July 2, 2000

Colombia: The Economic Survivor

by Paula Andrea Rossiasco

The Colombian economy has been one of the most stable in all of Latin America. Even though it has not achieved Gross Domestic Product growth rates as high as Chile, Colombia has maintained a relatively stable pattern in various macroeconomic categories. The contemporary economic history of Colombia began in 1990, the year that President Cesar Gaviria began his term in office.

President Gaviria made a series of economic modifications that changed the productive structure and brought the country the highest levels of growth (approximately 6% annually) and its most favorable economic conditions of the last 20 years. Fundamentally, it had been a closed economy for commercial export that radically protected domestic production. To open the country to international trade, Colombia had to make its productive processes more competitive in order to survive in the global marketplace. In this process some people gained and others lost.

Industrial sectors that constituted the productive base of the country could not maintain their less competitive processes regarding cost and quality. The most affected were the small businesses that produced at a higher cost because they lacked the necessary technology. On the other hand, this "opening" process had a positive influence on the commercial image of Colombia as it opened new markets and created a new, more open-minded, business class that allowed industrial sectors to explore comparative advantages that were previously being wasted. However, the opening has amplified social problems; such as, an unqualified workforce and the closing of small businesses. As a result, there has been a significant reduction in the income of the middle and lower classes, a lowering of the standard of living and fewer opportunities.

A country with relatively stable social conditions could, given time, cope with the adjustment process required to deal with the aforementioned problems, eventually achieving significantly higher economic growth and stability. However, Colombia does not possess these characteristics. It is a country that has the misfortune of being a producer of high quality marijuana and the purest cocaine in the world.

This has resulted, for obvious reasons, in a "narcotics industry" that, besides having immense social inequalities that have motivated guerrilla groups of varying ideologies, has resulted in Colombia being one of the most corrupt countries in the world. Furthermore, the lack of an education-based social structure does not offer much hope that this situation will change in the foreseeable future.

Colombia is a country very susceptible to social problems and these problems do not permit the creation of an environment that is appealing to the international investment community; thereby, impeding major growth and increased stability. However, Colombia has not suffered from hyperinflation or massive currency devaluations. On the contrary, it has been the only Latin American country with moderate levels of inflation (historically, average levels of approximately 25%) and devaluation, which has permitted it to be competitive on the world level. Colombian exports to the rest of the world, principally the United States and the Community of Andean Nations, have permitted the country to survive the economic crisis and to actually recuperate, allowing Colombia to endure a critical social situation and further show its stability in economic matters.

In the near future, Colombia will have to confront two principal problems. Firstly, to counteract investor uncertainty caused by an inconsistent peace process that needs to offer a reasonable resolution to the violence. In other words, a real and enduring peace that creates the necessary confidence in the international community that will result in a reduction of the fiscal deficit and attract major levels of foreign productive investment. Secondly, Colombia needs to create focused mediums that improve the distribution of the national income and riches in order to offer better opportunities to all Colombians that will result in the growth of human capital and achieve a high, sustained and more equal development.

Paula Andrea Rossiasco is currently studying economics at Santo Tomas University in Bogotá, Colombia. Translated from Spanish by Garry Leech.

This article originally appeared in Colombia Report, an online journal that was published by the Information Network of the Americas (INOTA).

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