Three major phases of economic policy can be distinguished between 1980 and 1985: from 1980 to 1982, when the government reacted to deteriorating external conditions (the debt crisis and world recession) by liberalizing imports, relaxing fiscal policy and tightening monetary policy - which increased the external deficit and caused a recession; secondly, a 'heterodox' phase in 1983-84 of which the central element was strong import controls, which curbed the deficit and boosted output, while monetary and fiscal policies remained passive; and finally an 'orthodox' phase, which placed the central emphasis on demand management, fiscal contraction and accelerated devaluation and liberalizing import liberalization. Simulations suggest that the heterodox phase of this programme was very effective in correcting both internal and external disequilibrium.Following a radically different debt negotiating strategy from other Latin American countries, Colombia negotiated an agreement with the commercial banks on the basis of an IMF agreement to monitor its macro-economic programme. The international agencies also increased the effective supply of funds during the stabilization period, not only in the traditional form of project financing but also through balance of payments loans under several headings (export promotion and industrial recovery) and through a rollover mechanism managed by Banco de la Republica to accelerate dibursements.The adjustment process was widely perceived to have been completed by the end of 1985, when the country's foreign exchange constraints were removed by the coffee bonanza, and the attention of economic analysts shifted to the more congenial task of analyzing the optimal use of the new foreign exchange generated.
