Weathering the Storm

COLOMBIA - Report 31 Jul 2016 by Veronica Navas and Mauricio Santa Maria

The July rituals mark the beginning of the new season of congressional sessions. Out of the many initiatives presented to Congress for approval, the two fundamental narratives of the current legislative period, running from July 20th 2016 to June 20th 2017, are the approval of a legal peace agreement of Havana and the tax reform (still to be presented to Congress).

How will the congressional coalition work on these proposals? Namely, the far left, opposing the Santos administration will most likely support the peace related laws, and many conservatives and liberals, who side with the government, will however oppose the tax reform or other labor-code reforms. In sum, the well-functioning coalition will probably work fine for peace and badly for taxes, teachers' issues and the labor code.

The labor market keeps surprising everybody, month after month. Despite the fact that economy (especially demand) is already sending clear signs of a somewhat strong slow-down, unemployment and other labor market indicators still display a good performance. The unemployment rate for May was almost identical to the one observed one year ago (May 2015), and still well below the government´s goal of 10% (it was 8.8%, compared to 8.9% one year ago).

The trend of formal employment growing at a faster pace than informal one was still evident in May 2016. This trend has implied that while self-employment grew 8% over the period 2011-2016, formal salaried employment did so by almost 27%, that is, more than three times than informal self-employment. Thus, it seems to be the case that either the slow-down has not been so hard, or the labor market, after the reforms of 2010 and 2012, has become more able to adjust to the cycle due to lower hiring and payroll costs.

For the third time during this government, the country had to go through a long and hard strike, carried out by most of the truck drivers and entrepreneurs of the country. This was the longest transport strike in the history of Colombia, lasting an endless period of 46 days. Some estimations put the cost of the strike at around 2-3 trillion pesos (0.25-0.4 of GDP), which gives an idea of the magnitude and importance of the event.

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