Rebooting the Colombian Economy
All commodity-based, export economies are vulnerable to rapid changes in commodity prices, but with 50% of the country’s exports in the volatile energy sector (petroleum and coal), Colombia’s vulnerabilities are particularly profound. Worldwide production of both oil and coal has steadily risen, while consumption has fallen as economies have slowed, resulting in a steep drop in prices.
The drop in prices has consequently caused investment in the Colombian energy sector by companies to grind to a halt, dampening foreign investment and thereby putting downward pressure on the Colombian peso. With falling tax revenues, the Colombian government raised the country’s national IVA (value-added tax), a short-sighted action that even further discourages foreign investment and will put even more pressure on the peso.
When energy prices were high, Colombia’s cities boomed. More public projects were funded, unemployment dropped, and tax revenue was plentiful. However the effects of that boom were disproportionately enjoyed by Colombia’s wealthy class and cities.