This content was posted on May 3, 2021 – 11:49 PM.
BOGOTA (Reuters) – Colombia’s finance minister has resigned and the country’s currency, bonds and stock markets tumbled on Monday after President Ivan Duque withdrew a tax reform proposal deemed important to financial stability.
Duquet withdrew the offer on Sunday after strong opposition from lawmakers and deadly street protests that caused uncertainty in the market and comments from the rating agency Moody’s.
“My tenure in government will make it difficult to reach the necessary consensus quickly and effectively,” Treasury Secretary Alberto Carrasquilla said in a statement, warning that Colombia’s macroeconomic stability would be “severely eroded” without reform.
Duque said on Twitter that Commerce Minister Jose Manuel Restrepo, an economist, will become finance minister.
The President said tax reform is still needed and a new proposal will be made by consensus among business leaders, political parties and civil society.
The withdrawn proposal, originally meant to generate more than $ 6 billion in revenue, was to increase taxes paid by individuals and businesses, increase sales taxes, and remove incentives and deductions.
The Colombian currency fell 1.38% to a six-month low of 3804.95 pesos per dollar. Since the tax proposal was sent to Congress on April 15, the peso has depreciated by 5.34%.
The yield on government bonds in September 2030 rose to 7.245% from 6.92% in the previous session, while the country’s main stock index COLCAP fell 2.72%.
Market participants said the lack of clarity on when the new proposal will be ready and how much it will aim has raised doubts about whether the plan could be approved before the end of the legislative session in June.
The delays will make it difficult to communicate the fiscal consolidation to investors and rating agencies if the Andean country hopes to avoid a downgrade.
“On the markets side, we think that canceling the tax reform proposal will increase volatility, and this could steepen the yield curve and, in the short term, lead to further depreciation of the Colombian peso until President Duque presents a new proposal,” said Sergio Olarte , chief economist at Scotiabank in Colombia.
According to Moody’s analyst Renzo Merino, the withdrawal of the tax proposal is negative in terms of credit due to the uncertainty it creates about the government’s ability to get approval for fiscal consolidation measures in the medium term.
The rating agency will consider the factors that led to the country’s downgrade to negative rating outlook last year, Merino said, with particular attention to the prospects for tax reform.
Market participants said that any reform will face heavy congressional struggles, but securing stakeholder support, as Duque promised, could be the way forward. Any approved proposal is likely to generate less revenue than the government originally anticipated.
Trade unions and other groups have called for continued protests. There is no exact death toll yet, although official sources have confirmed about 17 deaths, including one policeman.
(Reporting by Nelson Bocanegra in Bogota; additional reporting by Rodrigo Campos in New York; screenplay by Julia Simms Cobb; editing by Will Dunham, Andrea Ricci, Paul Simao and Sam Holmes)