UPDATE 1-Colombia approves $2.6 bln in debt

* Financing depends on sale of state electricity generator

* Deficit - a barrier to investment grade sovereign debt (Adds details on financing through Isagen sale)

BOGOTA May 19 (Reuters) - Colombia approved taking on debt of up to $1.1 billion and preliminarily agreed to another $1.5 billion in debt to finance spending this year and pre-financing for 2011, the Finance Ministry said on Wednesday.

Colombia was one of the few countries in the region whose economy expanded last year, partly on increased public spending despite the global economic crisis, lower demand and a trade dispute with Venezuela that slashed exports to its neighbor.

A parliamentary commission approved up to $800 million for a bond issue and $300 million for a plan for administrative decentralization, a Finance Ministry spokesman said.

Up to $1.5 billion was also preliminarily approved to finance expenditures in 2010 and 2011 and will be sought from commercial banks or multilateral and development agencies, the spokesman said.

Financing depends in part on whether the next government sells the state's share in electricity generator Isagen ISG.CN. President Alvaro Uribe's government had planned to sell a 57 percent stake worth about $1.5 billion this year as an essential step to cover the deficit.

Finance Minister Oscar Zuluaga said last week that the government would leave the decision for the next administration. [nN14196286]

"We are providing the tools so that the new government can have the criteria to take a decision on Isagen," Zuluaga told reporters.

Should the sale fall through, the next government would have to seek other financing options to cover the wide deficit, one of the principle barriers keeping Colombia from regaining an investment grade rating for its sovereign debt.

Last year, Uribe launched a policy of augmenting public spending partly financed through debt to support expenditure in infrastructure and counter an economic decline.

Uribe said Colombia would see "astonishing" growth in 2010 and rises of 5-6 percent per year in coming years. [ID:nLDE64I15S].

The government sees 2010 economic growth of 2.5 percent.

Colombians will vote for Uribe's successor on May 30. Top candidates -- former Defense Minister Juan Manuel Santos and former Bogota Mayor Antanas Mockus -- say they are free-market supporters and vow to continue pro-business policies. (Reporting by Javier Mozzo Pena; Editing by Jack Kimball and Leslie Adler)