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Colombian economy 69

Colombia’s new President Gustavo Petro and Colombia’s business trade associations are publicly endorsing broad goals for boosting economic growth, improving the lot of poorer populations, cutting income inequality and moving toward a “greener” future.

But the national tax proposal put forward by Petro and his Finance Minister this month ironically might only help the poor with two or three years of tax transfers, followed by years of economic stagnation caused by crushing tax burdens on most jobs generators, along with tax schemes that would only accelerate the destruction of fiscally crucial energy and mining industries.

In a speech last week to Colombia’s biggest national industrial-commercial trade association (the Medellin-born ANDI), President Petro outlined lofty-sounding goals for a Colombia that would disincentivize exports of oil and minerals, cut income inequality via higher taxes on individuals and companies (ironically hitting middle-class people making just US$2,500 per month), target unhealthy beverages and foods, and accelerate the move away from oil-and-gas and mining industries to “greener” schemes.

Yet all those goals could be achieved much-less-painfully -- and more practically -- with a gradualist, more market-based approach as favored by ANDI and many other business and consumer advocates.

That’s especially important given today’s painful inflation problems and Colombia’s relatively fragile attractiveness for both domestic and foreign jobs-creating investments. Boosting industrial/consumer/employee taxes now -- including a proposed doubling of taxes on investors -- on the very sectors generating most jobs, tax revenues and economic growth inevitably would turn counter-productive, as most economic experts here publicly acknowledge.

What’s more, Colombia already has been on a decades-long, gradual pathway of improving the lot of poorer populations and cutting inequality via dramatic improvements in free or low-cost health care, free public education, low-cost job training programs, expanded social welfare payments, food and medicine subsidies, retirement subsidies, free vaccination campaigns, vastly improved public utilities, dramatically improved highway infrastructure, diminished levels of armed conflict with guerilla groups, and a total avoidance of violent foreign entanglements.

Colombia presumably could continue on this gradualist approach, perhaps with a scaled-down version of Petro’s tax proposal. For example: it’s possible to imagine new incentives for alternative production and consumption of “greener” or “healthier” products and services via tax deductions offered to producers and consumers of some of today’s less-friendly products or services -- just as can be seen in many tax policies in North America and Europe, for example.

In his closing speech to the ANDI national convention in Cartagena last week, ANDI President Bruce MacMaster publicly praised President Petro for publicly sharing his vision and hopes for Colombia’s future with ANDI’s members.

“Opportunities and employment are definitely the best way, the safest, the most concrete, the most sustainable and the most proven to be able to overcome the limitations in terms of poverty that any society has,” MacMaster said, speaking directly to President Petro as well as to the assembled, standing-room-only crowd.

“And we are convinced that we are a fundamental part of that pathway, as the companies of Colombia -- from the micro to the large -- are the best and largest generators of employment.

“[President Petro] said it here, as also said in your inauguration speech, that we have to generate wealth, production and opportunities, that if we do not generate wealth, then we do not have anything to distribute, and wealth must be capable of meeting social needs.

“Competitiveness is extremely important and, of course, involves generating a friendly, reasonable and stable environment for the business world. And in that we are completely willing to read the signs that are given to us.

“And I want to make a special mention of conversations we had with your Minister of Finance in which we talked, for example, about the opportunity that Colombia has to be highly competitive in environmental matters, given the capacity we have to produce in our country, with a carbon footprint much lower than in the rest of the world, a small fraction of what it takes to produce in China. We are sure that we can turn this into a great competitive advantage for the country,” MacMaster concluded.


Colombia’s projected GDP (“PIB” in Spanish initials) for full-year 2021 is now seen at between 8.19% and 9.5%, according to the latest forecast from Fedesarrollo, the nation’s leading economic think-tank.

Meanwhile, Colombia’s industrial confidence index (“Índice de Confianza Industrial,” ICI) has just hit its highest level in 41 years, according to Fedesarrollo -- highlighted in an October 25 announcement from Colombia’s Ministry of Commerce.

“The Fedesarrollo Industrial Confidence Index (ICI) reached the highest level in 41 years in September, driven by the current level of orders, a fall in inventories and an expansion in the indicator of production expectations,” the Ministry noted, citing Fedesarrollo’s latest study.

“The ICI stood at 20.4% in September in its original series, which represents an increase of 4.7 percentage points compared to August and an increase of 14.3 points compared to September 2020. The quarterly moving average was 17.4%, which is equivalent to an increase of 4.8 points compared to the same measurement last month.

