So far this week, volatility has been the norm in the dollar market, during which the peso weakened by 5.75 percent.
To the uncertainty generated by the economic plan of the Petro government, several international factors were added that have pressured the national currency, as well as its emerging peers. One of them is the fear of a probable recession in the developed world.
In general, inflation persists and increases in interest rates by the Federal Reserve increase the threats, mainly, that the United States faces a recession, the managing director of the International Monetary Fund (IMF), Kristalina Georgieva, said a few days ago.
Immediately, the dollar receives all these messages and in the market, the currency begins to move.
cocktail with political flavor
This international context is decisive, but in Colombia the devaluation has been felt more than in the neighborhood and that is attributed to the political issue.
In addition, a report by Banco de Bogotá indicates that Colombia’s 5-year Credit Default Swap (CDS), a measure of country risk, has also maintained an upward trend this year, which was accentuated following last Sunday’s elections, with a current price of 278 basis points, reaching a new maximum of the year (the higher this number indicates that there is more risk). “This movement picks up the political noise due to the elections, but it is also aligned with the movement in the region. Although in the Colombian case the magnitude of the increase is greater”, reiterate in Banco de Bogotá.
The weight of oil is never lacking
The future of oil activity also generates pressure on the price of the dollar, given that crude oil is the largest generator of foreign exchange in the country and as exploration and exports are reduced, fewer greenbacks would enter. This is more serious if one takes into account that Colombia has a very negative indicator in its external accounts, known as the current account deficit. This shows that there are more currencies that leave the country (due to payment of debts or imports), than those that enter for any reason (exports, remittances, foreign investment, etc.). This deficit is close to 6 percent of GDP , which is a high level compared to the Latin American average of 1.1 percent.
But if investors arrive…
The advantage that Colombia has had is that it has been able to finance its deficit with the entry of foreign direct investmentonly in the first quarter of this year it was 5,186 million dollars, but the problem is that most of that money comes for mining and energy activities and if that industry withers, that investment would no longer arrive, also hitting the rate of change.
Petro effect?
Since the election campaign was in full swing, Analysts were already predicting a strong but short-term reaction to the electoral episode.
Despite the fact that following the results that gave Gustavo Petro the victory, many sectors have met with the president-elect and have cleared doubts regarding what will happen, the level of uncertainty continues, but more moderate. In reality, no scenario is completely discounted. All the experts speak of the need to be clear regarding who will hold the reins of the public finance portfolio.
Nevertheless, what might most challenge the dollar is the global recession, which, if produced, would take the currency to ceilings of 4,200 pesos. For the market analysts at Alianza Valores, it would be “a temporary movement as recessions always are.”
