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Bibiana Taboada, who is part of the board of directors of Banco de la República, indicates that the fiscal adjustments that the country needs must be made gradually so as not to slow down the recovery of the economy.
Bibiana Taboada arrived at the Board of the Banco de la República in the midst of a strong controversy, since her experience with monetary and exchange policy is limited, although she has preparation for handling economic issues.
In written responses to The viewer He argued that the issuer implemented intervention mechanisms in the exchange market to increase liquidity without affecting international reserves.
Also read: Is it a good idea to re-centralize the purchase of gold in the Banco de la República?
How do you see the handling of the economy?
The year 2020 was very difficult for the Colombian economy. There is no doubt that recovering from a crash of these proportions will be complex. However, the very nature of the shock — caused by a public health epidemic rather than by economic or financial factors — could allow for a faster recovery than was seen in times of crisis in the past. Whether this happens will depend, mainly, on the evolution of the pandemic itself: on whether possible outbreaks are contained and new restrictions on mobility are minimized, as well as progress in the vaccination processes.
Do you think that the Bank’s estimates of GDP expansion for 2021 are grounded or is there a need to review them?
Right now there is a lot of uncertainty regarding the evolution of the pandemic. We do not know with certainty if there will be new outbreaks and of what magnitude, nor are we clear about the times in which we will achieve immunity thanks to the application of vaccines. In this context, the estimates made by the Bank, both of GDP and of other indicators, have fairly wide ranges of reliability, and have to be constantly reviewed and adjusted. Currently, the Bank’s forecast for economic growth in 2021 is 4.5%, in a range between 2% and 6%. This estimate assumes that no major restrictions on mobility will be necessary that significantly impede the performance of economic activities.
What has the Bank done well to help bring the economy out of crisis in this pandemic?
The Bank has played a very active role during the crisis. Not only did the policy interest rate fall sharply, but it also intervened in the financial market, providing high levels of liquidity. The fall in the interest rate has been key in maintaining the supply of credit to companies and households and in stimulating economic activity. The supply of additional liquidity has made it possible to maintain the stability of the financial markets and guarantee the continuity in the functioning of the payment system. Here it is worth noting, in addition to the amounts, the mechanisms used by the Bank for this purpose. The Bank took innovative steps to expand its market operations, allowing more players to participate in them more easily. It also implemented new intervention mechanisms in the foreign exchange market to increase liquidity without affecting international reserves.
What has the Bank lacked to give more support?
The Bank’s actions have been a good complement to those of the Government in supporting households and companies to face the crisis. There is a very big challenge related to the deterioration of the labor market in the country. In 2020, not only did the unemployment rate rise, but the labor force participation and the employment rate fell. In all this, the female population has been the most affected, which has increased the gender gap considerably. In January of this year, the total unemployment rate at the national level reached 17.3%, but it was 22.7% for women and 13.4% for men, a difference of about 70%. This is due, to a large extent, to a greater increase, month by month, since the beginning of the pandemic, in female unemployment compared to male. A similar trend is observed in terms of the overall participation rate and the employment rate, which reflects that many women also left the labor market. In a context like this, the recovery of the labor market should be a priority for all State actors, including the Bank.
What do you think of the criticisms that indicate that you came to the Bank not on merits, but on sponsorship?
I have known President Duque for more than fifteen years. The president was one of the first people I met when I came to work at the Inter-American Development Bank in Washington. Since then, it has continued my career. He witnessed my work at the IDB for many years and, more recently, he invited me to be part of his government and learned first-hand about my work as deputy director of the Department of Social Prosperity, where I was until July of last year. I have had a technical career in the area of social development and poverty reduction. Recently, I have also been involved in financial inclusion issues that are related to the public policy of payment systems.
Also read: How is the field after a year of pandemic?
Does the Bank have more ammunition to continue responding to the crisis in the face of possible new outbreaks of COVID-19?
The Bank continues to be attentive to the evolution of the pandemic and the economy, and making decisions in real time to adjust its interventions according to the changes observed. The Bank is ready to continue acting with relevance and determination, as the circumstances demand.
Is there room to keep cutting the interest rate or is it better to slow down and start climbing?
Interest rate decisions are made by the Bank’s Board of Directors in a collegial manner. Based on analyzes prepared by the Bank’s technical team, the implications of changes in the policy rate are discussed in light of the current observed and projected conditions for the economy. In this way, measures were taken to reduce the rate from 4.25% in February to 1.75% in September, and its subsequent stability until today. Future decisions on the interest rate will be made following this same work scheme and depend on the evolution of the pandemic and the response observed and predicted for the main indicators of the economy.
How concerned is the current level of inflation?
Inflation observed in 2020 was 1.6%, a record low. In January, the trend in prices continued and monthly inflation stood at 0.4%. This result is related to the mobility restrictions that occurred at the beginning of the year, as well as to other factors, such as the excess capacity of the economy and the indexation of some goods and services to inflation in 2020. The Bank’s forecasts expect downward pressures to continue during the first quarter of the year, but to revert from the second quarter, so that by the end of 2021 an even lower level will be reached, but close to the goal of 3% and within the range between 2% and 4%.
Is the price of the dollar adequate for the needs of the economy and how much does the price of oil help?
In the Colombian economy, the price of the dollar is freely determined in the markets and becomes the variable that absorbs shocks in the capital market. This characteristic gives strength to macroeconomic policy to the extent that it allows better protection and control of other variables such as inflation. In this sense, the fluctuations observed in the exchange rate are natural and help to compensate for imbalances in other markets. Regarding oil, although the increase in its price may be a temporary relief to public finances and the country’s terms of trade, it is important that it be taken with caution. There is still a lot of uncertainty regarding the forward trend of the barrel price, but beyond this, it is important that the country’s dependence on oil is not encouraged and, on the contrary, that the diversification of the basket continues Colombian exporter.
What do you think about the possibility of the Government asking the Bank for a loan? Is it good to pass it?
Indirectly, the Bank already lends money to the Government when it buys public debt securities in the financial market. However, the important thing about these operations is precisely that they are carried out through the market. This characteristic is essential because it guarantees the credibility of the payment of the debt by the Government to the Bank, as with any other creditor. The proposal to make a direct loan, by not going through the market, has the risk of sending the wrong signal to the markets. The cost of this measure could be very high, while its benefits would be low, especially in the current context in which the Government has access to resources in the financial market at historically low rates.
Should the Government accelerate the presentation of the tax reform?
As a result of the pandemic, the Government had to incur expenses that it had not foreseen, both on issues related to health services and on social issues and economic reactivation. It is desirable that fiscal adjustments be made to balance these variables. Possibly, the changes will have to be made gradually, so as not to slow down the recovery that is beginning and seeking to enter a path of adjustment that is realistic and credible. The reform will have to include tax issues and may also consider other sources of income for the Government.
