Colombian President Gustavo Petro’s recent proposal to print money to finance reparations for victims of the armed conflict has raised major concerns. Amid the president’s populist rhetoric, which emphasizes settling a “deep social and historical debt,” this approach is leading Colombia down a dangerous economic path. One only has to look at the consequences of such monetary policies in neighboring countries such as Venezuela and Argentina, where uncontrolled money printing has resulted in hyperinflation and economic collapse.
The Dangers of Printing Money
When a government decides to print money to cover its expenses, it increases the amount of money in circulation without a corresponding increase in economic output. This practice, known as debt monetization, could provide a short-term solution to financing government obligations. However, the long-term consequences are often disastrous.
When the money supply grows 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, prices rise. If this process accelerates, it could culminate in hyperinflation, a scenario in which prices rise uncontrollably and the currency loses value virtually overnight.
Lessons from Venezuela and Argentina
Venezuela provides a clear example of the dangers associated with excessive money printing. Over the past decade, the Venezuelan government has resorted to mass printing bolívares to cover its budget deficits. Without a corresponding increase in economic output, the result was inflation that exceeded 1,000,000% in some years. The value of the bolívar plummeted, making the coin virtually worthless. Citizens continued to struggle to obtain basic necessities as their purchasing power was destroyed.
In the same way, Argentina has suffered repeated bouts of inflation due to the monetary policies of former President Alberto Fernández. Attempts to finance government spending by printing money led to chronic inflation, severely undermining economic stability and eroding the living standards of millions of Argentines. But with the arrival of Javier Milei as president of Argentina inflation has been reduced significantlyallowing the economy to recover. These cases serve as a warning to any country considering such measures, and demonstrate the catastrophic consequences for both the economy and society as a whole.
The risks of Petro’s proposal
President Petro’s proposal to print money to finance reparations carries significant risks. The estimated cost of fully compensating the victims of Colombia’s armed conflict is approximately 334 trillion pesos. Petro argues that, with the current budget allocation of 2 trillion pesos per year, it would take 150 years to pay these reparations, which he has called a “great national hypocrisy.” To speed up this process, he proposes that the Central Bank of Colombia could print money to cover these costs.
However, adopting this approach could jeopardize Colombia’s economic stability. As we have seen in Venezuela and Argentina, printing money without a solid economic foundation can lead to runaway inflation. In Colombia, this could erode the value of the peso, reduce savings, and disproportionately affect the poor and middle class – the very groups that reparations must support.
Furthermore, inflation can create a vicious circle of economic decline. As prices rise, consumer purchasing power decreases, leading to reduced aggregate demand and economic contraction. Businesses that face higher costs and lower sales may scale back production or close altogether, further exacerbating unemployment and poverty.
Alternative approaches to reparations
Instead of printing money, Colombia should explore more sustainable approaches to financing reparations. One option could be to invest in economic growth initiatives, generating the additional resources needed to finance reparations over time. A thriving economy with steady growth would provide a more stable financial foundation to support reparations and other social programs. Moreover, it is crucial to generate economic stability in the country so that investors have confidence in the area, leading to the creation of more businesses, which would create more jobs, stimulate the economy and generate more prosperity in the country .
While the desire to address the historical injustices suffered by victims of the Colombian armed conflict is commendable, the method of financing these reparations must be carefully considered. Money printing, as proposed by President Petro, threatens to plunge Colombia into an economic crisis, similar to the hyperinflationary spirals seen in Venezuela and Argentina.
A more prudent approach would be to explore sustainable financial strategies that do not jeopardize economic stability. By learning from the experiences of other countries and prioritizing long-term economic health, Colombia can better ensure that reparations are meaningful and sustainable.
Omar Camilo Hernández Mercado is a law student at the Universidad Libre de Colombia, senior coordinator of Students for Freedom in Colombia, and a seminarian in “The Austrian School of Economics” at the International Bases Foundation.