Are these the dog days of fiscal consolidation?
President Gustavo Petro uses the expression “golpe blando” to mean a style of soft coup-d’état that doesn’t involve force, massive street demonstrations or the actual ouster of a president. Rather, under this concept, the seizure of power can occur subtly, via legal initiatives, investigations for purported wrongdoing and allegations of rogue campaign financing that, sooner or later, can make remaining in the presidency untenable. Petro cherishes this sort of conspiracy theory. A mixture of paranoia and worst-case-scenario analysis, it seems to be a centerpiece of his administration. He contends that ousted Peruvian president Pedro Castillo, for example, was a “golpe blando” victim.
When Petro perceived that the Attorney General’s office was about to move against him over alleged campaign finance irregularities, he called for demonstrators to gather at the Supreme Court of Justice, which is charged with naming a new Attorney General (Petro later denied calling for the demonstration). For some, this episode brought back some of the worst memories of recent Colombian history, linked to the 1985 armed attack of then-M19 guerrilla group against the Justice Palace. Petro once belonged to M19. This was a painful déjà vu for Colombians, and a revealing episode that lays bare a backbone of the Petro administration. If worse comes to worst, contentious issues are to be decided in the streets, where Petro believes his followers hold sway. The Supreme Court will take its time in choosing a new AG, from a slate of three candidates proposed by Petro himself. Any candidate would need to assure Petro that a “golpe blando” would not coalesce into an AG-led criminal investigation. Though that’s not very reassuring, that’s politics.
A recent analysis by Fundación Ideas para la Paz paints a bleak picture of the rise and strengthening of armed groups, arguing that over half of Colombian territory is nowadays dominated by thugs and their gangs. The report concluded that 2023 events call into question the viability of the multiple Total Peace negotiation tables. There is a clear deterioration of territorial control by the Armed Forces, and its capacity to prevent the advance of criminals. We could add that the equilibrium sought by Paz Total could be depicted as ending the “zones in dispute,” and migrating them towards coexistence, and finally to prevalence of one group. Critical areas for cocaine exports like the Pacific shore, and for petroleum exploitation and transport, like Arauca, along the Venezuelan border, remain zones in dispute. A more benevolent view of Paz Total would consider that since land ownership is a significant part of the peace agreement, the government has made some progress. For instance, as of January 2024, the government had purchased about 119,000 hectares, and allocated more than 807 lots to communities and victims.
In fiscal news, the numbers are clear: we may be entering the dog days of fiscal consolidation. And economic growth was poor in 2023. The sharp and unprecedented fall of investment is a bad omen, especially if the government keeps introducing inordinate uncertainty. This decline, apart from a logical response to deteriorating economic conditions (inflation, higher interest rates) is hugely related to uncertainty, as reflected in the expectations surveys carried out by the government itself. For example, the oil and mining sector saw an incipient recovery after the pandemic-driven crash, but was then stymied by the government’s absurd insistence on suspending oil and gas exploration, and forcefully attacking coal production, even for power generation. Mining returned to sluggish growth rates, and the recovery became just an illusion. This won’t help export recovery, either.
The fiscal situation won’t be a boon to 2024 growth, and the government’s poor record of managing key sectors, such as infrastructure and housing, creates even more uncertainty. To close the circle, unemployment is already rising, which will repress demand. Combine this with the poor government consumption results (up 0.2% in Q4 2023), and it’s clear that we don’t have a pretty growth scenario for either 2024 or 2025. It’s time for the government to take the business of administering and managing a country seriously: the time for constant announcements and confrontational but empty speeches seems to have ended.
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