After Gustavo Petro's big win, what comes next?
After the Gustavo Petro's big win, what comes next?
By Valeria Marulanda Dávila
Senior Advisor at Opportunitas Advisor
June 27, 2022
Colombia is experiencing a historic moment after the election of a leftist and former guerrilla president and an Afro-descendant vice president who are raising the banner of change. This speaks well of Colombian democracy and the country’s social mobility. It is a good message to the world.
It was a positive message that the elections went smoothly and the country accepted the result. However, any do not agree with this view.
The main opposition leaders recognized the victory and have already agreed to meet with Petro. Aditionally, President Duque invited him to meet at Casa Nariño, the Presidental Palace early meeting at the Palace on June 23.
The day after the elections, the markets woke up calmer than expected, either because they had already factored in the result because they did not have an over reaction and were waiting for other signals, or because Gustavo Petro in the end softened his messages and attracted more people from the center.
The peso was slightly devalued but not as much was expected and Colombian Stock Market, in particular Ecopetrol’s shares have fallen.
The essentials of change
Now comes the hard part. The question that generates the most uncertainty are: What lies ahead?; What type of change will Gustavo Petro bring? How will he govern Colombia?
Gustavo Petro was elected on a platform of change and therefore, the upcoming crossroads will heavily depend on how he intends to govern through consensus and agreements or through confrontation and imposition.
This quesions will be partially determined by how opposition factors and the private sector behave. If they seek agreements and common ground, confrontation will be avoided. Additionally, it will also depend on whether Petro’s electoral base accepts consensus and moderation or begins to demand radicalization.
Petro: a statesman; who wants to leave a mark on Colombian and Latin American history
One hypothesis is that the president-elect wants to go down in history as a good president who improved social and economic indicators and the country’s position in the world.
This assumes that he will be a president who puts together a representative cabinet oincluding people from the center; a cabinet similar to that of President Boric in Chile, which resembles that of a European social-democratic government and not that of the failed left-wing populist state with authoritarian traits that has afflicted several countries in the region. In addition, it assumes that the elected president moderates his speech and makes the economic reforms that the country requires. In order to do this will need to negotiate with Congress, which will lead him to have more moderate positions.
In fact, Gustavo Petro has called for a Great National Agreement, sending a message to the markets, the private sector and the political world that all the changes he wants to implement will be done within the institutional framework.
This version of Petro will submit to Congress, major economic reforms, as well as reforms in the health, pensions, political, judicial, and educational sector just like Cesar Gavira and Alvaro Uribe, two of the most reformist governments have done in recent decades. Therefore, we can expect that as of August 7, his ministers will submit a set of bills to Congress, making it a government focused on Congress , like Uribe’s. If this is the case, it would be well perceived by the markets and, if progress is made in the right direction, Colombia could eventually recover its investment grade.
Additionally, because Petro is a leftist president, it will be easier for him to implement his decisions and promote necessary reforms, which for a right-wing president would be unthinkable and unfeasible. This, under the Nixon’s theory in China.
One of his main economic advisers announceds a tax reform that many consider to be in the same direction, though more ambitius than President Duque’s proposed tax reform, which not only cost him his job, but also led to massive protest with greater economic impacts than Covid-19. Duque’s reform, put forward by Finance Minister Alberto Carrasquilla, although unpopular, was based on technical analysis and recommendations prepared by prestigious institutions, including the OECD. It remains to be seen what the final text of the proposed reform submitted to Congress will be. Nevertheless, regard of the specifics of the final text, the tax burden for both companies and individuals will increase.
This version of Gustavo Petro would strongly support the energy transition, but would recognize that the country, at least for now, cannot stop receiving income from the mining and oil sector. Additionally, the fact that several companies in these sector, are already advancing towards energy transition, would give them a window of opportunity to continue exploring and exploiting, while at the same time venturing into cleaner energies, in tune with how international parameters have been evolving in these matters.
