NEOLIBERALISM IN COLOMBIA: CHARACTERISTICS, AUTHORS, CONSEQUENCES - ECONOMY - 2025

The neoliberalism in Colombia began to be implemented in the early 90s, during the presidency of César Gaviria. This economic philosophy defends a null participation of the State in the regulation of all activities related to the economy.

Neoliberalism defends that only private initiative should have a place in the economy, even in sectors such as health or education. It was created in 1930 by a group of European liberals who wanted to overcome traditional liberalism. Years later, he arrived in Pinochet's Chile, sponsored, to a large extent, by the United States.

Cesar Gaviria - Source: World Economic Forum (www.weforum.org) / Photo by Alexandre Campbell under the Creative Commons Generic Attribution / Share-Alike 2.0 license

In Colombia, as in much of Latin America, the economy had had a strong protectionist component. The high prices of products such as coffee allowed the macroeconomic data to be good, but different crises greatly affected the country. For this reason, he changed his policy towards a more liberal one.

The plan launched by César Gaviria was called "Economic Opening" and entailed privatizations, deregulation and changes in taxation. The results, although disputed by economists according to their ideological tendency, have been mixed. On the one hand, it has meant economic growth, but on the other, it has increased social inequality.

What is neoliberalism?

Neoliberalism is a doctrine that defends a broad liberalization of the economy, free trade, the reduction of public spending and, in general, that the State does not intervene in its regularization.

In this way, the private sector would go on to play roles that, traditionally, have been the authority of each State.

The justification for the doctrine, according to neoliberal authors, is that state interventionism makes economic activities less dynamic, with the private sector being much more effective.

Origin

The fall into discredit of classical liberalism after the Great Depression led a group of economists to formulate a new doctrine. These authors were not supporters of state intervention in the economy, so they opposed the trend of that time, Keynesianism. The result was neoliberalism.

This concept did not become popular until the 1980s, when the Chicago School helped implant it in the Chile of the Pinochet dictatorship. In addition, it was favored by the so-called Conservative Revolution, promoted by Ronald Reagan in the United States and by Margaret Thatcher in the United Kingdom.

Previous situation of the Colombian economy

In the 1950s, the Colombian economy benefited from the high prices of its flagship product in exports: coffee. This allowed the country to have resources to finance the industrial sector.

When coffee prices fell, the state had to increase its protectionist policy so that the economy did not collapse.

The limited diversification of exported products and dependence on coffee to obtain foreign exchange led to the initiation of an export promotion process. In this way, protectionist measures were completed with others aimed at increasing the quantity of products for sale abroad.

This tactic paid off well. GDP quadrupled and, although with ups and downs, Colombia managed to overcome the surplus in relation to public spending at the beginning of this period.

Inflation, for its part, remained within tolerable levels. The crisis of the 1980s, which strongly affected the region, did not have very serious consequences for Colombia thanks to the good performance of the industry and, to a large extent, due to the dollars from drug trafficking.

Washington Consensus

The American influence was fundamental for the implantation of neoliberalism in Colombia. The clearest example was the so-called Washington Consensus, a series of measures created by the economist John Williamson in 1989. The aim was to offer a set of reforms for developing countries.

The proposed measures called for the liberalization of the economy in all its areas, the reduction of the state role and the expansion of market forces.

Virgilio Barco Vargas

The first Colombian president to follow these measures was Virgilio Barco, although, in reality, the reforms are attributed to his economy minister, César Gaviria.

Economic opening

Barco's replacement in the country's presidency was, precisely, César Gaviria. He accelerated the reforms and advocated a plan called "economic opening", full of neoliberal measures. His Minister of Finance, Rudolf Hommes, played a fundamental role in the materialization of this new policy.

With this program, the government tried to integrate the country into the process of economic globalization as part of the aforementioned Washington Consensus.

At first, the reforms caused the bankruptcy of some Colombian industries, while others were privatized. The result was uneven, with benefits for some sectors and losses for others.

characteristics

Neoliberalism in Colombia has some of the general characteristics that are attributed to this doctrine. Besides, others are exclusive to the country.

According to some authors, such as Rudolf Hommes himself, in Colombia there is no pure neoliberalism. For this politician, it is a doctrine so extreme that it can only be approved by some right-wing intellectuals.

Reduction of the role of the state

As this doctrine establishes, the state's role in the economy was reduced to a minimum. Private initiative has been strengthened in all sectors, including health and education, and regulations have been relaxed to the maximum.

Central banking

The 1991 Constitution, labeled neoliberal by many authors, established a new design for the Central Bank. First, the figure of independent autonomous entities was established, including the Banco de la República. Its first function was to maintain the purchasing power of the currency.

