The two great phenomena that shook the country’s economy in the year that ended were: the rise that climbed the 12.5 percent from November 2021 as of November 2022, and more than 25 percent in food only; and the harsh increase in interest rates of 12 percent, caused precisely to stop the rise in prices.
For the Minister of Finance, Jose Antonio Ocampo2023, on the contrary, will be characterized by a drop in inflation and a drop in interest rates.
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Ocampo is very optimistic about the coming year. When I tell you that other institutions, like the same Bank of the Republic, believes otherwise, the senior official admits that his “forecasts are pessimistic.” The dialogue begins by asking him for a brief definition of the economy today:
“There is very positive news, but also some complexities,” he replies, adding: “Economic activity has been very positive. According to our estimate, we are going to grow 8.2 percent. It is one of the highest records in the world.”
But signs of a slowdown are already being felt…
Yes, and they will develop more strongly in 2023. Perhaps the most complex thing is the inflationary context that we have experienced largely due to international effects, but exacerbated by the weather issue with the floods, which have affected the production and transportation of products This has generated very high food inflation that has affected poor households.
On the subject of slowdown, is there a risk of recession?
If the most pessimistic forecasts are given, which are those of the Bank of the Republic, we may have a negative quarter or two. The Government is more optimistic and in any case, even with slow growth, the level of economic activity in 2023 will be one of the best in the world.
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And what do you attribute it to? What do you think is going to happen?
First, due to the strong reactivation of the country’s non-oil exports, which will be accentuated in 2023 due to the trade with venezuela. The second factor is that of real wages, which are going to increase in 2023 because inflation is going to drop to 7 percent. Real wages will have greater purchasing power. That is a factor of internal demand. Third, the weather conditions that, according to the Idea, they would change in February or March, and that would allow the reactivation of the agricultural sector, also with the support of fertilizer subsidies. This lowers inflation, and another positive factor that I would mention is the increase in public spending due to the tax reform, which will also contribute to domestic demand. We expect interest rates to drop. That is my map of optimism.
What is the growth estimate for 2023?
The official is 1.3 percent. In my optimistic range, I would say between 2 percent and 2.5 percent. In agriculture, growth in 2022 was negative.
How can food production be stimulated?
There will be a 20 percent subsidy for fertilizers financed with a loan from the World Bank. We hope that this will contribute to the reactivation of the agricultural sector.
We are importing a lot of food, right?
A lot of. Too much, I would say. We cannot become large importers of corn. That is a national shame. There are plans to become less dependent on imported corn, as well as soybeans and other foods.
And also the problem of scarcity of inputs and fertilizers…
We are going to produce more fertilizers. It is possible on a large scale, in Monomers.
Are we going to buy monomers?
There’s a possibility. You have to see the cost and if there are legal problems with the United States so that monomers can operate without legal restrictions.
But which company would buy Monomeros?
A company could be made that is partly bought by Ecopetrol and partly by private investors who would be interested in being partners.
You spoke at the beginning of a possible negative growth in the next few months. How might the population be affected if that happens?
In the weakening of employment, which in some way has already begun to be seen, although the drop in the unemployment rate has been very positive.
How will trade and industry be affected by the slowdown?
Trade is going to be affected because it depends on demand, which is going to drop. The industry emerged from the sector. Manufacturing has had great growth.
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Industry and commerce have called for an end to the increase in interest rates…
That is what I hope too. Even more: if December’s inflation shows a reduction, I think the Banco de la República does not rule out interest rates.
To what extent will the decision made by the Federal Reserve in the United States influence?
I believe that the United States can also stop the increase in interest rates. For us that is very important, because it is very difficult to go in a different direction than the one United States Federal Reserve. In any case, I am sure of something, if there is an increase it would be very moderate in January. I even think there would be a rate reduction later in 2023. If the December injection is positive, that would convince a majority of the Board to stop the rate increase.
With the application of the tax reform, how much will the fiscal deficit be reduced?
By 2022 it will be 5.5 percent of gross domestic product and will drop to 3.8 percent.
As soon as the tax reform was approved, you announced a modernization of the departmental and municipal tax system. What does it consist of?
It is that we are going to correct a historical contradiction. We have made many national tax reforms and, however, the last important territorial tax reform was in the government of Belisario Betancur, that is, 40 years ago. There is a lot of criticism: the multiplicity of small taxes. They can be removed. The industry and commerce tax is anti-technical.
