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Bogota 2015 Blog: Colombia's Economic Outlook Roundup

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Colombian Finance Minister Mauricio Cardenas. (Image: Pablo Salgado)

Thursday, June 11, 2015

  • Ragnhild Melzi, Senior Director, Public Policy Programs and Corporate Relations, Americas Society/Council of the Americas, Welcoming remarks
  • Leonardo Villar, Executive Director, Fedesarollo, "External Outlook and the Effects on the Colombian Economy"
  • Sergio Clavijo, President, ANIF, "Macroeconomic Performance and Outlook"
  • Mauricio Cárdenas, Minister, Ministry of Finance and Public Credit, "Recent Fiscal Results and Outlook"

AS/COA’s Ragnhild Melzi opened the nineteenth annual Bogota conference, the longest-running in the Latin American Cities Conferences series. In her remarks, the senior director called Colombia one of the most important countries for foreign investors. She noted that foreign investors are more optimistic about a country’s growth potential than the people who live in them in the day-to-day, and that, from abroad, the measures of fiscal measures and management undertaken by the Santos government are seen favorably.

Fedesarrollo's Leonardo Villar gave an outlook on the Colombian economy, breaking down the internal situation in light of global market fluctuations. As for positive elements, Villar highlighted labor statistics: unemployment figures improving from from 11.2 to 9.5 percent between April 2011 and April 2015, albeit with a 0.5 increase from April 2014; the employment rate rising 3.5 points from 55.8 to 59.3 percent; and informal employment dropped from 51.1 to 48.3 percent. Next, he highlighted inflation, which is above its target range and had been rising since the last year and a half—due primarily to the rising prices of foods, rice especially—but just turned the corner and came down in recent months to its current level of 4.4 percent.

Villar then turned to the negative factors affecting down the Colombian markets. Falling oil prices are projected to cause GDP to drop 2.5 percent from 2013 to 2016. Meanwhile, the commercial balance, which is at -4.1 as a percent of GDP, just notched its sharpest drop recorded. “To finance the debt, it is fundamental that our policies maintain credibility and the sustainability of public finances,” he said, especially for maintaining levels of foreign investment.

Sergio Clavijo of ANIF followed Villar, giving a presentation on Colombia’s macroeconomic situation. He mentioned that the average Wall Street projection for Colombia was more negative than those of the IMF, quipping that was because the United States is looking at a growth rate above just 2 percent, while Colombia is above 3 percent. He then showed how Colombia’s rates compared both regionally and globally, highlighting that it was important for the country to set its sights beyond its immediate neighbors: “Asia is the benchmark for Colombia,” he said. One factor that limits Colombia’s growth is informal employment, he said, and that when people aren’t making contributions to employer savings plans, health care costs open up a big hole.

Clavijo cautioned several times against laws or regulatory processes that slow or impede development. The issue, he said, was about finding equilibrium, whether it be between respecting millennia-old cultures and infrastructure development through consulta previa, or between laws that have sound fiscal rationales that facilitate development and those that delay or block development unnecessarily. “We need to leave behind the art of postponement—there’s already enough information,” he said. “We urgently need to think of better ways to generate funds.”

Next up, Minister of Finance Mauricio Cárdenas gave a presentation on Colombia’s financial road map. He opened by describing his attendance the week prior at a meeting of finance ministers in Paris with the Organization for Economic Co-operation and Development (OECD), a body which is currently considering Colombia's membership. If approved, Colombia would become the third Latin American country to join the group, after Mexico and Chile. He said finance ministers demonstrated a great deal of interest in Colombia, in particular its $270 million 4G infrastructure development plan, which the IMF’s David Lipton called “the most well-structured infrastructure development plan in the world.” He noted that the government was not counting on the price of oil rising again in the long term to finance 4G.

He then laid out a roadmap for the government’s financial plan going forward. Using the analogy of swimming, he explained how there were three principles to achieve economic growth in the face of crisis: don’t panic; have a clear sense of direction and know where you’re going; and don’t carry extra baggage. As for the first point, he said that external assessments and evaluations of Colombia’s current situation left him very optimistic; as for the second and third, he said the government was focused squarely on heading toward fiscal responsibility, and actively working to shred its public debt.

The minister closed by outlining what he considered the five biggest challenges facing Colombia today. First and foremost is the peace process between the government and the Revolutionary Armed Forces of Colombia (known as the FARC). He also said it was important that the country see important social achievements take root, that infrastructure transformations take place, that the government consolidate its financial situation, and that Colombia continues to be a regional leader in economic growth.

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