With a fragmented Congress, Petro has secured a fragile majority coalition, but he relies on the tentative support of more moderate political parties
A recent and major cabinet shakeup in the Gustavo Petro government points to mounting challenges facing the administration as it prepares highly controversial reforms to Colombia’s health, labor, and pension systems. While the administration’s various reform proposals are still being composed, what is known about them points to dramatic and negative impacts for businesses. Clients should expect a moderate Congress to block the most radical elements of the government’s reforms; however, some disruptive measures could likely see approval through a process of negotiations and concessions. Clients should also closely monitor and examine the administration’s efforts around health, labor, and pension reforms. At the same time, clients should expect the heightened political uncertainty around Petro’s reform agenda to dampen private investment and B2B demand.
Overview
On February 27, the Petro administration announced the resignation of three cabinet ministers, including Education Minister Alejandro Gaviria. The exit of Minister Gaviria is particularly notable, as he was one of the most moderate forces in the cabinet and had also openly criticized Petro’s recent health reform proposals. Gaviria’s joining the cabinet marked an important sign of conciliation from Petro. Furthermore, Gaviria was seen as a potential replacement for the market-calming Finance Minister José Antonio Ocampo, who at 70 years old, has already publicly ruminated about his ability to remain in office.
During the press conference in which he announced the cabinet ministers’ resignations, President Petro also reiterated his intention to pursue ratification of his reform agenda despite cabinet infighting and resignations. Petro maintains a majority coalition in the Colombian Congress, but most of the coalition comprises moderate political parties that have already pushed back on elements of the president’s agenda. Indeed, the next day, the Conservative Party, which makes up 20% of Petro’s governing coalition in the Senate, announced it would oppose the administration’s health reform.
Our View
Petro’s recent ramping up of his reform agenda shows an element of desperation and recognition that his ability to push through reform legislation is quickly waning with time. A slowing economy and falling approval rates are set to coincide with upcoming regional elections, all of which point to a weaker position for the ambitious Petro administration in the future. Nonetheless, Petro is a savvy politician, and through a mix of concessions and political favors, it is likely that he could secure some partial implementation of his agenda. We expect the disruptions and uncertainty caused by the pursuit and even partial implementation of Petro’s reform agenda will dampen investment and contribute to a slowing of economic growth in 2023.
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