Colombia’s new government, headed by President Gustavo Petro, with a center-left tendency, is trying to develop a very broad agenda, but faces multiple problems.
In its first weeks, it managed to build a broad coalition in Congress, consolidating a majority that at the moment guarantees the approval of the bills presented. However, it is not known how solid this coalition is and how capable it is of surviving the debate on difficult proposals.
The first test of fire faced is the tax reform that aims to raise approximately US$ 4.5 trillion, and for that purpose four objectives were established.
First, it seeks to eliminate or reduce a long list of tax privileges that make the effective tax rate much lower than the nominal rate.
On the other hand, it seeks to significantly increase tax progressivity, including taxes on incidental profits and corporate dividends (for which it has been accused of introducing double taxation) and making royalties from mining operations (especially oil) non-deductible from profits for corporate tax settlement purposes.
In addition, efforts are being made to establish temporary tax surcharges on the financial sector and on high international prices for mineral products (oil and coal). And lastly, strengthen the Dian (tax department) to reduce tax evasion.
The government coalition easily got its approval in the first debate, but possibly, to get the definitive approval in November, it will have to negotiate some points with several political groups and with businessmen who were very critical of the reform.
Possibly the government will be able to carry out the reform, but relations with the productive and financial sector will be affected. If the new tax statute is approved without having to make too many concessions, it will be a big change from what has traditionally been achieved in Colombia.
A second priority purpose of the Petro government is the implementation of the peace agreement. This project, which was given very low priority by the previous government, is another difficult issue to handle.
It fundamentally requires comprehensive land reform that is likely to be costly (for this and other reasons, tax reform is so necessary). There were several failed attempts to implement such reforms in Colombia, which, according to some, contributed to creating a climate conducive to the development of guerrilla movements.
Traditionally, the livestock industry has been radically opposed to this type of reform.
However, last week, Fedegan (National Federation of Breeders) signed an agreement with Petro and the Minister of Agriculture, Cecilia López Montaño, committing to sell 3 million hectares of productive land to the government so that it can implement the programs comprehensive agrarian reform.
The government’s plan includes the provision of land to indigenous and Afro-descendant populations and poor peasants, within a framework that includes technical assistance, credit and the provision of public goods.
Despite these and other significant early government successes, there are also dark clouds on the horizon. Clarity is lacking on the content of another series of proposed reforms.
For example, one of the promises was to reform the health system, but a reform bill is not yet known.
The Minister of Health, Carolina Corcho, spoke of reforming the EPS (Health Providing Entities), mostly private, which constitute the basic element of the system, receiving government resources to provide health services to the population.
A series of assumptions were made around this reform, not yet clarified by the government and which generated fear in certain sectors.
It is important to mention that, although the health system has many problems, compared to other services in countries in the region, it has always been ranked as one of the best.
Similar uncertainty exists regarding a promised labor reform whose basic elements have also not been clarified.
The same applies to the pension reform that the president (and other candidates) mentioned during the campaign.
According to Petro, the objective is to guarantee every Colombian person over 65 years of age a minimum pension of half a minimum wage (just over US$ 110 per month at the current exchange rate).
This clearly created many expectations which, if not met, could become a major political liability for the government during its later years.
In terms of energy policy, the statements made by the president and some ministers were contradictory. The aim is to “decarbonize the economy” by switching to clean energy, but it is unclear how this should be done.
There has been talk of ending or limiting the exploration of oil and gas, but there is a danger that, in the long term, the country will end up importing these resources by not being able to develop clean sources of energy quickly enough.
Furthermore, oil exports, by far the main source of foreign exchange, would have to be sacrificed. Finance Minister José Antonio Ocampo denied that there are plans to limit oil exploration.
Finally, the national and global economic context significantly limits the government’s ability to manoeuvre.
High inflation, which in Colombia is at levels above 11% a year, has forced the central bank to raise interest rates, which will certainly have an impact on economic growth.
While GDP growth rates were relatively high in 2022, a significant drop is predicted for the year ahead, and some are talking about the possibility of a recession.
Within this worrying economic framework, there are many doubts about the government’s ability to implement the costly reforms it has proposed.
Tax reform is an important point in favor, but it is not enough.
Translation of Giulia Gaspar
With a wealth of experience honed over 4+ years in journalism, I bring a seasoned voice to the world of news. Currently, I work as a freelance writer and editor, always seeking new opportunities to tell compelling stories in the field of world news.
