Would Petro be a transformer, or a disrupter?
Loans disbursed in December 2020 deteriorated much faster than those granted before the pandemic. It looks as though the end of 2020 marked the peak in the speed of credit quality deterioration. Loans disbursed in July 2021 seem marginally better, in terms of quality deterioration, than those disbursed in April. The evolution of delinquency by harvests in the case of car loans and “free investment” loans follows pretty much the same pattern of total consumer credit: deterioration during 2020, and a partial improvement in 2021. Credit card loans, however, do not exhibit an improvement in quality compared to April and July 2021 disbursements. The December 2020 harvest deteriorated faster during the first seven months after disbursement, but after the eighth month the delinquency of the September 2011 harvest took over. This, in our opinion, reflects the dramatic downturn and quick pickup of the economy during the current crisis, compared to the ripples left by the international financial crisis on the Colombian economy a decade ago.
Excess spending in the economy is becoming a major issue for macro policy. The financing of such a large current account deficit amid waning liquidity in international capital markets is, without a doubt, Colombia’s most pressing challenge. The Central Bank is on high alert and taking measures, while the government has limited room to reduce its gigantic deficit, and to contribute to a more orderly adjustment of external accounts. Because of external imbalances and producer price behavior, monetary policy is becoming subject to much more pressure. We now consider 50 bp hikes more likely during H1 2022.
Data on economic activity in October continues to show a strong recovery, but with signs that some sectors are still facing headwinds. Overall, things are looking well, with ISE growing 9.3% with respect to October 2020. But there are dark spots. And the strong activity numbers mask two inescapable truths: the labor market still has plenty of room to recover its pre-pandemic employment levels, and GDP growth still mainly favors city dwellers, leaving many millions of people outside the prosperity loop.
Salvador Allende and Colombian ex-dictator Gustavo Rojas-Pinilla would be proud of Gustavo Petro’s policy agenda. Many people expect Colombian institutions to withstand Petro’s siege. But, as Bolivia’s, Ecuador’s, Argentina’s and Brazil’s experiences with leftist administrations suggest, it is difficult to predict the breadth and depth of changes. Will Colombians opt for the “why not” philosophy, and choose their own AMLO, Lula, Perón, Allende, Correa or Evo? Or even worse, their own Ortega, Chavez or Maduro? Is Petro’s personality more that of a transformer, or a radical disruptor? Will Colombians be daring enough to let history give him the opportunity to choose his political type?
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