The Lost Decades, 1980–2000: External Debt, Structural Reforms, and a Deep Financial Crisis

Abstract

The golden decade of the 1970s was followed by a long-lasting stagnation that strongly affected the standards of living. Alongside a surge of violence, the structural reason behind Colombia’s economic stagnation was again the excessive government interventionism in the allocation of resources. The steps toward economic liberalisation of the early 1970s ceased in 1978.

In the early 1980s, Chile and Colombia showed a similar GDP per capita. The former underwent outstanding productivity-driven growth from the mid-1980s onwards due to a set of policy reforms, while Colombia remained stagnant. Despite the fact that Colombia implemented similar reforms in the early 1990s, the benefits of such policies could not be fully achieved in that decade due to an expansionary fiscal policy from 1994 onwards, which culminated in a financial crisis in 1999.