Economic and fiscal waters still choppy
The government argues that economic performance hasn’t been so bad, given the shocks since oil prices began plummeting in 2014. The opposition, in political campaign mode in the runup to the May 2018 elections, focuses more on the bleak numbers, contending growth is insufficient for continuing to reduce poverty and unemployment -- and that change will come when a new president takes office next year.
Leaving this debate aside, Q3 GDP numbers seem to show that the worst of the business cycle is behind us. Growth was 2% in Q3, up from 1.3% in Q1 and 1.2% in Q2. Q3 sectoral performance was varied: agriculture, financial services and social services were especially dynamic, while mining and manufacturing contracted. We expect growth to be 2.2% in Q4, and 1.7% for 2017, with 2017 the year economic activity touches bottom post-oil price drop. We expect growth to improve to 2.8% in 2018. The key will be household consumption and investment.
Many voices are calling for Colombia to escape the shackles of commodity production, to diversify exports, and to become a global provider of value-added goods. That’s easier said than done: oil and coal still represent more than 50% of exports; a shift, which depends partly on the fate of Venezuela and Ecuador, would surely take a long time.
The very detailed fiscal plan from one of the most popular presidential candidates lacks credibility. The plan would cut corporate taxes to favor investment, but increase collections by at least 2% of GDP. What’s missing is the source of additional funds, to compensate for the tax cuts, and to fill the structural gap.
Machiavelli said that if the prince aims to attack his most powerful barons, he’d better kill them all – or they’ll come back to destroy him. His wisdom applies today in Colombia, where there is a type of vendetta among the most powerful politicians, involving the judiciary and executive branch. The instruments are corruption scandals, mainly linked to Brazil’s Odebrecht.
Members of Congress implicated in the Odebrecht affair could command nearly one million votes. The reaction, especially of the flamboyant and vocal Armando Benedetti, has been harsh and direct. In an interview, Benedetti attacked both the Attorney General and a presidential candidate. An open confrontation between princes and barons is now about to unfold; the consequences could be dire.
Though it’s still early days, our call is that Liberal candidate Humberto de la Calle, minister of the interior under former president César Gaviria, won’t prevail. Another popular candidate, though still fighting for his party’s leadership, is falling in popularity, especially against Sergio Fajardo. One of the candidates along with several leftist candidates are facing the uribistas; de la Calle seems to be in fourth place.
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