Were the reforms made in Colombia in the early 1990s right?

Luis Ramirez
 Economic reforms in Colombia in the early 1990s

In the early 1990s Colombia was a country full of problems, even if they werent economic
problems, there were a lot of other problems that could lead to a major economic problem if
reforms werent made, the country had to resist the violence across the country, and in terms of
economic problems, the country had a lot of market fails caused principally by the government,
specially regulator capture that guided the country to an economy full of monopolies and over-
regulation in all important markets which led to an economy full of entry barriers, barriers that
nobody would accept today.

Looking back in the history the results talk by themselves, while is true that the reforms werent
perfect at all, they build the base of the modern Colombian institutional framework. Before the
reforms started the economy was controlled mainly by the government, with entire markets
controlled by government enterprises and making use of its power to difficult the private
initiative, participating in the markets as competitor and regulators which causes a conflict of
interest and harming the private sector confidence in the economy, private sector that was alone
with no institutions where they can complain about the government abuse.

The reforms start

When president Gaviria takes control of the executive he already had the plan to reform
Colombias economy because of the economic model that isolated the country to the rest of the
world. He started deregulating the foreign trade with the liberalization of the import quotes and
the exchange rate, privatizing public enterprises and eliminating the entry barriers in order to let
private sector develop activities that were exclusive of the public sector, abolishing the law 50 of
1990 which did away the retroactive severance system improving the labor market, open the
financial sector to foreign institutions and investors, opening to private parties the public utilities
and last the angular stone of this reform was the creation and reform of the regulatory
institutions, starting with the most important institution, the Central Bank, this reform create an
autonomous Central Bank with a specific task controlling inflation, administering the
international reserves and being a bank of last resort for financial institutions, eliminating the
option to lend money to private parties without control. Then the reform created all the
regulatory institutions that would regulate specific markets capable of protecting competition
policies and consumer rights, some of them exists even nowadays.

The reform result

Actually, the time tell everything people can need to answer the question This reform really
helped the country and was right when it was made?, in order to answer this question people
need to see backwards, during the last 26 years the Colombias economy has developed in his
maximum expression, even with an armed conflict, the violence, and the drug traffic problems,
the country really improved since this reforms were made, the economy was open again and all
economic sectors were improving with the markets opening to new competitors and foreign
investments, the consumers and foreigners now have their rights guaranteed by the regulation
institutions, and the consumers have more choices when they go to make their purchases at the
market.
Otherwise even if the reform was right at their time really helped the country, the reforms arent
perfect and time changes, nowadays the circumstances are asking for another full reform of the
economy, the private parties have been in collusion for years, the markets have lost their
efficiency and the regulator capture have come back stronger than ever, the weakness of the
institutions have starting to show and now even the nation is going through and rough peace
process that will demand even more efforts from the government and the people, so this should
start as soon as possible because the time is running out and the problem is growing without
control.

This essay was made in base of the following paper:

Reference
Montenegro, A. (1995). Economic Reforms in Colombia Regulation and Deregulation, 1990-94.
World Bank Institute.