The usefulness of the rule
The 2011 fiscal rule gave the central government’s fiscal policy a much-needed countercyclical orientation, as it focuses on differentiating structural from temporary revenues and spending. A critical anchor for policy discussions, it makes a committee of external advisors (the CCRF) responsible for key decisions about the rule.
Should the CCRF decide to exclude the sale of assets from structural revenues --the right approach in our opinion -- less spending would be possible. The only way to spend more would be to generate more structural revenues. Since additional revenues from permanent sources seem out of the question during this administration, the government will do its utmost to convince the CCRF to accept sale of assets as part of structural revenues. Let’s hope the CCRF takes the high road.
The House and the Senate economic committees approved the 2020 budget on September 24th, sending the bill to the floors of both houses for a final discussion and vote, before October 20th. Though the budget total of COP 271 trillion has been decided, the budgets for current expenditures and debt service were cut in favor of more appropriations for investment, potentially increasing the deficit by as much as 0.43% of GDP.
Economic conditions aren’t favorable for meeting the government’s 3.6% growth forecast by yearend. Indeed, the country still has a long way to go, which implies introducing reforms that improve the workings of the labor market, have greater transparency and “intelligence” in handling of the peace agreement, and more effectively promote measures that boost the industrial sector.
Just when you thought Venezuela couldn’t be in a worse mess, and Colombia couldn’t be weirder, suddenly there are announcements and interviews in both countries that speak of war. This would be a parody of a war, involving a ludicrous dictator in a country with a shadow president against a country with a president who has a boss, and where everyone wonders who calls the shots. That’s too many presidents for too few countries.
Economic and political reasoning would find it difficult to make sense of this nonsense. Colombia is trying to convince everybody that it’s ending a decades-long internal conflict, and can hardly make ends meet, when it comes to the budget and complying with the fiscal rule; in spite of that, now it is looking into buying fighting airplanes from the United States or Sweden. The whole thing is a charade of such humongous proportions that it may well end up happening.
Any war skirmishes could be used politically on both sides of the border. Venezuela surpasses Colombia in firepower, but is less prepared for protracted conflict. In the unlikely but not altogether dismissible scenario of an armed conflict, Venezuela would have to go for a blitzkrieg, aimed at seriously damaging Colombia immediately, since a longer fight would favor the cafeteros. We hope this reflection ends up being completely useless.
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