colombia: policy strategy for public financial management of natural

Colombia: Policy strategy for public financial management of natural disaster risk

ANI NationalInfrastructureAgency

CatDDO DevelopmentPolicyLoanwithCatastropheDeferredDrawdownOption

CCE NationalProcurementAgency

CEPAL TheUnitedNationsEconomicCommissionforLatinAmericaandtheCaribbean

CONPES NationalCouncilforEconomicandSocialPolicy

FNGRD NationalFundforDisasterRiskManagement

GDP GrossDomesticProduct

GFDRR GlobalFacilityforDisasterReductionandRecovery

GoC GovernmentofColombia

IADB Inter-AmericanDevelopmentBank

MHCP MinistryofFinanceandPublicCredit

PND NationalDevelopmentPlan

PPP Public-PrivatePartnership

SECO SwissStateSecretariatforEconomicAffairs

SGC ColombianGeologicalService

UNGRD NationalDisasterRiskManagementUnit

Acronyms

Colombia:Policystrategyforpublicfinancialmanagementofnaturaldisasterrisk1

Disastersresultingfromnaturalhazardsrepresentanimportant challenge for Colombia’s fiscal sustain-ability and stability.Colombia isoneof the coun-

trieswiththehighestrecurrencerateofdisasterscausedbynaturalhazardsinLatinAmerica(seetheAnnex)1.Asthecountry’spopulationandeconomycontinuetogrow,sowilltheeconomiclossesresultingfromsuchevents–anaverageof600disastereventsarereportedeachyear2.Colombia’srateofeconomicgrowthisincreasingthebaseofassetsexposedtodisasterrisks,whichmayleadtosig-nificantincreasesinlosses,particularlyif investmentsinnewassetsarenotaccompaniedbyplansformitigatingdisasterrisk3.

TheGovernmentofColombia recognizes the importanceofmitigatingtheseeventsandhastakenseveralstepstomainstreamdisaster riskmanagement into itspolicyandprograms,asevincedbytheNationalDevelopmentPlan,“ProsperityforAll2010-2014”andtheMinistryofFinanceandPublicCredit’s(MHCP)StrategicPlanforthesamepe-riod.TheMHCPiscommittedtodevelopingstrategiesforreducingitscontingentliabilitiesinrelationtodisastersandtomanagingthefiscalriskresultingfromtheseevents.

1TheannexincludesdetailedinformationontheimpactofnaturaldisastersonColombia.2IndependentEvaluationGroup-WorldBank.NaturalHazards,RiskstoDevelopment:AnEvaluationofWorldBankAssistanceforNaturalDisasterEvents(Washington,DC).2006.3 WorldBank(2012).CamposA.;Holm-NielsenN.;DíazC.;RubianoD.;CostaC.;RamírezF.;DicksonE.(CoordinatorsandEditors).AnalysisofDisasterRiskManagementinColombia:AContributiontotheCreationofPublicPolicies.Bogota,Colombia:WorldBank–GFDRR,2012.

Thisdocumentpresentstheprioritypolicyobjectivesthathavebeenestablishedtoassess,reduce,andmanagefiscalriskduetonaturaldisasters.ItalsodescribestheMHCP’sefforts toprogress itspolicyobjectives in the long term.ThesepolicyobjectivesrepresenttheMHCP’sex-antepoli-cyframeworkregardingmanagementoffinancialandfiscaldisasterrisk.

The MHCP identifies three priority policy objectives inorder to strengthenmanagement of the Government’scontingentliabilitiesandthussupportthegoalofachiev-ingmacroeconomicstabilityandfiscalbalance.Thepolicyobjectivesinclude:(i)Identificationandunderstandingoffiscal riskdue todisasters; (ii) financialmanagementofnaturaldisasterrisk,includingtheimplementationofin-novativefinancial instruments; and (iii) catastrophe riskinsuranceforpublicassets.

