In July, leftist populist Gustavo Petro was elected president of Colombia, continuing a regional political shift that has recently brought left-of-center leadership to countries like Chile and Peru. Gustavo Petro represents a departure from Colombia’s history of politically moderate leadership. As a candidate, Petro’s platform was characterized by a series of populist proposals seeking to upend the status quo in many segments of the Colombian economy. These proposals have generated heightened concern for multinational businesses in Colombia, which have generally offered relative stability and favorable business environment. Ultimately, we expect institutional limitations and governing realities to significantly moderate Petro’s agenda. However, even a partial implementation of Petro’s ambitious reform agenda will bring notable disruptions to the business environment and dampen the demand outlook.
Petro’s cabinet appointments, which include a mix of establishment figures and more activist reformers, reinforce our expectation that his government will partially moderate his campaign’s radical proposals, but still pursue some disruptive policy changes. For example, Petro’s Finance Minister, José Antonio Ocampo, has publicly pushed back on Petro’s calls to halt oil exploration and upend the country’s pension system. However, Ocampo has also supported other measures that would bring unfavorable disruptions to the business environment.
Colombia’s fragmented Congress will be a limiting factor on Petro government’s agenda. While Petro has crafted a coalition that gives him a majority vote in the Congress, this coalition is fragile and heavily depends on recent alliances with Colombia’s moderate and establishment political parties. Seeking to ram through a series of disruptive reforms would quickly erode this tenuous ruling coalition. As president, Petro will need to adapt his agenda to these governing realities, as well as contend with the legal and political limitations much of his agenda would face. Petro’s forthcoming tax reform proposal will be a key test for his Congressional alliances and a signal to investors and the business community of moderation or disruption in his governing agenda.
We forecast above-average GDP growth for Colombia in 2022 as consumer finances remain strong, and as potentially disruptive actions will likely be delayed by the Petro government finding its footing. However, 2023 will bring a convergence of challenges for the Colombian economy, including heightened political disruptions, falling consumer demand, and slowing global and US growth.
Elevated domestic risks are on the horizon in Colombia, compounding the current challenging global growth environment. To remain competitive, multinational firms in Colombia will have to monitor and anticipate policy shifts and their broader macroeconomic impacts. Using FrontierView data and insights, clients can plan for industry-level impacts from partial implementation of Petro’s policy agenda as well as monitor broader macroeconomic trends and developments.
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