Colombia’s finance minister has left the catastrophe of tax reform

Colombia’s finance minister resigned on Monday as the government had to withdraw a very unusual tax reform bill in which it sparked street protests that killed 17 people in six days.

Alberto Carrasquilla said he is stepping down to get the government to reach the necessary consensus to push for a tax reform package through Congress. President Ivan Duque he said Carrasquilla would be replaced by Trade Minister José Manuel Restrepo Abondano.

The government last month presented a tax reform bill designed by the former finance minister to the Colombian congress. It aimed to raise $ 1.4 million or $ 4.1 million in gross domestic product, eliminating some exceptions and expanding the tax base, among other things.

But a few days later, the parties that supported the changes to the tax code were also rejected. The party’s right-wing democratic center asked the president and his finance ministers to adjust the bill.

Last Wednesday, thousands of people took part the streets in protest. The size of the demonstrations caught the Colombian government by surprise and shocked the organizers, who extended it for several days. Protests are becoming more violent and the government has expanded the army to regain control in some cities.

The state ombudsman’s office said Monday that 17 people, including a police officer, were killed in the riots and another 846 were injured, including 306 civilians. The defense minister said left-wing guerrilla groups had “pre-conceived, organized and funded” the violence.

The duke said on Sunday that his government would present an alternative tax bill to Congress, and announced some measures it could take.

These included interim measures, such as a corporate tax surcharge, increases in Colombian wealth and dividend taxes, and additional spending cuts. The plan to increase the value added tax on goods and services will be suspended.

“Now the new bill would be transitory in nature. . . this means that it is weaker to disclose the country’s commitment to adaptation, “Citibank analysts wrote.” This will have a negative impact on the rating agency’s decisions. “

The tax reform is the most important piece of legislation in Colombia this year. The level of investment in the country depends on this.

Both Fitch and Standard & Poor’s have valued Colombia’s triple B with negative outlook for long-term debt issuance. That’s just an indentation that is uninvested or above the garbage situation. Moody’s rated Colombia Baa2, more than two notches more than garbage.

If the tax reform efforts fail or are diluted, there is a good chance that Colombia will fall from a small group of Latin American-level investment nations that includes Mexico, Chile, and the United States. Peru.

That would be a blow, even if it was his country a long civil conflict and well-chronicled legitimacy, has been proud of its fiscal fairness. In stark contrast to most nations in the region, Colombia has not defaulted on debt since the 1930s and has had a level of investment since 2011.

Although the withdrawal of the tax bill and Carrasquilla’s resignation could ease tensions, protesters have promised to return to the streets on Wednesday.