Severalgovernmentagencies,withthesupportofvariousinternationalorganizations,collaborateontheimplemen-tationof thesepolicyobjectives.TheMHCPworkswiththe National Procurement Agency: Colombia CompraEficiente(CCE),theNationalInfrastructureAgency(ANI),theColombianGeologicalService(SGC),andtheNation-alDisasterRiskManagementUnit(UNGRD),amongoth-ers,toimplementthesepolicyobjectives.TheMHCPhasa strong ongoing partnership on financialmanagementof disaster riskswith theWorld Bank’sDisaster Risk Fi-nancingandInsuranceProgram(DRFIP),supportedbytheSwiss State Secretariat for Economic Affairs (SECO) andtheGlobal Facility for Disaster Reduction and Recovery(GFDRR). These policy objectives were developed withtheactivesupportandadvicefromateamofmultidisci-plinaryexpertswhohavehelpedtofostermajoradvancesintheirdesignandimplementation.

Introduction

2Colombia:Policystrategyforpublicfinancialmanagementofnaturaldisasterrisk

The Government of Colombia (GoC) is designing a finan-cial strategy for covering contingent liabilities generat-ed by disasters caused by natural hazards. Thisinitiativefallswithinthegovernment’sregulatoryandinstitution-al framework formanagingexplicit contingent liabilitiesgeneratedthroughpubliccreditoperations,legalactions,and administrative contracts (including public-privatepartnerships).TheoriginofthiscomprehensiveapproachtofiscalriskassessmentandmanagementcanbefoundinLaw448of1998,whichrequiresentitiestoincludere-sourcesintheirbudgetsforcoveringcontingentliabilities.Law819of2003,whichestablishesrequirementsforthe

developmentofaMedium-TermFiscalFramework,stip-ulatesthat thevaluationofexplicitcontingent liabilitiesmustbeincludedinthisFramework.Inaddition,theiden-tificationandassessmentoffiscalrisksources,includingimplicitandexplicitcontingentliabilities,areinlinewithrecommendations in the InternationalMonetary Fund’sCodeofGoodPracticesinFiscalTransparency(2007).

Within this context, theMinistry of Finance and PublicCredit(Ministerio de Hacienda y Crédito Público—MHCP)promotesthegovernment’seffortsinassessing,reducing,andmanagingfiscalriskassociatedwithnaturaldisasters.

Legal mandate for financial management of natural disaster risks in Colombia


This document describes the three priority policy objec-tives established by the MHCP for assessing, reducing, and managing the fiscal risk resulting from natural disasters. It aims to strengthen the management of its contingent lia-bilities and to support macroeconomic stability and fiscal balance. TheMHCPhasidentifiedthesepolicyobjectivesinordertopresenttheprioritizedactionsforreducingfis-calvulnerabilitytodisasters.Theseareashavebeenestab-lishedbasedontheroleoffinancialmanagementofnatu-raldisasterrisksinthreeimportantagendasinColombia:first, as a component of the fiscalmanagement strategyheadedbytheMHCP;second,withinthegovernment’sap-proachtodisasterriskmanagement,whichincludesfinan-cialmanagementofnaturaldisasterrisksasacomponentoftheNationalLawonDisasterRiskManagementofApril2012(Law1523);andfinally,aspartoftheMHCP’seffortstomanagepublicdebtsustainabilityandtransparency.

The above-mentioned priorities are reflected in the Na-tional Development Plan (PND) for 2010-2014 (Law 1450 of 2011), “Prosperity for All,” which establishes that the MHCP will support the management of fiscal risk result-ing from natural disasters, within the broader context of macroeconomic stability and fiscal balance. Article220ofthePNDestablishesthattheMHCPwilldesignastrat-egyforreducingtheState’sfiscalvulnerabilitytonaturaldisasters.

The MHCP has identified three priority policy areas for assessing, reducing, and managing fiscal risk arising from natural disasters:

I. Identificationandunderstandingoffiscalriskduetonaturaldisasters;

II. Financialmanagementofdisasterrisk,includingthe implementation of innovative financial in-struments;and

III. Catastropheriskinsuranceforpublicassets.

Through the advancementof parallel activities in thesethreeareas, theGoCwill improve itsfinancial response

capacity in the case of a disaster andwillmitigate thelong-termfiscalimpactsfromsuchanevent.

It is important to note that financial management of di-saster risk requires long-term commitment. TheMHCPhasmade progress in this area for several years and iscommittedtofurtherstrengtheningitsapproach.

