ASESORIAS E INVERSIONES 355.6 164.2 519.8 58.8 128.8 187.6 36.1% ARTURO URIBE 6. Y CIA S.A. 64.0 224.7 288.7 60.0 174.2 234.2 81.1% ACCIONES Y VALORES S.A. 115.7 190.2 306.9 94.5 176.0 270.5 88.4% BERMUDEZ Y VALENZUELA S.A. 86.6 571.9 667.4 98.7 323.5 422.2 64.2% CARDENAS, MEJIA. CARRENO CNC S.A. n.s. n.e. n.a. n.e. n.a. n.a. n.a. COLBOLSA S.A. 185.7 176.2 361.9 71.0 152.4 223.4 61.7% CORREDORES ASOCIADOS S.A. 784.6 445.1 1,229.7 180.0 313.7 493.7 40.1% CORREDOR Y ALBAN S.A. 121.1 259.0 380.1 100.0 193.6 293.6 77.2% DURAN CASAS Y CIA S.A. 55.9 250.2 306.1 65.0 200.3 265.3 86.7% GABRIEL FERRERO Y CIA S.A. 63.6 233.3 286.9 70.0 178.0 248.0 86.4% INVERBOLSA S.C. n.e. n.e. n.s. n.a. n.a. n.a. n.a. JAIME GONZALEZ S. y CIA n.a. n.e. n.e. n.a. n.a. n.a. n.e. LUIS SOTO S.A. 63.6 146.9 210.5 28.6 146.5 175.1 83.2% MARTINEZOUERRA GUTIERREZ CIA S.A. 15.6 196.2 211.8 20.4 172.2 192.5 90.9% NACIONAL DE VALORES S.A. 135.6 175.1 310.7 48.7 161.9 200.5 84.6% CORREVAL S.A. -CfrAJE DE VALORES 288.0 238.2 526.2 94.4 321.7 416.1 79.1% PROMOTORA BURSATIL S.A. 23.8 213.4 237.2 16.0 193.1 209.1 88.2% SARMIENTO LOZANO S.A. 101.8 231.6 333.4 73.5 211.5 285.0 85.5% SERVIVALORES S.A. 107.8 0.3 108.1 28.0 66.1 94.1 87.0% COLTITULOS S.A. -COL. DE TIT. Y VALO 124.3 0.4 124.7 38.5 66.9 105.4 84.5% QUANTUM-CIA.NALDE BOLSA S.A. 1.0 136.1 137.1 50.0 85.7 135.7 99.0% CIA. D PROFESIONALES DE BOLSA S.A. 33.7 241.2 274.9 76.2 137.0 213.1 77.6% UNIBOLSA-UNION BURSATIL S.A. 36.3 160.8 197.1 64.7 103.1 167.8 85.1% CONSORCIO BURSATIL S.A. 93.5 147.5 241.0 70.0 117.9 187.9 78.0% ASESORAR S.A. 1.9 147.6 149.5 60.0 70.7 130.7 87.4% CORREDORA BURSATIL DE COL 32.2 154.2 186.4 64.9 108.8 173.7 93.2% ULTRABURSATILES S.A. 808.6 154.9 963.5 125.0 32.3 157.3 16.3% DIGITAL DE VALORES S.A. 48.0 160.2 198.2 80.0 72.7 152.7 77.0% TOTALS . .853.7 : 5,206.1 .060.5 748.9 4,13.7 5.882.3 64.9% *AS OF JUNE 1991 SOURCE: SV Annex 6.13 Page 2 of 3 ANNEX 6.13 ICont.) BOLSA DE MEDELLIN FINANCIAL STRUCTURE OF BROKER DEALERS* (MILLIONS OF COL$) CURRENT OTHER TOTAL PAID TOTAL NET WORTH/ NAME OF BROKER ASSETS ASSETS ASSETS CAPITAL RESERVES NETWORTH TOTAL ASSETS ALBERTO ALVAREZ Y CIA S.C. 36.1 665.3 100.4 25.6 46.3 71.9 71.6% ALBERTO CORREA URIBE & CIA n.a. n.a. n.a. n.s. n.s. n.s. n.a. ASESORES EN VALORES 10.0 119.2 129.2 33.5 55.6 89.1 69.0% EDWAR Y DIEGO CORREA & CIA 22.8 52.7 75.5 18.4 47.4 65.8 87.2% ESCOBARES ASOCIADOS & CIA 12.0 97.4 109.4 22.0 82.3 104.3 95.3% FELIX CORREA CHAVARRIAGA & CIA 44.5 67.0 101.5 17.2 40.8 58.0 57.1% GILBERTO CORREA B & CIA SUCESORES 32.2 77.9 110.1 29.2 39.3 68.5 62.2% GOMEZ ARRIOLA & CIA 269.9 68.3 338.2 25.0 37.6 62.6 18.5% HERNANDO ARTURO ESCOBAR & CIA 41.2 88.5 129.7 27.0 71.3 98.3 75.8% INVER. DE COL. MESA ESTRADA & CIA 14.9 56.6 71.4 20.4 39.8 60.2 84.3% INVERHEFE & CIA 37.9 59.2 97.1 17.0 59.2 76.2 78.5% IVAN GOMEZ MEJIA & CIA 100.4 62.5 162.9 17.0 62.4 69.4 42.6% LEOPOLDO VILLA Y ASOCIADOS 66.6 87.8 164.4 21.0 107.5 128.5 83.2% LONOONO Y RESTREPO S.A. 18.5 60.1 78.6 41.0 36.3 77.3 98.3% LUIS CARLOS VARGAS MOLINA Y CIA 40.8 68.6 109.4 21.5 66.7 88.2 80.8% LUIS FERNANDO CORREA C. Y CIA 16.9 65.1 81.0 19.3 50.5 69.8 86.2% MEJIA MARTINEZ Y CIA n.a. n.a. n.a. n.e. n.s. n.a. n.a. BIEN VALORES S.A. 35.0 57.6 92.6 39.5 38.7 78.2 84.4% SERFINCO-OSCAR RODRIGUEZ Y CIA 34.2 60.2 94.4 12.0 70.4 82.4 87.3% LONDONO SALDARRIAGA Y CIA 72.1 46.1 118.2 7.6 64.5 72.1 61.0% RAMON H VILLA & CIA 29.3 59.5 88.8 18.0 45.3 63.3 71.3% CARLOS BRAVO Y CIA SUCESORES 2.6 56.0 68.6 24.5 24.1 48.6 82.9% VALORES BURSATILES VARGAS Y CIA 63.6 46.3 109.9 17.4 53.2 70.6 64.2% INTERVALORES S.A. n.a. n.m. n.m. n.m. n.a. n.a. n.s. AINVERVALORES S.A. 19.5 52.8 72.3 35.0 29.7 64.7 89.5% INTERBOLSA-JARAMILLO BOTERO Y CIA 13.0 48.3 61.3 25.0 10.6 35.6 58.1% VALORES ASOCIADOS URIBE GONZALEZ CI 41.7 61.5 93.2 35.3 19.0 54.3 58.3% SUVALOR S.A. 219.9 81.6 301.5 300.0 -14.9 285.1 94.6% TOTALS 1,293.8 1,846.0 2,939.6 869.4 1,173.0 2,043.0 69.5% *AS OF JUNE 1991 SOURCE: SV Annex 6.13 Page 3 of 3 ANNEX 6.13 (Cont.) BOLSA DE OCCIDENTE FINANCIAL STRUCTURE OF MEMBER BROKERS* (MILLIONS OF COLO) CURRENT OTHER TOTAL PAID TOTAL NET WORTHI NAME OF BROKER ASSETS ASSETS ASSETS CAPITAL RESERVES NETWORTH TOTAL ASSETS ADMINCO VALORES & CIA 35.1 58.6 93.7 11.7 48.8 58.5 62.4% J.G. GARCES & CIA S.A. 127.9 292.5 420.4 40.0 247.2 287.2 68.3% ASVALORES LEYVA DELGADO COM. BOLSA 27.1 93.1 120.2 19.2 76.9 96.1 80.0% SERGIO Y FELIPE CORREA & CIA 1,633.2 50.6 1,683.8 24.0 43.8 67.8 4.0% TRANSACCIONES BURSATILES 24.8 36.0 60.8 10.0 49.5 59.5 97.9% INVERSIONES PRODELTA & CIA 37.2 67.0 94.2 60.0 18.9 78.9 83.8% OURSATILES S.A. - OPERAC. BURSATILES 61.0 74.3 135.3 30.0 56.1 86.1 62.9% COLVALORES-COL DE VALORES 27.2 64.7 91.9 20.0 56.4 76.4 83.1% ASEBOLSA ASESORES EN BOLSA S.A. 46.7 57.9 104.6 24.2 69.0 93.2 89.1% DESARROLLOS BURSATILES S.A. 6.8 55.5 62.3 42.5 18.7 61.2 98.2% CASA DE 8tKSA S.A. 170.5 132.9 303.4 300.0 2.7 302.7 99.8% TomLS. es 07s.1 3;170.8 81 s 685.0 .26SL8 *AS OF JUNE 1991 SOURCE: SV Annex 6.14 Page 1 of 1 ANNE 6.14 MzUNCIAL STRUCTUR OF STOCK aXCHANGES * (MLLION OF COL$) CURRENT TOTAL PAID PREMIUMS IN NAME OF EXCHANGE ASSETS ASSETS CAPITAL DISTRIBUTION RESERVES NET WORTH BOLSA DE BOGOTA 967.5 2,493.6 10.0 316.6 1,287.9 1,614.5 BOLSA DE MEDELLIN 496.1 1,001.0 61.8 22.6 406.3 490.7 BOLSA DE OCCIDENTE 197.0 401.4 156.1 0.0 68.2 224.3 TOTALsI 1, 640..3, 96.0 227. 339.2 1,762.4 2,329.5 JUNE 1991 SOURCE: SV, TECHNICAL DEPT. -1- ANNEX 6.15 INFORMATION DISCLOSURE IN THE COLOMBIAN SECURITIES MARKET TABLE OF CONTENT A. Introduction B. Rationale for information disclosure regulations Concept of Materiality Colombia's concept of Materiality C. Information Disclosure Requirements in Colombia General information requirements for all companies Registering securities Periodic information Information Required Pursuant to New Listings/Public Offerings D. Comparative disclosure items in major capital markets and in Colombia Periodic Information Information Required Pursuant to New Listings/Offerings E. Assessment of Colombia's Information Disclosure Regulations and Recommendations for their Upgrading Obstacles Posed to Potential Issuers - Tax Evasion Issues Confidentiality Quantity and timing of information Quality of information Institutional overlap and time delays Dissemination and analysis of information (rating agencies) Recommendations Attachment 1: Detailed Disclosure Requirements in Major Markets and in Colombia: Comparative Tables -2- ANNEX 6.15 INFORMATION DISCLOSURE IN THE COLOMBIAN SECURITIES MARKET A. INTRODUCTION 1. According to the overall analysis of capital markets in Colombia, the main constraint to the development of that market lies in the limited supply of securities. One reason which may inhibit the desire of companies to undertake public offerings is their reluctance to disclose financial and other information, either to avoid increased enforcement of tax obligations, or because the costs of compiling and reporting information are too large, or for other reasons. 2. The objective of this Annex is to determine whether information disclosure requirements constitute a binding obstacle for Colombian companies who may otherwise make public offers of securities. An ensuing objective is to identify ways to relax this constraint without compromising investor protection. The aim is to minimize the difference in regulatory and supervisory treatments imposed on companies who make public offerings of securities vis-1-vis those who do not. 3. In determining appropriate information disclosure standards in a small but emerging market, like Colombia, a number of questions arise: (a) Is information disclosure an obstacle for private companies making public offers of securities? (b) If so, what is the minimum set of information disclosure requirements so that companies do not regard them as an obstacle to issue securities, while at the same time investors feel sufficiently protected to show an interest in those securities? Should there be different information disclosure standards for "small" and "large" companies? (c) How are information disclosure requirements to be designed so as to make them enforceable? Should underwriters and auditors be co-liable for untruthful information and misleading omissions? (d) What is the quality of disclosed information? How do inflation accounting requirements affect the quality of financial information? (e) What is the appropriate timing of information disclosure? (f) Should information standards be different for primary offerings as opposed to secondary offerings of securities? What requirements should there be on issuers of guaranteed securities and what on the guaranteeing institution? (g) Should new issuers be given a one time tax amnesty to avoid justifying sudden jumps in sales, profits, or other taxable operations? Would this be enough or would higher tax liabilities in the future still be an obstacle? (h) What is the role of rating agencies in providing investor protection by analyzing disclosed information? 4. This annex addresses these questions. It reviews the rationale for the existence of information disclosure requirements, Colombia's regulations in this area, and provides a comparison of -3- ANNEX 6.15 the specific line items that are required to be disclosed in major capital markets around the world with those required in Colombia. Based on this review, it provides an evaluation of the extent to which information disclosure regulations pose a hindrance to securities' offerings. A final section makes recommendations for their reform. 5. The review and recommendations focus only on "real" sector companies. Two other types of issuers play an important role in Colombia's securities market, financial institutions and the Colombian Government. In the first case, the issuers are subject to close supervision by the Superintendency of Banks (SB) and therefore the need to revise information requirements applicable to these institutions may be less pressing, while the second case is beyond the scope of this report. 6. The key findings are summarized in the following paragraphs and ensuing recommendations are provided in section E. Effects on public offerings 1. Information disclosure may impose a bigger hindrance for medium-sized companies than for large ones, because the former are more prone to tax evasion practices. 2. The content of information disclosure requirements in Colombia and their timeliness are generally adequate by world standards. With a few exceptions, the amount of information to be disclosed does not appear to discourage companies from making public offers of securities. 3. What seems to be more binding, especially for medium-sized companies, is the fear of increased scrutiny, both by regulatory agencies and by investors. 4. Even companies which are willing to submit themselves to increased scrutiny after a public offering may be inhibited to issue securities for fear of having to justify before the authorities sudden jumps in sales, profits or other taxable operations. 5. There are also concerns over divulging what is considered confidential business information and personal security threats arising from disclosure of a company's or its owners' real worth. Quality and usefulness of information 6. The concept of "materiality" is not separately defined in the legislation. As a result, there is no clear criteria for classifying information as essential for investors' assessments about a company or its securities. 7. The nonexistence of a standardized plan of accounts and mandatory inflation accounting seriously erodes the value of disclosed financial information. However, both problems are currently being addressed and these issues are expected to become less problematic in the near future. An important issue in the design of the new standardized plan of accounts is the development of rules for the presentation of consolidated statements. 