Iván Duque, Colombia’s Front Runner for President, Wants to Get Back to 5% GDP Growth and Cut the Corporate Tax Rate Below 30%
Though Iván Duque has very little executive experience, he has thus far become the front runner in an election this month that will put a new Colombian president in office.
Polls in Colombia are notoriously unreliable, but Duque has experienced what Bloomberg recently categorized as a “meteoric rise” to the “cusp of Colombia’s presidency” in the lead up to the May 27 election.
“Tax rates in Colombia are pretty high … If you ask me about a competitive [corporate] rate, I think it should be below 30% — as we’ve seen other countries in Latin America.” – Iván Duque
The right-wing candidate and former senator’s ascension has largely been attributed to the fact that he was handpicked by former President Álvaro Uribe, who led the country as it beat back the guerrilla threat in the early 2000s and continues to have as much political sway as anyone in Colombia despite ongoing controversy and ever-present allegations of human rights violations from his tenure as a hardline head of state.
While advocates of the country’s peace process, finalized in late 2016 to end a half-century of conflict with leftist FARC rebels, fear that Duque will work to dismantle the accord if he wins the presidency, many in the business world believe he will be good for markets in a nation that has seen sluggish growth for the past two years.
Plenty of analysts, including New York-based credit rating agency Fitch Ratings, believe that Colombia’s stable fiscal policy and market-friendly policies will continue regardless of who takes office. But Duque nevertheless has so far talked the talk more loudly than the rest of the field when it comes to promises of fostering a climate for greater investment and economic growth.
To elaborate on his economic platform, Duque recently sat down with Bloomberg reporters for a televised interview. During the conversation, he explains — albeit without many specifics — that he wants to pursue polices that can get Colombia back toward the 5% annual GDP growth it was experiencing before the price of oil plummeted in 2014.
Among the focus areas to get there, he is pushing for a larger trade relationship with the United States, tax reform that will create a “competitive” corporate tax rate below 30%, a ramped-up fight against tax evasion, and further development of domestic capital markets.
To hear Duque’s comments from his Bloomberg appearance, watch the video here or read the transcript in full below.
Bloomberg: How concerned are you by the apparent turn away from free trade that we’re saying obviously in the U.S. but elsewhere as well?
Iván Duque: I think the concept of trade wars is not good for the world at this moment. We want the U.S. economy to grow, and if the U.S. economy starts growing above 3% that will help emerging markets and it will help Latin American a lot.
But if you start having measures in order to limit free trade — or to put additional tariffs — it would hurt emerging economies. So if you want the whole economy to grow in a comprehensive way, you need to get the biggest economies growing, and don’t blockade the development of the access to free markets.
Bloomberg: What kind of relationship do you foresee Colombia having with the U.S. under President Trump?
Iván Duque: There is an important thing and it is that Colombia has always had bipartisan support. We got support from the Clinton administration, the Bush administration, the Obama administration, and now President Trump is visiting Colombia a few weeks from now. And he’s supporting our anti-drug agenda.
“I want the local capital markets to develop. We need to have more IPOs, and we need to develop new instruments that are attractive for investors.” – Iván Duque
But I also believe that we need to strengthen commercial ties, trade ties. We want Colombia to participate actively in aggregated value chains, and we want also to expand and diversify our export offer to the U.S. That’s part of my goals. Because, as of today, 75% of Colombian exports to the U.S. are limited to very few products. We want to broaden that so that we can have better opportunities of growth in specific sectors.
Bloomberg: So, as I mentioned in the intro, Colombia’s growth right now is not very impressive. Under your Administration what would be the central plank of reviving that growth?
Iván Duque: First of all, tax rates in Colombia are pretty high. When you look at corporate tax rates in Colombia, we’re above the average of OECD member countries, and we’re above Latin America — and even the world average.
So part of the things that I am proposing is to eliminate unnecessary spending, do a reform in central government so that we can be more efficient and use better technology and eliminate duplicities in many works that we have among agencies. And also fighting the tax evasion on VAT and corporate taxes. We can lower the rate, increase investment, and make that the trigger of productivity and new formalization in job creation.
Bloomberg: When it comes to those tax cuts, are the Trump, Bush, or Reagan tax cuts any kind of model for you to look at?
Iván Duque: I don’t think you can have a one-size-fits-all agenda on tax cuts. But I think what we should do in Colombia is definitely become more competitive in tax rates for corporations, because they are the generators of formal labor force.
So if you ask me about a competitive rate, I think it should be below 30% — as we’ve seen other countries in Latin America. Chile has undertaken a tax reduction that has been efficient and also Peru. And I think we should follow that trend in order to get the economy and investment reactivated and be able to generate the type of employment that we need and also put the target of getting the economic growing above 5% of GDP.
Bloomberg: You mentioned paying for tax cuts by doing a better job cracking down on tax evasion. How do you actually do that? Because is great to say that you’re going to reduce evasion, but what steps can you take?
Iván Duque: I think the usage of technology — the usage of big data, blockchain — and the supervision of corporate accounting helps a lot. The SUNAT in Peru is doing good work. The tax administration in México is doing good work. And there is a recent study from MIT that showed that the right combination of technology and fiscalization officials can be more efficient in terms of reducing evasion in corporate tax.
And also, on VAT, you need to formalize. And maybe you need to have three levels for taxation for micro, small, medium and large sizes so you can get the right incentives for formalization in the way companies are registered in a country like ours.
Bloomberg: Now, if you look at the equity market, a lot of people use that as a gauge for how the economy is doing. Certainly President Trump likes to do that. Colombia’s benchmark stock index is the world’s worst performer over the last five years, according to Bloomberg data — and we track more than 100 primary indexes here. What do you think has been the root of the problem? Certainly, you could point to in efficiencies in government spending but that’s been the case for a much longer that.
Iván Duque: I think there are two reasons. One is that our development of local capital markets was highly dependent on oil. We had the oil companies being the ones who had more trading in our local capital markets.
And there are two objectives that I want to achieve. First of all, I want the local capital markets to develop. We need to have more IPOs, and we need to develop new instruments that are attractive for investors, not only on government bonds but all the other areas.