SEMANA/Economy | 9/23/2008 12:00:00 AM
The effects of global crisis in Colombia
The global financial crisis has not hit bottom yet, and Colombia is already feeling it’s whiplash
The international panic has shaken the Colombian Stock Exchange. Shares have fallen 15% over the year, even though businesses listed in the stock market are doing fine. But there is nothing that can be done: it is the effect of worldwide nervousness. The hardest hit in Colombia are the retirement and pension funds.
• The dollar changes its course
For certain, exchange rates of 1,700 COP to the dollar won’t be seen for a long time. Mauricio Cárdenas, director of the Latin American Initiative of the Brookings Institution, believes that a rate above 2,000 COP will be maintained for a long time, because conditions are not adequate for capital flows to Colombia and Latin America. Capital losses have been so great globally that there are fewer resources to be invested in an economy such as Colombia’s.
• Expensive and scarce money
The crisis has left a great liquidity crisis in the world. This will translate in a greater financial cost for all countries and of course for the businesses that seek external loans. The favorable conditions in which the government finances its expenses will no longer be available. The ability to obtain foreign financing or 2009 will become difficult. The Colombian Finance Minister, Oscar Iván Zuluaga, says that in case of a market closure, they will turn to multilateral banks and to the local market.
• Lower prices for raw materials
As a consequence of the cooling off of the global economy, a fall in commodity prices is beginning to be seen, particularly in oil and in coal. This will affect exports that had been behaving quite well. The government’s finances will also feel the impact of lower oil prices.
• The economic slowdown
Everything that is happening has repercussions on small investors and in the daily life of people who, afraid of what is happening in the financial markets, are losing confidence and opting to delay spending, which affects consumption and thus business sales. At the end of the day, all of this translates in an economic slowdown from which no one can escape. This means that employment will be affected and that everyone’s incomes - businesses and people- will be hurt.
• Not all is doom and gloom
There are some positive points for Colombia in the midst of this crisis. Its financial system is solid. Not so long ago, at the end of the 1990s, a crisis of great proportions was experienced and a lesson was learned. Banking has been strengthened and provisioned with reserves for eventual losses. Although the credit portfolio has deteriorated with the slowing down of the economy, the levels are far from alarming. The international reserves of the country are at a high level (almost 24 billion USD) which translates into a cushion that allows us to sleep a little more comfortably and to face critical situations. Additionally, the Fondo de Garantías de Instituciones Financieras (FOGAFIN), Colombia’s official banking insurance fund, has reserves of 2.8 billion USD which insure Colombians in times of crisis.