Economy In Colombia

The Colombian peso has fallen to a historic low as plummeting oil prices and a prolonged stock slump have put the breaks on an economic growth rate that was once the envy of the region.
The current climate is a drastic change from just a year ago, when the Colombian economy was the arguably the most appealing in Latin America. Banking giant JPMorgan provided another significant, if symbolic,blow in mid-August when it added Colombia to its “Fragile Five” group of troubled emerging market economies.
It feels like the sky is falling. But many believe this is a temporary hurdle for a nation that still has great potential. The current fragility sits atop a stable foundation, according to Bianca Taylor, senior sovereign analyst for Latin America at Boston-based investment management firmLoomis, Sayles & Company. “In the short term, Colombia has become a lot more vulnerable than it was in the past,” said Taylor. “But if you look in the next 10 years, I think Colombia is still positioned very well.”
“But if you look in the next 10 years, I think Colombia is still positioned very well.”
One reason Taylor doesn’t see the need for panic is economic leadership. “What Colombia has going foritself that may stand out from its neighbors are incredibly-well-versed technocrats,” she said. “Whether I’m speaking with the Central Bank or the Ministry of Finance or the business sector, they all speak the same language.”
There are disagreements, but they center on specific issues — not political rivalries that make fiscal policy dysfunctional. Even compared to strong regional economies, likeChile, Colombia is on better footing. She sees top economic leaders in Bogotá sitting down to ask “where do we disagree?” and “how we can move this country forward?” and this allows Colombia “to respond to economic shock” better than most.
It is far from perfect, however. While current turmoil is largely grounded in real problems, some weakness is driven by perception. “The government definitelyneeds to transmit more certainty and confidence to the private sector,” said Frank Holder, head of the Latin America practice for the California-based Berkeley Research Group.
Oil accounted for more than half of Colombian exports by value in 2014, and that revenue will fall dramatically this year due to a per-barrel price that recently fell below $40 for the first time since 2009. The economy hasmade progress in moving away from fossil fuels in recent years, but the fate of the country remains overly tied to oil prices. This reality is driving pessimism.
But there are two reasons that cheap oil isn’t a nail in the coffin for economic expansion. “The commodities prices don’t effect Colombia as much as people think they do,” said Holder. “Colombia is not a major oil exporter. It’s notVenezuela.”
Taylor highlights the another factor: It’s better that Colombia relies on oil rather than nickel, copper, and iron like Chile, Peru, and Brazil do, respectively. She noted that the commodities boom that sent the prices of all these goods soaring was fueled by China. Now the Chinese economy is slowing down, and non-oil commodities like nickel and copper are unlikely to rebound in pricewithout the same level of consumption from Beijing.
The price of oil, meanwhile, isn’t as tied to China. So neither is Colombia, which has strong links to the U.S. economy. Though nobody knows exactly when — or if — the cost of oil will reverse course, she thinks it is more likely to turn around before other commodities. “That puts Colombia in a better position than Peru, Chile, or Brazil, which areheavily dependent upon things that nobody is really sure will get a big rebound,” said Taylor.
Latin America needs better infrastructure. Colombia is a laggard in this regard even by regional standards, but while this has historically held back the nation, it is one reason the future holds promise. “That is where, in the next 10 years, Colombia has the potential of really standing out,” said...