98005 Colombia: Policy strategy for public financial management of natural disaster risk Acronyms ANI National Infrastructure Agency Cat DDO Development Policy Loan with Catastrophe Deferred Drawdown Option CCE National Procurement Agency CEPAL The United Nations Economic Commission for Latin America and the Caribbean CONPES National Council for Economic and Social Policy FNGRD National Fund for Disaster Risk Management GDP Gross Domestic Product GFDRR Global Facility for Disaster Reduction and Recovery GoC Government of Colombia IADB Inter-American Development Bank MHCP Ministry of Finance and Public Credit PND National Development Plan PPP Public-Private Partnership SECO Swiss State Secretariat for Economic Affairs SGC Colombian Geological Service UNGRD National Disaster Risk Management Unit Colombia: Policy strategy for public financial management of natural disaster risk 1 Introduction D isasters resulting from natural hazards represent an This document presents the priority policy objectives that important challenge for Colombia’s fiscal sustain- have been established to assess, reduce, and manage fiscal ability and stability. Colombia is one of the coun- risk due to natural disasters. It also describes the MHCP’s tries with the highest recurrence rate of disasters caused efforts to progress its policy objectives in the long term. by natural hazards in Latin America (see the Annex)1. As These policy objectives represent the MHCP’s ex-ante poli- the country’s population and economy continue to grow, cy framework regarding management of financial and fiscal so will the economic losses resulting from such events – disaster risk. an average of 600 disaster events are reported each year2. Colombia’s rate of economic growth is increasing the base The MHCP identifies three priority policy objectives in of assets exposed to disaster risks, which may lead to sig- order to strengthen management of the Government’s nificant increases in losses, particularly if investments in contingent liabilities and thus support the goal of achiev- new assets are not accompanied by plans for mitigating ing macroeconomic stability and fiscal balance. The policy disaster risk3. objectives include: (i) Identification and understanding of fiscal risk due to disasters; (ii) financial management of The Government of Colombia recognizes the importance natural disaster risk, including the implementation of in- of mitigating these events and has taken several steps to novative financial instruments; and (iii) catastrophe risk mainstream disaster risk management into its policy and insurance for public assets. programs, as evinced by the National Development Plan, “Prosperity for All 2010-2014” and the Ministry of Finance Several government agencies, with the support of various and Public Credit’s (MHCP) Strategic Plan for the same pe- international organizations, collaborate on the implemen- riod. The MHCP is committed to developing strategies for tation of these policy objectives. The MHCP works with reducing its contingent liabilities in relation to disasters and the National Procurement Agency: Colombia Compra to managing the fiscal risk resulting from these events. Eficiente (CCE), the National Infrastructure Agency (ANI), the Colombian Geological Service (SGC), and the Nation- al Disaster Risk Management Unit (UNGRD), among oth- ers, to implement these policy objectives. The MHCP has a strong ongoing partnership on financial management 1 The annex includes detailed information on the impact of natural disasters on Colombia. of disaster risks with the World Bank’s Disaster Risk Fi- 2 Independent Evaluation Group-World Bank. Natural Hazards, nancing and Insurance Program (DRFIP), supported by the Risks to Development: An Evaluation of World Bank Assistance for Swiss State Secretariat for Economic Affairs (SECO) and Natural Disaster Events (Washington, DC). 2006. the Global Facility for Disaster Reduction and Recovery 3 World Bank (2012). Campos A.; Holm-Nielsen N.; Díaz C.; Rubiano (GFDRR). These policy objectives were developed with D.; Costa C.; Ramírez F.; Dickson E. (Coordinators and Editors). Analysis of Disaster Risk Management in Colombia: A Contribution the active support and advice from a team of multidisci- to the Creation of Public Policies. Bogota, Colombia: World Bank – plinary experts who have helped to foster major advances GFDRR, 2012. in their design and implementation. 