(Bloomberg) -- Colombian President Gustavo Petro promoted Deputy Finance Minister Diego Guevara to fix the most serious fiscal situation his government has yet faced.
Guevara replaces outgoing minister Ricardo Bonilla who quit on Wednesday amid a corruption scandal in which he denies wrongdoing.
Guevara has fought to curb the deficit to ensure that Colombia isn’t “drowned” by global bond markets, Petro told reporters in Uruguay, where he is on a state visit.
The new minister has just three weeks before the end of the year to persuade lawmakers to raise taxes. If he fails, the government will be forced to implement painful spending cuts in 2025, or risk overshooting the deficit limits established by the nation’s fiscal rule.
According to his resume on the finance ministry’s website, Guevara is an engineer with a PhD in economics from Bogota’s National University.
In an article published in 2021, he called for a more “pluralistic” central bank that could have a “less obsessive attitude toward inflation in order to prioritize growth”. In Colombia, the finance minister is a voting member of the central bank’s policy committee.
“I think he will try to send the right signals to ensure macroeconomic stability,” Armando Armenta, a an emerging market strategist at AllianceBernstein.
Colombia’s currency and local peso bonds have sold off in recent weeks, as investors fret about the fiscal outlook. On the same day that Bonilla left office, the government failed to fully sell a green bond offering, which investors typically favor.
Widening Gap
The widening fiscal gap was caused by lower-than-expected tax revenue and a surge in spending.
The finance ministry forecasts that the budget deficit will widen to 5.6% of gross domestic product this year, from 4.3% last year.
Bonilla backed Petro’s calls for faster interest rate cuts, and his energy policies. But he also won investors’ trust by taking politically-unpopular decision such as phasing out fuel subsidies and cutting spending.
However, his position weakened following a scandal when an adviser accused him of having known of lawmakers approving loans in exchange for government contracts that personally benefitted them.
He said in a video that he was confident investigators would find him innocent.
(Adds Bonilla quote in final paragarph)
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