Photo: The Spectator
It almost seems like a sign that the week of the presidential elections in Colombia starts with the meeting of the World Economic Forum: a meeting dedicated to discussing issues such as inequality, inflation, the threat of recession and the climate crisis. All this framed in fears about the collateral effects of a war (Russia’s invasion of Ukraine).
In turn, it is an event in which the protagonists, in addition to men, are mostly close to the world of the economy: from finance ministers and heads of state, through businessmen, analysts and academics, to anti-capitalism protesters. A mass of ties and business suits that in public and private meetings try to define, as a book says, what to do with the pieces.
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The similarities with the electoral contest in Colombia may not seem coincidental to some because, to paraphrase a man of science, gods do not play dice.
Economy in times of crisis
Every presidential election has a high economic component. Nothing new there. And, to tell the truth, the same happens with issues such as education, health, security and peace (more so for a country eternally at war). The electoral contest is, in the best of spirits, a time to rethink the structure and shore up (or throw down) the scaffolding.
But something that seems certain is that in this election, in particular, the economic country goes beyond the specialized debates every four years. Of course, this time there is also talk of taxes and pensions, as always. But the discussion presents a tint of urgency that perhaps had not registered at other times in a country accustomed to living between emergencies.
And it is understood, half of this four-year period was crossed by the worst economic and health crisis in the country’s recent history. Due to the pandemic, the labor market erased a decade of progress by the end of 2020, the year in which the unemployment rate closed at 13.4%, when in 2019 it did so at 9.5%.
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Also due to covid-19, the Colombian GDP closed 2020 with a contraction of 7%, registering a historical drop of -16.6% for the second quarter of that year, the worst economic moment of the pandemic, with quarantines widespread and business closures throughout the territory.
Beneath the macro figures, what the pandemic meant on a social scale was a historic setback, according to analysts, in the progress that the country had made against poverty and extreme poverty, which rose to 42.5% and 15.1% , respectively.
For 2020, DANE reported that more than 3.5 million Colombians entered the category of poor (measured from their monetary perspective), bringing the national total to 21.2 million people in a classification in which households have problems. to access food and services with their income. According to these figures, the country reached 7.4 million people in extreme poverty at that time, a line in which basic food is at stake.
Because of the pandemic, the labor market has erased a decade of gains by the end of 2020.
The point is that each year that is yielded in the fight against poverty represents several more to be able to recover the lost ground. This only from the point of view of public policy. Already in the most tangible life, every centimeter that is ceded in the field of poverty and extreme poverty implies that someone cannot experience life with the minimum guarantees of subsistence, such as basic food or public services in the home, for example .
Second act: the recovery?
If 2020 was the time to receive the hardest economic blows from the pandemic, 2021 was baptized as the period of reactivation.
Beyond the marketing and the hours of self-help advertising for the country, the recovery did take place in several key aspects. Last year’s GDP reached 10.6%, a result that was celebrated by the Government as historic. The incidence of poverty and extreme poverty decreased (39.3% and 12.2%, respectively). Unemployment closed the year at 11% (for December), with constant reductions throughout the second half of the year.
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But, in parallel to all the inertia of the reactivation, 2021 was also one of the most critical social moments in the country’s recent history with a national strike that not only had consequences for the recovery of the economy (highlighted by unions and businessmen) , but revealed deep social discontent amidst institutional optimism for reactivation. In addition to registering one of the lowest points in abuses and abuses by state forces against protesters on a national scale.
It is worth adding here that part of the fuel that lit the strike fire was, precisely, a tax reform that was born dead. A remarkable panorama, since, among other activities, one of the national sports par excellence is to introduce modifications to the tax statute.
As María Fernanda Valdés, PhD in Economics and coordinator for the Friedrich Ebert Stiftung in Colombia, summed it up at the time, “a society tired of fiscal injustice took to the streets to demand a change of course, something that seemed impossible in a country that had always assumed an attitude of resignation in the face of frequent tax reforms”.
