Colombian Finance Chief Quits After Days of Violent Protests
(Bloomberg) -- Colombia’s Finance Minister Alberto Carrasquilla resigned Monday after days of bloody street protests pushed the government to shelve his plan to raise taxes.
President Ivan Duque named Jose Manuel Restrepo, the current Trade Minister, to replace him.
Carrasquilla has been attacked by lawmakers from across the political spectrum since presenting his proposal last month, and said in a statement that his continued presence in government would “make it difficult to build the necessary consensus quickly and efficiently.”
Deputy Finance Minister Juan Pablo Zarate also quit, he said in reply to written questions.
Their departure adds to the chaos in the Andean nation, grappling with nearly full ICUs from a Covid spike. Demonstrators and police are clashing daily in Bogota and other cities, while truckers and taxi drivers block roads and labor unions march in the streets.
“In the absence of a gradual and orderly tax reform, the nation’s macroeconomic stability will be seriously compromised,” the ministry said in its statement.
Incoming minister Restrepo was educated in the U.K. at the London School of Economics and the University of Bath, according to his biography on the presidency’s website. He has taught economics, and was rector of Rosario University in Bogota. He was named Minister of Trade in 2018.
The peso weakened 1.6% to 3,804 per dollar, the worst performer among more than 100 currencies tracked by Bloomberg, as the withdrawal of the tax bill and Carrasquilla’s exit triggered a selloff in Colombian assets.
The nation’s dollar bonds also fell, as investors see an increased risk of its credit rating being cut to junk in the near future.
Colombia’s dilemma exposes the chasm between rich and poor nations increased by the pandemic. While the U.S. and European Union spend trillions in stimulus with barely a peep from their debt markets, Colombia is desperate to ward off the wrath of bond vigilantes. It’s one of the few countries in the region that has consistently paid its debts but, faced with its worst contraction on record, is scrambling to rein in its budget deficit and stave off credit-rating downgrades that could send its borrowing costs soaring.
The proposed tax increases were intended to curb the ballooning fiscal deficit and fund welfare payments to address the surge in poverty caused by the pandemic.
Duque said Sunday his administration will ditch some of the most unpopular proposals, such as extending value added tax to more goods, and urged lawmakers to reach consensus around a new proposal to help the country climb out of a worsening fiscal hole.
However, the withdrawal of the tax bill failed to end the demonstrations. Unions called for new marches on Wednesday to protest a range of other grievances, including government plans to overhaul the health system.
Over the weekend, the government deployed troops to back up police in major cities, while protests spread even to provincial towns. At least 17 people have lost their lives during the demonstrations, and Bogota’s mayor’s office said 41 stations of its mass transport bus system had been put out of action by vandals.
Colombia is among the first major emerging markets to attempt to implement large tax increases. Other countries in the region may face similar difficulties trying to boost revenue in economies that are still being ravaged by the pandemic, and nowhere near having recovered from last year’s slump.
Both Fitch Ratings and S&P Global Ratings put the country one notch above junk. Moody’s Investors Service, which rates Colombia two notches above junk, said in a report Monday that the withdrawal of the tax bill is negative for the nation’s credit outlook.
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