Colombia’s Currency Conundrum
Many in Colombia’s commodity sector see a falling currency as a boom for exports. Here is why they are wrong, and why that’s a good for the Colombian economy and for investors.
The precipitous fall of the Colombian peso against the US dollar has been as surprising as it has been sudden, closing this week above 2935 and charting a course that seems destined to take it beyond the 3000 barrier. The drop represents a 36% difference from only one year ago, when the currency traded at 1886 pesos to one US dollar.
The driving force behind the currency’s collapse has been the falling price of petroleum, which accounts for 49% of the country’s exports. The price of petroleum has collapsed 52% year-over-year, and an amazing 58% since the most recent high of $110 in August 2013. The country’s introduction this year of the “Impuesto a la Riqueza”, or “Wealth Tax”, which taxes both individuals and companies annually based upon assets, has only exasperated the problem, further deterring foreign investment and applying additional downward pressure on the nation’s currency.[Read More]