Colombian President Gustavo Petro’s recent proposal to print money to finance reparations for victims of armed conflict has raised serious concerns. Amid the president’s populist rhetoric that emphasizes liquidating “deep social and historical debts,” this approach is leading Colombia down a dangerous economic path. One need only look at the impact of such monetary policies in neighboring countries like Venezuela and Argentina. There, uncontrolled money printing is causing hyperinflation and economic collapse.
The dangers of printing money
When a government decides to print money to cover its expenses, there is no corresponding increase in economic output, and the amount of money in circulation increases. This practice, known as debt monetization, could provide a short-term solution to financing government debt. However, the long-term effects are often dire.
When the money supply increases faster than the supply of goods and services, inflation is the inevitable result. When more money is available to buy the same amount of goods, the price increases. If this process accelerates, it can lead to hyperinflation, where prices rise uncontrollably and currencies lose value almost overnight.
Lessons from Venezuela and Argentina
Venezuela is a clear example of the dangers associated with printing too much money. For the past decade, the Venezuelan government has relied on mass printing of bolivar banknotes to cover its budget deficit. Without a corresponding increase in economic output, this resulted in inflation rates exceeding 1 million percent in some years. The value of the bolivar plummeted, making the currency virtually worthless. People struggled to afford basic necessities as their purchasing power was devastated.
Similarly, Argentina has faced repeated bouts of inflation due to the monetary policies implemented by former President Alberto Fernández. The attempt to finance government spending by printing money resulted in chronic inflation, severely destabilizing the economy, and eroding the living standards of millions of Argentines. However, with the appointment of Javier Millay as President of Argentina, inflation was significantly reduced and the economy was able to recover. These cases serve as a warning to countries considering such measures, illustrating the devastating effects both on the economy and on society as a whole.
Risks of Petro’s proposal
President Petro’s proposal to print money to fund repairs carries significant risks. The estimated cost to fully compensate victims of Colombia’s armed conflict is approximately P334 trillion. Mr. Petro claimed that with the current annual budget allocation of P2 trillion, it would take 150 years to implement these reparations, calling this a “gross hypocrisy of the state.” To facilitate this process, he suggests that Colombia’s central bank could print money to cover these costs.
However, adopting this approach could put Colombia’s economic stability at risk. Printing money without a solid economic foundation can lead to runaway inflation, as we have seen in Venezuela and Argentina. In Colombia, this could devalue the peso, reduce savings, and disproportionately impact the poor and middle class eligible for reparations.
Moreover, inflation can cause a vicious cycle of economic decline. Higher prices reduce consumer purchasing power, leading to a decrease in aggregate demand and a contraction of the economy. Businesses will face higher costs and lower sales, and may cut production or shut down completely, further worsening unemployment and poverty.
Alternative approaches to repair
Instead of printing money, Colombia needs to explore more sustainable approaches to financing reparations. One option may be to invest in economic growth initiatives to generate the additional resources needed to fund long-term repairs. A prosperous economy with steady growth will provide a more stable fiscal base to support reparations and other social programs. Additionally, it is important to create economic stability within the country so that investors have confidence in the region. This will create more businesses, create more jobs, stimulate the economy, and create more wealth within the country.
While Colombia’s desire to address the historical injustices suffered by victims of armed conflict is laudable, the way in which these reparations are financed must be carefully considered. Printing money, as President Petro has proposed, risks plunging Colombia into an economic crisis similar to the hyperinflationary spirals seen in Venezuela and Argentina.
A more prudent approach would be to seek sustainable financial strategies that do not threaten economic stability. By learning from the experiences of other countries and prioritizing long-term economic health, Colombia can make reparations meaningful and sustainable.
Omar Camilo Hernández Mercado is a law student at the Free University of Colombia, senior coordinator of Students for Freedom in Colombia, and a seminarian at the International Base Foundation “Austrian Faculty of Economics”.
