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Changing Colombia, part 1: from Tibet to CivetMay 6, 2011 4:29 pm by beyondbrics 0By Alejandro Gaviria of the University of the AndesColombia has long been an atypical country, at least in Latin American terms. During the second half of the 20th century, it never experienced an economic meltdown or a rash of populist policies, let alone hyperinflation or the coup d’etats that almost defined the rest of the region. Colombia rode the usual business cycles that any commodity-producing country endures. But, in general, it was an oasis of economic quietude in a cauldron of volatility. Colombia’s gradualism was the exception that proved the instability of the Latin American rule.True, the economy never grew fast. It advanced – but at a slow and steady pace. There were no big crises – and also no moments of rapid expansion. Between 1965 and 1995, there were ten years in which Argentina’s economy shrank. Over the same period the Colombian economy never suffered a single recession. During good times, it grew slightly more than 4 per cent; during bad times, slightly less. Over time, 4 per cent growth came to seem the country’s immutable economic rule.The counterpart to this stability was isolation. Alfonso Lopez Michelson, a former president, once called Colombia “the Tibet of South America”. How else could it be? Its main urban centres were high in the Andes – close to the stars but far from the sea. Businesses showed little interest in foreign markets. All exports other than coffee and oil were called, without irony, “minor”. Poor roads only made the natural barriers of Colombia’s varied geography more immense. Protectionism was the norm, the almost unquestioned policy consensus. Colombia seemed to wash its hands of the world. And vice-versa: the world did not much care about Colombia either.This parochial equilibrium collapsed in the 1990s. The drug-trafficking business caused an eruption of urban violence. In rural areas, it converted peasant insurgencies into powerful and well-armed rebel forces. It also corrupted the country’s institutions. Economic reforms – or at least Colombia’s version of them – produced a substantial rise in government spending, but this only made the economy vulnerable to external shocks.By the end of the 1990s, Colombia was suffering its worst economic crisis in almost a century. Unemployment reached 20 per cent. Guerillas had turned kidnapping into an industry. The middle classes fled the country. Some outsiders, and some Colombians too, believed the country was a “failed state”. South America’s Tibet had become the Sudan of the Andes.And so the new century found Colombia gripped by troubles. There were around 3,000 kidnappings every year. Investment plumbed new lows. Around 60 per cent of the population were deemed officially poor. The long years of stability and uninterrupted, if slow, growth were over. “Colombia has reached a fork in the road,” wrote the Italian economist Alberto Alesina in 2002. “One path leads to civil war, chaos, and economic collapse. The other to peace, reforms and economic progress.”It is only with hindsight that one can see how Colombia avoided the first path to ruin. In part, it was thanks to former president Álvaro Uribe’s successful security drive. In part, it was a consequence of the extraordinary economic expansion the world enjoyed between 2003 and 2008.Over that period, Colombian investment grew to 28 per cent of gross domestic product from 12 per cent. Foreign investment rose from risibly low levels to more than $10bn a year. The fiscal deficit almost halved to less than 4 per cent of GDP. The stock market soared. This March the country recouped its investment grade status with an upgrade from Standard & Poor’s.Last year, Michael Geoghegan, the president of HSBC, even included Colombia in a grouping of countries that he saw as the new stars of the world economy: the Civets – Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. In less than a decade, Colombia had changed from being a South American Sudan to a land of promise.President Juan Manuel Santos has been among the country’s greatest enthusiasts. “Colombia’s moment has come!” he announced at his inauguration last year. “Prosperity for all,” promises his government’s official development plan. Yet it is still too early to celebrate.Most economic forecasts estimate the economy will grow little more than 4 per cent a year, the same as always, for the next few years. When it comes to social inequality, Colombia now tops Latin American charts. Violence has become a general public concern, again. The country remains among the world’s largest exporters of cocaine.Colombia is also yet to overcome its isolation. It still costs less to ship a container from Shanghai to Cartagena, than from Cartagena to Bogotá. Most Colombian businesses remain protectionist at heart. In Peru, a South Korean free trade treaty is seen as a necessity. In Colombia it is viewed as a threat. Exports remain only 15 per cent of GDP – the same as 20 years ago. Colombia may be a Civet – but it also remains a Tibet.Colombia has avoided the path to chaos. Santos is now clear about where he wants the country to go next, even if he is less sure about precisely how to get there. The country has set its aspirations for the next few decades: to overcome, once and for all, its long history of economic mediocrity, growing inequality and endemic violence. But the road to prosperity remains long, and hard. The challenges are huge.Alejandro Gaviria is Dean of the School of Economics at the University of the Andes and a former deputy director of Colombia’s National Planning Department. This is the first of a two-part series.