Colombia’s communication challenge

In general, central banks talk a lot more than that they used to. And Colombia's central bank is no exception. We publish pages of reports and speeches each year. We give press interviews. We now release the minutes from the meetings of our Monetary Policy Committee. This increased transparency has been invigorating for the central bank and has underlined the importance of ensuring that our message reaches the diverse audiences in our country.

The most familiar audience for us, and indeed for any central bank, is the financial sector. But we think it is also important for a central bank to communicate the rationale behind their actions to the general public, to politicians, and both large and small businesses. This article describes the Colombian experience with targeting these audiences.

A wider audience

What can a central bank gain from talking to the general public? In economic parlance, one way of thinking about this question is to assume that when a greater proportion of citizens learn about what monetary policy is trying to achieve, a stock of trust is accumulated. That trust can turn out to be vital when some temporary sacrifice - such as tighter monetary conditions - is asked for.

But good communication is certainly not propaganda. Good communication is about providing the information and the tools that allow the public to better form their own opinions. It might seem surprising to some, but the general public in Colombia is certainly interested in what the central bank has to say. Indeed, a recent national survey indicated that economic issues ranked very high among the leading concerns for Colombians: "unemployment" was second only to "violence" as the leading concerns respondents identified, while "economic issues" in general also ranked very highly.¹

Communication gap

A central concern for the central bank is that the general public is likely to be unsure about how monetary policy affects wider economic concerns, notably employment and economic growth. To bridge this communication gap, it is essential that the central bank speaks directly about why low and stable inflation benefits the economic lives of everybody. What we have sought to highlight in this regard, is that there are at least five reasons why low inflation could mitigate the economic and social problems of Colombia.

First, Colombia's history of unstable inflation (see Figure 1), volatile long-term interest rates and a risky macroeconomic outlook has scared the financial sector off providing cheap finance to those without collateral. But the poor need access to finance if they are to escape poverty. A recent survey showed that businesses run by the poor could earn very high marginal returns.² However, profits tended to be very low due to small scales of production. Without access to credit markets, these businesses have no means to borrow to invest and increase the scale of production.

Second, lower inflation stabilises real income. The sequence of boom and bust Colombia suffered in the past has been extremely damaging, especially for those who hold only real assets and are therefore less able to protect themselves from inflation.

Third, greater macroeconomic stability would help businesses in their planning. This applies especially to small firms, who, like the poor, suffer from higher borrowing costs. Almost 80% of the Colombian employees work for micro, small-and medium-sized enterprises.

Fourth, aiming for low and stable inflation helps temper the extremities of the credit cycle. Developing countries suffer not only from insufficient capital, but also from the poor quality of capital. Investment tends to chase short-term gains in booms. Once those investments are exposed in a crisis, they have to be paid for during long and painful recessions.

Fifth, a traditional solution to high inflation in Colombia has been indexation. But this solution has often been imperfect, loading all the inflation risks on to the disadvantaged. Stable inflation, would remove the need for indexation.

Dealing with complexity

It is often argued that monetary policy is too complex to explain to non-specialists. It is true that monetary policy has become a far more technical exercise in recent years as central banks have sought to underpin decision-making with a solid quantitative foundation. And not all the tenets of monetary theory are intuitive to non-economists. For example, it is difficult to explain in simple terms why interest rates sometimes have to go up temporarily in order to stabilise lending costs in the long term.

But overcoming these challenges is what good central bank communication is about. We are finding that those key messages can be heard, but only if the central bank accepts responsibility for translating the rationale for its decision-making into a language that can be commonly understood. After all, theories and models should benefit from the exposure to the real world.

A strategic approach

So how has the Colombian central bank set about reaching diverse audiences and tailoring its message to specific needs? In the remainder of this article, we review the communication strategy for three distinct groups: First, the general public and the media; second, politicians; and third, business people and regional audiences.

1. The general public and the media

Probably the only option to reach the public in a country as diverse as Colombia is to work across the whole range of media in the country. Figures 2, 3 and 4 indicate that the leading media sources, in terms of circulation numbers, in Colombia are newspapers (47%), followed by radio and television news and talk shows (39%). Regional news accounts for approximately 64% of the Colombian media, while 30% is distributed on a national basis.

The production of economic news can be split into the financial and the mainstream. The former is aimed at the entrepreneurial elite, academic groups, market analysts, investors and opinion makers. But, while the financial media is more adept at presenting higher-quality information, it does not account for a very large segment of the media market in Colombia. Business and financial newspapers and magazines represent only 6% of the industry. There are also three wire services dedicated to keeping market operators informed on economic and financial issues. Compared to the financial press, the central bank is relatively inexperienced in dealing with journalists from the mainstream media - but it must do so to reach out to the general public.

