15 minutes of fame for everyone
The drastic reduction of Colombia’s external imbalance, in the last quarter of 2022 and all of 2023, was a most welcome development. For starters, monetary policy decisions are no longer facing the two-headed hydra of inflation plus excessive domestic demand. Furthermore, FDI is comfortably financing the current account deficit. But the necessary adjustment in the investment-national savings gap is, to say the least, problematic. The closure of this gap could have been, under a good scenario, due to national savings increasing to meet strong investment rates; a second-rate result would have been investment rates falling to meet a constant national savings rate.
Unfortunately, neither of these two options can be used to describe the Colombian macro adjustment process of the last 18 months. Instead, the country has experienced a drastic drop in savings, coupled with an even sharper fall in investment. The collapse of both in the “private sector” category is appalling; deleveraging, high interest rates high taxes and lack of confidence have each played their part. The public sector has followed a more parsimonious path. No wonder S&P based its change in Colombia’s sovereign debt rating outlook on the limited capacity to grow. But more investment won’t flood in just because the Central Bank keeps making monetary policy less restrictive. Animal spirits must be encouraged – and that goes for households, too.
The best short description we have heard of Colombia is that it is “a country of lawyers.” But some people stress that it is also a country of semantic and grammar experts, since people traditionally paid as much attention to the quality of one’s spoken Spanish as to what was said. Well-built sentences were crucial for conversation, even if they lacked substance, or were detached from reality (recall that this was the cradle of Macondo, and magical realism). Since the ‘60s, though, lawyers and grammarians have been complaining that Colombia has become a country of (or has at least been managed by) economists. We humbly consider that an overstatement, especially since the enactment of the 1991 Constitution.
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