Colombia – Petro will likely moderate

Simply put, if left-leaning president elect Gustavo Petro fails to moderate his economic policies, his presidency will be born dead. Starting with the campaign proposal of canceling new permits for oil exploration. A sudden decrease in oil production would simultaneously worsen the twin deficits. With one swift blow directly to the weakest parts of the economy, this policy would send the exchange rate to the sky, government and corporate debt prices and stocks to the floor along with the sovereign debt rating . In a recent interview Petro signal ed that the new energy policy will be ambitious in the sense of direction, transitioning to solar, wind and possibly green-oxygen sources but routed on pragmatism to dodge macro imbalances. Fiscal reform - Petro will send a fiscal reform proposal to congress in the first weeks of power aiming to increase revenues by 3% of GDP (initially he aimed for 5% of GDP increase) by i-increasing tax on dividends, ii-eliminating tax heavens, iii-increasing property taxes on idle & fertile lands, iv-eliminating tax exemptions, v- taxing extracting sectors and implementing green taxes. Colombia needs a fiscal reform to avoid downgrades by ratings agencies. Pension reform – In short, Petro’s proposal consists on keeping the individual accounts (managed by private fund managers) but adding a pillar for people that don’t have access to pensions funded by the budget. Also, and more importantly, to a partly pay-as-you go system to increase the pension benefits of people that haven’t saved enough and are about to retire. Specifically, up to 4 minimum wages (or a possible lower threshold) pensions will go to a pay-as-you-go system. Pensions above such threshold will continue to go to privately-managed pension fund managers (or AFPs).