Colombia’s economy may have suffered a hiccup, but it continues to outperform its regional peers amid a slowing of the commodities boom.
The national statistics agency said on Tuesday that gross domestic product grew 4.3 per cent in the second quarter of the year, below analysts expectations.
Colombia’s proposed higher wealth tax has been seen by some as vindication of Thomas Pikketty’s best-seller, Capital in the Twenty-First Century. But others, including some within the Colombian government, say the move to raise taxes on the rich simply brings an existing tax up to date.
Still, certain government insiders say Piketty’s writings have been much seen on the desks of senior officials in recent months. In his book, Piketty argues that inequality is a central feature of capitalism that can only be reversed through state intervention. Colombia, in spite of some recent advances, is still one of the world’s most unequal societies.
Colombia’s Banco de la República, the central bank, raised the benchmark rate a quarter point to 4.25 per cent on Thursday. This is the fourth consecutive hike, as the bank has been withdrawing monetary stimulus, amid faster growth in the fastest growing of the major Latin American economies.
Recently re-elected Colombian president Juan Manuel Santos starts his second term in less than a month. As he won the election partly thanks to backing from an array of political actors – from leftists, to conservatives, to liberals – many think he may have some expensive favours to repay.
But foreign investors will probably be relieved that on Monday afternoon he gave his finance minister, Mauricio Cárdenas, a vote of confidence and reappointed him in the post.
It all seems to be going so well for Colombia: its national football team has reached the quarter finals of the World Cup for the first time, the economy grew by a startling 6.4 per cent in the first quarter, while unemployment hit a new low last week at 8.8 per cent, and economists say confidence is riding high.
But officials appear to be worrying once again about one of the hazards of economic success: the appreciation of the peso.
The monetary policy committee of Colombia’s central bank on Friday raised the benchmark interest rate a quarter percentage point to 4 per cent. This is the third hike in three months.
Colombia’s economy has been performing strongly and inflation has been accelerating, leading to a monetary tightening, say analysts.
Colombia’s GDP data for the first quarter of 2014 came earlier than expected on Thursday morning, as if to be sure to avoid any distraction during the national team’s World Cup match against Ivory Coast.
The numbers gave Colombians a reason to cheer ahead of the game: the national statistics agency said GDP grew 6.4 per cent, more than analysts expected.
Another month, another hike: the monetary policy committee of Colombia’s central bank on Friday night voted unanimously to raise the benchmark interest rate a quarter percentage point for the second straight month, to 3.75 per cent. José Dario Uribe, the bank’s chief, told reporters that “the gradual adjustment of the expansive monetary policy reduces the need for abrupt changes in the future and ensures macroeconomic stability”.
Colombians head to the polls on Sunday with the leading candidates for president separated by a shrinking margin that has suddenly made the race too close to call. Instead of a shoo-in for the centrist incumbent, Juan Manuel Santos, the campaign has turned into a bitter “dirty war” over the handling of a peace process with Marxist insurgents of the Farc that could finally end one of the world’s longest-running armed conflicts.
Far be it from Latin countries to indulge in some pre-World Cup schadenfreude. Nonetheless, different emerging markets have clearly been affected very differently by the recent bout of market turbulence. Take those distant neighbours, Colombia and Argentina. Two years ago, finance ministry officials in Bogotá threw a cat among the pigeons when they declared that the Colombian economy was larger than Argentina’s, making it the third biggest in the region (after Brazil and Mexico). Buenos Aires quickly harrumphed back: “Not so!” For one, that might only be the case if you converted Argentine nominal GDP into US dollars using black market (and thus illegal) exchange rates, rather than the “true” official one.
It looks like Colombia’s economy is coming back to the boil.
Official growth figures for the third quarter show that the economy grew 5.1 per cent, compared with the same quarter a year earlier, beating the consensus forecast of 4.3 per cent.
Aside from some dynastic billionaires, until recently new wealth was viewed with suspicion in Colombia, being a possible result of drug trafficking.
But times seem to have changed. Although drug kingpins still exist, they are less conspicuous – gone are the times of Pablo Escobar’s hippos and Rasguño’s Ferraris – while legitimate fortunes appear to be on the rise. That’s according to WealthInsight, a research company, that claims that in recent times Colombia has created millionaires quicker than Brazil and Mexico.
Colombia’s central bank on Friday left its key interest rate unchanged at 3.25 per cent for a sixth straight month. The decision, which was widely expected following last week’s strong growth data, was unanimous.
In its bid to revive economic activity – which had slowed after reaching almost 6 per cent in 2011 – the central bank cut its benchmark rate by 2 percentage points between July 2012 and March 2013, to the lowest among major Latin American economies.