SUNS  4327 Thursday 19 November 1998

Bogota, Nov 17 (IPS/Yadira Ferrer) -- The extraordinary measures taken by the Colombian government to ward off a financial sector collapse, such as a tax on bank withdrawals, drew varied reactions from unions, business and analysts Tuesday.

Trade unionists and some analysts called the measures unacceptable, because they placed the weight of the bank bail-out on the backs of account-holders.

But the business sector agreed with Finance Minister Juan Restrepo, who said the measures adopted by the government "prevented a financial catastrophe."
The Council of Ministers declared a three-hour state of economic emergency Monday to enable President Andres Pastrana to adopt a series of measures designed to ward off a major crisis in the
financial sector.

A two per 1,000 fee was slapped on bank withdrawals. The tax is designed to pull in 1.5 billion dollars for the Financial Institution Guarantee Fund, which acts as an insurance company,
guaranteeing up to 80 percent of the value of deposits.

The tax, the most controversial of the measures adopted Monday, is to remain in effect until Dec. 31, 1999. The new fee began to be charged Tuesday on cash machine withdrawals and checks written by account-holders.

Analyst Eduardo Sarmiento, former dean of the private University of los Andes' Faculty of Economy, said that through the tax on transactions, the banks were "privatising their profits and socialising their losses."

Hector Fajardo, executive secretary of the 'Confederacion Unitaria de Trabajadores' (CUT) - Colombia's biggest union - told IPS that the decision did not come as a surprise, because the unions had been expecting something like it for the past few weeks. In his view, the poor and the middle class "should not have to pay for the bankers' crisis, who stuff their big profits in their pockets."

According to Fajardo, the current crisis was spawned by the high interest rates charged by the banks and the policy of economic openness followed by the past three governments, as well as the
Pastrana administration, which took office on Aug. 7.

Referring to the tax on bank transactions, Wilson Borja, president of the Federation of State Workers, said "it is unacceptable for Colombians in general to have to pay for a crisis that was sparked by the speculative management of banks."

From January to August 1997, the financial sector reported $17 million in profits, compared to the $4 million in losses reported up to August this year.

Former finance minister Rudolf Hommes said the measure was "anti-technical" because "if the people see a tax of this kind, they will return to the old culture of stashing their money away in
their houses."

Pastrana said Monday that when deciding on a bank bail-out plan, the government took into consideration the enormous rise in bad loans held by the financial system. Bank Superintendency figures indicate that close to 10 percent - or $1.5 billion - of all outstanding loans are bad. The Superintendency's report also points out that 70 of the country's 121 financial institutions reported
losses in the first nine months of the year.

According to Finance Minister Restrepo, the tax on withdrawals was preventive in character, and designed to keep the sector's disturbing indicators from worsening. He said "the worst experience" was that suffered by countries like Mexico and Venezuela and Asian nations "which let the financial crisis get out of control" - a situation that ended up costing them up to 16 percent of their Gross Domestic Product.

But constitutionalist lawyer Hector Charry said the real question was whether the declaration of economic emergency met the requirements set by the constitution.

The constitution enacted in 1991 stipulates that the government can declare a state of economic emergency "when an event occurs that perturbs or threatens to perturb the country's economic order" or that constitutes a grave public calamity.

According to Charry, in the current case there were possibly foreseeable developments which could have been handled with the existing legal instruments. He added that there was a strong risk that the Constitutional Court, which has 40 days to study the constitutionality of the declaration of the state of emergency, would not approve the measures.

During the three-hour state of economic emergency, the government also cancelled the overdue interest payments owed by members of the 'Corporaciones de Ahorro y Vivienda' (housing and savings cooperatives), and approved soft loans that would enable them to pay off their debts.

The government will lend $316 to all account-holders in savings cooperatives who earn less than two minimum salaries (or less than $260 a month) and were pushed into liquidation by the financial
crisis.

Armando Montenegro, president of the Association of Financial Institutions, said the measures were appropriate, "above all, to alleviate the burden on debtors."

Gustavo Tobon, president of the Federation of Metallurgical Companies, said the measures had a social content, because they would restore trust in the cooperative sector and reactivate construction.

The last time a Colombian government declared a state of economic emergency to mitigate a crisis in the financial sector was in 1982, when four financial institutions were nationalised. But some
experts say the current situation is less complicated, because the sector has a greater net worth today.