And this tension between the macroeconomic panorama and social welfare, to a large extent, defines the role of the economy in this election. The facade may be painted the color of hope, but underneath there are still cracks and structural problems.
beyond the facade
One of the main pressures against economic recovery is, without a doubt, inflation. The increase in prices not only works against consumption (the great engine of the economy in 2021 and in the first quarter of 2022, according to DANE), but also directly harms sectors with lower incomes.
The blow against those who are in a more vulnerable position due to their income is exacerbated when one takes into account that the main driver of inflation is food. In April, in its annual variation, food prices rose 26.17%, according to DANE.
For example, in April of this year and in its annual measurement (that is, compared to the same month in 2021), the inflation of people classified as poor and vulnerable was 11.26% and 11.07%, respectively. . For the middle class and the high income bracket it was 9.43% and 7.46%.
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Currently, inflation is at 9.23% in its annual variation, the highest figure in 20 years. By the end of 2022, the Banco de la República expects the indicator to stand at 7%, a perspective shared by analysts such as BBVA Research.
In a certain way, expectations with inflation are replicated in other scenarios: improvements are expected, or have been, but there are still broad challenges to overcome.
In poverty, for example, despite the reductions in 2021, the country is still lagging behind the pre-pandemic scenario; that is, looking at the figures for 2019. And, in the case of extreme poverty, this indicator continues to exceed levels not seen a decade ago (2012, when it began to be monitored annually). “There is still a decade to recover in terms of extreme monetary poverty,” assured Juan Daniel Oviedo, director of DANE, when he presented the update of these indicators at the end of last month.
And these results, although they showed an overall improvement, also revealed a worrying gap between the rural and urban country. While between 2020 and 2021 extreme poverty fell on a national scale and in urban centers (falls of 2.9 and 3.9%), in rural Colombia this indicator rose 0.6%. The same happens with monetary poverty, with decreases in the national and urban register, and an increase of 1.7% in rural areas. Likewise, the Gini coefficient, which is used to measure inequality, fell on a national scale, but remained practically identical between 2020 and 2021 for the Colombian countryside.
Because of the pandemic, the labor market has erased a decade of gains by the end of 2020.
In unemployment, in March of this year a rate of 12.1% was registered, which translates into a decrease of 2.6 percentage points compared to the same month last year. Although these figures are positive, the country still has several challenges to overcome. If the March results are compared with the pre-pandemic benchmark (February 2020), a gap of 0.9 percentage points in the increase in unemployment is shown. This indicates that, if you want to get to the labor market figures before the pandemic, you still need to recover 500,000 jobs and get another 200,000 people out of unemployment. And this is just to get in tune with the world of work before covid-19, not to overcome that scenario, which was already showing signs of wear.
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Basically, Colombians have been improving their confidence in the economic performance of the country in general. But what the most recent data from the DANE Social Pulse survey (with results for April) shows is that the proportion of households that believe their economic situation will improve in a year grew very modestly in 2022 (around 23%). , while the big increases are in those who think that everything will remain the same. Likewise, DANE figures ensure that 65% of households believe that inflation will continue to grow next year, despite the fact that several projections ensure that by the end of this year the indicator will begin to drop.
Similarly, the percentage of people who say they do not have enough income to save has remained almost stable at 75% so far this year.
These answers contrast with the atmosphere of optimism, and triumphalism, around the performance of GDP in Colombia for the first quarter of this year, when it exceeded the main projections and stood at a solid 8.5%. At the time, part of the establishment’s mantra was, to use a famous phrase: “The economy is doing well, so the country must be the same.” And so not entirely.
To conclude, it is worth mentioning here the economists Camila Franco Restrepo and Alejandro Rodríguez Llac, who argue, precisely, that defining well-being from GDP is, in a certain way, a kind of myopia. “Frequently, analysts tend to use this measure to affirm that the country is doing (and has been) very well and, therefore, that the concerns about the economic and social conditions that some sectors of society sustain are unfounded and have no basis. in the data”.
And they added: “However, these analyzes often ignore how in countries with high levels of inequality (such as Colombia), economic growth does not translate into significant gains in terms of well-being for the most marginalized populations.”