Colombia's Gustavo Petro before casting his vote
By Julia Symmes Cobb and Oliver Griffin
Sun, June 19, 2022,
BOGOTA (Reuters) - The election of Colombia's first leftist president, Gustavo Petro, is indicative of widespread yearning for a more equal and inclusive society, analysts and business leaders said, but the former guerrilla will need to act fast to reassure investors.
Petro, a 62-year-old former mayor of the capital Bogota and current senator, won some 50.4% of votes on Sunday, handily beating construction magnate Rodolfo Hernandez.
The election of a former guerrilla marks a radical change for a country still scarred by decades of conflict and highlights the depth of frustration with the right-leaning political establishment accused of overseeing a wide gap between rich and poor.
Petro has pledged to fight inequality with free university education, pension reforms and high taxes on unproductive land in the Andean country, where nearly half the population lives in poverty.
His proposals - especially a ban on new oil projects for environmental reasons - have startled some investors, though he has promised to respect current contracts.This campaign was Petro's third presidential bid and his victory adds the Andean nation to a list of Latin American countries that have elected leftists in recent years.
Petro will take office at a time when Colombia is struggling with low credit ratings, a large trade deficit and national debt which is predicted to end the year at 56.5% of GDP.
Oil accounts for nearly half of exports and close to 10% of national income.
"Colombia was governed for so many years by the economic and political elite," said Gimena Sanchez-Garzoli, Andes Director for the think tank Washington Office on Latin America. "In many ways this election is basically the voice of most of the population in the country, especially the rural poor, women, Afro-Colombians, the indigenous."
"People didn't want a change at any cost, they wanted a change that would actually be with actual proposals which include making the peace accord a priority," said Sanchez-Garzoli referring to the 2016 peace deal with the Revolutionary Armed Forces of Colombia (FARC), which brought an end to that group's role in the nearly 60-year-old internal conflict.
Petro has pledged to fully implement the FARC accord - which detractors accuse current President Ivan Duque of failing to adequately support - and to seek talks with the still-active ELN rebels.
At an event in Madrid on Monday, Duque raised the specter of protectionist policies.
"To set a great example in defense of economic freedom, where all those who create businesses have the full guarantee that they will be able to exercise that freedom without any kind of constraint or limitation... These have been the guidelines by which I have governed my country and Colombians expect no less," he said.
Peruvian writer and Nobel laureate Mario Vargas Llosa said at the same event he hoped Colombia would maintain its tradition of legality and "does not fall into the zone of uncertainty in which the whole of America has been plunged." Spanish premier Pedro Sanchez tweeted, meanwhile, that Colombia had chosen "equality, social and environmental justice."
"Petro's election may have just saved the peace process," said Oliver Kaplan, associate professor at the University of Denver's Josef Korbel School of International Studies.
On Sunday night, as he celebrated his win, Petro told his supporters: "Peace is someone like me being able to be president."
BUSINESS JITTERS
Petro regularly praises the mostly young protesters who have taken to the streets over the last three years to decry inequality and police violence, in demonstrations where more than 40 people were killed.
The president-elect, who was arrested by the military in 1985 while carrying weapons for the M-19 rebels, has said he was tortured during his 16-month detention. His victory has high-ranking armed forces officials bracing for change.
"There's a segment of the population that is totally opposed to him because of his M-19 past," Kaplan said. "Maintaining security and protection of civilians will depend on good civil-military relations, and it's uncharted waters in that regard."
But Petro's proposals will face challenges, not least because of a deeply divided congress where a dozen parties hold seats.
"Petro is going to have a very strong opposition from day one, we're going to have a congress that all of a sudden is disjointed from the executive branch," said Colombia Risk Analysis founder Sergio Guzman.
"I think this means people's priorities have moved beyond the conflict," Guzman said. "This marks a really stark departure from where we've been as a country."
Business leaders and the market were awaiting ministerial appointments, especially for key positions like finance minister, and have predicted volatility in the peso and in bonds when trading opens on Tuesday after a holiday weekend.
Petro has floated some moderates as possible finance ministers, including Alejandro Gaviria, a centrist economist and former health minister, as well as ex-ministers like Rudolf Hommes and Jose Antonio Ocampo.
"It will be very important that total confidence between everyone is restored, that there is confidence for businesses, citizens, that there is confidence for investors, that there is confidence with the rule of law," Bruce Mac Master, president of the Colombian Business Association (ANDI), said in a statement following Petro's victory.
"In us, he can expect a constructive partner," he said.
Petro was emphatic that business and development had important roles to play under his government. He has pledged to strengthen agriculture, tourism and manufacturing.
"We are going to develop capitalism in Colombia," told supporters on Sunday. Development is needed to overcome the "feudalism" and "pre-modernity" from which Colombia still suffers, he said.
(Reporting by Julia Symmes Cobb and Oliver Griffin, additional reporting by Nelson Bocanegra, Luis Jaime Acosta and Carlos Vargas; Writing by Julia Symmes Cobb; editing by Stephen Eisenhammer and Nick Zieminski)
Here’s How Radical Gustavo Petro Can Be as Colombian President
Matthew Bristow
Mon, June 20, 2022
(Bloomberg) -- Investors in Colombia are trying to gauge how radical a government led by Gustavo Petro will be when he takes office as president in August.