In this way, the State lost control of monetary policy, which remained in the hands of that independent entity. According to some experts, this means giving up control of inflation. Likewise, it assumed that the government had no possibility of ordering currency issues for social or public investment programs.

Free economic competition

The same Constitution established free economic competition as a fundamental right. This means that the State cannot own companies exclusively, not even in sectors considered strategic.

Two examples of this regulation were the privatization of domestic public services and the national electricity system, both in 1994.

Economic integration

Economic integration was also included as one of the constitutional mandates. This meant that the country could be part of all kinds of free trade agreements. It was even established that it could be integrated provisionally without the approval of Congress.

VAT increase

Although, in principle, the neoliberals are against all types of taxes, in practice they prefer to increase the VAT to do the same with the income tax. In Colombia, the increase was from 10% to 12% in normal products and up to 45% in luxury products.

Representative authors

César Augusto Gaviria Trujillo

César Augusto Gaviria Trujillo is a Colombian economist and politician who served as president of the country between 1990 and 1994.

Before that, he was the head of the Ministry of Finance during the Barco Vargas presidency. Already then, he launched the first measures of a neoliberal tendency in Colombia. Later, as Minister of the Government, he promoted the constitutional reform that would give rise to the Magna Carta of 1991.

As President, he launched the "open economy" program, with a series of measures aimed at integrating Colombia into economic globalization through policies to reduce public spending and liberalization and privatization of economic sectors.

Rudolf Hommes Rodriguez

Born in Bogotá, Rudolf Hommes Rodríguez is a Colombian economist who held the Ministry of Finance during the government headed by César Gaviria.

From that position, Hommes was in charge of directing the policies that sought to open up the Colombian market. Among his works are the restructuring of the Colombian banking system and the imposition of the privatization of Banco de Colombia.

Alvaro Uribe

The governments of Uribe, Pastrana and Santos continued the same neoliberal policies implanted by Gaviria.

In the case of Uribe, and beyond the purely economic sphere, I use that concept to establish the idea that Colombia was the only country in the area that stayed away from the protectionist policies that were succeeding in other nations.

Among its specific measures, the two tax reforms, the state reorganization, the request for loans from the World Bank, a wage decree and various adjustments to fuel prices stood out.

Consequences

Neoliberal economic reforms have characterized Colombian politics since the 1990s. With them, the country has liberalized markets, thereby gaining efficiency.

However, the consequences have been uneven, with benefits and losses depending on the social sectors. Furthermore, on such a politicized issue, ratings vary enormously depending on the ideology of the experts.

Macroeconomic data

The macroeconomic data, as is the case in most countries with neoliberal policies, are quite positive.

In this way, the per capita income in 2010 is more than twice that of 1992. Inflation, for its part, has gone from 32% in 1990 to 3.17% in 2000.

Not so positive are the external debt figures. According to the report presented by the Banco de la República in 2000, this reached 36,000,000,000 million dollars, of which 24,490 million correspond to the public sector.

In percentage, this debt is equivalent to 41.3% of GDP, something that experts consider worrying. This has led to further adjustments in economic and fiscal policy.

Imports and exports

The Gaviria government enacted some small adjustments on imports and tariffs. However, the results were hardly noticeable.

The subsequent tariff reduction did not deliver the expected results either, working well below what the World Bank had anticipated. Instead of improving, imports decreased.

Unemployment rate

One of the major criticisms of neoliberalism is its impact on employment, since it tends to reduce labor rights and impoverish workers. Colombia was no exception.

Thus, in 10 years, unemployment rates grew from 10% to 20%. Later the figures were reduced, but in exchange for the existence, according to DANE, of more than 8 million underemployed people.

Levels of poverty and inequality

The other great criticism of neoliberalism is that it tends to increase the levels of poverty and inequality, despite good economic growth figures.

Apart from the aforementioned creation of precarious jobs, the difficulties faced by part of the population in accessing quality education and public health care are very important factors so that inequality does not decrease.

References

1. Castaño, Ricardo A. Colombia and the neoliberal model. Recovered from files.santana223.webnode.es
2. Zuleta, Hernando. 20 years of neoliberalism. Obtained from portafolio.co
3. Aristizábal Guerra, Daniel Andrés. Neoliberalism the Colombian way. Obtained from alponiente.com
4. Romero, David. Colombian Delusion of Development. Retrieved from cospol.ch
5. Dyer, Chelsey. Colombia's War of Neoliberal Economics. Retrieved from nacla.org
6. García Villegas, Mauricio. Neoliberalism. Retrieved from dejusticia.org
7. Leech, Garry. Colombia's Neoliberal Madness. Retrieved from cadtm.org
8. Gustav, Michael. Neoliberal Economic Policy in Developing Countries: The Case of Colombia. Retrieved from michaelgustav.com