Introduction. Colombia faces a critical juncture in its recent history. One road leads to violence, chaos and economic collapse. The other leads to peace, reforms and economic progress. Hoping that the second road will be chosen, this document offers ideas about institutional reforms and governance. The need for nstitutional reforms in Colombia is quite self-evident. Violence, crime and terrorism are rampant; the "social contract" is threatened. The Judicial system is incapable of effectively persecuting crime, while at the same time the Constitutional Court is too "pro active" in economic areas better left to the market or policymakers. The parliament is fragmented, subject to a myriad of lobbying pressures and its relationship with the government is strained. The traditional macroeconomic stability of Colombia is threatened by institutional shortcomings. In fact, the process of decentralization has led to large fiscal imbalances and inefficiencies in the central/local government relationship. The budget process is chaotic and non-transparent. Improvements in the development of social services and poverty reduction programs are still lacking because of an inefficient use of limited resources. Monetary and financial stability require a firmer commitment to inflation control. Many of these problems are common to many developing and industrial countries. However, the combination of all of the above has lead Colombia to the brink of collapse. No one should expect that only with institutional engineering one can enforce good policies and achieve peace and progress: individuals, not institutions, make policy decisions. However, one can ask from institutions to avoid creating obstacles for well-intentioned policymakers to achieve the desired good outcomes, and conversely, to create obstacles to corrupt, self-serving, and short termist policies. We tried to suggest ideas which were politically feasible and required the minimum amount of legislative transaction costs. A formidable obstacle to this goal is the fact that the 1991 Constitution is very detailed in its prescriptions and the Constitutional Court has been very active in enforcing various constitutional articles. The consequence is that, more than in other countries, many, even relatively small changes of economic institutions or even of economic policy require a Constitutional change. This document is organized around "political" and "economic" institutions. We begin with the former, with a discussion of the role of the judicial system and of the separation of power followed by the electoral law and structure of parliament; and a discussion of crime prevention and criminal justice system. We then move to economic institutions; we focus on those that have to do with the bureaucracy and provision of social services; monetary and fiscal institutions, namely the Central Bank, the budget process and, especially important, the local/central government relationships.
