Colombia Will Fight to Keep Bond Rating, Finance Chief Says
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Colombia is determined to cut the fiscal deficit and defend its investment grade credit rating, the nation’s new finance minister said.
Jose Manuel Restrepo, who was appointed this week, said there’s a growing consensus among congressional leaders over the need to get tax increases passed, both to fund welfare spending and to curb borrowing. The government is working as fast as possible to send the proposal to congress and get it approved before legislative sessions end in June, he said.
“Colombia, with this proposal we are building, is absolutely clear that we want to maintain investment grade,” Restrepo, 50, said Wednesday, in a video interview. “This is a country that has historically been responsible with its public finances.”
Restrepo spoke after another night of violent chaos, in which rioters carried out arson attacks on police stations in Bogota and wrecked stations of the city’s mass transit bus system. The nation erupted in protests last month over proposed tax increases, and these have continued even after the government withdrew its proposals from congress and Restrepo’s predecessor, Alberto Carrasquilla, resigned.
More demonstrations are taking place on Wednesday.
The government has ditched some of the more unpopular proposals, and the new bill won’t broaden VAT or impose income tax on middle class salaries. The burden will mainly fall on high earners and on corporations, Restrepo said.
“We don’t want to hurt the middle class,” he said.
Colombia is among the first major emerging markets to try to raise taxes to address the damage done by the pandemic. Restrepo said that by raising 14 trillion pesos or around 1.1% of gross domestic product, Colombia will be able to “guarantee fiscal sustainability in the medium and long term”.
The peso weakened for a fifth straight day on Wednesday, depreciating 0.6% to 3,850 per dollar, while the nation’s dollar bonds due 2051 also fell, sending the yield to 4.57%. The Colcap stock index has fallen 24% in dollar terms this year, the most among primary indexes tracked by Bloomberg.
The new tax bill will also include modifications to the so-called fiscal rule, which restricts the government’s ability to run up debt. The plan will propose limits on debt to GDP, he said.
Social stability is key and whatever fiscal adjustment is made needs to take that into consideration, said Restrepo.
“Colombia is aware that it must necessarily guarantee the stability of its public finances and its stability from a social perspective,” the minister said. “The two things are closely linked because long-term growth is also associated with guaranteeing that social stability.”
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