Colombia has achieved political stability, improved security and big infrastructure projects are underway. It says it has turned the page on a past of drug cartels, war and poverty. Why invest in Colombia?
Colombia is particularly attractive because of the size of the market. We have an income per capita that is approaching US$8,000 and a population of 48 million. We have a growing middle class that consumes financial products, durable goods, and so on. The markets have been growing consistently above GDP rates. Colombia also boasts the advantage of an ample and diversified manufacturing base. We also are less commodity dependent than other Latin American countries.
China is Colombia’s second biggest trading partner. How prepared are you for a China slowdown?
Although the price of our main export, oil, is still above the level we use in our national budget, any reduction has an impact on public finances. However, we have a fiscal rule here. I n determining the level of public spending, we use a long term price, a structural price, and when prices are above their long term level, we save the difference. This is currently still the case, so we don’t need to make any adjustments or budget cuts.
Restrictions on moving funds in and out of Colombia are a source of concern for treasurers. Are there plans to relax FX controls and reduce the amount of information required by the central bank along with heavy penalties?
We have the explicit aim of facilitating flows of portfolio investments, which this year have increased considerably. Among other things, this has been the result of the reforms we approved in December  that reduced the tax rate on portfolio capital from 33% to 14%. We want to make it easier to register securities in the Colombian market and to be traded directly from Peru or Chile. For example, Cemex issued in the Colombian market: they did an IPO that was traded on the other stock exchanges. All these regulatory changes in the microstructure facilitate capital portfolio flows.
Are there any advantages or incentives aimed at persuading companies to locate their financial and treasury centres in Colombia?
There are no special tax incentives but we do want Colombia to become a financial centre and not to have any additional tax or information requirements that go beyond international standards. We don’t want financial transactions to be taxed, we don’t believe in capital controls. Even in moments of acute currency appreciation, Colombia has stayed away from these initiatives, because they discourage the participation of players that need the freedom to move money in and out.
If you had a magic wand, what is the one thing you would change in the Colombian economy?
My main concern is that the manufacturing sector has not been performing too well in the last few years. I hope this will improve with the depreciation of the exchange rate. But if I had a magic wand I would try to inject more competitiveness into that sector to keep it dynamic to achieve a more balanced economy in the future.
Latin America needs to improve competitiveness, especially when compared to Asia. What initiatives are there in the Pacific Alliance [Chile, Colombia, Peru and Mexico] to make the block more competitive?
Competitiveness is absolutely central in our countries. We have managed to reduce the price of country risk to unprecedented levels but the cost of doing business remains high. We need to reduce it. In the case of Colombia, this means reducing infrastructure and energy costs. In 2012 we enacted major tax reforms that eliminated a large part of the payroll taxes. That constituted a significant advance, but we need to continue working, particularly with regards to transport infrastructure.
What is the government doing to reduce inequality in Colombia?
We have targeted public spending better to focus on the poorer sectors of the population. We are also working to reduce inequality charging higher rates on the higher earning groups and reducing taxes on lower income families. All this has allowed us to reduce the Gini Index from 0.56 to 0.54. We have moved from being one of the most unequal countries in Latin America to being close to the regional average. The informal economy is still an issue and although progress has been made, part of the population remains un-banked.
Are there initiatives to make regulations more flexible to promote mobile banking as a means to increasing bank inclusion?
Yes, we have several initiatives. The level of financial inclusion has been growing thanks to the elimination of financial transactions taxes on segments of the population that are participating and the fees and commissions charged to people on lower incomes. Simultaneously we are creating a new type of financial institution that, rather than offering credit, only offers an electronic payment facility to people that today use cash. This will get them into the system and also enable banks to offer them other services.
How would you like to be remembered?
Two objectives: I’d like to be remembered as a reformer that introduced more equality in our economy and who consolidated the macroeconomic equilibrium to generate balanced growth among the different economic sectors in Colombia. Sectors are not totally balanced yet.