COLOMBIA: Petro appoints ally as finance minister
Germán Ávila Plazas has been sworn-in as Colombia’s new finance minister as was widely expected following the resignation on 18 March of his predecessor, Diego Guevara, who had only been in the role since December [WR-25-11]. Like President Gustavo Petro, Ávila has a radical background as a guerrilla fighter during his youth, although he has spent most of the last three decades working in social housing.
A key question for bond markets is whether Ávila will, like Guevara, push hard for cuts to cover a Col$12tn (US$2.9bn) hole in the 2025 budget. A disagreement with President Petro on this issue was reportedly the reason for Guevara’s exit. Guevara apparently demanded a spending freeze that was rejected by Petro, who feels that congress has tried to force him into austerity measures by rejecting the budget which Petro then issued by decree [WR-24-38].
There are reasons to believe that Ávila will keep a looser hold on the purse strings than his predecessor. He has a friendship with Petro that dates back four decades, to when they were both members of the M-19 guerrilla group which demobilised in 1990. Unlike Guevara – a centre-left economist whose experience was primarily in the academic sector – Ávila has a long background in progressive politics and social activism. He spent the best part of three decades as director of the national federation for social housing (Fenavip, 1993-2003, 2005-2023), and was secretary general of the left-wing party Polo Democrático Alternativo (PDA) in 2005. More recently, since 2024, he has been the president of Grupo Bicentenario, a holding firm for state companies, where Petro tasked him with boosting the so-called ‘popular economy’.
Regardless of his long personal friendship with Ávila, Petro will not be able to ignore the hole in the budget without breaching the country’s fiscal anchor, which imposes a legal cap on government borrowing, or raising taxes. Ávila said on 21 March that he will opt for the latter option, although he can expect stiff resistance in congress. “We’ll continue to meet our public debt obligations and make the necessary adjustments to improve tax revenues to allow us to address our tight fiscal situation,” he said. “My appointment should not cause any shocks to the country’s economy,” he added, in response to the selloff of Colombian assets that followed Guevara’s resignation. He insisted that Colombia’s “macroeconomic variables show an economy with sustainable GDP growth, controlled inflation in a reasonable range, and a controlled exchange rate”.
But whilst the economic warning signs may not be flashing red, they have turned orange in recent months. The fiscal deficit is running at 7% of GDP, causing unease among investors, and inflation is sticky, running at 5.28% in annual terms in February. On 6 March the international credit ratings agency Fitch lowered Colombia’s outlook from ‘stable’ to ‘negative’, highlighting a “deterioration in its fiscal position and uncertain prospects for corrective measures”.
The general election due in May 2026 will further reduce Petro’s appetite for spending cuts. Whilst he is barred from seeking a second term, Petro will be aiming to keep his base motivated in order to boost the odds of a left-wing continuity candidate winning the presidency. Petro’s first finance minister, José Antonio Ocampo (2022-2023), now a frequent critic of the government, has said that Ávila’s main challenge will be reining in Petro’s costly spending plans. Warning of a surge in bond yields if Petro does not cut spending, Ocampo said on 23 March that “this job demands him to say ‘no’ to the president when it is necessary”.
Petro hits out at Milei and Trump
President Gustavo Petro compared Argentina’s President Javier Milei with the Italian dictator Benito Mussolini and US President Donald Trump with Adolf Hitler during a 22 March interview with the radio station La Pizarra. Noting Milei’s Italian ancestry, Petro said: “I think Milei is nostalgic for Mussolini… Trump must look upon Milei as inferior, just as Hitler used to look on the Jews as inferior”. He added that “the Argentine people need to do something, you know what I’m talking about, but I’m not going to say it because I respect the principle of sovereignty”.