A Proposal for Capital Market Reform in Colombia
Posted: 12 Dec 1997
Date Written: September 1997
Because of a combination of external factors and domestic policy failures, Colombia experienced a sharp increase in Informal activities over the last twenty years. The large share of domestically owned assets that are outside or on the margins of the formal economy caused a significant structural distortion in capital markets. In this paper we present an initial analysis of the potential negative economic effects of this distortion. We argue that the incomplete property rights of these Informal assets generate a series of negative outcomes, amongst which: rent seeking, diluted rates of returns in legitimate activities, insufficient domestic and foreign savings, fiscal failure and a general bias against tradeables. Because all of these reasons, Colombia is contending with a variety of undesirable social economic and social trends and cannot realize its economic potential. Our proposal to overcome this problem is centered on a normalization of the status of all domestically owned assets, allowing them full property rights and participation in the formal economy. Such a one-time amnesty would greatly facilitate the country's transition to more sustainable and balanced economic growth and modernization.
JEL Classification: G18, O16, O17
Suggested Citation: Suggested Citation