It is not true that an additional tax reform was the solution to avoid losing the investment grade and if it had been, it does not mean that maintaining the rating would imply a dollar or interest rates much lower than the current ones.
May 19 will go down in history as the second time that Colombia lost investment grade. And if expectations are met, a second rating agency, Fitch, will join Standard & Poor’s (S&P) decision even before the end of the semester. With this, our history will say that we lost the investment grade in 1999, we recovered it in 2011 and it went away again in 2021. A dance of decades that confirms the importance of the event.
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However, the question is whether Colombia truly woke up to be a different country on May 20, the day after the rating agency’s announcement.
The short answer is not so much. Although it would be better not to have lost it, most of the trends that we are experiencing today without the degree we were already experiencing before. Our Government has been paying interest rates higher than any country with the same investment grade for years, Colombia had one of the most devalued currencies in the world before presenting the first tax reform of 2021 and global inflation this year raised our rates of interest four times more than the S&P announcement.
This does not mean that the ratings do not matter, only that its noise must be reduced to its proper proportions.
First of all, 90% to 95% of foreigners who lend to the government are not restricted by investment grade. This means not only that Colombia has achieved a base of large institutional investors who literally came because they wanted to, but also professional enough to understand in advance the deterioration of our numbers.
In other words, behind a narrative in which Colombia, thanks to the fiscal rule and a tax reform every 18 months, defended the investment grade, the reality is that since 2017 the market decided to raise the country’s interest rates due to mainly because our debt never stopped rising.
So if you think about it, the low impact of the loss of qualification is not because it is not important, but because for some time we have been paying the costs of our high dependence on the ups and downs of raw materials and a tax regime that wins all the prizes of the OECD: the least collected, the most regressive and the most complex.
All of the above to reinforce various ideas. First, it is not true that an additional tax reform was the solution to avoid losing investment grade and if it had been, it does not mean that maintaining the rating would imply a dollar or interest rates much lower than the current ones. As it did not happen with the three previous reforms since 2016.
Follow the news of El Espectador on Google NewsOn the optimistic side, it should also be noted that in a global environment of low rates, the interests we pay today are still lower than those paid in the last decade while we had investment grade.
Second, it’s not that we don’t need reform. Just not one designed to calm rating agencies, who openly say they don’t care how we square the box. But a structural one that stops showing the checkered dog that we are in international standards: low collection, a lot of people and companies hidden from the treasury, others taking advantage of its complexity, very high exemptions and very few people and especially companies carrying the bulk of the collection . However, everything seems to indicate that this is not the tax that would come in the short term.
Third, it is important to stop blaming a single government, demonstrations or the lack of reform for the loss of investment grade.
This qualification thing is a relay race. Iván Duque loses a level in his four years of presidency and Juan Manuel Santos and Álvaro Uribe gained one in each of his eight years. The current performance is as criticizable as not having run faster in twelve years of strength in raw materials between 2002 and 2014.
In this historical aspect, the real failure is not to lose the degree in 1999 and to lose it again in 2021. At the end of the 90s we were the second best risk in the region after Chile. Today we are the fifth, where we only beat Venezuela, Argentina, Bolivia, Ecuador and Brazil, and three of those countries were bankrupt very recently.
Let’s end the 2021 situation. The dollar will be pushed up until a second rating agency joins the S&P decision, at which point the loss of the grade will be official and we would have forced bond sales of 5% to 10% of the total have foreigners.
In this context, inflation is the real blow to watch. Not only because of the rise in the dollar, but because it was already surprising to the upside before and together with the strikes, it is very likely that it will reach 4% at some point in the year. Not only do prices affect a consumer trying to get off the canvas, but they will eventually end up with the lowest interest rates in our history.
The final message is that, beyond investment grade or a new tax reform, it is important that in the midst of discontent we can reach agreements, where one of them is that debts have to be paid, even later than expected. .
* Manager of economic research at Alianza Valores.
