As Colombians head to the polls Sunday, presidential candidates face the same fiscal reality

By Nelson Bocanegra and Rodrigo Campos

Whoever is elected Colombia’s next president in a Sunday vote will have limited room to carry out his economic agenda, economists, policymakers and investors said, citing mounting fiscal problems and a divided Congress which ​could make it hard to pass economic reforms.

Supporters of Colombian presidential candidate Ivan Cepeda of the Historic Pact party react to the results of the first round of the presidential election, in Bogota, Colombia May 31.

On Sunday, Colombians will choose between right-wing lawyer Abelardo De La Espriella and leftist senator Ivan Cepeda, whose plans for Latin America’s fourth-largest economy ‌sharply diverge.

Financial markets are rooting for De La Espriella, a political outsider who has promised to reduce the size of the state by 40%, broaden the tax base and cut corporate taxes to promote private employment. He also wants to restart oil exploration, allow fracking to nearly double production to 1.3 million barrels per day and take a harder line against guerrillas and criminal groups.

“The Colombian state as it is currently structured is financially unviable,” he said in a recent speech.

Colombian assets rallied after De La Espriella won the first round ​with 43.7% of the vote to 40.9% for Cepeda. Investors viewed the result as boosting the likelihood of a shift away from the policies of outgoing President Gustavo Petro, a Cepeda ally whose supporters have cheered expanded ​social programs and success in bolstering manufacturing, tourism and agriculture.

“The market has moved to largely price an Abelardo (De La Espriella) victory even before the second round,” said Thys Louw, ⁠emerging market fixed income portfolio manager at Ninety One. “If Abelardo should win, the market reaction will undoubtedly still be positive … as the perception would be that he will have a mandate to start reversing damage to (the fiscal ​side) and investment that was done under Petro.”

Cepeda has pledged to deepen Petro’s economic and social reforms, with a focus on reducing poverty. He would raise taxes on the wealthiest Colombians and largest companies, while maintaining a ban on ​new oil and coal exploration, though he is open to gas and mining development.

“Let us make a tax pact, a fiscal pact, so we do not have to get to a reform that may be, well, unpopular with sectors of the economy,” Cepeda told Reuters last week.

Colombia’s post-COVID economic recovery has relied heavily on consumption, rising wages and public spending. Private investment remains weak and the oil and mining sectors have lost momentum.

Colombia’s economy grew 2.6% last year, which was below the pre-pandemic 4% average, official data showed. Despite small ​increases in 2024 and last year, private investment remains below pre-COVID levels after a sharp 13.4% contraction in 2023, Petro’s first full year in power.

Alejandro Cuadrado, global head of foreign exchange and Latin America strategy at BBVA, said ​the local peso had already priced in more than half of its potential upside. He said the market may overestimate how much fiscal adjustment De La Espriella could deliver.

“The challenge is high, even if the market reacts well to a potential De La Espriella victory,” Cuadrado said. He ‌noted that De ⁠La Espriella would probably have limited support in Congress, giving him less room for fiscal adjustment.
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Credit: Reuters