Colombia’s leftist government has signalled it could row back on its pledge to halt new oil and gas exploration projects, saying it would first examine existing contracts as part of an overhaul of its fossil fuel industry.
Gustavo Petro, a former guerrilla fighter who took office as president in August, made the promise during his election campaign. But finance minister José Antonio Ocampo said in an interview that the government would analyse the 180 contracts before deciding whether to fulfil the pledge.
“Then we will see if new contracts are necessary,” he said. Any energy transition that reduced exports “would have to be gradual” and prioritise gas self-sufficiency, Ocampo added.
Oil and coal together make up nearly half the country’s export revenues.
Since Petro came to power, his government has faced economic headwinds, with the peso losing 20 per cent of its value against the dollar, outpacing most emerging market currencies.
Public finances in Colombia, Latin America’s fourth-largest economy, have remained largely stable despite decades of guerrilla insurgencies, but the central bank now expects gross domestic product growth to slow to 0.5 per cent in 2023 from a predicted 7.9 per cent this year. Foreign investors sold close to $1bn in government debt last month.
But Ocampo — a career economist who has taken a sabbatical from teaching at New York’s Columbia University to serve in Petro’s government — said the prognosis was not as bad as it appeared. He blamed the fall in foreign investment on opposition figures in the business community: “They generate panic and are then victims of that very panic.”
The minister said the government was aiming to reduce the country’s fiscal deficit from 7.1 per cent this year to 4.3 per cent in 2023, partly funded by a reduction in fuel subsidies. Such moves could help Colombia win back its investment-grade status after it was downgraded to BB+ by S&P Global and Fitch last year.
Ocampo also sought to allay fears over a looming balance of payments crisis. Colombia has a current account deficit of 5.7 per cent of GDP, and with a strong dollar and uncertainty in Colombia’s energy sector, analysts have warned of the impact on debt repayments and foreign currency income.
“This country has a long tradition of servicing its debts and that will continue,” Ocampo said. “Next year we are talking about bringing the current account deficit to 4 per cent [of GDP] or less.”
Munir Jalil, chief economist for the Andean region at BTG Pactual, said: “The country needs to show fiscal responsibility in order to convince market participants and offshore investors to buy Colombian assets.”
Petro has urged wealthy nations to abandon fossil fuels. “Governments must put politics in charge to create a global plan to disconnect hydrocarbons immediately,” he said last week at the COP27 climate summit in Egypt.
Petro’s signature tax reform bill, which is expected to become law this month, aims to raise about $4bn next year, mostly with duties on the oil and coal industries. The reforms include cancellation of a statute that allowed oil and coal companies to deduct royalty payments from their tax bills, and a windfall tax on profits.
Industry leaders say the measures risk deterring investors and leaving production hamstrung, while analysts argue the administration’s mixed messaging on fossil fuels has exacerbated the peso’s fall.
Ocampo has sought to temper the government’s stance. When Petro floated a tax on capital flight, Ocampo rebuffed it on social media. Colombia’s newspapers have referred to him as “the adult in the room”.
“Ocampo is a safe pair of hands and one of the most powerful finance ministers in years,” said Jorge Restrepo, professor of economics at Javeriana University in Bogotá. “But he cannot [maintain] the support of the entire cabinet when it is partly made up with people that come from activism.”
Asked how long he planned to remain in the post, Ocampo said: “I have a one-year licence of public service from Columbia, which can be extended for another year. I’m not discarding the possibility of staying on, but this job is exhausting and I’m not a young man.”