2 Colombia: Policy strategy for public financial management of natural disaster risk Legal mandate for financial management of natural disaster risks in Colombia The Government of Colombia (GoC) is designing a finan- development of a Medium-Term Fiscal Framework, stip- cial strategy for covering contingent liabilities generat- ulates that the valuation of explicit contingent liabilities ed by disasters caused by natural hazards. This initiative must be included in this Framework. In addition, the iden- falls within the government’s regulatory and institution- tification and assessment of fiscal risk sources, including al framework for managing explicit contingent liabilities implicit and explicit contingent liabilities, are in line with generated through public credit operations, legal actions, recommendations in the International Monetary Fund’s and administrative contracts (including public-private Code of Good Practices in Fiscal Transparency (2007). partnerships). The origin of this comprehensive approach to fiscal risk assessment and management can be found Within this context, the Ministry of Finance and Public in Law 448 of 1998, which requires entities to include re- Credit (Ministerio de Hacienda y Crédito Público—MHCP) sources in their budgets for covering contingent liabilities. promotes the government’s efforts in assessing, reducing, Law 819 of 2003, which establishes requirements for the and managing fiscal risk associated with natural disasters. Colombia: Policy strategy for public financial management of natural disaster risk 3 Policy Objectives This document describes the three priority policy objec- capacity in the case of a disaster and will mitigate the tives established by the MHCP for assessing, reducing, and long-term fiscal impacts from such an event. managing the fiscal risk resulting from natural disasters. It aims to strengthen the management of its contingent lia- It is important to note that financial management of di- bilities and to support macroeconomic stability and fiscal saster risk requires long-term commitment. The MHCP balance. The MHCP has identified these policy objectives has made progress in this area for several years and is in order to present the prioritized actions for reducing fis- committed to further strengthening its approach. cal vulnerability to disasters. These areas have been estab- lished based on the role of financial management of natu- Policy objective 1 ral disaster risks in three important agendas in Colombia: first, as a component of the fiscal management strategy Identification and understanding of fiscal risk headed by the MHCP; second, within the government’s ap- due to natural disasters proach to disaster risk management, which includes finan- The identification and understanding of fiscal risk due to cial management of natural disaster risks as a component natural disasters is the first step in managing natural di- of the National Law on Disaster Risk Management of April saster risks. Using a probabilistic catastrophe risk model 2012 (Law 1523); and finally, as part of the MHCP’s efforts developed for Colombia4, the MHCP has assessed that a to manage public debt sustainability and transparency. 1-in-250 year earthquake event would cause fiscal losses related to its contingent liabilities estimated at approxi- The above-mentioned priorities are reflected in the Na- mately 1.4% of the GDP5 (Table 1). 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- Table 1. Estimated contingent liabilities ing from natural disasters, within the broader context of Contingent Liabilities % of GDP macroeconomic stability and fiscal balance. Article 220 Legal actions 14.04 of the PND establishes that the MHCP will design a strat- Infrastructure projects 0.26 egy for reducing the State’s fiscal vulnerability to natural disasters. Public Credit operations 0.22 Natural Disasters* The MHCP has identified three priority policy areas for Fiscal portfolio 1.40 assessing, reducing, and managing fiscal risk arising Source: MHCP (2011). from natural disasters: *Contingent liability related to natural disasters is calculated from the 1-in-250 year probable maximum loss (PML) for earthquake for public I. Identification and understanding of fiscal risk due assets, US$4.417 billion, as estimated in UNISDR (2011). to natural disasters; II. Financial management of disaster risk, including the implementation of innovative financial in- 4 Probabilistic catastrophe risk models assess the expected losses struments; and and probable maximum losses of disaster risks using information III. Catastrophe risk insurance for public assets. on hazard, exposure, and vulnerability. 5 Contingent Liability Management in Colombia and the Financial Strategy Associated with Natural Disasters, Government of Colom- Through the advancement of parallel activities in these bia, in Improving the Assessment of Disaster Risks to Strengthen three areas, the GoC will improve its financial response Financial Resilience (World Bank, 2012). 