The dollar in Colombia this 2022 has reached historical highs, reaching a position above 5,000 pesos. The DForeign ivisa 10 years ago was quoted at an average price of $1,700, which implies an increase of $3,300more than double its value. What produced this marked increase?
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For 2013 the dollar closed the year with a TRM of 1,926.83 pesos, according to data from the Bank of the Republic. According to Dario Rondon, AAA Values Operations Coordinator, this is explained because the relationship between one currency and another depends on supply and demand.
“In the course of the last 10 years, the demand for the dollar against the Colombian peso has been increasing. However, this is also influenced by other external factors such as the political and economic risk of the countryRondon says.
In the case of Colombia, there is an inversely proportional relationship between the TRM and international oil prices. According to Henry Amorocho, professor of Public Finance and Tax Law at the Universidad del Rosario, the dollar in the country has always had a feature of volatility and with an upward trend.
For 2014 the dollar reached 2,000 pesos and closed the year with a TRM of $2,392. In 2015 it continued to rise and on the last day of the year it registered a TRM of $3,149. “From there it begins to have a normal volatility margin that did not exceed the limits”, points out Amorocho.
With the same money that you had at that time, speaking of 10 years ago, you cannot buy the same things that you would buy today
This process took place with the passage of two presidents, one who had a neo-structuralist model in the economic part, Álvaro Uribe, and then Juan Manuel Santos arrives with a model that is that of the third wayas pointed out by the teacher.
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During 2016, 2017, 2018 and 2019, the dollar went up and down in a range between 2,000 and 3,000 pesos. In 2020 Iván Duque resumes a neostructural economic model added to the covid-19 pandemic.
Consequently, for March of that year the dollar is positioned at 4,000 pesos. However, according to Amorocho, the currency is falling again because it was a moment of panic reaction from the markets.
“Until the year 2021, the dollar reaches 3,800 pesos almost 3,900. It is not yet around 4,000, only until 2022 ”Explain.
What happened in the country 10 years ago?
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At that time, according to Amorocho, andOil, its price and production were increasing which generated very good income for the country and allowed good fiscal behavior. There was not a fiscal deficit as large as it is today.
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“There was some sustainability in the country until 2014, with good oil production, with the taxes that are collected and a dollar without much upward volatility because it had good economic growth between 3.5 and 4%.”, points out Amorocho.
The expert recognizes that the dollar is remains strong in contexts where the country’s production is declining and with difficulties such as deficit in the balance of payments, fiscal deficit and unemployment.
By that time the Dane showed that during 2013 the unemployment rate nationwide was 9.6%which represented a decrease of 0.8% compared to 2012 when it stood at 10.4%.
also closed the year with a fiscal deficit of 2.4 percent of the Gross Domestic Product. The growth of the economy closed with 4.3%. “From the point of view of demand, the behavior of GDP in 2013 was associated with growth in final consumption, 4.7%, gross capital formation, 4.9%, and exports, 5.3%. ; all compared to the same period in 2012,” the Dane explained at the time.
Along with this, inflation closed at 1.94%. A very different figure from the current forecasts that indicate that the country will end up with a CPI of more than 10%.
(See: The dollar in Colombia already had its third largest price drop this year).
‘The dollar was enough for more things before’
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Now, this strength of the dollar also brought with it a feeling that there was possibilities of acquiring more things sooner with less dollars than at present.
Rondon explains that this is determined by inflation, which leads to a loss of purchasing power over time. “Which implies that with the same money that you had at that time, speaking of 10 years, you cannot buy the same things that you would buy today.“, He says.
It also states that a increased devaluation of the Colombian currency against the dollar could affect the domestic prices of products that increase inflation in the long term.
For his part, Amorocho assures that: “We had been having manageable inflation levels and that did not make us lose purchasing power. The current problem is that high inflation, which can be around 13% at the end of the year, with an increase in interest rates”.
Inflation, then, causes the income of the most vulnerable populations to decrease, the economic slowdown increases and the currency loses its purchasing power.
(Keep reading: Dollar in Colombia: has the price been overvalued? Experts give their opinion).
What is currently defining the rise of the dollar?
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According to the figures, the Colombian peso, which until mid-June had a correlation with the Brazilian real, the Peruvian sol, the Mexican peso and the Chilean peso, from that moment began to lose affinity and mark prices well above.
This has led to a strong depreciation (devaluation) of the peso against the dollar and that in so far this year is 27%. Analysts have spoken that the Federal Reserve rate hike in the United States, the high inflation figures in the world and the war in Ukraine came to determine these increases.
Also, the arrival of the new government in Colombia along with some decisions by President Gustavo Petro that would be generating uncertainty in the markets. However, for Amorocho, these situations would already have happened and it would not be very clear what is determining the rise.
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The expert emphasizes that the economic fundamentals, with the exception of inflation, have a good balance for this 2022 and even the IMF has recognized the significant economic growth with which it would close the year.
MARIANA GUERRERO ALVAREZ
Twitter: @marguealv
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