OBG talks to Hasan Tuluy, World Bank Regional Vice-President for Latin America and the Caribbean

Interview: Hasan Tuluy

With commodity prices forecast to fall, how can Colombia maintain an equitable trade balance?

HASAN TULUY: In the short term, any abrupt fall in commodity prices would cause the balance of payments to deteriorate and the currency to depreciate. However, this depreciation could help improve the variety and volume of non-commodity exports. Colombia has an important manufacturing sector that would benefit from a more competitive exchange rate. In any case, the long-term expansion of this sector and a balance of payments less dependent on commodities should rely not only on favourable exchange rates but also on improvements to infrastructure, human capital and access to finance. These elements underpin the productivity gains needed to boost Colombia's manufacturing exports.

What effect will the recovery of developed economies have on Colombia?

TULUY: The recovery of advanced economies, particularly the US, will precipitate changes in their monetary policies. This has triggered a redirection of international capital flows away from some emerging markets, which has impacted their exchange rates and reduced foreign capital inflows. Previously this type of event tended to affect all emerging markets indiscriminately, a phenomenon called contagion. Recently, however, investors seem to be better informed and more discriminating, and not all emerging countries have been negatively affected to the same extent.

Some emerging markets have experienced exchange rate deterioration and reacted with more restrictive monetary and fiscal policies. Colombia has not been gravely affected. Although the exchange rate has certainly deteriorated a little since the start of 2013, which some Colombian exporters do not necessarily view as inconvenient, this should not be a source of great concern. The recovery of developed economies will also help to stimulate more trade. This could be particularly beneficial for economies such as Colombia’s, which have the US and the EU as their main trading partners.

How much could improved infrastructure and logistics help to leverage free trade agreements (FTAs)?

TULUY: Colombia’s economic performance has been impressive in recent years. If this growth trajectory continues and new FTAs materialise, lowering transportation costs and improving infrastructure will be key to sustaining development. A number of comprehensive reforms to the institutional and regulatory framework have been implemented to improve the investment climate and foster enhanced public-private dialogue and partnerships. These include the Public-Private Partnership (PPP) Law, the Infrastructure Law, revamping the National Infrastructure Agency (Agencia Nacional de Infraestructura, ANI), a new Transport Planning Unit and a Transport Regulatory Commission.

To translate these changes into actual PPP projects, the government is proceeding with its fourth-generation of road concessions that is set to result in 40 new projects and the construction of 8100 km of roads, generating new investment of around $26bn over the next eight years. The World Bank was instrumental in supporting the creation of ANI and, together with assistance from the International Finance Corporation, has been supporting Colombia's PPP agencies.

How can the development of small and medium-sized enterprises be supported?

TULUY: Low productivity explains the income gap between Colombia and OECD countries, despite improvements during the 2000s. While poor infrastructure, limited access to finance and distorted markets are undoubtedly factors, research by the World Bank, Stanford University and the London School of Economics has identified poor management and organisation as the primary causes of low productivity.

The World Bank is now providing technical assistance to the government to design, implement and evaluate an innovative pilot programme aimed at improving productivity at the company-level based on a similar pilot project that was originally trialled in India.