After Gustavo Petro's big win, what comes next?

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.