Forced investments: reasons why the Government’s proposal would be ‘dangerous’

Colombia currently faces a scenario of multiple economic challenges due to the slowdown that hits various productive sectors and has even made itself felt in other important aspects such as tax collection and the labor market, putting everyone in a context of great challenges for the future.

The situation has reached such a point that the analysis centers assure that this problem could be one of the causes of the cash crisis faced by the National Government and that if it is not resolved quickly, it could lead the country to an unfavorable scenario for growth and investor confidence.

This is why the Casa de Nariño announced a reactivation plan a few weeks ago that focuses on four important points, starting with expanding the debt quota to better manage the Government’s commitments. In addition, a mini tax reform is contemplated, but not to impose more taxes, but to alleviate the tax burden on companies.

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The third point has to do with a stimulus plan for the energy sector renewables and tourism, in order to advance the commitment to the country’s energy transition and position the tourism sector as one of the benchmarks for economic development in the coming years.

Ministry of Finance and Public Credit.

Photo: CEET – Néstor Gómez

The fourth aspect of the official reactivation plan, as explained by President Gustavo Petro himself, consists of a bill, like the other three, that will be presented to Congress to authorize “a forced investment in the Colombian private financial system aimed at to credits to small, medium and large industry, agriculture and tourism.”

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According to the Head of State, the idea is that part of the investment capital be directed “towards the popular world, to work on the transformation of things, industry, in the furrow, agriculture and tourism” and he insisted in which strengthening the country’s economy will help producers and workers can open industry, agriculture and tourism.

Colombian pesos

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Although the local economic agenda has led to the proposal for forced investments not having as much force as expected, at least in the public debate, little by little alerts have emerged on this issue, arguing that implementing this type of measures It is playing with Colombians’ money and goes against the principles of financial freedom.

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A recent analysis by Camilo Herrera, founder of the firm Raddar, warns that although the Government talks about bank loans, it cannot be overlooked that the money from these loans would come from the savings and deposits that people make in these financial entities, trusting that there will be responsible and safe administration.

Camilo Herrera Mora

Briefcase

“Metaphorically, you give me a part of a car, with the idea that I help you have more car parts and one day have your own car. Like you, many do and with those car parts, a car is assembled that is rented to a person so that he can fulfill his dreams: from traveling to producing,” Herrera begins by explaining.

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After this, to continue with his didactic example, he poses the question of who would he lend the car to?, a point in which he is emphatic that “certainly the one who returns it in good condition and pays the rent and so we can give more car parts to those who gave some to you to have more.”

Recession

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With this, what this economist proposes is that banks must evaluate who they lend the money to which they are entrusted, to minimize risks and ensure the repayment of the loans. Likewise, it is made clear that regardless of the outcome of the loan, the bank must respond to its depositors.

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This would change with President Petro’s proposal, since according to Camilo Herrera “as a rule (forcing) the bank must lend the car to the Government and it lends it to others. Those others surely have a high risk and that is why the bank does not lend to them or because of the same rules that exist, it cannot lend to them.”

After making clear the change in the financial model that would occur with forced investments, the founder of the Raddar firm focuses on the risks that this can entail, explaining that although they will be resources managed by the State, this transfers the risk of the bank to all Colombians.

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With this, areas such as health and education would be affected if the loans fail. Furthermore, the efficiency of banks and their ability to attract customers and funds, jeopardizing their operability and solvency.

Banks

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“The Government decides who it lends to, not from the logic of taking care of the pieces, but from some strategic vision, where it can favor some. He also assumes the risk. That is to say, if those favored by the Government by lending them the car that the bank assembled with parts from many, do not return it or do not pay the rent, they must still return the car to the bank on time and in good condition.”

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Camilo Herrera closed by saying that “if they don’t do it, they will lose the bank.” and the people. That is why the Government’s idea is basically good, but dangerous for everyone. For some reason, this Government considers that the State has unlimited resources and proposes things such as forced investments and reforms in health, pensions and education, among other ideas, with an idealistic and unrealistic vision.