The recent proposal by Colombian President Gustavo Petro to print money to finance reparations for the victims of the armed conflict has raised significant concerns. Amid the populist rhetoric of the president, who emphasizes settling a “deep social and historical debt,” this approach is leading Colombia down a dangerous economic path. One only needs to look at the consequences of such monetary policies in neighboring countries like 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 currency in circulation without a corresponding increase in economic production. This practice, known as debt monetization, might provide a short-term solution for 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. With more money available to purchase the same amount of goods, prices rise. If this process accelerates, it can turn into hyperinflation, a scenario where prices increase uncontrollably and the currency loses its value almost overnight.
Lessons from Venezuela and Argentina
Venezuela offers a clear example of the dangers associated with excessive money printing. Over the last decade, the Venezuelan government resorted to massive printing of bolívares to cover its fiscal deficits. Without a corresponding increase in economic production, the result was an inflation rate that exceeded 1,000,000% in some years. The value of the bolívar plummeted, rendering the currency practically worthless. Citizens were left struggling to obtain basic necessities as their purchasing power was devastated.
Similarly, Argentina has faced repeated episodes of inflation due to the monetary policies implemented by former President Alberto Fernández. Efforts to finance government spending by printing money led to chronic inflation, severely undermining economic stability and eroding the living standards of millions of Argentines. However, with the arrival of Javier Milei as Argentina’s president, inflation has been significantly reduced, allowing the economy to recover. These cases serve as warnings for any nation considering such measures, demonstrating the catastrophic effects on 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 to fully compensate the victims of the armed conflict in Colombia 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 fulfill these reparations, which he has called a “great national hypocrisy.” To expedite this process, he suggests that the Central Bank of Colombia could print money to cover these costs.
However, adopting this approach could jeopardize Colombia’s economic stability. As 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, diminish savings, and disproportionately affect the poor and middle class—the very groups that reparations are intended to support.
Moreover, inflation can create a vicious cycle of economic decline. As prices rise, consumer purchasing power decreases, leading to reduced aggregate demand and economic contraction. Businesses, facing higher costs and lower sales, may reduce production or shut down entirely, further exacerbating unemployment and poverty.
Alternative Approaches to Reparations
Instead of printing money, Colombia should explore more sustainable approaches to finance reparations. One option could be investing in economic growth initiatives, generating the additional resources needed to fund reparations over time. A thriving economy with steady growth would provide a more stable financial foundation to support reparations and other social programs. Additionally, it is crucial to generate economic stability in the country so that investors have confidence in the territory, leading to the establishment of more businesses, which would create more jobs, stimulate the economy, and generate greater wealth in the country.
While the desire to address the historical injustices suffered by the victims of Colombia’s armed conflict is commendable, the method of financing these reparations must be carefully considered. Printing money, as suggested by President Petro, risks plunging 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 endanger economic stability. By learning from the experiences of other nations 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 Liberty in Colombia, and a seminarist in “The Austrian School of Economics” at the International Bases Foundation.