4 Colombia: Policy strategy for public financial management of natural disaster risk Although the GoC has made progress in the assessment exposed to the risk of disasters, and CONPES 3714 of of its contingent liability related to natural disasters, fur- 2011 requires the inclusion of disaster risk analysis in ther analysis is required to refine this assessment. The public procurement processes. GoC has only partial information, and the available infor- The MHCP applies risk assessment tools to evaluate the mation is scattered throughout various government enti- contributions of proposed new investments to fiscal ties. In order to improve the understanding of the fiscal risk, including those made through PPPs. One import- risk generated by disasters, the MHCP will prioritize the ant aspect of this work is the MHCP’s improvement of following activities: insurance requirements for concessionaires. The MHCP n Improve information on the exposure of public build- and ANI, with technical support from the World Bank, ings and infrastructure to natural disasters, as well as have jointly established standard terms and conditions historical information on disaster losses to the public and minimum requirements that meet international in- sector. In particular, the MHCP seeks to better under- surance market practice and must be included in new stand the potential losses in the case of disasters, to concessions contracts. These represent one recent key inform decision-making on investment in disaster risk outcome of the GoC’s efforts to reduce the contingent mitigation and in new assets, and to improve insurance liability of the State to natural disasters. coverage for its portfolio of assets. In this context, the MHCP developed databases of physical characteristics of public assets and of insurance policies for public as- Policy objective 2 sets. In alignment with the National System for Disaster Financial management of natural disasters Risk Management (Law 1523 of 2012), an entity will be established to maintain the databases. Natural disasters can generate fiscal volatility as a result of the sudden, unexpected expenditures required during and In addition, the MHCP improves its understanding of after a disaster. In the aftermath of a disaster, the govern- its fiscal risk profile by collecting further information ment requires timely access to financial resources in order on the government’s historical losses from disasters. to finance an effective emergency and recovery response. In particular, it improves its understanding of risks gen- erated by less severe but recurrent events that accu- The MHCP initiated the design of its financial manage- mulate over time. These efforts are being coordinated ment strategy for disaster risks in 2004. The National with the entities with relevant respective responsibili- Council for Economic and Social Policy’s (CONPES) docu- ties. ment 3305 of 2004 allowed the GoC to access financial resources for a project designed to reduce fiscal vulnera- n Use and promote the use of financial and actuarial decision making tools. These tools help the MHCP as- bility associated with natural disasters. A US$260 million sess its financial response capacity post-disaster and World Bank project included the development of a finan- to improve decision making on its disaster risk financ- cial strategy for reducing fiscal vulnerability and a US$150 ing. They go beyond assessment of physical damages million pre-approved line of credit in the case of a disas- to buildings and determination of replacement costs ter. In 2008 the GoC signed its first Development Policy estimated by catastrophe risk models to provide finan- Loan with Catastrophe Deferred Drawdown Option (Cat cial information that enables the MHCP to design an DDO)6, for US$150 million — the first World Bank product optimal combination of financial instruments through designed specifically to provide contingent financing for cost-benefit and dynamic financial analysis. natural disasters. The GoC fully drew down this Cat DDO in 2010 due to flooding throughout the country during n Evaluate and adopt tools to assess possible increases in natural disaster risk generated by new public works the La Niña phenomenon. In 2012, the GoC signed a new and public-private partnerships (PPPs). The GoC has US$250 million Cat DDO. already initiated this effort, and the MHCP has started In 2012 and 2013, the MHCP has made significant prog- to collaborate with other national entities (e.g., ANI) ress in designing a comprehensive strategy for the fi- on this activity, as reflected in recent regulations. Law nancial management of disasters. The MHCP strategy 1508 of 2012, for example, requires the analysis of hazards and vulnerability in relation to each infrastruc- 6 Following a declaration of a national disaster, the GoC can imme- ture project and all the sectoral projects that may be diately withdraw funds from the Cat DDO. Colombia: Policy strategy for public financial management of natural disaster risk 5 Figure 1: Multi-layer financial strategy for disasters