Colombia is one of the few countries best poised to face severe macroeconomic challenges in the years ahead, reported financial magazine America Economia on Monday, citing a report authored by Deutsche Bank Chief Economist Gustavo Cañonero.
Despite a roiled agriculture sector, slack in industrial productivity, continued problems with security for some businesses, and severe levels of poverty and inequality, Colombia’s fiscal and monetary policies, along with high rates of investment, has put it in a good position to face what Cañonero says is “an eventual international crisis.”
“The relatively high rates of investment in [Colombia, Chile and Peru]… in some way, reflect the best structure of those economies, that continue attracting international interest… they are growing more quickly than other economies in the region and in a sustainable manner,” Cañonero said in a report.
Colombia’s debt levels are low compared to its neighbors, it has managed to keep its peso relatively weak against the dollar, and a recent oil & mining boom has fueled the country with royalties. With interest rates at 3.25%, Colombia has kept financing cheap.
Though trade has decreased recently, observes Cañonero, “[Colombia] has been able to maintain solid growth in domestic demand.”
Along with Chile, Peru and Mexico, Colombia made a pivot to Asia, chartering the Pacific Alliance, an economic block charged with the goal of fostering trade relations with rising Asian economies and integrating capital markets.
MORE: Santos hails creation of Pacific Alliance
China and its Eastern neighbors are fueling a commodity cycle that has propelled resource-rich countries like Colombia forward. As commodity prices soared during the first decade of the 21st century, Latin America benefited.
Many analysts who are watching Colombia and its neighbors question whether the trend is a super cycle, meaning an eventual plummet in prices, or a general upward trend.
“Latin America, perhaps like no other region in the world, has its long term growth prospects closely tied to the answers to those questions,” says IADB Economist Mauricio Mesquita Moreira.
Beyond the pull on its exports, Colombia still faces challenges at home. The country revised down its growth prospects from 4.8% GDP to what the Finance Ministry believes to be a more likely 4.0% for 2013.
Additionally, foreign direct investment has waned. Compared to last year’s $15.8 billion in inflows from foreign investors, analysts expect investment in Colombia not to reach those levels in 2013.
Colombia faces structural challenges in security and infrastructure. Researcher at Bogota-based economic policy think tank, Fedesarrollo, Mauricio Reina, believes that security and infrastructure are the foundational roadblocks holding back the development of Colombia’s agriculture sector.
“There’s the whole matter of security in the countryside,” says Reina, referring to the economic challenges associated with Colombia’s nearly 50-year-long armed conflict.
“We’ve created a closed economy with bad infrastructure,” adds Reina.
There are plans in the works for improving Colombia’s infrastructure, like President Juan Manuel Santos’ proposal to complete the nation-connecting Ruta del Sol highway. The government is also nearing a year in negotiations with the country’s Marxist guerrilla group, the FARC.
A deal with the guerrilla, something Santos says he wants to complete by November of this year, could mean less defense spending, and more budget allocated for nourishing education and infrastructure.
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‘Time is running out, the people want peace’: Santos
“You have to find new sources of growth,” says World Bank Economist Jamele Rigolini. “And moving from a time of commodities-fueled growth to different sources of growth is the most challenging part.”
Sources
Peru, Chile, Colombia son las economias de la region mejor preparadas para una crisis (America Economica)
Chile y Colombia son los mejor preparados para crisis externas: Deutsche Bank (La Republica)
Commodity prices: cycle, super-cycle or trend? Implications for Latin America (IADB)
Interview with Researcher Mauricio Reina (Fedesarrollo)
Interview with Economist Jamele Rigolini (World Bank)