Because it means taxing the same good or service several times. It is necessary to give the departments a dynamic tax. In the Betancur reform they were given part of the vehicle tax. It will be necessary to see what more can be given to them. Work is being done in parallel on the tax on the undervaluation of cadastral assets.
And what are you planning to do on that issue?
The cadastres of the country’s horrible are far behind and hence the origin of this program that the last government began and that we are going to promote to hopefully finish it during this government. It is what is called the multipurpose cadastre. The big cities, Bogotá, Medellín or Cali, have a disaster that is updated on its own initiative. But many municipalities have outdated cadastres.
Regarding the cadastre, what will be the increase?
By 2023 it is 4 percent at the urban level and 3 percent at the rural level. This was the subject of much controversy, but curiously, according to the Danish, real estate increased 4 percent. I have my doubts about the accuracy of that number. But that does not affect the cities that have their own cadastre, which have the autonomy to decide.
Mr. Minister: what are we doing with respect to gas? Will there be import?
Our gas reserves will increase significantly in 2022. This is an opportunity to become a major fertilizer producer, since its main input is gas. Even, as the Minister of Mines and Energy said, Irene Velez, We could become exporters of gas. Oil reserves may also have been reached. There will be a strict energy transition, but maintaining oil exports at levels that will allow us to have the foreign exchange that the country needs. Look: coffee was overwhelmingly dominant in the export sector and experienced an international price crisis in the mid-1950s. Then the whole policy of what was called the promotion of minor exports was put into operation, and a super-successful transition was lost. That transition took 15 years. I would say that oil will also last about 15 years.
But then we are going to continue exporting coal, oil and gas?
We are going to continue exporting oil. Coal is the dirtiest fuel. If we become exporters of gas, it would be wonderful. That’s not immediate, because the gas reserves could only be turned into production in a few years.
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Now, Mr. Minister, how do you see the future for the pension reform?
The most important elements for the Ministry of Finance are the following. The first issue is to give an income to all the elderly who do not have a pension, especially the poorest. Second, Colpensiones have some workers up to a certain salary level, which will have to be defined. Above that there will be pension funds, but there could also be a public entity eventually participating in the capitalization system, which will now be complementary to Colpensions. These funds must follow the requirements of government debt securities, an essential issue for public finances.
People are complaining a lot about the very high level of usury rates, which is probably the interest on credit cards…
They are very high indeed. It will be examined to see if anything can be done.
In the additional budget project that you are going to present for the distribution of the 20 trillion pesos of the tax reform, will the wage increase for any public sector be maintained?
There will be a small item, which will take inflation into account, so as not to reduce real wages in the public sector. Today we have contemplated in the budget an increase of 10.5 percent, an item that is lower than inflation. Then an adjustment will have to be made to at least compensate for inflation.
Is the decree to readjust public salaries coming?
Of course, at the beginning of the year.
The dollar, what happened with that volatility it had?
Well, October was a complex month in terms of volatility, due to international conditions, but also due to expectations generated by statements from the Government. What we see later is that these problems have been clarified and the exchange rate has stabilized between 4,700 and 4,800 pesos. That is more or less going to be the exchange rate that we project for 2023. The Bank of the Republic is more optimistic: it speaks of a rate of 4,400 pesos on average.
What is the most economically important thing you expect for 2023?
The most important thing is the opposite of what happened in 2022: instead of more inflation and high interest rates, we expect less inflation and lower rates.
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President Petro and you traveling to Davos in two weeks. What is it about international taxation that you hope to raise there?
I am very obsessed with consolidating a Latin American tax bloc. The objective is to propose, from Latin America and the Caribbean, a complementary agenda to the OECD agreement, to achieve a more inclusive, sustainable and equitable global taxation. Latin American governments must be much more active in cooperating with each other. In this context, in Davos I am going to launch this initiative. Then there will be several phases. At the beginning of March I will be in Chile at the CAF meeting and I will propose to the Minister of Finance of that country that we be the leaders. We will have a forum in May and a Latin American summit in Cartagena in July. The fundamental purposes are aligned with our international tax policies to reduce competition in countries to attract investment, to maximize the exchange of information between tax authorities and to consolidate a position of block in the global tax debate. That is immediate mission.
Special for EL TIEMPO