resulting from natural hazards High Residual Risk risk layers Risk Transfer Risk transfer for assets (e.g., indemnity insurance for public and private property) Post-disaster credit Risk transfer for budget management (e.g., parametric insurance, cat swap) Contingent credit Low risk Fund for Disaster Risk Management/Budget reallocation layers Source: Adapted from the Financial Strategy for diminishing the State’s fiscal vulnerability to natural disasters (MHCP-DGCPTN) and from the World Bank Disaster Risk Financing and Insurance Program (2012). considers ex-ante and ex-post instruments, such as a con- n National Fund for Disaster Risk Management: The GoC tingent credit line and insurance, in order to complement will determine its level of risk retention through the ex-post financial resources that will be accessed after a FNGRD. The budget allocations to the FNGRD will be disaster. The MHCP promotes a multi risk layering strat- the first source of financial resources to be used in the egy for financial management of disaster risk, based on case of a disaster. The FNGRD must first be operation- the assessment of its contingent liabilities, as illustrated alized and strengthened. When the FNGRD resources in Figure 1. Less severe but more recurrent losses are are exhausted, and additional budgetary resources are retained and financed through reserves and contingent not available or a more severe disaster occurs, the gov- credit, while losses that exceed the retention capacity of ernment will access its second layer of risk retention, GoC are transferred through market-based financial in- contingent credit. struments. Finally, post-disaster credit is used to finance n Contingent credit: In light of the benefits the Govern- long-term reconstruction. ment realized from access to its first Cat DDO during The MHCP is enhancing its use of and designing addi- the 2010 La Niña phenomenon, the MHCP secured a second Cat DDO for US$250 million in 2012. In the case tional financial protection instruments in order to estab- of a severe natural disaster triggering a national disas- lish a solid, robust strategy for financial management of ter, the MHCP can immediately drawn down part or all disaster risks. The financial management strategy is being of the Cat DDO to fund emergency relief and recovery built on the foundations of the National Fund for Disaster efforts. Beyond the benefit of immediate access to li- Risk Management (FNGRD), created by Law 1523 of 2012, quidity, a notable benefit of the Cat DDO is that it is and on the Cat DDO. Historically, the MHCP has retained currently offered at a lower interest rate than conven- losses from natural disasters. The MHCP recognizes, how- tional loans. ever, that there are benefits from using risk transfer in- struments for high risk layers. Thus, the MHCP is analyz- n Evaluationof risk transfer instruments: The MHCP is ing market-based catastrophe risk transfer instruments evaluating market-based catastrophe risk transfer in- offered by the international reinsurance and capital mar- struments, such as catastrophe (cat) swaps, cat bonds, and weather derivatives, to improve its financial man- kets to complement its risk retention instruments. agement of high disaster risk layers. These instruments In particular, the MHCP is implementing and/or evaluat- aim to improve the government’s disaster response ing the following instruments: capacity in case of infrequent but potentially devas- 6 Colombia: Policy strategy for public financial management of natural disaster risk tating and costly natural disasters by providing access Policy objective 3 to immediate liquidity post-disaster. The MHCP is an- Catastrophe risk insurance alyzing these instruments in terms of their coverage, for public assets costs, and legal dimensions. If an instrument can im- prove the MHCP’s financial management strategy for In the longer term, the MHCP aims to reduce the govern- disaster risks in terms of (i) cost-efficiency, (ii) access to ment’s contingent liabilities related to natural disasters liquidity, and (iii) reduction of post-disaster fiscal pres- through a combination of risk mitigation investments sure, the MHCP will integrate the instrument into its and the provision of catastrophe insurance for public comprehensive strategy. assets. Currently, government entities purchase catastro- In particular, the MHCP is considering a catastrophe phe insurance for their own assets9. An analysis carried risk derivative. The instrument under consideration out in 2012 on the current insurance policies covering would allow the MHCP to transfer a portion of the the buildings of the central government, however, de- financial risk from a severe earthquake affecting ma- termined that this coverage could be enhanced; for ex- jor urban centers in Colombia to the World Bank; the