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Observers did not expect great news from the Board of Directors of Banco de la República which took place last Friday. At the end of the day, the entity had already taken the measures that the market expected, in terms of reducing interest rates and guaranteeing the liquidity of the economy.
(You may be interested in: ‘The future came forward / analysis by Ricardo Ávila’).
For that reason, the statement you read Juan José Echavarría, the Issuer’s manager for four years, it fell like a bucket of cold water. The decision of the official not to run for re-election was unexpected and leads to all kinds of speculation about his possible successor or successor, including the probable appointment of the current Minister of Finance in office.
Given the current complex situation, the name of whoever is in charge of the so-called bank of banks is even more relevant than in normal times. On this and other issues, Echavarría spoke with EL TIEMPO.
No one anticipated the statement he released last Friday …
That is what I perceive, due to the multiple reactions that arose. The truth is that this decision was the result of a process, very personal, very intimate, discussed with my family. Part of me wanted to stay at the Bank or at least participate as an applicant in the manager’s appointment process for the next four years, but another part was clear that continuing was impossible.
Why?
I’m going to say it very sincerely. My wife has been suffering from a difficult illness and I will support her with all my energy in her treatment, for as long as necessary. It would be wrong for me, then, to ask for a license or to try to attend to the Bank’s affairs with my head and heart elsewhere. That would not be responsible.
Is it hard to leave like this?
I do not deny that until a few months ago I was attracted to the possibility of repeating my mandate. Apart from loving the institution where I spent ten years as Director –between 2003 and 2013– and four as Manager, it is a true privilege to work with very capable people, starting with my fellow Board members and the Bank’s technical team. It is, without a doubt, the best position in the country for someone with a passion for economics, like me. In addition, the challenges left by pandemic they are very big and that makes it even more interesting. Anyway, I am very satisfied with the work achieved.
For example…
To begin with, we are complying with the constitutional mandate to keep inflation under control. Its level was in the desired range before March, and it has dropped to levels below 2% during the pandemic. On the other hand, we have used the tools at our disposal well and our policies arouse great credibility. This is shown by the surveys that inquire about our management, and those that show that the Banco de la República is the entity in which Colombians trust the most.
What advantages does that have?
This was essential so that in the midst of the coronavirus shock we could take measures that stabilized the economy and that will serve in the recovery. There are important advances in the cultural area, in economic research, in the administration of the Bank and in the relationship between the administration and our employees. A nice book is being prepared on the history of the Bank since 1991 based on interviews with all the co-directors and finance ministers. The Bank made huge profits in the last two years. The dividends paid to the Government during these last two years are equivalent to about two tax reforms. Anyway, so much to show …
A part of me wanted to continue at the Bank or at least participate as an applicant in the manager’s appointment process (…), but another was clear that continuing was impossible
What specific economic stabilization measures are you referring to?
The best known is the reduction in the intervention interest rate to the lowest levels since 1991, when the new independent central bank was created. As important as the rate reduction was the set of measures taken to guarantee liquidity in national and foreign currency. And the agreement with the International Monetary Fund that allows us to expand our credit quota up to $ 17.3 billion is noteworthy, of which the Government may use a part.
(In context: ‘IMF expands quota to Colombia, and the country would use a part for the first time’)
Finally, dollars were bought from the Treasury to further raise the level of the country’s international reserves. It is worth noting that all these measures to stimulate the economy were taken without losing sight of the objective of achieving high and stable growth in the medium term.
How serious is the reality of the economy?
It is a shock that humanity has never experienced. In Colombia we suffered a catastrophic and unprecedented impact in the field of health, which forced the authorities to react with measures such as compulsory confinement. Apart from the virus, we were affected by the fall in oil prices, our main source of foreign exchange. These circumstances led to a brutal reduction in consumption and investment and the worst economic contraction in our history. This is manifested, obviously, in increasing levels of unemployment. Some of the restrictions were lifted, but the health emergency is not over and there are still many uncertainties. It will take us several years to get back to where we were in December 2019.
And could that have been avoided?
