Annual inflation in Colombia exceeded 10% last July. PHOTO: PRIVATE ARCHIVES

There inflation (13.28% over one year), the dollar (over $4,800), the interest rate (12.75% since January) and the exploration and exploitation of oil and gas These are issues that are affected on a daily basis in Colombia and have their eyes on this country because of the way in which the Government of Gustavo Petro handle this situation.

With regard to inflation, the Ministry of Finance signaled that it has already reached a ceiling and would start falling from March, while with the dollar the currency continues with a volatility due to national and international factors. Regarding oil and gas, uncertainty persists on this subject due to messages not to sign new exploration and exploitation contracts to begin the step towards the energy transition.

The famous Spanish economist spoke on these points Lucia’s swimming pool, Professor of Economics and Commerce at the European University and doctor cum laude in Economics and Commerce. Among other things, he said GlobeLiveMedia colombiathat inflation is a phenomenon that does not only affect Colombia, but something almost global, universal.

What has been the impact of inflation globally?

In Europe we have double digit inflation rates and Spain is no exception, although it ended in a low figure at the end of 2022 (5.7%), but it is a global problem that has a multifactorial cause.

The most relevant factors, in the first place, were the covid-19 pandemic, which led to a break in the chains of production processes and a reduction in GDP (Gross Domestic Product). However, at the same time, countries have maintained incomes and maintained the Erte system (Dossier Régulaire de l’Emploi Temporaire) and companies have maintained their payroll.

Thus, households had an income that allowed them to buy goods, but production was stopped. When the production is stopped, because the offer was not enough to take care of the demand.

What factors influenced?

Added to this first factor is the crisis in China, the container crisis and the maritime transport crisis.

Then, in a second field of causes, we find the international political instability caused by the war in Russia and Ukraine. There what can be done. We are returning to normality and I believe that the markets are reoriented again and that the productive reorganization has begun.

These were also years of very low interest rates which encouraged consumption in the absence of production or construction constraints.

Do you agree with central banks raising their interest rates?

They do not have the choice. We had a very expansionary monetary policy. So a very expansionary monetary policy with very low interest rates led to excessive consumption.

In addition to the rise in interest rates, can we not put in place measures other than the rise in interest rates?

Fighting inflation involves many measures, not just raising rates. In reality, the government should try to prevent indexation. Indexing means the rising of things due to inflation. That is to say that the wage bills, even if it seems a contradiction, indexed to inflation, feed the inflation of rental income and are indexed to food inflation.

Targeted measures are therefore necessary when deindexing because inflation, in a way, is a monster all over the world.

We must recognize that we are poorer. If we don’t recognize this and try to keep raising wages, as prices rise and we don’t take action to increase production or supply, prices will continue to rise.

Lucía Pool, professor of economics and business at the European University and doctor cum laude in economics and business.
Lucía Pool, professor of economics and business at the European University and doctor cum laude in economics and business.

Exactly, in Colombia banks make decisions with interest rates, but for credit cards with quotas of 4 million dollars, is this measure appropriate?

Credit cards have minimum interest rates. It’s almost another market. They also cannot have an abusive interest rate when there are certain cases and there is no other choice but to resort to it.

What can we expect for what is coming this year in terms of costs for the war in Russia and Ukraine?

There is a lot of uncertainty. If nothing else happens, the logic is that the market readjusts to the new situation and little by little inflation is reduced.

It is true that much depends on the economic policies of the countries. The United States has already announced that the rates will reach 6%. The European Central Bank seems determined to raise interest rates and control inflation. It is also true that China is recovering. This country is the big demand for raw materials and this may increase production, but it increases the cost of raw materials.

Do you think that the national government’s messages about not signing new oil and gas exploration and exploitation contracts have an effect on the rise of the dollar or is it more speculation?

The truth is that the value of the dollar depends on many factors and therefore it cannot be just that. It’s probably not decisive.

Can tourism currencies replace oil currencies?

Tourism is a traditional source of foreign currency, as is oil. Normally, tourism does not have this facility to increase in the short term. It can be promoted as a more medium-term policy.

There is talk of a labor reform to, among other things, reduce the working day and shift the night shift from 6:00 p.m. to 6:00 a.m. What do you think?

It is a measure that has its advantages and its disadvantages, but in reality, in this case, what must be done is to increase productivity and not reduce it. By increasing productivity, we can generate more wealth and reduce the harmful effects of inflation.

Do you like Argentina and Brazil’s proposal for a common currency for South America and possibly for Latin America?

A common currency implies solidarity in the sense that the economic policies and economic situation of one country will condition another country. Therefore, a level of homogeneity of economic circumstances and economic policy is necessary.

The experience we have in Europe has its positive aspects, but also its negative aspects in the asymmetric case, that is to say when a country suffers from a crisis, it suffers from high inflation. Thus, pursuing a policy suitable for both territories is not always easy. The interdependence that is being created is very high and involves high levels of commitment, responsibility, solidarity and that is why it is necessary to think about it carefully.

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