Courting Turmoil and Deferring Prosperity: Colombia between 1960 and 1990

Courting Turmoil and Deferring Prosperity: Colombia between 1960 and 1990

Courting Turmoil and Deferring Prosperity: Colombia between 1960 and 1990

Courting Turmoil and Deferring Prosperity: Colombia between 1960 and 1990

Synopsis

This volume is part of a recently completed research project at the World Bank that reviewed the macroeconomic experience of 18 developing countries from the mid-1960s. The period encompassed two oil shocks, two world recessions, a sharp rise in world interest rates, the debt crisis, and changes in exchange rate regimes. In this context, Colombia provides an almost unparalleled example of steady long-term economic growth despite external shocks, political crises, civil strife, reliance on a single, dominant commodity (coffee), and the rising importance of illicit drugs in the economy.'Courting Turmoil and Deferring Prosperity' looks at how Colombia managed to avoid major prolonged economic crises against all odds. Its economy has confronted several external and internal shocks from the mid-1960s, mainly due to the country's reliance on exports of coffee, the price volatility of which can greatly affect the economy. The period also witnessed major policy changes, including a long-term shift from an essentially inward-oriented development strategy, based on industrialization through import substitution, to an outward-oriented, export-led strategy.The authors' analysis differs from most existing literature on the Colombian economy in two important ways: it evaluates policy responses to shocks in terms of their success in achieving short-run stabilization, as well as their impact on long-run growth; and it explores the intimate links between economic policies and the specific political and social ideologies, institutions, and structures in Colombia that have historically conditioned government policymaking. The report also highlights the role of prudent macroeconomic policies for crisis avoidance and analyzes the links between fiscal policy, trade policy, and exchange rates.

Excerpt

This volume by Jorge García García and Sisira Jayasuriya is one product of a World Bank research project that has reviewed the macroeconomic experiences of eighteen developing countries since the mid-1960s. This period encompassed two oil shocks, two world recessions, a sharp rise in world interest rates, the debt crisis, and changes in exchange rate regimes. Many countries encountered severe crises, though their responses varied greatly, and often the crises were essentially home-grown or, at least, the result of unwise domestic policies combined with external shocks.

The objective of the project was to glean instructive lessons by analyzing the stabilization and adjustment policies pursued by these countries and assessing the outcomes. the authors of each country studied were asked to deal with a common set of questions concerning the nature of shocks; their origin and degree of seriousness; the fiscal, monetary and trade policies adopted in hopes of preventing permanent harm to the economy; and the results of the policies. While no single, rigid structure was imposed on the studies, they were conducted within the framework of the open-economy macroeconomic model to ensure consistency in generalizing about results.

The intensive study of many episodes generated ideas and suggested relationships showing the causes and effects behind policies, the nature of shocks and crises, and governmental responses to them. the major findings of the project are presented in a synthesis volume by I.M.D. Little, Richard N. Cooper, W. Max Corden, and Sarath Rajapatirana, Boom, Crisis, and Adjustment: the Macroeconomic Experience of Developing Countries, published by Oxford University Press for the World Bank.

Within the set of study countries, Colombia provided an almost unparalleled example of steady long-term economic growth, despite its exports having been dominated by coffee, a commodity with high price volatility, and its political environment plagued by persistent civil strife and traumatic violence. the unusual stability of its growth performance was in no way due to an absence of serious shocks to the economy. On the contrary, as this book details, a number of major domestic and external shocks have confronted the Colombian economy since the early-1960s. Historically, given the central role of coffee in Colombian exports, the major external shocks have been associated with the relatively frequent and sharp fluctuations in world coffee prices, and this was also the case during the study period; in addition, the growing importance of illicit drugs has introduced a . . .

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