Colombia to push ahead with tax reform after peace plan rejection

Despite a hit to the Colombian government’s standing from the rejection of its peace plan, the country’s finance minister says he can still get through the measures needed to preserve its BBB credit rating.  

The importance of the planned tax reform bill means it will pass into law, Mauricio Cárdenas told LatinFinance in an exclusive interview. 

“The stakes are high,” he says. “If we don’t get the tax reform passed, we may lose our rating. We may also have to cut very sensitive social programs. We may also put at risk the competitiveness of our economy because one of the aspects of the reform is to rebalance the tax structure and reduce taxes for employers, corporations. 

“There are too many things that could happen if the reform is not approved. That’s why we’re fully committed.”  

Before the referendum, it was expected that a swell in popular support for Juan Manuel Santos’ administration from approval of the peace agreement would ease the way for a difficult tax package to pass. 

Now there is a concern the package cannot pass, says Ramón Aracena, chief economist for Latin America at the Institute of International Finance. 

“It’s not an insignificant risk,” Aracena says. “The political conditions are not there anymore to raise taxes or cut spending. A watered down reform might go through – but peace was going to be a boost in such a big way.”

Cárdenas admits there is room for negotiation on the specifics of the tax reform bill, but says the government understands its importance to the country’s sovereign rating. 

“Keeping the BBB rating is our major objective,” he says. “We do that because we know it’s good for cutting our interest payments and making sure we save money that we can invest in social programs or infrastructure. But it’s also a way of reassuring investors that the economy will continue to be well managed, that we have responsible policies. So we put a lot of emphasis on the triple-B rating.”

Cardenas adds that the country has “done most of its homework” when it comes to other elements necessary to retain its rating, including improving the current account deficit, inflation and debt-to-GDP ratio.