The peso and the nation’s bonds are expected to fall Tuesday when markets re-open following a holiday, after Petro won the June 19 presidential election.
Some of his plans will be relatively simple to implement, such as firing the management of Colombia’s state oil company. Other proposals, such taxing wealthy landowners and declaring an economic state of emergency, will be constrained by powerful institutions such as congress and the constitutional court.
While financial markets may prove rocky under Petro in Colombia, few investors are betting that it will follow the path of its neighbor Venezuela into hyperinflation, widespread expropriations and default.
Here are some of Petro’s main proposals for the economy:
Fossil Fuels
Petro has pledged to stop awarding new oil exploration contracts. If Colombia continues to produce the crude it’s already drilling, it would have 12 years to manage the transition to an economy based on clean energy, he said in an interview in January.
As president, Petro would have the power not to grant any new exploration licenses, but he’d still have to honor existing licenses.
Most oil and gas producers in Colombia have enough exploration licenses to keep drilling over the next four years, according to Charle Gamba, CEO of Canacol Energy Ltd., which produces natural gas in the country. Gamba said he’d expect general activity to slow, but said Canacol could still explore and add reserves.
“Stopping field exploration auctions would likely reduce private investment in the hydrocarbon sector, and could gradually weaken the finances of government-owned energy company Ecopetrol,” S&P Global said in a report published the day after Petro’s election win.
Ecopetrol
Petro wants to transform Ecopetrol, Colombia’s biggest company, into a wind and solar producer. In an interview last month, he said he plans to fire most of the company’s board. Since the company is 88.5% owned by the state, there’s little to prevent him from doing so.
Crude is Colombia’s biggest export, and Ecopetrol accounts for 60-70% of the nation’s oil and gas output.
Central Bank
Petro said last month that the bank needs to be run by economists with a broader range of opinions, and has criticized recent interest rate increases.
Half-way through his four-year term, Petro will be able to name two new co-directors. When counting his pick for finance minister, he’ll get to appoint three of the seven-member board. But if someone quits or steps down for health reasons, he’ll have appointed a majority of the policy committee.
Petro says he’ll appoint “people with a background in production,” who can move monetary policy toward boosting output and employment, as well as protecting macroeconomic and price stability. He says the bank’s mandate obliges it to pursue “social justice” as well as stable prices, worrying some bond investors who fear a weakening of its inflation-fighting credentials.
The bank’s understanding of the constitution is that its sole mandate is price stability, but that the current inflation target of 3% is consistent with other objectives including “sustainable medium-term growth,” said Carolina Soto, a former central bank co-director.
Reforming the institution would be extremely difficult, because its structure and functions are laid out in the constitution, which can’t easily be modified.
State of Emergency
Petro says he wants to declare an “economic emergency” that would allow him to bypass the normal workings of congress and govern by decree.
He’s said that the “social catastrophe” of widespread hunger justifies such a move.
A state of emergency allows a government to approve laws and regulations without approval from congress for as many as three 30-day periods when there are severe economic, social and environmental risks.
The constitutional court would automatically have to review these arguments and would be unlikely to accept Petro’s argument that hunger justified ruling by decree rather than through congress. This means they would “certainly” invalidate his decrees, said Jose Gregorio Hernandez, a former president of the court.
Petro’s other ideas aren’t so worrying, since he’ll have to moderate them to get them through congress, said Luis Fernando Mejia, head of the economic think tank Fedesarrollo. But attempting to govern by decree has the potential to generate a lot of uncertainty, he said.
Debt, Taxes
As mayor of Bogota from 2012 to 2015, Petro presided over a modest drop in the city’s debt load. Fitch Ratings raised Bogota’s credit rating a notch while he was in office, after it lifted Colombia’s sovereign rating, and praised the city’s “sound financial performance” and “conservative debt policy.”
However, the cost of insuring Colombia’s debt against non-payment with credit default swaps, a gauge of risk perception, has nearly doubled over the last year as Petro gained in polls.
He says he wants to increase the levy on wealthier Colombians and tax large, unproductive estates to promote a fairer distribution of agricultural land. Higher tax revenue would be used to fund social programs and gradually cut debt, according to Petro.
“We can’t eliminate the deficit completely from one day to the next, but we can shave some points off this deficit, gradually, year after year, trying to have finances that are much more sustainable,” he said.
Pensions
Petro wants to move toward a pension system that is overwhelmingly public, and expand coverage to people who didn’t make contributions. To do so, he’ll need to push the idea through multiple votes in Congress where he has no majority.
Under his proposals, people earning less than four minimum wages, or about $1,000 per month, would contribute to the public system. This is a large majority of the population, and would slash inflows to private pension funds, who are among the biggest buyers of the nation’s bonds and stocks.
“Obviously, fewer resources means less purchasing power,” for the private pension funds, said Munir Jalil, Andean chief economist at BTG Pactual. “This will make it a bit harder to finance government debt.”
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