ample, assets are currently insured by each entity, which World Bank would then transfer the risk to the interna- does not allow the GoC to take advantage of risk pooling tional reinsurance market through a mirror transaction. benefits across public entities. Consequently, the priority The catastrophe derivative would temporarily cover a policy objective in this area is to enhance the insurance portion of the GoC’s debt obligation to the World Bank7 for public assets. upon the occurrence of a severe earthquake in certain areas of the country. This would open up fiscal space The MHCP will partner with other public entities to im- for the GoC to finance an earthquake recovery and re- prove the coverage and cost of catastrophe insurance of construction effort. public assets. The strategy aims to improve the coverage and price of catastrophe insurance for public assets and The instrument would be parametric in nature8, and road infrastructure (particularly priority transportation its coverage would be designed to cover certain urban infrastructure, one of the sectors that have been most centers with significant exposure to earthquake haz- severely affected by disasters). The risk of fire and allied ard, large populations, and significant GDP-at-risk. The lines (including earthquake, among others) will be consid- MHCP has partnered with the Colombian Geological ered initially. Service (SGC) for its technical advice on earthquake hazard in Colombia, performing probabilistic modeling The GoC will implement a dual approach to improve the of expected earthquake losses to urban centers, and strategy of insurance of public assets: analyzing potential product structures. The World Bank n Information system on public buildings: The MHCP is Disaster Risk Financing and Insurance Program and gathering additional information on the GoC’s portfolio SECO are providing technical advisory services to this of assets as well as insurance policies-in-force. More process including the design of financial risk analytics detailed information on public assets will allow the tools for decision making. private insurance industry to offer better coverage and prices, based on improved quantification of risk. n Collective approach to insuring public buildings: The GoC is evaluating the implementation of a collective approach to insurance of public buildings, starting with those of the health and education sectors. This approach will allow the GoC to take advantage of risk diversification benefits. The recently created National Procurement Agency, Colombia Compra Eficiente (CCE) and the MHCP are collaborating to define and analyze 7 The GoC’s debt portfolio’s maturity profile with the World Bank is concentrated over 2013-2016, with U.S. $850 million due per year. 8 Parametric risk transfer instruments rely on the occurrence of an 9 Colombian law mandates catastrophe insurance purchase for objective, measurable parameter, such as the intensity of an event public assets: Law 42 of 1993 requires financial protection of state (for example, an earthquake’s magnitude), used to proxy financial assets, and Law 734 of 2002 makes further stipulations requiring losses, in order to trigger a payout. public entities to insure their assets. Colombia: Policy strategy for public financial management of natural disaster risk 7 the technical, legal, and financial requirements for im- n “Best Practice” insurance guidelines for subnational plementing a collective scheme and to propose guide- entities: The MHCP is buildings on its recent experience lines for enhancing insurance coverage of non-central with developing the collective insurance scheme and government entities. PPPs insurance requirements to develop guidelines on strengthening insurance of public assets for subnational n Improvement of insurance of road infrastructure government entities. With the support of the National through PPP scheme: As discussed under Policy Objec- Disaster Risk Management Unit (UNGRD), the MHCP tive 1, the MHCP and ANI have developed enhanced in- plans to conduct capacity building workshops and other surance requirements for PPPs. With technical support activities for subnational entities. The primary objective from the World Bank, the government has developed of these activities will be to encourage ex-ante financial a document of technical guidelines for infrastructure protection against natural disasters. insurance based on international market standards. The document has been used to develop the technical requirements for concessionaires for the latest genera- tion of infrastructure investment and is currently being implemented. 