How Is Colombia’s President Petro Faring After 6 Months In Office?

Bogotá — Colombia’s left-wing President Gustavo Petro this week marks six months in office, and analysts and citizens are weighing up his track record so far, despite the fact that any major achievements by any government would be unlikely over such a short period of time.

VIEW +

What Does Gustavo Petro’s Victory Mean for Colombia?

A look at how the left-wing president-elect’s government could change the South American country

Bloomberg Línea takes a look at the president’s performance so far, some of the challenges he still faces and his unfolding plans for the next three and a half years:

Changes at Ecopetrol

In late January, Petro announced the removal of Ecopetrol’s (ECOPETL) CEO Felipe Bayón, whose departure from the presidency of Colombia’s majority state-owned oil company adds more tension to the country’s oil and gas sector, following Petro’s announcement of the possible end to oil and gas exploration activities.

In October last year, Ecopetrol had already announced a restructuring of its leadership and informed that Saul Kattan had been elected as the new chairman of the board of directors. Regarding his possible takeover of the company’s chairmanship, Kattan said in an interview with Bloomberg Línea in November that “it is a job of the board to be looking at options and possibilities.”

In the opinion of Andrés Duarte, director of variable income at Corficolombiana, Bayón’s position on sensitive issues such as the importance of oil exploration contracts, as well as others such as security and energy self-sufficiency, “at times have clashed with the visions and positions put forward by the new government”.

“Ecopetrol had started its transformation process in the face of the global and national energy transition. It is an orderly process that is embodied in the company’s long-term strategic plan,” he said.

Camilo Díaz, an economic analyst and professor at the Faculty of Economic Sciences of the Universidad Nacional, had already told Bloomberg Línea that “the market in general recognizes the good work that the management team led by Bayón has done, and this has translated into Ecopetrol’s operational and financial results”.

“One of the main drivers of valuation of Ecopetrol’s shares is the permanence of Felipe Bayón at the helm of the company,” he said at the time when the new board of directors was elected.

For Andrés Duarte, of Corficolombiana, Bayón’s departure “is negative news, and generates more uncertainty” in the midst of the discussions generated in the country by a controversial report of the Ministry of Mines and Energy which concluded in December that the contracts in force would guarantee self-sufficiency to Colombia in addition to surplus resources.

VIEW +

Exit of Ecopetrol’s CEO Further Clouds the Future of Colombia’s Oil and Gas Sector

President Gustavo Petro has ushered in a new era for Colombia’s majority state-owned oil company, with a change of leadership that is being viewed by some as negative, amid the president’s plan to end oil and gas exploration

U-turn on fracking

In November, aligning itself with Petro’s proposed energy transition, Ecopetrol said it would not go ahead with its pilot projects for fracking, a decision backed by Petro’s minister of the environment and sustainable development, Susana Muhamad.

In an interview with Bloomberg Línea, Muhamad defended the decision, saying “the decarbonization of the economy is a fundamental process for several reasons: because Colombia is a country dependent on coal and oil exports in its trade balance, and also for the government’s tax revenues”.

“For us it is not only the change of the energy matrix, which in terms of electric energy is relatively clean in Colombia, but also how we replace those fiscal revenues and the balance of trade revenues with other productive sectors, she added.”

“That is why in the climate summits we have said that Colombia is one of the few producing and exporting countries, highly dependent on these exports, which is absolutely committed to this change and this transition, but to make it we need global alliances. We cannot do this alone. Generating new productive sectors in the time it takes us to make the transition is a huge challenge and we are working for the possibility of G7 support for Colombia’s decisive transition,” Muhamad said.

“First we have to say that today there is no fracking in Colombia. Fracking is not included either in the country’s hydrocarbon reserves or in the medium-term fiscal framework. Today, fracking does not exist in Colombia.

VIEW +

Under Gustavo Petro, Colombia Leads Major Producers on Ditching Oil

No leader of a major oil-producing country is targeting fossil fuels as aggressively as the Colombian president is

Colombia is one of the countries in the world with more potential in alternative energies, we have wind, sun, geothermal energy, and what we need is to invest all our efforts, not in expanding the extractivist frontier but in deepening the knowledge and capabilities of this process. Green hydrogen is also part of that equation,” she said.

