Colombia’s banks claimed Tuesday that “repressive” government policies are slowing them down and creating detrimental, informal markets.
“In Colombia, the controls on interest rates, forced investments to be made by banks in agricultural development, the tax on financial transactions, and capital requirements have been used in different occasions as instruments of ‘financial repression,” said banking association Asobancaria in a statement prefacing a study.
The government’s financial management has suddenly come under fire after a series of regulations and central banking measures that the financial sector said has contributed to excessive costs for banks and inefficiencies for brokerages.
“This turns into informal markets, in which illegality can satisfy itself at exorbitant prices,” says the statement.
Asobancaria’s Director of Economic Research Miguel Medellin told Colombia Reports that “the financial restrictions are also amassing serious costs in the long term,” and that in turn forces banks to cause adverse effects on vulnerable parts of society who need financial support.
Medellin said he wants to see politicians in congress consider the adverse affects of post-crisis policies and to use a similar pretext that Europe and the US used after the global financial crisis in 2008.
Asobancaria’s report uses variables like capital requirements, taxes on financial transactions, and interest rates to construct a “financial repression” indicator. Financial restrictions, according to the study, tightened significantly through the 1990s, relaxed slightly after 2008, but in 2010 began to climb considerably again.
Though Colombian banks might have grown disturbed by government regulation, Economist Marc Hofstetter says that there is nothing particularly new in the way the government’s policies restrict banking activities.
“It’s true that there are certain investments that banks have to make by law,” Hofstetter told Colombia Reports in a phone interview. “There are requirements that banks put money in bonds and the agriculture sector, and I imagine that’s what Asobancaria considers ‘financial repression,’ but these are laws that came into play years ago.”
However troubling the government’s microeconomic policy measures might be for the financial sector, Colombia’s macroeconomic practices have been received with relatively strong investor confidence and lauded by institutions like the World Bank.
Colombia Director for the World Bank, Gloria Grandolini, has praised Colombia’s macro-management, saying “Colombia is a good example of a country that manages external risks and shocks.”
Finance Minister Mauricio Cardenas has made it his plan to turn from a focus on lowering risks toward lowering costs for agriculture and industry. Stabilizing an economy that was battered by a stormy peso during the latter half of 2012 is one of the Finance Minister’s biggest promises to the Colombian economy.
Agriculture and manufacturing sectors have suffered a squeeze in income after a sour season for exports in 2012, and in some cases, the industry discontent has led to waves of strikes across Colombia in the first half of 2013. Those strikes have heated up and are due to continue.
Asobancaria is a banking organization that represents Colombian financial organizations. Its 24 members include Bancolombia, Grupo Aval, BBVA, as well as a range of small micro-finance institutions.
Sources
- Interview with Miguel Medellín, Director of Economic Research (Asobancaria)
- Interview with Marc Hofstetter, Macroeconomics Economist (Universidad de los Andes)
- Costos de la represión financiera en Colombia (Asobancaria)