8. Underwriters are not legally co-liable for untruthful information or misleading omissions, and the concept of "due diligence" is not defined. -4 - ANNEX 6i.15 9. The system of "revisores fiscales" (akin to external auditors) has several weaknesses. Although they are legally co-liable for untruthful information, they are not liable for misleading omissions and, further, sanctions against revisores fiscales already contemplated in legal provisions are seldom imposed. Professional standards for accountants and auditors are very lax and it is not certain if they must submit to a code of ethics or how it is enforced. Revisores fiscales are appointed by majority shareholders and do not have enough incentives to express opinions which may conflict with the interests of controlling shareholders. 10. Disclosure requirements for secondary offerings of securities are considerably less exacting than for primary offerings, and this inhibits investor interest in the secondary market. Although in most cases it would be difficult to impose the same requirements for secondary public offerings as for primary offerings, there is scope for improving information disclosure for certain types of transactions in the secondary market. 11. For individual investors without the capacity to analyze available information about a company, rating agencies could provide a valuable service. However, the small size of the market is unlikely to attract the leading rating agencies to Colombia. Recent regulations prohibiting auditing firms from providing these services eliminate an entire class of firms that would be potentially interested in setting rating businesses. 12. Only about 20% of disclosed information is stored in magnetic media and even this can only be retrieved on site at the SV's offices. Neither the SV nor the stock exchanges publish disclosed information, except for a limited number of items which are disclosed quarterly by companies listed in a stock exchange and published by the stock exchanges. Administrative costs and delays 13. There is considerable duplication of reporting requirements by different agencies: Superintendency of Valores (SV), Superintendency of Societies (SS), Tax Administration and commercial registries. This raises the administrative costs of compliance and the time to obtain registration or approval, without enhancing investor protection. 14. In spite of recent efforts to reduce the time required to obtain registration or approval of a security, the process can still take from 2 to 4 months. Certain procedures that can reduce this time lag, like shelf registration and reference to information previously disclosed, are not currently available. B. RATIONALE FOR INFORMATION DISCLOSURE REGULATIONS 7. The requirement that public companies disclose information about their organization, operations and financial status is intended to protect investors who, without this knowledge, would be unable to evaluate a company's real worth and its future prospects, and may therefore face a large risk in investing in the company's security. These risks may either inhibit potential investors from investing in the company altogether, or may require them to demand a large risk premium. To the extent that information disclosure reduces the need for this premium, it benefits issuers as well as investors. 8. Nevertheless, certain limits must be placed upon information disclosure, so as to simultaneously preserve investor protection, while making disclosure requirements reasonable in terms .5- ANNEX 6.15 of compliance costs and monitoring. The regulators' challenge is therefore to achieve a balance between the opposing tendencies of maximizing investor protection (which would lead to exhaustive information disclosure) and assuring that information disclosure requirements do not hinder potential issuers from going public (which may lead to insufficient information for investors to make adequate assessments about a company). Striking this balance in developing countries that have elaborate informal markets is especially elusive, since disclosure requirements and the process of compliance can not be too cumbersome lest companies have recourse to idiormal arrangements. Concept of materialit 9. The concept of materiality is basic to the content and extent of information disclosure. The definition of this concept takes various forms, all relying on the idea that only "material information" needs to be disclosed. Regulatory agencies incorporate the concept of materiality into their information disclosure standards in one of two manners: (a) By stating, in a general way, that all information i's to be disclosed which is necessary to assess the assets and liabilities, financial position, profits and losses, prospects of the company and rights attaching to the securities (as in the case of Australia), or (b) By providing a detailed list of line items to be included in information disclosure documents. A half-way approach or a combination of i) and ii) are other alternatives. 10. In any case, the authorities need to adopt criteria for classifying information as "material." The two approaches generally used state that material information is: (a) Anything that can substanti ally affect or can reasonably be expected to affect in a significant way the price of the security being offered, or (b) Everything that is needed to enable an investor to correctly evaluate the issuer and the security. 11. While it appears that little difference exists between these criteria, subtle interpretations can lead to substantial differences in information disclosure standards. T7his is because the first criteria relies not only on the information itself, but on the markets' reaction to such information, which could affect the price. By contrast, the second criteria requires the issuer only to provide an accurate, complete and transparent view of the elements necessary for an investor to make his/her own assessment of the issuer and the security's value. Even this criterion still raises the problem of objectivity, i.e. some subjective information is needed for an investor to make an informed evaluation, however, it is the most adequate criterion to define what constitutes "material information. 12. When reviewing information submitted by a company in order to ascertain if all material information has been disclosed, the regulatory authority should not conduct what is known as a "merit review". That is, the acceptance by the regulatory authority that sufficient information has been disclosed about a security and its issuer, should not be interpreted as constituting an endorsement as to the advisability of investing in the security, nor a guarantee that it would be met with sufficient liquidity. -6- ANNEX 615 Colombia's concept of materiality 13. Resolution No. 031 (1982) and Circular No. 5 (1982), which deal with types of information that must be disclosed to the SV, do not define the concept of materiality explicitly. However, they implicitly state criteria for assessing what constitutes material information. The first indicates that registered companies must report "all economic, financial or other events, which, by its nature, could substantially affect the price of shares issued by the company." The second requires companies to disclose "any event, act or legal, economic or financial action which is significant to determine the price or market turn over of the securities they have issued," and provides an illustrative list of some of those events1. Because these wordings are imprecise, a large number of events can be encompassed by them, including changes in macroeconomic policies, financial regulations, tax regime, and others. This can lead to arbitrariness in enforcement of regulations. 14. Circular No. 003 (1984) defines the concept of materiality, although in a passing way, in the context of describing the responsibilities of legal representatives and auditors ("revisores fiscales") in the preparation of information disclosure documents. As stated there, the principle of materiality involves "operations, elements, effects or circumstances which are significant or relevant to obtain a precise understanding of the financial statements of a company." 15. It is commendable that, as stated, the principle relies on the presentation of information necessary for investors to make their own decisions. However, the limitation of this concept to financial information exclusively would prevent an investor from making an informed decision about a company or its value. Assessment of a firm's value requires other type of information regarding its organization, administration, operations, legal proceedings, relations with affiliates, suppliers and principal customers and other data reviewed in section IV. C. INFORMATION DISCLOSURE REQUIREMENTS IN COLOMBIA General information requirements for all companies 16. All firms, regardless of corporate form, must be registered in one of the country's commercial registries, which are kept by the chambers of commerce. There are 51 commercial registries in the country and these are not linked to each other. These registries contain all legal documents related to a company's incorporation and updated statutory norms, as well as regular documentation including financial statements, list of shareholders, opening of subsidiaries, annual reports, minutes of shareholders meetings and meetings of the board of directors, civil lawsuits, judicial interdictions and other information. In practice, the chambers of commerce do not verify the accuracy of the information provided, but merely register it. The Superintendency of Industry and Commerce is the supervisory agency for the chambers of commerce and the commercial registries, and it has the legal authority to monitor the truthfulness of information provided, although this authority is seldom exercised. 1/ Note that the first definition mentions only "shares", while the second mentions "securities." It is likely that the intention in Resolution No. 031 (1982) was to apply its provisions to all securities, as the rest of the text applies to all types of securities and Circular No. 5 (1982) is an explanatory note to complement it. -7- ANNEX 6.15 17. The basic information to be presented to the annual shareholders meeting and included in the annual report of a company (sociedad an6nima2-) consists of the financial statements, the proposed distribution of profits and a management report detailing: compensation to directors or advisors (including non-monetary), donations, advertising expenses, assets in foreign countries, liabilities in foreign currency, investments in other companies, and reports of the legal representative and "revisor fiscal" about the company's activities, along with their recommendations (article 446 of the Commercial Code). 18. Companies under the supervision of the Superintendency of Societies (SS) must submit to it an annual form including detailed information on the company's financial statements, operations, administration, ownership structure, composition of the board and related matters. For the most part, this information is very similar to that submitted to the SV for the annual update of the RNV. The SS has recently introduced a computerized data base for the collection, storage, analysis and retrieval of this information. Companies are given a diskette containing a blank spreadsheet which includes the basic forms that they must fill out. This reduces the time spent by the SS in entering data into their system, allows easy detection of inconsistencies and permits quick calculation of basic financial indicators. 