Petro takes office in Colombia pledging to redistribute wealth | International

Colombia’s first leftist president was sworn in on Sunday to begin his four-year term, pledging to redistribute wealth and rethink the ‘failed’ war on drugs.

Gustavo Petro takes control of an economy with public debt near record levels, which will prevent him from delivering on his promises to increase spending on education and social protection while preventing the budget deficit from exploding in a way uncontrollable.

“We are proposing tax reform that generates justice,” Petro said in his first speech as president, in Bogota’s central square. “To take a share of the wealth of the poorest, to open the doors of education to all children and all young people.”

The new government is planning reforms in health, pensions, labor and education, he said.

Petro, 62, beat a construction tycoon in June’s presidential election to become the first leftist to take power in a country that has only ever been ruled by conservatives and liberals. With its victory, Colombia joins the ranks of nations around the world that have recently elected anti-establishment leaders. In Peru, a teacher from a Marxist party became president last year, while Chile elected a former student protest leader.

The country’s first black vice president, Francia Marquez, was also sworn in alongside Petro.

Petro, an ex-guerrilla and former mayor of Bogota, has pledged to tax big landowners, suspend the granting of oil exploration licenses and rebuild diplomatic relations with the socialist government of neighboring Venezuela.

As diplomatic ties between the two nations were severed in 2019 amid a push by Colombia and the United States to oust the socialist government of Nicolas Maduro, Petro pledged to restore ties and open up the trade border.

In the Venezuelan border town of San Antonio del Tachira, revelers danced and cheered during a concert to celebrate improved relations between the two nations, which promises to make their lives easier.

“There are two nations here who have been separated by politics and who hope and wish that the new government can bring them together,” said Victor Corredor, 67, as he attended the concert he helped organize .

Maduro himself said in a video message that he was “reaching out to the people of Colombia” to rebuild the brotherhood between the two countries.

Petro’s call for a radical new approach to drugs could also upend relations with Washington in a country that has for decades been the region’s strongest US ally, as well as its biggest supplier of cocaine. Petro blamed the war on drugs for the deaths of a million Latin Americans and called on developed countries to adopt “a strong policy of prevention of consumption”.

Heads of state, including Chilean Gabriel Boric and Argentinian Alberto Fernandez, attended the swearing-in ceremony. Maduro was unable to attend, as incumbent President Ivan Duque declared he was a dictator and banned him from entering Colombia.

In the first major test of Petro’s ability to govern, his chief financial officer, Jose Antonio Ocampo, said he would send tax reform to Congress as early as Monday. The bill will be a measure of Petro’s support among lawmakers and will also determine whether he will be able to increase spending on welfare and infrastructure, or whether a lack of money will derail his plans. .

During the campaign, Petro said he could raise taxes enough to fund social spending and reduce debt, but no government in Colombia’s recent history has achieved anything so ambitious. than his proposal.

Petro said his bill will seek to raise revenue by the equivalent of about 5% of gross domestic product, eliminating tax breaks and imposing a wealth tax, among other measures.

Since 1995, the country has passed fourteen tax bills, none of which have increased by more than 2% of GDP, according to Credicorp Capital Research. This year’s budget deficit, adjusted to include gasoline subsidies, is expected to be around 7% of GDP.

Even after successfully striking alliances with multiple parties in Congress, Petro will likely manage to raise less than half of the amount he aspired to, Lopez said.

New finance minister Ocampo said the government could aim for an initial revenue increase of closer to 2% of GDP and then gradually increase it with measures such as cracking down on evasion.

Colombia lost its investment grade credit rating last year, after mass protests led the government to water down a plan to raise taxes to fund pandemic-related spending. Public debt fell slightly in 2021, after reaching a record high of 66% of GDP the previous year.

On the positive side, the economy will grow by 6.9% this year, according to the central bank’s forecast, overtaking Brazil, Mexico, Peru and Chile, which should improve public finances.

Another headache for Petro is the huge sums the country is currently spending on fuel subsidies. Rather than allow gasoline prices to rise at the same rate as crude this year, the Duque government has capped increases.

At current prices, this will cost the Treasury the equivalent of more than 2.5% this year. Petro can either bite the bullet and let them rise gradually, which would be unpopular and drive the highest inflation rate in 23 years even higher. Or he can continue to devote a large part of his budget to a subsidy that mainly benefits the wealthiest Colombians.

The peso has been the worst performing currency among major emerging markets since Petro won the election and hit a record high against the dollar last month. But his appointment of Ocampo, one of Colombia’s best-known economists, calmed some investors, who took it as a signal that he will eschew extremism.

Colombia’s ‘unsustainable’ finances mean the new government will have to ‘defer many campaign promises that mean more spending and prioritize reducing the budget deficit’, former finance minister Mauricio Cardenas wrote in a statement. statement posted on Twitter.

Investors are already pulling their money out of emerging markets and Colombia cannot afford to risk a sudden outflow of capital, he wrote.

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