After a week in which the Colombian peso was the protagonist in the news, reaching almost COP$5,000 to the US dollar, the question now, is if the swift devaluation is somehow stoppable, with the recent declarations by Minister of Finance José Antonio Ocampo that the government will manage its macroeconomic policies responsibly, stay within fiscal ranges, respect all oil and gas exploration contracts, and is open to the possibility of new ones.
With Ocampo’s final word on the economic stability of the country, the Colombian peso was trading Monday near COP$4,970 to the dollar, and on course to reach the historic benchmark of $5,000; number where it could either flatten out, or worst-case scenario, continue to devalue.
The New York-based investment bank JP Morgan has been closely monitoring the Colombia market, and claims that the recent “deterioration in local assets” is in response to “waning confidence domestically.” In its most recent report, titled “Colombia: disorderly market needs a circuit breaker” JP Morgan recommends a “well-designed combination of large rate-hikes, a well-calibrated FX intervention, alongside complimentary measures (such as issuance of multi-lateral guaranteed external bonds)”.
Ocampo has discarded that the Central Bank will intervene in stabilizing the country’s foreign exchange, highlighting, that this “no tiene ni pies, ni cabeza”, a phrase that means in English: “can’t make heads or tails with it.” The challenges facing the former co-director of the Banco de la República (2017-2019) at a moment described by JP Morgan as “a hostile global environment,” has met support from ex-finance minister Rudolf Hommes, who served under President César Gaviria’s administration (1990-1994) and widely responsible for opening up the Colombian economy.
“Ocampo has been handed the impossible task (…) given the way the President (Petro) is acting,” said Hommes in an interview with El Tiempo. “The Minister has, up to a certain degree, some power, and could say: ‘If you don’t listen to me I will leave’. This would do great harm,” believes Hommes.
As Colombians become accustomed to the reality that COP$5,000 to the USD will impact their wallets, from already high food prices to imports of consumer goods, and cost of airline tickets, the “perfect storm” – term coined by JP Morgan – that Colombia is currently enduring, is being compounded by incessant rainfall across the country and which threatens agricultural production. Mudslides, extensive flooding, and damage to infrastructure reported over the weekend along the Colombian coast, as well as closed roads in the departments of Santander, Boyacá and Cundinamarca, could delay the movement of perishable produce and essential goods, applying even more inflationary pressure.
For Colombia’s former Ambassador to Washington and Vice-President, Francisco Santos, during President Petro’s sixty days in office, the devaluation of the peso has taken on seismic proportions, a result of the leftist leader’s messages, as well as those of his ministers. In his most recent column, Santos claims that the peso’s woes is a sign of “zero confidence in the government, in industry, commerce, national and international banking, investment and pension funds.” Words that echo JP Morgan’s affirmation, that the Colombian economy is being directed by Petro’s “Twitter-itchy finger.”