Public Debt , Publit Debt Markets And Monetary Policy In Colombia

The purpose of this paper is to examine the main macro- and microinterrelationships between public debt policy and monetary policy in Colombia during 1995-1999, from the perspective of a central banker. Emphasis will be given to the financial developments of the last two years, a period in which Colombia´s capital markets have experienced significant upheaval. Over the last decade, the public sector, as well as the private sector, have accumulated a significant stock of debt (both foreign and domestic). Between 1990 and 1999, the central government debt /GDP ratio grew 57.9%, and between 1994 and 1999, it grew 212% (Graph1). In this last period, as the result of an explicit strategy of the Ministry of Finance to develop a domestic public debt market and reduce dependency on foreign markets, the stock of domestic central government debt grew faster, showing an increase of 257% as proportion of GDP (foreign debt grew 125%). Though government debt in Colombia is still relatively low compared to that of many industrialized and developing economies ( 27 % of GDP in the case of central government and around 35% of GDP for the total public sector), there is a consensus that further accumulation of fiscal deficits is no longer sustainable.