Business | 2/15/2011 12:00:00 AM
Not so spoiled
Several of the economic decisions made by Santos’ Government upset many entrepreneurs. Is it the beginning of the end of the president’s honeymoon with the private sector or just a change of style?
Businessmen certainly were not wrong. Santos has shown that he is in favor of private business, and he knows that to fulfill his promise of bringing prosperity to all, he requires a strong and growing economy and an equally vigorous and allied private sector.
His government program is focused specifically on driving many leading sectors, called locomotives, to allow companies to move in a more competitive environment.
In addition, Santos has been promoting the country’s economy in every international forum he attends. He is committed to make Colombia a member of the Organization for Economic Cooperation and Development (OECD), which would allow the country to join the club of the outstanding economies.
However, this does not seem to be enough for keeping all the entrepreneurs happy. In recent months there has been discontent in some economic sectors that have felt affected by decisions taken by several ministers. It is becoming clear that some of them are beginning to take distance, even though they do not say it openly.
The most obvious impact is the one that the Finance Minister, Juan Carlos Echeverry, is holding with the bank sector. Several of the measures included in the tax reform, approved last year, were not favorable for the financial sector. The government sought to plug some holes that would have been used to avoid the bank tax (called four per thousand), and the bankers did not like that, because they felt accused of not wanting to pay the tax, while claiming to be the sector that pays more taxes in this country and always acting according to what the law allowed.
The truth is that the government knew it would step on big toes, but with its promise of not raising tax rates and the urgent need for increasing the revenue, it was necessary to plug holes and eliminate exemptions. And indeed, since these decisions were made, the income from the ‘four per thousand’ doubled.
The fire went on with the issue of financial services. In the same tax reform, the government included an item that allows them adjust the rates when it is presumed that the entities are abusing in the prices. Bankers believe that this is an unnecessary intervention of the government in the free market. To make things worse, the Minister Echeverry made public his opinion that some banks charge very high fees for financial services, which was not pleasant at all to the president of the Colombian Banks Association, María Mercedes Cuéllar. This was interpreted as if they were being accused publicly.
Another reform that bothered the private sector was the reduction of tariffs. The decree rang the alarm bells for producers of footwear, leather, textile, among others, who believe the government, rather than encouraging domestic production, like other countries, is striking them.
The government’s argument is that it made the tariff adjustment as a measure to curb the revaluation of the Colombian peso and look for more competitiveness. But entrepreneurs did not understand it well and raised their voice of protest. “In the end we were left with revaluation and tariff reform, which affects the entire textile chain”, said a businessman in the sector, clearly upset.
And not to mention the disappointment felt by entrepreneurs in the mining sector, one of the engines of development that was ‘spoiled’ by the Uribe government. A few weeks after the Santos government started, the cracking began. The spark appeared to be the elimination of the deduction of the 30 per cent of income tax for reinvestment in fixed assets, adjusting the tariff and the establishment of a withholding tax for payments on debt abroad. All mining companies protested, with the argument that these measures increased operating costs significantly, as they are practically the sector that is leading the Gross Domestic Product.
Concern reaches such a point that mining companies decided to create their own spokesperson, alternate to the ANDI, union that traditionally gathered the major mining companies in the country. This job was assigned to Claudia Jiménez, who had worked as a counselor to President Uribe in economic matters, and now is head of the Large-Scale Mining Sector, an organization that defends the interests of these companies.
Several local and foreign mining companies have indicated that if the measures are nor adjusted, that could force them to revise their investment plans in Colombia. Claudia Jiménez thinks that competitiveness requires stability in the game rules and those have changed lately.
Another relationship that has broken during this government is the one between the flower growers and the Agriculture Minister, Juan Camilo Restrepo. Last year, the Minister publicly denounced the bad use of some of the support given by the government to the floriculture sector, and that prompted an angry protest of Asocolflores, the association that gathers them. The point is that the ministry was much more severe with the requirements to provide support with public money. The relation is not in the best terms because the flower growers feel that the government presented them as a guild that is accustomed to ask things to the state, and, while Uribe helped them, this government points at them.