8 Colombia: Policy strategy for public financial management of natural disaster risk Conclusions Each year, natural disasters adversely impact the The MHCP’s primary goal is to improve the capacity Colombian people and economy; in addition, the country of the Government of Colombia to effectively man- is exposed to the risk of rare but severe natural events, age natural disasters and their associated fiscal risks. such as earthquakes, that could affect the State’s fiscal The MHCP is currently working on three priority policy balance. For these reasons, it is essential that the MCHP objectives to achieve this goal: (i) Identification and un- devise a financial protection strategy for natural disasters, derstanding of fiscal risk due to disasters; (ii) financial with the objective to reduce the State’s fiscal vulnerability management of disaster risk, including the implemen- to these events and to improve its post-disaster financial tation of innovative financial instruments; and (iii) ca- response capacity. tastrophe risk insurance for public assets. To achieve these objectives, the MHCP is collaborating with en- The MHCP has identified three priority policy objectives tities from across the government and with interna- for public financial management of disaster risk. These tional partners such as the World Bank, Swiss State policy objectives are reflected in this document, which Secretariat for Economic Affairs (SECO) and the Global describes those areas that have been identified as essen- Facility for Disaster Reduction and Recovery (GFDRR). tial for assessing, reducing, and managing the fiscal risk related to natural disasters. Colombia: Policy strategy for public financial management of natural disaster risk 9 Bibliography Cardona et al., 2004. Definición de la responsabilidad del Es- Miller y Queipa, 2006. Estrategias e instrumentos financieros tado, su exposición ante desastres naturales y diseño de para la gestión de riesgos de desastres en América Latina mecanismos para la cobertura de los riesgos residuales y el Caribe. del Estado. PNUD, 2010. El Cambio Climático en Colombia. Proyec- CEDERI-Universidad de los Andes, 2002. Retención y Trans- to de integración de riesgos y oportunidades del ferencia del Riesgo Sísmico en Colombia, Evaluación cambio climático en los procesos nacionales de Preliminar de una Posible Estrategia Financiera y del desarrollo y en la programación de país de las Na- Mercado Potencial. ciones Unidas. http://www.pnud.org.co/img_up- Corporación OSSO, 2011. Comportamiento del riesgo en load/61626461626434343535373737353535/Bro- Colombia. Estudio realizado en el contexto del Proyecto chure%20resumen%20Proyecto.pdf Análisis de la Gestión del Riesgo de Desastres en Colom- República de Colombia, IDEAM-DNP, 2009. Circunstancias bia para el Banco Mundial y GFDRR. Nacionales. Segunda Comunicación Nacional Ante La Corporación OSSO, 2009. Atlas de las dinámicas del territo- Convención Marco de las Naciones Unidas Sobre Cambio rio andino: población y bienes expuestos a amenazas Climático. http://www.crid.or.cr/digitalizacion/pdf/spa/ naturales. Proyecto elaborado en el contexto de Apoyo doc18157/doc18157-b.pdf a la Prevención de Desastres en la Comunidad Andina Risk Sub-Direction, General Direction of Public Credit and (PREDECAN). National Treasury, Ministry of Finance and Public Credit, Cummins, J.D. and O. Mahul, 2009. Catastrophe Risk Financ- 2012. “Estrategia financiera para disminuir la vulnerabi- ing in Developing Countries: Principles for Public Inter- lidad fiscal del Estado ante la ocurrencia de un desastre vention. Washington, DC: The World Bank. natural.” saster (Washington, DC). United Nations International Strategy for Disaster Reduction, Inter-American Development Bank and the Economic Com- 2011. Probabilistic modeling of disaster risk at global mission for Latin America and the Caribbean, 2012. level: Development of a methodology and implementa- Appraisal of Damages and Losses: Winter Wave in Co- tion of case studies. Phase 1A: Colombia, Mexico, Nepal. lombia 2010-2011. Prepared by the Consortium Evaluación de Riesgos Na- turales – América Latina. Ghesquiere, F and O. Mahul, 2010. Financial protection of the state against natural disasters : a primer. Washing- World Bank. Campos A.; Holm-Nielsen N.; Díaz C.; Rubiano ton, DC: The World Bank D.; Costa C.; Ramírez F.; Dickson E. (Coordinators and Editors), 2012. Analysis of Disaster Risk Management in Government of Colombia, 2012. “Contingent Liability Man- Colombia: A Contribution to the Creation of Public Poli- agement in Colombia and the Financial Strategy Associ- cies. Bogota, Colombia: World Bank – GFDRR. ated with Natural Disasters.” Artículo elaborado para la publicación Improving the assessment of disaster risks – (a). Campos A.; Holm-Nielsen N.; Díaz C.; Rubiano D.; Costa to strengthen financial resilience. A Special Joint G20 C.; Ramírez F.; Dickson E. (Coordinators and Editors), Publication by the Government of México and the World 2012. Executive summary. Analysis of Disaster Risk Man- Bank. Ed. The Government of Mexico and The World agement in Colombia: A Contribution to the Creation of Bank. Washington, DC. 133-142. Public Policies. Bogota, Colombia: World Bank – GFDRR. 