“This result is mainly explained by the increase of 7.3 percentage points in the current volume of orders, together with a decrease of 4.4 points in the level of inventories and the increase of 2.5 points in the indicator of production expectations. for the next quarter.

“Regarding industrial employment expectations for the next quarter, these increased to 17.7%, which implies an increase of 6.0 points compared to the previous quarter,” the analysts added.

Meanwhile, Colombia just received another 1.5 million doses of Moderna’s highly effective vaccine against Covid-19, on the heels of receiving another 2.25 million doses from Sinovac – hence overcoming temporary shortages of both vaccines in various Colombian cities.

As of today (October 26), Colombia nationwide is about to surpass 46.5 million shots against Covid-19, for a population of just over 50 million people.

In Medellin, the Covid-19 vaccination campaign is now at 88% of targeted coverage, with 2.9 million doses already applied and “herd immunity” forecast to become effective by late November, according to the Mayor’s Office.

As for Antioquia generally (including Medellin and the metro area), more than 6 million people here have already gotten shots against Covid-19, according to the departmental government.


A new report from the U.S. State Department finds that Colombia offers relatively favorable conditions for foreign direct investment (FDI) here – even though some regulatory areas still need updating or improvements.

The new U.S. report – just one of dozens analyzing the relative strengths/weaknesses for FDI in 170 nations globally – notes that Colombia stands above most nations thanks to Free Trade Agreements with the U.S., Europe, Canada, Israel and many other countries, along with regulatory frameworks “that give stability to business,” as noted in a subsequent analysis from the Colombian-American Chamber of Commerce (AmCham-Colombia).

However, “there are pending issues to overcome in matters of intellectual property and non-tariff barriers for businesses,” AmCham cautioned.

The report “indicates that, based on the World Bank's Doing Business, in the [Latin America] region only Chile and Mexico surpass Colombia in the conditions for foreign investment,”| AmCham notes.

What’s more, “between 2018 and 2019, the flow of foreign investment to Colombia increased by 25.6%, of which about a third in was allocated to the extractive sectors [oil-and-gas, mining] and another 21% to professional services and finance in 2019.”

“Historically, the United States has been the main foreign investor in Colombia,” added María Claudia Lacouture, AmCham-Colombia executive director.

“There are currently about 450 U.S. companies in Colombia that generate just over 100,000 direct and indirect jobs. The State Department document contributes to the generation of confidence so that the presence of these companies in the country increases,” she added.

“The report highlights the improvement of security in metropolitan areas, the existence of a market of 50 million people and an abundance of natural resources along with a growing, educated middle class,” AmCham notes.

“Legal and regulatory systems in Colombia are consistent with international standards, as well as a broad legal framework for companies and FDI,” the group added.

The full U.S. State Department report on Colombia is available here: https://www.state.gov/reports/2021-investment-climate-statements/colombia.


Wall Street bond rater Fitch Ratings announced last night (July 1) that it has downgraded Colombia’s “Long-Term Foreign-Currency” (LTFC) and local currency “Issuer Default Ratings (IDR)” to ‘BB+’ from ‘'BBB-,’' but Colombia’s debt outlook is now revised to “stable,” up from the prior rating of “negative.”

“The [LTFC] downgrade reflects the deterioration of the public finances with large fiscal deficits in 2020-2022, a rising government debt level, and reduced confidence around the capacity of the government to credibly place debt on a downward path in the coming years,” according to Fitch.

“Colombia’s gross general government debt (GGGD) to GDP is forecast to reach 60.8% in 2021, more than double the 30% level when Fitch upgraded Colombia back to the ‘'BBB’ category in 2011.

“Fitch expects debt to continue to rise through 2022 and does not expect significant debt reduction over the medium term, leaving Colombia vulnerable to shocks. Furthermore, Fitch sees significant risks to the government’s fiscal consolidation plan, given the reliance on tax administration efforts and divestments, as well as the uncertainty of the impact of the pending tax reform,” the bond rater added.

The Covid-19 pandemic caused a 6.8% GDP contraction in 2020, caused the government debt-to-GDP ratio to hit 58.3%, up from 44.7% in 2019. “Fitch now expects government debt to GDP to continue to rise over the forecast period to 64.4% of GDP by 2023,” the analyst added.

While the Covid crisis caused a big jump in unemployment along with contractions in GDP, private-sector income and government tax revenues, “the pace of [Covid-19] vaccinations is now picking up, with around 23% of the population receiving a least one jab according to Our World in Data, and unemployment has fallen to 15% as some of the hardest hit parts of the economy begin to reopen,” Fitch noted.