Likewise, with regards to the pension agenda, progress would be made towards what think tanks such as Fedesarrollo, the candidate Fajardo and Gustavo Petro himself, have already proposed, specifically, a system of pillars for mandatory pensions. The discussion would focus more around what would be the cut of the contributions that should go to the public system, which would most certainly be much lower than the 4 minimum wages proposed by Petro. Additionally, the discussions will also revolve around the sustainability of the system in general. and around the viability of private pension funds by introducing a system of pillars, and its effects on the market, especially in the TES market and in the reduction of the financing capacity for infrastructure projects.
Regarding environmental issues Gustavo Petro’s Government will tighten protection measures and sanctions, especially around water issues, which has been one of his greatest obsessions throughout his life.
Additionally, true to his convictions and promises, the newly elected president will work on a strong agrarian reform under the umbrella of the implementation of the Peace Agreement. High tax rates for unproductive land and rapid progress in land restitution can also be expected.
In this sense, greater participation and empowerment of local communities can be expected, as well as a proliferation of prior consultations. It is therefore foreseeable that social conflict will also increase.
Labor disputes are also expected to intensify. Labor unions will be empowered measures will be taken against some economic sectors as low-hanging fruits to show quick action.
In last Sunday’s speech, Gustavo Petro,gave a glimpse of a facet we had not seen before. He stated that he not only wants to be President of Colombia, but also leader of Latin America, specially a leader who* promotes an environmental platform that competes against developed countries. Additionally, he stated that he will lead a supranational environmental legislation among the countries of Latin America.
This is a new facet that stands out in the Colombian agenda and that opens new fronts for the country. On the one hand, the United States seems to be aware, due to the reactions it has had since the triumph of Gustavo Petro, that its main ally in; Latin America, has turned to the left. Therefore, since Colombia has a tradition of strong institutions and is strategic for that country, it gives us a competitive advantage that perhaps we had not had before and improves our negotiating position.
On the other hand, Petro’s announcement in which he says that we are not a heavy carbon emitting country, but rather we are “the lung of the world,” opens a new path of negotiations with developed countries, for compensatory economic aid, and even issues that can lead to renegotiations of our foreign debt in exchange for environmental compensation. This is an aspect that will be well received by the Democratic Party of the United States and by several environmental NGO.
But for this scenario to become a reality, it would require a mature Gustavo Petro, with ambitions to go down in history and leave a legacy of real progress for the country. A conciliatory Petro, who listens and puts aside his stubborn facet. It also requires a Gustavo Petro who leaves behind his resentment and in this subject it is important to highlight that it must not have been easy for him to have embodied the enemy of a large part of the nation. for so many decades. This scenario, thus requires him turning the page and recognizing that this time around, important figures in the national political scene, who have governed in the past and; who had been his opponents, in the final stretch, decided to join his campaign, and allowed him to be president.
From what has been observed so far, this is a possible scenario in the short term. Now, the question that arises is how long this scenario can last, because several variables are at play. On the one hand, Gustavo Petro’s personality and on the other, the force of the current circumstances. We cannot ignore that we are in a complex global environment, with high inflation rates, threats of recession, signs of foods shortages, among others. This necessarily has an impact on Colombia and specifically on food prices, particularly in an environment with rising poverty and hunger.
On the other hand, Gustavo Petro’s electoral base, the one that seeks vindication and that has high social and economic demands as well as high expectations, may not have much patience. This base can get desperate and take to the streets, putting pressure on the new president and forcing him to take populist measures such as price controls, seigniorage, among others. These measures will only worsen the economic situation and bring Colombia into a vicious circle. If this were to occur, the honeymoon with the center would end, we would see a radicalized president and social conflict would increase.
What we have seen so far is that we are facing an unstable balance and that a lot of juggling will be required to sustain it. Additionally, the attitude taken by both the opposition and private sector will be fundamental to maintaining this balance.
A populist Petro, who put on sheep's clothing to win, who has not changed his agenda or who is radicalized by the forces of circumstance
The other scenario is that either Gustavo Petro has always had the same agenda and that he only softened his rhetoric as a tactic to win the election, or that, as mentioned in the previous section, the force of the country’s economic and social circumstances make him become more radical and govern in a populist manner to satisfy his electoral base.
