Latin Finance - September/October 2009 - 28

josé darío uribe interview Timing it Right by Ben Miller s with the rest of the region, Colombia faced inflation pressure as it struggled to protect the economic gains of recent years. The first central bank in the region to begin cutting rates – in December 2008 – Colombia has charted a course that saw inflation return to 3.81% in June, from almost 8.00% in October 2008. José Darío Uribe, governor of the Banco de La República since 2005, tells LatinFinance about the trials of the past year. A After Brazil and Chile, Colombia’s central bank did best in LatAm at confronting the multiple challenges of global financial crisis. It overcame significant domestic hurdles. inflation. The currency was allowed to float freely, while domestic reserve requirements and capital controls were relaxed in October and November 2008. A fast phase of interest rate reductions was started in December. What was the single greatest challenge? Timing the change in the policy stance. Between the second half of 2007 and the first half of 2008 the Colombian economy was subject to strong supply shocks stemming from skyrocketing international prices of raw materials and foodstuffs. This happened at a time in which aggregate demand was high and output was already above its long-term sustainable output level. Hence, inflation climbed well above the central bank’s target and inflation expectations started to rise for several different time horizons. Thus, the main concern at the central bank was to prevent a permanent increase in inflation. Then, suddenly, the global economic situation and outlook shifted dramatically after the Lehman bankruptcy. Even before the crisis hit, a slowdown of the Colombian economy was expected, given the effects of the monetary policy tightening undertaken since April 2006, and the impact of the supply shocks on costs and real disposable income. What decision might you have taken differently? With the benefit of hindsight, we believe that countercyclical financial policy – which is largely outside the central bank – may be improved. Progress in countercyclical fiscal policy is necessary as well. Countercyclical improvement: Uribe rapidly. So inflation fears remained. On the other hand, the unexpectedly abrupt response of the global economy increased the uncertainty on the depth of the crisis itself, and its impact on the Colombian economy. Easing monetary policy too early would have risked further un-anchoring of inflation expectations. Easing it too late would have deepened the impact of the crisis on aggregate demand. Fortunately, because of central bank regulation and earlier measures to contain leverage, the Colombian financial system did not go through the sharp liquidity squeezes and currency mismatches that occurred in How did inflation complicate other economies. matters? Therefore, the central bank could After Lehman, the timing of policy easing concentrate almost exclusively on the became a key issue. On the one hand, appropriate policy response to the effects inflation was reaching high levels unseen in years and the currency was depreciating of the crisis on the real economy and The central bank policy was widely criticized by many – producer organizations, labor unions, interest groups and even the government – during 2006-2008. Today almost all of them recognize that the central bank policy was adequate. The interest rate hike of July 2008 was particularly controversial, since the economy was already showing some signs of deceleration. During the fall of 2008 there were some pressures to ease policy faster. Later, some attempts were made to blame the central bank for the slowdown of the economy on the basis of a presumably late reaction to the global crisis. However, there has been no serious argument in this regard, since most comments ignore what inflation and inflation expectations were at that time. Virtually all sectors and analysts of the economy have welcomed the interest rate cuts made this year. LF What pressure did you experience to move rates? 28 LatinFinance September/October 2009

Latin Finance - September/October 2009

Table of Contents for the Digital Edition of Latin Finance - September/October 2009

