FARC negotiations give Colombia opportunity to fight corruption
Lower levels of corruption in Colombia may help attract foreign direct investment. The government has an opportunity to improve the investment environment during negotiations with FARC.
As it becomes clear that the Colombian armed conflict is slowly dissipating, the ruling elite is in a political dilemma. The question they face is whether the state should invest in further militarization or in reconciliation. Whatever road they choose to follow after the upcoming 2014 election, they will need to strengthen the rule of law as well as aggressively tackle corruption at the local level. Not doing so may jeopardize Colombia’s economic progress and prevent it from attracting further investment.
Colombia averted becoming a failed state and is now an attractive emerging market. It has experienced impressive economic growth in terms of GDP per capita (PPP)—2,196 USD in 1999 to 7,752 USD in 2012. Impressively, Colombia’s economic growth is that it achieved it without oil or copper, like Venezuela and Chile.
Growth has been driven by creating a safe environment for foreign direct investment (FDI). Indeed, urban crime has decreased steadily, and FARC rebel forces have been forced to fight their war in the rural periphery. Colombia now provides a more stable setting for FDI because it has a skilled and relatively cheap labor force as well as a growing social safety net. Progressive social policies enacted in the past decade have visibly reduced extreme poverty.
However, Colombia still grapples with economic uncertainty. If Colombia wants to sustain its 4% annual growth rate and increase FDI, the government will need to attract investors by creating a culture of judicial and political accountability.
Democratic security is necessary, but not a silver bullet
The progressive social policies promoted past administrations face possible stagnation in the coming years, if the state does not significantly curb corruption at the local level and institute stronger courts insulated from public opinion and party politics. In a sense, the policy of democratic security has been a successful first step towards attracting foreign investment and increasing exports. The policy stabilized the country because it made the highways safe for traveling and domestic commerce.
The dilemma, however, is that this necessary first step towards economic growth can only take the country so far. Democratic security on its own has not and will not resolve the current armed conflict. To create the best possible environment for foreign direct investment, the ruling party must concentrate on strengthening property rights and instituting further judicial transparency. The current peace talks propose an opportune moment to commit to strengthening the courts and increasing political accountability in department and city governments.
The next administration should worry about the possibility of falling into the middle income trap. Colombia’s GDP per capita has grown significantly, and people may be happier than ten years ago, but that should not stop policy makers from dealing with the possibility of staying in the current wealth range. Diversifying Colombia’s industrial base and improving its labor market conditions are going to be difficult aspects to improve in the short term and for now, may be above state capacity.
The central government should allocate resources to closely monitor department and municipal governance. If need be, the central government should also create a national policy of co-optation to reduce shady spending by local governments and incentivize transparent and responsible budgeting for public works programs. Additionally, the central government should create a more powerful, unbiased and apolitical judicial regime focused on empowering municipal courts so judges feel less inclined to accept bribes. In other words, more authority and power should be transferred to the courts from the executive and legislature. Unlike building industry, governance can be improved relatively fast, and the government should be aware of this option if it wants to increase stability for investors.
Colombia is transitioning from a failing state with very limited state capacity to a rapidly developing and ambitious economy. Colombia’s seven year lobbying effort to ratify the Colombia-United States Free Trade Agreement is an example of the country’s economic ambition.
One thing is clear—keeping the judicial and regulatory status quo will inhibit trust in government on behalf of citizens and investors. The courts should chase down corruption and intervene in local government and city councils, where corruption is most blatantly ignored. This strategy will provide foreign firms with a credible commitment that Colombia is dedicated to instilling a strong rule of law and sound business environment.
