Re-estimation of the discount social rate in Colombia from its capital market development for the period 1995 – 2005

Abstract

The inflation rate decrease up to levels of one digit, the reduction of risk by reduction in the rates of National Debt Treasure Bonds issued by the State (TES Spanish Acronym) and foreign debt, Global and Yankees and the development of the capital markets have motivated the need to reestimate the current Discount Social Rate (DSR) of 12%, which has been used as the base for the social, economic and financial evaluation of investment projects for the Colombian case. Under the same causes that justify the exercise for the Colombian case, recent exercises of DSR reestimation in countries members of the European Economic Union have determined that current nominal DSR is in an average level of 3%. This change in the level of interest rates has been widespread to Latin American countries where reestimations of DSR have been done following the Harberger efficiency criteria. They take into account four elements: national saving, foreign saving, private investment and foreign indebtedness. This article, following the Harberger efficiency criteria, reestimates the DSR in Colombia and obtained an average DSR of 8.5%, including a prime for the risk regarding volatility of consumption and aversion to the risk by investors. It concludes, according to Harberger’s methodology, that to determine the DSR, the highest ponderer is national saving, followed by foreign indebtedness, with a lower influence by domestic investment.