(Bloomberg) -- A prominent lawmaker behind a bill that spooked Colombian markets this week said congress is discussing ways to limit its fiscal cost.
The proposed constitutional reform is meant to decentralize the economy by boosting transfers to regional governments. Colombia’s bonds and currency sold off this weak as investors fret over the fiscal cost of the measure.
Green Party Senator Ariel Avila said congress is discussing ways to limit these transfers, which will moderate the fiscal cost.
As it stands, the reform would require the government to transfer 46.5% of its revenue to cities and provinces by 2036, from 26% currently. Avila, an ally of President Gustavo Petro, said in a phone interview that lawmakers are discussing whether to lower the transfers to something closer to 40%.
Avila said fears of soaring debt are unfounded, and that the measure will ease the spending obligations of the national government.
“If you increase the responsibilities of a regional institution, you cut the burden at a government level,” Avila said Wednesday.
Congress is also discussing whether to phase in the changes over a longer period, he said. It is also preparing another bill to assign duties to mayors and local governors to ensure they don’t replicate tasks carried out by the central government.
Asset Selloff
A central bank board member, some economic research centers, and even the government’s economists at the finance ministry and planning departments have said the proposal is fiscally unsustainable. Colombian assets extended a selloff Wednesday after Interior Minister Juan Fernando Cristo said the government will proceed with the bill despite the fiscal warnings.
Avila said the reform is needed to address the nation’s “geographic apartheid”. Some towns in remote provinces lack independence and sometimes run out of cash to complete payroll payments, he said.
The senate will meet on Monday to vote on the reform. If it passes, it will very likely be approved in full, since the government’s allies have a majority in the lower house.
Avila said there is adequate support in congress to ensure the bill passes.
The committee that oversees Colombia’s fiscal rule, or balanced-budget act, estimates that, in its current form, the reform would increase debt by 15 percentage points of gross domestic product by 2036.
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