S in Colombia
This is in spite of a 40 per cent devaluation of the currency and a doubling of oil prices.
Part of the reason for the shortfall is the persistent import of intermediate goods. The deindustrialisation of the Colombian economy, much of it due to the free trade agreement with the United States, left the country dependent on external sources for intermediate goods, such as petrochemicals, fertilisers and auto parts.
The problem is that an appreciation of the peso will exacerbate the shortfall. With oil prices in the US$80 range, the Colombian peso should be trading in the low 2,000s, instead of the low 3,000s. The only reason it is here is because of the rise in US interest rates. Nevertheless, an eventual easing of US monetary policy will probably result in a rapid appreciation of the peso.
The Colombian government needs to foster more foreign direct investment to reindustrialise the economy and bolster the export sector. A central government fiscal deficit of four per cent of GDP is another major concern. Earlier this month, the congress passed another fiscal reform to widen the VAT tax base, raise personal tax rates, mandate prison sentences to tax evaders and ease corporate taxes. The measures are expected to generate US$14 billion pesos in additional revenues.
All of these measures will help keep the economy on an even keel.
There are good reasons for Colombians to be worried about the political situation, but things are not so bad on the economic side of the picture.