:quality(75)/cloudfront-us-east-1.images.arcpublishing.com/bloomberglinea/ILTKNIREQYJ7KEFCZA2WJ54RDY.jpg "José Antonio Ocampo, a former, and the future, finance minister of Colombia")
Bogotá — Eleven days after Gustavo Petro won the presidential elections in Colombia, the left-wing president-elect named renowned economist José Antonio Ocampo as his finance minister, and who will return to the post after having served in the role in 1996-1997 during the administration of former president Ernesto Samper.
During his time in the role the first time around, Ocampo, 69, advanced a tax reform focused on strengthening the fight against tax evasion and smuggling. Twenty-five years after that reform was passed, Ocampo returns to face a similar task, this time under the mandate of Petro, who is a leading figure on the country’s left, a former guerrilla, congress member, senator and mayor of the country’s capital Bogotá.
In an interview with Bloomberg Línea, Ocampo reveals the incoming government’s economic roadmap, and outlines food production and export diversification as two of its main priorities.
:quality(75)/cloudfront-us-east-1.images.arcpublishing.com/bloomberglinea/TT7RZIIXGFCCJDQXJ2QQVRVS2Q.jpg "What Does Gustavo Petro’s Victory Mean for Colombia?")
Tax reform
Bloomberg Línea: You have already held the position of finance minister, and you know the history of Colombia’s tax reforms. Do you think it will be possible to pass a 50 or 75-trillion-peso reform? Don’t you think you are too optimistic?
José Antonio Ocampo: I certainly think that 75 trillion pesos ($17.2 billion) is not feasible, actually the president-elect’s campaign talked about 50 trillion pesos ($11.4 billion). We are seeing how close we can get to that, and that is a big reform, but a single one, instead of thinking of two, as has happened in several previous administrations. I think it is feasible to achieve it by mixing different objectives, that is what we are working on to see how close we can get to that [50-trillion-peso] figure.
What do you mean by mixing objectives?
First, to see how to strengthen the taxation of high-income individuals. A second issue is how we rationalize or even eliminate many tax benefits for companies that, even in the future, may allow us to lower their tax rate, which is very high in Colombia. Third, the fight against tax evasion, what new instruments can we include against avoidance and evasion.
You have said that Colombia needs a structural tax reform, and for that, which issues should be addressed? Is it possible to make a structural reform without touching the taxable base of individuals, or VAT exemptions?
In principle, we are not going to touch VAT, except for eliminating the VAT-free day [a day introduced to incentivize shopping and boost consumption], which does not make any sense in our opinion. But structural taxation is the issue I mentioned, that is, how to strengthen the taxation of high-income individuals, how to eliminate tax benefits for companies and sectors, and what additional rules are required to reduce tax evasion and avoidance.
Are the tax benefits for individuals going to be modified?
That is part of the reform, but for high-income sectors. We are not thinking of broadening the taxable income base of individuals.
Will you impose more taxes on the financial sector and raise tariffs to encourage domestic production?
No, we are not thinking of raising the rate for the financial sector, and on the issue of tariffs, in fact what we have talked about is that we have to control the unfair competition of imported products in more than one sector, and also smuggling. And on the other hand, to review, in our bilateral relations, the free trade agreements that may be harming national production. But these are issues that I will not be in charge of, they are not within my competence.
Will the Petro government’s tax reform be passed this year?
We hope to do it even relatively quickly, starting in August.
:quality(75)/cloudfront-us-east-1.images.arcpublishing.com/bloomberglinea/QHWEM3IZHZCZTKPLBQP2ZXGGQU.jpg "Petro Forges Alliance with Liberal Party to Avoid a Governability Crisis")
Other reforms
In addition to the tax reform, what other reforms will the government be looking to introduce?
We are also reviewing how to rationalize spending, how to impose austerity in certain areas, but at the same time we plan to launch some programs that are a priority in social matters, in particular the fight against hunger, compensation to poor households amid the high food prices, that is a priority issue, and the second one, to increase social spending in education. Those are two priorities that the president-elect has chosen, and we are going to try to move forward in a process of rationalization of spending.
The other thing is the financing structure, we still have to obtain more credit resources this year, and program next year’s credits, but in any case, we hope to continue reducing the fiscal deficit that started well this year thanks to the higher tax revenues due to the economic reactivation, and to continue with the process of complying with the fiscal rule, to reach 55% of debt.
Regarding new social programs to fight hunger, how would they work?
We are thinking about how to do it, but it could be by expanding the Familias en Acción or Ingreso Solidario programs, and even potentially unifying them, with an emphasis on targeting and supporting the fight against hunger.
The president-elect had said in his campaign that he would propose a pension reform. Is that still on the table?
Yes, but it is not a short-term priority, rather, as far as possible, we are going to see how to expand the Colombia Mayor program [which provides assistance to the elderly], but that does not require a pension reform yet.
