Colombia Gears Up for Economic Change as Leftist Gustavo Petro Wins Presidency

Petro, 62, will now take office on Aug. 7. His running mate, Francia Marquez, a 40-year-old environmental activist, will become the country’s first Afro-Colombian vice president

Gustavo Petro, Colombia's President-Elect.
By Matthew Bristow and Oscar Medina
June 19, 2022 | 07:18 PM

Bloomberg — Gustavo Petro, a former guerrilla who wants to transform Colombia’s business-friendly economic model, was elected to the presidency, potentially setting up the most radical change of course in the Andean nation’s recent history.

Petro, a former mayor of Bogota, took 50.5% to 47.3% for construction magnate Rodolfo Hernández in Sunday’s runoff with almost all votes counted, according to Colombia’s electoral authorities. Hernández conceded in a video message.

Petro, 62, will now take office on Aug. 7. His running mate, Francia Márquez, a 40-year-old environmental activist, will become the country’s first Afro-Colombian vice president.

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“Today is a party for the people,” Petro said in a tweet. “Let them celebrate the first popular victory.”

Other major Latin American nations including Brazil, Mexico, Argentina and Venezuela have all elected leftist leaders at various times, but Colombia has until now only ever been governed by conservatives and liberals. As well as raising the prospect of economic change, Petro’s election is likely to shake up relations with Washington in a country that has for decades been the region’s strongest US ally.

Investor concern

He is mistrusted by many investors, especially since his plan to gradually phase out oil and coal would deprive the nation of about half of its export revenue. But it is unclear how much of his agenda he’ll be able to implement given that he that he and his allies lack a majority in congress.

Colombia’s strong institutions will provide checks and balances: The constitutional court may block some of his plans, while the central bank’s independence is enshrined in the constitution. He has also reached out to centrists, alleviating some investor fears.

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“We expect more volatility in local markets and the weakening trend of the peso would continue,” said Ana Vera, chief economist at Panama-based IN ON Capital. Investors will be watching for guidance on who is appointed to the finance ministry and the rest of his economic team, she added.

Markets are closed on Monday for a public holiday and will reopen Tuesday.

Petro plans to tax big landowners, halt the awarding of oil exploration licenses and revive ties with the socialist government of Venezuela. He also wants to protect local farmers and industry using import tariffs, a radical shift in direction for a country that has liberalized trade in recent decades.

Demanding change

Colombia now joins the ranks of nations worldwide that have voted in anti-establishment leaders. In Latin America, the demand for change resonated as the pandemic caused a spike in poverty that’s been compounded by record inflation: In neighboring Peru, a school teacher from a Marxist party became president, while Chile elected a former student protest leader earlier this year.

Petro harnessed the desire for an alternative government fueled by inflation that has accelerated to its fastest pace in more than two decades, and corruption scandals that have undercut support for the nation’s traditional ruling class.

Colombia’s outgoing president, Ivan Duque, offered his congratulations in a Twitter post. The most likely scenario for Petro is that he becomes a Duque 2.0, said James Bosworth, the founder of Hxagon, a political risk analysis company that covers emerging markets.

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“He’s someone who comes to office with lots of promises and then fails to deliver,” Bosworth said, citing Petro’s lack of a Congressional coalition, his leadership style, “and the massive geopolitical winds of recession and high inflation that are playing against him.”

Gaffes and scandals

Investors favored his opponent, Hernández, with the peso soaring as the 77-year-old businessman became the favorite after the May 29 first round. But his campaign was damaged since then by gaffes and scandals, and was further undermined by his lack of a concrete program beyond a focus on tackling graft.

In a concession speech that lasted about one minute, Hernandez accepted the result, adding: “I hope that Gustavo Petro is able to lead the country and that he’ll be true to his anti-corruption discourse, and that he doesn’t let down those who put their trust in him.”

The International Monetary Fund forecasts growth of more than 5% this year, the fastest pace among major economies in the Americas. Even so, nearly half of Colombians believe conditions are getting worse, according to a recent poll by Gallup.

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Peace process

Petro was a member of an illegal guerrilla group in his late teens and twenties. After demobilizing as part of a peace process, he entered politics, first winning a seat in congress then eventually becoming mayor of Bogota. He has a net worth of about $59,000, according to his 2020 tax return, which he posted on Twitter.

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Other proposals he has include overhauling the country’s pension system and offering jobs for anyone who wants one in the public sector, as well as reforming the health system to give the state more of a presence.

“Petro will increase the role of the state, with a greater priority in social welfare and less on economic interests,” said Mario Gomez, managing partner for Colombia at public affairs and business consulting firm Prospectiva. “Colombia will become a protectionist country.”

Colombia is one of the closest allies of the US and has received about $13 billion in US aid since 2000, according to the Washington Office on Latin America, an NGO. Petro’s election is likely to destroy the bi-partisan consensus under which both Democrats and Republicans backed military cooperation and joint efforts to fight illicit drug trafficking, said Sergio Guzman, director of Colombia Risk Analysis.

With Petro in office, “the Republicans are going to be very reticent about approving funding for Colombia,” Guzman said.