Crédito, represión financiera y flujos de capitales en Colombia: 1974-2003

The degree of financial depth in Colombia, measured by the ratio of credit to the private sector over GDP, is extremely low in comparison to developed and to successful emerging economies. More than 30 years after the reforms aiming towards the liberalization of financial markets were first implemented, the level of financial depth in Colombia in 2003 was below that of 1974. This paper analyzes the links between that indicator, external capital flows and financial regulation in Colombia. We present a historical view, as well as quantitative analysis aimed towards understanding the determinants of financial depth, based on standard accounting relationships and basic econometric models. It is observed that the cycles of domestic credit to the private sector coincide with the cycles of external capital flows. Procyclicality of domestic credit has been further reinforced by policies concerning financial regulation.