Modern Monetary Theory and Employer of Last Resort in Colombia

This paper critically examines the applicability of Modern Monetary Theory (MMT) in Colombia, focusing specifically on the Employer of Last Resort (ELR) program as a possible development policy. Employing a center-periphery analytical framework, the study underscores the limitations of MMT in peripheral economies, especially those stemming from constrained monetary sovereignty, external dependencies, and persistent structural challenges. While MMT offers a compelling macroeconomic perspective, its core policy tools—particularly the ELR—fall short in fostering long-term structural transformation. Instead, the paper argues that industrial policy is a more effective and sustainable development strategy, drawing on insights from structuralist economic theory and the experiences of East Asian economies. As a peripheral country, Colombia has a production structure that depends on imports and faces significant structural bottlenecks, including its reliance on commodity exports, limited capital accumulation, and its external debt. These factors heighten the country’s vulnerability to macroeconomic instability and raise concerns regarding the viability of expansive monetary and fiscal policies. The paper concludes that, although the ELR program can be used as a short-term solution for economic crises and MMT offers valuable fiscal and monetary insights, Colombia’s successful implementation of the program requires long-term strategies, such as coherent industrial policies, to promote sustained economic development.