Colombia’s newly elected President Gustavo Petro is politically left-leaning. How far remains to be seen.
Juan Barreto/AFP/Getty Images
Colombia is physically located between Venezuela and Brazil. With the election of its first left-wing president, the country of 51 million seems to be wedged politically between its two neighbors.
The spectrum of the Latin American left is broad. Two outstanding personalities of this century are Hugo Chávez, who tore Venezuela into a disastrous dictatorship, and Luiz Inácio Lula da Silva, who as President of Brazil from 2003 to 2011 more or less embodied democratic socialism. Investors are not surprised by his possible return to power in October this year. “Lula is a pragmatic populist,” says Alberto Ramos, head of Latin American economic research at Goldman Sachs.
Gustavo Petro, who won Colombia on 19 June, could be a role model either way.
Two other left-wing election earthquakes in Latin America were relatively mild. Gabriel Boric, a student protest leader who jumped into Chile’s presidency, has shown himself to be a “dedicated democrat who will not blow up the base of the Chilean economy,” says Brian Winter. is Vice President for Policy at the Society/Council of Policy of America. America.
Pedro Castillo, the leader of the Marxist-Leninist Free Party that came to power in Peru, has also barked more than bite. “Castillo isn’t very visible personally, but he has appointed people to be responsible for running the economy,” notes Winter.
Petro, 62, brought with him a longer but not necessarily more comfortable track record. Former teenage guerrillas and political prisoners in electoral politics for three decades have not calmed down, opponents fear. “He’s a very messiah man, a very ideological man,” says Andres Pardo, senior Latin American macro strategist at XP Investments.
Petro has praised Chávez in the past and has campaigned for the declaration of an “economic state of emergency” that would allow him to rule by decree. He vowed to sack the board of state oil company Ecopetrol (Ticker: EC) and halt new exploration contracts in the name of going green and reducing reliance on mineral exports. That would be a non-trivial move for a nation that exports more than 500,000 barrels a day and has plans to increase.
Markets will certainly go through a bearish phase during the Petro presidency, which officially begins in August. The Global X MSCI Columbia Exchange Traded Fund (GXG) is down a quarter this month. The peso fell 8% against the dollar.
Optimists believe the Petro will be constrained by the democratic institutions that Colombia has created over the past half-century. The Colombian Humana party of the president-elect clearly does not have a majority in Congress. The central bank is protected from interference, the constitutional court is known to be blunt.
Once the checks and balances are settled, the asset should improve, says Thierry LaRose, portfolio manager for emerging market local bonds at Vontobel Asset Management. “We like Colombia,” he says. “The massive sell-off is over.”
Colombia’s new leader also faces the same obstacle as his Latin American allies: reality. The current political wave is hearing the “pink tide” of the elected left led by Lula and Chávez in the early 2000s. Only this group enjoyed a tailwind sky: a commodity supercycle fueled by a boom in China, historically low interest rates and liberal credit markets.
Petro & Co. is reeling from the indebtedness of its predecessors and decades of inflation, not to mention commodity prices that could peak. “The wave of the 2000s came at the right time,” says James Bosworth, founder of Bogota-based consulting firm Hexagon. “These people are at the wrong time.”
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