Why Gustavo Petro’s economic program is not viable

What the presidential candidate has coined 'Economic Policy for Human Colombia' is central thesis on all economic approaches

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Petro-economía
For Petro, Colombia’s economy focused solely on the export of oil and coal.

Gustavo Petro’s recent surge in Colombia’s presidential polls has set off alarms in the country’s manufacturing centers, who worry his economic policy in practice is unfeasible.

What the presidential candidate has called am ‘Economic Policy for a Humane Colombia’ peddles the claim that Colombia needs to get out of the oil and coal model, ” we commit to making the reforms that historical liberalism failed to fulfill, “he says.

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The presidential candidate of the left, an ex-guerrilla of the M-19, has said that to achieve industrialization of the country, major changes at the macroeconomic level are needed to propel what he calls an agro-industrial model.

Petro suggests that those who claim his government would turn Colombia into a Venezuela are unaware that the economy is already organized almost identically to that of its neighbor.

“The fear of turning Colombia into a Venezuela is unfounded, it’s already taken place,” he says.

For Petro, the Colombian economic model is focused on the almost mono-export of oil and coal.  For him, this focus is a result of the mining code issued in 2001 under the Government of former President Andres Pastrana, which he opposed when a representative in Congress.

For the candidate, this law brought on a traditional political caste which was, in his opinion, deepened by the two governments of former Presidents Álvaro Uribe and Juan Manuel Santos with support from by former Vice President German Vargas Lleras.

“We propose moving towards a model that turns Colombia into an agrarian and environmental power and allows the integral development of the industry. That is to say, we propose the opposite of what has been the norm in both Venezuela and Colombia today. “

He has said that the greatest enemy of industrialization is the unproductive ‘latifundio’, or large private land holdings, which he insists on heavily taxing. Petro considers that the ‘non-utilization’ of these lands generates “the degradation of salaries and stability, the renunciation of the education of society and the lowering of oil and coal export revenues “.

Petro’s justification for taxing large land holdings is that they only generate rent and not “production” profits, “minerals, coal, oil, and land are not the result of the production process,” he said,”they are simply there”.

The prohibition of cocaine alongside foreign income from rising oil prices, the ex-official of Bogota claims,  produces what is called the Dutch disease.

“The productive return of the Colombian agriculture with its 15 million hectares that are already fertile -of which only six are used-, implies a new management of water from the perspective of climate change, implies rebuilding the institutions responsible for agrarian knowledge, and credit from the public banks. That must be financed by the big cities and the external savings, and the democratization of the land “.

At the same time, Petro says that Uribism (Alvaro Uribe Velez) and Vargallerism (German Vargas Lleras) seek to keep the unproductive ‘latifundias’ in the hands of drug dealers or a large business, without even acknowledging that Colombia already enormous inequality in the fields, that its fields are nothing more than kind of bloody late-feudalism.

Petro also points out that his economic vision is compatible with the global experience of industrialization in countries such as the US. UU., Russia, China, Japan or Korea, which have begun a broad agrarian reform in order to modernize the field.

“All Colombian economic policy is built to segregate the peasant and literally annihilate him, to decrease real wages, for outsourcing or removing the surcharge for night work, or removing job stability, turning working women into victims of sexual harassment of their bosses and generally condemning to professionals and workers to the hell of three-month contracts, reduces the domestic market and does not allow industrialization. “

In summary, he proposes a process of industrialization that involves reforming agriculture, encouraging ‘cooperativism’ and ‘associativity’.

How Petro Plans to finance his “reforms”

Petro wants to have government promote public banking, ‘reduce’ rents,  take on tax reform, substantially increase the budget for public education, and reform the pension system. But how will implement these changes?

Speaking with La FM on February 5th, when asked about the way he would finance his economic package, he said, “(…) we are going to put that expense up on the list of priorities, and from there on down we are looking”. Without hesitation, Petro eluded the answer.

Economist Alberto Bernal told the PanAm Post that Petro’s proposal promises to end tax collection tied to oil industries and mining, which are the country’s main sources of resources to pay for public education.

Bernal warned that if Petro becomes president, the share price of Ecopetrol, the country’s main mining company dedicated to exploring, producing, refining and commercializing hydrocarbons, will tubmle.

“It is very clear that Petro has never heard the story of the companies Verengo Solar or SunEdison, companies that are experts in solar energy that went bankrupt in 2017, because that business is very risky. What the hell does Ecopetrol know about solar energy? Who will direct that effort? ” he said in reference to the presidential candidates wish to switch the country’s focus to “renewable” energy industries.

At the same time, Bernal explained that mining in the country spends a lot less water than spends sectors such as agriculture and livestock. In addition these two pay very little in taxes, unlike legal mining.

“Another great idea of candidate Petro, if he wins, will be to expropriate pension savings to workers in Colombia, as did Cristina Fernandez de Kirchner in Argentina with disastrous consequences for investment and the development of capital markets,” he said.

According to Jaime Castro, former mayor of Bogotá, “Petro’s statist and entitlement-oriented policy could be financed by Venezuela temporarily when it produced four million barrels a day of oil. Colombia’s is below one million. “

Meanwhile, the concerns of the economist Luis Alberto Rodriguez, master in economic policy, are focused on the same point; financing.

“From what candidate Petro has called the Economic Policy Proposal for Human Colombia I would highlight two facts. The first is that he has a relatively assertive diagnosis, since problems such as the high dependence on primary goods are undeniable in the Colombian economy. However, in his proposals it is not clear how he will solve it and that is the second fact: they are promises that are not very credible. “

He added, “He said that the State should increase the budget for industry, agriculture and public education. That may be desirable, but it is not sensible to believe that a president can do it from one day to the next,” said the expert.

For the business administrator Jean Karlo Torres, one of Petro’s fundamental pitfalls is the change of the energy matrix towards solar energy, without mentioning the way he will do it.

“Colombia is already recognized as a superpower in a renewable energy generation that has a clean energy matrix. The country’s energy matrix depends almost 70% on the use of water for the generation of electricity through hydroelectric plants “.

Torres explained that the Colombian market is already diversifying the environment with its energy matrix. And he highlights that this has been done despite the current regulations that delay the introduction of solar and wind technology on a large scale.

“What the energy matrix in Colombia needs is the freedom to continue diversifying amicably. However, this libertarian approach is not available within Petro’s ideology, “he said.

Chavez and the expropriation of unproductive land

The same thesis advocated today by Petro was applied by former President Hugo Chávez in Venezuela, not in terms of taxes but as a pretense to expropriate those lands that were not used for their ‘productive’ purposes.

In a video circulating on social networks, Chávez is seen explaining the signing of a decree of forced eviction for the Polar company within an industrial park in the city of Barquisimeto. He did so, he says in the video, in order to create housing for the citizens of that area.

Chávez’s argument for expropriating the land was that this company had assigned this property to a beer deposit and that it was in a populated area. “This is what bourgeoisie and what the bourgeois state is,” said Chavez referring to the properties of Polar at the time.

With this precedent as a backdrop, Andres Moreno, Consultant in Risk Management and trader, told the PanAm Post that if Petro wins the elections in 2018 the Colombian citizen has two options left.

“1. He sells everything and leaves the country, or 2. He stays and takes the side of the government to get rich in the short term, before the country breaks down and is the ruin for the rich … and the poor, “he said.

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