Media: Economist.com
Byline:The Economist print edition
Date: 15 october 2009

But difficult to return to rapid growth

When the figures are finally tallied, Colombia may prove to have weathered the world recession better than any other of the larger Latin American countries. After a slight contraction at the end of 2008, the economy has been growing modestly this year. This resilience stems from continued foreign investment, an increase in government spending on public works and easier money: since December the central bank has cut interest rates by six percentage points, to 4%, a steeper drop than anywhere in the region outside Chile.

But recovery risks being almost as gentle as the downturn. Whereas Brazil is bouncing back strongly (see article), Colombia can expect growth of just 2.5% next year and 3% in 2011, reckons Óscar Zuluaga, the finance minister. Whereas Brazil, Chile and Peru benefit from China’s hunger for commodities, Colombia’s exporters face difficulties. Their biggest market, the United States, is depressed; Venezuela and Ecuador, which take many of their manufactures, have imposed trade barriers.

Even so, Colombia’s economy has dramatically improved in recent years. President Álvaro Uribe’s security policies have helped to restore confidence. Investment soared, from 15% of GDP in 2002 to 26% last year, says Mr Zuluaga. Private business has retooled. After many delays, the government has issued licences to expand several ports; this month it hopes to award a contract for the first of four big road schemes, costing a total of $7.5 billion over four years. It hopes for investment of up to $50 billion in mining and oil over the next decade.

Indeed Colombian officials, like their counterparts in Brazil, worry that a big increase in commodity exports will strengthen the currency (which has already risen sharply against the dollar) and hurt local manufacturers. They are thinking about setting up a Chilean-style offshore stabilisation fund in which to park some of the commodity revenues.

That is a nice problem to have. Others are more humdrum. Both unemployment (12%) and the poverty rate (46%) are above the regional average. Mr Zuluaga says that is because more women work, and the national poverty line is higher than elsewhere. Maybe, but the next president, due to be elected in May, will struggle to generate the feel-good factor that Mr Uribe has enjoyed.