19. For tax purposes, companies must submit to the Direccidn Nacional de Impuestos Nacionales tax returns showing the principal items of their financial statements, at a highly aggregated level. There is no procedure to verify that this information is the same provided to the SS, or the SV if the company has registered securities. Auditors are not required to certify that the information presented to the tax authorities coincides with that presented to the SS or SV, and coordination among these agencies is minimal. Registering securities 20. All securities offered to the public in Colombia must be registered with the National Registry of Securities (RNV for Registro Nacional de Valores) which is kept by the SV. Only companies under the supervision of either the Superintendency of Societies or the Superintendency of Banks, can register securities with the RNV. 21. For this purpose, a company must submit to the SV legal documents related to its incorporation, copies of the annual reports corresponding to the previous three years, which include financial statements, and a form containing information which is publicly disclosedy. This includes the company's main activity, basic statutory provisions, membership of the board, auditors, compensation of employees, participation of principal shareholders, types of shareholders, dilution of ownership, dividends, summarized financial statements, profit distribution in the last three years, outstanding bonds, share prices, securities listed in a stock exchange, securities issued during the year, debt reschedulings, name of holding companies and subsidiaries. 22. According to Resolution 001 (81), when an application is received by the SV, it must request either the Superintendency of Societies or the Superintendency of Banks, copies of the financial statements submitted to them by the applying company, corresponding to the last three years, as well as any observations and the company's replies. Nevertheless, it seems that this provision is not currently implemented. V Sociedades An6nimas comprise the majority of companies under the supervision of the Superintendency of Societies, and the majority of issuers. 3/ Form FS1. -8-ANNEX 6.15 Periodic information 23. The information contained in the abovementioned applying form must be updated annually and submitted thirty days after the annual shareholders meeting. If the company closes its accounts semi- annually or quarterly, this information must be submitted to the SV 30 days after the closure. Companies who have securities registered in the RNV must also submit to the SV: (a) At least 15 days before the annual shareholders meeting: - A copy of the administrative report to be submitted to it. - The projected distribution of profits. (b) Within 30 days after the annual shareholders meeting: - A copy of the meeting's minutes. - A copy of the financial statements corresponding to the previous year. - An updated version of the form mentioned above, submitted at the time of registration. 24. If in addition to having securities registered in the RNV, a company lists them in one of the country's stock exchanges, the information above must also be provided to those exchanges, within the same time periods. The stock exchanges themselves do not impose additional disclosure obligations on listed companies. However, SV regulations require listed companies to provide some information in addition to that demanded from companies which merely register securities for public offering purposes but do not list them in a stock exchangeY 25. Listed companies must submit to the annual shareholders meeting a report including details of: (i) operations with related companies (sales/purchases/rents of goods or services, loans, guarantees, common administration, etc.); (ii) transactions with substantial shareholders and administrators; (iii) long term commitments; (iv) pension plans; (v) estimated net worth of the company; (vi) inspections by supervisory agencies resulting in sanctions and any other administrative sanctions or judicial sentences imposed on the company or its officers; and (vii) a form summarizing the company's financial statements, main operations, taxes, employment and principal financial indicators. These documents must be then submitted to the stock exchange(s) where the company is listed and to the SV (Circular No. 007 (83) and Circular No. 003 (84)). 26. Listed companies must also supply quarterly information to the SV and the exchanges where they list securities (Resolutions 003 (84) and 500 (89)). This information includes a summary of the company's financial statements, details of subscribed and paid-in shares, dividends, and amounts and conditions of bonds or any other securities issued by the company. These reports must be presented within 30 days following the end of each quarter, except the report covering the last quarter of a calendar year, which can be presented up to March 30 of the following year. The stock exchanges are charged with supervising that these reports are presented according to SV instructions and within the established periods. After 25 days from the time allocated for the presentation of the reports, each stock exchange has to publish and distribute the information contained in them. 4/ Companies seeking to make public offerings through the press or other public media, but not necessarily list their securities in one of the stock exchanges, must obtain registration. The same holds true for public secondary offerings by individual security holders. -9- ANNEX 6.15 Information required pursuant to new listings/public offerings 27. Public offerings of securities in the primary market require authorization from the SV. Applications for approval require submission of legal documents related to the company's incorporation, a resolution of either the Superintendency or Banks or the Superintendency of Societies approving the issue, description of economic and financial objectives of the issue, copies of advertising material, an offering prospectus and copies of underwriting, guaranteeing, sales or other contracts related to the issuance and public distribution of the securities. The offering prospectus must contain detailed information about the company and the security being offered. These requirements are in line with current practices in most developed securities markets. However, as mentioned in section V, below, disclosure of the conditions of the underwriters contracts and nature of the underwriters obligations need to be upgraded. 28. Public offerings of securities in the secondary market require only that the security is registered in the RNV. SV approval for secondary market offerings is not required, except in the case of secondary market transactions involving the purchase or sale of more than 10% of a company's shares in circulation by a single shareholder or related group of shareholders over a 12 month period, or when a shareholder or group of shareholders holding more than 10% of the circulating shares want to acquire more than 5% of the outstanding shares within a 12 month period. Information to be provided for secondary market offers of shares in these cases is limited to the number of shares, offering prices, payment conditions, term of the offer, name of brokers, and the financial statements of the person or company making the offer. 29. Unlike most developed markets, in Colombia secondary market offerings of shares involving a substantial transfer of ownership do not require the preparation of a prospectus. As a result, the amount of information disclosed and the level of investor protection is substantially lower than for primary offers, which in turn decreases investor interest in secondary offerings. D. COMPARATIVE DISCLOSURE ITEMS IN MAJOR CAPITAL MARKETS AND IN COLOMBIA 30. In 1989 the Technical Committee of the International Organization of Securities Commissions (IOSCO) recommended the elaboration of a review of information disclosure standards applied in major capital markets, to serve as a reference for a single prospectus for securities issued on a multijurisdictional basis. A working party of the Technical Committee undertook the recommended study an reported its findings in the CADRE Report. The report reviews the information disclosure regulations in 15 well developed marketsy. The objective of this undertaking was to assess the degree of homogeneity among different jurisdictions, with the subsequent purpose of recommending measures for their harmonization, thereby reducing the administrative burden and financial costs imposed on issuers wishing to cross list. This seems an over-ambitious prospect for Colombia, given the extent of development of its securities market. Nevertheless, the study provides an adequate framework to review Colombia's information disclosure requirements, as compared to the requirements generally prevailing in more developed capital markets. 1/ "Comparative Analysis of Disclosure Regimes," International Organization of Securities Commissions, September, 1991. These are: Australia, Belgium, Canada, France, Germany, Hong Kong, Italy, Japan, Luxembourg, Netherlands, Spain, Switzerland, United Kingdom, United States and The European Community. -.10 - ANNCEX 6i,15 31. The IOSCO study differentiates between information required on a periodic basis, in particular, information that must be contained in a public company's annual report, and information that is required at the time of listing. It further distinguishes that information which is required by law from that which is provided by custom. The tables in attachment 1 contain the detailed items to be disclosed, the number of countries where each item must be disclosed by law or is provided pursuant to custom, and whether the item is included in Colombia's information disclosure requirements. 32. From these comparative tables it can be seen that the coverage of Colombia's requirements is generally adequate, with a few exceptions. The next two sections summarize the most important omissions in Colombia's requirements. In addition, certain items are required in Colombia only at the time of registration for a public offering, but are not regularly updated. These are also mentioned in section (1), below. 33. Given the exhaustiveness of items included in the tables in the Attachment, no items have been found which are required in Colombia, but not in the countries included in the CADRE Report. However, there is one item which, although is required in a few jurisdictions around the world, is desirable to be excluded from Colombian regulations. This is the requirement to provide financial projections for public offers of bonds. It is recommended that this requirement be eliminated because: i) the forecasts are very unreliable, particularly given the poor quality of previous years' financial information, so they do not enhance investor protection in any significant way, and ii) they are costly and time consuming to produce. (1) Periodic information 34. The following list indicates, for each area of information disclosure, those items which could be desirable to include in Colombia's disclosure requirements. 1. Description of business: A description of products or services being developed and the status of their development. 2. Subsidiaries: Current regulations only require information about the name and percentage holding of a company's subsidiaries ("filial'), but do not include any financial or other information on them. At the very least, basic financial information about subsidiaries should be provided. 3. Development of business: Acquisition or disposition of important material assets should be reported. 4. Financial Statements: Consolidated statements, including controlled entities, should be provided. For unconsolidated subsidiaries and investments in other companies over which the issuer has significant influence (to be .explicitly determined), the equity method of consolidation is generally used and recommended to be adopted in Colombia. Accounting for business combinations by the pooling-of-interest method should be optional to the merging firms. In business combinations, recording goodwill as an asset to be amortized over a fixed period should be permitted. Finally, research and development costs should be allowed to be charged to expenses. These recommendations are closely related to the adoption of a standardized plan of accounts, which is currently being designed (see Section V.A). - 11 - ANNEX 6.15 5. Changes in and disagreements with auditors: Although not many jurisdictions require reporting changes of auditors, given the weakness of the current system of "revisor fiscal" in Colombia (see Section V.A), it would be desirable to demand disclosure of these changes and details of disagreements, when they are the cause of the change, in the issuer's annual report. 