Economist discusses Colombia
By Mauricio Rom'an
In the context of the Lost Decade for Latin America, Colombia's economic performance was outstanding, Rodrigo Botero Montoya '56, former Colombian minister of finance, said in a talk yesterday. Botero's discussion centered on Colombia's economic development in the 1980s in the context of the Latin America's development as a whole.
Reviewing the economic performance of Latin American countries in the decade, Botero said the results were disappointing. Most countries in the region had negative growth in gross national product. For instance, Argentina, Peru and Venezuela had over 20 percent negative growth, Botero said. Colombia's economy, however, grew by almost 14 percent and, along with Chile, was the leading country in economic growth in Latin America.
Not only was Latin America plagued by negative growth throughout the 1980s, but inflation was rampant in the region. Botero pointed out that the average inflation rate for the region in 1989 was 994 percent. Argentina, Peru, Bolivia and Nicaragua had inflation rates of more than 1000 percent last year. Colombia had a 27 percent inflation rate for the same period.
The positive trade surplus for the region, which amounted to $28 billion last year, was not enough to pay back the growing international debt -- $410 billion as of last year. Debt as a fraction of GNP for the region grew from 39 percent during the 1970s to 56 percent during the 1980s, Botero said.
Colombia's debt/GNP ratio grew from 20 to 25 percent. In comparison with exports, debt was 316 percent for the region, while for Colombia it was 206 percent. Economists regard less than 200 percent as ideal for Latin America. In the secondary market, Latin America's debt as a whole is worth 27.5 cents to the dollar. Colombia's debt is worth 64 cents to the dollar.
To improve the payment of the debt, countries in Latin America needed a dynamic export sector, Botero believed. In Chile's case, an opening of the internal economy to international markets has led to economic recovery, he said.
Policy makers learn
from past mistakes
During the 1980s, Latin America suffered adverse circumstances. Internally, public expenditure and real wages decreased, there was capital flight and deterioration of plants, and priorities and investment strategies changed. Externally, the price of primary commodities, which comprise the region's main exports, decreased.
Policy makers in the region have come to the conclusion that the economic decisions of the 1970s were seriously mistaken, Botero said. Two assumptions dominated the economic thinking of the time.
First, it was believed that import substitution was better than export labor growth, an attitude that Botero termed "export pessimism."
Second, most thought industrial nations would become protectionist, and thus it was believed that it was better to industrialize internally. A bias developed, shifting resources from agriculture to industrialization. Foreign investment, which had been welcome, was discriminated against by the Andean countries -- only Brazil continues to welcome foreign investment.
Governments of most countries invested in large enterprises and intervened in the form of excessive regulation -- a policy that was expensive, inefficient, and corrupting, Botero said. This attitude, coupled with the notion that "debt is better than equity," was reflected in the debt-led development model that was followed after 1973.
There is now a regional reconsideration of these policies. Export-led growth, regaining macroeconomic equilibrium, and a greater emphasis on the private sector are the main policies being considered.
Application of these policies would lead to a reduced size of the state corporation and to a privatization of a large portion of the economy, as is the case now in Chile.
Most Latin American countries are currently struggling for increased domestic savings (to finance growth from home rather than from abroad), a recovery of economic growth, and reduced inflation.
Colombia's economic situation is favorable in relation to other Latin American countries. It experienced 3.5 percent growth, a 27 percent inflation rate, and less than 10 percent open unemployment.
It has a policy of servicing debt and increasing capital income, and its export sector has diversified. For example, in the 1950s coffee was 75 percent of exports. It now is 25 percent. Coal, gold and nickel mining have surged, and after recent oil reserve discoveries the country is now exporting crude.
One aspect of Colombia's economy which makes it different from the regional trend is the long-term continuity of its economic policy. This provides financial stability for the private sector, Botero said.
There are three main policies that encourage this stability. First, the exchange rate policy has tried to minimize shock to the export sector. There are no overnight devaluations, and while there is no official forecast, firms can predict the exchange rate a year ahead with a two percent accuracy. Second, there is a policy of curbing inflation once it rises near 25 percent. Third, since the 1950s, many attempts have been made to curb social inequalities.
Botero pointed out the work of Juan Luis Londo~no, a Harvard graduate student, who has calculated an "inequality index." This index measures the ratio of income held by the richest 20 percent of Colombian society to that held by the poorest 40 percent. The ratio increased from 6.0 in 1930 to 7.2 in 1957, reflecting increasing inequalities during that period. The index, however, fell to 3.8 in 1988.
In retrospect, while Colombia's economic performance is good relative to its neighbors, it is mediocre when compared to rapidly industrializing Third World nations such as Korea, Botero said. Colombia is a very inward looking country, isolated in its mountain valleys, and needs more interaction with the outside world, Botero asserted.
Colombia has plans to open its economy to international markets this decade, Botero said. But implementation of this policy will be difficult because the monopolies and oligopolies created and maintained by protectionist government policies are unwilling to have to compete for their markets, he noted. Competition is a dreaded word among the private sector of the country's economy, Botero said.
Other Latin American countries are also trying to open up their economies, some with more success than others, he added.
Botero indicated that Colombia needs to invest more in education. Investment in so-called "human capital" is essential in economic development, but in Colombia's case such investment is being crowded out by investment in the exporting sector.
Developing a productive agriculture is a basis for good industrialization, Botero said, and he pointed out that in the past few years Colombia's agriculture has increased its productivity. This change is reflected in a rise in rural wages, which are almost at par with urban wages.
According to Botero, Colombia has the potential to achieve a large economic growth this decade. However, in order to do so, it must successfully contend with its two major "non-economic" problems -- the drug cartels and the guerilla campaigns against the government.