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Colombia - Role of the Government in the Economy
Role of the government in the economy
The economy in the late 1980s was predominantly a capitalistoriented free-market system, requiring a minimum of state interference in its overall operation. Nonetheless, the president had the authority to take corrective action on a number of levels, as well as the constitutionally guaranteed right to determine the general direction of economic and social development.
Historically, government intervention in the economy took the form of preferential treatment for a particular sector, such as the creation of protective barriers to promote import substitution industrialization, and cooperative ventures undertaken with the private sector, chiefly to develop energy resources. The government also supported the promotion of exports through financial guarantees and the management of exchange rates, price supports, and fiscal and monetary policies. The government generally did not subscribe to a heavy regulatory policy but did manage some enterprises either directly or as joint ventures with private firms. Since 1950 one of the most visible examples of government intervention had been the sector-specific economic development planning advocated by particular administrations.
The Constitution of 1886 and its subsequent amendments provide the legal justification for strong executive authority. Although Congress is granted powers to establish guidelines for economic development, legislative control of economic policy faded during the dictatorship of Gustavo Rojas Pinilla (1953-57). The National Front governments that followed further consolidated economic planning within the executive office, an effort that culminated in the Social Development Plan of 1961-70.
Executive dominance of economic policy making was further reinforced by the 1968 amendments to the Constitution, which limit congressional authority to various checks on executive programs. These amendments charge the president with general control over economic policy, which may be altered only with a two-thirds vote of Congress. This power extends to public and private investment initiatives, the allocation of public resources, and tax policy. Any congressional changes in budgetary matters are referred to the finance minister for final arbitration. Congress retains authority to approve the president's development plan, however. In the event that Congress does not act on this plan, the president may proceed by decree. Nonetheless, congressional efforts to control economic policy have, at times, impeded implementation of economic plans. In 1974, for example, Congress refused to act on the "Four Strategies" plan of President Misael Pastrana Borrero (1970-74), forcing the executive branch to act by decree to implement what were technically illegal policies. Congress immediately challenged the president on legal grounds, with subsequent rulings by the Supreme Court again favoring executive supremacy. This allowed carefully structured programs to be planned, funded, and implemented virtually without congressional approval. Congress, however, continued to find ways to frustrate executive policy.
Congressional authority to influence executive economic policy making carried over to the administration of Alfonso López Michelsen (1974-78), as legislators attempted to loosen the grip of the executive branch's strong hand. López Michelsen's plan, dubbed "To Close the Gap," was designed to increase funding for more equitable social development by altering the tax code. Congress again refused to act, which contributed to the plan's eventual failure. Although López Michelsen went so far as to declare a state of economic emergency, he never succeeded in implementing a comprehensive economic reform package.
The constitutional Reform of 1979 slightly reduced executive control of the economy. President Julio César Turbay Ayala (1978- 82) had only recently been inaugurated, and his long career in the legislature convinced him of the need to curb executive authority over the economy. Furthermore, efforts to regain any control of economic policy would receive the support of both Liberal and Conservative legislators.
The 1979 reform authorized congressional intervention under specified circumstances and called for the president to submit a national development plan to Congress for its approval. If Congress failed to act on the plan within 100 days, however, the president could proceed without further delay. Although the executive branch basically retained power over economic planning, the mechanisms for a coordinated legislative response were in place.
Executive goals for national economic development were clearly defined in the next three administrations. The Turbay and Betancur administrations chose to emphasize development of energy resources and transportation networks, as well as overall economic stability. This trend, however, was altered in 1986 when a new president, Virgilio Barco Vargas, stressed economic reform.
Barco outlined his major economic development goals in the Social Economic Plan, 1987-90. The administration turned its attention to the social needs of the poor, embarking on a program designed to direct public funds to the basic health, education, and welfare needs of the lower class. The overall strategy consisted of three plans to manage broad social issues. The Plan for the Eradication of Absolute Poverty concentrated on social and health improvements, including the upgrading or installation of sewage, water, power, health, and education facilities. The plan also outlined a strategy to reduce the vast housing shortage affecting every Colombian city. The National Rehabilitation Plan focused on development of smaller regional urban centers, and the Plan for Comprehensive Peasant Development concentrated on improving market and production capabilities for some 4 million smallholder farmers.
Planners counted on continued annual economic growth of 5 percent to provide the revenue necessary for the overall plan's implementation. Given sufficient resources, they assumed that prudent management of macroeconomic policy would allow the goals to be met. Two years into his administration, economic indicators pointed to the success of Barco's plan. Despite some partisan resistance in Congress, coordinated fiscal and monetary policies were implemented that directed economic and financial resources toward desired ends. The combined objectives of macroeconomic policy and the development plan seemed closely linked, so that success of the first implied completion of the second.
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