Roberto Steiner - Colombia under the new global economic conditions O Instituto Brasileiro de Economia (IBRE), da Fundação Getulio Vargas (FGV), realizou, no dia 19 de setembro de 2014, o seminário internacional A América Latina e as Novas Condições Econômicas Mundiais. O evento abordou a questão das perspectivas latinoamericanas diante das mudanças impostas, entre outros fatores, pela desaceleração da China e pela gradual normalização da política monetária dos EUA. O encontro foi organizado em três painéis, que incluiram desde estudos de casos nacionais — Argentina, Brasil, Chile, Colômbia e México — a apresentações mais abrangentes da economia da região como um todo ou parte dela. Confira as fotos do evento e mais informações no site do FGV/IBRE: http://bit.ly/YdyhyL

1. América Latina
Colombia under the new global
economic conditions
Roberto Steiner | 2014
A AMÉRICA LATINA
E AS NOVAS CONDIÇÕES
ECONÔMICAS MUNDIAIS
seminário

2. Roberto Steiner
Fedesarrollo
Rio de Janeiro
September 19, 2014
Colombia under the new global economic conditions

3. Colombia: For now, not much has changed
oStability in the prices of its most relevant commodities: The price of oil has been stable; the price of coffee has gone up
oFavorable financial conditions: Capital inflows have remained buoyant and a strong peso continues to be a matter of concern
oInflation remains on target, growth is robust and unemployment, though high, has declined continuously since December 2012
oOf concern, a weakening fiscal and current account outlook in the context of tightening financial conditions

4. oStability in the prices of the most relevant commodities: The price of oil has been stable; the price of coffee has gone up
oFavorable financial conditions: Capital inflows have remained strong and a strong peso continues to be a matter of concern
oInflation continues to be on target, growth remains robust and unemployment, though high, has declined continuously since December 2012
oOf concern, a weakening fiscal and current account outlook

5. In a context of declining commodities prices…
Source: World Bank, Valores Bancolombia.
80
120
160
200
240
ago-11
feb-12
ago-12
feb-13
ago-13
feb-14
Index (Jan 2, 2008=100)
Gold
0
40
80
120
160
200
240
280
320
360
ago-11
feb-12
ago-12
feb-13
ago-13
feb-14
ago-14
Index (Jan 2, 2008=100)
Iron ore
40
50
60
70
80
90
100
110
120
130
ago-11
nov-11
feb-12
may-12
ago-12
nov-12
feb-13
may-13
ago-13
nov-13
feb-14
may-14
ago-14
Index (Jan 2011 =100)
Soybeans
60
80
100
120
140
160
sep-11
dic-11
mar-12
jun-12
sep-12
dic-12
mar-13
jun-13
sep-13
dic-13
mar-14
jun-14
sep-14
Index (Jan 2, 2008=100)
Copper

6. …the most relevant for Colombia are doing OK
20
40
60
80
100
120
140
sep-11
ene-12
may-12
sep-12
ene-13
may-13
sep-13
ene-14
may-14
sep-14
Brent Oil
Index (Jan 2, 2008=100)
0
50
100
150
200
250
sep-11
ene-12
may-12
sep-12
ene-13
may-13
sep-13
ene-14
may-14
sep-14
Index (Jan 2, 2008=100)
Coffee
Source: Valores Bancolombia – Federación Nacional de Cafeteros.

7. oStability in the prices of its most relevant commodities: The price of oil and coal has been quite stable and the price of coffee has one up
oFavorable financial conditions: Capital inflows have remained buoyant and a strong peso continues to be a matter of concern
oInflation continues to be on target, growth remains robust and unemployment, though high, has declined continuously since December 2012
oOf concern, a weakening fiscal and current account outlook

8. FDI remains very strong
16.772
10.573
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
8,0
0
2.000
4.000
6.000
8.000
10.000
12.000
14.000
16.000
18.000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014*
Left axis, USDMM
% GDP
* Data until August 2014.
Source: Balanza cambiaria – Banco de la República.

9. Portfolio capital inflows, higher than ever
Monthly averages of Foreign Portfolio Investment
Period
USD Millions
2007-2010
49
2011
219
2012
273
2013
391
2014 (Jan-Aug)
1.216
117
535
1.999
914
1.020
1.680
2.273
1.194
(500)
0
500
1.000
1.500
2.000
2.500
ene-14
feb-14
mar-14
abr-14
may-14
jun-14
jul-14
ago-14
Foreign Portfolio Investment
2014
USD Millions
Note: Data for the latest month are preliminary (to August 29).
Source: Balanza cambiaria – Banco de la República.

