Document of The World Bank Public Disclosure Authorized FOR OFFICIAL, USE ONLY Report No 42847-CO INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized INTERNATIONAL FINANCE CORPORATION COUNTRY PARTNERSHIP STRATEGY FOR THE REPUBLIC OF COLOMBIA FOR THE PERIOD FY2008-2011 Public Disclosure Authorized March 4,2008 Colombia and Mexico Country Management Unit Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the Public Disclosure Authorized performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. The last CAS Progress Report was discussed by Executive Directors in October 2005. CURRENCY EQUIVALENTS (Exchange Rate Effective March 3,2008) Currency Unit = Colombian Peso (Col$) US$ = 1,845.17 COP FISCAL YEAR January 1 to December 3 1 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities CAS Country Assistance Strategy CONPES National Council for Economic and Social Policy CPS Country Partnership Strategy CPPR Country Portfolio Performance Review DNP Department ofNational Planning DPL Development Policy Loan ELN National Liberation Army ESW Economic Sector Work FARC Revolutionary Armed Forces of Colombia FDI Foreign Direct Investment GDP Gross domestic product GEF Global Environment Facility FTA Free Trade Agreement IBRD International Bank for Reconstructionand Development IADB The Inter-American Development Bank ICETEX Colombian Institute for Education Credit and Technical Studies Abroad IFC International Finance Corporation IMF International Monetary Fund ICB International Competitive Bidding MDB Multilateral Development Bank MDGs Millennium Development Goals MIC Middle Income Country MIGA Multilateral Investment Guarantee Agency MHCP Ministry of Finance and Public Credit NCB National Competitive Bidding NDP National Development Plan NLTA Non-Lending Technical Assistance PFM Public Financial Management PIU Project ImplementationUnit SENA National Training Institute SIGOB Goals-and Results-BasedProgramming and Management System SINERGIA National System for Evaluation of Public Sector Performance SISBEN System for Identification of Potential Beneficiaries of Social Programs SME Small and Medium-sized Enterprise TA ' Technical Assistance TAL Technical Assistance Loan UN United Nations WBG World Bank Group IBRD IFC Regional Vice President: Pamela Cox Vice President for CAL: Farida Khambata Country Director: Axel van Trotsenburg Director, CLADR: Atul Mehta Task Manager: Laura Kullenberg Task Managers: Miguel de PomboPierre Nadji Country Manager: Miguel Lopez-Bakovic Country Manager: Roberto Albisetti FOR OFFICIAL USE ONLY Republic of Colombia COUNTRYPARTNERSHIP STRATEGY Table of Contents I. Executive Summary ......................................................................................................................... 1 I1* Introduction....................................................................................................................................... 3 I11. Country Context ................................................................................................................................ 5 A . Recent Economic Developments and Future Prospects ............................................................. 5 B. Macroeconomic Outlook and Debt Sustainability ..................................................................... 6 C . Poverty, Inequality, and the MDG’s .......................................................................................... 7 D. Political and Governance Developments .................................................................................. 8 IV. A Shared Vision.............................................................................................................................. 10 A . The National Development Plan.............................................................................................. 10 V . The CPS Program ........................................................................................................................... 11 A . The Current Program ............................................................................................................... 11 B. Summary Findings from Completion Report, Consultations, and Client Survey .................... 11 C . Rationale for WBG Support to Colombia ................................................................................ 13 D. Strategic Elements ofthe Proposed CPS ................................................................................ 14 E. WBG Areas ofConcentration and Collaboration .................................................................... 15 F. The WBG’s FY08-FY09 Indicative Program.......................................................................... 22 G. Fiduciary and Safeguard Implementation ............................................................................... 23 H. Other Partners and the Paris Declaration ................................................................................. 24 I. Program Envelope and Projected Exposure ............................................................................. 25 J. Results Monitoring .................................................................................................................. 26 K. Risks ........................................................................................................................................ 27 Annexes Annex A Private Sector Strategy .................................................................................... 30 Annex B Governance Challenges ...................................................................... -46 Annex C Colombia at a Glance .............................................................................. 53 Annex D Key Economic Indicators..................................................................... 55 Annex E IFCMIGA Program Summary ................................................................ 57 Annex F Summary of Lending and Non-Lending Services ................................................ 58 Annex G Indicators of Bank Portfolio Performance and Management ........................... 59 Annex H Fiscal Sustainability and Debt Management ................................................ 60 Annex I Results Matrix.................................................................................. 67 Annex J Key Exposure Indicators...................................................................... 71 Annex K Operations Portfolio (IBRD/IDA and Grants) ............................................. 72 Annex L CAS Completion Report...................................................................... 73 Tables Table 1. Key Economic Indicators for Colombia ...................................................................... 5 Table 2 . Macroeconomic Projections for Colombia. 2008-201 1............................................... 6 Table 3 . Colombia’s Priorities per Pillar in the National Development Plan.......................... 10 Table 4 . Indicative WBG Lending and AAA Program ........................................................... 23 Graphs Graph 1. Poverty Indicators for Colombia ................................................................................. 7 Graph 2 . FY04-07 IBRD Commitments in Colombia .............................................................. 11 Boxes Box 1. World Bank Group/Colombia Partnership: Successes Create New Opportunities .....4 Box 2 . Stakeholder Consultations and Client Survey ........................................................... 13 Box 3 . World Bank Approach to Governance Issues., ............................................. 21 Box 4 . Debt and Risk Management ...................................................................................... 25 This document has a restricted distribution and may be used by recipients only in the performance of their official duties . Its contents may not be otherwise disclosed without World Bank authorization . Republic of Colombia Country Partnership Strategy Fiscal Years 2008-2011 I. Executive Summary 1. The last World Bank Country Assistance Strategy (CAS) for Colombia was presented to the Board in December 2002. At that time, President Alvaro Uribe had just been elected with a strong mandate to restore security and economic stability. The country was still recovering from its worst economic crisis in seventy years and grappling with spiraling violence. 2. During the CAS period, Colombia’s economy rebounded from near stagnation in 2002 to achieve a growth rate of around 6.6 percent in 2007. This turnaround was due partly to a favorable external environment, but improved internal security and sound macroeconomic management also played a critical role. High growth rates have reduced poverty and raised social indicators, while reduced violence and enhanced government effectiveness and rule of law have resulted in increased consumer and investor confidence. This combination of economic recovery, increased state presence and successfil security measures against illegal groups have worked together in a virtuous cycle to significantly improve the quality oflife ofmillions of Colombians. 3. During the last CAS period, the World Bank Group made an important contribution, more than doubling average annual bank lending and providing the new administration with a strong package of advisory services.