In the corridors of power in Colombia, an idea as seductive as it is dangerous is being debated: using an “escape clause” to suspend, in practice, the Fiscal Rule.

The stated objective is to free up resources to finance the government’s ambitious social spending and investment agenda. While the goals of reducing inequality and transforming the country’s productive matrix are laudable, the route chosen to finance them could undermine the very foundations of Colombia’s macroeconomic stability, achieved with so much effort over decades.

Our duty is to analyze policies not only for their intentions, but for their likely consequences. And in this case, the consequences of abandoning fiscal discipline would, with a high probability, be serious and long-lasting.

The Fiscal Rule is neither a technocratic whim nor an obstacle to social progress. It is the main anchor of Colombia’s credibility in national and international markets. It is a responsibility pact that assures those who finance the State—from the citizen who buys a TES bond to the large investment fund in New York—that the country has a commitment to the sustainability of its debt.

Breaking this pact, or using an emergency clause designed for unforeseen catastrophes (such as a pandemic) to finance permanent expenses, would be perceived for what it is: a carte blanche for uncontrolled debt.

The market reaction would be immediate and predictable. The first victim would be trust. A chain of adverse effects would then be unleashed:

Increase in Financing Cost:

Investors, perceiving a greater risk of default or fiscal disorder, would demand a much higher risk premium to lend money to Colombia.

Interest rates on government bonds would skyrocket. Ironically, this would mean that an increasingly larger portion of the national budget would have to be allocated to paying interest on the debt, subtracting even more resources from the social investment that was intended to be financed.

Credit Rating Downgrade:

Credit rating agencies, such as S&P, Moody’s and Fitch, would most likely downgrade Colombia’s sovereign debt, pushing it further into speculative territory.

This would not only make credit more expensive for the government, but also for Colombian companies, slowing down private investment and job creation.

Capital Flight and Peso Devaluation:

Faced with uncertainty, capital would seek refuge in more stable economies. The outflow of dollars would put upward pressure on the exchange rate, causing a strong devaluation of the Colombian peso. A weaker peso makes imports more expensive, from food and consumer goods to machinery and inputs needed by the national industry.

Inflationary Spiral:

The combination of a massive injection of public spending (which triggers demand) and a devaluation of the peso (which makes supply more expensive) is the perfect recipe for inflation.

The Bank of the Republic would be forced to maintain or even drastically raise its interest rates to combat rising prices, which would further cool the economy and hit the pockets of all citizens, especially the most vulnerable, whom these policies are supposed to help.

Inflation is, at the end of the day, the most regressive tax of all.

Those who defend the suspension of the rule argue that fiscal orthodoxy has failed to close social gaps. It is a valid debate. However, the solution is not to demolish the building to fix a leak.

The path to more equitable development does not go through the shortcut of irresponsible spending, which leads to debt crises, rampant inflation and widespread impoverishment, as the history of so many countries in our own region demonstrates.

The real challenge for Colombia is to carry out social transformations within a framework of responsibility. This implies a serious discussion about the efficiency of public spending, a frontal fight against tax evasion that costs the country billions, and the reorientation of inefficient subsidies.

The dilemma for Colombia is clear: the illusion of ephemeral prosperity financed by debt without anchors, which will almost certainly end in a painful economic hangover; or the patient construction of lasting well-being on the solid foundations of responsibility and trust. Choosing the shortcut is choosing the precipice. Colombia deserves a more stable future.