For this, the Central Bank of Colombia (Banco de la República) reduced the intermediation ratio from 4.5% in March of 2020 to 1.75% now, while the rate for credits, without no government control, continues to be the same as before the pandemic, over adjusting household, and microbusinesses indebtedness, among others.
Besides it reduced the cash position–a percentage of deposits received that can’t be used– making it possible for brokers to buy public debt bonds in the secondary market; guaranteeing private currency hedging operations and acquiring financial liabilities of difficult recovery 1.
Finally, it denied the possibility of performing direct emissions to the public sector, which would have been a support to the implementation of a basic income which a large number of informal workers and unemployed people urgently needed in a country so unequal and poor as Colombia (chart 1), or to improve the conditions of hospital and healthcare centers.
Read more: Colombia, a tax haven for the wealthy (In Spanish)
The fiscal policy followed the same purpose. All the resources allotted by the budget for the pandemic were scarcely 2.65% of the GDP, of a total budget of 4.45%, and 1.8% was not executed, for which Colombia would have destined the lowest emergency amounts in the world to tend to the COVID-19 pandemic.
Likewise, 80% of the help was delivered to large economic groups and its corporations, such as the Formal Assistance Employment Plan (PAEF, for its Spanish acronym), designed to provide payroll subsidies. Of 1,500,000 SMEs (small and medium enterprises), just 9% had access to it, while 80% of the 3,851 large corporations received it. Among the companies that received this state subsidy were economic groups such as the Sarmiento Group, a group headed by Jaime Gilinski Bacal, the Ardila Group, the Santo Domingo Group, and the Echavarría Family of Antioquia2.
The pandemia ended up producing a social debacle, a significant setback for the reduction of poverty and inequality.
In the case of GDP per inhabitant, Colombia fell back to 2013 (chart 2).
This bias in monetary and fiscal policy, added to the pro-wealthy and pro-pressure groups of the tax policy, means privatization of public resources through benefits and fiscal exemptions to cover a structural fiscal deficit, which is covered fundamentally with public debt.
Official statistics show that the internal public debt is Col $395B, of which de 88% correspond to long-term TES (public debt bonds). In 2021 (11%) and 2022 (10 %) they need to repay close to Col $82B (21%). For 2021, 34% correspond to TES, while for 2022, 100% are TES.
In reference to external public debt, the total amount is Col $245B, of which 4 % should be repaid in 2021, 1% in 2022, and 4% in 2023.
Among the composition of the sources of external debt are bondholders, which absorb 6 9% of repayments in 2021, 0% in 2022, and 50% in 2023. Meanwhile, we need to repay the IBD 13% in 2021, 40% in 2022, and 16% in 2023.
Read more: Public debt bonds: What are they and what are they for? (In Spanish)
Total public debt closed at 61.4% of the GDP (some Col $619.59B) at the end of last year, which although is not an alarming number, compared to the debt levels of other countries, it impacts expense allotments considerably, as in the budget for 2021, the amount programmed for servicing the debt is Col $70.5B, a considerable increase compared to 2020, which was Col $53.6B.
This has led credit rating agencies (Moodys, S&P global, and Fitch Ratings) to maintain in December past a rating with a negative perspective, pressuring for tax reform to guarantee payment of the public debt. The International Monetary Fund (IMF), which authorized the county to use a Flexible Credit Line for up to US $17,000 million, although for now has not demanded conditionalities, has stated the economic policy of the country for the next few years as in “observation.”
This explains the stubbornness of the Government for imposing a regressive tax reform amid the dramatic public healthcare conditions and the regression of quality of life that most Colombians are enduring and the statements in favor of the proposal of the Head of the Board of Central Bank and economic trade associations.
The human tragedy that the country lives, as well as the context of income concentration, demands different proposals, as the records of the National Tax and Customs Administration (DIAN, for its Spanish acronym) indicate that 51% of the gross income filed by natural persons is concentrated on the highest income decile, 10; the income of the most wealthy 1% is 294 times larger than the income of people with lesser income, and the income of 1/1000 wealthier is 1,300 times higher than the 1 decile.
Besides, the Palma ratio, (ratio of the richest 10% of the population’s share of gross national income divided by the poorest 40%’s share) is 5, i.e., the income of the wealthiest 10% is 5 times the income of the 40% of the tax filers of lesser income. If this same ratio is calculated in terms of income filed per capita with respect to 1% and the 1/1000 wealthiest, we obtain values of 90 and 400; besides, this is the result of a Gini Coefficient of 0.6157.
In summary, we need to look for better alternatives to the orthodoxy with which the Government has managed the monetary and fiscal policy to face the economic recession, reduce poverty and improve income redistribution.
1 Pioneer operation in Latin America, similar to one of the U. S. Federal Reserve System (FED) for the 2008 economic crisis endorsed by metropolitan central banks and called Quantitative Easing.
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