I don’t see how. We continue to fight against a powerful enemy that does not give up. In the midst of the difficulties, the economic policy responded well, avoiding extreme situations in the financial or exchange field. After the downturn in the second quarter, we are improving. I have no doubt that we will have positive growth rates soon, especially if we can avoid restrictions like the ones we see again in Europe. The Bank’s technical team projects growth levels close to 4.5% in 2021.
There are those who say that the Government could have done more in this crisis …
I think that Colombia responded to the best of its ability and that here it was understood that this situation was going to last for many months. In that sense, it would have been wrong to spend the entire arsenal in the beginning when what is coming is an endurance test. We must also understand that other countries, such as Chile and Peru, saved more in the past and therefore have greater room for maneuver at the present time.
Within that arsenal is the idea that the Bank makes a loan to the Executive so that he has how to spend …
There are enough examples in the neighborhood that demonstrate the immense cost that bad decisions can bring and no central bank has. We have purchased significant amounts of securities from the Government, and new resources were obtained with the International Monetary Fund through the Flexible Credit Line to expand our reserves and to contribute to the financing of public spending.
Colombia has obtained ample financing in the international and local capital markets and this explains why this proposal has not reached the Board.
We will come out of this difficult time, of that I have no doubt. Once the virus is left behind, we will be able to return to the path that we had been traveling
How to avoid those bad examples?
The best guarantee is to preserve the Bank’s independence, as expressed in the 1991 Constitution. A technical and professional board of directors that does not respond to political considerations will always be desirable. The point here is to maintain a long-term perspective, recognizing that the strength of this institution is one of the pillars on which the Colombian economy rests.
But the presidents complain …
This is inevitable, here and abroad. And it is good to remember that periodically we go to Congress to present our Semiannual Report. There, other points of view are heard, all very valuable, and the Manager and the Board answer a broad questioning. That seems healthy to me, because it is the way the Bank responds to the country.
What do you think is the future of the Colombian economy?
We will come out of this difficult time, of that I have no doubt. Once the virus is left behind, we will be able to return to the path we have been traveling, in which we characterize ourselves as one of the two or three economies with the best consistent performance in Latin America. We will also be able to reverse the setback we are seeing in social matters, due to unemployment and the drop in income for millions of families.
And what does it take for that to happen sooner rather than later?
Make the right decisions, keep the house in order and do not forget a series of reforms that are pending, all of them aimed at increasing our potential growth. Walking faster is essential not only to get out of the crisis but to build a country with many more opportunities. This without forgetting that we still have a lot to do to improve income distribution, another urgent task that Colombia must tackle.
(Too: ‘The optimism of companies is rebounding compared to 2021’)
Of the different statements you have heard in recent years, which one strikes you?
The one that says we are an open economy. Here we have schemes that protect certain groups of producers who find that this situation is much more comfortable than that of innovating and competing. I have permanent contact with entrepreneurs and I can attest that there are many who are very capable and manage to conquer markets, despite adverse circumstances. Others do not. When one looks at how agricultural production increased in this century in Brazil or Argentina, and agricultural and industrial production in Chile or Peru, it is obvious that we are not doing something right. Little has been thought about the relationship between unemployment and the oligopolistic power of many producers.
Are there other issues that bother you?
Many. In the case of the Colombian economy, I am concerned that we are a country with persistently high unemployment and high informality. And on the international level, I see that the climate is getting thinner. This global recession requires much more cooperation than has yet been seen, because at the rate we are going, the richest nations are going to come out of the depression much faster than the rest of the planet and that would lead to new imbalances. The pandemic may end, but if we do not pay attention to the consequences that it leaves, we can become seriously ill from other ills.
What would be the best new Manager for the Bank?
The process of choosing the Manager is taken very seriously and each member of the Board knows that what is at stake is the strength of an institution that will soon be 100 years old, the last 30 years as an independent central bank, and that this It is one of the main assets of the country. For this reason, I do not doubt that the person who is chosen will be the correct one and will understand the weight of the responsibility that he assumes: that of leading an independent institution, which acts with technical rigor and with full disposition to contribute to solving the problems that arise. The important thing is to make it clear that you will always act professionally and independently, with the national interest as your sole objective.RICARDO ÁVILA
Senior Analyst – EL TIEMPO
On Twitter: @ravilapinto
