Juggling multiple tasks is a given for finance ministers around Latin America. They need to keep an eye on social pressures at home and always be on the lookout for dark clouds gathering abroad. Even a small hiccup could have major repercussions in these highly dollarized, raw-material dependent economies.
In Colombia, finance minister Alberto Carrasquilla, 47, has to do this and much more, dealing a few hours each day with threats to national security from communist guerrillas, drug traffickers and the paramilitary groups that want to eliminate both of them.
“Security is a day-to-day problem for the finance minister. What we want to do is normalize the situation, so that the day-to-day work can be focused on the economy and not defence issues,” Carrasquilla tells Emerging Markets.
The Colombian government has been engaged in a guerrilla war against the Revolutionary Armed Forces of Colombia (FARC), the country’s oldest and most brutal insurgency, for more than four decades. It is also battling against paramilitary groups organized to fight the FARC and smaller rebel groups, as well as the drug trade that keeps both the guerrillas and paramilitaries flush with cash.
Carrasquilla has not only come up with a few ideas to deal with the security threat, he has done so while helping Colombia move into one of its best economic positions in many years.
On the security front, the budget he has proposed for 2007 includes an increase in defence spending – as well as more money for social programmes and infrastructure. The bump in military spending did not raise too many eyebrows, because it was accompanied by a much more controversial idea for a special tax on the country’s wealthiest individuals that would generate income to be used only for security issues.
“Our military needs a one-time increase in investment for hardware. This special tax would provide for these expenditures. Our armed forces are doing a great job and society needs to support them. This would be a tax on individuals, not companies,” he says.
Critics say this “war tax” will only polarize society at a time when warring factions seem more willing to talk than they have in years. There are indications that the FARC could be open to a hostage-for-prisoner swap – the rebels hold a number of hostages, including former presidential candidate Ingrid Betancourt, who they kidnapped more than four years ago – and authorities have recently jailed some of the top paramilitary leaders.
The new tax has the support of many in Congress, and according to business leaders, Colombia’s wealthy are willing to go along if they are guaranteed that the resources generated will be used only for the military. This would probably not be the case if Colombia were not doing well.
As finance minister since June 2003, Carrasquilla is widely credited with consolidating Colombia’s achievements and preparing the country for long-term growth. The economy has been at a steady pace, inflation is down to low single digits, and unemployment is close to single digits, down from nearly 16% when he first took office.
Carrasquilla says the most important thing about the new economic situation is the confidence it has generated in Colombians and among foreign investors. “I love to engage in the debate regarding my country, because I am sure we are on the way to becoming an extremely attractive place to invest,” he says.—Lucien Chauvin