Consequences of the Turkish economic crisis for Colombia – Financial sector – Economy



The jump of nearly 150 pesos that hit the dollar in a few days last week, and the last Thursday brought it to a maximum of 3,046 pesos in the year, It was hardly the result of the nervousness caused by the crisis that Turkey faced with investors, who immediately sought a shelter in the dollar, thereby reducing the costs for the currencies of emerging economies, including the Colombian peso, came under pressure.

Colombia has no intense or direct commercial relationship with Turkey that threatens or endangers its recovery, but the fact that it belongs to the group of emerging countries, along with some Asian, African, European and Latin American countries, puts it on the radar of international analysts and investors, experts say.

"Colombia is not Turkey", they warn, but In such a situation, something similar happens when a person has a basket of apples and only one of them is in bad shape and starts to get damaged. If you do not act, you first infect those closest to you and with whom you have the most direct contact, but this can ultimately affect the entire basket.

The issue is that Colombia shares the basket of emerging economies with Turkey, and although it has no contact or direct relationship with the Eurasian country, the fact that they are in the same group means that investors start to assess every risk of contamination and how vulnerable it can be for noise coming from that country.

Within Latin America we are not the most vulnerable to this crisis, in fact, the investment bank of Nomura places us under Chile and Mexico

"Investors look at the set of indicators, such as external debt, the current account deficit and the stability of inflation, among others, and they say that Colombia is more or less vulnerable. Within Latin America we are not the most vulnerable to this crisis, in fact, the Nomura investment bank places us under Chile and Mexico, "explains Juan Camilo Rojas, research and investment manager at Credicorp Capital.

That is why he adds that if there are contagion effects because the crisis in Turkey needs more time to resolve than expected, are the most risky in the region of Chile and Mexico, Colombia would come. "If the crisis spreads, and there is an additional problem, there can be a greater impact for us, but we will not be the only one, it is not a specific fact for the country, but because we belong to that stock market, it makes us vulnerable to some extent, "he says.

For now, the echoes of the Turkish crisis have come indirectly to Colombia and have only been felt at the exchange rate which, in the opinion of analysts being consulted, will tend to stabilize in the coming days, although volatility of the last days will continue. .

In other words, Turkey starts or ends nothing, because it did not happen with the Argentine crisis, says Felipe Campos, Manager of Economic Research at Alianza Valores, who adds: "the Colombian devaluation is more in response to the strong dollar movement worldwide and Turkey, just a reminder of what happens to countries with imbalances in this environment. "

Oil drop

Indeed, last week's US dollar costs were also put under pressure by a drop in the price of a barrel of oil, although it did recover somewhat in the end, but also because of expectations of interest rates in the United States. 2019, because the two remaining for this year already the markets discounted.

The referential oil in the United States completed the seventh consecutive week of losses, while the Brent fell for the third consecutive week, despite the rebounds on Friday.

Brent dropped 1.4 percent last week at $ 71.83 a barrel, while the WTI dropped 2.6 percent and stood at $ 65.91, levels that go away from the highs seen by fears that stocks in the United States rebound.

Andrés Langebaek, director of the economic studies of the Bolivar group, says that there is still a lot of dependence on emerging raw materials (including oil) and, given the prices, the situation in most of these countries is complicated.

"The issue of Turkey is in a context where there are problems with other emerging countries, especially China, Russia, South Africa and Indonesia. It is not only the Turkish tension, but the combined effect of so much news about attendance and their interdependence that produces enormous effects"He warns.

And he adds that they had expected that this would be a complex year for some emerging countries because of the rise in interest rates in the United States, as many countries in the age of cheap credit received capital and swapped their current account deficit. But now Some have great shortages and find it more difficult to finance them.

Future scenario

The dollar's jump last week occurred precisely at times when the Dane revealed the growth data of the Colombian economy in the second quarter of the year of 2.8 percent, accentuating the expectation for a recovery of the country and, like Julián Cárdenas, analyst of Special Portfolios, warns AFP Protección, is trying to pinpoint the local economy from the turmoil of emerging markets.
"In Colombia, the improvement in macroeconomic data and the near-zero contamination with Turkey should have a positive effect on a downward correction of the exchange rate," he says.

But he warns that, however this week the markets will be alert to the minutes of the last meeting of the central bank of the United States (Fed), and especially on the approaches with China and the possible measures against Russia. Also to the signals from the annual meeting of central bankers of the United States, which can indicate how often they will raise their interest in 2019.

Meanwhile, analysts in Colombia now expect exchange rate volatility with a dollar of more than 3,000 pesos.

"While the crisis lasts a little bit, we can keep a little more than 3,000 pesos." On Friday there was high volatility and that type of movement can become more and more normal if the noise continues. Colombia kept falling out of the dollar, so if these conditions are maintained on Tuesday, we could open the day with an appreciation of the peso that even brings us below 3,000 pesos, but the volatility will continue until there is a definitive solution, "said Juan Camilo Rojas of Credicorp Capital.

The situation is complicated for the Turkish government

The Turkish economic authorities announced a series of measures to prevent their economy from ending up in a recession: they increased their interest rates, intervened in the foreign exchange market and relaxed a number of banking rules for loans, which analysts say are negative signals for investors and can situation deteriorate further.

Turkey must prevent foreign investors from leaving there. What makes this difficult, the tensions with the United States after the arrest of Reverend Andrew Brunson, accused of terrorism, and that the Turkish government refuses to release. This strong political friction has already happened with the commercial plane, with the economic sanctions of the United States causing the exodus of dollars from Turkey, which further weakened the economy.

CARLOS ARTURO GARCÍA M.
On Twitter: @ CarlosGarciaM66


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