(MENAFN- The Peninsula)
The Washington Post
Bogotá: Colombia and Brazil are both run by leftist presidents with ambitious social agendas.
Now the neighboring Latin American nations have something else in common: growing investor fears about government finance.
In the first two years of their mandates, Gustavo Petro and Luiz Inacio Lula da Silva have taken similar tacks to boost their economies.
They each relied on deficit spending to deliver on campaign pledges just as inflation became a global problem.
And they each lashed out at their independent central banks for raising interest rates, stoking concern about government meddling in monetary policy.
Faced with the need to balance their budgets, both Petro and Lula unveiled plans to increase government revenue without cutting spending.
Neither announced austerity measures until everything else failed - and in Brazil's case, it was too little too late.
While the peso and real both weakened as fiscal concerns increased this year, the Colombian currency has so far avoided the panic selling seen in Brazilian markets in recent weeks.
In a bid to avoid that, Colombia's central bank surprised economists Friday by slowing down its rate-cutting campaign.
Brazil, the region's largest economy, is now serving as a cautionary tale for other countries struggling to rein in debt loads that ballooned during the Covid pandemic.
With Petro's government issuing a budget by decree after failing to win congressional approval for its plans, the Colombian president risks going down the same path as Lula.
“It is clear that Colombia needs to make more aggressive spending cuts” Andres Pardo, a strategist at XP Investments, said in an interview.“Those announced by the government will also be insufficient, as in Brazil.”
The decreed budget is underfunded by 12 trillion pesos ($2.7bn), or the revenue Petro hoped to raise through targeted tax hikes that lawmakers rejected.
But that's 40 trillion pesos short of the fiscal adjustment an independent budget watchdog says is needed for Colombia to reach its goal of a deficit equivalent to 4.7% of gross domestic product.
With the government now in the second half of its four-year term and looking to bond markets to fund its ambitions, Petro's management of public finance is coming under increasing scrutiny.
Though tax revenue has consistently fallen short of expectations, Finance Minister Diego Guevara insists the administration will take necessary steps to guarantee fiscal sustainability and retain market confidence.
MENAFN26122024000063011010ID1109030834
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.