6. Executive compensation: Colombia's regulations require disclosure of officers' regular compensation as a group and for individual top executive positions. In most other jurisdictions, other types of compensation, such as officers' bonuses, deferred compensation and other compensation plans are regularly disclosed. Although this information is difficult to monitor, it can be valuable to Colombian investors and is therefore recommended to be included in Colombian requirements. 7. Related party transactions: Transactions with officers, directors or substantial security holders should be regularly disclosed to the public, as is done in most developed securities markets. Disclosure of these transactions is currently required only for listed companies. 35. In addition to these items, certain information which is required to be disclosed under Colombian legislation only at the time of registration, should be regularly updated. These include: * Principal products or services of the company * Description of legal proceedings (to be disclosed based on the standard of materiality). * Commitments for capital expenditures. (2) Information required pursuant to new listings/offerings 1. Selling security holder: Under Colombian regulations, only the before and after percentage holdings of substantial buyers must be disclosed. It is desirable to demand disclosure of holdings of substantial sellers, before and after the sale. 2. Plan of distribution and underwriters: For underwritten issues, a copy of the contract with the underwriter must be submitted to the SV. However, this information is not available to the public. Furthermore, material information may or may not be included in the contract. The following information and regulations apply in most developed markets and should be included in Colombian regulations on this matter: details of underwriters' compensation, underwriters' representation on the issuers' board of directors, nature of underwriters' obligations, responsibility statement (whereby the underwriter is co-liable for the accuracy and completeness of information provided under the due diligence standard) and the possibility of early closure of the offering period. E. ASSESSMENT OF COLOMBIA'S INFORMATION DISCLOSURE REGULATIONS AND RECOMMENDATIONS FOR THEIR UPGRADING Obstacles posed to potential issuers - tax evasion issues 36. Information disclosure requirements undoubtedly pose an additional burden on companies wishing to make public offers of securities. Regulatory agencies should be concerned at all times with -12- ANNEX 6,15 assuring that this burden is minimized to the extent possible, while maintaining an adequate level of investor protection. However, these concerns are heightened when information disclosure requirements become binding. That is, given all considerations affecting a company's decision to undertake a public offering, in particular alternative costs of financing, information disclosure should not become such an overpowering obstacle as to reverse that decision. 37. Information disclosure does not seem to be a binding constraint for large Colombian companies. However, the same can not be asserted in relation to medium sized companies, which could benefit from lower financing costs and circumvent access to credit barriers by undertaking public offerings, but find information disclosure to be an obstacle. The reason is that large companies generally disclose truthful financial information and, although they try to take advantage of loopholes in the tax legislation, they are not willing to risk their image and access to external finance through illegal tax evasion practices. Additionally, the operations and financial situation of large companies are already well known and many of them are already disclosing relevant information in the context of previous offerings. 38. Conversely, the practice of keeping double books in order to avoid taxes is widespread among medium-sized companies. The principal form of tax evasion is under-invoicing sales, especially, but not exclusively, at the retail level. Under the current tax system clients do not have incentives to demand an invoice for the full amount paid in a commercial transaction, and the ability of the tax authorities to supervise closely enough these practices is limited. 39. The relevant problem in this regard is not directly related to the requirements imposed on issuing companies, but rather to the weak enforcement of tax regulations in general. To the extent that non-issuers can hide from the supervisory authorities a relevant portion of their taxable operations, they effectively benefit from a lower tax burden than issuing companies. This makes the playing field uneven, and the existing distortions work against companies disclosing complete and truthful information, which is the opposite of what capital market promotion needs. Recommendations for upgrading the system of tax administration are beyond the scope of this paper, but are indispensable for the removal of information disclosure concerns in making public offers of securities and increasing the supply of securities in the Colombian securities market. 40. Even companies which have kept double books but are willing to submit themselves to closer supervision after making a public offering of securities, find an initial obstacle the first time they are confronted with disclosing truthful information in having to justify sudden jumps in sales, profits or other taxable operations. This problem can be more easily overcomed, by providing a one-time tax amnesty to new entrants to the market. While this would not be relevant for those companies which are reluctant to be subject to more rigorous supervision, it could be enough incentive for other companies which want to clear the past and submit to the rules of the game in the future. Confidentiality 41. It must also be borne in mind that companies may dislike increased scrutiny by outside investors just as much as supervision by tax or other authorities. Companies show apprehension towards revealing what they consider confidential business information. Even when the nature of the information to be disclosed does not involve secret processes, trademarks, or other registered types of intellectual property, companies are reluctant to divulge information that could eventually be used by existing or potential competitors. - 13 - M X 6,15 42. In addition, there are strong concerns over personal security threats arising from revealing the true value of a company or personal wealth of its owners. Quantity and timing of information 43. With the exception of financial projections required for issuing bonds, the coverage of items to be disclosed does not seem to impose an excessive burden on issuing companies. On the other hand, with a few additions (see sections IV.A and IV.B), the amount of information disclosed in connection with primary offering of securities is sufficient to enable investors to evaluate companies and the securities they issue. The timing of information disclosure is also found to be in line with practices in major capital markets. Information is provided sufficiently in advance of shareholders meetings and the age of financial statements conform with the average in other, more developed, markets. 44. The quantity of information available to investors acquiring securities in the secondary market is considerably less than information available in connection with primary offerings. This helps to explain lower investor interest in the secondary market. Given that investor protection is the utmost objective of information disclosure, investors should have access to enough material information about a company in the context of secondary offerings of controlling blocks of shares. Unfortunately, for most secondary market transactions it is not possible to compel the issuer to disclose the same amount of information it divulges when undertaking primary offers. Nevertheless, it may be desirable to establish a threshold and demand further disclosure for public offerings of securities above it. This procedure seems easiest and most necessary to implement for secondary offerings of controlling blocks of shares. This implies that, when a substantial amount of the shares of a company are being registered to be publicly offered in the secondary market, the SV should request disclosure of most of the information that is demanded to be included a prospectus for primary offerings. 45. For offerings of guaranteed securities the SV requires disclosure of the financial statements of the guaranteeing institution. Requiring further disclosure from guaranteeing institutions seems unwarranted given the state of development of the Colombian securities market, especially since they are normally financial institutions which are subject to greater disclosure and more rigorous supervision by the Superintendency of Banks. 46. The possibility of relaxing information disclosure requirements for smaller companies is also not advisable, because the degree of investor protection embodied in the regulations should be the same regardless of the company's size. Quality of information (1) Accounting 47. The quality of information disclosed is an important concern for Colombian investors. This is largely a consequence of the nonexistence of a standardized plan of accounts and distortions introduced by inflation. Both problems are currently being addressed. Inflation accounting is mandatory for 1992 financial statements and companies are just analyzing the consequences of this requirement for alternative financing costs. It is expected that the quality of information will improve as a result of inflation accounting requirements, not only because it will reflect the financial situation of companies more realistically, but also because information must be provided in greater detail. - 14- ANNEX 6,15 48. A committee to develop and implement a standard system of accounts has been working on this issue for some time. As part of this work, it is expected that the committee will develop rules for the presentation of consolidated statements of non-financial companies, which will also enhance the quality of information. (2) Au"i 49. The system of revisor fiscal has many weaknesses, which reflect on the poor quality of the information. A "revisor fiscal" is like an external auditor, appointed for an indefinite term by the annual shareholders meeting. In practice they are appointed by controlling shareholders and do not have enough incentives to express opinions which would conflict with the interests of majority shareholders. 50. Legal provisions contemplate co-liability of revisores fiscales, but sanctions are seldom imposed. Further, there seems to be no liability, neither for issuers nor for revisores fiscales, for misleading omissions. The concept of "due-diligence" is not contemplated in legal and regulatory provisions and, accordingly, underwriters are not liable for the quality of information. 51. Professional requirements to be a revisor fiscal are inadequate, and ethical standards are unknown to most revisores fiscales and rarely enforced. While a solution to this problem can only be found in the medium term, as it includes changes in the legislation and even in the educational system, certain short term measures can be implemented to enhance the impartiality of revisores fiscales. These include making regulatory changes so that revisores fiscales are appointed for fixed terms and not subject to reappointment. The possibility that only minority shareholders elect revisores fiscales should also be considered. Institutional overlap and time delays (1) Institutional overlap 52. Given the large degree of commonality of information to be submitted to different agencies (see para 18), there is considerable scope for reducing administrative and time costs in complying with information disclosure requirements of different agencies. While this may require a long term effort, certain changes seem relatively easy to introduce in a short period, given enough coordination among regulatory agencies. For instance, the SS has just begun implementing a computerized data base for the collection of companies' information. This contains most of the information currently required by the SV for registering securities. The SV could use the same format as SS for gathering information, adding to the SS's computerized forms a supplementary form containing that information which is only relevant for public offers of securities. 