Policy objective 1 Identification and understanding of fiscal risk due to natural disasters The identification and understanding of fiscal risk due to natural disasters is the first step in managing natural di-saster risks. UsingaprobabilisticcatastropheriskmodeldevelopedforColombia4,theMHCPhasassessedthata1-in-250yearearthquakeeventwouldcausefiscallossesrelated to itscontingent liabilitiesestimatedatapproxi-mately1.4%oftheGDP5(Table 1).

4Probabilisticcatastropheriskmodelsassesstheexpectedlossesandprobablemaximumlossesofdisasterrisksusinginformationonhazard,exposure,andvulnerability.5 Contingent Liability Management in Colombia and the Financial Strategy Associated with Natural Disasters,GovernmentofColom-bia,inImprovingtheAssessmentofDisasterRiskstoStrengthenFinancialResilience(WorldBank,2012).

Policy Objectives

Table 1. Estimated contingent liabilities Contingent Liabilities % of GDPLegalactions 14.04Infrastructureprojects 0.26PublicCreditoperations 0.22Natural Disasters*Fiscalportfolio 1.40Source: MHCP(2011).*Contingent liability related to natural disasters is calculated from the 1-in-250 year probable maximum loss (PML) for earthquake for publicassets,US$4.417billion,asestimatedinUNISDR(2011).


Although the GoC has made progress in the assessment of its contingent liability related to natural disasters, fur-ther analysis is required to refine this assessment. TheGoChasonlypartialinformation,andtheavailableinfor-mationisscatteredthroughoutvariousgovernmententi-ties. Inordertoimprovetheunderstandingofthefiscalriskgeneratedbydisasters,theMHCPwillprioritizethefollowingactivities:

n Improve information on the exposure of public build-ings and infrastructure to natural disasters, as well as historical information on disaster losses to the public sector.Inparticular,theMHCPseekstobetterunder-stand thepotential losses in thecaseofdisasters, toinformdecision-makingoninvestmentindisasterriskmitigationandinnewassets,andtoimproveinsurancecoverageforitsportfolioofassets.Inthiscontext,theMHCPdevelopeddatabasesofphysicalcharacteristicsofpublicassetsandofinsurancepoliciesforpublicas-sets.InalignmentwiththeNationalSystemforDisasterRiskManagement(Law1523of2012),anentitywillbeestablishedtomaintainthedatabases.

In addition, the MHCP improves its understanding of its fiscal risk profile by collecting further information on the government’s historical losses from disasters. Inparticular,itimprovesitsunderstandingofrisksgen-eratedby lessseverebut recurrentevents thataccu-mulateovertime.Theseeffortsarebeingcoordinatedwiththeentitieswithrelevantrespectiveresponsibili-ties.

n Use and promote the use of financial and actuarial decision making tools.ThesetoolshelptheMHCPas-sess its financial response capacity post-disaster andtoimprovedecisionmakingonitsdisasterriskfinanc-ing.Theygobeyondassessmentofphysicaldamagesto buildings and determination of replacement costsestimatedbycatastropheriskmodelstoprovidefinan-cial information thatenables theMHCP todesignanoptimalcombinationoffinancial instrumentsthroughcost-benefitanddynamicfinancialanalysis.

n Evaluate and adopt tools to assess possible increases in natural disaster risk generated by new public works and public-private partnerships (PPPs). TheGoChasalreadyinitiatedthiseffort,andtheMHCPhasstartedto collaboratewith other national entities (e.g., ANI)onthisactivity,asreflectedinrecentregulations.Law1508 of 2012, for example, requires the analysis ofhazardsandvulnerabilityinrelationtoeachinfrastruc-tureprojectandall thesectoralprojectsthatmaybe

exposedtotheriskofdisasters,andCONPES3714of2011requirestheinclusionofdisasterriskanalysisinpublicprocurementprocesses.

