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Colombian president abandons tax plan after bloody protests

(Bloomberg) – President Ivan Duque has withdrawn a plan to raise taxes for many Colombians after triggering days of bloody clashes on the streets and a political crisis. Duque renounces some of the most unpopular ideas, such as the extension of value added tax. to additional goods and services and to subject more people to income tax. Colombia needs to increase its income to defend its blue chip credit rating and fight the rise in poverty caused by the pandemic by funding social programs and providing cash transfers to its poorest citizens. proposal to help the country out of a worsening fiscal hole. The nation’s bonds and currency have weakened in recent weeks after the government’s plans were rejected by virtually the entire political establishment, including Duque’s own party. three weeks after its introduction is another blow to Duque and undermines the chances that he ‘will be able to pass further reforms before his term expires next year, said Sergio Guzman, director of the risk analysis in Colombia. The government was already under pressure from days of street protests that left at least six dead. “The government has played too much with reform, lost and is now in a very bad position vis-à-vis the electorate,” Guzman said. “That effectively makes Duque a lame duck.” Colombia is one of the first major emerging markets to attempt to implement significant tax increases to bring its burgeoning debt burden under control. Other countries in the region could face similar challenges as they try to raise incomes in economies that are still ravaged by the pandemic and are far from recovering from last year’s crisis. Latin America are also grappling with deficits that widened during the pandemic, but unlike Brazil, Mexico, Chile and Peru, Colombia’s deficit will widen rather than shrink this year, according to forecasts from the International Monetary Fund. and thus avoid financial uncertainty. “” The reform is not a whim. Reform is a necessity, ”he said. A new bill is expected to maintain measures that protect Colombia’s most vulnerable while increasing taxes for the rich, Duque said. He promised that no one would pay income tax who did not already pay it. Duque also called for a host of temporary taxes, including on corporations, the rich and dividends. He added that people with higher incomes should pay more and that the government should step up austerity measures. Investors have sold Colombian assets since the bill was introduced in mid-April, as they assess increasing the likelihood that the country will lose its investment grade status. . Fitch Ratings and S&P Global Ratings give the country a cut above the junk. Markets are expected to remain volatile in the near term, as the bond yield curve steepens and the peso continues to depreciate, at least until prices rise. investors see new tax proposal, Scotiabank. Colpatria analysts wrote in a note on Sunday. The Colombian currency is the worst performing in emerging markets this year after the Turkish lira and the Argentine peso, according to data compiled by Bloomberg. Decision to abandon the tax plan shows the weakness of the Duque government and its inability to achieve consensus in the legislature, said Camilo Perez, chief analyst at Banco de Bogota. “The markets had already taken into account Colombia’s loss of investment quality, but today’s news confirms this scenario,” Perez said. (Add analyst commentary in 4th paragraph, market expectations in 13th paragraph). For more articles like this, please visit us at Subscribe now to stay ahead with the most trusted source of business news. © 2021 Bloomberg LP

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