(Bloomberg) -- Progressive governments in Latin America are doomed to fail unless they ensure macroeconomic stability, according to Colombia’s new finance minister.
In a presentation to finance executives earlier this week, Diego Guevara, argued that leaders who understand this, such as Chile’s Gabriel Boric and Uruguay’s Jose Mujica have a better record of helping vulnerable citizens than leftist governments that spend recklessly and ignore the impact on investor confidence.
Guevara, a former economics professor, was appointed finance minister on Wednesday after Ricardo Bonilla stepped down amid corruption allegations.
Guevara, who was still deputy finance minister at the time, said Tuesday that the government of President Gustavo Petro is committed to adhering to the fiscal rule, or balanced budget act. The government will take the necessary steps to reassure investors.
“We, being respectful of the constitution, adhere to the fiscal rule,” Guevara said at the event, where he was standing in for Bonilla who was originally scheduled to speak.
Having served as deputy minister since Petro took office in 2022, Guevara expressed confidence that Colombia will meet the fiscal rule through greater-than-anticipated spending cuts and by under-executing the budget. He said that that 2025 will present challenges for public finances and indicated that further adjustments will likely be needed to meet fiscal targets.
Tight Deadline
The new minister has just three weeks before the end of the year to persuade lawmakers to raise taxes. Colombia forecasts that the budget deficit will widen to 5.6% of gross domestic product this year, from 4.3% last year.
Guevara suggested that the fiscal rule should also take climate change and environmental costs into account.
“In general, the rules are not static; they evolve over time,” he said. “The fiscal rule needs to be reassessed in terms of environmental sustainability.”
More Room to Cut
In a 2021 article, Guevara criticized the central bank board as insufficiently “pluralistic”, saying its members mostly had similar backgrounds and shared the same “orthodox” opinions. Now, as minister, Guevara will chair the bank’s policy meetings.
In his article, Guevara said the bank should adopt a “less obsessive” attitude toward inflation to prioritize economic growth. In recent months, Bonilla and Petro have also argued for faster interest rate cuts.
Although sectors such as banking, real estate, and construction are beginning to recover, Guevara said that that real interest rates remain too high.
“There is still plenty of room for interest rates to fall,” he said.
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