Interview: Gerardo Corrochano
How can Colombia further diversify its economy, and what barriers have there been to doing so?
GERARDO CORROCHANO: Colombia’s export revenues were hit hard by the fall in oil prices, and the account deficit reached 6.5% of GDP in 2015. However, the depreciation offers opportunities for other exports, especially in the manufacturing sector. To exploit this would be important in helping firms become more productive, specifically by improving their managerial capacities and boosting innovation. Currently, there is a big gap in terms of managerial efficiency relative to similar small and medium-sized enterprises in Latin America and other OECD countries. A key factor that has limited innovation is lack of competition driven by non-tariff barriers, high costs and a burdensome business environment. Barriers to credit, especially for younger companies, are also a problem. Improving business regulations and the competition policy would enable the market to work more efficiently and would allow productive firms to grow, while providing the appropriate incentives for unproductive ones to shrink or exit.
What is your assessment of the capital markets sector in Colombia relative to the region?
CORROCHANO: Colombia has a moderately efficient and liquid local currency government bond market, with foreign investors holding around 20%. It is the fourth market in the region in terms of depth and liquidity after Brazil, Mexico and Chile. The challenge is to develop a larger and more diversified market in non-government bonds and equities that can channel long-term savings into the real economy. The government has been modernising its regulatory framework, but two structural bottlenecks remain. The first is that banks dominate the financial sector, providing more competitive financing than the capital markets. The second is the high degree of concentration in pension funds. The recent fourth generation of road concessions, with an estimated investment of $20bn in public-private partnerships, may help catalyse deeper and more diversified capital markets through infrastructure project bonds, and by opening up space for increased issuance of non-government bonds.
Is there risk of losing ground on the social gains there were made in the last decade in terms of income equality and redistribution?
CORROCHANO: Colombia has managed to improve income distribution through a more progressive tax-transfer system, although inequality remains high. Government transfers are now strongly pro-poor and contribute to impressive social gains. Moderate poverty fell almost by half – from almost 50% in 2002 to 27.8% in 2015 – and for the first time there were more middle class Colombians than lower class. However, the current regional slowdown could pose risks to these gains, since economic growth was responsible for over 80% of the reduction in poverty. So the challenge is to find new engines for inclusive growth – including more investments in infrastructure – mobilising the private sector and building human capital.
What kind of warranties should multilateral organisations include in their programmes to fight corruption in the country?
CORROCHANO: This is a big global challenge and transparency is the strongest tool in fighting it. Support to all member countries of the World Bank Group is based on the principle of good governance, which includes helping deliver public services effectively and efficiently; fostering a transparent regulatory environment that allows the private sector to create good jobs; and confronting corruption to enable citizens to trust institutions. All procurement in projects financed by the World Bank follows strict policies and procedures, which include annual audits for each project.
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