In 2017 Ocampo was named to the board of directors of Colombia’s Banco de la República, the country’s central bank. He returned to SIPA in January, and recently sat down with SIPA News to discuss his work for the bank; the intersection of policy, practice, and teaching; and his recent books.
How did you enjoy your time as a board member for Colombia’s central bank?
For every country, the central bank occupies a very important place in macroeconomic policy. So it is a rewarding experience.
It’s actually the second time I’ve been a member of the board. In Colombia the finance minister is the chair of the board, and I was finance minister in ’96-97. So I had that previous experience as chair before serving most recently as an independent member.
What did your work involve? Was it different the second time around?
There are always interesting new issues. But the main challenge is how you manage an economy to guarantee low inflation on the one hand, and help support economic activity and employment on the other.
When I started this new phase of my work for the central bank, economic activity was weak. Colombia’s main export is oil, and the collapse of oil prices in 2014 and 2015 had negatively affected the economy. Also, the target for inflation in Colombia is three percent, with a range of tolerance of two to four percent, but inflation was above four percent when I arrived.
Last year we finally succeeded in bringing inflation into range, so that was good. And economic activity also started to recover—last year’s growth was 3.3 percent, which was the highest among the middle-sized and large Latin American countries.
So, the challenge was to support the recovery of the economy while guaranteeing a moderate inflation rate. And I think we were successful in that regard. But employment has still not recovered; the rate today continues to be high.
Why is that?
My perception is that there's a lag between the recovery of the economy and the recovery of employment. I think this year Colombia is going to see the results of faster growth in terms of employment generation.
Colombia’s situation is also complicated because of the mass migration from Venezuela, as a result of political turmoil there. About two million Venezuelans, which is equivalent to four percent of our population, entered Colombia in just two years. So it was a massive increase in the number of Venezuelans, but Colombia remains totally open to additional migration from our neighbor.
What were other challenges associated with the job?
There were several, among them the return of volatility of external financing. It was very severe in 2018, but also some months of last year; for example, August and December  were months of capital outflows. So how to manage that was a major challenge.
One of the decisions in which I was only partially successful was the decision to accumulate more foreign exchange reserves, to be able to strengthen that defense mechanism. But last year, when the exchange rate started to depreciate more than we expected, we suspended the program. I think we should have renewed it, but I failed to convince the majority of the board to go ahead.
What new challenges have arisen since you served on the board in the late 1990s?
One new item on the agenda has been the world of digital money, which is an extremely interesting issue. We have seen the creation of several digital currencies. Perhaps the most widely used is Bitcoin, and Facebook and some of its partners have proposed to launch Libra. So we had lots of discussion about what to do with these currencies.
The issue has several dimensions, but one problem is that digital currencies can be extremely volatile, and you don't want your financial institutions to be too much involved in something so unstable. So, we did not allow the banks to manage assets in Bitcoins. Libra was more challenging particularly because of the very strong backing of major investors, but after a lengthy discussion, we joined with the almost unanimous views of other central banks and governments that were very skeptical of Libra. That’s why it hasn’t been launched.
Central banks were created to control money, to control currencies, and if they don’t do that, it generates major risks. One of those which is especially important in our case is the risk of money laundering. Colombia has been very, very strong in creating mechanisms to control money laundering through the financial system. This was part of my success as finance minister, something I worked on with the support of the U.S. Treasury. And we were very effective—so much so that Colombia is now recognized as one of the best countries in the world on this issue.
Why is there a greater risk of money laundering with digital currency?
It’s impossible to control money laundering unless the system is designed to do so. We did start, on a smaller scale, an experiment on how to create a digital currency managed by the Central Bank. This is something that is the agenda of several central banks. It's a very interesting issue.
Tell us about working at the intersection of policy, practice, and teaching.
I am proud to have an uncommon mixture of academic experience and extensive policy experience: in my life I’ve held three ministerial portfolios, and I spent 10 years at the United Nations. But I also very much enjoy being a professor and working with students.
I am also involved in many international debates—about the international monetary system and about international tax cooperation, for example. I have been involved in work on national development banks and published a book on the topic based on a project that we did here at Columbia [The Future of National Development Banks, published through the Initiative for Policy Dialogue]. And many, many other issues as well.
It's very nice to have a mix of practice and the capacity to do academic work on such policy issues.
It seems like there can be a lot of overlap between these areas.
Yes. Even when I was at the central bank, I continued some of these international processes. For example, I am the chair of the Committee for Development Policy at the United Nations, and we have our annual meeting is in a couple of weeks. I also chair the Independent Commission on the Reform of International Corporate Taxation (ICRICT), which was launched by a group of NGOs that work on international tax issues.
And even during my public service, I was able continue doing academic work. I have been working on a new book with some friends about the middle-income trap. It’s about countries, like many in Latin America, that are stuck at the middle income level and cannot rise to a high income level. It’s a fascinating issue.
How does it feel to return to SIPA after some time away?
I feel very fortunate. I was given two years’ leave at first, and then very exceptionally I was given a third year. And it was fascinating to work at the central bank, but it’s very nice to be back. This world of knowledge is very interesting, and of course the freedom that you have as an academic is very important to me.
At the central bank, you’re not fully free. You don’t talk about certain topics. It’s not your job, for example, to analyze fiscal policy either positively or negatively. So you have to restrict yourself on some topics.
You mentioned one of your recent books, and another currently in progress, but you also recently celebrated the publication of The Palgrave Handbook of Development Economics, which you co-edited.
That one that took several years; I started it here at SIPA, before my period on leave.
The book takes a critical look at development economics, so it’s not the most standard text. In it we try to examine the different tiers of development and the various issues that developing countries face. It’s actually quite a good handbook and it features a fantastic collection of authors.
This interview, conducted by Catherina Gioino MPA ’20, has been condensed and edited for clarity.