“I believe that Colombia becomes highly competitive if it achieves a decarbonized reindustrialization. That is the bet, that puts Colombia on the map of the 21st century.”

The job market

Since August 2022, the month in which Petro took office, the country’s job recovery has lost pace compared to the first half of that year, according to data from the country’s statistics agency DANE.

However, the comparison between the pre- and post-Petro part of the year is skewed somewhat, given that, since unemployment was much higher in the first part of 2021, the subsequent drop a year later was significant.

According to DANE data, unemployment contracted by only 0.8% in annual terms in December to 10.3%, having declined 1.2% year-on-year in September, 2% in November and by 2.1% in July.Since Petro moved into the Casa de Nariño, Colombia has had an average of 2.5 million people unemployed, according to DANE’s figures to December 2022, an improvement from the 2.8 million unemployed a year earlier.

However, three of Petro’s six months in office have seen the lowest levels of job creation, with the number of people employed increasing by 1.7% in December, 2.3% in November and 3.1% in October. But the number of people in work during Q4 2022 was 22.4 million, up from the 21 million during the same period of 2021.

For 2023, the country is expected to struggle to reduce the unemployment rate, given the high inflation and the anticipated economic downturn. Sources at the central bank (Banco de la República) told Bloomberg Línea that unemployment this year is expected to be around 11.3%, a more pessimistic outlook that the one made by the bank’s team of technical experts last October, when they forecast 11% unemployment.

According to Juan Pablo Espinosa, director of economic research at Bancolombia, “we expect unemployment to increase during 2023 as a result of the sharp decline in economic growth, a dynamic mainly attributable to the cooling of consumption in the face of high inflation and higher interest rates”.

For María Claudia Llanes, an economist at BBVA Research, “for 2023 we expect a higher unemployment rate than in 2022, with employment growth that will continue to slow down in line with the economic deceleration. In addition, job creation may be more concentrated in the informal sector”.

VIEW +

Gustavo Petro Plans to Tax the Rich in Bill Inspired by Thomas Piketty

The bill would force the rich to declare their assets at current value, unlike the old law, which allowed them to report assets at their original purchase price

Petro’s National Development Plan

Petro’s National Development Plan 2022-2026 (PND) was submitted to Congress this week, which would entrust the president with extra powers.

The 166-page document establishes a total of 14 extraordinary powers for the head of state, and which include regulating alternative uses of the coca plant and regulation of the cannabis industry for medicinal, therapeutic and scientific uses.

The plan would also create a public entity that would take charge of certain hospital infrastructure for the provision of health services and health research, and would hand Petro the power to create, split, merge, integrate, or modify the legal nature of entities of the executive branch, which could result in institutional restructuring of some state-run bodies.

This would also entail making necessary budgetary modifications to finance the operating and investment expenses necessary.

The PND, which has yet to be debated by Congress, would also also hand Petro the power to “purge and modify the current regulations to implement policies of re-industrialization and strengthening of the economy, including mechanisms to promote alliances to attract sustainable foreign direct investment and technology transfer, and the assignment and management of assets and financing schemes for the strengthening of production”.

The plan would also grant Pedro the faculty to create a system of subsidies to support the more vulnerable sectors of the population.

VIEW +

Petro’s Tax Reform Proposals Perturb Investors in Colombia

In addition to the Colombian president’s tax reform proposals, the sociopolitical environment and the country’s monetary policy are also causing concern

Mixed messages

However, clarity is required in the signals given by Petro’s government, and which have so far been lacking, according to Michel Janna, president of Colombia’s securities market regulatory body AMV.

“The macroeconomic outlook is going to be greatly influenced by an international scenario that is not as favorable as that of 2022, but it does not seem catastrophic. And how much Colombia can take advantage of these less negative winds will depend on the signals sent by the Government in those first months”, Janna told Bloomberg Línea.

However, when asked about the signals already offered by Petro’s government, he said “there is a complex issue with Petro’s government, and that is that it is difficult to identify the signals because communication is fragmented. One hears the Minister of Finance say one thing, but then hears mining minister say something different andPetro, who one would think is settling the discussion, sometimes supports one and sometimes the other, he is not entirely clear about which position prevails”, adds Janna.

Proposed pension reform

One of several reforms Petro is seeking to push through during his four-year term in office is a shakeup of the pension system.

