Does Colombia need to be a superpower in anything?
Economic downturn has implications for the health of supervised credit institutions. Delinquency ratios are on the rise, already resulting in higher provisions, and likely to keep doing so. Profits of some lenders have been affected, especially those more focused on consumer lending; these losses affect solvency ratios, which are undergoing tightening, agreed upon some years ago to meet Basel III standards.
We examine these aspects over the current credit cycle. Supervised lending institutions generally receive a clean bill of health through April data. But some institutions are worth watching, not because they are in trouble but because they are edging toward (tighter) regulatory solvency requirements. Central Bank interest rate decisions, contingent on inflationary news, will be relevant.
Early 2023 marked a turning point for the Petro administration. What looked in H2 after the tax reform like a steamroller coalition ready to swiftly undo the health and pension systems and roll back the labor market a couple of decades, started to face severe limitations. Political reform, a constitutional amendment, sank early on; some key initiatives included in the National Development Plan (such as vertical integration in electricity or a fast-track process for the government to purchase “idle” land) were rejected by Congress; the labor reform plan also sank.
The local TES market has been a mirror of this change in sentiment, forcefully reviving in early 2023, as people became convinced that checks & balances in Colombia were still operating. We saw a big change in the composition of pension fund assets under management. Pension funds that had moved massively to equities issued abroad have since January moved some monies to fixed income instruments issued abroad -- but the bulk of the move has been to Colombian government-issued paper. Foreign investors, though, remain skeptical.
Congress will have to deal with a cabinet substantially modified over the last six months. Let us hope this new cabinet will last longer than El Niño.
A main takeaway from President Gustavo Petro’s July 20th Independence Day speech at the inauguration of Congress is that Colombia, not being a military superpower, a hegemonic economy, a planetary leader in technology or a soccer world champion, is to become “una potencia de la vida,” a kind of biological superpower. Why Colombia needs to be a superpower in anything surpasses our understanding. But this means a lot to Petro – so who are we to spoil our president’s grandiose illusions? Petro also claimed that “the war between the State and the insurgency is ending” (there are at least very powerful 50 gangs in Colombia, all dedicated to the booming insurgency industry -- but who are we to spoil the president’s naiveté?); that Colombia had defeated inflation (still running at 12%+) and that “we are advancing in a peace process with the ELN” which had “resulted in a substantial decline of military and police casualties compared to last year” -- though massacres, kidnappings, extortions and other crimes are on the rise, many perpetrated by ELN. Yet who are we to contradict our president’s trust in such serious and cohesive gangs as the ELN? Petro ended by calling for a major national understanding for a “fairer and more productive society.” Let’s hope that this last aspiration materializes.
Colombians say their main concerns nowadays are economic issues (unemployment/inflation) and crime. A persistent leadership crisis was brewing in security enforcement in the middle of last decade. Colombians’ patience has a limit, and the issue of insecurity could easily become the paramount driver of politics in 2026. Might Colombians start asking for a Bukele-type ruler to replace Petro, and to confront crime as the foremost malaise of Colombia?
Four of Colombia’s five major cities finished the last decade in the hands of progressive mayors. The picture could change after the October 29th mayoral and gubernatorial elections, and become a kind of plebiscite for Petro. Polls show that candidates from parties opposing the Pacto Historico may win.
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