Colombia was not used to debating its direction on economic policy issues with such intensity. However, the social mobilizations of 2019 led to a popular clash against a fairly stable formal model that had been agreed upon for decades. In the end, the pandemic revealed its worst chiaroscuro effects. Today, the first left-wing government in what is now Colombia has shaken its foundations with proposals for meaningful reforms, and the majority of economists are wary of the risk of going off the rails in the midst of a risky situation. Things aren't quite right.
The macroeconomic picture fluctuates between high and sustained inflation, which is expected to be around 9.5% by the end of the year; a 3% decline in product in the third quarter of the year; and a still worrisome budget deficit of 4.3% of gross domestic product. The fronts are diverse and complex. And while analysts acknowledge the country's economic progress in recent decades, they also agree that it has been uneven and that there is still urgency to prioritize. Leopoldo Fergusson, a doctor of economics at the Michigan Institute of Technology, avoids the idea of success of some former finance secretaries who today paint a catastrophic picture to extol the virtues of previous administrations.
It recognizes that the system has succeeded in lifting millions of Colombians out of poverty for decades. The quality of life has undoubtedly improved. And yet the level of inequality continued to be “exorbitant”. This is perhaps the greatest flaw, the endemic and characteristic evil of the economic policy model that governments have chosen in recent decades. Suffice it to remember that in the best years since statistics began, one in ten Colombians lived in misery, two in a situation of multidimensional poverty and three did not have sufficient income to buy basic consumer goods.
That is, the country grew asymmetrically: “Without the government programs, aid and subsidies during the pandemic, the catastrophe would have been total.” “Our social protection net, which has gaps in coverage and quality depending on the service, has been subject to a number of undesirable distortions developed,” explains Fergusson on the phone. Daniel Castellanos, a Masters in Economics from Westfield College in London, agrees: “The decline in poverty over the last 20 years has been spectacular. And yet, if you look at the social situation as a whole, it is still pathetic.”
Monetary poverty, which measures, among other parameters, an individual's ability to cover basic needs, fell by three percentage points in 2022, affecting 37 out of 100 Colombians living on less than $100 a month. The vulnerable population that has overcome the state of poverty but is vulnerable to relapse amounts to 14.5%: “70% of the population lives in a state of poverty or vulnerability with data from 2021,” he adds added .Castellanos. Why did the governments' proposed remedy fail? “It's a way of seeing the world. The state was quiet because the economy was growing and the general standard of living was improving, but there was never any thought of redistribution, leveling or accelerating the search for greater justice.”
Also remember that in Colombia there is no effective protection for the unemployed, public education is a “disaster,” and the pension system only covers “less than a quarter of the retirement-age population.” However, Sergio Clavijo, an economist and academic at the University of the Andes, raises a dissident voice. Although he recognizes the deficiencies in education or in the labor market, he rejects the theses that point to the shortcomings of the model: “In education, Fecode was the biggest obstacle.” And at the working level there are many variables, but I want them Highlight waste of free trade agreements.”
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A woman buys fruit at a market in Cauca, Colombia, in an archive image.David Lombeida (Bloomberg)
For Clavijo, given the data, “it is very difficult to establish a clear connection between social frustration and an economic dynamism that was on the right track.” In his analysis, he often refers to the Chilean case, which ended up being the same because of its enviable growth rates was seriously questioned. Luis Fernando Mejía, economist and director of the Fedesarrollo think tank, similarly recalls that Colombia was the only country in Latin America that did not have to restructure its debts after the Second World War: “And with Mexico we were the only country in the region , which has not experienced hyperinflation. “This is a valuable asset that helps us halve multidimensional poverty in the last 11 years.”
Mejía similarly recognizes that the biggest failure lies in the labor market. Fedesarrollo, together with economist Eduardo Lora, prepared a document in 2021 in which they proposed some points to promote a “new social contract”, with a particular focus on the integration of millions of Colombians into “a modern and formal economy”. A range of solutions to address the huge problem of 75% of older adults reaching old age without a pension.
