GOOD POLICY- MAKING MATTERS

Colombia 2018 | ECONOMY | FOCUS: OECD ACCESSION

Colombia sets out a strong path for reinforcing commitments and the access to the OECD, and continued commitment should be worthwhile.

According to the World Bank, during the commodity prices collapse, Colombia faced the largest terms-of-trade shocks in the region, which resulted in the loss of nearly 4% of its GDP and an economic slowdown of 2% during 2016. However, the economy proved resilient thanks to macroeconomic and social policies and the adoption of the flexible exchange rate regime, which played a fundamental role in re-stabilizing the economy. Yet, low productivity, high-income inequality, and a stagnant bureaucratic administration pervade the country's public-sector sphere.

In October 2017, the OECD issued a report evaluating the progress made by Colombia throughout the accession process, and its insights were largely positive. Despite headwinds, Colombia's macroeconomic policy framework sustained the economy efficiently. Notably, the recently negotiated peace deal between the Colombian government and the Revolutionary Armed Forces of Colombia (FARC) represents an important step in addressing issues such as inequality, infrastructure gaps, and business inefficiencies.
Among many reforms, the newly enacted tax reform—aimed at enhancing tax revenues, increasing competitiveness, and making the tax system more progressive—is helping to address issues of low productivity. Colombia also signed the Multilateral Convention on Mutual Administrative Assistance that addresses tax avoidance and evasion, a top priority for the country.
Also among the main issues in Colombia is corruption, which has long been perpetrated in the public policy sphere, damaging public institutions and the country's economic performance. Therefore, the government signed the OECD Anti-Bribery Convention that will allow Colombia to receive and provide cooperation on bribery cases and reinforce the capacity to bring multinationals and individuals to justice for similar cases.
Another important progress was the policy for state-owned enterprises (SOEs) that are valued 32% of GDP. The policy, introduced by former President Santos in 2016, aims to separate the roles of regulation and ownership between public and private enterprises, for example removing ministers from the boards of directors of SOEs.
At the same time, the OECD's latest report does not forget the need to address economic and social gaps. The report analyzes how the country has still to show concrete progress in a variety of issues such as productivity. Productivity in Colombia is low, and the 4.1% average annual GDP growth was attributed mainly to the accumulation of physical capital in the mining sector (2.3%) and population growth (1.4%). Actually, total factor productivity, a measure of efficiency, was negative at -0.1%.
Moreover, income inequality continues, presenting major social, economic, and political concerns. Some in Colombia, more specifically, major trade union centers firmly oppose the country's accession to the OECD given the lack of commitments taken by the government toward formalizing labor markets, subcontracting, and collective bargaining. Recent reports from the International Trade Union Council (ITUC) and the International Labour Organization (ILO) show clear evidence that Colombia is not efficiently targeting labor problems. ITUC's 2016 Index places Colombia among the 10 worst countries in which workers face violence. Moreover, the ILO's 2017 report on the Application of Conventions and Recommendations, underlines how the Colombian government has yet to implement conventions on freedom of association and the right to collective bargaining, Conventions 87 and 98, respectively.
Colombia is strongly pushing forward concrete reforms while advocating for its accession to the OECD. Being part of the organization would reinforce good public policies, demonstrate stronger commitment toward productivity, increase incentives for FDI, and improve trade flows—significantly helping to address Colombia's economic gaps.
The OECD too stands to benefit. The group has been looking to Colombia, and more recently to Brazil, in order to strengthen the development of the Latin American region and boost trade and investment opportunities. While Brazil's membership is also in the pipeline, its push toward the full OECD membership spurs Colombia to quickly and efficiently address its social, economic, and political obstacles that impede the accession. Without addressing major internal issues, Colombia will find its path toward membership rather difficult.