Viernes 29 de Septiembre 2023
In In
Left-wing candidate Gustavo Petro, the frontrunner in Colombia's presidential elections in May, has vowed to stop new oil exploration, tighten mining regulations, hike taxes and change the pension system. (Photo: Twitter/Petrogustavo)
Wednesday, March 16, 2022
Trade Talk

Colombia Business: The Petro Threat

Leftist candidate gains ground ahead of presidential elections in May.


Gustavo Petro – the leftist Colombian politician who is scaring local and foreign investors alike – has strengthened his hand ahead of the May presidential elections.

Already the clear frontrunner in all polls, Petro’s group garnered the most votes in internal primaries (5.4 million votes) on Sunday than the right (3.9 million) and center (2 million).

“It looks like candidates in the center were the big losers in this election,” Sergio Guzman, Director of Colombia Risk Analysis, a political risk consulting firm based in Bogotá, told Associated Press. “They showed divisions during the campaign and were not effective at getting voters to the polls.”

Meanwhile, in legislative elections, Petro’s Historic Pact alliance won the most seats in the Colombian Senate along with the Conservative Party (16 each), followed by the Liberal Party (15).  In the Chamber of Deputies, Historic Pact became the second-largest group along with the Conservative Party (25 seats each) after the Liberal Party (with 32 seats).


Colombian oil companies Ecopetrol and Canacol led losses on the stock exchange BVC after Petro's strong showing in elections, La Republica reports.

“Petro's signature policy of ending oil exploration, if implemented, would affect exports …and FDI over time, while nearly 10 percent of government revenue comes from the oil sector,” Fitch Ratings warned in a statement March 15. “This would be negative for the sovereign's fiscal and external accounts, and economic prospects."

Oil is Colombia's main export representing nearly 55 percent of the country's total exports. Roughly 40 percent of the foreign direct investment that flows into Colombia goes to the oil and gas industry.

“Petro has stated that he wants to end Colombia's reliance on oil and ban fracking [and] wants to halt further oil exploration in the country, a measure that may breach exploration contracts concluded with various foreign and domestic companies (since 2018 Colombia has concluded 33 oil exploration and production contracts with companies other than Ecopetrol, the national oil company), as well as the country's obligations under international investment treaties,” White & Case said in a recent overview.

If enacted, Petro’s oil and gas measures would negatively impact the credit quality of Ecopetrol, Frontera Energy, Gran Tierra Energy, and SierraCol Energy, Fitch warns in a separate analysis.


Colombia has historically welcomed direct foreign investment into its mining industry, White & Case point out. As a result, foreign investors hold roughly 46 percent of the country's existing mining concessions, and foreign-owned projects represent 70 percent of the country's total mining production.

“Petro has signaled that he would depart from that pattern, tightening the administrative, environmental, social, labor and tax regulations governing the mining industry,” White & Case says. “For example, in a major change of the existing rules, Mr. Petro has vowed to restrict open-pit mining, which would greatly affect, among others, the production of coal, Colombia's main mineral export.”

Despite the country's traditional support of the mining industry, over time, several foreign investors have brought claims under international investment treaties in relation to State measures affecting their operations.

“If Mr. Petro's plans were to materialize, we would expect a significant increase of mining-related investment treaty claims against the State,” White & Case predicts. 


Petro has also pledged to hike taxes and change the pension system.

“Petro expects to replace revenues that Colombia would lose by crippling its oil industry with revenues from higher taxes on the wealthy, increased tourism and an enhanced green energy industry,” White & Case says. “The latter is expected to generate significant inbound investment opportunities for green energy companies.”

Petro also wants to reverse earlier tax reforms that should start to deliver revenue benefits next year and Colombian corporates are likely to face higher taxes and increased regulation if Petro is elected, Fitch warns.

Colombia's pension system includes a private capitalization component modeled after the Chilean pension system, in which private pension managers collect, manage, and invest workers' mandatory contributions for a fee. Petro has called for taking the pension savings entrusted to private pension managers and using them to fund policies such as paying a "social security bonus" for retired citizens and free higher education for half of Colombia's young population, White & Case points out.

“Given these risks, foreign investors would be well-advised to take timely steps to ensure the international protection of their investments, including by preserving claims against Colombia under international investment treaties,” the law firm says. “Concrete steps that investors can take include assessing their rights under international investment treaties, documenting significant developments, and taking care that their rights under international investment treaties are not lost, for instance, by ensuring consistency of their public statements and any claims before Colombian administrative or legal tribunals with their rights and obligations under international investment treaties.”


Even if Petro were to win, he would face several
checks and balances, including a fragmented legislature, Fitch says. The center right and right account for approximately 55 percent of the Camara de Representantes (lower chamber) and the 64 percent of the Senate.

“A fragmented Congress makes consensus-building necessary to pass legislation, regardless of who wins the presidency,” the ratings agency points out. “This supports our view that Colombia's broad policy framework will remain intact because institutional checks and balances are likely to prevent policy radicalization. An independent central bank and autonomous judicial system will also provide checks and balances to the executive.”

DoubleLine Emerging Markets Fixed Income Fund co-manager Su Fei Koo agrees.

If Petro takes power, “there are institutional safe guards in place; he may not be able to get all his radical policies through congress,” she told Bloomberg.

Petro has said that Colombia's 'economic emergency' would justify enacting a process that allows making law by decree for up to 90 days.

“However, the Constitutional Court, which must rule on the constitutionality of such decrees, could be a constraint,” Fitch says.


Although there are 10 candidates in May, Petro’s key rivals will be former Medellin mayors Federico Gutierrez (from the rightist Team Colombia) and Sergio Fajardo (from the centrist Hope alliance). The presidential candidate of the ruling Democratic Center party, former finance minister Oscar Ivan Zuluaga, dropped out and is supporting Gutierrez.

If no candidate garners more than 50 percent of the vote on May 29, a second round will be held in June 19 with the top two vote getters.

“Today’s political landscape is vastly different from the last election cycle in 2018 and is marked by economic impacts from the pandemic, higher levels of unemployment and broad social discontent,” Fitch says. “As a result, the country’s massive protests have impacted economic activity and pressured the government’s policy agenda. The right wing arrives to elections weakened, with no clear leader and high disapproval levels for President’s Ivan Duque administration. Nevertheless, given the fragmented political positions, a less polarized center candidate could emerge bringing together different political wings to defeat Gustavo Petro in the second round.”

© Copyright Latinvex


More Colombia Coverage 

More Trade Talks   


  Other articles in : Trade Talk
Back to Trade Talk