Following a failed tax proposal in April that aimed to tax wealthier people and corporations in order shore-up government finances and extend benefits to Colombia’s poorest populations, “Fitch expects the government to reintroduce a revised tax reform package in July 2021 when the new session of Congress commences, and is targeting a benefit of around 1.2% of GDP on a net basis,” the analyst noted.

“However, Fitch believes that the majority of the fiscal benefit will be obtained only in 2023 --given reliance on corporate income tax measures -- while the government extends some pandemic related spending such as cash transfers into 2022,” the analyst added.

However, “the passage of any reforms will be difficult to achieve given the growing social pressures, the government’s low popularity and the upcoming elections, with congressional and presidential elections scheduled for March 2022 and May 2022 respectively,” Fitch noted.

Combined with further extension of government subsidies to the poor, “Fitch forecasts central government deficits of 8.2% in 2021 and 6.9% of GDP in 2022,” up from lower amounts in the last decade, the analyst added.

If the government succeeds in selling some state assets, then fiscal deficits could be reduced, Fitch added.

In addition, “the government has outlined an updated fiscal rule to be presented with its new tax reform proposal that will include a debt anchor of 55% of GDP with a limit of around 70% of GDP,” Fitch noted.

On a positive note, “Fitch has raised its GDP growth forecast to 6.3% in 2021, up from Fitch’s previous forecast of 4.9%. Fitch sees some upside to even the revised forecast if the Coronavirus pandemic outlook improves and social protests remain subdued, albeit there is a greater than usual degree of uncertainty surrounding forecasts,” the company added.

Inflation expectations likewise look good, Fitch added.

Meanwhile, foreign direct investment (FDI) “historically has covered around 70% of the current account deficit (CAD) and Fitch expects the favorable financing of the CAD to continue during the forecast period,” the analyst found.

On another positive front, “Colombia’s external liquidity has improved markedly over the last three years as a result of the central bank’s international reserve accumulation policy,” according to Fitch.

“International reserves rose to US$58.5 billion at year-end 2020, up significantly from US$52.7 billion in 2019. As a result, Fitch’s external liquidity ratio rose to 108% in 2021 from 89% in 2019. Additionally, Colombia maintains access to a flexible credit line with the International Monetary Fund for US$12.2 billion (out of a total program of US$17.6 billion),” the analyst concluded.


Fedesarrollo – Colombia’s leading economic think-tank – announced June 17 that it has revised upward its previous GDP (“PIB” in Spanish initials) growth forecast to 7.2% for full-year 2021, up from a prior estimate of 4.8% growth.

“The increase in the growth forecast is due to higher growth in the first quarter of this year compared to expectations -- due to the low comparison base due to the economic contraction of 6.8 % the previous year -- as well as the reopening of different sectors, the acceleration of the vaccination process and the greater prospects for global growth, which would positively impact internal and external demand,” explained Fedesarrollo director Luis Fernando Mejía.

An unexpectedly strong 1.1% GDP growth in first quarter (1Q) 2021 is now being followed by even stronger growth “in sectors such as construction (32%), entertainment activities and domestic services (23%), industry (22.5%) and trade (22.3%),” according to Colombia’s Economic Monitoring Indicator (ISE in Spanish initials).

“In the month of April [2021], the economy indicates an annual [year-on-year] growth of 25.8%, but with less dynamics compared to the production of March, as a result of the mobility restrictions in the framework of the third peak of Covid infections,” according to Fedesarrollo.

Meanwhile, the net effects of the violent national strikes and road blockades starting in late April “would be translated into a lower level of activity in May and, as of July, an increase in domestic demand would be observed as a result of the sectorial opening announced by the national government and local authorities,” according to Fedesarrollo.

“However, these very positive economic growth figures would not be immediately reflected in better labor market figures” -- as unemployment is the main cause of rioting and strikes, since the Covid-19 crisis has caused massive job losses especially among younger workers.

“There is a significant risk related to the economy having a year of exceptional economic growth without a substantial reduction in the unemployment rate,” Mejía warned. “To avoid this risk, it is essential to execute a shock plan to generate employment during the second half of the year that allows unemployment rates to be below 12% at the end of the year.”

According to Fedesarrollo, Colombia's strong growth forecast for full-year 2021 would be led by recoveries in commerce, transport and travel sectors, manufacturing industries and construction, which together would contribute 4.4 percentage points to the 7.2% GDP growth outlook.

