By Álvaro Grajales
THOSE WHO do not learn history are doomed to repeat it. This phrase seems to be the sad reality that awaits Colombians in the economic field with the appointment of José Antonio Ocampo as the new finance minister.
This is not the first time that Mr. Ocampo has been part of a government in important portfolios. In the 1990s he played a leading role as director of the National Planning Department and as Finance Minister in the left-wing government of President Ernesto Samper, who is remembered for the 8,000 probes (investigations for receiving money from drug traffickers).
In the Samper administration, Ocampo was in charge of two important tasks: the first, the implementation of the National Development Plan called El salto social between 1994 and 1996; the second, as Minister of Finance and Public Credit between 1996 and 1997. However, the “social leap” turned out to be a leap into the void, as his administration can be summed up as a fiscal crisis, economic emergency, inflation, with unemployment and poverty.
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One of the main problems with the famous salto social was that it was not clear how the plan was to be financed without affecting macroeconomic policy stability, something which, in the end, was affected.
Ocampo’s lack of planning, both in the NDP and in the Ministry of Finance, led the Samper administration to try to impose, through the 1997 Decree 080, the “economic and social emergency”. However, this decree was declared unconstitutional by the Constitutional Court, which considered that the State of Economic and Social Emergency only applies to the following situations:
“In face of supervening events of an extraordinary nature whose disturbing or threatening effects on the economic, social or ecological order are serious and imminent, and which cannot be dealt with by means of the ordinary powers of the State, the exceptional method of monocratic government of the economy known as a state of emergency can be used.”
Pese a los intentos de Ocampo por justificar la emergencia económica en su intervención en sede de revisión, la Corte, asertivamente expresó:
“It is erroneously thought that the survival of the economic and social system is a matter exclusively for the state of emergency, as if during normality it were exempt from fighting the same battle, and the competent authorities did not have in their hands a not inconsiderable part of its destiny and the consequent responsibility to act diligently and wisely”.
In other words, the Court told the government that the economic crisis was predictable and in 3 years they had failed to act. The point is that during the time that the economic emergency was in force, it did not solve the underlying problems of public finances. This led to the creation of the Public Expenditure Rationalization Commission, whose recommendations remained a dead letter.
Another relevant point is that the social investment programs of the César Gaviria administration (where Ocampo was Minister of Agriculture) and the Samper administration (where Ocampo was the director of the NDP and the Ministry of Finance) did not differ, as both were characterized by a high level of operating expenditure, i.e. bureaucracy.
In fact, Ocampo had an important task to carry out from National Planning and, later, from the Treasury, which was the Social Solidarity Network, described by the Comptroller General’s Office (1995) and by the Investigative Unit of El Tiempo (1996) as inefficient, with a high bureaucratic burden and high operating costs.
Faced with the central sector’s mismanagement of the economy, Minister Ocampo came up with the idea of proposing a reduction in transfers to territorial entities to Congress, instead of reducing the size of the central sector. The current mayors know where they stand with the new minister in the event of an economic crisis.
Other important facts of Ocampo’s administration are: (i) unemployment increased by 9 percentage points, an increase in the checking account deficit, an increase in the trade deficit, and he failed to reduce the fiscal deficit; (ii) in the 1997 industrial opinion survey conducted by the National Association of Industrialists (ANDI), 74% of those questioned rated their company’s situation as fair or bad; (iii) the performance of small and medium-sized companies was not positive either. In the first half of 1996, the Colombian Association of Micro, Small and Medium Enterprises (ACOPI) recorded a loss of 30,000 jobs caused mainly by the economic slowdown and high interest rates; and (iv) inflation targets were never met.
For some, the appointment is a sign of reassurance, but with his track record, it generates more uncertainty, and with his new boss the macroeconomic outlook does not look positive.
Álvaro Grajales is a Colombian lawyer with emphasis in Economic Analysis of Law.