10. Main reasons for robust K inflows:
1)A tax benefit in the 2012 tax reform and simplifications in the taxation of foreign investors
•Tax reform (Law 1607, 2012): Reduction of the tax on foreign portfolio investments from 33% to 14% --or 25% if coming from tax havens
•Decree 2218 of October 2013 simplified the withholding tax, to be made only when investors receive coupon payments or sell the financial instrument --before, there were monthly withholdings

11. 2) The rebalancing of the JP Morgan Index
•Increased weight of Colombian local public debt:
The GBI-EM Global Diversified (from 3.2% to 8%), the GBI-EM Global (1.81 % to 5.6%) and the Global Diversified Index 15% (from 3.07% to 8.26%). The latter is the most important reference; 90% of the amount indexed to JP Morgan indexes belong to this specific reference.
•The transition to the new weights is gradual, between May and September
•An initial estimate is that around USD 196 billion were indexed to the GBI-EM Global Diversified; this could imply additional K inflows to Colombia of around USD 9 billion

12. Increased (observed & expected) K inflows have led to a strong appreciation of the peso, only partially reversed in the past two months
Source: Banco de la República.
1.750
1.800
1.850
1.900
1.950
2.000
2.050
2.100
0
10
20
30
40
50
60
28-feb-13
14-mar-13
28-mar-13
11-abr-13
25-abr-13
09-may-13
23-may-13
06-jun-13
20-jun-13
04-jul-13
18-jul-13
01-ago-13
15-ago-13
29-ago-13
12-sep-13
26-sep-13
10-oct-13
24-oct-13
07-nov-13
21-nov-13
05-dic-13
19-dic-13
02-ene-14
16-ene-14
30-ene-14
13-feb-14
27-feb-14
13-mar-14
27-mar-14
10-abr-14
24-abr-14
08-may-14
22-may-14
05-jun-14
19-jun-14
03-jul-14
17-jul-14
31-jul-14
14-ago-14
28-ago-14
$/USD
USD Millions
Dialy Exchange Intervention
Representative Market Rate (Right Axis)

13. oStability in the prices of its most relevant commodities: The price of oil and coal has been quite stable and the price of coffee has one up
oFavorable financial conditions: Capital inflows have remained strong and a strong peso continues to be a matter of concern
oInflation remains on target, growth is robust and unemployment, though high, has declined continuously since December 2012
oOf concern, a weakening fiscal and current account outlook

14. Source: Banco de la República.
Inflation has accelerated slightly but remains near the mid-point of the target range
0
1
2
3
4
5
6
7
8
may-09
jul-09
sep-09
nov-09
ene-10
mar-10
may-10
jul-10
sep-10
nov-10
ene-11
mar-11
may-11
jul-11
sep-11
nov-11
ene-12
mar-12
may-12
jul-12
sep-12
nov-12
ene-13
mar-13
may-13
jul-13
sep-13
nov-13
ene-14
mar-14
may-14
jul-14
sep-14
%
Annual Inflation
Core Inflation
One year expectations

15. Growth has been strong (close to 5.8% on average since mid-2013)
Source: FMI-WEO actualización Julio de 2014. Official statistics of the Central Banks and Statistical Institutes of each country.
Country
Annual Growth, %
2013-I
2013-IV
2014- I
2014-II
Colombia
2,9
5,3
6,5
4,3
Brasil
1,9
2,2
1,9
1,4
México
0,6
0,7
1,8
1,6
Perú
4,6
6,9
5,1
1,7
Venezuela
0,8
1
-4,5
-4,0
Chile
4,9
2,7
2,4
1,9
Ecuador
3,6
5,2
4,9
_
6,5
4,3
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
8,0
9,0
mar-10
jun-10
sep-10
dic-10
mar-11
jun-11
sep-11
dic-11
mar-12
jun-12
sep-12
dic-12
mar-13
jun-13
sep-13
dic-13
mar-14
jun-14
%
Colombia: Annual GDP Growth

16. Growth and a reduction in non-wage labor costs have led to a decline in unemployment & labor informality
Source: DANE.
12,6
12,7
11,5
10,9
9,9
9,3
6
7
8
9
10
11
12
13
14
15
jul-09
nov-09
mar-10
jul-10
nov-10
mar-11
jul-11
nov-11
mar-12
jul-12
nov-12
mar-13
jul-13
nov-13
mar-14
jul-14
%
Unemployment Rate
52,6
51,9
51,4
51,8
49,2
48,1
46
48
50
52
54
jun-09
oct-09
feb-10
jun-10
oct-10
feb-11
jun-11
oct-11
feb-12
jun-12
oct-12
feb-13
jun-13
oct-13
feb-14
jun-14
Proportion of the population in informal employment
(13 cities, moving quarters)
%
Tax Reform

17. Together with robust economic activity, the rise in inflation has brought about a 125 bp increase in the central bank policy rate of interest since May
3,25
4,5
0,0
2,0
4,0
6,0
8,0
10,0
12,0
sep-08
ene-09
may-09
sep-09
ene-10
may-10
sep-10
ene-11
may-11
sep-11
ene-12
may-12
sep-12
ene-13
may-13
sep-13
ene-14
may-14
sep-14
%
Source: Banco de la República.