On the other hand, “downward risks still persist, mainly due to an eventual return of protest demonstrations and roadblocks in the country, as well as eventual increases in the occupancy level of Intensive Care Units (ICU) that generate new restrictions on mobility and productive activity,” Fedesarrollo added.


Colombia’s national economic statistics agency DANE revealed May 14 that gross domestic product (PIB in Spanish initials) has finally moved into positive territory for first quarter (1Q) 2021, following a year-long Covid-19 crisis.

Since the collapse in second quarter (2Q) 2020 -- when PIB bottomed-out at a negative 15.7% -- Colombia has since steadily rebounded in subsequent quarters, with first quarter (1Q) 2021 now showing a positive 1.1% growth.

Colombia Finance Minister Jose Manuel Restrepo immediately hailed the 1Q 2021 results as “great news,” adding that “the manufacturing industry (+7%) is the economic sector that contributes the most, accounting for 0.9 percentage points” of the total 1.1% gain.

Colombia President Ivan Duque noted that the national government over the past 15 months has spent billions of dollars in subsidies for the poor, the working classes and job-saving businesses of all sizes in response to the Covid crisis.

“Last year we launched the reactivation program and today we can say that, in the first quarter of 2021, the growth of our economy was positive, above all expectations,” Duque said.

While recent economic growth has been impressive even in the face of many Covid-19 curfews, quarantines, travel restrictions, shopping restrictions and strict health protocols for public and private areas, recent violence and road blockades by terrorists infiltrating peaceful protest marches threaten to hobble further growth, he warned.

Fortunately, the “Comite del Paro” protest committee has finally agreed to meet with national and regional governments to negotiate terms for an end to the violence and blockades, Duque noted.

The 1Q 2021 rebound is “well above the forecasts of experts, who set their estimates between a contraction of 1.9% -- as the most pessimistic -- to an expansion of just 0.1%,” the official Colombian press bulletin noted.

“The challenge that all Colombians now have is that this reactivation continues, that in our second quarter of this year and in all that remains of this year we reactivate Colombia, because the generation of employment, the generation of opportunities depends on that,” Duque added.


The International Monetary Fund (IMF) on March 23 issued a detailed economic/social report finding that the Colombian government is responding wisely to the Covid-19 crisis.

“Colombia has been hit hard by the pandemic, but the policy response has been timely and well-coordinated,” according to the IMF official report.

“Covid-19 has taken a severe social and economic toll, including more than 60,000 deaths. Over 5 million jobs were temporarily affected and GDP contracted by 6.8% in 2020, the largest recession on record in Colombia,” IMF adds.

In the face of the economic-social crisis, government authorities “used the flexibility afforded by their very strong policy framework to deliver a coordinated and timely response to the exceptional shock.”

In addition, “emergency measures have supported the health care sector, households and businesses,” the agency added.

“A flexible exchange rate, monetary policy accommodation and liquidity support, temporary suspension of the fiscal [spending] rule and macroprudential measures mitigated the fallout from the pandemic.”

On another positive front, “a national vaccination program to cover most of the population started in February,” the IMF added.

Meanwhile, Colombia is enjoying a “gradual recovery with [GDP] growth expected to rebound to around 5 percent in 2021. Under our assumptions for declining infections, rising vaccinations and limited lockdowns, GDP is projected to recover gradually this year, although it is not projected to return to pre-pandemic levels until the second half of 2022,” the agency stated.

“Labor markets have partly rebounded with unemployment declining from its peak, although local lockdowns have recently dampened employment gains. Both external and domestic risks to growth remain tilted to the downside.

“External financing needs are expected to remain elevated. However, as non-oil FDI [foreign direct investment] recovers and public borrowing needs decline, the share of private capital flows in external financing is expected to increase.

“Finally, Colombia’s unwavering efforts to integrate Venezuelan migrants into the economy, most recently by granting them Temporary Protective Status, should raise Colombia’s potential growth in the medium term,” the agency concludes.


Colombia’s gross domestic product (“PIB” in Spanish initials) is likely to grow by 4.5% during 2021 -- up sharply from the 6.8% GDP net decline during the Covid-19 crisis of 2020, according to a just-released monthly survey of economists by Fedesarrollo, Colombia’s top economic think-tank.

According to the organization’s latest “Financial Opinion Survey” (FOS) for February 2021, Colombian economic growth for 2021 is now seen by most economists at 4.5%, with opinions ranging between 3.9% and 4.8%.