53. Since the jurisdictions of each regulatory body have become blurred, there is a large scope for improving coordination among their activities. Until a standard set of information to be presented to different authorities is developed and implemented, it is important that the SV and SS and the Tax Administration cross-check their information on companies, to assure that the information provided to these agencies is uniform and consistent. (2) Time delays 54. The entire process of making a public offer of securities can take from two to four months, depending on the type of security, the quality of internal accounting and other information, whether it TIME-TABLE FOR CORPORATE BOND ISSUES (Approximate Number of Working Days) Commercial Bond Issues DAY 1 10 25 45 90 91 92 Verbal marketing, good faith commitments. Management decides to Management and Shareholders approve Company sends SV authorizes issue and Prospectus is delivered Security is listed and/or issue Contracts financial financial advisor decide issue. Contract with prospectus to SV an public offer. to stock exchange(s) offered in public media. advisor to help design on characteristic of underwritter is signed. requests registration and and/or other Trading begins. the instrument. instrument. Ellaboration of authorization to make broker/dealers. Shareholders meeting is prospectus starts. public offer. convened. Share Issues DAY Verbal marketing, good faith commitments. Management decides Shareholders approve Company requests SS approves issue. Prospectus is SV authorizes public Prospectus is Security is listed to issue. issue. Contract with authorization to issue finished. SV offer. delivered to stock and/or offered in Shareholders meeting underwritter is to SS. authorization to make exchange(s) and/or public media. is convened. signed. Ellaboration public offer is other broker/dealers. Trading begins. of prospectus starts. requested. -16- ANNEX 6.15 is the first public issue for a given company, or not, and whether approval to issue was obtained during a regular shareholders meeting. The approximate time tables for issuing corporate bonds and shares are given in the attached chart. 55. Excessive delays are caused by the existence of duplicate requirements, lack of coordination among regulatory agencies, impossibility of relying on previously disclosed information, absence of an automated information storage and retrieval system and inexperience in the preparation of prospectuses. While the SV has recently improved its response time to applications for registration and authorization for public offers, further efforts can be made to reduce the time to obtain SV approval. 56. The time lag in undertaking public offers could be shortened be allowing companies to refer to information previously disclosed (within a certain time period) when authorization for new offerings are requested. The adoption of shelf registration procedures would also facilitate the process and allow companies to seize market opportunities by making timely offers of securities. Dissemination and analysis of information (rating agencies) 57. While the SV keeps a fairly complete set of information on issuing companies, these records are of limited use for investors, financial advisors and traders, because they are not stored in electronic media and are only accessible at the SV's offices. Only around 20% of the information kept by the SV is stored in computer form. To increase the usefulness of information and speed up access to it, all information should be capable of being retrieved by computer, either on site at the SV, or ideally from remote locations. This would also enable the SV to perform different aggregations (across companies, sectors, geographical areas, etc.) in order to detect anomalies. Additionally, the SV could undertake other types of analysis of disclosed information, and publish it, thus enhancing the usefulness of information available to the market. 58. Rating agencies can play an important role for investors in assessing the value and riskiness of different securities and they can also lower the cost of financing for prime borrowers. Presently there are no rating agencies in Colombia and the SV has only recently received one application. 59. Given the experience of other countries, it seems that it is difficult to attract leading international rating agencies in a small market because the amount of business is insufficient to cover the cost of setting up this service. Some prestigious auditing firms may be interested in providing this service, since they could easily adapt some of their existing infrastructure and staffing to the provision of rating services. All the major internationally recognized accounting firms have established businesses in Colombia. However, current regulations forbid auditing firms from providing rating services, given potential conflicts of interest. 60. This concern is certainly justified if an auditing firm is allowed to rate the credit standing of one of its audit clients. However, the same conflict of interest situation does not arise if an auditing firm provides a rating service to a company it does not audit. - 17- ANNEX 6.15 Recommendations 61. The main recommendations arising from the previous sections can be summarized as follows: (1) To reduce obstacles to issues related to tax evasion 1. Increase enforcement of tax regulations for all companies. Review ways to design the tax system so as to reduce incentives for tax evasion. 2. Provide a one-time tax amnesty for first time issuers. (2) To improve the quantity and quality of information 3. Adopt a clear definition of the concept of materiality. 4. Eliminate the requirement to provide financial projections for bond issues. Introduce in current disclosure requirements the items recommended in sections D(1) and D(2). 5. Study ways of improving disclosure for large secondary market offers, particularly for transactions of controlling blocks of shares. 6. Define the concept of "due diligence" and make underwriters legally co-liable for untruthful information and misleading omissions. 7. Enforce sanctions against revisores fiscales. Fix terms for the appointment of revisores fiscales and do not allow reelection. Consider the possibility of having minority shareholders (to be defined) participate in the selection of revisores fiscales. 8. Allow auditing firms to provide rating services, except to their audit clients. 9. Provide the SV with appropriate hardware and software equipment to collect, store, retrieve, disseminate and analyze companies' information. (3) To reduce administrative costs and time delays 10. Develop a standard set of "core" information to be provided to different regulatory agencies, which can be supplemented by specific details for each agency related to its particular jurisdiction. In the meantime, coordinate the activities of SV, SS, tax administration and commercial registries and cross-check the consistency of information on the same company. 11. Introduce shelf registration procedures. Allow reference to previously disclosed information. - 1 - ANNEX 6.1 ATTACHMENT 1 DETAILED DISCLOSURE REQUIREMENTS IN MAJOR CAPITAL MARKETS AND IN COLOMBIA: COMPARATIVE TABLES Note The following is an explanation of the symbols used in the tables contained in this attachment. The first four columns in each table give the number of countries in the CADRE report where each disclosure item is required, in accordance with the following symbols. The last column in each table indicates whether the item is required in Colombia and if it is periodically updated. Symbols ParLI: Periodic Disclosure Requirements * CADRE Report Countries: X line item or other information required byJa or regulation for inclusion in the -annual repor or other periodic reporting documents Z not a line item or specific information requirement but is disclosed pursuant to A line item or information requirement for a listing application or an offering document and updated pursuant to custom B line item or information requirement for a listing application or an offering document and not customarily updated * Colombia X information disclosure item required to be updated regularly R information disclosure item for public offerings, required only at time of registration Part II: Additional Disclosure for Offering Documents * CADRE Report Countries: X line item or other information required by law or regulation for inclusion in the offering document -2 - ANNEX 6.15 ATACHMENT 1 Z not a line item or specific information requirement but is disclosed in the offering document pursuant to custom Colombia X information disclosure item required to be updated regularly R information disclosure item for public offerings, required only at time of registration -3- ANNEX 6.15 ATIACHMENT 1 L PERIODIC DISCLOSURE REQUIREMENTS 1. Desription of Business Cadre Report Countries Colombia Description & Zzfi Description of business done by company and subsidiaries 14 1 X Indication of products or services accounting for specific among or percentage of revenues. 15 R Number of persons employed. 1 12 2 X Description of products or services being developed, status of development. 1 12 2 Principal products or services. 4 1 10 R Dependence on particular customers. 5 3 4 2 Competitive conditions in the business: - markets in which company competes 2 6 4 - estimate of number of competitors 2 1 1 - company's competitive position 1 2 3 2 Effect of government regulation on business. 1 3 6 Sources and availaibility of raw materials. 1 3 5 Details of patents, licenses, trademarks, etc. 6 4 3 1 R Seasonality of business. 1 3 5 Backlog orders. 4 4 3 1 Practices relating to working capital items. 2 5 Effect on business of contracts that are subject to renegotiation. 1 7 2 4 Material contracts. 1 2 4 -4- ANNEX 6.15 AITACIIMENT 1 2. Industry Segments and Subsidiaries Cadre Report Countries Colombia Se2ments and Subsidiaries As XS A. Segments Information about - revenue 14 1 - operating profit/loss 7 - identifiable assets 1 4 1 attributable to each of the company's industry segments. Is any discussion required regarding performance of industry segments or regarding industry segment results that are not indicative of current or future results of that segment? 6 2 B. Subisidiares Details of Subsidiaries 12 1 X 3. General Development of Business Cadre Report Countries Colombia General Development of Business As B Description of general development of business of reporting entity, including other members of the same group. 1 13 1 X Acquisition or disposition of material assets. 1 2 11 1 Main external investments. 2 4 5 Principal investments. 1 1 8 X Form of organization. 1 13 1 R Year of organization. 3 8 3 1 X Nature and results of any bankruptcy, receivership or similar proceedings (including significant subsidiaries). 4 2 7 1 X -5 - ANNEX 6.15 ATTACIIMENT 1 4. Finncial Information About Foreign and Domestic Overations and Export Sales Cadre Report Countries Colombia Financial Information A X5 Information about - Revenue 14 1 X - Operating Profit/Loss 6 1 - Identifiable Assets 1 5 1 attributable to company's geographical areas. Information about export sales. Is this required by geographic area? 4 7 5. Descriotion of Propert, Cadre Renort Countries Colombia Description of Prosrty As Location and general character of factories, mines, important property 6 3 4 2 6. Legal Proceedings Cadre Renort Countries Colombia Legal Proceedings As & N Description of legal proceedings required. 