Numbers like the previous one are alarming. However, Stanford University academic Javier Mejía puts into perspective and separates “levels of inequality that are very similar to those in the rest of the region” on the one hand, and the state’s inability to “provide high-quality public goods” on the one hand. for the others. The dean of economics at the Universidad de los Andes, Marcela Eslava, adds that the problem lies in trying to find a decontextualized formula: “In Colombia and more generally in Latin America, the social security systems are dysfunctional in the sense that they do.” do not generate coverage. A welfare state blueprint was adopted in the developed world without foreseeing that its implementation would lead to high levels of informal employment in a context of lower productivity.
There is little doubt that economic policy has been inconsistent, directly or indirectly, in the task of closing the gaps. For example, today the Gini coefficient of income (2022), an indicator that measures between 0 and 1 inequality variables, is 0.46 (the higher the value, the worse the income distribution). “For three decades we have witnessed a constant tension between a constitution (1991) that obliges the state to guarantee people basic rights and public services, and a political and economic system that seeks macroeconomic stability within a model of high inequality, low redistribution and… ensured a lot of clientelism,” says Fergusson.
A scenario that provided a panorama of relative calm for decades, summarized in a popular saying: “The country is doing badly, but the economy is doing well.” A sentence that links unresolved social, cultural, economic and political issues: “ There is something very important,” recalls economist and academic Oskar Nupia, “and that is that Colombia has never experienced high, sustained growth rates for long periods of time.” Without this, we will never be able to emerge from the high To get out of the poverty we have, to build a good public education and pension system or to create companies that adapt to the major global production chains. “That’s where the world is going.”
The government of Gustavo Petro, the first president who was never a member of either traditional party, presented itself as a catalyst for all social discontent and with the promise of change. However, the results 16 months later are modest. In addition to all the criticism of his reforms, of which he was only able to implement the tax reform, there is also the lack of a strategy for implementing innovative topics such as the national economy, reindustrialization or the energy transition. It is not surprising that a large proportion of analysts are watching the moves of the executive branch with a certain concern, since there is a latent possibility that the country will be left without the old model and adopt a flawed one and full of improvisations.
A unique historical circumstance whose roots, for some, had already emerged since the second half of the right-wing Iván Duque's government: “Because of their political weaknesses, they sensed that a very strong change was coming. Almost no one remembers it now, but Minister Carrasquilla, the conservative technocrat par excellence, passed two tax reforms with all the points that multilateral organizations advised against. He made the fiscal rule more flexible and changed the formula for measuring the deficit. The decades-long consensus had already been exhausted,” Fergusson notes.
A series of measures that ignored economic orthodoxy regarding macroeconomic stability. The goal? Alleviate citizen discontent and prevent the left from coming to power. A failed attempt with explosive consequences on the streets of cities like Bogotá or Cali. The outlook for 2024 is nebulous given the threat of a technical recession. To make matters worse, political polarization has led to a kind of short-circuit between the private and public sectors when it comes to agreeing on necessary changes, for example in the pension system or the labor system.
If, as some theorists say, the success of an economy depends on the quantity and quality of jobs it can create, the Colombian economy could be described as precarious: “Colombia has a labor force of about 25 million people,” concludes Daniel. Castellanos, “Of them, about 23 million find employment and two remain unemployed. What is impressive, however, is that half of these 23 million must be self-employed. “Just over 55% of Colombians live informally, without unemployment insurance and in low-paying jobs.”
The big problem that the most orthodox economists and businessmen have apparently ignored for years, amid the still latent fear that adjusting labor laws would harm job creation. For Luis Fernando Mejía, there is no doubt that the current system has only led to a precarious and unfair scenario: “There is a productive exclusion in the design of our labor market. Atypical even in Latin America, and that largely explains what happened in the social outbreak.” That is why Leopoldo Fergusson concludes: “It is precisely a question of eliminating these distortions without damaging the things that exist in a state with diverse Qualities work. “We must move forward in building a new balance in the citizen-state relationship, with less clientelism and better structured protection networks.”
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