:quality(75)/cloudfront-us-east-1.images.arcpublishing.com/bloomberglinea/ZY5EFJH55ZB7NHPL46WO6ZTY44.jpg "Colombia Gears Up for Economic Change as Leftist Gustavo Petro Wins Presidency")
The US dollar and the markets
According to Bank of America, the Colombian peso will remain structurally weaker in Petro’s government because fiscal risks increased after the election of a leftist government, and the country may lose competitiveness due to protectionist policies. What’s your opinion on that?
It seems to me that the serious fiscal problem is something from previous years, now the fiscal deficit is going down, we are going to continue with the objective of complying with the fiscal rule, that is, to say that it is because of a leftist government does not make any sense.
With what economic and fiscal actions do you plan to attract investors during Petro’s government and, in part, put them at ease?
Good macroeconomic policies are going to be attractive, there is going to be a tax reform that will not affect companies, and will even plan on gradually reducing their income tax. We are going to create an economic policy that generates confidence, and besides, I believe that the social agreements that can be reached are going to make Colombia more attractive, if one looks at it in relation to the social unrest we have experienced in recent years.
Oil exploration and fracking
You have said that oil exports should continue, but have you made any decision about the fracking pilot projects and the development of offshore fields? Petro said during his campaign that he would also halt them.
We have to explore for more gas, but that can be done even with the contracts already signed. We have to review the signed contracts to see what is being done and what is not being done in order to promote them, that is one issue.
The second thing I have said is that we have to continue exporting oil, not continue exploring, but exporting oil, why? Because we cannot replace oil from one day to the next. It is a gradual process.
So you also agree that no new oil exploration contracts should be signed?
The first thing to do is to review the existing contracts, there are different figures, some speak of 180, others of 140 contracts already signed. This is not directly within my competence, but the group in charge of this issue will be analyzing the existing contracts already signed.
In terms of fracking, have you decided anything?
I understand that fracking is not going to happen.
High deficit, low economic growth
The Fuel Price Stabilization Fund (FEPC) has become a headache for the country’s finances, what will you do with it and its constant deficits?
We have to look and see if there is any mechanism to finance it, think in depth what the deficit really is, because in the midst of all of that there are several taxes, then if they are taxes they are not deficit, we have to see how to rationalize that, and we will have to make adjustments to some fuel prices, but possibly supporting some sectors, especially transportation, that serve poor households and the middle classes.
Colombia’s current account deficit is one of the highest in the region, how can it be reduced?
That has to do with the issue of export diversification, which has to be the number one priority. These are the two priorities: food production and export diversification.
There are some programs that have already been implemented and that could be expanded, for example, productivity factories and the cluster network. We must revive the agricultural policy that is very weak in terms of production support, and use development banks as an instrument to support those productive programs, such as Bancóldex, Findeter and Finagro.
You recently wrote in a column that growth since the economic opening has been slow: 3.5% per year during the period 1990-2019. How can the country grow structurally above that figure?
That is the issue of the productive development policies, I am firmly in support of them. That is to say, policies for agricultural development, the re-industrialization of Colombia, for the support of new service sectors, but well, that will be the responsibility of the ministries of agriculture and commerce, industry and Tturism. From the finance ministry, we will support them, I have always been a firm believer in productive development programs, in fact, I even recently published a book on the subject.
How do you see the medium-term fiscal framework that is already in place?
Challenging, because this year, thanks to the reactivation of the economy, there has been an increase in incomes, but going forward the challenge is very big because the economy is going to slow down, due to international phenomena, and on the other hand we have to see what we can manage to negotiate in terms of the tax reform to continue with the mix we have to create between support for new social programs and expanding existing programs, and how we manage to comply with the fiscal goals.
How do you see the fiscal deficit and government debt for the next few years?
We are committed to meeting the fiscal goals, so the question is what is the combination of tax reform and social spending programs that we can put together relatively soon. We are committed to meeting the fiscal targets, as soon as possible, to regain the investment grade that the country lost last year.
When do you think Colombia could regain investment grade?
To the extent that we manage to convince the rating agencies, as we are going to be a responsible government, it is about a dialogue with the risk rating agencies. It is a subject I know well because I had to do it in the past, when I was finance minister, we had investment grade, and I believe we can recover it, obviously I cannot say if it will be tomorrow or the day after tomorrow because we have to work with the rating agencies, and they have to see what the government programs are.
Are you looking at that in the short or medium term?
No, in the short term it is not going to happen, because the rating agencies have their standards and they publish their ratings a few times a year. We have to work with them to see if, in the next ratings review, at least one of them changes. Because if one of them changes and returns the rating to investment grade, with two adjustments we would already have investment grade from the point of view of international standards.
Translated from the Spanish by Adam Critchley