6 2 6 R 7. Description of Matters Submitted to Vote of Security Holder Cadre Report Countries Colombia Description of Matters As Bs Xs Zs Date of proposed meeting. 14 X Information about items to be considered at meeting. 12 1 X Specific report of outcome of meeting. 11 X -6- ANNEX 6.15 AITACIMENT 1 8. Information About a Company's Stock Cadre Renort Countries Colombia Information About a Company's Stock LA i Warrants, options or other rights to equity securities. 3 2 9 1 X Dividend information. 3 1 10 1 X Number of holders of securities. 4 1 X Significant holdings of a class of securities. 1 14 X Price history of a company's stock. 1 2 4 2 X Where a company's equity is traded. 5 4 6 X Convertible securities. 2 2 11 X Conversion and excercise procedures. 4 6 5 X Resolutions, authorizations and approvals. 5 3 3 X Changes in capital and variation in class rights. 4 3 4 1 X Time limit on divident entitlement. 2 6 2 Other dividend restrictions. 2 6 3 9. Information About Exchange Rate Cadre Report Countries Colombia Information About Exchange Rate A X -Zj For funds received in a foreign currency - for one year 7 1 - as of date of financial statements 12 1 X For financial statements in a foreign currency 13 1 X Exchange rate risk exposure 1 1 3 -7- ANNEX 6.15 AITACHMENT 1 10. Exchnge Contro Exchange Controls As Bs ZS Affecting the remittance of dividends, interests, etc. 2 3 1 Affecting the importlexport of capital. 1 3 1 11. Restrictions on Foreign Securities Holders Restrictions on Foreign Securities Holders I& & ZI Rights to hold or vote securities. 2 8 2 1 12. Taxation Taxation --1 Foreign tax implications for security holders. 2 9 2 1 Impact of tax treaties. 2 2 1 .. ••л ,,, а � а �С � (-�i � .. ., .� .. .� Е�у �� ," � r v а г� � г� `� �+ N м .r ..r д. а' � и t� м .. С ц"' 1 � � � 1 � i: � М л. •д о с� = С � � .а � .� � � � �тr О :дд N .� ri ц QрΡ '4 � Д, с� у •.. п у .� д i:i � � ,� � � �'' � � �в' � � � � � �� � р С '.^J О � � � �� 'С � s � о � � � а � � .� а � � и � � � � О О � О w � С. Q � � U° � ,9 А � ai й а -9- ANNEX 6.15 ATTACIMENT 1 14. Financial Statements Cadre Report Countries ColQmbia Financial Staternents As XS Audited financial statements 15 X Financial statements required to follow accounting standards 14 1 X Annual financial statements filed by specific date 15 Interim financial statements 14 1 X Comparative financial statements 15 X Financial statements of significant acquisitions 4 4 3 1 Financial statements of equity method investees 9 Financial statements of guarantors 4 6 3 R Age of financial statement Pro forma information for acquisitions or dispositions 3 2 2 Statement of cash flow 1 1 7 3 R Controlled entities consolidated 15 Equity method used 14 1 Assets and liabilities recorded at historical cost 15 X Revenues recognized when earned 15 X Costs recorded when incurred 15 X Non-monetary transactions accounted for at fair value 7 Business combination permitted to be accounted as a pooling of interest 10 Goodwill recorded as asset and amortized 14 1 Estimated loss from a loss contingency: accrued 15 X Capital leases capitalized 9 1 Research and development costs charged to expense 14 Pension liabilities recorded 13 X Deferred taxes recognized 11 X Business segment disclosures required 11 1 Details of securities held 7 -10- ANNEX 6,15 ATr'ACHMENT 1 15. Selected Mnancial Data Cadre Report Countries Colombia Selected Financial Data A I X5 Net sales or operating revenues. 15 X Income/Loss from continuing operations per common share. 1 5 7 X Total assets. 15 x Long-term obligations. 14 X Redeemable preferred stock. 13 X Other 1 6 16. Chanees in and Disaoreements withe Accountants Changes in and Disaareements with Accountants A & & Discussion of changes of accountant 7 1 Details of disagreement with accountants 13 -11-ANNEX 615 ATTACHMENT 1 17. Directors and Officers Cadre Report Countries Colombia Directors and Officers & Mi & Identification and description of directors 1 4 10 X Details of any arrangements regarding directors' services 5 Identification and description of officers 2 7 6 X Details of any arrangements regarding officers' service 1 2 Details of business experience 2 4 Other directorships held by directors 2 8 3 X Above descriptions for promoters of new companies 1 5 3 Identification of significant employees 2 1 Details of family relationship 1 2 Involvement in legal proceedings 1 1 R Articles provisions regarding directors 2 1 18. Executive Compensation Cadre Report Countries Colombia Executive Compensation A -Z-a Compensation of officers - as a group 14 X - individually 1 - specified officers 2 Details of officers' bonusses/deferred compensation 14 Details of compensation plans 1 10 Projected compensation 2 -12- ANNEX 6,15 AITACHMENT 1 19. Security Ownershig Cadrt Re.ert Countries Colombia Security Ownershi A ] & Z Details of change of control arrangements 13 X Indentify persons holding specified amounts 1 14 X Holdings of officers and directors 2 4 8 20. Related Party Transactions Cadre Reert Countries Colombia Related Party Transactions B Transactions with officers, directors or substantial security holders 1 13 Business relationships with directors 2 5 7 X 21. Documents on Displa, Cadre Renort Countries Colombia Documents on Disola As Xk Z Documents on Display 2 4 X -13- ANNEX 6.15 ATIACHMENT 1 II. ADDITIONAL DISCLOSURE REQUIREMENTS FOR OFFERING DOCUMENTS Cadre Report Countries Colombia 1. Incorporation by Reference Aa -% & Za Countries allowing incorporation by reference 7 1 Periodic reports: - distributed to investors 2 - available upon request 7 1 X 2. Risk Factors Risk factors peculiar to the offering 14 1 R 3. Ratio of Earnines to FIxed Charmes 3 R 4. Use of Proceeds 13 2 R 5. Determination of Offering Price How the offering price was established: - Where there is no established trading market 11 R - Conversion price of warratns and convertibles 1 10 R 6. Dilution Net book value before and after distribution 3 Amount of increased book value attributable to cash to be received in offering 3 1 Amount of immediate dilution 3 7. Selling Security Holder Name and/or position of seller with company 13 R Percentage of holdings before and after offering 13 - 14- ANNEX 6.15 AITACHMENT 1 II. ADDITIONAL DISCLOSURE REQUIREMENTS (Cont'd.) Cadre Renort Countries Colombia Al e a Zs 8. Plan of Distribution and Underwriters Indentify underwriters and amount underwritten 14 R Details of underwriters' compensation 12 Plan of distribution made other than through underwriters 11 1 R Details of underwriters' representation on company's board of directors 11 1 Details of dealers' compensation 12 Nature of underwriters' obligations 13 Responsibility statement 11 Reduction of subscriptions 8 Early closure 10 Period of offering 11 R Details of relationships between underwriters and company 6 Description of indemnification of underwriters 4 Any special disclosure for new underwriters? 2 Bankers, et al. of the issuer 5 9. Interest of Named Experts and Counsel Interest of experts and counsel in the offering 6 10. Material Changes Changes in company's financial position or other developments 15 R 11. Prior Performance Performance of similar ventures of organizers 2 -1- ANNEX 6.16 INSTITUTIONAL INVESTORS A. THE INSURANCE SECTOR THE EVOLUTION OF THE INSURANCE SECTOR 1. From 1927 (the first insurance law, Law 105, dates back to 1927) to 1990 (Law 45) there was but little change in the legal regime of insurance and, after promising growth in the 1930s, this sector entered a period of prolonged decline, to the point of loosing economic relevance. Two reasons account for this. First, minimum capital guidelines were not revised until the late 1940s, by which time many companies had already become severely undercapitalized. Secondly, forced investments of mathematical and technical reserves in low-yielding bonds further undermined the companies' capital adequacy: until 1990 insurance companies were forced to invest an average of 16% of premium income in ICT11 bonds (to finance low-income housing) at yields as much as 10% below market rates. 2. Other factors have also weakened the insurance industry: * The Government's decision in the 1970s to 'Colombianize" the financial sector forbade majority foreign ownership of any financial institution or insurance company. 15 major foreign insurance companies immediately pulled out of the market. * Until 1990, the industry had been over-regulated with fixed premiums and limitations on the types of policies and products they could offer. This stifled competition and permitted many small companies to survive on artificially high premiums: of the 34 insurance groups that are currently operating in Colombia, many could be considered marginal. * As in most other developing countries, the life insurance market-normally the most lucrative sector - is underdeveloped. 3. Title II of the Financial Reform Law 45 of 1990 is bringing much needed reform to the insurance industry. Salient features of the law include: * Supplementing minimum capital requirements with solvency margins identical to those used in the EC (which has the most efficient and competitive insurance industry in the world): the solvency margin (currently of 9%) is determined by the Superbancaria as a function of premium income and average insurance claims during the previous 3 years, whichever is the highest. In other words, the margin is dynamic, as solvency coverage must grow in line with the level of business (or claims). To meet these solvency margins most companies had to inject new equity. * Abolishing fixed premiums, forced investments and limitations on new contracts: whereas in the past Superbancaria had to approve all types of policies, under the terms of Law 45 Superbancaria is merely informed of companies' new policies. The 1/ Instituto de Credito Territorial. -2- ANNEX 6.16 freedom to determine insurance premiums immediately triggered a premium war in 1991. * Allowing full foreign ownership of Colombian insurance companies (or of any other financial institution): this has already prompted some foreign companies to establish Colombian subsidiaries - 8 foreign companies, including two major British companies and the Skandia group, are now operating in Colombia. 4. Judging by early reactions to Law 45, the future of the insurance industry, thus its role in the domestic capital market, could be promising. Most companies have responded positively to competition by introducing new policies such as retirement annuities; the process of consolidation has started - lower profit margins through premium competition and the need to maintain solvency margins have already forced a number of mergers; and local subsidiaries of foreign companies are raising professional standards and increasing competition. Another interesting development is that some companies are branching out into broader financial services (for instance through subsidiaries in Cesantias management and fiduciary business) and offering new types of policies such as retirement insurance. But these recent developments notwithstanding, the insurance industry is still in a transition phase and there could be a further shakedown among the smaller companies. In fact, further consolidation through mergers is desirable, to create a leaner and more efficient insurance industry. Insurance companies as institutional investors 5. To gauge the future role of Colombia's insurance companies as investors in the primary and secondary securities markets, it is useful to look at European countries, where the insurance companies work in a highly competitive environment and are among the largest institutional investors. One of the key ratios used in analyzing the financial performance of insurance companies is the "combined ratio". It combines the "loss ratio" (the percentage of premiums used to cover claims) and the "expense ratio" (the percentage of premiums used to cover all administrative expenses, including agents' fees). Experience in Europe shows that the norm for the combined ratio is between 95% and 105%. 