Submitted to Parliament on April 15, the tax reform bill triggered uninterrupted protests two weeks later, punctuated by acts of violence and vandalism. The wave of violence that followed left, according to the Ombudsman’s Office, around twenty dead, at least 800 injured and nearly 90 missing.
This situation has put the government on alert one year before the legislative and presidential elections. The president, Iván Duque, had first announced last Sunday, after several days of hesitation, the withdrawal of the tax reform project and its replacement by a new “consensual” text in order to avoid, according to him, financial uncertainty.
“Reform is not a whim. Reform is a necessity. Whether or not to withdraw it was not the question. The real debate is to be able to guarantee the continuity of social programs,” said the Head of State, whose government is seeking to raise approximately $6.302 billion to strengthen the resilience of the economy, protect the health of public finances and finance the economic recovery and social programs.
The tax reform bill was seen as an attack on the middle class and the purchasing power of the poor, due, among other things, to the charging of a 19% VAT on public services.
In an attempt to ease tensions and begin to break the deadlock, Finance Minister Alberto Carrasquilla, the main architect of the reform, resigned the day after the controversial bill was withdrawn. However, the government’s initiatives were in vain: protests continued, the second version of the reform stalled and the image of the Colombian economy was shaken.
The pressure on the government has increased in the last two days with critical comments from outside. The Ministry of Foreign Affairs, together with the Minister of Defense, has called the diplomatic corps accredited to Bogotá for a meeting to respond to the observations of the international community on the “disproportionate use” of public force.
The ministry also maintained that Colombia is “guarantor of citizens’ rights, including those to life for all and to peaceful mobilization.”
Earlier, the UN, the European Union (EU), the Organization of American States and other international organizations denounced the “excessive use” of public force and urgently called for a national dialogue to overcome tensions in the country.
The representative in Colombia of the Office of the High Commissioner for Human Rights, Juliette de Rivero, has denounced police shootings against a humanitarian mission in the city of Cali (southwest), capital of the department of Valle del Cauca.
The EU on Tuesday condemned the “violence” of Colombian security forces against protesters and called for those responsible for the repression to be brought to justice.
For its part, the United States expressed its “deep sadness” at the acts of violence and expressed its “support” for the government to resolve the situation through “dialogue.”
As for the economic cost, the crisis of the reform was felt in the financial markets where the dollar rose more than 2% and closed at 3,804 pesos, the highest rate in the last 30 days.
The crisis could even jeopardize the government’s ambitions for a recovery in 2021 with a forecast growth of 5.5%. Colombia’s gross domestic product (GDP) fell by 6.8% in 2020 compared to 2019, due to the pandemic.
One of Colombia’s perennial challenges is reducing unemployment, which was 13.37% last year before rising to 14.2% last March. For most of those who find work, labor market conditions leave much to be desired since the monthly minimum wage is around $245.
With the frustration over the tax reform, the new text will be 50% less ambitious in terms of collection and will not propose an increase in VAT. Analysts are thus questioning the country’s ability to finance the multiple social programs in the country without sufficient resources.
For a country like Colombia, which has never defaulted on its debt, maintaining a good reputation with risk and investment rating agencies is fundamental.
Colombia has a foreign currency credit rating of Baa2 from Moody’s, and BBB- from both Fitch Ratings and Standard & Poor’s (S&P), all three with a negative outlook, due to the current situation.
At the end of March, Colombia had a public debt of 172 billion dollars, more than 61% of its GDP. Of this total, 105 billion (61.25%) corresponded to domestic debt and 66 billion (38.75%) to external debt.
As for the budget deficit, that of 2020 was 7.8% of the GDP, while for this year it is expected to increase to 8.6%, according to the government.
Between the challenge of economic recovery and the political cost of any reform effort, the government finds itself caught between pressure from the streets and the observations of the international community on the management of these protests which could well change the face of Colombia in many ways.
2024-09-19 02:54:09