Irish policy parallels to be found in Colombia

Article appeared in The Examiner March 29th 2016

While I have only been loosely following financial markets over the last three weeks – after all in the short-term it is all just noise – my three weeks in Colombia have provided me with new perspectives and insights that I look forward to sharing in the coming weeks.

It is an exciting year for Colombians, as a peace agreement nears that will bring an end to a 50-year conflict with the FARC guerrilla movement, or Fuerzas Armadas Revolutionaries de Colombia-Ejército del Pueblo, to give its full name, which in English translates to Revolutionary Armed Forces of Colombia-People’s Army.

However, having an economy heavily dependent on oil exports, the collapse in the price of its black gold has brought Colombia’s economic challenges into sharp focus, with a National strike on March 17^th taking place to protest the government’s socio-economic policies.

Many Irish people will have little interest in the economic fortunes of Colombia. However, anyone invested in “Emerging Markets”, for example the MSCI Emerging Markets Index, of which almost all pension and investment portfolios now have an allocation, will be invested in Colombian equities. Reflecting on this dynamic, it raises questions about the passive nature of capital – whereby small shareholders have little say in how companies are run – that forms the basis of the economic model we all operate within.

During my trip I met with officials from Colombia’s Finance Ministry and heard their latest presentation on “Colombia’s economic strategy in the new global context”, after which I put various questions to them on Colombia as a place to invest, their current economic challenges and the policy decisions of their various authorities. It was an interesting meeting, adding further colour to the picture I’d developed from experiencing the country, meeting and speaking with locals.

What I found unnerving is just how similar the Colombian officials sounded to our own officials. Of course, the language of economics is a universal one, so there is some commonality to be expected as the same metrics are applied to every country. However, one might have expected that their use of the language, their economic approach for developing Colombia might have sounded some bit different. However, it was like they had just read the Troika handbook.

The fall in oil price revenues has prompted an austerity budget, only they call it “Intelligent Austerity”. I am sure Michael Noonan would be disappointed someone at the Finance Department failed to latch on to that term.

On tax reform, Colombian officials are concerned with “broadening the tax base”, while at the same time they want to “redistribute the tax burden from corporates to people”. An increase of the sales tax, a regressive tax that hits everybody, from 16% to 19% is one such measure to be announced. Speaking to locals, they are already paying high taxes, but the issue is that they are not getting anything in return. High taxes but poor social services. Sound familiar?

Just this year the Colombian government sold off its 60% stake in one of Colombia’s largest and most profitable energy companies, Isagen, at a time when the climatic change weather system El Niño has caused energy shortages. Interestingly, in the end, there was only one bidder for the company, Canadian firm Brookfield Asset Management. Even more intriguing is the Colombian media reports that former British Prime Minister Tony Blair brokered the deal.

The sale, opposed by opposition politicians on the left and right, sparked protests in Bogotá when confirmed in January. “VENDER LO PUBLICO ES TRAICION A LA PATRIA” read one banner: “Selling public assets is treason against the homeland”. I wonder where they would stand on NAMA?

Like Ireland, Colombia is operating under an economic model that measures development in one way. The government is doing everything right according to this model, but one must question whether it is the right economic model. The fact that 67 people on this planet control as much wealth as the poorest 3.5 billion should answer that question.

Taoiseach Enda Kenny and his Fine Gael/Labour government learned first-hand that presiding over the fastest growing economy in Europe is not enough. Their failure to be re-elected despite the strong headline numbers reflects the reality that not everyone has benefited in the economic recovery – what many believe has been an unequal recovery.

At the same time, the stalemate in terms of electing the next government reflects an electorate split by “successful austerity”, unsure of who to believe in to build a better, fairer society.

The real challenge across the world, be it Ireland or Colombia, is finding an economic model that fosters growth for the benefit of all stakeholders in the economy, which allows for a greater percentage of a population to participate in that growth and with a more equal distribution of wealth.

While finding agreement on what that economic model should look like will not be easy, one thing is for sure, it is not going to happen when everyone in power is thinking the same way.

http://www.irishexaminer.com/business/irish-policy-parallels-to-be-found-in-colombia-389936.html