However, a poorly executed pension reform in Colombia could leave Gustavo Petro’s government without the financing it needs to implement the social projects he plans to implement, Janna warned in an interview with Bloomberg Línea this week.

He said that a pension reform that affects the fixed income market may leave the financing received annually from the private pension funds by the government very compromised.

“Some baselines have been announced and are being worked on. Any of the versions that have been aired point to a greater participation of the State in the Colombian pension system. This would be towards a pay-as-you-go scheme and not an individual savings scheme,” he said..

“This signal alone will be negative for the market because any reform that takes away the flow of private pension funds to invest in the capital market will have an impact on the assets traded there. Details are yet to be defined, but one would think that there could be impacts that are not very positive”, said Janna on the basis of the reform that is being prepared by the government of Gustavo Petro.”

The president of the AMV assures that, although the fixed income market must be protected, this is also a market that in the last decade has lost much of its liquidity.

Digital security

In December, Petro announced the creation of a national digital security agency charged with preventing hacking, following successive cyberattacks in the country that have exposed its vulnerability.

As of the end of December, Colombia had recorded a 133% increase in the number of institutions affected by ransomware versus the same period in 2021.

One of the biggest challenges for the country remains that, despite the fact that cases are more recurrent and aggressive, many companies choose not to report them to avoid reputational consequences.

Cybersecurity companies in Colombia told Bloomberg Línea show that in the last year companies in sectors as diverse as telecommunications, technology, health and education, among others, have been affected by such attacks.

“With the aim of promoting a secure digital ecosystem and protecting society, the creation of a digital security agency will be promoted to ensure the protection of the state in general, the country’s critical infrastructure and government entities from cyberattacks. Additionally, strategies must be implemented to develop the culture and appropriation of habits of safe use of digital technologies from early education,” the plan states.

VIEW +

Colombia’s President Petro to Create Digital Security Agency to Guard Against Hackers

The country’s technology and communications ministry (MinTIC) tells Bloomberg Línea that work has begun on creating the normative framework for the agency, in which the ministry’s role will be purely technical

‘Smart’ tariffs

Petro’s trade defense strategy, which aims to achieve a trade balance, proposes the implementation of so-called ‘smart’ tariffs.

Minister of Commerce, Industry and Tourism Germán Umaña told Bloomberg Línea that “there are different ways to balance the problems of national production when they are out of balance with imports. The objective is to generate a level playing field for Colombian industry and, when necessary, we will use all international trade mechanisms.”

Under the plan, the government “will promote the commercial defense of the Nation through a policy of trade remedies and smart tariffs, in order to achieve a balance in the conditions of competition for national production against imports and the defense of the branches of production affected by unfair practices and maneuvers contrary to free international trade, food sovereignty and the proper functioning of the market”, according to the proposal.

The government will be authorized to adopt trade measures of a restrictive or promotional nature, for reasons of national security, including food sovereignty and the protection of the agricultural industry and the market.

However, the measure does not entirely convince the private sector.

Javier Diaz, president of Analdex, said “the fear is that the tariff will be used to close the economy, punishing the consumer and affecting productivity by eliminating competition. The tariff should not be used as a mechanism to pay political favors”.

Likewise, María Claudia Lacouture, president of Amcham Colombia, the Colombian-American Chamber of Commerce, said the issue “raises concerns about how the reasons of national security are equated with food sovereignty and protection of industry and the market, taking into account that it does not call for competitiveness or productivity”.

VIEW +

What’s the Panorama for Colombia’s Startup Space Under President Petro?

Unlike the previous government, the new president’s plans do not put much emphasis on entrepreneurship, but there is focus on innovation, according to Alexander Riascos Caicedo, executive director of the Emprende Mejor foundation

Land expropriation

Another ingredient of Petro’s National Development Plan delivered earlier this week is the purchase of land by the Colombian state from private parties in order to hand it to farmers, one of Petro’s campaign promises.

The plan aims to harness more fertile land in a bid to increase food production and help to control inflation.

Petro said the lands given to farmers will be bought by the state from the current landowners, as long as the land is not currently cultivated.

Bloomberg Línea reporters María C. Suárez, Daniel Salazar Castellanos and Daniel Guerrero also contributed to this report