The IMF says “hmmmm”
The purpose of the IMF’s flexible line of credit is to help countries with generally sound fundamentals meet balance of payments needs, and boost market confidence during periods of heightened market risk. That is, it was created as a “spare tire” or a bumper to help eligible countries navigate temporary bumps. Colombia received a $10.5 billion FCL in 2009. Since then, the facility has been extended uninterruptedly, with the latest two-year approval in April 2024.
No funds have been drawn on the FCL to boost international reserves, but during COVID-19, when FCL uses were enlarged to finance the government’s budgetary response to the pandemic, the former Iván Duque administration drew $5.4 billion (SDR 3.75 billion). Part of this obligation has already been repaid, prompting harsh complaints from President Gustavo Petro, and many a Finance Ministry official. But the IMF (as everyone else with some sense of economic prudence) is becoming increasingly concerned about Colombia’s fiscal outlook.
This is, in our opinion, what is keeping the Article IV consultation from completion; the IMF does not buy into the Finance Ministry’s 5.1% of GDP 2025 deficit target, and surely has concerns about 2026. On April 26th the IMF issued a statement saying that “Colombia’s continued qualification for the (…) FCL is contingent on the completion of both the ongoing Article IV consultation and a subsequent FCL review.” In short, Colombia’s access to the FCL is frozen.
Finance Ministry officials claim the Article IV consultation is taking extra time just because there’s a new minister. There is, of course, much more to it than that. Colombia lacks a credible fiscal story.
Transfuguism is the possibility of changing parties, or defecting. A politician elected on a particular political commitment could later shift to another party. Petro's government is promoting a constitutional amendment that would allow members of Congress, state senates and city councils to switch parties once during their terms. Petro’s Pacto Histórico party is the biggest beneficiary of this idea. As a coalition of parties, since it surpassed the 15% voter turnout threshold in the 2022 elections, the law stipulates that it cannot repeat the strategy of creating single slates for the 2026 elections. If the coalition decided to merge several movements into a single party, it would run into the regulations of the Electoral Council. A 2011 law prohibits such a merger when a party is under investigation or prosecution, and Pacto Histórico is under investigation for violating financing limits during the 2022 presidential campaign. Changing ideas, convictions and parties is no sin. But changing the Constitution for political expediency mid-term is something else. This constitutional reform could still sink in Congress—something we’re hoping for.
As if this weren’t enough, Interior Minister Armando Benedetti is apparently preparing an even more harmful constitutional reform: reviving presidential reelection, although not for consecutive terms. Benedetti and Petro are both thinking about how to keep Petro in power, as Lula, Chávez, Correa and Evo Morales have done in Brazil, Venezuela, Ecuador and Bolivia. Presidential reelection has been prohibited in Colombia since 2015, but could be revived through a popular referendum or a Constituent Assembly. We don't think that will happen—but it's better to be warned.
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