For the first time in its history, Colombia has elected a left-wing president, Gustavo Petro, leaving investors scrambling to know what impact his economic policies will have on their business operations in the country.
Petro won over 50% of the ballots, beating his rival Rodolfo Hernández with a margin of more than 700,000 votes.
“What is coming here is real change, real change,” Petro clamored to his cheering supporters at a victory speech on Sunday night.
Ibagué. Hora de liberar las conciencias. Hora de ciudadanías libres. Es te es tu triunfo juventudes de todos los colores. pic.twitter.com/iwZ92DUMPl
— Gustavo Petro (@petrogustavo) June 20, 2022
The 62-year-old former guerrilla has pledged to impose taxes on businesses and raise the minimum wage. His campaign promises include offering public sector jobs for the unemployed and propping up the pension fund.
Petro also vowed to stop issuing new licenses for mineral, oil and gas exctraction, making investors nervous about the future of a sector that accounts for more than 50% of Colombia’s export earnings.
Mining companies are worried over both their future and fortunes in the country. The president-elect also promised to halt the exploration of hydrocarbons and the construction of new large-scale open-pit mines.
His economic goals look attractive to the poor and the downtrodden, but analysts find them hard to attain. Petro lacks a majority support in Congress, and Colombia’s economic situation gives no room for radical changes in policy.
Petro has also vowed to impose a tax on unproductive agricultural lands and review free trade deals, including the one signed with the United States, its main trading partner. In addition, his government would make university education free and raise taxes on the wealthy and the elite.
The president-elect also plans to spend more on social welfare programs, such as pensions. During the campaign trail, he said he would ensure that Colombians who don’t qualify for a pension get a monthly stipend at least.
Petro and the US
Investors remain on edge as new clues emerge on what will the relationship between the United States and Colombia’s new administration be like.
Although critical of the White House’s history of intervention in the country’s anti-narcotics policies, Petro has stated his wish to maintain cooperation with the US government, specifically in the fight against climate change.
Analysts aren’t betting on a smooth relationship at the start, however. Petro’s leftist policies and his wish to reinstate diplomatic ties between Colombia and Venezuela might prompt the White House to give the cold shoulder to the new administration.
Sergio Guzmán, Director at Colombia Risk Analysis, told Bloomberg that Petro’s election would certainly harm the country’s relationship with the US. “Come what may, the relationship is going to be frayed,” he said, pointing to Petro’s campaign promises.
The election of Gustavo Petro comes barely three months after the US designated Colombia as a “major non-NATO ally” (MNNA), opening up new channels to widen cooperation in the areas of defense as well as trade.
Just a week prior, Joe Biden’s administration clashed with several Latin American leaders over the veto of Cuba, Venezuela and Nicaragua from this year’s Summit of the Americas.
Petro held a phone conversation on Monday with the US Secretary of State, Antony Blinken. They spoke for 20 minutes about several topics, with the main focus being on Colombia’s peace accord and the fight against climate change.
Great to speak with Colombian President-Elect @petrogustavo to congratulate him on his election. We discussed the longstanding U.S.-Colombia partnership and how we can work together to enhance inclusive economic prosperity, combat climate change & further deepen our relationship.
— Secretary Antony Blinken (@SecBlinken) June 21, 2022
What About BPO?
An unfriendly relationship with the US may have a disastrous effect on Colombia’s burgeoning IT/BPO industry, where most foreign companies are either run by Americans or dependent on US clients for business growth.
Even before Petro’s victory, the prospect of a leftist government in Colombia made industry insiders nervous.
“Evidently, there’s a bit of uneasiness from companies,” said Fabián Saavedra, VP of Customer Care for DirectTV in Latin America, in an interview for NSAM held before the presidential runoff. “He [Petro] has a past of armed conflict, which is really worrisome. And he’s a follower and promoter of some of the politics that made Venezuela what it is today.”
Alberto Castañeda, Business Development Director at TDCX and a former Venezuelan citizen, said Petro might drive out investors with his protectionist policies. “That’s what I think Gustavo Petro would do [nationalizing industries]. And, just like it happened in Venezuela, it will scare off investment,” he said in an interview held before Petro’s victory.
Tengan ustedes la certeza que toda inversión privada con responsabilidad social y ambiental será respaldada y asegurada por mi gobierno.
La libertad es esencial para la democracia. https://t.co/AxQqt8EJMF
— Gustavo Petro (@petrogustavo) June 7, 2022
Petro hasn’t said much about BPO/ITO, which could be either a blessing or a problem for the industry.
“I see it more as an obstacle for the [BPO/ITO industry] because it’s not on the radar of his government,” said Katherin Galindo Ortiz, research analyst at Colombia Risk Analysis. “The industry will have to do lobbying in a way that wasn’t required during the four years of the [Ivan] Duque administration, which had this idea of turning Colombia into Latin America’s Silicon Valley.”
A Big Question Mark
In spite of all the distress, the truth is that it’s too soon to tell what Petro’s administration will really be like. The president-elect will be sworn in until August of this year. In the meantime, questions remain on crucial factors, such as who’ll be in his cabinet and the nature of his relationship with Congress.
“We’ll have to wait,” said Galindo Ortiz. “There’s so much uncertainty right now, because we only know his proposals, but we don’t know anything about how they would be implemented, depending on his team; and we don’t know what will be his relationship with Congress. It’s like a big question mark.”
Investors are particularly interested in who’ll be chosen by Gustavo Petro as Finance Minister. Several names are already making the rounds, with Alejandro Gaviria (a well known and respected economist in Colombia) being the choice most favored by the markets.