Gustavo Petro and Bruce Mac Master during the Colombian Economic Congress in Cartagena (Colombia), in December 2022.RICARDO MALDONADO ROZO (EFE)
The Government of Gustavo Petro, the National Association of Entrepreneurs (ANDI) and the Banking Association joined forces this Monday to make a joint call to the Bank of the Republic: to reduce the reference interest rates, which stand at 13.25%, their highest level in 23 years. Finance Minister Ricardo Bonilla assured in a press conference with the leaders of the two unions that the group was requesting the cut because the inflation process “has reached its limits” and it is time to “restart the economy.” Inflation in Colombia fell to 11.8% in July, three-tenths less than the previous month, from 13.2% at the start of the year.
The request, as ANDI President Bruce Mac Master explained, is based on the discussions that the government and union leaders have had in recent months and on the fact that prices “have fallen”. In a rare show of unity, Mac Master and Asobancaria President Jonathan Malagón shared the table and microphones with Minister Bonilla. The three jointly presented the letter that was sent to the board of the Banco de la República, an independent body that sets the interest rate.
Malagón, an economist who served as housing minister for Gustavo Petro’s predecessor and political rival Iván Duque, stressed that Colombia has “the inflation phenomenon under control,” adding that the country is on track to meet its inflation target next year in the long term to achieve —set at 4%—. A reduction in interest rates by the Bank of the Republic, the head of the bank explained, would improve the economic situation by 2024 and show citizens that “liquidity conditions will be favorable in the coming months.”
President Petro has repeatedly criticized the interest rate hikes that the Bank of the Republic’s board began in September 2021 to control inflation caused by the post-pandemic recovery and the war in Ukraine. The same strategy has been used by central banks around the world – including in the United States and Europe – to mitigate the impact of rising prices. Last year, the president pointed out that there were better alternatives to combat inflation and that the bank’s “real intention” was to stop the flight of capital, which, if there were no high interest rates in Colombia, would be encouraged by the rate increase. In the United States.
After these statements, he got into a dispute with his then finance minister, José Antonio Ocampo, who supported the increase in the meetings of the bank’s board of directors, of which the minister of that branch is a member. A few months ago, in May, the President reiterated his demand, saying it was the government’s responsibility to limit the damage due to the high monetary cost. “Rate hikes endanger the entire productive economy,” he said.
The cooperation between the government and businessmen in this Monday’s request contrasts with the general tone of the long year of Petro’s presidency. Just in the last few weeks, the president has stopped them twice by postponing the dates of a meeting with the National Council of Trade Unions – a forum made up of 32 unions, including those led by Malagón and Mac Master. He also did not follow the tradition of attending the ANDI Congress held in Cartagena in the middle of the month – although he went to the city on the day of his invitation, he never arrived. However, at the forum, businessmen welcomed the intervention of Attorney General Francisco Barbosa, one of the president’s main rivals.
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The government and unions resolved the differences last Tuesday with a meeting between Petro and union council members. The president of ANDI reported days later in an interview with EL PAÍS that the interest rate was one of the points on which they agreed. “It is an issue on which we agree. “I am convinced that the interest rate is not the best tool to reduce inflation in Colombia, because the pressure on price increases is not demand,” he explained. “We can together ask the board of the Banco de la República to examine this possibility,” he said. That’s exactly what happened this Monday.
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