Colombia’s President Iván Duque has brushed off investor concerns about government finances and ruled out tax increases in the near future, betting instead on a swift economic recovery to overcome the twin shocks of coronavirus and low oil prices.
The Andean nation was Latin America’s fastest-growing economy before the pandemic hit, expanding 3.4 per cent last year, and has a long record of prudent economic policy which has helped it overcome periodic bouts of political and social turbulence.
In an interview with the Financial Times, the 43-year-old conservative president, a former official at the Inter-American Development Bank in Washington, pointed to the successful issuance last week of $2.5bn in sovereign bonds as evidence of “confidence in Colombia and confidence in our macroeconomic policy”.
Dogged by low opinion poll ratings for the past year, Mr Duque has seen his popularity climb after his government’s swift response to coronavirus and a relatively low toll of 33,000 infections and 1,100 deaths compared with other Latin American nations. Colombia’s per capita death rate is well below that of Brazil, Chile, Ecuador, Mexico and Peru.
The results so far were “grounds for optimism, but not triumphalism”, the president said. He predicted that Latin America would be harder hit by the virus than other regions but would bounce back more quickly, with Colombia’s economy expanding by 3 per cent next year.
But that would only be possible if the government kept taxes low: “It strikes me as a big blunder when people recommend tax reforms in the middle of a pandemic.”
“If we impose more taxes on companies just when they’ve been hit by something as big as this pandemic it will limit their capacity to generate jobs and growth,” he said. “We’re betting instead on a speedy economic recovery that will lay the ground for greater fiscal solvency.”
Last month, Morgan Stanley said Colombia would need “major fiscal reform” generating additional revenues of at least 1.5 per cent of GDP to stand a chance of holding on to its coveted investment grade status.
Mr Duque bristled at the suggestion that rating agencies might downgrade Colombia in the next year and said it was “stupid” to view the country in isolation as national finances everywhere had been challenged by the virus. Standard & Poor’s and Fitch both rate Colombia BBB-, the lowest rung on their investment ladders, with a negative outlook. Moody’s rates Colombia two notches above non-investment grade.
In the wake of the pandemic the government has abandoned any hope of sticking to its initial target of cutting the fiscal deficit to 2.2 per cent of GDP this year. It is now aiming to limit it to 6.1 per cent, a goal many economists say is optimistic.
The country went into the crisis with a higher debt-to-GDP ratio than its peers Mexico, Peru and Chile, giving it less fiscal room to prop up the economy, transfer cash to the needy and help struggling companies.
Colombia has one of the region’s stricter lockdowns and a total ban on flights since mid-March has devastated airline finances. Mr Duque said there would be no special treatment for national flag carrier Avianca, which recently entered Chapter 11 bankruptcy. But he suggested the state could help the sector as a whole. “We’re not ruling out any plan that is sensible and involves a sustainable restructuring,” he said.
While dealing with Covid-19, Colombia is also hosting 1.8m Venezuelan migrants who have fled the neighbouring country’s dire economic and political crisis. In all, more than 5m Venezuelans have left in the past five years in what has become the largest recent mass emigration in the world, eclipsing even the current flow of Syrians through the Mediterranean, which has slowed after a decade of war.
The coronavirus pandemic has only increased the risks in Venezuela. “There is no immunisation programme, there is no [functioning] hospital network, there is no serious epidemiological information,” said Mr Duque. “So what you have is a time bomb.”
Despite the scale of the problem “no one has put it on their radar”, he complained. “Help from the international community for this migrant crisis has been quite modest”.
At an international donors’ conference last month organised, by Spain nations pledged $653m to help countries trying to cope with the influx of Venezuelan refugees. The UN and aid organisations say they need $1.4bn this year.
Colombia has long been the closest US ally in the region and Mr Duque is an ardent supporter of Juan Guaidó, the Venezuelan opposition leader who has led a US-backed campaign to oust Venezuelan president Nicolás Maduro for more than a year. The Colombian leader insisted that Mr Guaidó deserved continued strong international backing, despite a series of recent setbacks.
“It truly saddens me when I see a brave dedicated man like Juan Guaidó . . . risking his life defying a dictator who is the Latin American equivalent of [former Yugoslav leader] Slobodan Milosevic . . . and I see people analysing Juan Guaidó’s role as if they were watching a boxing match,” Mr Duque said.
“What we should all be asking ourselves is whether we are giving Juan Guaidó and the Venezuelan people the support they need to recover their freedom and their democracy.”