Government, Private Sector Muddling-Through Financial Challenges of Coronavirus

Colombia President Ivan Duque on March 29 hailed the move by the Ministry of Finance to extend COP$70 trillion (US$17 billion) in favorable credits to banks and their commercial, industrial and consumer customers — in order to enable broader debt refinancing, maintain employment and keep paying wages to workers during the Coronavirus crisis.

With this program and other new measures, “I have no doubt that Colombia will succeed” in meeting the longer-term economic challenges of the Coronavirus crisis and the current quarantine, Duque said.

Apart from quarantine-exempt grocery and pharmacy buying today, much of consumer spending — the biggest driver of the Colombian economy — has been crushed.

What’s more, some restrictions on movement and gatherings are likely to continue past the presumptive April 13 end of the current quarantine, according to President Duque.

With millions of people no longer reporting to work — and certain industries such as shopping malls, restaurants, hotels, airlines, real estate, entertainment, schools, colleges, museums, gymnasiums and parks shut down – the Colombian economy isn’t generating enough cash velocity to cover many current debts under existing repayment terms.

If this situation continues for months, then (ultimately) banks, industries, retailers and consumers would face a devastating financial crisis. Unless people get back to work, return to spending, and currently shut-down commercial/industrial ventures get back to production, the future looks bleak, as noted in a penetrating new investigation by Colombia-based financial giant Corficolombiana (see: https://investigaciones.corficolombiana.com/documents/38211/0/200316%20-%20Informe%20especial%20coronavirus%20en%20Colombia-2.pdf/b1178cd1-f4f2-73fb-2838-cd54db7d43b4).

On the brighter side, the COP$70 trillion(US$17 billion) newly-extended credits via the “Fondo Nacional de Garantías” (FNG) include COP$20 trillion (US$4.9 billion) for micro-, small- and medium-size enterprises (MSMEs), which account for the vast majority of employment in Colombia. This new government credit line for MSMEs includes a 50% payback guarantee, cutting lender risk in half.

Because of the new credit lines made available to banks, Duque urged lenders to “speed up the credit lines and facilities that allow small entrepreneurs and other entrepreneurs to attend to the situation caused by the coronavirus pandemic.”

“This is a moment where [creditors] have to contribute with solidarity, and I know that the Financial Superintendent [Colombia’s ‘Superfinanciera’ regulatory agency] has been having dialogues with many providers of banking services. The call is to effectively streamline their [processes] to deal with this storm,” Duque added.

Colombia faced a similar financial crisis in 1999/2000, Duque recalled.

“Twenty years ago, our country made a great effort to save the financial system at a time of crisis. Today, at this time, we need a financial system that is also contributing in solidarity to overcome these difficult moments,” Duque said.

Besides the new FNG credit fund, the Colombian government also is now waiving certain taxes and mandatory payments of certain less-critical worker subsidies to help many small and medium-sized companies, he said.

In addition, Colombia’s Bancóldex agency just boosted its credit facilities to COPR$650 billion (US$160 million) for affected export sectors as well as second-tier backstop funding for lenders, he noted.

Meanwhile, in a separate but related March 27 announcement, the Finance Ministry confirmed that Colombia’s poorest people (“estratos uno y dos”) won’t have their utility connections cut during the crisis — and the national government will help local utilities recover these losses.

“Here we give guarantees to all companies that provide public services so that they have the capacity to continue providing them and they will not be in difficulties,” Finance Ministry vice-minister Juan Alberto Londoño stated.

“This [assurance] is not only for utilities but also for the health sector,” Londoño added. “Companies in the health sector — hospitals, laboratories that need credits to continue providing their services and that need aid — will have guarantees from the state,” he said.

In addition, “universities and other sectors that we have been identifying — and that we ask everyone to help us identify — will be extended credit,” he added.

ANDI President Urges One-Year Debt Holiday

Meanwhile, in a March 29 opinion column published in Bogota daily newspaper El Tiempo, Bruce MacMaster, president of ANDI — Colombia’s main industrial/commercial trade association — stated that the Colombian government should start to consider even-more-radical credit measures.

“Three months ago, no one would have imagined that countries closed their borders, hotels and restaurants no longer are working, much less that 90% of the population would remain locked up in their homes, with society threatened by an illness that we are not capable of controlling, and with an economy totally at risk,” MacMaster wrote.

“If this situation continues, a good part of the economic achievements of the 20th and 21st centuries can be lost, unemployment levels will increase, the capacity of institutions to finance universal health and education could be compromised, and the business fabric that has played a major role in building development and generating massive employment could be seriously affected.”

Today’s private-sector solidarity measures and new government-aid initiatives are helping to alleviate the current crisis – including the new COP$70 trillion FNG credits, he noted.

But these alone wouldn’t be enough to head-off a longer-term disaster if current the crisis continues, MacMaster warned.

Besides cash liquidity-crunches for consumers, “there is the liquidity of companies, which are the vehicles to generate employment and income for millions of families,” he said.

“A good part of the [industrial/commercial] financial commitment today has to do with debt service,” MacMaster explained.

As a result, the Colombia government “ought to think of doing a massive program — hopefully automatic — that would allow companies that require [financial relief] to postpone all debt service payments for a year.

“By allowing the [Superfinanciera financial regulator] to waive current repayment terms, the Bank of the Republic could [step in] to provide liquidity to the financial sector,” which in turn would pass-through this aid to the industrial/commercial sectors, he explained.

“For the financial sector, it is better to leave [debt] resources with good clients than to put them into receivership [bankruptcy]. This [one-year debt holiday] would free up resources necessary to meet the primary need – that is, people — by supporting the viability of the productive sector, which will ultimately will have to pay back the credits,” MacMaster concluded.