Free The Recent Political Economy Of Colombia Report Example

Introduction

Over the last decade, Colombia has experienced a substantial economic boom. The country’s aggressive promotion of free trade agreements and consistently comprehensive economic policies in recent years has boosted its capability to weather the external shocks. Colombia is a robust economic force in South America. Since 2000, the country’s Foreign Direct Investment and exports have improved significantly. Colombia is a healthy free market economy. The country’s commercial ties with the world’s major economies and investor confidence are on the rise. The country’s economic policies have improved credit rating and raised interest from the foreign investors. Although the complicated security situation and political violence are still evident in daily life in Colombia, its economic development remains favorable. For this reason, the present paper delves into the country’s latest balance of payment issues, trade policy and preferential trade agreement, and recent poverty and human development history.

Colombia’s Balance of Payment

When President Carlos Lleras Restrepo came into power, Colombia did not have a centralized economic planning. In addition, the inflation was escalating, and the economy was unstable. It is worth noting that President Carlos initiated an austerity program, which included tight credit policies, trade and exchange controls, the determination of priorities in public investment, a balanced budget, and tax reforms. In the 1970s, 1980s, and 1990s, Colombia prospered in strengthening its national account surplus. Colombia has continued to emphasize on import substitution, export expansion, and continuation of foreign assistance. The country has primarily enjoyed a lasting and a quite favorable relationship with the global financial systems thanks to her tradition of remaining current on her payments. Colombia’s relationship with the lenders and IMF has from the past been good due to the careful economic policy course that the country has been following. Of late, Colombia’s debt has been decreased. In addition, the direct investments in Colombia have largely covered its limited current account balance deficits.
Colombia’s trade and exports have continued to grow due to its ties with the world’s major economies. In fact, Colombia’s development priority has been the reinforcement of commercial and economic relations. As a result, Colombia’s exports have continued to increase significantly, improving its balance of payments. For instance, Colombia’s capital account surplus between 2002 and 2013 reached over 97 billion US dollars while cumulated current account deficit totaled 67 billion US dollars (Botta, Antoine, and Marco 9). According to the International Monetary Fund statistics, Colombia’s Current Account deficit in 2014 was 3.3 percent of its Gross Domestic Product. From 1996 to 2014, Colombia’s Current Account averaged -1331.3 million US dollar, reaching an all-time high of 364 million US dollars in third quarter of 2000 and -6364 million US dollars in fourth quarter of 2014 as reported by the International Monetary Fund. The International Monetary Fund has granted Colombia Flexible Credit Line to help it create extra financial safety in the event of the international economic turmoil. The recent capital inflows in Colombia have been substantial. Colombia’s floating exchange rate policy has recently increased its capital inflows. In addition, Colombia has an independent central bank, which has played a significant role in improving her balance of payment.

Trade Policy and Preferential Trade Agreement

Colombia has continued to direct its trade policy towards greater openness. According to World Trade Organization (38), Colombia has the trade regime in Colombia is now primarily open, and there has been a continued fall in the average tariff rate. The recent Colombia’s foreign policy has largely centered on boosting the country’s commercial ties, as well as, its local investment. It is worth noting that Colombia has succeeded in negotiating and signing Free Trade Agreements with numerous nations. For instance, in May 2012, US-Colombia FTA was signed to boost the commercial ties between the two countries. Colombia is considered one of the most business-friendly nations due to its favorable trade policy. At the moment, Colombia has increased its preferential access to consumers in the world as a result of its increased efforts to implement FTAs with numerous countries. The Free Trade Agreements that Colombia makes with world countries have enhanced credit rating and increased interest from the foreign investor. Besides, Colombia is one of the founding members of the Pacific Alliance, which is a regional grouping that promotes economic integration and regional trade.
Colombia has been successful in negotiating preferential agreements with many countries throughout the world, increasing its foreign investment flows and external trade. Colombia places great importance on keeping an open trade regime with a transparent multilateral system framework complemented by bilateral and regional efforts. Despite Colombia’s efforts towards reduced foreign trade obstacles and greater openness, a number of non-tariff restrictions related to import licensing and registration requirements remain in place. The importers are required to be enrolled in Single Tax Register and must be Single Window for Foreign Trade (VUCE) users if their imports need prior registration (World Trade Organization 39). Colombia has a multilateral trading system that has transparent and clear rules, which support the incorporation of the developing countries in the worldwide economy.
The average tariff rate in Colombia has recently been decreasing. In essence, Colombia has significantly decreased tariff protection by implementing a tariff reform. The tariff reform helps Colombia address the anti-export bias and reduce the dispersions and levels of tariffs. Both the imported and domestic products in Colombia attract equal VAT. Nevertheless, there are certain imports that Colombia excludes from VAT payment (World Trade Organization 58). Apart from the VAT, Colombia also taxes some domestic and imported products some consumption tax. Colombia’s trade policy and preferential trade agreements have significantly improved its economy.

Poverty and Human Development

Despite a recent considerable economic boom, Colombia still has great differences in income. Over sixty percent of the citizens are poor. The society is deeply characterized by social exclusion. Many Colombians cannot sustain minimal levels of nutrition. As a middle-income nation, the majority of Colombians citizens live in poverty. In terms of inequality, Colombia is among the top ten unequal countries in the world (Cardozo N.p). Inequality and poverty disproportionately affect the displaced persons, Afro-Colombian, indigenous groups, children, and women. Women head numerous Colombian families. It is disheartening to note that the concentration of property and wealth has not been decreased. Colombia is among the nations that have highest income inequalities in the Latin America.
Social exclusion in Colombia also demonstrates itself through the squandering of resources and tax exemptions. In fact, the recent forms of public services administration and public contracts with poor control and regulatory frameworks have been producing irregularities. There is a great poverty gap between the urban and rural areas in Colombia. The estimated rate of poverty among Colombia’s rural workers is 80 percent with 42 percent of these workers considered extreme (Fernández, Campuzano, and Cortés Saavedra N.p). In fact, exclusion and poverty in the rural areas have from the past been among the root causes of Colombia’s socio-political violence. The poverty reduction efforts by the Colombian government have not been fruitful.

Conclusion

At the moment, Colombia’s strengths include good relations with the International Monetary Fund and lenders, responsible economic policies and strong institutions, and stable economic growth. However, great differences in income, high crime rates, and political violence, and strong dependence on the commodities for export revenue are the present challenges that Colombia is experiencing.

Works cited

Botta, Alberto, Antoine Godin, and Marco Missaglia. Finance, Foreign (Direct) Investment and Dutch Disease: The Case of Colombia. No. 090. University of Pavia, Department of Economics and Management, 2014.
Cardozo, Silva A. R. Economic Growth and Poverty Reduction in Colombia. Frankfurt am Main: Peter Lang, 2010.  Internet resource.
Fernández, Silvia E. Campuzano, Andrea M. Turriago Campuzano, and Gloria M. Cortés Saavedra. "Breaking the chains: Strategies to overcome poverty in Colombia." NOVA 8.13 (2010).
International Monetary Fund. "Balance of Payments and International Investment Position Statistics." IMF Committee on Balance of Payments Statistics. N.P., 2015. Web. 17 Apr. 2015.
World Trade Organization. Trade Policy Review. Lanham: Bernan press, 2012. Print.