The MHCP applies risk assessment tools to evaluate the contributions of proposed new investments to fiscal risk, including those made through PPPs. Oneimport-antaspectofthisworkistheMHCP’simprovementofinsurancerequirementsforconcessionaires.TheMHCPandANI,withtechnicalsupport fromtheWorldBank,havejointlyestablishedstandardtermsandconditionsandminimumrequirementsthatmeetinternationalin-surancemarketpracticeandmustbe included innewconcessionscontracts.TheserepresentonerecentkeyoutcomeoftheGoC’seffortstoreducethecontingentliabilityoftheStatetonaturaldisasters.

Policy objective 2 Financial management of natural disasters

Natural disasters can generate fiscal volatility as a result of the sudden, unexpected expenditures required during and after a disaster. Intheaftermathofadisaster, thegovern-mentrequirestimelyaccesstofinancialresourcesinordertofinanceaneffectiveemergencyandrecoveryresponse.

The MHCP initiated the design of its financial manage-ment strategy for disaster risks in 2004. The NationalCouncilforEconomicandSocialPolicy’s(CONPES) docu-ment3305of2004allowedtheGoC toaccessfinancialresourcesforaprojectdesignedtoreducefiscalvulnera-bilityassociatedwithnaturaldisasters.AUS$260millionWorldBankprojectincludedthedevelopmentofafinan-cialstrategyforreducingfiscalvulnerabilityandaUS$150millionpre-approvedlineofcreditinthecaseofadisas-ter. In2008theGoCsigned itsfirstDevelopmentPolicyLoanwithCatastropheDeferredDrawdownOption (CatDDO)6,forUS$150million—thefirstWorldBankproductdesignedspecificallytoprovidecontingentfinancingfornaturaldisasters.TheGoCfullydrewdownthisCatDDOin 2010 due to flooding throughout the country duringtheLaNiñaphenomenon.In2012,theGoCsignedanewUS$250millionCatDDO.

In 2012 and 2013, the MHCP has made significant prog-ress in designing a comprehensive strategy for the fi-nancial management of disasters. The MHCP strategy

6Followingadeclarationofanationaldisaster,theGoCcanimme-diatelywithdrawfundsfromtheCatDDO.


considersex-anteandex-postinstruments,suchasacon-tingentcreditlineandinsurance,inordertocomplementex-postfinancial resources thatwillbeaccessedafteradisaster.TheMHCPpromotesamultirisk layeringstrat-egy forfinancialmanagementofdisasterrisk,basedontheassessmentof itscontingentliabilities,as illustratedin Figure 1. Less severe but more recurrent losses areretained and financed through reserves and contingentcredit,whilelossesthatexceedtheretentioncapacityofGoC are transferred throughmarket-based financial in-struments.Finally,post-disastercreditisusedtofinancelong-termreconstruction.

The MHCP is enhancing its use of and designing addi-tional financial protection instruments in order to estab-lish a solid, robust strategy for financial management of disaster risks. ThefinancialmanagementstrategyisbeingbuiltonthefoundationsoftheNationalFundforDisasterRiskManagement(FNGRD),createdbyLaw1523of2012,andontheCatDDO.Historically,theMHCPhasretainedlossesfromnaturaldisasters.TheMHCPrecognizes,how-ever, that therearebenefits fromusing risk transfer in-strumentsforhighrisklayers.Thus,theMHCPisanalyz-ing market-based catastrophe risk transfer instrumentsofferedbytheinternationalreinsuranceandcapitalmar-ketstocomplementitsriskretentioninstruments.

In particular, the MHCP is implementing and/or evaluat-ing the following instruments:

n National Fund for Disaster Risk Management:TheGoCwill determine its level of risk retention through theFNGRD.Thebudgetallocations to theFNGRDwillbethefirstsourceoffinancialresourcestobeusedinthecaseofadisaster.TheFNGRDmustfirstbeoperation-alizedandstrengthened.WhentheFNGRDresourcesareexhausted,andadditionalbudgetaryresourcesarenotavailableoramoreseveredisasteroccurs,thegov-ernmentwillaccess itssecondlayerofriskretention,contingentcredit.

