(Bloomberg) -- Colombia’s government wants to shake up the central bank whose policies it blames for the weak economy by appointing young economists with “fresh” ideas.
President Gustavo Petro, who has repeatedly expressed frustration over the bank’s refusal to cut interest rates faster, must change two members of its board by February at the latest. He may also increase the number of women policymakers, according to Finance Minister Ricardo Bonilla.
“We want generational change,” at the bank, Bonilla said Tuesday, in an interview in Bogota. “The number of women needs to increase, but we have not yet identified who to change.”
The central bank has repeatedly ignored calls by Petro and Bonilla to accelerate the pace of monetary easing to revive the weak economy. When the new appointments take office, Petro will have named a majority of the board, and some economists fret that this may lead to a looser monetary policy stance before inflation pressures are fully tamed.
Petro named one board member, Olga Lucia Acosta, last year, as well as Bonilla himself, who sits on the policy committee.
Bonilla didn’t elaborate on what fresh ideas the new appointments might have. In 2022, when he was still campaigning for the presidency, Petro said he would name to the central bank economists with a “background in production” who could move monetary policy toward boosting output and employment.
Economists are split over whether the bank will accelerate the pace of rate cuts this month and cut its key rate by three quarters of a percentage-point.
Starting in December, the central bank has cut interest rates by 2.5 percentage points to 10.75%. Bonilla and one other board member have argued that Colombia’s inflation problem is largely solved, and have voted for a more aggressive easing at recent meetings.
Inflation slowed to 6.1% last month, its lowest level since 2021, though still above the 2% to 4% target range.
Fuel Subsidies
The government aims to completely phase out expensive fuel subsidies by the time it leaves office in 2026, Bonilla said. This month, the nation suffered its biggest outbreak of unrest since Petro took office when its attempt to raise the price of diesel led truckers to blockade cities and highways across the country.
Bonilla said the government will negotiate with truckers to solve problems related to the renewal of the vehicle fleet and freight costs, and will resume diesel price hikes next year.
“We want to hand over to the next government with this issue resolved,” Bonilla said. “We will hand it over to the next government back on a sound footing.”
Budget Cut
Weak economic growth and lower-than-expected tax revenue have undermined the nation’s fiscal position. The government’s proposal of a 523 trillion-peso ($125 billion) budget for 2025 would require tax hikes to meet the shortfall in funding.
The Finance Ministry presented a bill to increase taxes on rich individuals and on carbon emissions. Bonilla wants to reach an agreement with lawmakers to hike taxes, but said the government would cut spending as a last resort if congress doesn’t approve its financing bill by the Dec. 31 deadline, or approves it only partly.
“Cutting the budget is not among our first options,” he said.
Some economists have expressed concern about the government’s proposed “green” amendment, which would allow the government to bypass spending restrictions for projects with environmental objectives from next year. Bonilla said the changes is justified to protect the environment.
“If we are in the process of combating climate change, these types of projects need to be identified and given preferential treatment,” he said.
--With assistance from Robert Jameson.
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