Roberto Junguito, Colombia’s finance minister, outlines to Karina Robinson plans to cut the budget deficit which await a ground-breaking referendum.
Where is Roberto Junguito’s ego? Colombia’s finance minister, disingenuous and delightful, seems to have misplaced it. In the first year of his second stretch in the job – the last time was in the mid-1980s – this 60 year old has little left to prove.
In a 26-year career in public office he has, among other roles, headed up the well-respected local think tank Fedesarollo, been Minister of Agriculture, spent eight years as a director on the board of the central bank and been a prestigious alternate executive director at the International Monetary Fund.
He was reluctantly brought back to temperate Bogotá from being the country’s representative to the Washington-based IMF because a presidential panel of former ministers named him as the ideal man to take on the hard task of taming the government’s finances and funding the state. He is respected and trusted by many Colombians.
The key issues for the government are security and spending, and this Princeton-educated gentleman convinced president Alvaro Uribe that the economy was just as important as the public safety crisis. Colombia is estimated to have lost an annual 2% of GDP over the last decade due to violence.
Country held hostage
Mr Uribe was elected to solve the security situation which has made a great deal of the country a no-go area other than for terrorists, paramilitaries and drug traffickers. The tragedy is that a country with a population of over 40 million is being held hostage by about 30,000 guerrillas and paramilitaries who finance themselves comfortably from the drug trade.
“From the beginning we took the President-elect to see the US government and the multilaterals. We first got immense support from the US for the security side and that helped with getting the multilaterals on board,” says Mr Junguito.
“We then adopted the reforms and then there was the IMF agreement,’’ he adds. (This is the abbreviated version of a 15 minute discourse. He went on to such an extent, with lots of meanderings down other paths, that I was forced to tell him he was ‘enrollandose’. At that point he suggested we change to English, a language in which – he assured me – he is more direct. Needless to say, neither the language change, nor the directness, lasted long. But it is all part of the charm.)
Crucial reforms
As a result of this impetus and the backing of the president, crucial reforms on pensions, labour and tax and a restructuring of the state were approved by Congress, while the government’s external funding needs for 2003 were covered by the end of January, and multilateral agencies including the World Bank pledged $9.5bn over the next few years.
The main criticism of the government is that it has made changes on the revenue front while the problem is on the spending front. So taxes are going up, but spending cannot be cut more until a crucial referendum is approved. And even the law to restructure and cut the size of the state will not have a major impact for at least two years. Public debt is 47% of GDP.
The referendum, which dominates the pages of the Colombian press, “has turned into a monster where the political risks could be huge,’’ says María Angélica Arbeláez, deputy head of economics at Fedesarollo.
Referendum worries
It has 30 questions on absurdly complicated issues ranging from the terms for mayors to state financing. The Constitutional Court – a powerful institution in a country that is almost as constitutionally overdeveloped as Switzerland yet has the acute problems of a developing nation – has been researching the legal technicalities for months now.
“The government will say it can find other ways to deal with overspending but the referendum is key. It is Colombia’s first attempt in 10 years to deal with the problem. If it can’t be done with the amount of political capital this government has, then there is no hope,’’ says Michael Gavin, Latin America economist at UBS. He adds: “Junguito needs to be a salesman for the referendum.’’
Laid back
The collector of 19th century stamps is not a lover of publicity, however, unlike his predecessor Juan Manuel Santos who called press conferences at the drop of a hat.
Of course Mr Santos has presidential aspirations, unlike Mr Junguito who instead sighs contentedly when talking of his days as Ambassador to France: “The best position! I hope to have it again!’’ Bankers say he has offered to resign a few times when not getting his way in government – thus ensuring he does get his way, as it is clear he would not be bothered if he lost the job.
Yet he insists that he will manage to lower the budget deficit to 2.5% this year from a better than expected 3.6% through (cue laughter) “having fights with my colleagues.’’ The method – although not necessarily the result – seems unlikely. (He has other, softer tactics. One hard-nosed private sector banker says of him that “he is so laid back he gets everything he wants from us”.)
Mr Junguito insists the referendum is not crucial to the government as the cuts envisaged in it are only “0.7% of GDP so it is the lesser part of the fiscal adjustment”. In fact, it is the second largest structural reform item. In any case, he has an alternative plan which involves freezing state spending and civil servant salaries by decree, as well as eliminating pension anomalies.
Still, if the referendum fails, then it is difficult to see how this government will manage to bring many of the measures included in it back to Congress with any credibility.
Growth forecast
Growth of 2% is forecast for 2003, a forecast which private sector commentators had said was too conservative, but one which is now looking more accurate as the country’s second largest export market, Venezuela, has all but collapsed. Meanwhile, Colombia’s largest trading partner, the US, continues to give the country preferential treatment as part of its fight against drugs, while the devaluation of the Colombian peso provides an added bonus to exports.
Nonetheless, a great deal of the growth is coming from a release of pent-up domestic demand on the back of the increased physical security of President Uribe’s administration. Construction and manufacturing are growing strongly. Yet this effect may well be hindered by unemployment at over 20% in the major 13 cities and an increase in taxes over the next few years.
In fact, some of the tax changes for 2005 may have to be brought forward if the referendum fails. Also, there is the as-yet undetermined effect on consumer confidence of the February terrorist bomb in the Nogal club in Bogotá.
In addition, the government’s inflation target looks unrealistic. Some economists say over 6.5% looks likely, which is why the central bank recently raised its prime rate 100 basis points to 7.25%.
Meanwhile, the government’s focus on security has seen it increase expenditure on the military and the police while, with US help, it is also eradicating coca crops at a faster rate than its predecessors. But the technocratic finance ministry is asking them to account for these funds in ways that must be a shock, with Mr Junguito having recently returned from a presentation to the military on how they are being measured and how their productivity is improving.
Press relations
His relations with the local press appear to be the least satisfactory aspect of the job. He has been criticised for not getting along with them. “I think it is a just criticism. I feel it is not one of my strong points,’’ he admits. “But I try to see the press only when I have important things to say. I don’t like to inflate things. But I am sociable,’’ he adds, rather sweetly.
One banker says Mr Junguito has a nadito de perro – the dog paddle where one only sees a face and no action, although under the surface the legs are moving steadily. “Junguito is totally focused on where he is going,’’ he says.
The evidence of his stint in office lies in the country’s spreads. In October 2002 after the government took office and with worries over Brazil’s economic policy, they stood at 1100. They were around 540 recently.
Finally, though, Mr Junguito does seem to have found his ego, or more accurately, that of his team. “I don’t want to be arrogant but the finance ministry has done the most [of any ministry] since we have been in government. We have the best team,’’ he says, with not a small measure of satisfaction.