n Contingent credit: InlightofthebenefitstheGovern-ment realized fromaccess to itsfirstCatDDOduringthe2010LaNiñaphenomenon, theMHCPsecuredasecondCatDDOforUS$250millionin2012.Inthecaseofaseverenaturaldisastertriggeringanationaldisas-ter,theMHCPcanimmediatelydrawndownpartoralloftheCatDDOtofundemergencyreliefandrecoveryefforts.Beyondthebenefitof immediateaccesstoli-quidity,anotablebenefitof theCatDDO is that it iscurrentlyofferedatalowerinterestratethanconven-tionalloans.

n Evaluation of risk transfer instruments:TheMHCPisevaluatingmarket-based catastrophe risk transfer in-struments,suchascatastrophe(cat)swaps,catbonds,andweatherderivatives,toimproveitsfinancialman-agementofhighdisasterrisklayers.Theseinstrumentsaim to improve the government’s disaster responsecapacity in case of infrequent but potentially devas-

Source: Adapted from the Financial Strategy for diminishing the State’s fiscal vulnerability to natural disasters (MHCP-DGCPTN)andfromtheWorldBankDisasterRiskFinancingandInsuranceProgram(2012).

Contingent credit

Residual Risk

Fund for Disaster Risk Management/Budget reallocation

Risk TransferRisktransferforassets(e.g., indemnity insurance for public and

private property)

Risktransferforbudgetmanagement(e.g., parametric insurance, cat swap)

Post-disastercredit

High risklayers

Low risklayers

Figure 1: Multi-layer financial strategy for disasters resulting from natural hazards


tatingandcostlynaturaldisastersbyprovidingaccessto immediate liquiditypost-disaster.TheMHCP isan-alyzing these instruments in termsof their coverage,costs,and legaldimensions. Ifan instrumentcan im-prove theMHCP’sfinancialmanagement strategy fordisasterrisksintermsof(i)cost-efficiency,(ii)accesstoliquidity,and(iii)reductionofpost-disasterfiscalpres-sure, theMHCPwill integrate the instrument into itscomprehensivestrategy.

In particular, the MHCP is considering a catastrophe risk derivative. The instrument under considerationwould allow the MHCP to transfer a portion of thefinancial risk froma severeearthquakeaffectingma-jorurbancentersinColombiatotheWorldBank;theWorldBankwouldthentransfertherisktotheinterna-tionalreinsurancemarketthroughamirrortransaction.ThecatastrophederivativewouldtemporarilycoveraportionoftheGoC’sdebtobligationtotheWorldBank7 upontheoccurrenceofasevereearthquakeincertainareasofthecountry.ThiswouldopenupfiscalspacefortheGoCtofinanceanearthquakerecoveryandre-constructioneffort.

The instrumentwould be parametric in nature8, anditscoveragewouldbedesignedtocovercertainurbancenters with significant exposure to earthquake haz-ard,largepopulations,andsignificantGDP-at-risk.TheMHCP has partnered with the Colombian GeologicalService (SGC) for its technical advice on earthquakehazardinColombia,performingprobabilisticmodelingof expectedearthquake losses to urban centers, andanalyzingpotentialproductstructures.TheWorldBankDisaster Risk Financing and Insurance Program andSECOareprovidingtechnicaladvisoryservicestothisprocessincludingthedesignoffinancialriskanalyticstoolsfordecisionmaking.

7TheGoC’sdebtportfolio’smaturityprofilewiththeWorldBankisconcentratedover2013-2016,withU.S.$850milliondueperyear.8Parametricrisktransferinstrumentsrelyontheoccurrenceofanobjective,measurableparameter,suchastheintensityofanevent(forexample,anearthquake’smagnitude),usedtoproxyfinanciallosses,inordertotriggerapayout.

Policy objective 3 Catastrophe risk insurance for public assets

In the longer term, the MHCP aims to reduce the govern-ment’s contingent liabilities related to natural disasters through a combination of risk mitigation investments and the provision of catastrophe insurance for public assets. Currently,governmententitiespurchasecatastro-phe insurance for theirownassets9.Ananalysis carriedout in 2012 on the current insurance policies coveringthe buildings of the central government, however, de-termined that this coverage couldbeenhanced; forex-ample,assetsarecurrentlyinsuredbyeachentity,whichdoesnotallowtheGoCtotakeadvantageofriskpoolingbenefitsacrosspublicentities.Consequently,theprioritypolicyobjectiveinthisareaistoenhancetheinsuranceforpublicassets.