Even though many entrepreneurs are upset that some ministers decided to make public the discrepancies, the truth is that, so far, all this confrontations with the private sector was more a media matter than a real fact. But last week, the truckers decided to strike and the confrontations came to reality.
President Santos has supported his minister and already warned the entrepreneurs, assuring them that he will not accept the pressures of a strike. This pulse will measure the strength of the government to push through a reform that the country has to make because it has taken away a lot of its competitiveness.
And the truth is that for now, President Santos has shown that he is not afraid to take measures that can step on powerful interests. He demonstrated it by reviewing the minimum wage adjustment from 3.4 percent to 4 percent, an unprecedented event in the country.
That angered the entrepreneurs so much, that the president of the Andi (National Association of Colombian Entrepreneurs), Luis Carlos Villegas, reacted critically against the government. He said that this decision denotes a certain weakness of the rules. To Villegas, this will affect the confidence in the decisions of the government’s economic team. “What if we had come to an agreement with the unions to set the minimum wage and the inflation had been different? Would the government have also decided otherwise?”, asked Villegas very annoyed.
Many other decisions have caused unrest in the industrial sector. It is known that they have not liked that while they gave away one of the most attractive advantages granted to them by Uribe, the 30 per cent exemption from income tax for reinvestment of profits, Santos has not fulfilled all he promised. For example, the government announced the dismantling of the surcharge of 20 percent of energy, but eventually deferred to two years. According to the accounts of many manufacturers, the impact in 2011 will be minimal. In contrast, with the economic emergency caused by the winter, they will be the most affected because they will be the major contributors of resources for the reconstruction.
Is this the beginning of the end of the honeymoon between the government and the private sector? It is hardly conceivable that a man emerged from the private sector will face the sector in a so definitive manner. Clearly there are differences, but they rather may be attributed to a change in the style of relating to the private sector, which comes from an eight years long honeymoon with the government.
Differences in form and not in substance
Uribe was a pro-business and pro-market president, very generous with the private sector. Some think he was exceeded when giving them advantages granted under one of his primary policies, the investment confidence.
In his particular style of relating with the private sector, Uribe liked to meet with the entrepreneurs directly, and some people say that he would consult with them before taking decisions and, sometimes, adjusted his measures to avoid discouraging them. “Uribe’s government listened to us even though sometimes he did not do what we were asking. Santos’ minister do not even listen to us”, said a consulted industrialist.
The entrepreneurs were so identified and well treated by the previous government that Uribe was an idol in the union meetings. With Santos, things have been different, and his government has not been so complacent with them. Unlike the past, it is not easy to get to talk with the president. Several of the difficulties have been publicly aired by the ministers and the government have taken some steps that clearly are not liked by the private sector.
For many, the difference is more form than substance, as Santos knows how to push the private sector. For example, despite the Minister Echeverry’s public discussion with the bankers, the government revised the methodology for calculating the usury rate, a long-standing demand of the sector. And although he says that he will not accept pressures from the truckers strike, he gave a month to discuss the decree that eliminated the freight table.
To make the difficult economic reforms, the government must press hard at first, but knows that it will have to make peace later. One element that may be behind some decisions that affected the pocket of private enterprise is the urgency of the government to achieve substantial resources to address the catastrophe provoked by the winter.
Santos is well aware that he needs the private sector as an ally. He has demonstrated that with the winter emergency, by calling employers who participated in the successful reconstruction of the ‘Coffee Region’ after the 1999 earthquake, to assist in the care of the current winter emergency. The man named to manage the money for all this works comes from the private sector: the former president of Bancolombia, Jorge Londoño.
It is a fact that Santos knows that it is not convenient to generate malcontents with the private sector and he does not want to have any frictions between his ministers and the entrepreneurs. We know, for example, that in the case of the confrontation between the Finance Minister and the bankers, he does not want to get in fights with the financial sector.