A retrospective appraisal of the two financial crises of the last forty years in Colombia

Abstract

This essay analyzes in retrospect the two financial crises of the last forty years in Colombia, that of the 1980s, and that of the end of the 20th century. In both cases, the interaction between macroeconomic developments - in particular the fiscal and exchange rate imbalances - and the financial system are studied. We show both crises share some characteristics. They were preceded by an increase in foreign revenues and considerable rise in public spending. This work studies how policy measures and private agents adapted to the situation and compares the similarities and differences of the economic consequences of it. Our analysis focuses on the vulnerability of financial institutions, the weaknesses of regulation and supervision of them, the supervision and behavior of bankers. Both episodes gave rise to changes in laws, regulations and institutions that have proven to be very useful for the management of crises, as could be seen in the turn of the century in which the performance of the Institution Guarantees Fund was fundamental. A final reflection advocates for the need to further study certain elements of the crises allowing a better understanding of their causes.