18. oStability in the prices of its most relevant commodities: The price of oil and coal has been quite stable and the price of coffee has one up
oFavorable financial conditions: Capital inflows have remained strong and a strong peso continues to be a matter of concern
oInflation continues to be on target, growth remains robust and unemployment, though high, has declined continuously since December 2012
oOf concern, a weakening fiscal and current account outlook in the context of tightening financial conditions

19. Foreign Trade Dynamics
13,2
15,6
6,2
4,5
0
2
4
6
8
10
12
14
16
18
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
% GDP
Export growth
Total
Non Traditionals
11,4
15,0
0
2
4
6
8
10
12
14
16
18
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
% GDP
Import growth
Source: Banco de la República.

20. Nominal and real exchange rate
1550
1600
1650
1700
1750
1800
1850
1900
1950
2000
2050
2100
28-mar-13
28-jun-13
28-sep-13
28-dic-13
28-mar-14
28-jun-14
USD Millions
Nominal Exchange Rate
70
75
80
85
feb-13
abr-13
jun-13
ago-13
oct-13
dic-13
feb-14
abr-14
jun-14
ago-14
Index (Jan 1994=100)
Real Exchange Rate
Source: Banco de la República.

21. Trade Balance and Current Account Deficit (% of GDP)
2,2
0,3
0,1
0,1
1,0
0,9
-0,1
-0,4
0,2
0,7
0,5
1,6
1,1
0,6
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
2,5
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
% GDP
Trade Balance
*Fedesarrollo forecast.
Source: Banco de la República.
4,7
3,7
-1,5
-0,5
0,5
1,5
2,5
3,5
4,5
5,5
6,5
7,5
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014*
% of GDP
Current Account - FDI
FDI
Current Account Deficit

22. The fiscal deficit has stabilized
-3,9
-2,8
-2,3
-2,4
-2,4
-1,1
-0,1
0,2
0,0
-4,5
-4,0
-3,5
-3,0
-2,5
-2,0
-1,5
-1,0
-0,5
0,0
0,5
2010
2011
2012
2013
2014
% GDP
Central Government
Total Fiscal Balance
Primary Fiscal Balance
Source: Ministry of Finance.

23. The Medium Term Fiscal Framework acknowledges a decline in the oil sector´s contribution to the budget
Source: Ministerio de Hacienda.
2,5
1,8
2,0
2,0
2,0
1,8
1,7
0,0
0,5
1,0
1,5
2,0
2,5
3,0
2014
2015
2016
2017
2018
2019
2020
% GDP
Oil Revenues

24. And there are additional expenditure needs, as recently recognized by the government
Yearly expenditure above what is in the latest Medium Term Fiscal Framework:
1.Agricultural and Rural Development: Could be 1% of GDP higher if a peace agreement is finalized
2. Health: Conservative estimates call for additional expenditure of 0.8% of GDP
3. Quality of education: A study by “Fundación Compartir” suggests additional expenditures of 0.3% of GDP
4. Early Childhood: A “Fundación Éxito” report estimates additional expenditure of 0.4% of GDP
5. Pensions: Fedesarrollo estimates additional outlays of 0.3% of GDP

25. -2,4
-2,4
-2,3
-2,2
-2,1
-2,0
-1,9
-1,6
-1,4
-1,2
-1,0
-0,8
-3
-2,5
-2
-1,5
-1
-0,5
0
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
% of GDP
Structural Balance of CG
There is a strong commitment to fiscal discipline (FISCAL RULE)
Structural Deficit Targets 2014: 2,3% of GDP 2018: 1,9% of GDP 2022: 1,0% of GDP
Source: Ministry of Finance.
“Article 5° Fiscal Rule. (…) the National Government will enforce an annual decreasing path for the Structural fiscal balance” Law 1473 of 2011.

26. In short, the fiscal outlook raises important concerns
•Overall, expenditure needs may be 2% of GDP higher than what is in the MFMP
•Political economy considerations point towards the increase in several business-unfriendly taxes (corporate income tax, wealth tax, FTT)
•At this stage, FEDESARROLLO forecasts growth at 4.1-4.7% in 2014 and at 4.1-5.9% in 2015