Colombia’s peso under pressure with Petro victory

View of of the NYSE on Wall Street/Florin Cee/Creative Commons.

The initial impact of Gustavo Petro’s election victory on Sunday will be felt Tuesday when global markets begin trading the Colombian currency after a bank holiday weekend. The peso, that closed Friday to the US dollar at $3,905 is expected to gain at least 200 pesos to the greenback, but many financial analysts believe, the surge should be even steeper throughout the week.  Within the first hour of trading the peso increased almost 100 points, but recovered steadily to trade near $4,050.

The possibility that the peso reaches $5,000 in June will result in increases across the board for all imported goods, from foods to electronics, clothing and construction materials. A devalued peso comes as many Colombians – and foreign residents alike – are planning travel overseas with the start of summer holidays. The fluctuation of the peso, compounded by already-high gas prices and pandemic fatigue, may discourage many from international travel. While economic uncertainty will continue until the president-elect is sworn-in on August 7, the flight of capital is among many risks facing the incoming administration and first elected leftist government in the country’s history.

“The biggest beneficiary of equity outflow from Colombia is Miami, considered a financial safe haven for Latin American investors,” remarked insurance expert Martin Prescott. “The strength of the country’s democratic institutions as proven with the peaceful and uncontested election results sends a positive message,” he added.

When Wall Street opened Colombia’s largest commercial bank BanColombia saw its share price drop more than 9% to trade near US$34.13.

The state-owned energy company, Ecopetrol SA, dropped more than 12.5% to trade at US$11.97. Ecopetrol accounts for 60-70% of the nation’s oil and gas output. Petro pledged on the campaign trail to transform the country’s largest company and halt all new exploration licenses.

Holding company Grupo Aval, and major stakeholder in Banco de Bogotá, Banco de Occidente, Banco Popular, Banco AV Villas and the pension fund management company Porvenir, also saw its share price drop more than 5% with the opening bell and is currently trading at US$3.80.

The City Paper visited several exchange houses in Bogotá’s financial district where the greenback was scarce given speculative buying over the weekend, despite the unknown election results. Iván Rodriguéz of UniDivisas said he had stopped selling dollar for 24 hours “to allow the market to settle.” Exchange houses that had stockpiled the greenback, were selling at $4,400 and buy at $4.000.

Having promised major reforms to Colombia’s private/public pension schemes, the independence of the Central Bank and monetary policy, Gustavo Petro’s victory was celebrated by other leftists leaders through-out South America, among them, Chile’s progressive president Gabriel Boric, Bolivia’s Evo Morales, Peru’s Pedro Castillo and Venezuela’s Nicolás Maduro who heralded on his Twitter account: “New days are coming for our sister country.”

The former M-19 guerrilla and mayor of Bogotá also received a phone call from U.S Secretary of State Antony Blinken who congratulated him on his election and  reiterated the United States’ “steadfast commitment to the bilateral relationship.” Secretary Blinken underscored the countries’ “shared democratic values and pledged to further strengthen the 200-year U.S.-Colombia friendship.” The Secretary also noted the U.S’s “support for full implementation of Colombia’s commitments under the 2016 Peace Accord and discussed how the U.S.-Colombia integrated counternarcotics strategy aligns with President-Elect Petro’s goal to diminish rural violence.”