Less Austerity, More Intelligence?
Last week the Ministry of Finance presented a COP 7.7 trillion budgetary addition to Congress -- its first in nine years. This more than undoes the spending cut approved when the budget passed in Q4 2016. Under the label of “intelligent austerity,” the Ministry of Finance had earlier introduced a COP 3.7 trillion cut to this year’s investment budget. These funds were then used to negotiate a tax reform. Now there will be no austerity, not even of the less intelligent type.
Most March polls spoke to a dismal decline in President Juan Manuel Santos' favorability ratings, which should cause no surprise. Colombians get tired of their presidents by their third year (of their first terms). Hence, the experiment of consecutive terms, initiated by ex-president Alvaro Uribe and continued by Santos, imparts a clear lesson: by the sixth year, people just can't stand their presidents anymore. That happened to Uribe in 2008-2009, and is happening to Santos now. Serious successor candidates have not yet surfaced. Humberto de la Calle could be a likely government party candidate. And, for the first time in history, real outsiders, such as the vocal but inexperienced senator Claudia López, could rise as front runners.
A referendum in the town of Cajamarca to reject the La Colosa gold mining project has set a dangerous precedent. Three other municipalities have now expressed interest in following suit, and determining by popular vote whether extractive industries may work in their regions. It will be up to lawyers to decide the real implications, and to what extent such popular referenda are binding. Still, this development, paired with the empowerment of communities linked to the FARC peace accord, could complicate private investors’ lives.
The Central Bank took markets by surprise in December, when it decided to start cutting rates, and again in January, when it left rates unchanged. With inflation expectations falling, the Bank can now comfortably ease. This explains why Finance Minister Mauricio Cardenas voted for a 50 bp cut on March 24th. Surprisingly, the decision to cut was not unanimous: four members voted to cut by 25 bps, and one to hold. Jose Antonio Ocampo, the newest appointee, should tilt the balance towards dovishness, though we expect cuts to continue before he joins the Bank in May or June.
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