The name of Carolina Soto (Bogotá, 49) is often heard in the midst of Colombia’s polarized presidential campaign. The economist was co-director of the Banco de la República until August of last year, when she resigned due to the presidential aspirations of her husband, former minister Alejandro Gaviria. Soto was by her husband’s side in her truncated career to lead the political center, but her name now sounds on any side of the political board. With Gaviria already out of the game, the right and the left have flirted with the idea of improving his options by including among their ranks one of the most renowned economists in the country. She, surprised by the offer, rejected the two favorite candidates to preside over Colombia from next August: Gustavo Petro (left) and Federico Gutiérrez (right).
Ask. Colombia grew above 10% in 2021. How did it do it?
Response. The country grew at a much higher rate than all markets and analysts expected, showing particular strength compared to other countries in the region. This is due to a solid institutional framework, due to the ability of Colombian businessmen to respond to change. The agriculture, manufacturing and trade sectors, which have traditionally been strong, made a quick recovery as the economy opened up. Already in the third and fourth quarters of last year, the level of production before the pandemic had been recovered. It is a response that shows the unknown strength that we had in the Colombian economy.
P. How does the current world situation affect Colombia?
R. The increase in oil prices has favored in two parts. On the one hand, for public finances, because it has allowed, or made more flexible, that urgent need for a tax reform this year. On the part of fiscal revenues, it has come to alleviate this need, as well as that of external financing (current account deficit, which is also very high). Let’s say that it has been like the equivalent of a tax reform, although it is a short-term relief. It has also been important for the Colombian oil company, for Ecopetrol; It has given it air and a greater capacity to start new explorations and new projects moving forward.
P. But poverty is still around 40%.
He knows in depth all the sides of the coin.
R.That is the other side of the coin, the difficult one. Despite its outstanding growth in the region, Colombia has had a very strong decline in terms of poverty that we have not been able to recover. We have also been characterized by having higher unemployment than the rest of the region. Now that the economy has been recovering, the same has not happened with employment. Added to this is rising inflation. With a complex, unbalanced labor market, with an informality of 50%, now comes an increase in prices that naturally affects the poorest.
P.What is the problem of the labor market?
R. Informality is so high because of the very structure of our economy and because labor costs are very high and mean that people cannot be hired or employed easily. Labor cost overruns are exacerbated by the 10% increase in the minimum wage. The Government sticks out its chest with 10% because it is the highest it has been in recent years, and it also arrives when inflation rises, but it created an additional barrier.
P.Will the Banco de la República continue to raise rates?
R. What would be expected is yes. In such a dynamic economy, it is no longer necessary to have that stimulus that was the interest rate. That is why it has been increasing and I think it will continue to be able to control inflation without overheating the economy.
P . Is the fear that Petro generates among the economic power groups reasonable?
R . I believe that the fear of a change in the economic model is well founded. Colombia, for better or worse, has been a country that has advanced. In social matters, although they were partially reversed with the pandemic, we were able to make significant progress in reducing poverty, health coverage, education, telecommunications, and energy. From where one looks, Colombia had spent almost three decades with significant growth, achievements and social and institutional advances, which can be put at risk. A change of model, which is what Petro is proposing, generates fear in some sectors.
P . Many people do think that the model needs to be changed.
R.We have a model that has given favorable results and, if well managed, can result in a greater social benefit. With all the difficulties, with all the gaps that need to be closed. Progress has been dramatically reversed by the pandemic, and that has in part led to so much discontent and frustration. The pandemic made the fragility of our welfare state and the need for adjustments more evident
P.How much does the country depend on the results of the polls in economic matters?
R.In the short term I don’t see much risk. Colombia has solid institutions in economic matters, it has that characteristic of having a technocracy that has managed to carry out the reforms and consolidate a very strong institutional framework, it cannot deteriorate quickly. Politically, it also has a good system of checks and balances, the distribution of powers means that an explosive deterioration of our economy cannot take place. It is a longer term problem.
P.What structural reforms should be made?
R.First, the tax reform. Second, the pension reform. Nor is it required immediately, this government could kick the decision forward again, but it is a ticking time bomb. Only 20% of older adults who should be receiving a pension receive it. And the third is a labor reform, which allows more flexibility and ease in hiring.
P. Was the tax reform of the Duque Government that caused the protests in 2021 good?
R.It addressed many of the issues that are being mentioned today as proposals of the different campaigns. It greatly simplified the resources for subsidies, it allowed for better targeting, a greater contribution, it pointed to the basic issues regarding taxes, to make it simpler, more progressive, more efficient. The reform came at a complex time, in the midst of a crisis, without any legitimacy and could not be explained. It triggered the social chaos that followed. The lesson is that without legitimacy and opportunity there are no good proposals.
P.They have sought her from the right and left for a hypothetical next government.
R. Well, there were some approaches to support two of the campaigns. But right now I think it’s better to focus on the new project I have with my husband. In shaping a foundation for the development of new leadership, political training and dissemination of liberal ideas.
P.He has spent his entire life in the public sector. What is the first problem of the country?
R.Mistrust and lack of social capital. I believe that this is the basis and foundation of all our difficulties and barriers for business, for social development, for people’s interactions. We need to convince ourselves of the need to comply with the rules, in all areas, to defend and respect the institutions and to know that whoever breaks the rules will be punished. But what we have seen recently is that we are going in the opposite direction. Promoted from the same Government. Very unfortunate.
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