Is This Going to Work?

COLOMBIA - Report 29 Jan 2016 by Veronica Navas and Mauricio Santa Maria

The official forecast for the central government deficit is 3.6% of GDP (around 30 trillion pesos) this year, up from 3% last year and 2.2% in 2014. But this year’s deficit might be closer to 4.2% of GDP, as keeping it at 3.6% depends on spending cuts. The budget was based on overly optimistic assumptions that have already been revised twice. However, expenditure cuts are still pending. Most downside risks have materialized. Oil prices keep plummeting against all odds, while economic growth, though still decent, at around 3% in Q3 2015, continues to drop. This will pose even greater fiscal challenges for 2017. We estimate lower oil prices and subdued economic growth this year will result in reduced revenue of approximately 0.8% of GDP in 2017. So a tax reform is not a luxury, but a necessity. However, the Ministry of Finance has already announced that it will not present it in the first half of the year. It intends to take its chances, because the priority is to approve the peace plebiscite.

President Juan Manuel Santos wants his peace of mind, and therefore is trying to ensure that peace with the FARC is tied so tightly that no incredulous uribista or recalcitrant guerrillero can untie it. Is this going to work? The FARC are already aiming to prolong the peace negotiations, beyond the March 23rd indicative deadline set a year ago. Some skeptics maintain that the FARC is considering waiting until the next government. Yet nobody can guarantee that it won’t be led by an anti-peace president. So believers think this is the best and the last chance for them to sign a deal. Even so, it would be wrong to presume that this date will mark the beginning of an era of peace: it will mark agreement on certain key issues, and served as a first step in a long road toward peace. Yet, if successful, lead government negotiator Humberto De la Calle could become the likeliest presidential hopeful.

Few initiatives have generated as much noise as the sale of energy conglomerate Isagen. The political opposition, led by former President Alvaro Uribe, campaigned vociferously against the sale, arguing that Isagen was a strategic asset that should remain under public control. This was ironic, since Uribe himself pursued this sale, while president. The government in any case had no choice but to execute the sale now, as the Council of State sales deadline fell on January 27th. Sole bidder Brookfields Asset Management purchased the managing stake for the minimum established price of COP 4,130 per share ($2.8 billion). This alone outraged the opposition. A group of senators is still fighting to stop the sale, claiming it was riddled with irregularities, and is petitioning the Administrative Tribunal to nullify it. But their chances of winning are slim. Ironically, the sale of Isagen seems to have made Minister Cárdenas’ likelihood of running for President even slimmer.

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