Cabinet outrage ignores realpolitik
The government, as is its custom on every subject, has been quick to celebrate on social media (and everywhere possible) the great 2024 labor market results. Officials say these show that economic recovery is fully underway; that the right is peddling a false tale that the economy is ailing; and that employment is growing as in the best of times. Whoa – not so fast, chief. While it’s true that there were no harsh problems, unemployment, employment and informality did not improve and, in some cases, slightly deteriorated: we’d call it a somber or dull performance at best. In fact, December data may be disguising a clear labor market deterioration, with massive movements from formal to less stable informal employment. Q1 2025 data will be key to clarifying these trends. It would be better to concentrate efforts on consolidating policies that favor growth and the labor market, an approach that, alas, seems far from government intentions. We can only hope that 2025 will be better and truly dynamic, since for nearly two years nothing much has happened.
The 2024 budget deficit could climb as high as a nightmarish 8.9% of GDP. CARF has called for “structural efforts” worth COP 46 trillion (2.6% of GDP) to cut the deficit to comply with fiscal rule targets. One has to add to that the COP 26.4 trillion (1.5% of GDP) worth of reservas, for a grand total of COP 72.4 trillion (4.1% of GDP) in required spending adjustments. This is out of this world. A “down payment” of COP 12 trillion (0.7% of GDP) has already been executed through the recent spending freeze decree. We think a reasonable but extremely demanding (politically speaking) scenario going forward would consist of additional spending freezes worth COP 20 trillion (1.1% of GDP), and generating extraordinary reservas this year, to be executed in 2026, worth COP 10 trillion (0.6% of GDP)
Without the possibility of resorting to OOTs of the magnitude claimed by the Finance Ministry for 2025, compliance with the fiscal rule will be impossible to argue with a deficit of 6.5% of GDP this year, even for Finance Minister Diego Guevara. Such an outcome at the end of 2025 might be a definitive coup de grâce to the fiscal rule. But even if not, a downgrade by all three rating agencies seems increasingly certain. It will be impossible to keep fiscal problems from becoming a center-stage topic in the next presidential campaign.
The Constitutional Court is about to rule on the constitutionality of the pension reform approval process. If there is justice in this world and country, it would be declared unconstitutional. But we’re in the era of Gustavo Petro, the most spoiled of Colombian politicians, for whom all transgressions are overlooked. Though Court Chief Justice Jorge Enrique Ibáñez prepared a serious unconstitutionality text, Petro will be able to claim a Court majority if new justice Miguel Polo tilts toward a constitutionality ruling. This is a crucial moment for the solidity and seriousness of Colombian institutions. The result of the Court’s voting on this issue could shed light on whether Petro has gained control of this key institution.
A volcano erupted in the early February televised cabinet meeting, when many members, including Vice President Francia Márquez, criticized Petro for appointing Armando Benedetti as chief of staff, and four cabinet ministers resigned. Benedetti has now been appointed to an even more critical post, of minister of the interior. The main reasons for his appointment to chief of staff seem to be 1) to regain governability in Congress, to bring the labor and health reforms to fruition and possibly to also approve a new tax reform; 2) to prepare the 2026 presidential campaign, given that Benedetti and his ex-associate Roy Barreras have been the kingmakers in Colombian politics for two decades. Many ministers and high-level officials complained about Benedetti's arrival at the cabinet table because, they claimed, he distorted the purity of the progressive and petrista project. This was a childish complaint. All of those ideological and doctrinal ladies and gentlemen owed their positions to Benedetti. How ungrateful of them. Had he not worked the country during the campaign, using all the tricks of his deep bag, none of those people would be sitting in their comfortable cabinet chairs today. The surprising thing is that the ministers did not seem to understand this.
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