- Leftist candidate Petro wins; calls for national consensus.
Leftist candidate Gustavo Petro was elected President in the June 19th runoff election with 11.3 million votes (50.44%), while the independent candidate, Rodolfo Hernández, received 10.58 million votes (47.31%) (chart 1). Turnout was 58.09% (22.66 million) (chart 2), above the 54.91% level in the first round and the strongest turnout observed since the 1998 elections (62.59%) when the conservative Andrés Pastrana was elected.
In a short comment, Rodolfo Hernández accepted the result and appealed to Petro to fight corruption. Hernández will have a seat in the Senate, while his vice-president candidate, Marlen Castillo, will have a spot in the House. President Duque likewise congratulated Gustavo Petro and guaranteed an orderly transition. Former President, Alvaro Uribe, called for all to respect democracy and work for Colombia.
In his first speech as President-Elect, Petro called for a national agreement and dialogue to build consensus to build a peaceful society with social and environmental justice. The president-elect said he will enforce the Constitution to guarantee human rights and work towards an environmentally sustainable economy. For now, he has not revealed specific policies, which should become clearer in the coming weeks. The speech wasn't strongly political, as Petro called for consensus to increase social wellbeing.
Key insights:
- Market effect. In the medium term, global monetary policy will prevail as the main driver for local assets. However, the election results will likely increase short-term volatility. In the case of the FX, we would expect a reverse of the positive movement after the first round of voting, with a spike between 100–150 pesos is possible. Monitoring incoming announcements, especially the composition of the cabinet will be key. In the more positive case, we don’t expect the FX to trade below USDCOP 3,750 as Colombia’s credit rating remains sub-investment grade and the Fed tightening continues.
- Main challenges: The president-elect will lead a country with big challenges on the economic and social fronts. Poverty and inequality increased after the pandemic, while on the fiscal side the new president must ensure social programs are compatible with a sustainable fiscal path.
- The support of the new Congress is needed to overcome polarization: Despite the president-elect winning by a higher-than-expected margin (3 ppts), Gustavo Petro still faces a strong opposition, making it critical that he forge a consensus with the Congress. On July 20, the new Congress takes office, and an important milestone will be the declaration of opposition, neutral and pro-government parties, in which Rodolfo Hernández will play a key role.
- Cabinet composition and especially the next finance minister will be key as they will have the challenge to deal with a very divided Congress. Gustavo Petro’s party, Pacto Histórico, has less than 20% of the total Congress, and he requires more than 50% of Congress to pass his key reforms. During the campaign, Petro said that he will aim for ambitious fiscal reform. Potential candidates to the Ministry of Finance (MoF) include José Antonio Ocampo, Alejandro Gaviria, Cecilia López, Jorge Iván Bula and Ricardo Bonilla, all of them would be viewed favourably by markets. Other key posts to watch are the Defense Minister, Minister of Mining and the Chancellor.
- Colombia has a strong institutional background. The three main powers: Presidency, Congress, and the Courts traditionally shielded Colombia from sudden changes in macroeconomic and political rules. We think that this framework will prevail and that looking for consensus will be key.
- Strong changes need more massive support. It is worth noting that the population is not demanding a change in the Constitution, which puts Colombia in a different scenario compared with other regional partners, such as Chile. Either way, in the case of an elected government aiming for a constitutional change it must count on with the support of 55 out of 108 votes in the Senate, 95 out of 188 votes in the House, approval of the constitutional assembly, and 75% of votes of the Electoral Census (29.3 million votes).
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