Colombia’s new finance minister wants fair capitalism

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BOGOTA, Colombia – The economics professor who was chosen as Colombia’s next finance minister says the leftist government that takes office next month will focus on raising taxes on the wealthy so they can spend more for anti-poverty programs.

But Jose Antonio Ocampo said the administration will respect the central bank’s autonomy and work with rating agencies to restore the country’s financial situation. He added that foreign investment will continue to be welcome in Colombia.

“We want a Western European type of capitalism,” he said. “Not a capitalist system in which the distribution of wealth is among the most unequal in the world.”

Ocampo, a Columbia University economist who headed the United Nations Economic Commission for Latin America, was recently invited by leftist President-elect Gustavo Petro to become his finance minister during the inauguration of the former guerrilla on August 7.

In an interview with The Associated Press on Tuesday, Ocampo pledged that the Petro administration would be fiscally responsible and steer clear of sweeping monetary policy changes, even if it sought to boost tax revenue.

The new administration will not have its own majority in Congress, so Petro has worked with some success to convince other parties to support his programs, although he will likely have to compromise.

Ocampo said Petro’s left-wing coalition wants to increase tax collection by about $11 billion every year through a plan that would increase the country’s tax revenue by about 25%. He said the additional funds would go towards building roads in rural areas and implementing education and health care programs to reduce social and economic inequalities.

It might be a tough sell. Last year, an effort by the current government to raise $8 billion in taxes, mostly from the middle class, sparked nearly two months of sometimes violent protests and forced the finance minister to resign. Eventually, President Ivan Duque passed a more modest $4 billion tax plan that avoided raising personal income taxes.

Petro hopes to circumvent political unrest by targeting the incomes of the country’s wealthiest businesses and individuals.

Ocampo said income taxes would only be increased for the top 1% of earners, which in underdeveloped Colombia means anyone earning $2,500 a month or more. Petro is also seeking to revoke tax exemptions given to certain companies under Duque and says a wealth tax could be reinstated and certain pensions should be subject to tax.

Ocampo said he would meet with rating agencies to discuss what Colombia can do to improve its status. Last year, Standard & Poor’s and Fitch downgraded Colombia’s bonds to junk status, although Moody’s kept the country’s credit rating above. This makes borrowing more expensive, with yields on 10-year Colombian government bonds rising from 7% to 12% last year.

The Colombian peso is also weakening, losing 15% of its value against the dollar since Petro’s June 19 election victory. Ocampo said the devaluation was caused by fears of a global recession and interest rate hikes in the United States, which also hit the currencies of other Latin American countries.

The economist added that while the administration will seek to raise taxes, it does not plan to bolster revenues by boosting oil exploration. He said fracking will be banned because of its potentially negative effects on the environment.

Colombia’s state oil company, Ecopetrol, is currently implementing two early stage fracking projects. Earlier this year, the company said fracking projects could add 400,000 barrels of oil a day to Colombian production and secure natural gas reserves for the next 25 years.

Oil is currently Colombia’s main export. But during the presidential campaign, Petro promised to phase out dependence on oil and shift to cleaner forms of energy. He said that as president he would not approve new exploration contracts.

“We will stop depending on oil,” Ocampo said. “But it will also be a gradual process.”

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