Wednesday, 21 October 2020

Colombia’s peso on the rebound following surge in global oil prices

Following a year-and-a-half decline during which Colombia’s peso lost approximately 40% of its value, the currency seems to be recovering and has remained below the COP3000 mark for a week.

The peso had its worst days in mid February when the value of the currency sank to 3,414 against one US dollar.

However, since then the pressure on the peso has diminished, slowly regaining some of the value lost during what some have called the bursting of the Emerging Markets Bubble caused by dropping global oil prices.

- paying the bills -

By Thursday, one US dollar was worth COP2,904, a value not seen since November last year when the currency was still on decline.

The increase in value of the peso is almost directly linked to global oil prices, who — simultaneous to the peso — have begun slowly increasing after dropping from $100 a barrel to less than $40 a barrel.

This slow recovery of the peso’s value is tremendously good news for the administration President Juan Manuel Santos, which is suffering abysmal approval ratings partly due to the cheap peso.

Because as the peso sank, food prices and the country’s foreign debt went up.

At the height of the commodity bubble, Colombian oil exports made up more than half of the country’s entire exports.

- paying the bills -

But when these prices began collapsing, the government budget came under pressure, forcing the government to drastically reduce spending and even consider raising the country’s sales tax from 16% to 19%.

Finance Minister Mauricio Cardenas told newspaper El Tiempo that “the most important thing is that [the dollar] is going down and this will help us stabilize inflation,” which had reached 7% in January.

However, Cardenas might be cheering too early.

One of the main reasons oil prices have been going up again is because of an oil workers’ strike in Kuwait, one of the world’s largest oil producers.

If this strike ends and Kuwaiti oil begins flooding again, oil prices and the peso could go down again.

- paying the bills --

Colombia Reports

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