6. Since a combined ratio at that upper boundary means that companies make technical losses on insurance, they must rely on financial income on portfolio investments to generate profits. That is indeed the case of quite a few major insurance companies in Europe, for which the financial return on invested technical reserves (both mathematical and free reserves) is the only source of profits. Turning to Colombia, assuming the supply of new securities - particularly equity - increases in coming years, the new investment guidelines of Law 45 should make it possible for companies to invest the bulk of their technical reserves with considerable flexibility. 7. The investment guidelines of Law 45 fall under two separate headings. First, 40% of technical reserves must be invested in Government bonds or other eligible fixed-income securities, determined by the Government. Each company can select investments within that range, without any pre-determined sub-ceilings. In practice, however, since Government and Government-guaranteed paper dominates the fixed-income market, insurance companies will have to invest the larger part of these first 40% in public-sector paper. But, in the longer run, an increased supply of investment- grade private-sector bonds and commercial paper will make portfolio allocations more flexible. 8. For the remaining 60% of technical reserves, Law 45 provides flexible, overlapping ceilings that cover a wide range of financial assets and are more than adequate to ensure proper portfolio -3- ANNEX 3-16 diversification.. Moreover, the freedom to invest significant amounts in foreign securities could become a channel for the transfer of financial engineering to the domestic market. The most significant investment criteria for this subset of technical reserves include: * Up to 50% for Government or Government-guaranteed paper. * Generous ceilings for other securities (including the highest bracket - 60% - for shares of domestic and foreign corporations). * Up to 20% for mortgage-backed securities (which will provide an incentive to develop Cedulas Hipotecarias). * Up to 20% for bonds of multilateral agencies, or A-rated foreign Governments. 9. At end September 1991, the industry's total securities' portfolio amounted to Col$ 165 billion. Of that total, 40% was represented by shares, 17% by different types of Government paper, and 15% in bonds issued by financial institutions and sociedades anonimas (data provided by the SV). There was also a substantial stock of "new" ICT bonds, issued in exchange of the former compulsory purchases of low-yielding ICT paper2-. As that stock of ICT paper is amortized over time, it could release around US$38 million equivalent in funds to be invested in other types of securities. B. FONDOS DE CESANTIAS The role of Cesantias 10. Strictly speaking, a Fondo de Cesantia is a "severance-payment fund". In fact, in Colombia (there are Cesantias in a number of other Latin American countries), the Cesantias are wage supplements (only employers make contributions) that can be used for designated purposes or circumstances. Each member can withdraw his/her accumulated Cesantia funds to: (i) pay his/her or their dependents' higher education tuition expenses; (ii) improve existing dwellings or purchase a new house; or (iii) when leaving a company for whatever reason (retirement or job change). 11. Cesantias date back to a law of 1963 and became active during the 70s. The system was changed completely by the Labor reform Law 50, of 1990. Under the old system, employers' Cesantia payments on their employees' account could be used as working-capital, with a corresponding "Cesantia account" in each company's balance sheet. Companies had to offer a minimum return of 12%, or well below average inflation. However, a retroactivity clause made the pre-1990 system particularly onerous for employers: all past contributions, regardless of when an employee had been enrolled, had to be adjusted retroactively to the level of the last (i.e., highest) wage-. 12. The Cesantia reform of 1990 had three key objectives. 2/ The "new" ICT bonds have shorter maturities than those they replace and carry market interest rates. 3/ In many cases employers have offered to "buy out" workers with a lump-sum payment, to avoid the burden of retroactivity. -4- ANNEX 6.16 * Reduce the system's cost to employers by rescinding retroactivity. To do so, the new system - which is compulsory for all employment contracts effective after 1/l/1991Y and optional for members of the old system (though it is unlikely that workers will be unwilling to surrender the protection of retroactivity) - creates special Cesantia funds, each of which is administered by Sociedades Administradoras de los Fondos de Pensiones y Cesantias.- These are supervised by the Superintendency of Banks (SB). As will also be the case under the proposed Pension Law, each employee has to designate the fund to which his/her Cesantia benefits are to be paid. * Separate members' accumulated Cesantia savings from the employers' own accounts to avoid potential employer default on Cesantia payments. * Increase labor mobility by enabling workers to remain in the same Cesantia fund, even when changing jobs. This, incidentally, may reduce early withdrawals. Fondos de Cesantias as institutional investors 13. At the time of writing, 15 Fondos de Cesantias had already been approved by the SB, with a further 6 applications pending. Though most of these funds are affiliated to major financial and industrial groups, there are also independent funds. Though it is unlikely that fund administration will be profitable in the near term (see below), there is widespread (though seemingly unfounded) perception that managing a Cesantias fund will be an "entry ticket" for the more lucrative business of managing the future pension funds after the reform is complete. 14. Together, the 15 fund administrators have a combined capital of about Col$10 billion. Thus, given the gearing ratio of 35:10' for members' managed funds, they have a combined potential of up to Col$350 billion to be invested in various types of financial assets. Assuming an average withdrawal rate of 33% and average seniority of 5 years of enrolled members, the SB estimates that, by 1996, total Cesantia funds could be of the order of 25% of total wages (note that this estimate calculates a stock of future assets as a percentage of an annual wage flow). On that basis, Cesantias' 1996 assets could be in a range of Col$300 to 500 billion (in constant 1990 Pesos), depending on the average DTF over the period.2' 15. SB's Resolution 006 of September 1991 establishes criteria for the investment of members' funds. These can only be negotiable securities listed at one of the Bolsas, or Government or Government-guaranteed paper. The following individual investment ceilings apply: 5% of total portfolio in any paper other than Government or Government-guaranteed paper; maximum 25% of / Employers' obligations to make Cesantia payments are only for employees with salaries up to 10 minimum wages (i.e., up to $1,000 equivalent per month). Beyond that level employees can opt for a "salario integral', calculated on a 12-month basis. 1 The reference here is to existing supplementary Fondos de Pension, not to the future pension system. 6/ Each fund must have a minimum shareholder capital of ColS 500 million (around $750,000 at the time of writing) and there is a gearing limit of 35:1 between members' funds and a fund's net worth, adjusted for risk on investments and reserves (Resolution 2737 of the SB). / For comparison, at end 1990 the combined financial assets of all institutional investors were around Col$282 billion, i.e., less than the Cesantiss' projected 1996 stock of assets. -.5- ANNEX (6,16 total portfolio for all bank-guaranteed securities; 2% for convertible bonds; 10% of any company's equity. 16. In addition to acting as institutional investors, Cesantias will also have a direct effect on the supply of securities: within two years of being authorized by the Superbancaria each sociedad administradora must offer 25% of its shares for sale at a Bolsa (Decree 1063 of 1991). Weaknesses of the new Cesantia system 17. The key of the new regime is that each fund administrator must guarantee a minimum net return equal to DTF (on a quarterly basis). The minimum guaranteed rate was deemed necessary to compensate Cesantia members for the loss of retroactivity granted under the previous system. One problem, however, is that in periods of declining interest rates DTF can be higher than the weighted average rate on fixed-income securities at the Bolsa. Thus, the obligation to offer a guaranteed minimum yieldY will put considerable burden on the administradoras and could constrain their investment policies - because DTF is closely correlated with the yield on fixed-income securities, administrators will not be inclined to invest in equity. 18. There are other shortcomings in the Labor Law and implementing decrees and regulations governing Cesantias: * The obligation to guarantee DTF is likely to cause operating losses for many administrators, at least in the initial period when they will be experimenting with different investment strategies. * Given members' ability to withdraw from a fund almost at will, the Cesantias administrators will have to keep substantial liquidity in the form of bank deposits. * Unless employers' payments on workers' behalf are staggered (say, with payments on the last day of each quarter, for workers enrolled, or with contract dates in that quarter) there will be a glut of funds seeking high-yield investments each February. This would put considerable strain on the Bolsa's rudimentary infrastructure and cause undue price volatility in the securities market. * Fund administrators can only start charging their own administration fee (of maximum 4% of invested assets) once DTF is reached and the FOGAFIN fee has been paid. This creates little incentive to generate yields above DTF and the minimum will become a .defagno maximum. I The guaranteed minimum is insured by FOGAFIN, the deposit insurance agency: FOGAFIN will guarantee payment of DTF by ultimately making up the difference between any fund's below-DTF return and DTP. To cover that eventuality: (i) each Administrator must keep a "yield-stabilization reserve" of 40% of net worth plus reserves, and (ii) pay FOGAFIN a premium of 0.36% of covered assets. The risk of loss to FOGAFIN is limited because it can recover payments to members from a fund's special reserves and own capital. Moreover, FOGAFIN does not protect members against fund administrators' potential defaults through insolvency. -6- ANNEX 616 * Finally, each member's funds will have to be kept in an individual capitalization account. Since individual accounts are likely to be small - and numerous - running a Cesantia will be tantamount to managing a large number of individual savings accounts. Making Cesantias more flexible. 19. Given the shortcomings of the new Cisantias system, it should be possible to make the system more efficient without jeopardizing workers' Cesantia entitlements. Indeed, the objective of any changes should be to simplify the manner in which the fund administrators manage employee funds so as to increase the average long-term yield on Cesantias, rather than to protect the administrators' own fees by lowering performance standards. Useful steps could be as follows: * Instead of a minimum guaranteed yield, set performance targets and benchmarks, such as the Corredores Asociados bond index, with the objective of raising funds' average long-term yields above DTF. Each administrator's performance would be measured against the benchmark. Though there would be no penalty for performance below the benchmark, members would have a strong incentive to leave poorly performing funds. * Alternatively, adopt a longer annual average for the minimum DTF yield, instead of the more volatile quarterly average. * Make any member's withdrawal other than for retirement subject to one to two months' notice to reduce the funds' high liquidity requirements. * Set minimum professional standards for the managers and directors of administradoras by decree, with periodic examinations by the Superbancaria. C. INVESTMENT FUNDS Fondos Mutuos de Inversion 20. These company-based savings plans are de.facto supplementary staff pension plans. Contributions are voluntary and discretionary. The only benefit upon retirement is a lump-sum payment. There can only be one such fund per company. The funds can be managed by a company itself, or be delegated to a fiduciary (see below). 