Belligerence nearly tanks a critical relationship
The usual friendly weekend vibe was ruined for many Colombians on Sunday, January 26th, when a dispute over Colombia’s refusal to receive a planeload of undocumented Colombians arriving from the United States broke out between U.S. President Donald Trump and Colombian President Gustavo Petro – then escalated fast, fueled by belligerent social media missives. The United States threatened to stop issuing visas to Colombians; to make travel to the United States more difficult for visa holders or residents; to impose tariffs of up to 25% on all Colombian goods (and to double them to 50% after one week); to impose severe restrictions on financial flows; and to withdraw visas from Petro administration officials, their families and associates. Panic rapidly ensued.
But around midnight, the U.S. press secretary issued a communique stating that Colombia had submitted to all demands and thus, for now, the economic measures would not be activated; though the visa measures are still in place: as of January 29th, visa services were still closed, and Colombian travelers to the United States were being subjected to additional controls and restrictions. In fact, some Colombians have been deported, and their visas cancelled at the airport, including holders of diplomatic visas issued by multilateral institutions like the World Bank and IADB. Authorities say visa and travel procedures will return to normal by the end of January.
The main takeaways from this debacle might be summarized as follows. First, it is never a good idea to manage sensitive issues, especially involving international policy, through social media. Second, this is particularly true if you are the president of a country likely to lose the fight. Third, and more profoundly, it is very unsettling for the economic future of Colombia that a relationship we all knew was going to be tense has started out on such a negative footing. This is more relevant when one thinks that Petro clearly showed a lack of restraint and knowledge throughout the ordeal, especially given the importance of the U.S. relationship for Colombia. On a positive note, high government officials seem to have learned this lesson, if the hard way. We hope this knowledge will translate into more careful future policy choices.
Though we still don’t know the budget deficit number for 2024, we expect heated debate once this key data point is released, sometime in February. The first reason for the intensity of the discussion will no doubt be that the 5.6% of GDP widely seen as consistent with the fiscal rule is no longer attainable. As of November the revenue shortfall continued to deepen, while total remaining spending increased, despite the government’s spending freezes, and its successful efforts to curb public investment. The final 2024 deficit number might be 6.6%-6.8% of GDP. This is extremely high, way above what we and everyone else following Colombia considered the pessimistic scenario. As for 2025, Finance Minister Diego Guevara’s recent statements point to more uncertainty and noise. Apparently, there will be a Shakespeare moment for Guevara, as he said that no tax reform will be presented, while his boss says otherwise. To tax more or not to tax more, that is the question.
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