Colombia Politics May 2022

Colombia

Colombia: Hernández and Petro to face off in second-round runoff

June 14, 2022

As expected, left-winger Gustavo Petro triumphed in the first round of presidential elections held on 29 May. However, right-wing populist Rodolfo Hernández’s meteoric rise to second place caught analysts by surprise. Hernández nearly tripled his support in a little more than two months, gaining 28.1% of the popular vote in comparison to Petro’s 40.3%. Momentum remains with Hernández after most of his vanquished right-wing opponents threw their weight behind him following the announcement of the shock result. The latest polls for the final election round—due to be held on 19 June—show the two final candidates neck-and-neck, with Hernández even beating Petro in some surveys.

The result confirms that Colombian politics has become increasingly polarized: If elected, Petro would be Colombia’s first left-wing president, and Hernández would be an economically right-wing populist planted in the heart of the country’s corridors of power. That said, neither candidate will likely be able to implement sweeping policy changes given their limited support in Congress—a view shared by several of our panelists, including the EIU, JPMorgan and Fitch Ratings—which should ensure that the country’s current macroeconomic framework remains largely intact.

Hernández is generally seen as more market-friendly than Petro. Among the proposals Hernández has made are replacing the VAT with a consumption tax—which would have a lower tax rate of 10.0% instead of 19.0%—and removing the “4x1000” tax on financial transactions. Meanwhile, Hernández claims he will broaden the tax base by cracking down on tax evasion and fraud. He also wants to cut the size of the state and sell some of the government’s assets. The reliance on the questionably large hypothetical gains from targeting tax evasion and fraud, together with lower taxes, may hinder efforts to consolidate public finances and also raises concerns about the lack of clarity of his policy agenda.

Regarding the energy sector, in contrast to Petro, Hernández is in favor of new oil exploration. Oil investment stands to benefit more from a Hernández presidency than from a Petro presidency, with stronger crude production also boosting Colombia’s weak current account and fiscal balances.

Regarding pensions, there would likely be a greater role for the private sector under a Hernández government than under Petro. Hernández has proposed a universal basic income for the elderly, a tax on “privileged” pensioners, and a reform of the public pension provider so it can better compete with the private sector.

In sum, a Hernández presidency would likely lead to a smaller state than a Petro presidency, with cuts to government spending and taxes. In conjunction with his proposals to continue oil exploration, this suggests his policies may be more positive for economic growth than those of Petro. However, investors have doubts about the lack of clarity surrounding his policy agenda, and cuts to state spending could also generate social unrest.

On the difficulties of post-election policymaking regardless of the election’s outcome, Fitch Ratings explained:

“Either candidate would need to build consensus in Congress, where no single bloc holds more than a fifth of seats in either house, to pass legislation. The Historic Pact coalition, which supports Petro’s candidacy, has 18% of the seats in the Chamber of Representatives and 20% of Senate seats, but Hernandez’s Anti-Corruption Rulers’ League has practically no representation in Congress. Petro and Hernandez have both said they could use powers justified by what they view as an ‘economic emergency’ to make laws by decree for up to 90 days. However, the Constitutional Court must rule on such decrees, which could constrain their use. An independent central bank and autonomous judicial system will also provide checks and balances to the executive.”


Author:

Sample Report

Looking for forecasts related to Politics in Colombia? Download a sample report now.

Download




Colombia Economic News

More news

Search form