21. Investment rules and criteria are defined in Decree 2514 of 1987. Among other things : (i) there is a minimum of 15% and a maximum of 80% (of total assets) for shares and debt, issued by sociedades anonimas, and listed at a Bolsa; (ii) there is a ceiling of 25% for Government or municipal bonds and those issued by certain government agencies; 4nd (iii) a maximum of 45% applies to housing loans to members. 22. So far, only a small number of Fondos Mutuos have been established and, by definition, they will have limited assets since they are company-based supplementary funds. At end-1990, for instance, their total invested assets amounted to a mere Col$19.7 billion, 11% of which in shares. The future growth of fondos mutuos (and of fondos de pension - see next section), hence their relevance as institutional investors, will depend on the level of retirement benefits under the envisaged reform of the national pension-fund system. -7- ANNEX 6.16 Fondos de Pension 23. Like the Fondos Mutuos, these are voluntary, supplementary pension funds, albeit with the difference that they can only be managed by insurance companies or fiduciaries. A further similarity with the Fondos Mutuos is the relatively small size of these funds. Only two were in operation at the time of writing (data on their assets were not available). Member contributions to these funds are tax exempt. 24. The investment criteria to be observed by these funds are defined by Decree 2513 of 1987. These criteria are quite straightforward, with a precautionary rule that shares are only to be purchased and traded at a Bolsa, and subject to ceilings of (i) not more than 10% of a Fund's assets in shares, (ii) maximum 10% in debt securities and in shares of any one company, (iii) maximum 20% in paper issued by different companies that are part of the same group. 25. On the other hand, there are no ceilings for monies held in current or savings accounts, invested in property or mortgage-backed securities, in certificates of investment funds and fiduciary companies, or other securities approved by the SV. 26. To date these funds have had but limited growth. Assuming they will remain marginal once the new unified pension system is put into place, these Fondos de Pensiones will remain fairly insignificant institutional investors. Fondos comunes de inversiones 27. There are two types of fondos comunes: fondos comunes ordinarios, i.e., general, open-ended investment funds that operate on the same principle as a US open-ended mutual fund, and special- purpose fondos comunes especiales. for instance to invest in special types of securities. Fondos ordinarios have witnessed rapid growth.in recent years, in line with the development of fiduciary activities. At present, there are about 25 fondos ordinarios with total assets in excess of Col$500 million (SB's estimate). There also are four fondos especiales, with relatively low total assets.' The recent growth of fiduciaries is a healthy sign: following a major default in the early 1980s this activity had been regarded with diffidence and suspicion. 28. All fondos de inversiones must be managed by fiduciary companies. Law 45 of 1990 mandates banks to restructure their fiduciary departments into separate legal entities. Insurance companies, brokers and corporaciones financieras can also manage such funds through fiduciary subsidiaries. Each fiduciary can manage only one fondo ordinario (but several special funds). 29. One way to ensure the expansion of fondos comunes and their roles as institutional investors would be to allow the establishment of US-type "closed-end" funds and to encourage the formation of special funds. This could help stimulate professional fund management and offer a new investment vehicle to individual investors. 9/ One market source complained that SB's position on special funds has been one of procrastination - often delaying approval, to the point of virtually precluding their expansion. -8- ANNEX 6.16 D. PENSION FUNDS The organization and structure of the pension system, 30. Colombia's state-managed pay-as-you-go, pension-fund system is highly fragmented, with different regimes for specific sectors or professions. These different regimes, moreover, cause inefficiencies and inequities. There is a risk of a financial collapse because the system lacks the resources to honor pension obligations. 31. Employees in the private sector are covered by the Instituto de Seguro Social (ISS). Besides retirement benefits, ISS offers health coverage and maternity benefits. The ISS retirement plan is an unfunded defined-benefit plan. Contributions to ISS are below the level required to meet its contractual obligations and the system is depleting its reserves to pay out pensions and other benefits. 32. Employees in the Rublic sector are covered by different types of regimes whose coverage and solvency varies considerably: (i) Civil servants and municipal and local authority employees are covered by Cajas de Retiro. These offer benefits and coverage comparable to that of ISS but require no employee contributions; (ii) Professionals in the public sector (e.g., judges, teachers) are covered by Fondos de Retiro. Members and the government both contribute; and (iii) employees of state- owned-enterprises either are covered by ISS - in the case of commercial companies that fall within the purview of the SS and act "as if" they were private companies, or by the Cajas de Retiro. In total, there are some 1,000 different Cajas and Fondos de Retiro for the public sector. 33. The present state of affairs shows that complete reform and restructuring of the national pension system is required, since mere increases in payroll deductions or lower benefits will not be able to deal with the system's basic insolvency. Besides reforms - which are described below - the Government itself will have to chip in with significant additional contributions. Reforming the pension system, 34. The Government has prepared a blueprint for the reform of the existing pension system. Though the task at hand is considerable and politically sensitive, the new system is expected to be fully operational before end-1994. The key to the reform, passage by Congress of a new pension fund law, should take place in the first half of 1993. The objectives of the reform are as follows: * Move from pay-as-you-go system to a fully-funded, defined contribution system for both public- and private-sector workers. The system would offer identical coverage and benefits to all members, regardless of their occupation. In addition, minimum coverage would be increased, so that basic retirement or disability pensions would be equal to 110% of the minimum salary (currently about US$100 per month). Budgetary resources would be used to clean up accumulated past deficits and ensure adequate funding for the future payment of basic pensions. * Create independent, privately managed, Fondos de Pensiones. Each worker would be able to select the Fund to which his/her and the employer's contributions are paid. Each fund would be administered by a Sociedad Administradora de Pensiones e Cesantias-i.e., legal entities that are mandated to do so, subject to supervision by the SB. - 9- ANNEX 6.16 * Ensure administrative and financial separation of health coverage from that of retirement and disability pension. 35. New entrants to the labor force would be obliged by law to join the new system. Old workers, on the other hand would be given the choice to join the new scheme on a voluntary basis. Based on current projections, within some five years form the time the reforms are adopted, a significant portion of all pension premiums should be channelled through private pension-fund administrators. Expected benefits of the proposed reform. 36. Implementing the reform would involve a substantial budgetary cost (topping up the depleted pay-as-you-go pool of funds for the minimum pension system and existing commitments on ISS and public-employee benefits). Over time that cost will be partly offset by: (i) greater efficiency in the management of public funds by the pension-fund administrators; and (ii) the potential role of the new system as institutional investor. 37. The second point is of considerable relevance for the deepening of the country's capital market. As shown by the example of Chile, fully-funded private pension funds rapidly become substantial investors in the securities market. Moreover, through active portfolio management they also stimulate innovation in the capital market and generate demand for new types of securities and financial intermediation that are adapted to their needs and risk preferences. In addition, the fiduciary role of pension funds will emphasize strict creditworthiness criteria, so the funds will add momentum to further improvements of the policy and institutional environment of the capital market (e.g., by requiring improved disclosure and auditing standards, custody and settlement procedures, and adequate standards of supervision by the SV). E. FOREIGN INVESTMENT General criteria 38. Resolutions 51 and 52 of the National Council on Economic and Social Policy (CONPES) set out the criteria for investments in Colombia by nonresidents. Though the resolutions make the distinction between direct and portfolio investment, only the latter is of interest here. 39. The basic principle is complete freedom to invest and to repatriate original investments and earnings. Except for strategic sectors (defense, radioactive, dangerous-waste disposal, etc.) there are no sectoral restrictions. Investments in some sectors, however, require prior approval by the National Planning Department (e.g., post, telephone, energy, TV). 40. The basic rules are as follows: * All foreign investments in securities must be in securities registered in the RNV. * All foreign investments must be registered with the Central Bank. * The Central Bank must notify the SB of all foreign investments in the financial sector. The SB must approve all such investments that represent 10% or more of a financial institution's share capital. - 10- ANNEX 6.16 * There is no minimum time limit whatsoever, for foreign investments. * Foreign portfolio investment must be made through an investment fund. Such funds are designated as institutional or individual funds. The SV decides which is which. * A foreign investment fund cannot acquire more than 10% of the voting stock of any company. * A fund's Colombian assets must be managed by a fiduciary company or broker, subject to the normal provisions of commercial law. * Individual funds can only invest in stock or bonds of at least one year maturity. Funds can only be held on current account for limited periods and for the purpose of subsequent investment. * Institutional funds (Fondo Colombia): their statutes, investments and local managers are subject to "favorable opinion" and supervision by the SV. Annual financial statements must be submitted to the SV and Central Bank. * Individual shareholders of Fondo Colombia have the rights afforded to them by the Fondo, and the same rights as individual foreign investors in Colombia. Investment potential 41. With the protection of a well-structured investment code and but few restrictions on investment choices, individual and institutional foreign investment funds could become major buyers of Colombian securities. But, as for other institutional investors, the future growth of 'foreign portfolios of Colombian securities could be constrained in the short run by the lack of sufficient new securities issues.