(Bloomberg) — Colombia declared a 30-day economic emergency to tackle the fallout from a devastating earthquake, adding new spending pressures as the country grapples with one of the most fragile fiscal outlooks in its history. <\/p>\n
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The decree, signed by the entire cabinet late Wednesday, gives President Abelardo de la Espriella temporary authority to issue economic and tax regulations without congressional approval. It expands his ability to respond to the 7.4-magnitude quake that struck western Colombia on Aug. 10, killing at least 314 and leaving 4,430 people injured and 262 still missing. <\/p>\n
The emergency allows the government to carry out budget and public-credit operations needed to address the crisis, including temporary tax, customs and foreign-exchange relief, the creation of special funds, budget reallocations, faster authorization of public-debt operations and the use of royalty funds, among other measures. <\/p>\n
While the government doesn’t yet have a precise estimate of reconstruction costs, the decree cites preliminary calculations showing economic damage of at least 30 trillion pesos ($9.8 billion), equivalent to 1.5% of GDP. <\/p>\n
The disaster presents the first major test for De la Espriella, who took office less than a week ago promising to shrink the state by 40% and restore Colombia’s strained public finances. Reconstruction now threatens to complicate those plans almost immediately. <\/p>\n
Finance Minister Miguel G\u00f3mez promised investors the government would deliver the biggest spending cuts in modern history. Even after the earthquake, he told lawmakers the administration wouldn’t raise taxes to address the strained fiscal outlook. <\/p>\n
G\u00f3mez estimates the budget deficit at close to 8% of gross domestic product this year, compared with the 5.1% forecast by former President Gustavo Petro before leaving office. The gap is among the widest in the region and comes as much of Colombia’s budget is already tied up in debt service, pensions and legally mandated spending. <\/p>\n
The government must now finance emergency relief and the reconstruction of hospitals, schools and roads after thousands of homes and buildings were damaged or completely destroyed. <\/p>\n
“The economic emergency will be yet another challenge amid the current fiscal situation,” said Daniel Velandia, chief economist at Credicorp Capital. “If the government wants to maintain its objective of sending a positive message” to markets, he added, “it will have to significantly cut public spending and strike a crucial balance.” <\/p>\n
De la Espriella had already inherited mounting spending pressures, including a health system nearing collapse and the need to mitigate potential power disruptions from El Ni\u00f1o, the climate phenomenon expected later this year. <\/p>\n
The emergency powers, and any decrees issued under them, are subject to judicial and political checks, including automatic review by Colombia’s Constitutional Court. <\/p>\n
Colombian governments have used the mechanism after natural disasters before. In 1999, President Andr\u00e9s Pastrana’s administration invoked emergency powers to impose taxes and finance recovery from an earthquake that caused losses equivalent to about 2% of GDP, according to the Economic Commission for Latin America and the Caribbean. <\/p>\n
Petro also sought to use emergency powers to impose tax increases that Congress had previously blocked, only for the courts to strike down his efforts. <\/p>\n
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