BOGOTA, Colombia — An economics professor named Colombia’s next finance minister says the leftist government that takes office next month will focus on raising taxes on the rich so they can spend more on poverty programs.
“We want a Western European type of capitalism,” he said. “It is not a capitalist system where the distribution of wealth is among the most unequal in the world.”
Ocampo, a Columbia University economist who headed the United Nations Economic Commission for Latin America, was recently asked by leftist Gustavo Petro to be his finance minister when the former guerrilla fighter is inaugurated on August 7.
In an interview with The Associated Press on Tuesday, Ocampo pledged that Petro’s administration would be fiscally responsible and stay away from radical changes in monetary policy even as it seeks to increase tax revenues.
The new administration won’t have a majority in Congress on its own, so Petro has been somewhat successful in getting other parties to support his programs, although he will likely have to make compromises.
Ocampo said Petro’s leftist coalition wants to raise tax collections by roughly $11 billion each year through a plan that would increase the nation’s tax revenue by about 25%. He said that the additional funds will go towards building roads in rural areas and implementing education and health care programs to reduce social and economic inequalities.
That could be a tough sell. Last year’s attempt by the current government to collect $8 billion in taxes, mostly from the middle class, sparked nearly two months of sometimes violent protests and forced the finance minister to resign. In the end, President Ivan Duque adopted a more modest $4 billion tax plan that avoided raising personal income taxes.
Petro hopes to sidestep the political turmoil by targeting the incomes of corporations and the country’s wealthiest individuals.
Ocampo said income taxes would be increased only for the top 1% of earners, which in underdeveloped Colombia means anyone earning $2,500 a month or more. Petro is also seeking to end tax breaks given to some companies under Duque and says the wealth tax could be brought back and some pensions should be taxed.
Ocampo said he will meet with rating agencies to discuss what Colombia can do to improve its status. Last year, Standards & Poor’s and Fitch downgraded Colombia’s bonds to junk status, although Moody’s kept the nation’s credit rating above that. That makes borrowing more expensive, and yields on Colombia’s 10-year bond have jumped to 12% from 7% last year.
The Colombian peso is also weakening, having lost 15% of its value against the dollar since Petro’s election victory on June 19. Ocampo said the devaluation was caused by fears of a global recession and rising interest rates in the United States, which also hit the currencies of other Latin American countries.
The economist added that while the administration will seek to raise taxes, it does not plan to increase its revenues by boosting oil exploration. He said fracking would be banned because of its potentially negative effects on the environment.
Colombia’s state-owned oil company Ecopetrol is currently pursuing two fracking projects that are in the initial stages. Earlier this year, the company said fracking projects could add 400,000 barrels of oil a day to Colombia’s production and secure natural gas reserves for the next 25 years.
Oil is currently Colombia’s leading export. But during the presidential campaign, Petro promised to gradually end dependence on oil and turn to cleaner forms of energy. He said he would not approve new research contracts as president.
“We will stop depending on oil,” Ocampo said. “But it will also be a gradual process.”