Elections Won’t Disrupt Colombia’s Track Record of Effective Economic Policy, Says Fitch Ratings

Following last week’s congressional election and presidential primary in Colombia, Fitch Ratings sees the outcome as positive for the “continuation of Colombia’s track record of effective economic policy,” it said in an analysis.

“The continued dominance by center and center-right parties in Colombia’s recent congressional elections should reinforce the country’s macroeconomic and fiscal policy framework,” added the New York-based credit rating agency.

“The strength of Colombia’s fiscal and macro policy institutions, and the public consensus for macroeconomic stability, are likely to prevent major economic policy changes.” – Fitch Ratings

While the agency expects minimal disruption to fiscal stability being introduced by the new makeup of the congress, which saw former President Álvaro Uribe’s Democratic Center party increase its representation over even while losing one seat in the Senate, it also acknowledges that the upcoming presidential election in May will prove more influential on the overall policy agenda.

Nevertheless, it doesn’t see the head-of-state change, with two-term President Juan Manuel Santos concluding his tenure, kickstarting a major shift.

Others have come to similar conclusions. “We ended up with a very balanced Senate,” stated Medellín-based Bancolombia in a note to investors this week. “Whoever wins the presidential election is going to have to work with a broad church and radical changes are unlikely.”

The specter of uncertain elections has been seen as a looming risk to economies throughout Latin America. Within an 18-month period, in a voting season that has already kicked off, six countries — including the three largest in the region in Brazil, Mexico, and Colombia — will have new presidents.

Colombians went to the ballot on March 11 to elect representatives for both houses of Congress. In a primary held simultaneously, they also chose who will represent the main conservative and liberal coalitions in the presidential election, with Uribe’s handpicked candidate, Iván Duque, winning out on the right and former Bogotá mayor Gustavo Petro getting the most support on the left.

“The strength of Colombia’s fiscal and macro policy institutions, and the public consensus for macroeconomic stability, are likely to prevent major economic policy changes regardless of which presidential candidate wins,” stated Fitch Ratings.

“Economic and corruption-related issues have gained prominence in the political discourse,” it added. “Security and implementation of the controversial FARC peace accord, which was signed and ratified by the government and FARC in late 2016, also remain salient issues.”

READ MORE: Colombian Congressional Election: Uribe, Democratic Center Gain Steam

In addition to Duque and Petro, others have thrown their hat in the ring. While more political wrangling is already underway and could result in potential rivals joining forces to join together their support, former Medellín mayor Sergio Fajardo, former vice president Germán Vargas Lleras, and lead peace process negotiator Humberto de la Calle are currently three of the other notable candidates in the presidential race.

Still, even with a large field, the firm doesn’t see major policy changes ahead.

“Fitch believes that a sharp divergence from the existing macroeconomic policy framework is unlikely from any of the major candidates,” stated the agency. “The composition of the new centre-right dominated congress should help to ease policymaking should Duque win the presidency, while acting as a policymaking constraint if Petro wins. The checks and balances built into Colombia’s political system — notably, the public consensus that supports macro stability and facilitated the 2016 tax reform, the fiscal rule and framework, the congressional powers, and the independent central bank — act as key constraints to major economic policy changes.”

Fitch Ratings has forecast Colombian gross domestic product (GDP) to increase by 2.8% this year and 3.5% in 2019. Though this remains below the growth seen before the plummet in oil prices in 2014, when the economy was expanding by upwards of 4% to nearly 7% for the better part of a decade, it is a significant improvement from the low-growth of 1.8% and 2.0% seen in 2017 and 2016, respectively.