Scandals and falling approval ratings will compound the government’s ongoing difficulties
The government’s failure to pass reforms in H1 2023 confirm a reduced likelihood of radical changes to Colombia’s business model. While Colombia may see ongoing protests in the coming days, these are unlikely to pose significant short-term disruptions to business operations, as was the case in early 2021. MNCs should closely follow the ongoing developments regarding local elections, as they will be an important gauge to assess current support for President Gustavo Petro’s agenda. Furthermore, Petro’s limited ability to get his reforms approved will help sustain the COP rally in recent weeks and boost the country’s investment outlook.
Overview
On June 5, the president of Colombia’s lower house, David Racero, announced that discussions of reform bills submitted by President Petro’s government had been frozen amid an intensifying scandal over alleged financial irregularities in Petro’s 2022 election campaign. While Congress has not yet confirmed the suspension’s length, it is unlikely any of the reforms will be approved before the end of the current legislative session on June 20. Amid the latest political developments, newly leaked recordings of Armando Benedetti, the recently fired ambassador to Venezuela, sparked speculation over allegedly illegal donations to the Petro campaign in last year’s election. These accusations come on top of previous allegations of meetings between the Petro campaign and drug traffickers. While additional fallout remains uncertain, the scandal already led to Benedetti’s ousting and the resignation of Chief of Staff Laura Sarabia, a trusted government aide. The latest developments have also fueled an official investigation from the attorney general’s office regarding the claims of illegal interceptions of communications and monitoring of cell phones.
Our View
Since early May, when the government’s legislative coalition lost two key pillars, Petro’s ability to pass proposed reforms has been significantly compromised. The latest political scandals and the president’s rapidly falling popularity will compound the government’s ongoing difficulties. To salvage his reforms, Petro faces a few choices: negotiating with an emboldened Congress (which will likely demand the reforms be diluted, leading to less disruptive implementation); tightening his inner circle by replacing key insiders from traditional parties with members from the Pact Histórico coalition (hindering dialogue with Congress and reform approval chances); or escalating the situation by relying on popular support to propel his agenda, (an unlikely scenario given his dwindling approval ratings). While Congress could extend the current legislative period for an additional two weeks, the chances of reform approval are still very limited in the absence of a solid coalition in Congress. Looking ahead, two potential catalysts could further impact Colombia’s political risk: the end of the legislative session on June 20 and the local elections on October 28. The local elections could become a referendum on Petro’s administration and signal a swing back toward Colombia’s historically right-leaning roots, further limiting Petro’s political capital.
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