Researchers collaborating on a fiscal and monetary history of Colombia gathered to review and discuss work in progress at a workshop in Bogotá on November 18, 2016. The session was hosted by The session Banco de la República (Central Bank of Colombia) and Universidad de los Andes. University professors and former and current researchers from the Central Bank and policy makers discussed the paper written by David Perez-Reyna and Daniel Osorio-Rodríguez.
Hernando Vargas, deputy governor of the Central Bank of Colombia, opened the workshop focusing on the central bank’s role in shaping monetary policy in Colombia, especially after 1991, when a new constitution established its independence. After an introduction of the project by Juan Pablo Nicolini, co-director of this historical research project, Perez-Reyna presented the work for Colombia.
He divided the fiscal and monetary history of Colombia into three periods, based on the main source that the Colombian government used to finance its fiscal deficit. He threaded the discussion of the three periods by analyzing why Colombia appears to be an exception relative to other Latin American countries with regard to gains from macroeconomic volatility in light of moderate growth equal to its neighbors. A main conjecture in this history is that Colombia managed to counteract poor policies through fiscal repression, especially through tightening reserve requirements.
After the presentation Perez-Reyna chaired two panel sessions where university professors, researchers from the Central Bank and former policy makers commented on the paper. Although the conjecture mentioned in the paper is supported by data, there was an emphasis on considering alternative hypotheses that might explain the exceptionalism of Colombia.
For instance Miguel Urrutia, former governor of the Central Bank of Colombia, mentioned that Colombia had an episode of hyperinflation during the early 1900’s. The impact of this episode was so substantial that Colombian policy makers developed a fear for inflation. Regardless of how poor monetary and fiscal policies were, inflation was not allowed to go beyond 30%.
Another hypothesis was that Colombia was lucky: in the late 1970’s the price of coffee increased by almost 600%, at a time when the share of coffee exports was close to 60%. This surge helped Colombia avoid very high levels of foreign debt, and therefore in the early 1980’s Colombia didn’t experience an economic crisis as extreme as other Latin American countries.
Timothy Kehoe concluded the workshop by discussing these hypotheses. He emphasized that there might be more than one possible explanation for the economic performance of Colombia. However, it would be useful to be able to pinpoint the major factor. Financial repression seems to be a good candidate.