Colombia’s triple crisis

BOGOTÁ — While the United States and other advanced economies are returning to normalcy, Colombia reported its highest number of COVID-19 cases and deaths to date during the last week of June. Since early May, the country has been recording one COVID-19 death per 100,000 people per day, three times India’s rate.

Meanwhile, social tensions have erupted in Colombia’s cities. In early May, thousands of protesters, many of them young, forced the withdrawal of a proposed tax reform and the subsequent resignation of the finance minister. Later that month, S&P Global Ratings downgraded Colombian bonds from BBB- rating to BB+, below investment grade, weakening the country’s chances of restoring fiscal sustainability.

This triad, unabated COVID-19, social unrest, and fiscal crisis, is not unique to Colombia. Many other developing and emerging economies, especially in Latin America, face a similar set of problems, whereby a worsening of one could exacerbate the others.

But this is not a traditional Latin American crisis with technocratic solutions. Instead, the protesters are demanding a change to the political system.

In Chile, independents and outsiders will have the upper hand in drafting a new constitution. And in Peru, Pedro Castillo, a left-wing former schoolteacher who advocates nationalising strategic assets, appears to have shaken the entire political establishment by winning the country’s June 6 presidential election. Unfortunately, discontent with traditional politics is resulting in a wave of demagogic populism.

In Colombia, riots, protests, and strikes have lasted for two months. While popular support for marches and demonstrations has begun to decline, it is clear that the people are dissatisfied with the political system. A recent poll indicated that 71 per cent of Colombians do not identify with any of the country’s existing political parties.

The direction of political change in Colombia remains uncertain, and will depend on how each of its three problems evolves. On the pandemic front, the vaccination effort had a slow start, owing to supply delays, but is finally gaining speed, with about 12 million doses, one for every four Colombians, having been administered so far. At the current pace, 60 per cent of the population could be vaccinated by October 2021. But the high costs of ongoing lockdowns mean that the economy will reopen well before then.

The social explosion is also related to the pandemic and its economic impact. According to the National Administrative Department of Statistics, nearly 5 per cent of the population, 2.1 million Colombians, have fallen out of the middle class during the pandemic. And a further 2.7 million who were already poor or vulnerable are now destitute. The first group is frustrated and disappointed, and the second is despairing and angry.

Compounding social tensions is the situation of women and young people. The number of employed women has fallen by 15 per cent during the pandemic, compared to a 6 per cent decline for men. Lockdowns and school closures have kept many women at home, where domestic violence has increased, and the pandemic has hit sectors in which many of them work, such as services, especially hard. Meanwhile, 27 per cent of young people between the ages of 14 and 28, two-thirds of them women, are neither working nor studying.

Blockages of critical roads, including those to Cali and the Pacific port of Buenaventura, caused the economy to suffer further. Fedesarrollo, an independent think tank, puts the costs of the strikes so far at 0.6 per cent of GDP, while food prices increased by 5.4 per cent in May, owing to supply disruptions.

Negotiations between the government and representatives of the strike committee were suspended in early June. The committee’s list of demands, which includes income support equivalent to a minimum salary for the 42.5 per cent of the population now living below the poverty line, is likely to worsen an already severe fiscal crisis. The government deficit is expected to be 8.6 per cent of GDP this year and 7 per cent in 2022. Public debt will rise to 69 per cent of GDP in 2022, from 50 per cent in 2019.

In response, the government proposed its ill-fated tax reform, which would have affected the middle class by broadening the base of value-added tax and personal income tax. A more modest initiative, to be paid for entirely by large businesses and wealthy individuals, is now in the works, implying that any structural fiscal measures will be postponed until after the 2022 presidential and congressional elections.

Pragmatists argue that Colombia’s triad of problems presents an opportunity to develop a sensible reform agenda based on increased political participation, a phase out of inefficient government programmes, and more progressive fiscal policy. But this outcome is far from guaranteed, not least because the country is still divided over the 2016 peace agreement with the Revolutionary Armed Forces of Colombia (FARC). This amounts to a significant barrier to the formation of a centrist coalition that can address key policy issues.

The presidential candidate who embodies the populist approach, Gustavo Petro, currently leads opinion polls with the support of 38.3 per cent of likely voters. Petro advocates a minimum wage for low-income families, paid by the central bank. Meanwhile, those on the far right are once again using fear to mobilise support. They claim that neighbouring Venezuela deliberately orchestrated Colombia’s social explosion, in order to destabilise the country.

Like Peru recently, Colombia seems destined to choose between two extreme options, left-wing anger or right-wing fear, unless a viable centrist alternative emerges. And in a faceoff between the radical right and the populist left, the current government’s unpopularity will most likely give the left the upper hand.

In that case, the resulting fiscal blowout would eventually leave Colombians worse off. What the country urgently needs is political leadership that can respond to the sentiment in the streets with effective strategies to tackle the social and fiscal crises together, while relying on increased vaccination to defeat the pandemic. Sadly, the expectation that democracy will triumph over demagoguery may be wishful thinking.

Mauricio Cárdenas, a former finance minister of Colombia, is visiting senior research scholar at Columbia University’s Centre on Global Energy Policy. Copyright: Project Syndicate, 2020. www.project-syndicate.org