AFTER LEFT-WING candidate Gustavo Petro triumphed in the second round of Colombia’s presidential elections on June 19, businessmen across the country began shifting their savings into dollars and halted their investment plans. Instead, entrepreneurs are looking to Miami or Panama to expand their businesses to survive the impending economic chaos.
“The day Petro won, at night, I gathered the family. We had already anticipated this possibility. That day we decided that we would stop all expansions in Colombia. The following week I was traveling to Miami,” a hotel businessman, who requested anonymity for fear of reprisals against his company, told El American.
All the businessmen interviewed by El American asked that their names and corporations be kept anonymous as they all fear the consequences of speaking out against the new government.
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“I was a week in Miami with my partners. We are going to sell some little things in Colombia to set up something in the United States,” the hotel owner added to El American.
Fear of Socialist Policies
Gustavo Petro’s triumph prevailed despite the concerns he generated among Colombian businessmen as a candidate. This rejection of his proposals among businessmen was portrayed in the voting trend in the Antioquia region (known for being Colombia’s business muscle). Similarly, the country’s largest corporations and great economic powers are concentrated in that region, whose capital is Medellín (Colombia’s second city). The vote against Petro was notable in this district.
Petro, a former guerrilla, came to the elections proposing socialist and populist proposals such as the banning of hydrocarbons and fracking, massive taxes, and takeovers of “unproductive lands,” which were raised under the euphemism of “democratization” of properties. All these measures resurrect in Colombians the ghost of Chavismo and leftist governments in Latin America, which have left economic crises in their countries.
“The fear is rational and is more than justified by the regional experience where similar political or ideological projects have come to power. Just look at what is happening in Chile or Argentina. In addition, in the face of an imminent recession and the current complexity of the international context in which several geopolitical and financial crises are converging, businessmen are waiting for a government that is capable of leading the economic recovery,” Carlos Chacón, academic director of Bogotá’s Institute of Political Science, told El American.
“What is perceived is a protectionist government, which wants to close the economy to industrialize through import substitution, charge more taxes, increase the size of the state, redistribute private property, issue currency to finance public spending, nationalize several sectors and do away with hydrocarbons. The message of businessmen is that the economy is at risk,” adds Chacón.
The ministers appointed by Gustavo Petro do not generate confidence either, but the opposite. Colombia’s new Minister of Agriculture, Cecilia López (an economist and militant of the left-wing Liberal party), told Semana magazine that Petro’s government would not confiscate but would “buy the underutilized lands to distribute them.” And, those who refuse to sell to the government will have to pay much higher taxes than the rest.
“We are going to encourage those lands that have been misused in activities that are not productive, or pay taxes, or become more productive so that they can respond to the needs of the country. The land that is not being used will be distributed,” the minister-designate told Semana.
Massive Tax Increases
Similarly, Petro’s Finance Minister José Antonio Ocampo (the renowned Keynesian economist) has spoken of massive tax increases, hinting at taking it to unprecedented levels. Colombia, however, is already a country with high taxes. As detailed in an extensive study by think tank Libertank, Colombians already work 195 days a year to pay taxes.
The purpose of Ocampo’s tenure as the head of finance will be to penalize Colombians who earn over $2,000 per month with a terrible tax burden. Likewise, Petro’s finance minister proposed a tax on the wealth of individuals.
Luis Guillermo Velez, an economist and professor at Medellín’s EAFIT University, told El American that Petro’s cabinet appointments had deepened distrust of his government. “The announcement of the finance minister did not reassure anyone. José Antonio Ocampo, from the left, said he would seek to raise more than 75 billion. That is almost 40% more. These are outrageous figures,” said Vélez.
“Businessmen are anticipating a monstrous tax reform. None of the ministers inspires confidence. People are anticipating that the economy is going to degrade in a very short time,” Vélez continued.
On condition of anonymity, a cattle rancher businessman told El American that he fears Petro’s government will expropriate his land. “They say they are not going to confiscate, but rather distribute the non-productive lands. I ask myself which official and under what criteria will determine whether land is productive,” he said.
To add to the concerns, Petro’s appointed Minister of Finance suggested in the same interview with SEMANA that the government could force the sale of farms or land used for recreation and enjoyment by their owners based on hefty taxes.
Eying Miami As Financial Refuge
Alexander Rendón, owner of a restaurant chain with a presence in several cities in Colombia that started in Antioquia, had a whole plan to expand and modernize his company. However, he was attentive to the elections, and he decided to suspend his projects in Colombia to seek to invest in the U.S. after Petro’s victory,
“We had already traveled to Miami, Tampa, and Orlando to study the market,” Rendón told El American. “We had plans to open other locations of our company in Colombia, to do a complete modernization and to expand the business, but we suspended all that. Now we are going to target the United States.”
Today, Rendón’s company employs four hundred Colombians and has been in business for more than 30 years. His plans are, in the meantime, to continue in Colombia, not to grow, but to diversify.
“Most of the entrepreneurs I talk to are doing the same thing not only from the gastronomic sector but from all sectors and from all over the country. Most are looking at Miami as an option. Some are going to set up operations there, and many are thinking of investing in real estate,” Rendón told El American.
“Some are also going to Panama,” Alexander Rendón adds.
