The Colombian peso fell the most in the currency as local media reported that Finance Minister Alberto Carascuila was about to resign, saying the government would scrap plans to raise taxes after bloody street protests.
Blue Radio reported that Caracasville and his assistant Juan Alberto Londono would submit their resignations this morning without revealing how the information was obtained. The La Repubblica daily reported that the entire economic party who had worked on the tax bill would also resign.
Refusing to comment on the report, Home Secretary Daniel Palacio told Blue Radio that the government would try to negotiate with political parties to introduce a new tax bill in Congress. The finance ministry has confirmed that President Evan Duke and Carascuila met this morning.
President Duke on Sunday said the government was abandoning a number of unconventional notions such as raising the value-added tax on additional goods and services and bringing more people under income tax. He called on lawyers to reach a consensus on new proposals on an urgent basis to help the country overcome the growing financial crisis.
The tax bill was intended to address the rise in poverty caused by the epidemic by raising revenue to protect Colombia’s investment-grade credit rating and providing funding for social programs and providing cash transfers to its needy citizens.
Local markets reported selling, with the Colombian peso falling 1.9% to ড 361.15 per dollar, the worst performer among all major currencies tracked by Bloomberg. Dollar-denominated bonds also hit, extending the country’s average spread to 1 basis point, the highest in almost a year, according to the JPMorgan index. The country’s five-year credit default swap has risen to a one-month high.
Sergio Guzman, director of Columbia Risk Analysis, said the proposal was another blow to the Duke less than three weeks after the bill was introduced and reduced the likelihood of it moving in favor of another reform. The government has already been under pressure since several days of protests that have killed at least six people.
“The government has given up on reform, lost and is now in a really bad position in front of voters,” Guzman said. “It effectively makes Duke a lame duck.”
Colombia is one of the first large emerging markets to try to implement large tariff increases to bring its ballooning debt burden back under control. Other countries in the region may face similar problems in trying to boost the economy’s revenue, which is still plagued by epidemics and has not recovered from last year’s recession.
Many Latin American countries are also involved in the widening deficit during the epidemic, but Colombia’s deficit, unlike Brazil, Mexico, Chile and Peru, is expected to widen rather than narrow this year, according to the International Monetary Fund forecast.
In a speech to the nation on Sunday, the duke called on Congress to quickly draw up new plans and “thus avoid financial uncertainty.”
“The reform is not a joke. It is important to reform, ”he said.
Duke said a new bill should provide Colombia’s most risky protections when raising tariffs on the rich. He promised that no one would pay any income tax if he had not already paid it.
I have asked Congress to withdraw the project presented Register, And to process urgently, is a new initiative created as a result of sens reduction and with which we avoid financial uncertainty. The key is to be able to guarantee the continuity of social programs. 1/2 pic.twitter.com/kaxzjESqCo
– Ivan Duk (EvanDuk) May 2, 2021
Duke also called for a number of temporary taxes, including corporations, the rich and dividends. He added that higher-income people should be paid more and the government’s austerity measures need to be deepened.
Since the bill was introduced in mid-April, investors have sold Colombian assets because of the possibility that the nation will lose its investment grade status with the possibility of rising prices. Both the Fitch rating and the S&P global rating rate a country above the junk.
“We look forward to a new plan with financial consolidation strategies,” said Fitch analyst Richard Francis. “We always knew that any reform was going to be difficult and wanted to see the final congressional result.”
In a note on Sunday, analysts at Scotiabank Kolpatria wrote that markets are expected to widen the yield curve of bonds and become volatile in the short term as the peso continues to depreciate.
Camilo Perez, chief analyst at Banco de Bogota, said the decision to scrap the tax plan showed the Duke government’s weakness and its inability to gain sensitivity in the legislature.
“Markets had already set prices on the downgrade of Colombian investment, but today’s news confirms the veracity of that scenario,” Perez said.