The MHCP will partner with other public entities to im-prove the coverage and cost of catastrophe insurance of public assets. Thestrategyaimstoimprovethecoverageandpriceofcatastropheinsuranceforpublicassetsandroad infrastructure (particularly priority transportationinfrastructure, one of the sectors that have beenmostseverelyaffectedbydisasters).Theriskoffireandalliedlines(includingearthquake,amongothers)willbeconsid-eredinitially.

The GoC will implement a dual approach to improve the strategy of insurance of public assets:

n Information system on public buildings:TheMHCPisgatheringadditionalinformationontheGoC’sportfolioof assets aswell as insurance policies-in-force.Moredetailed information on public assets will allow theprivateinsuranceindustrytoofferbettercoverageandprices,basedonimprovedquantificationofrisk.

n Collective approach to insuring public buildings: TheGoC is evaluating the implementation of a collectiveapproach to insurance of public buildings, startingwith those of the health and education sectors. ThisapproachwillallowtheGoCtotakeadvantageofriskdiversificationbenefits.TherecentlycreatedNationalProcurementAgency,Colombia Compra Eficiente(CCE)andtheMHCParecollaboratingtodefineandanalyze

9Colombianlawmandatescatastropheinsurancepurchaseforpublicassets:Law42of1993requiresfinancialprotectionofstateassets,andLaw734of2002makesfurtherstipulationsrequiringpublicentitiestoinsuretheir assets.


thetechnical,legal,andfinancialrequirementsforim-plementingacollectiveschemeandtoproposeguide-linesforenhancinginsurancecoverageofnon-centralgovernmententities.

n Improvement of insurance of road infrastructure through PPP scheme: AsdiscussedunderPolicyObjec-tive1,theMHCPandANIhavedevelopedenhancedin-surancerequirementsforPPPs.WithtechnicalsupportfromtheWorldBank,thegovernmenthasdevelopeda document of technical guidelines for infrastructureinsurance based on international market standards.Thedocumenthasbeenusedtodevelopthetechnicalrequirementsforconcessionairesforthelatestgenera-tionofinfrastructureinvestmentandiscurrentlybeingimplemented.

n “Best Practice” insurance guidelines for subnational entities:TheMHCPisbuildingsonitsrecentexperiencewith developing the collective insurance scheme andPPPs insurancerequirements todevelopguidelinesonstrengtheninginsuranceofpublicassetsforsubnationalgovernmententities.WiththesupportoftheNationalDisaster Risk Management Unit (UNGRD), the MHCPplanstoconductcapacitybuildingworkshopsandotheractivitiesforsubnationalentities.Theprimaryobjectiveoftheseactivitieswillbetoencourageex-antefinancialprotectionagainstnaturaldisasters.


Each year, natural disasters adversely impact the Colombian people and economy; in addition, the country is exposed to the risk of rare but severe natural events, such as earthquakes, that could affect the State’s fiscal balance.Forthesereasons,itisessentialthattheMCHPdeviseafinancialprotectionstrategyfornaturaldisasters,withtheobjectivetoreducetheState’sfiscalvulnerabilitytotheseeventsandtoimproveitspost-disasterfinancialresponsecapacity.

The MHCP has identified three priority policy objectives for public financial management of disaster risk.Thesepolicy objectives are reflected in this document, whichdescribesthoseareasthathavebeenidentifiedasessen-tial forassessing,reducing,andmanagingthefiscal riskrelatedtonaturaldisasters.

The MHCP’s primary goal is to improve the capacity of the Government of Colombia to effectively man-age natural disasters and their associated fiscal risks. TheMHCP is currentlyworking on three priority policyobjectivestoachievethisgoal: (i) Identificationandun-derstanding of fiscal risk due to disasters; (ii) financialmanagement of disaster risk, including the implemen-tation of innovative financial instruments; and (iii) ca-tastrophe risk insurance for public assets. To achievethese objectives, the MHCP is collaborating with en-tities from across the government and with interna-tional partners such as the World Bank, Swiss StateSecretariat for Economic Affairs (SECO) and the Global FacilityforDisasterReductionandRecovery(GFDRR).