This scenario is very feasible considering that we are in the midst of a global economic downturn that does not give great room for maneuver, especially on the inflation front. It would not be surprising if the new president’s popularity falls rapidly (as is happening with Boric in Chile) and forces him to take a more radical, populist and less conciliatory course, appealing to his hard core supporters.
Under this scenario, we would see a president who governs and speaks to his base, and who blames a third party, be it the private sector or a specific industry, a foreign country, among others, for all the ills and the impossibility to carry out the promised reforms and changes.
Likewise, the country could become more fragmented, protests and social conflict could increase and there would be a deterioration in economic conditions. We would enter a complex vicious circle and the government would probably take on more authoritarian overtones.
All the fears that for years have revolved around a Gustavo Petro presidency would materialize.
The Congress, its relationship with Gustavo Petro and the opposition leader
Gustavo Petro obtained 11.28 million votes, 700, 000 more than Rodolfo Hernández. This indicates that the new president of Colombia does not have a blank check to do what he wants. Now, this does not mean that Rodolfo Hernández is the owner of those 10.5 million Colombians who voted for him, nor can we predict he has the slightest intention of becoming the opposition leader.
This leads to a vacuum of opposition leadership and therefore, the opposition will most likely be fragmented. This paves the way for the new government to capture the media, legislative and political agenda and achieve greater viability in its projects and initiatives.
From what we can see so far, Gustavo Petro is going to present an ambitious legislative agenda, which implies that he will have to reach agreements with other parties and reconcile positions.
The Liberal Party and the Green Party have already announced that they will join the government coalition. If the Party of the U joins, the Government would have absolute majorities in the Chamber of Representatives and Senate, which makes it possible to approve the initiatives for constitutional reforms and statutory laws.
It is very likely that these agreements will be reflected in the composition of the ministerial cabinet, which would ensure governability for the President and the viability of his proposals.
Viability of a constituent
One of the main fears throughout the campaign was that Gustavo Petro would lead a constituent. However, this would require a tortuous process in which Congress would have to pass a law, and then it would require a special election, in which he must win ⅓ of the electorate, more than 12 million votes. This would be very difficult to achieve in an initiative such as this one, and even less so in a divided country like Colombia.
The prognosis in terms of security is not positive. It is very likely that security will deteriorate and that, drug trafficking and violence will increase.
Petro’s appointment as Minister of Defense is crucial, because it will send a clear message to the armed forces. Likewise, we will have to wait for what decisions he makes with regards to the military leadership. There are rumors of discontent with the leadership at the colonel level and the new president could use this to his advantage.
Finally, the presumption that the newly elected president does not have good relations with the military forces is something that remains to be seen because it may change.
Relationship with the United States
No relationship is more important to Colombia than with the United States, given the deep economic and security ties that bind the two countries. So far the signs are positive and you can foresee that both countries will try to maintain a relationship, if not very close, at least cordial. The day after his victory, US Secretary of State Anthony Blinken held a meeting with President-elect Petro, followed by a telephone conversation with President Biden. The speed of rapprochement demonstrates the interest that both parties recognize in the importance of the relationship, where although there are important points of disagreement, such as the relationship with Venezuela, the mutual issues of interest exceed them.
- There is still great uncertainty in Colombia; but the country and the markets reacted better than expected to Gustavo Petro’s victory.
- The clouds have not yet cleared and the signals that the president-elect sends in the coming days and weeks with the announcements of the presidential cabinet and with the bills that he presents to Congress, will give us a glimpse of what is coming, at least for the first 100 days of government.
- Congress will have great power to moderate, and therefore it is possible to think that there will be a potentially transactional relationship. That said, these first 100 days will not necessarily be a window into the subsequent years of government, because as previously mentioned the sword of Damocles is that the president becomes more radical and begins governing in a populist manner, bringing Colombia into a vicious circle with big losses in value. The big question is whether he will become more radical and if so, when.