The Colombian interbank market recorded a strong increase of just over 100 pesos this Thursday, trading at an average level of 4,078 pesos during the day recorded by the Electronic Trading System (SET-FX) of the Colombian Stock Exchange (BVC).
(See also: 0.3% fall in GDP: Colombia remains in the red without a pandemic for the first time).
At the opening of negotiations, The price of the US currency was 4,040 pesos, which was the day’s minimum. It had a maximum of 4,108.95 pesos and closed at 4,090 pesos. Thus, the representative market rate (TRM) this Friday will be 4,077.44 pesos, an increase of 100.6 pesos from the TRM in effect on Thursday of 3,976.84.
Some operators interviewed attribute this behavior to the market reaction to the Government’s recent statements to breach the fiscal rule as a way of reviving the economy.
There has been no change in the levels recorded today since the beginning of November.While the price of the US currency is 4,117 pesos.
As you may remember, President Gustavo Petro said that the fiscal rule should not be continued in Colombia after learning that the economy decreased by 0.3 percent in the third quarter of the year.
His statements sparked a range of reactions, with former Ministers of Finance and Social Protection Juan Carlos Echeverry and Mauricio Santa María agreeing to say that the idea would be “like shooting yourself in the foot” in every respect. It sends a very bad message to the world, and this message will undoubtedly be reflected in the country by increasing the cost of debt, curbing foreign investments, increasing the exchange rate and worsening economic indicators. Insecurity about Colombia’s economic management.
According to experts, skipping the fiscal rule proposed by the President will have huge negative consequences for the country. and economy. In addition to triggering the exchange rate and increasing the cost of the country’s debt, there will be a loss of credibility in macroeconomic management, but above all it is a disastrous message that creates distrust and instability in the markets, especially in the international markets. .
Analysts also agree that the fiscal rule change proposed by the Government does nothing to solve the recession that the country’s economy is going through; Moreover, with him Due to the effects such a decision will have on different economic variables, there is a risk that this effect will help deepen economic growth. and the message sent to the international community.
(Also: More than 30,000 households have given up on buying new homes in 2023).
The Minister of Finance had already given signals about the fiscal rule: in an interview published in last Sunday’s issue of EL TIEMPO, Minister Ricardo Bonilla pointed out: “What is really worrying is that when the fiscal rule is designed, the priority is not to pay off debt and not invest. What we have done in the 2024 Budget is to address this issue.” “It was a bit of a balancing act: We reduced the debt by 10 trillion pesos and increased investments that will contribute to the recovery. Investment is very important and a combination of public and private investments is needed. We need to think about how to prioritize reactivation.”
The Minister also said that in this sense, the aim is not to remove it, but to initiate a discussion on its suspension, as it was during the epidemic. “What we need for reopening to happen is a combination between the public and private sectors,” the minister said.
“The fiscal rule is a voluntary declaration that we will maintain the conditions that enable us to repay the debt, and that creates confidence,” said Bruce Mac Master, president of Andi, a union representing business people in the country. .” to the markets that lend us money. “To say that we cannot meet these conditions is to immediately create distrust and therefore higher interest rates and, of course, debt service.”
According to the union spokesperson, what the President said is not a good idea because it brings more instability to the economy at a time when the country is facing serious problems such as high inflation, high interest rates and the threat of recession. a face for which there is no need “to impose another on ourselves now.”
“Changing the fiscal rule sends a message of greater uncertainty and insecurity, and therefore private investment worsens and closes fiscal space for investment due to the extra cost of financing,” says EIA rector José Manuel Restrepo, reiterating: “This reduces the credibility of macroeconomic policy and macro is not a message of prudence.”
According to the union spokesperson, what the President said is not a good idea because it brings more instability to the economy at a time when the country is facing serious problems such as high inflation, high interest rates and the threat of recession. a face for which there is no need “to impose another on ourselves now”.
“Changing the fiscal rule sends a message of greater uncertainty and insecurity, and therefore private investment worsens and closes fiscal space for investment due to the extra cost of financing,” says EIA rector José Manuel Restrepo, reiterating: “This reduces the credibility of macroeconomic policy and macro is not a message of prudence.”
José Ignacio López, Director of Economic Research at Corficolombiana, notes: The announcement is a very unfortunate development and does nothing to help focus the debate on the real problem facing Colombia. Today is on the front where there is a huge decline in investments.
On the contrary, he explains, this could worsen the increase in the greatly increased risk premium, which could in turn affect the cost of capital for Colombia, creating unnecessary uncertainty and noise in the markets.
“I believe that the government has a significant margin of maneuver in the execution of public works. I now see in financial markets that representatives may wait if these announcements later translate into something clearer in policy, because changing the rule requires more than one legislative process. For now we will have to wait and see if the Government focuses on solving the current problems.”
Meanwhile, José Manuel Restrepo, rector of the Engineering School of Antioquia (EIA), has already written in his account on the social network PGN (General Budget of the Nation) the margin allowed by two tax reforms that provide more income to invest for 2024. Economy.”
In the same sense, Javeriana University professor Jorge Restrepo said he believed that “the fiscal rule does not restrict the country’s investments today.” “Not only does a historically large and generous Nation General Budget exist to finance investments, but if the Government achieves planned tax collection, this budget complies with the rule,” he said.
José Antonio Ocampo, former Minister of Finance of the current Government, also joined the discussion and stated through the same channel that the fiscal rule is necessary: “The strong growth in tax revenues provides a significant margin to increase public investments and contribute to the economy. Reviving the economy.”
Former Finance Minister Mauricio Cárdenas shared the following on his X account: “The growth problem is not the result of a lack of fiscal space. “This is the result of (a) low implementation, lack of momentum for infrastructure and housing (and a) the poor environment created by announcements like this that create uncertainty.”
CARLOS ARTURO GARCÍA
Economics Editor
Source: Exame
