Colombia's president looks to virtuous cycles of investment and growth

Q: You spoke to The Banker this May, before your re-election, and were hopeful that a final peace agreement with the FARC, the Revolutionary Armed Forces of Colombia, was in sight. Do you still hold this view?

A: I am not the only one who is hopeful. All Colombians have good reason to believe that after 50 years of war, we can finally end this conflict.

Never before have we made it this far in negotiations with the FARC. There is already an agreement on three of the five points on the agenda. The first deals with rural development, and will enable us to change forever the history of our farmlands. It will also allow us to make the investments that have long been needed but that we were unable to make, or that were ineffective due to the conflict itself. 

The second point deals with political participation, which is... deepening our democracy and trading 'bullets for votes'. And for the third point, we have agreed upon deals regarding the drug problem.

This last point is of great importance, not just for Colombia, but also for the world. Essentially, we are talking about ending cocaine production in our territory. To achieve this, the FARC is committed to breaking all links with drug trafficking and co-operating to end this problem.

We are currently discussing the final two points on the agenda: the issue of victims, where we are trying to figure out the best way to address the rights of so many people who have been affected by the war, and the point dealing with 'DDR' [disarmament, demobilisation and reintegration]. All these advances give us a sense of hope and possibility that peace is finally within reach for Colombia.

Q: Colombia has focused on an economic development model driven by investment, which has been greatly successful in the past. Will this continue to set the country apart from others in the region and attract foreign investment to its shores?

A: We will certainly continue to work in that direction. We have one of the strongest economies on the planet. We are leaders in Latin America. The challenge is to maintain that solid foundation and I am confident we will, because we’re doing the right things.

We have implemented a virtuous cycle, which can be explained this way: first, we got our fiscal policies balanced properly. To achieve this, we lowered our budget deficit from 3.9% of gross domestic product [GDP] in 2010 to 2.4% last year. Second, this balance led to lower interest rates and in turn, investment rates increased, reaching 30% of GDP this year. Third, these higher levels of investment increased economic growth, which also increased revenues. This last point closes the virtuous cycle because more tax revenues promote healthier finances and more social investment.

So why invest in Colombia? For us, this is not an end in itself. This is a means to achieve our true collective purpose: a country at peace, with equality, and a better educated population.

An example of how the rise in investment and economic growth has contributed toward a reduction in inequality is that we have lowered poverty rates like no other country in Latin America. In just four years, poverty has decreased from 39% to 29%. This translates into an expanding middle class and higher income per capita, in turn generating a new virtuous cycle of investment and growth in Colombia. In addition, we just began the largest cycle of investments in infrastructure in our history, which will [be worth] more than $25bn and will mean an extra 1.5% annual growth in our GDP rate. Additionally, if we sign the peace agreements, many studies indicate that our economy can grow another two percentage points into the foreseeable future.

Q: Are you optimistic about the pace of development of the Pacific Alliance and the Mercado Integrado Latinoamericano, or MILA, project, which bring together the trade and stock markets of Colombia, Peru, Chile and Mexico?

A: The Pacific Alliance is already a success. A good part of that success is due to the fact that it’s a pragmatic alliance, focused on results that impact the free movement of goods, services, capital and people. Look at what has been accomplished in a very short time: we signed a commercial protocol eliminating 92% of our tariffs and now we jointly promote our exports, our investments and tourism opportunities. For instance, we have a joint office in Turkey and we will soon have another one in Morocco. Also, we integrated our stock markets, which makes us the largest exchange in Latin America, and since 2012 we eliminated all tourism and business visas among our countries.

The Pacific Alliance has drawn a great deal of attention. There are now 32 observer states that have a serious interest in participating. And it’s easy to understand why. Peru, Chile, Mexico and Colombia together represent the sixth largest economy in the world and a market of 214 million consumers.

Q: What role would you like the financial sector to play in the economic growth of Colombia? Can it help reduce inequality in the country?

A: For several weeks now, I have been talking to business leaders in Colombia about a holistic vision for the country; a vision in which business groups, trade associations, think tanks, corporations, entrepreneurs and citizens think not only about their own activities and their own self interests, but rather think about Colombia as a whole; a vision in which we agree on some fundamental principles that can benefit all of us equally.

In my second inauguration speech in August, I laid out a vision of a country that aspires to meet three objectives: a country at peace, with equality and the highest education standards in Latin America by the year 2025.

Consolidating peace and security, closing the social differences and having high-quality education for all will be an immense achievement. The effort we make must match the ambition of our goals. All of us must contribute and the government must continue to lead the way. I am certain that the financial sector, which is very strong and well regulated, will play a crucial role in achieving these great transformations and will serve as a vehicle for greatly reducing inequality in Colombia.

Q: What worries you the most when you look at Colombia's banking sector? Is limited lending to small and medium-sized enterprises a concern?

A: It is not an accident that the great moments in our economy have coincided with the evolution of banking in Colombia. For this reason, more than concerns, my government is always analysing what ought to be the next steps in order to guarantee, for example, greater and better access by more people to our banking system.

Today, Colombia’s financial system covers 4 million more people than four years ago. And three out of every four adults in Colombia have a bank account.

But it is not enough to have an ample offering of financial products. It is also very important to understand how to use them. For this reason, this year we launched the National Strategy for Financial Inclusion and we passed the Financial Inclusion Law in congress. The goal of these efforts is to integrate the poorest and most vulnerable populations into the system. We are making great progress in this regard. One must not forget that reducing poverty and generating employment the way we have done translates into higher levels of participation in the banking system. This is another virtuous cycle.

Juan Manuel Santos is the president of Colombia.