The waves of a buoyant economy and the roiling currents of an expanded money supply demand constant vigilance and steady fine-tuning by Colombia’s central bank president, Jose Dario Uribe, to stay the course toward lower inflation.
Since rising to become general manager of the Banco de la Republica in January 2005, Uribe (not a relative of Colombian president Alvaro Uribe) has worked to reinvigorate the inflation-targeting regime and attacked the expanding money supply. From mid-year 2007, he also stopped the bank’s discretionary interventions in the foreign exchange market.
He is unswervingly focused on taming inflation, expected to come in at 5% in 2007, above the target of 3–4.5%. “Five percent inflation is good, especially in a rapidly growing economy,” Bertrand Delgado, senior economist with IDEA Global, tells Emerging Markets.
The credibility of the regime has already been re-established by hitting the 4.5% target in 2006, and inflation could be back on track as soon as next year, even in a context of strong GDP growth, projected at 4.5% by the IMF. “I am optimistic that, while missing the mark in 2007, they will be successful in 2008,” says Sergio Clavijo, president of Colombia’s National Association of Financial Institutions.
Over the last year, Uribe tackled inflationary expectations, implementing nine rate increases of a quarter-point each, raising the benchmark rate to 9.25%. Money supply growth, which expanded by 18–19% every year from 2004 to 2006, fell to 6% in real terms year-to-date, owing to increased reserve requirements.
For Edwin Gutierrez, emerging market debt portfolio manager at Aberdeen Asset Management, the growing willingness of local investors to take long-term exposure to the peso indicates their rising confidence in monetary stability. “These people have had to live through episodes of very high inflation and currency depreciation, so it takes a big cultural change.”
As a young man, 48-year-old Uribe headed the national planning department in the budget office and was economic adviser to the National Coffee Federation. After earning his master’s and doctoral degrees in economics at the University of Illinois, he entered the central bank in 1993, rising from deputy manager of economic research to deputy manager of monetary and reserve affairs (1998-2004) before being appointed as general manager.
A hallmark of his leadership is outreach to the public to sensitize consumers to the perils of inflation. Uribe delivers the bank’s quarterly inflation report to a wide audience on public television and then fields questions for 45 minutes on an open mike.
Students, professionals, housewives and financiers alike phone in and ask whether the bank will make more rate increases, why interest rates are rising in the context of a growing economy and why appreciation of the peso has not triggered a bigger drop in inflation.
Uribe pioneered the broadcasts by the central bank, and takes his role as economic evangelist seriously. In a country with a history of backward-looking indexation, educating people about inflation will develop broader support for monetary policy. “The best contribution of monetary policy to growth and employment is to achieve and maintain price stability,” he tells Emerging Markets.