Colombia’s central bank urged calm on Monday after drops in global oil prices and stocks dragged the peso to unprecedented lows against the US dollar.
In the first hours of trading the peso took a nosedive against the dollar, which went from COP3,589 to COP3,805 in reaction to dropping oil prices and a “Black Monday” on global stock markets.
The devaluation of Colombia’s national currency is unprecedented and a major concern for the government of President Ivan Duque, but “the foundation of the Colombian economy remains solid and allows it to absorb aforementioned external shocks described above without severe trauma to real activity and financial stability,” the personal bank said in a statement.
The central bank held an emergency meeting with Finance Minister Alberto Carrasquilla whose 2020 budget will fall into a million pieces unless the peso and crude oil prices recover quickly.
Carrasquilla told press that “the global changes were predictable” and that there is no reason for concern yet after meeting with the central bank.
Opposition Senator Wilson Arias (Democratic Pole) disagreed and called for the minister to answer to Congress for his “irresponsible management of the economy” when lawmakers return from their three-month Christmas recess next week.
Colombia’s stock market lost 10% in value on Monday.
Because of the unprecedented nature of events — with global stocks making their biggest drop since 2008 and oil prices since 2014 — the impact of this on Colombia’s economy is impossible to predict.
Nevertheless, unless both the peso and the global oil prices recover quickly, the budget deficit may end up immense; Carrasquilla was extraordinarily optimistic about economic growth and the price of the dollar when pushing the budget through congress.
Because Colombia’s GDP is relatively reliant on oil revenue and its external debt is paid in dollars, the drastic changes could have a dramatic effect on economic growth and unemployment.
The 2014 drop in global oil prices turned years of lowering unemployment rates around. Monday’s drop, which was caused by an oil war between Russia and Saudi Arabia, could dramatically slow down Colombia’s economy and accelerate growing unemployment.