According to Petro, the government will not stand still while rates rise. “In the face of interest rate hikes, we must respond with higher tariffs to protect the industry and agriculture sectors, and to protect national work,” he said.
(You may be interested in: The controversy that opens after the proposal to have more tariffs in Colombia)
Precisely, in the Development Plan there was an article that talks about “smart tariffs”.
With the aim of attacking inflation, the Banco de la República began a cycle of interest rate hikes from September 2021, when rates were between 1.75 and 2 percent. Since then they have risen 1,150 basis points to the current 13.25 percent. And since Petro came to power, in August 2022, the rise has been 425 points, since at that time they were at 9 percent.
Rudolf Hommes, Colombia’s former finance minister, explained that raising tariffs to offset rising interest rates would raise the cost of living for Colombians.
“Raise tariffs to counter rising interest rates? Have we gone crazy? That would trigger inflation and turn the Colombian economy into a mess,” he said.
(In context: More tariffs proposed by Petro would increase prices to Colombians: AmCham)
In his turn, José Manuel Restrepo, also a former Finance Minister, said that the proposal to raise tariffs is, at this moment, really inconvenient.
“We are experiencing a high level of inflation, even with a persistent high level of inflation in Colombia, so it is inconvenient because a tariff is a tax and what it aims at is to raise taxes on imported products,” he said.
The Government has been adopting some measures to alleviate the cost of food production.
Santiago Saldarriaga. WEATHER Archive
Restrepo added that the rates at the head of the Banco de la República should not drop so quickly because added to more tariffs and some impacts from the reforms would be sources of new inflation.
“Continuing to beat inflation is key so that the slowdown in the economy does not increase and employment deteriorates,” he said.
According to Restrepo, establishing more tariffs means that more inflationary pressure is sought, which would also be seen in food products.
“These tariffs would also be related to the agricultural sector of the country and also to the industrial sector, implementing this idea would go against the purpose that has been followed in the country to face inflationary phenomena,” he pointed out.
(More: Interest rates and tariffs: the keys to President Gustavo Petro’s address)
For his part, Luis Fernando Mejía, director of Fedesarrollo, assures that although the decision of the Banco de la República impacts growth, it was necessary to avoid an overflow of inflation.
“Inflation increased 23 months out of the last 24 and only reached a ceiling until Marchand what the Banco de la República tried to do was anchor new inflation expectations,” he added.
In the case of President Petro’s tariff proposal, Mejía believes that it is not the right time since it will have the opposite effect on inflation.
