With upcoming regional elections, a slowing economy, and falling popularity, Petro’s controversial health, pension, and labor reforms are set to stall in Congress
Firms can expect that a renewed push for its three main initiatives (labor, pension, and healthcare reforms) will undoubtedly need broad consensus to be achieved, with talks about an anti-President Gustavo Petro coalition forming in Congress. As such, any disruptive initiative will be heavily watered down to have any chance of approval. Amid this backdrop, businesses can expect a certain degree of stability, both from business environment and FX standpoints. Additionally, Congress has shown a willingness to pull the brakes on reforms that would significantly raise the costs of doing business, as has happened so far with the labor reform. Alongside its reform agenda, the government will have to handle an expected El Niño phenomenon, driving up the country’s persistently high inflation, the highest in the region, except for Argentina and Venezuela. Higher-for-longer inflation means the central bank is not expected to lower interest rates before the end of the year, so firms can expect elevated borrowing costs to persist through 2023 and the beginning of 2024.
Overview
After a series of scandals derailed the government’s legislative agenda in the first semester of 2023, Petro has vowed to continue pushing for approval in the new legislature, commencing on July 20. So far, the pension reform seems to be the only major reform this administration will be able to approve before the regional elections in October. Unlike the healthcare and labor reforms, the aforementioned pension reform has garnered strong support in the now-fragmented Congress, obtaining a 6-2 majority vote in its first debate. Meanwhile, Petro has expressed concerns about the effects the El Niño phenomenon might have on the economy, particularly on the vulnerable Guajira region, and is already considering a state-of-emergency declaration to mitigate the crisis’s impact.
Our View
Since the government’s legislative coalition imploded in May, the Petro’s administration’s chances of approving radical reforms have significantly diminished. The labor reform will have to restart its journey in Congress, and key political figures have expressed that anything resembling the previous initiative will face a difficult path to approval. Additionally, with the backdrop of the upcoming regional elections, an actively engaged Congress should not be expected, as most senators will undoubtedly devote a significant amount of time to campaign for their parties’ candidates in the mayoral and governors’ races, further limiting Petro’s reform agenda. The following months will prove crucial to Petro’s governance, as any further missteps could severely damage the government coalition’s prospects in the upcoming governor elections, and a decisive defeat would undoubtedly erode what remains of this administration’s political capital. Adding to the busy government agenda, dealing with the El Niño phenomenon will require decisive government action, which will have broader implications for the national economy. In the last three occurrences of this phenomenon (2002, 2010, 2015), higher consumer prices were the undesirable legacy of El Niño. Specifically, the agricultural sector is estimated to contract by 0.5 percentage points in the presence of a moderate El Niño, while energy prices will also be impacted due to Colombia’s reliance on hydroelectric power for domestic consumption.
At FrontierView, our mission is to help our clients grow and win in their most important markets. We are excited to share that FiscalNote, a leading technology provider of global policy and market intelligence has acquired FrontierView. We will continue to cover issues and topics driving growth in your business, while fully leveraging FiscalNote’s portfolio within the global risk, ESG, and geopolitical advisory product suite.
Subscribe to our weekly newsletter The Lens published by our Global Economics and Scenarios team which highlights high-impact developments and trends for business professionals. For full access to our offerings, start your free trial today and download our complimentary mobile app, available on iOS and Android.