Petro’s make-or-break second year
What should we expect for Gustavo Petro’s second year? We think this phase will depend upon 1) what happens in the October 29th mayoral and gubernatorial races; 2) whether the economy definitively succumbs to recession, as the Central Bank projects, or rebounds, as private analysts expect; and 3) Petro's reaction to the mid-year governability crisis still weighing upon his government.
In a “good-good” scenario, from the opposition’s point of view, the radical left would lose the October elections in the major cities where it has been strong; the economy would rebound; confidence would start recovering, inflation would subside and the Central Bank would start cutting interest rates. This mix would privilege Congress to set the reform agenda. Under the opposite scenario, the left might win in Bogotá and the economy enter recession in Q4 2023 and Q1 2024 (and it may already be in recession). The attention of media and business people would begin privileging left-leaning presidential candidates for 2026, which could become a self-fulfilling prophecy. Congress could land in the predicament of accepting some of the government's most radical plans on healthcare, pensions and labor, and investment in Colombia could falter.
So this second year of the Petro administration will be definitive, where the depth of his administration’s impact on institutions, markets and incentives will be defined. Of course, reality is unlikely to be so black and white; something in between may unfold.
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