Colombian Treasury Chief asks the market for calm before elections

The investors who are discounting a high risk for the elections in Colombia this year they have no reason to worry, according to the finance minister, who said that there will be no radical change in the economic model, whoever wins.

The peso has weakened to near a record low in recent weeks, while government borrowing costs have soared. A “high content” of this reaction is due to the uncertainty ahead of this year’s legislative and presidential elections, said the Minister of Finance, José Manuel Restrepo.

The moves were likely exacerbated by recent elections in other Latin American countries, Restrepo said in an interview Thursday. Peru chose a candidate from a Marxist party last year, while Chile voted for a former student leader whose coalition includes the communist party. But Colombia, the oldest democracy in the region, is a case apart, Restrepo said.

“Our institutions are much stronger and will preserve the fundamental, democratic, market freedom, and business freedom values ​​that Colombia has always had and will continue to have from now on,” Restrepo commented.

Gustavo Petro, a presidential candidate who wants to end oil exploration and raise import tariffs, is leading the polls in Colombia’s presidential election in May. The country has never elected a leftist as its leader.

stimulus needed

Despite investor pessimism, Colombia’s economy is recovering strongly from the pandemic. The economy will grow 4.7% this year, after an expansion of 9.8% last year, according to forecasts by Banco de la República.

The central bank has raised interest rates at its last three policy meetings, but Restrepo said the rate remains negative after adjusting for inflation, and at a level that continues to provide needed stimulus to the economy.

“We have to be careful to achieve a healthy balance between the decisions made on interest rates simultaneously with the process of reactivating the economy,” he said.

Restrepo indicated that interest rates should be at a level that prevents medium- and long-term inflation expectations from increasing, but without “stifling” the economic recovery.

To alleviate inflationary pressures, Restrepo explained that the government is seeking to take additional measures, including reducing import tariffs. Much of the recent rise in inflation is due to temporary factors that are also affecting other countries, he said.

The central bank, whose monetary policy meetings are chaired by Restrepo, has raised interest rates by 1.25 percentage points since September, to 3%, after inflation soared above its target range to a five-year high. Analysts surveyed by the bank expect policymakers to accelerate the pace of monetary tightening this month and raise their benchmark rate by 0.75 percentage point, from 0.5 percentage point at their previous two meetings.

Restrepo comments that the nation’s fiscal deficit in 2021 may have been less than the government’s estimate of 7.6% of gross domestic product. The national debt will start to fall faster and sooner than anticipated by the government, he said.

Colombia will present its new economic and fiscal projections in the first week of February, he confirmed.