Interview: Martín Carrizosa
What is being done to expedite the enforcement of contracts in the country?
MARTIN CARRIZOSA: Colombia has suffered from an overly congested court system, resulting in delays in judicial proceedings and a year-on-year decline in our rankings for contract enforceability. The current government has carried out various structural reforms but the process of transition will take time. The Civil Procedure Code allows our judicial system to move toward oral proceedings and speeds up the steps involved in obtaining a court decision. It allows notifications to be received online, as well as the filing of documents through magnetic media. Given the significant budgetary requirements and operative challenges to its implementation (including personnel training and infrastructure), this code is going into effect gradually, from February 2014 to December 2015.
There are also reforms under way to reduce the time spent in administrative processes such as litigation. Once these have been implemented we can expect some processes, which can currently take years, to receive a decision in a single hearing. While legal requirements for the execution of liens were highly inefficient, last year we adopted a new law that provides greater efficiency and protection for creditors, allowing even private sales of the pledged assets.
Colombia has also tended to perform better in terms of arbitration. There is a new arbitration statute that complies with international standards. Our arbitration system works efficiently and at reasonable costs. Indeed, some of the most important and renowned lawyers in Colombia are arbitrators.
In what ways can investor protection be further promoted in Colombia?
CARRIZOSA: For nearly a decade, Colombia has made consistent efforts to attract foreign investment. It has insisted on a stable and safe environment for investment and has continually incorporated legal reforms that have placed it sixth worldwide in terms of investor protection indicators, according to the World Bank’s 2014 Doing Business report. Foreign investors receive equitable treatment in Colombia thanks to local laws and several bilateral treaties that support reciprocity. Foreign investment levels have increased consistently, with the highest investment levels ever registered in Colombia in 2012, when we reached around $19bn, split 81% for foreign direct investment (FDI) and 19% for portfolio investments. Investor confidence can be seen in infrastructure where investments of $40bn are expected for the fourth generation concessions, including a first tranche of nine projects to be awarded until December 2014. We have the challenge of deepening corporate governance for public and private companies.
To what extent does Colombia enjoy a competitive advantage when it comes to attracting FDI?
CARRIZOSA: We have made considerable progress to make foreign investment procedures more flexible and certain. We have improved tax and social security compliance procedures, and consistently maintained the remittance tax at 0%, relieving foreign investors from this fiscal burden. The central bank has kept the deposit applicable to foreign portfolio investments (aimed at limiting the so-called swallow capital) at a rate of 0% for the past five years. As for issues that can stymie the entry of FDI, our exchange control regime is formalistic.
We have accordingly made significant efforts to simplify this as part of our application to join the OECD, but there is room for improvement. Our clients complain about the withholding tax rate applicable to certain foreign transactions. A typical case in which those high rates impact investors is when local subsidiaries fund their operations in Colombia with loans granted by foreign banks who have a relationship with their parent company. They must withhold 14% of each interest payment, whereas some of our neighbouring countries have reduced this rate to 4.99%.
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