Colombian peso plunges after the arrival of the left to power

Alianza Valores, dedicated to the fiduciary market and investments in Colombia, confirmed in its report that the Colombian peso had the most important devaluation globally since last June 17.

It accumulated a devaluation of 18.21% until October, well above developed economies and stable countries par excellence in the region.

As it corresponds to a free exchange rate, the Colombian currency depreciated even more than the Argentine peso in the official market, which accumulated a 10% jump between June and October, even though it had a smaller variation than Argentina’s parallel exchange rate.

Despite the dollar appreciation at the international level after the FED rate hike, the main reason for the Colombian devaluation is political.

President Gustavo Petro’s economic program threatens to modify the foundations of the economic model applied by the country during the last 30 years.

Markets are predicting an uncertain scenario as a result of Petro’s controversial proposals, among which are the abandonment of fiscal responsibility, the increase in taxes, the end of the private capitalization system as the main source of local savings, the reversal of trade liberalization and the subjugation of property rights.

The dollar exchange rate reached an all-time high of COP 4,639 on October 8 and then stabilized at COP 4,607 in the following two days.

Before the electoral victory of the left, the dollar reached COP 3,811 in the last days of May, falling back to COP 3,770 as a result of speculation for a possible electoral comeback of former candidate Rodolfo Hernandez in the second round.

This scenario never came to pass, and the markets quickly reversed the optimism.

The latest run against the Colombian peso was triggered, once again, by President Petro’s controversial statements, who referred to a new “tax on remittances of swallow capital”.

It is a tax on financial income similar to the one applied in Argentina, but taxing the flows abroad.

Petro targeted his proposal in response to rising interest rates in the United States as a supposed tool to mitigate capital flight to the world’s largest economy.

However, his announcements only precipitated capital flight and a run on the domestic currency.

With information from Derecha Diario

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