Colombia's Economy Thrives, Despite Turmoil

CUT flowers. Coffee beans. Textiles. TV soap operas. Emeralds. And now, oil.

Colombia is a leading Latin American exporter of all these products. Many observers in the United States and other developed nations might snicker upon reading that and say, ''Yes, and a leading exporter of cocaine, too.''

But that would only help make a point about this embattled South American country: Despite its disastrous image, fueled by decades of guerrilla warfare, civil-war-level violence, and a corroding drug trade, Colombia continues to be one of the Latin world's economic success stories.

While other Latin American countries trembled in the wake of Mexico's financial and economic crisis this year, Colombia barely noticed. Instead, it continued a four-decade-long record of high and stable growth.

Never a participant in Latin America's infamous roller-coaster economy of heady peaks and devastating valleys, Colombia is expected to see economic growth of about 5 percent this year, only slightly behind Peru and Chile. Inflation, while still high, is expected to fall several points over the year to about 20 percent. And unemployment continues a gradual decade-long decrease to less than 10 percent this year.

Domestic instability

That rosy scene contrasts starkly with Colombia's political and social picture. A climate of horrendous blood-letting, set in the 1950s during a period of political clan warfare called simply ''la Violencia,'' continues today in a ruthless guerrilla conflict highlighted by massacres, bombings, and thousands of kidnappings.

Add to that the ''narco-violence'' that has accompanied Colombia's rise to become the world's principal supplier of cocaine and now the ''narco-scandal'' that has engulfed President Ernesto Samper Pizano following accusations that his campaign last year was partially financed by the country's drug lords, and what emerges is a scene of chaos and instability.

Yet as bad as things get for Colombia, its economy comes out not only almost unscathed, but looking bright.

Observers here offer three explanations: a long record of conservative fiscal policy; a hard-working entrepreneurial class that long ago decided to leave the political fights to politicians and concentrate on business; and a policy that eschews volatile short-term foreign investment even while encouraging long-term foreign investment in manufacturing, mining, agriculture, and now oil. Over the coming decade, Colombia will benefit from the largest oil discoveries in the hemisphere since those in Alaska's Prudhoe Bay.

''Whenever our economic fundamentals look like they might be getting into a difficult position, the government tends to follow the country's conservative tradition and react with orthodox policy,'' says Salomon Kalmanovitz, a member of the board of directors of the Bank of the Republic, Colombia's central bank. That ''orthodox policy'' has meant no debt crises and controlled spending with no overdependence on international borrowing.

Colombia does have a sizable - and for some, worrisome - current account deficit of about 5 percent of national output. But Mr. Kalmanovitz says the difference from Mexico, for example, is how that deficit is financed. ''It's mostly private, long-term financing,'' he notes, meaning five years or more. The flight of skittish short-term investment from Mexico is what triggered last December's peso devaluation.

Colombia also has a long record of attracting long-term foreign investment. Foreign investment, excluding oil and portfolio investment, surpassed $270 million in the first four months of the year, more than double the figure for the same period last year. A recent government survey of some of Colombia's biggest foreign investors found that few if any plan to curtail their investment because of the country's turmoil. And few think it will affect the country's economic prospects.

''The Colombian economy is so diversified that circumstantial problems ... do not represent a crisis,'' says Miguel Rivera, regional manager for IBM, which is maintaining its target for 30 percent production growth this year.

''There are no changes either in perceptions of or commitment to Colombia,'' says Colombia's Proctor & Gamble manager Jorge Uribe, who adds that business would be looking for some ''clarification'' of the country's political climate.

Cocaine trade controversial

The impact of cocaine trade on the economy became more controversial in March when a United Nations narcotics commission charged that Colombia's economic ''miracle'' could be traced to the billions of narco-dollars laundered annually into the economy. Colombian officials responded that the country's economic fortunes are more the result of decades of hard work by millions of ''honest'' Colombians.

Still, no one in Bogota doubts that narco-dollars are behind a good share of the swanky and ostentatious condominiums and shopping malls that have sprung up in recent years, for example. ''That money doesn't circulate stamped 'laundered,''' notes Kalmanovitz.

Today's optimism is more the result of expectations that include oil revenues reaching $5 billion by 1998, most economists say.

Yet some observers are worried that Colombia may be betraying the tried rules that gave the country its economic stability with a rash of deficit spending. Eduardo Sarmiento, an economist at the Colombian School of Engineering, says the deficit could nearly double to $5 billion before long if spending growth continues. That could tempt the government to turn more to short-term financing, ''and we could find ourselves in Mexico's position in two years.''

Others say that regardless of other forces pressuring Colombia, the government - no matter who is at the top - will follow the conservative fiscal tradition that has kept Colombia from following many of its Latin neighbors to the brink of crisis. ''The deficit is going in the wrong direction,'' says Kalmanovitz, ''but our experience has been that when there is excessive spending, this is understood before too long, and there is an adjustment.''