COLOMBIA: WHAT TO EXPECT WITH THE NEW GOVERNMENT?
Colombia recently became the center of the conversation worldwide and no wonder as to why this is happening, since the past presidential elections in the country have been highly controversial, this added to the fact that the devaluation of the Colombian peso reached its highest in the past 30 years. The consequences of both of these things could only mean one thing: that is, uncertainty and a general spread of fear.
National investors are withdrawing their assets from the country, taking them to foreign countries such as Panama, Canada, and mainly the United States, fearful that the new government is going to deliver a series of reforms that could be detrimental to the national economy and to their very own business. However, it is vitally important to think on a rational basis in these times of uncertainty and especially, when making investment related decisions.
To have a wide panorama and better perspective on the situation, the first step would be not to allow negative indicators to fill our minds, but to carry out a broad and in depth analysis and research of our environment. We must first take a look around, not only to what’s happening in Colombia, but also to what’s happening in the world.
First things first, it is important to highlight some of the current changes that the Colombian economy has been facing, and it is important to note that these changes are not exclusive to the country, but are related to the general context faced by the economies of the region, not to mention the whole world.
It is undeniable that unlike its European (4.8%) and Chilean (7.5%) counterparts, the Colombian peso has suffered a greater devaluation (10.3%) since June 6th, this is, since the elections took place in Colombia, and to the date of possession of the president elected.
But even if the currency devaluation is true, the uncertainty that travels along the new government in Colombia has led to even more of a negative impact on the local currency. So, it is necessary that we ask ourselves: are the fears of investors fleeing the country justified? Or could it be that the new government will turn out positive for the Colombian economy?
One of the greatest fears that accompanies the fleeing investors is related to the political regime change represented by the Petro government, as some consider its ideology as threatening to the country’s economy and democracy, but which is the real base that supports this fear?
In the first place, it is relevant to note that although Gustavo Petro did belong to a guerrilla in his youth, it was known as the only non-Marxist guerrilla in the region (1), since they served interests of participation rather than ideological change, a fact demonstrated by them later joining the civilian life in negotiations that included political participation of its members. On the other hand, it is also important to highlight that the new president is not a former member of the army, in fact, he doesn’t count with a very high approval by the armed Colombian forces, which could ultimately translate into less chances of Colombian democracy being affected.
The cabinet that the new president Gustavo Petro brought with him also inspired an aura of tranquility and optimism, with recognized economists being named as the future Minister of Finance, José Ocampo (2), the future Minister of Agriculture, Cecilia López (3), and the future Minister of Education, Alejandro Gaviria (4). It is implied that the new president has by his side a government that is configured with criteria of experience, diversity and suitability, thereby providing a high feeling of calm.
Now, when it comes to the worldwide situations that could probably have a direct repercussion on the Colombian economy, we must consider the imminent slowdown of some real estate markets, such as those of the US, Canada and New Zealand (5).
These markets are being part of the increase in mortgage interest and the decrease in property prices, in addition, recent actions from the European Central Bank in order to control inflation are catching everyone’s attention as it’s the first time in more than a decade that three European Central Bank increases interest rates (6).
In addition to that, there is the current conflict between Russia and Ukraine, which threatens the stability not only of the European region, but also of most of the world, resulting in many European and international citizens to consider South America as a future living destination, in an attempt to escape, considering it a far away region from the current conflict zones and possible future ones (China vs. Taiwan) (7).
Prior to the election of Gustavo Petro and the current wave of uncertainty, Colombia enjoyed a reputation as one of the most stable economies in the region, with growing investment opportunities in sectors such as tourism, imports/exports, and real estate development.
Ultimately it’s vital to keep into account recent events occurred thanks to global warming, including record high temperatures and fires all around the world, specially in Europe, Australia and USA (8), making tempered weathers such as the ones you find in the South American region ever more attractive for those looking for options in the midst of climate change.
Despite it being too early to know exactly what the future holds for Colombia, many economists point out that it could be a transitory situation whose outcome could be just the stabilization of the economy (9), as it is simply an exaggerated reaction fed and fundamented in fear, due to the excessive amount of fake news and rumors surrounding, typically, all of the Colombian elections in the recent years.
It is likely that, on the contrary of what has been going around, we find ourselves in front a scenario of opportunity for those who decide to bet on the future of Colombia and take advantage of the current situation between the Colombian peso and other foreign currencies, especially the US dollar, which recently has reached the highest currency exchange value in its history, that being $4,232 COP and with a possibility to climb up to $4,800 COP or $5,000 COP until the new government settles, however this is expected to be momentary, meaning that the opportunity could be temporary once uncertainty is brought down and the currency’s exchange rate is regulated.
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