Economics in Transition Government: Advances and Setbacks

Production: Below

The economy is slowing and this trend is similar to that of other Latin American countries, which face a large area Challenges Social and fiscal policy. However, private investment and the foreign sector, important variables to “seed” more growth in the future, have been very slow.

There is uncertainty about the effects of the government’s proposed reforms at the macro and micro levels, and the private sector is wary of undertaking new investment projects.

This warning is explained by the rise in spite of what the government says Interest ratesIt does not remove the effect of the uncertainty created by the three major reforms proposed.

Similarly, the president says that today’s economic engine is public spending, especially “social policy on health and education,” which is consistent with his ‘statistical’ thinking about the economy, but recognizes less of the role of the private sector. Income and employment generation.

There is a discrepancy between the share expected from the state and the low percentage of budget execution, for which he is a A call to attention For your team.

An important aspect of productivity—related to social policy—is the link between housing construction and subsidy policy. The government is adjusting the Mi Casa Ya scheme and there is a transition process for it Ministry of Housing It will take place in 2023.

Little execution capacity of the government, where the housing sector is below one percent Average 2019-2022 will have a negative impact in the short and medium term if the situation is not reviewed and an economic recovery plan is not presented.

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The ravages of inflation

The Banco de la República (JDBR) Board of Directors, led by the Minister of Finance, has responded to the slow decline in inflation and inflation expectations by maintaining high interest rates.

For this reason, it expects to maintain its current cash position until it sees a downward trend in core inflation (or excluding food and regulated goods and services); This is because Core inflation It more faithfully captures the inflationary pressures created by the spending of economic agents.

Although you They ask who should start rate reduction Without a systematic reduction in that core inflation, there will be huge debates in the board and public opinion about the path to take.

This is a key shortcut for the Banco de la República, as the slowdown in the economy coincides with a slower reduction in inflation. This is what some researchers have called it Stagnation Colombian style.

JDBR’s stance has reversed the trend towards higher inflation, but unfortunately the rate of decline has not been as fast as other countries that have faced deflationary conditions and today show single-digit inflation (similar to pre-pandemic).

Apart from Argentina, Venezuela, Haiti and Suriname, Colombia is a Latin American country. High inflation. These are Four countries Inflation is higher than the Latin American average.

The irony in the face of recent production and price data is that President Pedro takes credit for reducing inflation and blames Banco de la República for low growth.

Despite clear measures by JDBR to mitigate inflationary pressures officer At the rate of monetary policy, government actions to accelerate economic growth are limited (low budget implementation of public investment) and there are signs of stagnation or contraction in key sectors of employment and income (construction, manufacturing, trade).

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The Labor Market: Progress with Uncertainty

After the peak caused by the pandemic, the unemployment rate has continued to show a downward trend. That downward trend is very good news, even though it’s still in the double digits, except for the most recent data of 9.3%.

Of course, the impact of a slowdown in GDP on the labor market is worrisome. Colombia has shown an asymmetric behavior in the relationship between these two variables: when the economy grows fast, the labor market acts slowly when there is a slowdown in economic activity.

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