What Colombia Needs Is More Economic Freedom

Posted by Juan Carlos Hidalgo

The Washington Post had an interesting story a few days ago on poverty in Colombia, a country that is viewed by many as Washington’s closest ally in Latin America. Colombians are heading to the polls on May 30th to elect a new president, so we’ll be hearing more about that country and Alvaro Uribe’s legacy as president in the upcoming weeks.

Uribe has been credited—rightly so—with making Colombia more secure. Crime rates have fallen dramatically since he took office in 2002, right-wing paramilitaries have been disbanded (although many complain that most of them just moved into regular criminal activities), and the decades-old Marxist FARC guerrilla group, which not long ago threatened Colombia’s capital and main cities, has been dealt spectacular blows to its leadership and is now a shadow of its former self.

As a result of a more secure environment, the economy has experienced a boom. Foreign direct investment has ballooned, growth rates have shown robust numbers, while poverty and unemployment have gone down. There is no doubt that Colombians are better off today than in 2002. However, as the Post story points out, poverty is still stubbornly high, and neighboring countries such as Peru seem to be having better results in reducing it. Perhaps this has to do with one key ingredient that has been largely missing in Uribe’s recipe for development: a bolder push for economic freedom.

Let’s be fair: According to the World Bank’s Doing Business report, Colombia significantly improved the ease of doing business in recent years. This is not a small feat given Latin America’s well known taste for red tape. The Uribe administration has also negotiated free trade agreements with the United States, Canada and the European Union, among others. Unfortunately, the agreements with the U.S. and Canada are stalled in those countries’ legislatures due to concerns about Colombia’s record on labor rights. These concerns are overblown, as shown here in this case for the U.S.-Colombia FTA.

However, Colombia scores poorly on economic freedom. Consequently, the country’s outlook won’t brighten much more as long as it stifles its economy with high tax rates, burdensome labor regulations, bloated public spending, impoverishing tariffs, and weak protection of property rights and enforcement of contracts. A comprehensive economic agenda must be undertaken in all these areas if the country is going to repeat the successes of other South American countries such as Chile and Peru in tackling poverty.

Unfortunately, none of the leading presidential candidates is talking much about the need for economic reforms. Despite the gains of recent years, security still monopolizes the political debate in Colombia.