Gustavo Petro, the first left-wing president in Colombian history, took office this Sunday (7/8) with a challenge: to reconcile an ambitious reform agenda meant to be historic with a serious economic crisis.
Petro, a former guerrilla, economist, former mayor of Bogotá and leading lawmaker for two decades, came to power with a proposal to change the scenario of this unequal and violent country.
- Who is Gustavo Petro, the first left-wing president elected in Colombia?
His government plan is perhaps the most ambitious plan to come to power in the country.
The study proposes structural changes in social security, education and health systems. It aims to approve the long-awaited and controversial agrarian reform. It wants to steer the economy towards clean, unnatural production.
But Petro takes on a country in crisis that has limited room for maneuver: poverty, inequality, inflation, the value of the Colombian peso, indebtedness, and fiscal and current account deficits are all in red. An anomaly for a traditionally stable economy.
Add to this the international context, where major economies are on the brink of recession, with skyrocketing inflation and rising interest rates in developed countries affecting emerging economies like Colombia.
Since being elected in June, Petro has devoted himself to allaying fears that his leftist agenda could devolve into expropriations, rampant public spending, or private sector embarrassment.
To this end, he formed alliances with the traditional political parties that were the architects of the current Colombian model. And he appointed José Antonio Ocampo, a renowned social democrat professor who had worked at the UN for ten years and held the portfolio for 25 years, as Minister of Finance.
“I will not propose and accept madness,” Ocampo told Colombian newspaper El Tiempo this week. “Modesty aside, my appointment is part of the credibility the new government has in its commitment to putting the house in order.”
Image: REUTERS
Problems
In the same interview, Ocampo warned of the complex situation of the new government. When asked what made him sleepy, he replied, “Combining the need for financial adjustment with the demand for resources to spend more on social programs.”
The transition report, presented this week by the new government, found a state that was underfunded (i.e., under-resourced), large debts in the health sector, lack of resources in key institutions, approved budgets and gaps with no possibility of execution. on major subsidies such as gasoline.
End-of-term president Iván Duque argues that his administration has been the most invested in equality in history, as it has streamlined the situation of thousands of Venezuelan immigrants and initiated important infrastructure work.
Today, Colombia is one of the fastest growing economies in the region, according to the latest report of the IMF (International Monetary Fund).
But Duque left his post, with 20% approval according to polls and criticism from experts like Leopoldo Fergusson, a professor at the University of the Andes: “Duque was so financially irresponsible, he did everything an orthodox candidate like him could do. He shouldn’t.”
Image: GETTY IMAGES
“Everything done before the pandemic [aumentar os gastos e flexibilizar a regra fiscal com o argumento da migração venezuelana] It enabled us to meet the pandemic with public finances in the crisis,” the economist criticizes.
If the petro wants to maintain some macroeconomic stability, then it will have to make an adjustment: it will need to cut government spending to reduce the fiscal deficit and thereby contain inflation and currency devaluation.
You will need money for this. And even more money if you want to live up to your ambitious promises about education, transportation, and a long list of aspirations that have been cut for decades.
Petro’s reforms depend on cash resources and lending is not exactly an option as the country already has a debt equivalent to 50% of GDP (Gross Domestic Product). 2021.
An investment rating is a ‘well-paying seal’ issued by international risk assessment bodies, confirming that a government is in a good position to meet its financial commitments. It allows you to raise funds at lower costs in the financial market.
Because of all this, Peter’s legacy will be at stake in his first reform: tax reform. It’s a sensitive issue because a little over a year ago, the country fell into social turmoil following a proposal submitted by Duque.
Ocampo announced that the project will be presented on Monday (8/8), the day after the presidential inauguration. And Roy Barreras, the leader of the Petro-supporting bank and head of the Senate, speaks about the “fast track” approval in the first year of the legislature. They know the honeymoon can be short.
“Petro is betting everything on reform,” says Fergusson of the University of the Andes. “The ability not to intimidate, take money and give direction.”
Image: GETTY IMAGES
Answers
Economist Marcela Eslava explains that the current tax system in Colombia has two structural problems: “Collection is insufficient to meet its constitutional obligation to reduce inequality and is too heavy for companies, thus creating neither equity nor welfare.”
In addition, there are exemptions, complex legal mechanisms used by thousands of Colombians to pay less taxes. It is a network of collection forms recognized by specialized organizations as one of the most complex tax systems in the world.
“There are many people in Colombia who make a fortune and don’t pay their contributions, which is preventing us from building a fairer and safer society,” says Ocampo.
The new minister said that the tax on income from the occasional sale of goods, exceptional economic gains or winnings from lotteries and lotteries will be increased from the current 10% to 35% and VAT (Value Added Tax) focused on consumption of goods and services) will increase.
It also reduced the urgency of one of Petro’s most controversial proposals during the campaign: to end oil exploration, the country’s biggest source of income.
Image: GETTY IMAGES
While the details are not yet known, Ocampo says the main aim of the reform is for high-income individuals to contribute more and to regulate exemptions.
It is also likely to impose a property tax on the wealthiest. In all these areas, Colombia has rates much lower than recommended by international organizations.
With the reform, the new administration plans to raise enough money to close the gap and pay off the most pressing debt commitments. And Peter promised to increase aid to the poorest the day after he took office.
The reform also hopes to ease the pressure on companies to stimulate production, which Ocampo has obsessed with as a structuralist economist preaching an egalitarian, efficient and advanced capitalism.
During the campaign, Petro said that the tax reform would seek to generate 50 trillion pesos, equivalent to 5% of Colombia’s GDP, about 59 billion reals. A lot. This seems impossible. That’s double what the Duque reform, which sparked a popular uprising in 2021, aimed to raise.
“But if any government has a political economy to minimize difficulties, it is the government of Petro because it is social mobilization that overturns reform. [de Duque] He accompanied him and groups that felt excluded were welcomed by him,” says Eslava.
The newly elected, without political weariness and with his “national agreement” on the eve of entering Congress, will likely propose the most ambitious tax reform in recent times. The success of your government will depend on it.
– This text was published at https://www.bbc.com/portuguese/internacional-62444024.
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source: Noticias
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