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Colombia Declares Economic Crisis

November 17, 1998

BOGOTA, Colombia (AP) _ Colombia’s president declared an economic emergency Monday night, revealing a $1.6 billion bailout plan for the country’s ailing banking system.

President Andres Pastrana said in a nationally broadcast address that the measures were needed to protect small depositors and stave off a more serious financial crisis.

``If we don’t act immediately ... the financial crisis could become a catastrophe and the country could be paralyzed as if a hurricane had hit,″ he said following a daylong meeting with Cabinet ministers.

The measures must be approved by Colombia’s constitutional court, which in 1997 struck down the last attempt by a president to invoke an economic emergency.

Colombia’s banking system lost $63.2 million in the first ten months of the year as sharp interest rate hikes and rising unemployment led to widespread loan defaults. In October, the government was forced to take over one of the country’s largest savings and loans.

To protect depositors and shore up troubled financial institutions, Pastrana announced the government would:

_ create a new guarantee fund to insure deposits in troubled savings and loans;

_ provide mortgage holders with 10-year, low interest loans to help them stay current on homeowner debts;

_ temporarily cover mortgage payments for people who lose their jobs;

Pastrana said he will finance the measures with a new tax on withdrawals from savings and checking accounts.

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