Other survey highlights:

Interest rates: Since the Colombian Central Bank (Banco de la Republica) set monetary policy interest rates at 1.75% during January 2021, “66% of the [economists] foresee an unchanged interest rate (1.75%) and 6.4% expect a reduction of 25-bps [basis points]” for the remainder of 2021.

Among those surveyed, 19% expect an increase of 25-bps, while 2.1% foresee a rate under 1%. Another 2.1% expect an increase to 2.25%, and the remaining 4.3% of those surveyed expect a 2.5% interest rate by the end of 2021, according to the survey.

Inflation: In January 2021, the annual inflation reached 1.6%, lower than the analysts forecast. In February, the analysts believe that inflation will be 1.5% , while inflation expectations for the end of 2021 are at 2.58%.

COP/U.S. Dollar Exchange Rate: In January, the exchange rate closed at COP$3,559.46 to the U.S. dollar, with a monthly appreciation of 3.69%.
According to the survey, “the exchange rate forecast by the end of [February] ranges between $3,450 and $3,550, with $3,510 as median response. The exchange rate forecast for the end of 2021 is COP$3,450, ranging between $3,400 and $3,530.

“Finally, the exchange rate forecast for next three months ranges between $3,400 and $3,550, with $3,475 as median response,” according to Fedesarrollo.

Colombia Treasury Bond Trading: In January, the traded volume of the Colombian treasury bonds reached COP$47.4 trillion (US$13 billion), up 183% from December 2020.

Now, 57% of analysts surveyed believe that T-Bill interest rates will range from 3.0% to 3.25% during the next three months, while 27% believe that the rate will be between 3.25% and 3.5% and the remaining 6.4% of those surveyed expect a rate over 3.5%.

“Regarding TES bonds maturing in 2028, none of the analysts considers that the rate will be under 4.5% during the next three months, while 29.8% consider it will be between 4.5% and 4.8%. The percentage of analysts who expect that the rate will be between 4.8% and 5.2% during the next three months was 66%. Finally, 4.3% expect a rate higher than 5.2%,” according to the survey.

Investment Determinants: “Economic growth continues ranking as the most important aspect considered for investing decisions, reaching 45.65%” of those surveyed.

“Fiscal policy and external factors placed second and third place, respectively. Concerns accounting for fiscal policy reached 28.26% (up from 20.9% in the previous month), while external factors reached 10.87% (down from 11.6% in the previous month),” according to the survey.

“Other factors” took fourth place, with the rate of Covid vaccinations being the main reason for “other factors.”

“Monetary policy, sociopolitical conditions and security conditions were the least in the investment determinants with 4.35%, 2.17% and 0.0% respectively,” according to the survey.

Investment preferences: Compared to January 2021, in Februrary 2021 “portfolio managers increased their preferences for private debt indexed to the CPI, foreign stock, private equity funds, international bonds, fixed rate private debt and cash,” according to the survey.

Colombia’s “Colcap” stock index: In February, 76.6% of the analysts (84.1% in January) expect a Colcap valuation [rise] during the next three months,while 19.1% of the analysts expect the index to devaluate and 4.3% to remain the same,” the survey found.


Colombia’s national economic statistical agency DANE on February 15 revealed that the national gross domestic product (PIB in Spanish initials) shrunk by 6.8% for full-year 2020 -- all because of the Covid-19 crisis.

However, GDP sequentially rebounded in third quarter (3Q) and fourth quarter (4Q) 2020, compared to the huge 15% decline in second quarter (2Q) 2020, the DANE report shows.

According to DANE, the economic sectors that contributed the most to the 2020 GDP decline were wholesale and retail trade; repair of motor vehicles and motorcycles; transportation and storage; construction; mining; lodging; and food services.

Commenting on the DANE report, Bruce MacMaster, president of ANDI (Colombia’s biggest industrial-commercial trade association), said: “We can see that in the [sequential] inter-quarter growth data, the economy presented an expansion of 9.4% in the third quarter compared to the second, and 6% in the fourth quarter compared to the third, which accounts for an important correction, accompanied by the lifting of the strictest quarantines since June.

“The indicators for the end of the year 2020 show us trends that suggest that we will reach positive data in the near future. The reactivation, accompanied by the vaccination process, puts Colombia in a more positive outlook,” he added.


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Medellin Herald is a locally produced, English-language news and advisory service uniquely focused upon a more-mature audience of visitors, investors, conference and trade-show attendees, property buyers, expats, retirees, volunteers and nature lovers.

U.S. native Roberto Peckham, who founded Medellin Herald in 2015, has been residing in metro Medellin since 2005 and has traveled regularly and extensively throughout Colombia since 1981.

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