Economist Luis Guillermo Vélez insists that it isn’t just the prominent businessmen who are moving their capital. “It’s everyone. It is the ordinary citizens. This weekend I toured several exchange houses. They were overflowing, and there were no more dollars. And they told me that people are buying $50. In other words, ordinary people are also taking refuge in the dollar”.
Marta, a shoe store employee who earns minimum wage (less than $300 a month), told El American that she is going to start exchanging everything she makes for dollars.
Since Gustavo Petro won on June 19, the Colombian peso has devalued by more than 18%. It is the most significant devaluation in recent decades. From 3,900 Colombian pesos per dollar, today, it costs around 4,600 pesos. Although many economists argue that international factors are influencing the depreciation, it is undeniable that the currency’s sharp corrosion since the elections is a reaction to Petro’s triumph.
“It is true that globally, the dollar is strengthening against almost all currencies; and that many factors are influencing inflation. But both the Colombian and the Chilean pesos, which leftist governments won in both countries, have been devaluing much faster than other currencies. It is undeniable that Petro’s arrival to power raises fear in capitals. His victory and cabinet announcements are destroying confidence,” said Luis Guillermo Vélez.
For his part, Carlos Chacón thinks that “the dollar is also rising because the markets perceive the arrival of the new government with great concern. The peso has devalued more than many Latin American currencies.”
Due to the rapid devaluation of the Colombian peso and the fear generated by the imminent socialist policies, thousands of Colombians are turning to the dollar as a refuge. What Luis Guillermo Vélez commented about the exchange houses was also reported by El American: just the day after Petro’s triumph, dollars were sold out in almost all exchange houses in Colombia. The owner of one exchange house told El American that it was the first time this had happened in the company’s 18 years.
And the wealth of businessmen, as several commented to El American, finds refuge in cities like Miami.
This week, the Financial Times published an article on how “Colombians look to Miami as Petro election sparks capital flight fears.” The article details that Miami’s “real estate companies in Miami have reported a surge in inquiries from Colombians wanting to shift money out of their country and buy property in the US following the victory of Gustavo Petro, the country’s first truly left-wing president, last month.”
According to the real estate companies cited by the Financial Times, many Colombians are inquiring about “existing homes, suggesting they may be thinking of moving to the U.S. rather than simply investing money there.”
“A year ago, most of the inquiries from Colombians were about projects that had not yet been built,” the Financial Times reads.
Daiana Quintero, vice president of sales for PMG Residential in Miami, told the British newspaper that “after Petro was announced as the winner, we immediately started getting calls. My phone was bombarded.”
RelatedISG International Realty president Craig Studnicky told the Financial Times that many Colombians started contacting his office to move to Miami. “Before, it was pre-construction condos that people were looking for, but now they’re asking what’s available in the resale market. These are not investors per se; these are families.”
Alexander Rendon told El American that, although he is only targeting investing in the U.S. now, he does not rule out that in less than two years, he will end up moving his family. “We’ll see how we do with business in Florida. But it’s a possibility.”
The Future of Colombia
According to many economists, Petro’s intention to end the exploitation of fossil fuels in Colombia, an oil-producing country, would have a lethal impact on the economy. However, some argue that Petro opted for a much more moderate cabinet than his opponents expected to reassure the market. The reality is that, although Petro was Colombia’s first far-left president, was a guerrilla, and became president with the support of the communist group FARC, he has appointed as ministers several former officials of the traditional political parties, such as Cecilia López and José Antonio Ocampo. They were ministers in the governments of Colombia’s Liberal Party in the 1990s.
According to Carlos Chacón, after Petro assumes the presidency in August this year, it is possible “that the dollar will stabilize, but that will depend on external and internal factors. It will depend on the type of message sent by Petro’s government after he takes office.”
“If the signals he sends are of stability, respect for property and investments, moderation and institutional stability, it is possible that the dollar may stabilize,” said Chacón.
Alexander Rendón told El American that he sees it difficult for the economy not to suffer, regardless of Petro’s policies. “His government hasn’t even started, and there are already many businessmen who have decided to stop investing or expanding in the country. They are changing their capital to dollars. This will inevitably have an impact because the economy is circular. This paralysis will be felt in about eight months.”
A businessman consulted who has a food sales company told El American that, although he will stop investing in Colombia and is changing his capital to dollars, he is keeping an eye on what could happen in the next few years.
“I am going to protect myself, reducing my company a bit and shifting all equity to dollars, but it is still early to see if I make big moves. It’s not that I’m naïve; it’s just that I don’t think it will do Petro any good to destroy the country’s economy. I believe, and hopefully so, that in the end, the markets will prevail, and he will have to govern against his incendiary rhetoric,” said the businessman, who also requested anonymity.
And although it is still premature to predict where Petro’s government will go, the reality is that his proposals — which include imposing a wealth tax on the wealthiest people in Colombia, increasing tax collection from the rich and individuals, taxing company profits up to 70%, banning oil and coal exploration, canceling fracking and mining projects— could have a deadly impact on the Colombian economy.
“If you are told that you will be assaulted when you walk down a street, you try to protect what you have. And that is what people are doing,” economist Luis Guillermo Vélez told El American.
Orlando Avendaño is the co-editor-in-chief of El American. He is a Venezuelan journalist and has studies in the History of Venezuela. He is the author of the book Days of submission // Orlando Avendaño es el co-editor en Jefe de El American. Es periodista venezolano y cuenta con estudios en Historia de Venezuela. Es autor del libro Días de sumisión.