With Colombia’s GDP growth expected to strike 4.8% this year, concerns still hang over the head of the South American country’s economy.
“The Colombian economy is emerging as one of the strongest in Latin America. We have a very consistent policy that now passes to another stage and focus on other problems, such as equity, poverty, and imbalances in growth between sectors, Finance Minister Mauricio Cardenas told economic newspaper Portfolio.
Cardenas pointed to its 2012 results as an effect of macroeconomic stability, where Colombia’s fiscal management has kept “low interest rates, low inflation, low deficits and low debt.”
The results in 2012, according to data from the central bank, showed a record-breaking $16.7 billion in foreign investment and a record high of $37.46 billion in foreign currency reserves – a 16% increase from 2011. The foreign investment is a main driver of growth for Colombia. Amassing foreign currency reserves act like insurance in the case of a major crisis as the country develops.
But the flashy numbers don’t let analysts rest too easy. Analysts who watch from the outside worry that Colombia’s massive wave of foreign investment last year is the culprit responsible for deep distortions in the economy.
David Reese, an emerging markets analyst, pointed out to the newspaper that because more than half of Colombia’s foreign investment inflows are destined for the energy and mining sector, this could spur the onset of a severe kind of Dutch Disease. Dutch disease is the condition where a commodities boom causes strong currency appreciation, which in turn undermines a country’s industrial and manufacturing sector.
Ed Dolan, an economist, explained that the behavior Colombia’s peso could result in the decline of competition amongst companies that compete with exports in markets abroad.
Despite the experts’ concerns, Cardenas said to expect Colombia’s consistent policies to turn another strong year of growth in 2013. But at the same time he says is conscious of Colombia’s struggles, and the problems that got in the economy’s way last year are, according to the Finance Minister, make up an “unfinished agenda.” Solving those problems “will depend on several factors.”
What got in Colombia’s way in 2012 is the focus of 2013. “[Industry] is being affected by two factors: the appreciation of the peso and weak global demand,” said Cardenas.
This one of the Finance Minister’s biggest worries, and addressing it goes hand in hand with the second phase of Colombia’s fiscal policy strategy. “The second pillar of the strategy is redistribution and equity,” he said. “To the extent that we succeed in strengthening the middle class and develop the domestic market, we will give more opportunity to industry. There is no single variable or intervention that will deliver results, you have to work on many fronts.
Cardenas, however, describes an agenda that will tackle those fronts. “The transport investment budget is unprecedented,” said the Finance Minister. “This, together with contracts that are ongoing and projects that are already in the investment phase should allow civil works to take the lead.”
Another important piece in the puzzle for Cardenas to get right is how to nourish entrepreneurship and trade agreements with Colombia’s regional partners, like Venezuela.
For how much optimism there is for Colombia in 2013, the Finance Minister still holds his own concerns when it comes to the complexity of the international economy, Colombia’s housing sector, and slowing administrative measures.
“We have to be vigilant.”
However unemployment is less of a headache for Cardenas. “As the economy grows above 3 percent [in 2013], the unemployment rate will continue to fall,” he stated.
Colombia’s Finance Minister is due to be in Davos, Switzerland, this upcoming weekend for the World Economic Forum. He says he plans to “tell a success story, talk about the importance of foreign investment and give the message that we respect the rules and that there is predictability.”
Cardenas will also stick to his guns when it comes to consistency on economic policy. “Colombia was not seduced by the model that is talked about today, such as Brazil. One should not be guided by fashion, but for consistency, with a long term vision.”
At Davos, the world’s wealthiest capitalists will listen to Colombia’s success story. Then they’ll have to figure out just how predictable Colombia’s promised results in 2013 will really be.