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Colombia’s president has rejected accusations that his country’s economy is stalling because of his controversial reform agenda, including a pledge to end investment in fossil fuels.
Gustavo Petro, the Latin American nation’s first leftist leader, said Colombia had “recovered the value of the peso”, which has risen this year by 19 per cent against the dollar. But the peso’s strength, and lower yields on the country’s bonds, reflects optimism among investors that Petro lacks enough congressional support to implement radical reforms, analysts say.
“The Colombian economy has got potential aside from just oil: the development of a productive agriculture industry . . . tourism, taking advantage of the country’s beauty, and the possible export of clean energies,” he said.
His remarks come at a crucial time for Latin America’s fourth-largest economy as it tries to attract foreign investment to support a rapid and risky transition away from fossil fuel extraction. Brazil, Mexico and Argentina, Latin America’s three biggest economies, are all seeking to increase oil and gas production.
Petro, a former guerrilla group member who took office in August after winning the presidential election by a narrow margin, is also trying to push through social reforms that have already split his broad coalition.
Despite a bill to reduce working hours failing to pass through Colombia’s congress last month, Petro told the Financial Times he was “confident” that legislation to expand the state’s role in healthcare and pensions would be approved.
The Autonomous Fiscal Rule Committee, an independent expert group, said last week that Colombia risked falling foul of its own fiscal rules if it implemented the spending increases needed to finance the reforms. The fiscal deficit is forecast to close the year at 4.3 per cent of gross domestic product.
Petro, who has called on the masses to rally in support of his plans, countered that there would be no breach as the changes would be funded by “a substitution of costs”.
“We spend a lot of time caring for patients because there is no prevention. By increasing prevention of illness, we reduce the [cost of] care. When a country increases its health spending it’s an investment that increases [its] economic power.”
Analysts say Petro — who has a reputation for impulsive decision-making — will struggle to reassemble a coalition to shepherd his reforms through congress, which returns from recess on Thursday.
His approval rating is 33 per cent according to polling by Bogotá-based Invamer, down from around 50 per cent at the start of the year. His tenure as mayor of Bogotá from 2012-15 saw him double down on divisive policies following spats with coalition partners.
“Any time Petro sees a fork in the road where there’s moderation or entrenchment, he never chooses moderation,” said Sergio Guzmán, the director of Colombia Risk Analysis, a Bogotá-based consultancy.
“Markets have renewed faith that Colombian institutions will be an obstacle for Petro’s radical agenda, and that’s making markets more confident in Colombian bonds,” Guzmán added.
Investors have baulked at the cost of Petro’s reform agenda and at his pledge to end new spending on fossil fuel exploration, despite oil and coal production making up around half the value of the country’s exports.
Colombia was the fastest-growing major Latin America economy in 2022, expanding GDP by 7.5 per cent, but growth is forecast to be just 1 per cent in 2023, according to the IMF.
Last year the economy was boosted by an increase in coal and oil export prices, as global energy markets were squeezed after Russia’s invasion of Ukraine. But inflation is running at around 13 per cent and Petro’s administration has not yet outlined a clear plan to replace the revenues that the country gains from fossil fuels.
Finance minister Ricardo Bonilla said Colombia would boost its agricultural and manufacturing sectors to supplant fossil fuel revenues, though analysts are sceptical as to how these industries can be made internationally competitive.
Petro aims to address the worst effects of climate change. Colombia is highly exposed to extreme weather patterns, particularly heavy rainfall, and is home to around 8 per cent of the Amazon rainforest.
Bogotá has committed to reach net zero emissions by 2050 and Petro claimed that deforestation in Colombia fell in the first three months of 2023 compared with the same period last year.
Petro is in Brussels for a two-day summit of EU and Latin American and Caribbean leaders, the first top-level meeting between the regions for eight years. Expectations for the summit are low owing to rifts over the Ukraine war and environmental provisions holding up an EU-Mercosur trade deal.
Petro said Europe should see trade with Latin America as an opportunity to “build a future linked to decarbonisation and diversification of production”.
“Europe has a higher carbon footprint compared with Latin America . . . If world trade turns to an exchange for goods made with a low carbon footprint, this [region] would have a high level of competitiveness,” he said.
