Publish in Perspectives - Monday, December 4, 2017
OECD headquarters in Paris. (Photo: OECD/Michael Dean)
Colombian OECD membership would increase credibility with foreign investors.
BY LATIN AMERICA ADVISOR
Colombia’s bid to join the Organization for Economic Co-operation and Development, or OECD, has been cleared by most of the OECD’s 23 committees. Should Colombia be allowed to join the OECD? What would membership in the organization mean for Colombia and its economic development? Are there any drawbacks to Colombia joining the OECD?
Oscar Ardila, senior associate at Avenida Capital: Considering the fact that after decades of internal conflict, Colombia managed to re-emerge as an economic powerhouse in Latin America, it is remarkable to see its performance in lifting people out of poverty, strengthening public institutions, maintaining fiscal and monetary discipline, and preserving the stability of democracy, despite political swings. Colombia is by no means a country without major pitfalls, and there is still a long way to go in the quest for inclusive economic development and access to opportunities for all. Nonetheless, given that we live in an increasingly globalized world, one with shared opportunities and threats, Colombia’s experiences can cast light on potential alternatives to seemingly intractable conflicts and deeply rooted social issues that all other nations face, all while promoting sustainable economic growth. Thus, the OECD has as much to benefit from Colombia’s accession as Colombia has benefited and will continue to benefit from the accession process and potential membership to the organization. Colombia has weathered the impact of commodity price declines through a disciplined macroeconomic framework. That stability has been achieved through the enactment of key reforms in line with OECD best practices, in areas including tax and justice systems, governance, green development and investor protections, among others. Thus, the accession process has already proven beneficial, and an eventual membership will help the country reap additional benefits in terms of economic cooperation with other members and a more active, and much needed, leadership role in the region.
Alberto Bernal, chief emerging market and global strategist at XP Securities: Colombia should be admitted to the OECD. The country has proven to be a good enough partner of the market economy in the past, and ensuring Colombia’s entrance to the OECD will increase the probability of it refraining from taking the populist route at some point in the future. Having an OECD membership is analogous to receiving a ‘good conduct’ certificate. For a country to be able to show that it has successfully complied with the requirements to be an active member of the OECD implies that it has 1) clear rules for conflict resolution for private-sector entities; 2) a clear understanding of the value of having macroeconomic stability; 3) an understanding of the relevance of having good practices in the provision of national statistics; and 4) respect for the possibility of companies deciding in favor of looking for international arbitration instances, if there is no room to deal with a conflict internally. There are costs to joining the OCED, not least of which are increased compliance and regulation costs. However, the benefits of having increased credibility with the international investment community more than outweigh any possible cost to joining this high-level international organization.
Maria Velez de Berliner, president of Latin Intelligence Corporation: Unlike Mexico and Chile, which acceded before the Tequila Crisis of 1994 and the commodities boom, respectively, Colombia will accede to the OECD at a time of economic deceleration, high informal employment, and extreme political polarization and uncertainty, as the FARC’s leaders enter the 2018 presidential and senatorial races. Foreign direct investment, one of the major attractions of OECD membership, has declined for the last three years. Despite the government’s hopeful predictions of an increase in 2018, and the promised investment of $100 million by the UAE in mining, the overall downward trend is expected to continue, due to high levels of insecurity, taxation and interest rates that constrain credit, and a broad lack of technical and scientific skills, a non-negotiable requirement within the global economy. The highest levels of corruption in Colombia’s history trump the OECD’s transparency requirements. Colombia is now riddled by corruption scandals that involve influential politicians and leaders of industry and financial institutions. That said, Colombia’s free-market tradition meets the open-market requirement for accession. Geography and a lack of government support for advanced research and development limit the growth of Colombia’s market. However, OECD membership might lead Colombia to increase research and development funding to stem the brain drain of scientists who have left, or are leaving, the country for more propitious environments. The OECD’s rules on transparency might help Colombia realize that anti-corruption campaigns must be more than expedient political slogans and tools against opponents; and that corruption, grand or of the garden variety, undermines confidence in the institutions that must undergird open and transparent markets, locally and internationally. Therefore, if the OECD’s transparency requirements help Colombia make believable and dependable inroads against corruption, membership will have helped Colombia greatly.
Carlos de Sousa, senior economist for Latin America at Oxford Economics: The accession process into the OECD has been very positive for Colombia since the process began in 2011, as the government has made efforts to improve the quality of its institutions and the rule of law. But as in the cases of Chile and Mexico, we do not think there will be an immediate measurable impact on the economy after the OECD officially accepts Colombia into the group. In fact, it could be a positive driver of reform momentum if the country is required to make further improvements in some areas before being officially accepted.