10 Colombia: Policy strategy for public financial management of natural disaster risk Annex 1. Disaster impacts in Colombia According to the World Bank (2012), disasters in Colom- eas with increased vulnerability to floods, affecting 79 bia over the last 40 years have caused accumulated loss- municipalities mainly in the departments of Valle del Cau- es amounting to US$7.1 billion. Between 1970 and 2011, ca, Atlantico, Cundinamarca, Magdalena, Antioquia, Cor- over 28,000 disaster events were registered, with approx- doba, Cesar, Cauca, and Meta. Additionally, 18 percent of imately 60 percent reported since the 1990s. the national territory is located in areas that have high and very high landslide risk, especially in the departments of According to the same report, 44 percent of Colombia’s Quindio, Risaralda, Caldas, Nariño, Cauca, Arauca, Meta, territory is exposed to high and medium seismic hazard, Huila, Cundinamarca, Boyaca, Tolima, and Santander. mostly in the Pacific and Andean Regions (departments of Huila, Choco, Valle del Cauca, Nariño, Risaralda, Cau- The distribution of the exposure of the population to nat- ca, and Quindio), which means that 960 municipalities, ural hazards such as flooding, earthquakes, and landslides including those with the largest populations, are exposed. is illustrated in figures A.1. and A.2. Some 12 percent of the national territory is located in ar- Figure A.1. Area exposed to floods, landslides, and earthquakes in Colombia Flooding Landslides n High Earthquake n Medium n Low 100 80 60 40 20 0 20 40 60 80 100 Percentage (10 km 4 2 Area Source: World Bank (2012). Campos A.; Holm-Nielsen N.; Díaz C.; Rubiano D.; Costa C.; Ramírez F.; Dickson E. (Ed). Análisis de la gestión del riesgo de desastres en Colombia: un aporte para la construcción de políticas públicas. Bogotá, Colombia: Banco Mundial - GFDRR. 2012. Colombia: Policy strategy for public financial management of natural disaster risk 11 Figure A.2. Population exposed to floods, landslides, and earthquakes in Colombia Flooding Landslides n High Earthquake n Medium n Low 100 80 60 40 20 0 20 40 60 80 100 Percentage Population (million) Source: World Bank (2012). Campos A.; Holm-Nielsen N.; Díaz C.; Rubiano D.; Costa C.; Ramírez F.; Dickson E. (Ed). Análisis de la gestión del riesgo de desastres en Colombia: un aporte para la construcción de políticas públicas. Bogotá, Colombia: Banco Mundial - GFDRR. 2012. Looking ahead, the events with the potential to produce fected 4 percent. According to Cardona et al. (2004), the the most critical scenarios, in terms of their financial im- damage caused by this earthquake amounted to 1.84 pact and the loss of life, are a major earthquake, a volca- percent of GDP, with housing and infrastructure sectors nic eruption, and a severe La Niña episode (World Bank the most seriously affected. However, according to stud- 2012). ies conducted by the IADB and CEPAL11, the 2010-2011 La Niña phenomenon affected 7 percent of the national pop- Earthquakes and volcanic eruptions cause tremendous ulation, inflicting economic losses of 11.2 trillion pesos, losses concentrated in a particular area and in a relatively equivalent to approximately US$6 billion (Figure A.3.). short period of time, while hydrometeorological hazards The sectors suffering the most damages were housing (44 generate high-frequency impacts that sometimes cause percent) and infrastructure (38 percent). Also, according even greater losses. For example, according to various to the 2012 World Bank study, in the period 1970-2011, studies10, the 1999 earthquake that occurred in the area major disasters caused housing losses of approximately of Colombia known as the Coffee Area directly affected US$2 billion, while small to intermediate disasters gener- 1 percent of the country’s population and indirectly af- ated housing losses of approximately US$5 billion. 11 “Appraisal of Damages and Losses – Winter Wave in Colombia 10 For example, Cardona et al. (2004). 2010-2011,” IADB – CEPAL, January 2012. 12 Colombia: Policy strategy for public financial management of natural disaster risk Figure A.3. Economic Losses per Presidential Period for Colombia 4,000 1,000 900 3,500 800 3,000 Economic Loss (million US$) 700 Average (million US$) 2,500 600 2,000 500 400 1,500 300 1,000 200 500 100 0 0 4 8 2 6 0 4 8 2 6 9* 97 97 98 98 99 97 99 00 00 00 -1 -1 -1 -1 -1 -1 -1 -2 -2 -2 70 74 78 82 96 70 94 98 02 06 19 19 19 19 19 19 19 19 20 20 n Sum of losses in the period n Maximum loss in the period Annual average loss in the period Source: UNISDR (2011). The World Bank 1818 H Street, N.W. Washington D.C. 20433, USA