Lawyers, Liars and Murderers
New numbers related to the demand side of growth surprised almost everyone, due to the unexpected depth of the slowdown. Remember that aggregate demand grew only 1.1% during Q1, below already-low expectations of around 1.5%-1.7%. Too, poor investment performance is greatly influenced by investment in machinery (down 4%) and construction equipment (down an astonishing 7.5%). These two areas account for almost 56% of investment. We see that the only reliable source of growth is public spending, mostly on infrastructure.
So the slowdown, instead of correcting during Q1, deepened, against almost everyone’s predictions, notably the government’s. All components of demand except public spending showed a very poor performance. For a long time, growth has been dependent either on non-tradable sectors, such as construction or financial services, or on sectors (or components of demand) with a high base of public expenditures, such as public services or construction. At some point such a strategy stops working, and ends up doing more harm than good. It seems that point has already been reached. For example, the lack of adjustment of public finances is interfering with the normal return of inflation to the target range, and making the necessary adjustment much harder to undertake. And, of course, the positive impact on growth is shrinking. Eventually, it will disappear, precisely when a tougher adjustment will be compulsory.
Slowdown is starting to show up in social indicators, particularly in those related to poverty. After at least seven years of falling monetary poverty (from more than 40% of the population in 2009 to less than 28% in 2015), in 2016 this very positive trend was abruptly interrupted. Last year monetary poverty increased slightly.
A forthcoming HBO or Netflix series on current events Colombia could, in the tradition of narcos, be called “lawyers, liars and murderers.” It might describe how, to start with the murderers, the FARC’s peace process soon opened hunting season for all types of thugs and gangs to fight for control over those areas formerly occupied and ruled by the FARC. The most prosperous industry in Colombia currently is not cocaine trafficking or legal pharmaceutical cannabis processing: It is grabbing the channels through which state resources target the poorest in the poorest and most violent regions -- and in the affluent ones as well.
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