Interview: Sergio Guzmán Evaluates President Petro’s First 100 Days & What We Can Expect From The Administration Going Forward
Bogotá-based political risk expert and founding director of Colombia Risk Analysis Sergio Guzmán was recently in Bogotá where he presented at events for international think-tank Medellín Global and at Colombia’s most important gold and precious metals mining event, CGS Medellín.
Colombia Risk Analysis is a political risk consultancy that provides clients with analysis, context and projections about the political, economic and social environment that affects Colombia and the region.
Finance Colombia’s Executive Editor Loren Moss was able to get a few minutes of his time between presentations to discuss the first 100 days of the presidency of Colombia’s President Gustavo Petro: Where things stand, and what we can expect based on what we have seen at the beginning of the new administration. In Colombia, presidents serve for a single four-year term.
Finance Colombia: How much of the peso’s fall can be attributed to macroeconomic factors affecting the whole globe, for example the Ukraine conflict and US Fed actions, and how much would you say is political risk specific to the Petro administration, now somewhat more than 100 days into his term?
Sergio Guzmán: We can’t ignore the fact that global macroeconomic factors affect countries with twin deficits (fiscal deficit and balance of payments deficit) more than they affect countries where only one of these conditions is present. In that regard, Colombia is especially vulnerable to external shocks, and it has been for quite a while – this is not something that started with Petro. However, statements by Petro and members of his cabinet have rocked the confidence of international investors as they add unnecessary noise to the picture.
“It is important for investors to be able to distinguish between the signal and the noise when it comes to Petro and judging by the market reaction, they still don’t have a good read on the government.” – Sergio Guzmán
Petro is right that he cannot be fully blamed for external factors, but as president part of his duty is to calm markets and mitigate risks and judging by the market reaction to his statements, he has not been diligent at assuaging some of the concerns. While Ocampo has acted as a balm to some of the cabinet’s more rambunctious statements, the markets are now looking for stronger statements from Petro himself.
Finance Colombia: Recently you presented at CGS Medellín, Colombia’s most important precious metals mining summit. What can we tell about Petro’s stance towards the mining sector based on policy actions and statements in the first 100 days?
Sergio Guzmán: Petro was by far the least desired outcome for the sector. However, mining is not a political centerpiece for Petro – the administration is not as anti-mining as it is anti-oil and gas. However, investors seem to be a little more uncertain about the future of their holdings under Petro and may perhaps want to jump the gun. I think it’s clear that Petro wants to replicate some sort of 1970s Import Substitution Industrialization initiative and will think of the mining sector – especially the copper sector, as a likely outcome.
Nevertheless, Petro does not really understand the timelines for mining development from exploration to production. He seems to think that a mine can go from exploration to production within his presidency, which is not true. A copper development could take well over 20 years to become developed and during that span, it may be owned by different corporations between juniors and majors. I think the mining sector has an opportunity to work with the Colombian government and educate them about the sector and build a roadmap to get to that place together. The issue will be on community ownership and government take – which are vitally important for Petro and the signals he wants to project, but are less important for the sector, keen on keeping equity within a close-knit group of investors.
Finance Colombia: Petro ran on a strident anti-petroleum platform. Now we hear that the administration may re-evaluate the possibility of issuing new licenses. Is he really changing his stance? What’s going on?
Sergio Guzmán: Unfortunately, it is very unlikely that we will witness the president backtrack on some of his proposals, such as banning future oil and gas exploration for example. As oil continues to be Colombia’s most important export, a strong contributor to foreign direct investment, and a significant source of revenue for the central government, his statements will continue to be problematic. We also cannot expect Petro to sack his Mining and Energy Minister, Irene Velez, despite the fact that she is consistently rated by polls as the least popular member of the cabinet. Petro is not going to give his opponents a clear win while he continues to be largely popular with public opinion.