Latin Finance - September/October 2009
Contents
Investment Banking Survey
Who Said That?
OTPP Investment Strategy
Central Bank Scorecards
Brazil Liability Management
Real Estate Equity Resurrected
Structured Finance Forecasts
Grim Outlook. Reform Required
Banorte Seeks to Grow
Peru Spending Hits a Block
BCP Sees Better Days
Caribbean Investment Report
Sustainable Banking
Legal Services Survey
Parting Shot
Latin Finance - September/October 2009 - Latin Finance - September/October 2009
Latin Finance - September/October 2009 - Cover2
Latin Finance - September/October 2009 - Contents
Latin Finance - September/October 2009 - 2
Latin Finance - September/October 2009 - 3
Latin Finance - September/October 2009 - 4
Latin Finance - September/October 2009 - 5
Latin Finance - September/October 2009 - 6
Latin Finance - September/October 2009 - 7
Latin Finance - September/October 2009 - 8
Latin Finance - September/October 2009 - 9
Latin Finance - September/October 2009 - 10
Latin Finance - September/October 2009 - 11
Latin Finance - September/October 2009 - 12
Latin Finance - September/October 2009 - 13
Latin Finance - September/October 2009 - Investment Banking Survey
Latin Finance - September/October 2009 - Who Said That?
Latin Finance - September/October 2009 - 16
Latin Finance - September/October 2009 - 17
Latin Finance - September/October 2009 - 18
Latin Finance - September/October 2009 - 19
Latin Finance - September/October 2009 - 20
Latin Finance - September/October 2009 - 21
Latin Finance - September/October 2009 - 22
Latin Finance - September/October 2009 - OTPP Investment Strategy
Latin Finance - September/October 2009 - 24
Latin Finance - September/October 2009 - 25
Latin Finance - September/October 2009 - Central Bank Scorecards
Latin Finance - September/October 2009 - 27
Latin Finance - September/October 2009 - 28
Latin Finance - September/October 2009 - Brazil Liability Management
Latin Finance - September/October 2009 - Real Estate Equity Resurrected
Latin Finance - September/October 2009 - 31
Latin Finance - September/October 2009 - 32
Latin Finance - September/October 2009 - 33
Latin Finance - September/October 2009 - 34
Latin Finance - September/October 2009 - 35
Latin Finance - September/October 2009 - 36
Latin Finance - September/October 2009 - Structured Finance Forecasts
Latin Finance - September/October 2009 - 38
Latin Finance - September/October 2009 - Grim Outlook. Reform Required
Latin Finance - September/October 2009 - 40
Latin Finance - September/October 2009 - 41
Latin Finance - September/October 2009 - 42
Latin Finance - September/October 2009 - 43
Latin Finance - September/October 2009 - 44
Latin Finance - September/October 2009 - Banorte Seeks to Grow
Latin Finance - September/October 2009 - Peru Spending Hits a Block
Latin Finance - September/October 2009 - 47
Latin Finance - September/October 2009 - 48
Latin Finance - September/October 2009 - 49
Latin Finance - September/October 2009 - BCP Sees Better Days
Latin Finance - September/October 2009 - 51
Latin Finance - September/October 2009 - 52
Latin Finance - September/October 2009 - 53
Latin Finance - September/October 2009 - 54
Latin Finance - September/October 2009 - Caribbean Investment Report
Latin Finance - September/October 2009 - 56
Latin Finance - September/October 2009 - 57
Latin Finance - September/October 2009 - 58
Latin Finance - September/October 2009 - 59
Latin Finance - September/October 2009 - 60
Latin Finance - September/October 2009 - 61
Latin Finance - September/October 2009 - 62
Latin Finance - September/October 2009 - 63
Latin Finance - September/October 2009 - 64
Latin Finance - September/October 2009 - 65
Latin Finance - September/October 2009 - 66
Latin Finance - September/October 2009 - Sustainable Banking
Latin Finance - September/October 2009 - 68
Latin Finance - September/October 2009 - Legal Services Survey
Latin Finance - September/October 2009 - 70
Latin Finance - September/October 2009 - 71
Latin Finance - September/October 2009 - 72
Latin Finance - September/October 2009 - 73
Latin Finance - September/October 2009 - 74
Latin Finance - September/October 2009 - 75
Latin Finance - September/October 2009 - 76
Latin Finance - September/October 2009 - 77
Latin Finance - September/October 2009 - 78
Latin Finance - September/October 2009 - Parting Shot
Latin Finance - September/October 2009 - 80
Latin Finance - September/October 2009 - Cover3
Latin Finance - September/October 2009 - Cover4
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