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Gustavo Petro for the political alliance 'Pacto Historico' speaks during an interview with Reuters in Bogota, Colombia June 10, 2022. REUTERS/Luisa Gonzalez

Colombia cabinet shuffle, health reform cause markets to wobble

Economists also questioned how the health reform will be financed.

1 March 2023

BOGOTA, Feb 28 (Reuters) - The decision by Colombia's leftist President Gustavo Petro to replace three ministers this week, as well as the forecast costs of a health reform making its way through Congress, sowed uncertainty in markets on Tuesday, prompting falls in the stock market and peso.

On Monday Petro removed ministers from their positions in the ministries of education, sports, and culture.

The changes were followed by Colombia's currency slumping 2.29% to 4,869 pesos per dollar, while the MSCI COLCAP stock index fell 0.13% to 1,204.63 points.

At the same time, TES public debt bonds maturing in May 2042 declined in value, their yields rising to 13.517%, from Monday's close of 13.372%.

Now ex-Education Minister Alejandro Gaviria - who served as Health Minister in the government of former President Juan Manuel Santos - disagreed with the main elements of Petro's controversial health reform, which looks to increase access to services, raise salaries of healthcare workers, and combat corruption by eliminating payment intermediaries.

His removal from Petro's cabinet was taken particularly negatively by analysts, who said it could have repercussions in debates concerning the reform in Congress.

"Gaviria’s exit suggests Petro is willing to lean further left, but could further limit congressional support.(...), which we think is not likely to be received well by market participants," New York based Citi analyst Esteban Tamayo said.

Petro also plans to present other reforms on labor and pensions, and is also eyeing plans to implement subsidy programs for students who cannot pay to access university as well as for poor families.

Economists also questioned how the health reform will be financed, after Colombia's Finance Ministry reported the bill would cost from $1.87 billion to $2.66 billion per year for the next 10 years, without saying where the money will come from.

Changes to the health system will see additional costs in the construction of new entities to manage healthcare, said Camilo Perez, manager of economic research at bank Banco de Bogota, adding that lower quality care would also push costs upwards.

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