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Colombia in the OCDE: Is economic development with inequality possible?

The purpose of the OCDE is to harmonize public policies for the advancement of growth and economic development of its member countries. In words of Economist and Professor Álvaro Zerda, “Being a member of the OCDE means accepting behavioral norms in regards to public policies for economic development in all its fields.” 

Since the admission of Colombia to the OCDE, there have been multiple debates on the benefits and disadvantages of this approval. An analysis of these positions shows that this process can only be perceived as positive or negative. On one hand, technically the organization may offer benefits that overcome the simple fact of improving the perception of the country in the world scene and on the other, it implies assuming unreal standards for our current development process.

The benefits

The report “Colombia: Priority policies for an inclusive development” written by the OCDE shows a positive side of belonging to this organization and provides details which would positively impact the welfare of the Colombian population.

Some of these proposals are promoting an inclusive growth from the social point of view, considering environmental sustainability, besides occupational formalization, which implies quality work and respecting the rights of workers. It also mentions driving educational systems to guarantee quality education and the necessary institutional reforms to improve governance and the image of the government.

The disadvantages

One of the greatest criticisms to the admission of Colombia is a surrender of sovereignty as the country would concede its development model to that proposed by the OCDE, ignoring the independence of producing specific development models for its own context. Although this may be a bit exaggerated, it is no less certain that Colombia will now have obligations to comply with this organization.

A Universidad EAFIT study shows that Colombia will not only have to pay an annual cost of being part of the organization (close to US$4 million) but will also have to invest close to COL$20 billion a year during the next 15 years to implement the suggestions of the OCDE (Pelau, Vásquez y Toro, 2016).

This implementation process of the suggestions is not new for the country. Since the former Santos administration, they were starting to fulfill some of the norms of the OCDE with the purpose of complying with some of the admittance requirements. A sample of this was the tax reform of 2016 which was to avoid fiscal evasion and increase the value-added tax (VAT) from 16 to 19%.

These reforms cannot be perceived as something far from the other needs of the country as reducing inequality. In fact, as shown in a World Bank report, Colombia is the second most unequal country in Latin America. This is something the OCDE knows and its 2015 report says that in terms of income, the country has the greatest level of inequality in comparison to any other country in the organization.

A “methodic doubt”

The question we need to ask is if these economic reforms will have a positive impact on reducing inequality or if on the contrary, they will deepen the issue and will only help the economic indicators.

The OCDE says that the tax load over Colombia enterprises is very high, including income tax, wealth tax and VAT on investments. Therefore the organization recommends redistributing the tax load, increasing family taxes, and decreasing enterprise taxes.

To achieve this, the administration of President Iván Duque is promoting a financing law, mentioning some points such as altering the VAT taxable income. In a recent interview, the President spoke about increasing the VAT taxable income for products of the basic food basket.

These proposals are not new; as the administration of former President Álvaro Uribe tried to advance employment promotion and support the industry changing work schedules by eliminating overtime.

In spite of applying this new regulation, there wasn’t an occupational impact that significantly reduced unemployment. This is why the new reform on the table is only gaining doubts in regards to what it would directly imply for the economic situation of the workers.

If to all this we add the OCDE proposal of establishing a differentiated minimum wage according to the region and the age of workers, we could also produce an even greater detriment to the wage quality, as has been said by the defenders of these proposals that minimum wage in Colombia is too high. An affirmation easily debatable compared to the daily life in the country.

Conclusion

The Latin American Network for Research on MNE's (RedLat, for its Spanish acronym) report on work in Latin America says that in Colombia 48.3% of the working population does not even earn minimum wage. This means that the Colombian working class is not in a position to support tax loads emerging from the suggestions of the OCDE.

It’s not that the suggestions of the OCDE are negative for the development of the country. The issue is that these suggestions, invitations to “good practices” are unreal for the current Colombian reality. It has been demonstrated that lowering enterprise tax loads in Colombia does not help to strengthen and increase employment. Definitely, as indicated in several documents, Colombia is not prepared to face these economic development measures as those recommended by the OCDE. These will increase inequality instead of diminishing the levels of occupational formality, which can lead to growing the levels of inequality.

References

Contraloría General de la República. (2015). Retos y desafíos tributarios de Colombia ante el ingreso a la OCDE. Boletín Macrofiscal.

Duque, I. (19 de septiembre de 2018). Nadie ha planteado poner IVA del 19 % a la canasta familiar. (J. R. Vargas, entrevistador).

OCDE. (2015). Colombia: políticas prioritarias para un desarrollo inclusivo. OCDE.

Pelau, N., Vásquez, C. y Toro, J. (2016). El ingreso de Colombia a la Organización para la Cooperación y el Desarrollo Económicos (OCDE). Universidad EAFIT.

Red Latinoamericana de Investigaciones sobre Compañías Multinacionales. (S. f.). Trabajo decente en América Latina. Obtenido de www.redlat.net/site/wp-content/uploads/2016/04/trabajo_decente_america_latina.pdf

Zerda, Á. (22 de enero de 2018). OCDE. UN Periódico Digital.

Consejo Editorial