Finance Colombia: Here in Medellín, the mayor is asking the Petro Administration for more time on Hidroitiuango. Petro has said EPM needs to evacuate the downstream population before testing the turbines. How much flexibility can EPM expect from the Petro administration?
Sergio Guzmán: The short answer is: we don’t know. The long answer is, the Petro administration has announced it wants the state to play a larger role in energy regulation and that it wants to see lower energy prices for consumers. EPM is one of the country’s leading generators and with Hidroituango coming online it will become the largest energy generator. This means Petro’s CREG has more leverage over EPM than it previously had, considering the fines imposed by the regulator could financially cripple both EPM and the City of Medellin. I would prefer not to speculate, but I assume that whatever decision the government makes on EPM will be contested in the courts and so both leniency and severity will affect the independence of the energy regulatory authority or provide an unfavorable advantage to Quintero.
Finance Colombia: Do we have more, or less risk for foreign direct investment than originally expected when Petro first won the election earlier this year?. Have investors regained confidence, or are they even more worried about prospects in Colombia?
Sergio Guzmán: I think investors are looking at Colombia through a lens of greater risk sensitivity considering geopolitical events. It is likely that some newcomers are easily spooked by overall conditions and political circumstances. However, investing in Colombia is not for the faint of heart or for those with a short-term (annual or quarterly) investment horizon. Colombia is for investors with a long-term perspective (usually decades) who will be well aware that the country has markedly, and positively, made strides to becoming a more prosperous society.
Sure, Petro’s proposals are sometimes misguided and risky bets, but they are not the radical left-wing Chavista proposals that his opponents make them out to be. It is important for investors to be able to distinguish between the signal and the noise when it comes to Petro and judging by the market reaction, they still don’t have a good read on the government. We can help them with that.
Finance Colombia: Colombia has more than 14 free trade agreements. How much risk is there of Petro blowing these up. The weak peso is already achieving his goal of favoring exports and domestic production.
Sergio Guzmán: Free trade is one of the things that is easy for Petro to bash, but very difficult for him to actually undo. For all the anti-trade rhetoric coming from some of the more radical factions of the government, there have been stern warnings from trade partners that renegotiation of trade terms will be something that takes more time and effort than Petro or Colombia can afford. Petro seems to be looking more for a short-term political victory that he can sell to his voters than a real bargain on trade terms, which will take years of hard negotiations to obtain both in the bilateral or multilateral arena.
Contradictorily, Colombia’s weak currency should be leading to an export and tourism boom but it is not, partly due to the political circumstances, the security situation, and investor concerns. It may be decades before Colombia sees another opportunity to supply Europe with expensive coal or lock in investment for its abundant gas deposits. Petro seems to be squandering a unique chance to finance some of his most iconic social programs, by taking advantage of current market conditions. Sadly, it looks like Colombia will miss out on this occasion.
Finance Colombia: What changes can we expect, if any in the US Colombia bilateral relationship?
Sergio Guzmán: I think the US has very smartly managed the relationship with Petro trying to find common ground on priorities without antagonizing the government or making commitments to unrealistic proposals (such as revisiting the war on drugs or making strides towards eliminating Colombia’s large foreign debt). However, there are two dangers ahead for the US-Colombia relationship, the first is of course, a new Republican House under the influence of South Florida Latinos may be more antagonistic towards Petro and other left-wing Latin American governments blocking aid or putting up obstacles for Biden to work with Petro and others.
The US Presidential election cycle will start in a year and players like DeSantis and Rubio who have been openly against Petro and others may rise to prominence and make it harder politically for Biden to play ball. The second is Colombia’s geopolitical strategy or lack thereof, could lead Colombia away from the US sphere of influence and much closer to China. At Colombia Risk Analysis, we’re looking forward to studying this last bit more closely during the next few months.
Above photo: Sergio Guzmán (center) answers questions accompanied by Sergio Escobar of Medellín Global (left) and Luis Guillermo Suárez of the Medellín Chamber of Commerce. (Photo © Loren Moss)