Conclusions


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CEDERI-UniversidaddelosAndes,2002.RetenciónyTrans-ferenciadelRiesgoSísmicoenColombia,EvaluaciónPreliminardeunaPosibleEstrategiaFinancieraydelMercadoPotencial.

CorporaciónOSSO,2011.ComportamientodelriesgoenColombia.EstudiorealizadoenelcontextodelProyectoAnálisisdelaGestióndelRiesgodeDesastresenColom-biaparaelBancoMundialyGFDRR.

CorporaciónOSSO,2009.Atlasdelasdinámicasdelterrito-rioandino:poblaciónybienesexpuestosaamenazasnaturales.ProyectoelaboradoenelcontextodeApoyoalaPrevencióndeDesastresenlaComunidadAndina(PREDECAN).

Cummins,J.D.andO.Mahul,2009.CatastropheRiskFinanc-inginDevelopingCountries:PrinciplesforPublicInter-vention.Washington,DC:TheWorldBank.

IEG-WorldBank(IndependentEvaluationGroup-WorldBank),2006.HazardsofNature,RiskstoDevelopment:AnEvaluationofWorldBankAssistanceforNaturalDi-saster(Washington,DC).

Inter-AmericanDevelopmentBankandtheEconomicCom-missionforLatinAmericaandtheCaribbean,2012.AppraisalofDamagesandLosses:WinterWaveinCo-lombia2010-2011.

Ghesquiere,FandO.Mahul,2010.Financialprotectionofthestateagainstnaturaldisasters:aprimer.Washing-ton,DC:TheWorldBank

GovernmentofColombia,2012.“ContingentLiabilityMan-agementinColombiaandtheFinancialStrategyAssoci-atedwithNaturalDisasters.”ArtículoelaboradoparalapublicaciónImprovingtheassessmentofdisasterriskstostrengthenfinancialresilience.ASpecialJointG20PublicationbytheGovernmentofMéxicoandtheWorldBank.Ed.TheGovernmentofMexicoandTheWorldBank.Washington,DC.133-142.

MilleryQueipa,2006.EstrategiaseinstrumentosfinancierosparalagestiónderiesgosdedesastresenAméricaLatinayelCaribe.

PNUD,2010.ElCambioClimáticoenColombia.Proyec-todeintegraciónderiesgosyoportunidadesdelcambioclimáticoenlosprocesosnacionalesdedesarrolloyenlaprogramacióndepaísdelasNa-cionesUnidas.http://www.pnud.org.co/img_up-load/61626461626434343535373737353535/Bro-chure%20resumen%20Proyecto.pdf

RepúblicadeColombia,IDEAM-DNP,2009.CircunstanciasNacionales.SegundaComunicaciónNacionalAnteLaConvenciónMarcodelasNacionesUnidasSobreCambioClimático.http://www.crid.or.cr/digitalizacion/pdf/spa/doc18157/doc18157-b.pdf

RiskSub-Direction,GeneralDirectionofPublicCreditandNationalTreasury,MinistryofFinanceandPublicCredit,2012.“Estrategiafinancieraparadisminuirlavulnerabi-lidadfiscaldelEstadoantelaocurrenciadeundesastrenatural.”<www.minhacienda.gov.co/portal/page/portal/HomeMinhacienda/creditoydeudapublicos/Riesgo/Pa-sivosContingentes1/Estrategia%20de%20Desastres%20Naturales.pdf>

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Bibliography


AccordingtotheWorldBank(2012),disastersinColom-biaoverthelast40yearshavecausedaccumulatedloss-esamountingtoUS$7.1billion.Between1970and2011,over28,000disastereventswereregistered,withapprox-imately60percentreportedsincethe1990s.

