Ivy Leaguers Keep Grip on Colombia Economy Amid Drug Chaos

By Matthew Bristow – May 24, 2016

Bloomberg News

Earlier this year, a cocaine gang shut down an entire region of northern Colombia, torching cars that defied its orders to stay off the highways. Police officers were assassinated and a truck driver was murdered.

In what might as well be a parallel universe, the country’s finance officials, educated at the world’s most prestigious institutions, are negotiating its expected entry into the Organisation for Economic Cooperation and Development, the club of rich nations with the highest standards of governance and transparency. The economy expanded 3.1 percent last year, outpacing every other major country in the Americas except Peru.

“That’s our schizophrenia,” said Ana Fernanda Maiguashca, a central bank co-director who grew up in Cali when the city was home to the world’s richest drug traffickers, before winning a scholarship to Columbia University in New York.

As Maiguashca notes, Colombia is a dichotomy. By some measures it is the most stable economy in South America, yet also the violent and chaotic heart of the world’s cocaine industry. Even as guerrillas and drug cartels have spread chaos in recent decades, highly-qualified technocrats managed its finances, allowing it to avoid the debt defaults, hyperinflation and slumps that have plagued the rest of the region.

A Developed Nation by 2023?

Now the government is close to signing a deal to dismantle the Revolutionary Armed Forces of Colombia, or FARC, a Marxist group, after decades of civil conflict. The accord is being promoted as a major step forward for Colombia, something that will boost investment and remove a major obstacle to wealth production. Finance Minister Mauricio Cardenas has said Colombia can become a developed nation by 2023.

But some analysts note that the spread of criminal gangs and the risk that they will take over territory abandoned by the FARC could act as a brake on the technocracy’s goal.

If, by contrast, the armed groups can be eliminated, Colombia’s standard of living can converge with that of wealthier nations in the region, such as Mexico and Chile.

Colombia’s civil service elite was born following a 1960s foreign exchange crisis, according to Rodrigo Botero, who served as Finance Minister in the 1970s. That led the central bank and other institutions to set up programs for people to do post-graduate work abroad, to improve the quality of policy-making.

Berkeley, Harvard, LSE

Today, virtually everyone with any say over Colombia’s economy has been trained at a U.S. or European university: the President (London School of Economics), the Minister of Finance (Berkeley), the Central Bank Governor (University of Illinois at Urbana-Champaign), the Director of Public Credit (Harvard), and the head of the state oil company (New York University).

At the same time, large parts of the country barely have a government at all, which allows criminal gangs to flourish. The state’s weak presence in much of the countryside means that, even in the best of cases, the anarchic side of Colombia will continue to exist for most of a generation, according to Adam Isacson of the Washington Office on Latin America.

“We’ve seen in Iraq and Afghanistan you can’t just plant functioning government seeds and expect them to sprout,” Isacson said in a phone interview. “If you compare today to Colombia 15 years ago, they’ve made a lot of progress reducing the amount of Colombia that is anarchic Colombia, but it’s a long-term process.”

One complication is a surge in cocaine production, which is pouring money into the coffers of criminal groups. The amount of land dedicated to growing coca, the raw material for making cocaine, continued to rise last year, according to the Defense Ministry, on top of a 44 percent increase in 2014. That means that, after years of falling production, the nation is once again producing more than Peru and Bolivia combined.

But while organized crime has managed to corrupt Congress, regional governments, the justice system and security forces, key economic institutions have largely remained aloof. These institutions have also developed a strong and unusual culture of favoring technical competence over political allegiance, according to Botero.

Off Limits

Everyone in Colombian public life understands that the nation’s key economic institutions — the Finance Ministry, the Central Bank and the Department of National Planning — are off limits for certain types of behavior, said José Antonio Ocampo, a former Colombian Finance Minister who now teaches at Columbia University.

“There’s an implicit political consensus that these institutions will not be significantly affected by politics,” he said. Ocampo said that when he was Agriculture Minister, he would often be approached by members of Congress seeking jobs for their proteges, but that this never happened when he became head of National Planning.

These islands of technical competence are now spreading beyond the government agencies that control the national purse strings, to the Health Ministry, the Ministry of Mines and Energy, the Ministry of Industry and Commerce, and other parts of the state, Botero said.

But while the economics doctorates slowly take control over bigger areas of the state, the cocaine gangs are also spreading their power — to illegal gold and other forms of mining. The also raise money from extortion of businesses in areas they control. A battle is looming.

Jorge Restrepo, an economics professor at Bogota’s Javeriana University who studies the conflict, put it this way: “If we are not able to defeat these highly violent organized groups, we are not going to be able to enter into a post-conflict phase.”

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