Sleepless in Cali

COLOMBIA - Report 04 Jun 2021 by Juan Carlos Echeverry and Andres Escobar

Destabilization via vandalism, roadblocks in major cities and paralysis of the crucial Buenaventura seaport has been effective, proving Colombia quite vulnerable to obstructions in key logistical corridors. The country may be at a critical moment, similar to that of 1903, when Panama broke away. Back then Colombia, weakened by the so-called Thousand-Days War, lacked the leadership to keep Panama, negotiate a viable agreement for canal construction and guarantee Colombia’s physical integrity.

Right now, the presidential candidates of 2022 do not know what kind of country they may govern, or what kind of governance they’ll be able to exercise. The 200-year-old key linkages of Colombia’s polity have loosened. A country paralyzed by a thousands of students, and hundreds of hooded vandals, some of whom could be probably financed by dark and powerful forces, may in practice become ungovernable.

Some have proposed a referendum, and new Constitution -- and even that President Iván Duque resign. We consider all of these alternatives far-fetched. But it will be a long year to the first round of the presidential elections, set for May 2022.

Poverty has increased during the pandemic. No wonder, then, that once lockdowns ended, and the failed tax reform set emotions ablaze, people took to the streets again. The young, severely affected by the crisis (poverty rates among households headed by people under 25 jumped to 50% in 2020) have been front-row participants – but they are not the only ones.Unfortunately, violence has tainted the justified claims of peaceful protesters. But the goal of violent groups is clear: to disrupt the economy, scare people back into their homes and weaken the government. The government says economic losses could reach 1% of GDP.

One of the vulnerabilities of the Colombian economy, recently highlighted in S&P’s decision to downgrade the country’s sovereign debt, comes from the external sector. Exports are characterized as too concentrated on oil and coal and therefore subject to drastic price variations beyond domestic policymakers’ control. A constant call for a more diversified export base is a key component of any economic analysis. Yet this has changed substantially in recent years, with exports of fuels and products from extractive industries falling to 43.7% of exports in 2020, from more than 66% in 2011-2013. Last year reflects, of course, the effects of the pandemic, but one would have to go back to the first years of this century to find the composition of exports seen in 2020, and so far in 2021. Meanwhile, imports are starting to recover, with the current account deficit bound to deteriorate between 2020 and 2021. We expect the external deficit to rise above 4% of GDP this year, with the Q1 2021 deficit, at 4.8% of GDP, a clear indicator.

Now read on...

Register to sample a report