Accordingtothesamereport,44percentofColombia’sterritoryisexposedtohighandmediumseismichazard,mostly in thePacificandAndeanRegions (departmentsofHuila,Choco,ValledelCauca,Nariño,Risaralda,Cau-ca, andQuindio),whichmeans that 960municipalities,includingthosewiththelargestpopulations,areexposed.Some12percentofthenationalterritoryislocatedinar-

eas with increased vulnerability to floods, affecting 79municipalitiesmainlyinthedepartmentsofValledelCau-ca,Atlantico,Cundinamarca,Magdalena,Antioquia,Cor-doba,Cesar,Cauca,andMeta.Additionally,18percentofthenationalterritoryislocatedinareasthathavehighandveryhighlandsliderisk,especiallyinthedepartmentsofQuindio,Risaralda,Caldas,Nariño,Cauca,Arauca,Meta,Huila,Cundinamarca,Boyaca,Tolima,andSantander.

Thedistributionoftheexposureofthepopulationtonat-uralhazardssuchasflooding,earthquakes,andlandslidesisillustratedinfiguresA.1.andA.2.

Annex 1. Disaster impacts in Colombia

nHighnMediumnLow

Flooding

Landslides

Earthquake

100 80

Percentage

60 40 20 0 20 40 60 80 100

Area(104km2

Figure A.1. Area exposed to floods, landslides, and earthquakes in Colombia

Source: WorldBank(2012).CamposA.;Holm-NielsenN.;DíazC.;RubianoD.;CostaC.;RamírezF.;DicksonE.(Ed).AnálisisdelagestióndelriesgodedesastresenColombia:unaporteparalaconstruccióndepolíticaspúblicas.Bogotá,Colombia:BancoMundial-GFDRR.2012.


Lookingahead,theeventswiththepotentialtoproducethemostcriticalscenarios,intermsoftheirfinancialim-pactandthelossoflife,areamajorearthquake,avolca-niceruption,andasevereLaNiñaepisode(WorldBank2012).

Earthquakes and volcanic eruptions cause tremendouslossesconcentratedinaparticularareaandinarelativelyshortperiodoftime,whilehydrometeorologicalhazardsgenerate high-frequency impacts that sometimes causeeven greater losses. For example, according to variousstudies10,the1999earthquakethatoccurredintheareaofColombiaknownas theCoffeeAreadirectlyaffected1percentof the country’s populationand indirectly af-

10Forexample,Cardonaetal.(2004).

fected4percent.AccordingtoCardonaetal.(2004),thedamage caused by this earthquake amounted to 1.84percentofGDP,withhousingand infrastructuresectorsthemostseriouslyaffected.However,accordingtostud-iesconductedbytheIADBandCEPAL11,the2010-2011LaNiñaphenomenonaffected7percentofthenationalpop-ulation, inflictingeconomic lossesof11.2 trillionpesos,equivalent to approximately US$6 billion (Figure A.3.).Thesectorssufferingthemostdamageswerehousing(44percent)andinfrastructure(38percent).Also,accordingtothe2012WorldBankstudy,intheperiod1970-2011,majordisasters causedhousing lossesof approximatelyUS$2billion,whilesmalltointermediatedisastersgener-atedhousinglossesofapproximatelyUS$5billion.

11“AppraisalofDamagesandLosses–WinterWaveinColombia2010-2011,”IADB–CEPAL,January2012.

nHighnMediumnLow

Flooding

Landslides

Earthquake

100 80Percentage

60 40 20 0 20 40 60 80 100Population(million)

Figure A.2. Population exposed to floods, landslides, and earthquakes in Colombia

Source: WorldBank(2012).CamposA.;Holm-NielsenN.;DíazC.;RubianoD.;CostaC.;RamírezF.;DicksonE.(Ed).AnálisisdelagestióndelriesgodedesastresenColombia:unaporteparalaconstruccióndepolíticaspúblicas.Bogotá,Colombia:BancoMundial-GFDRR.2012.


Figure A.3. Economic Losses per Presidential Period for Colombia

Source:UNISDR(2011).

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

1,000

900

800

700

600

500

400

300

200

100

0

Econ

omic

Los

s (m

illio

n U

S$)

Aver

age

(mill

ion

US$

)

1970-1974

1996-1990

2002-2006

1978-1982

1994-1998

1974-1978

1970-1974

2006-2009*

1982-1986

1998-2002

nSumoflossesintheperiodnMaximumlossintheperiod Annualaveragelossintheperiod

TheWorldBank1818HStreet,N.W.WashingtonD.C.20433,USA

colombia: policy strategy for public financial management of natural

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