Tailoring the message

The strength of the mainstream press is that its coverage of a broad range of subjects gives it mass appeal. However, by choosing to cover a broad range of topics, stories on specialist subjects such as economics tend to be of a poorer quality. Ideally, the central bank would want to reach both types of media while preserving the same quality of information. But that is simply not possible: the central bank needs to realise that the same message has to be adapted for each medium and adjusted based on the level of economic knowledge of each audience.

This trade-off carries over to the type of media. The ideal medium for economic journalism is the written word: newspapers, magazines and electronic dailies. Topics can be dealt with in greater depth in such formats, because they have more space to write about the ideas, concepts and theories that lie behind the news and, moreover, typically greater scope for the use of various visual aids, such as graphs and tables.

Unfortunately, the Colombian experience suggests that the worst media to present economic information are those with largest audiences: radio and television. Radio news usually only offers a brief description of events and television - the most influential medium in Colombia - devotes only a few seconds to economic news, highlighting a headline that almost always removes the information from its proper context. Adapting to the mass media is perhaps the greatest challenge that central banks face with respect to communication.

Mass media

Public opinion is shaped by journalists. Thus the education of economic journalists, particularly those working outside the financial press, is one of the most important tasks of the central bank. The central bank hosts a training seminar for them over one weekend each year. As journalists tend to seek opposing points of view, the seminars present not only the central bank's position on various topics, but also those of analysts with contrary opinions. These seminars also include a monetary policy simulation, where the journalists can gain a better understanding of the operational aspects of the inflation-targeting framework and the rationale behind rate decisions. Roles are reversed so board members become journalists and the journalists have to explain policy. The results of these workshops have been very positive.

The monetary policy committee gives a press conference immediately after each meeting. In addition, the governor presents the quarterly Inflation Report on national public television. At the end of his talk, he stands ready for a live question-and-answer section. Anyone in Colombia can phone in on a toll-free number or send in an email. The most simple and direct questions are often the most revealing. The public is typically very keen to get some reaction from policymakers to current events.

It is particularly important that the Colombian youth is informed about the central bank's activities and targeted youth projects form a crucial part of our communication strategy. One way we target the young is through teaching material for primary and secondary students, presented on the central bank's website. And, like many other central banks, we also run a nationwide school competition: in the most recent one, 5,000 teenagers wrote essays about the benefits of having a healthy financial system.

2. Politicians

By constitutional mandate that came into effect in 1991, the Colombian central bank must present a Report to Congress twice a year, explaining recent policy actions and its view of future trends in the economy. This parliamentary reporting also provides an opportunity for members of the central bank's board to be questioned by members of parliament. These discussions are broadcast on national television and often attract the public's attention, not least because they can be very critical of the central bank's board.

It is interesting to note that the Report to Congress has become very popular, not only with the politicians for whom it was written, but also with the media and economic analysts. In addition to these formal fora, the governor and board members also meet informally with politicians. This allows board members to explain their policies and positions in greater detail and get a better idea of the politicians' opinions.

3. Business people and the regions

As is now common in all central banks, the governor and board members travel to speak to audiences around the country, to exchange opinions on the outlook for the economy and explain policy decisions. At least 12 such visits to the most economically important regions take place every year. On regional visits, board members talk not only to the important business people in the region, but also to the general public at schools and universities and give interviews to the local press.

From next year these regional visits will include entrepreneurs from micro, small and medium-sized firms that account for up to 99% of firms in Colombia. But of course, it is impossible for board members to meet and talk directly to all small-business people in Colombia, which once again underlines the importance of reaching these audiences through the mainstream media.

Wider audience

The Colombian central bank's communication strategy is increasingly focused on reaching a wider audience that stretches beyond the financial press and market analysts. We want the general public and their media, members of congress and all types of business people to know what we are doing and why.

Our aim is not only to inform, but also to build a greater degree of common understanding about the activities of the central bank. Naturally this goes both ways: direct contact with various constituencies helps the central bank learn more about how monetary policy impacts Colombian citizens. This strategy is still in its infancy. Much is still new to us and there is more we can do, and hope to do, to improve how we deliver our message. But we hope other central banks will find our early experience informative and stimulating.

Notes

1. The information comes from a survey by Ipsos-Napoleon Franco & Co. The question put to the respondents was: "For the problems listed below, please choose the one that you considered the most important problem in Colombia today?"

2. See Banerjee, A. and Duflo, E. 2006. "The Economic Lives of the Poor," MIT Department of Economics Working Paper, No. 06-29. The sample did not include Colombia, but does contain Panama and Mexico.