Previous Quarterly Editions
Expropriation Risk: 47 49 52 52 Political Violence Risk: 64 70 68 68 Terrorism Risk: 80 80 78 76 Exchange Transfer and Trade Sanction Risk: 51 52 56 55 Sovereign Default Risk: 42 44 48 48
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Having told the country to expect an end to lockdown restrictions at the start of July 2020, President Iván Duque was instead forced to reimpose and extend Colombia’s nationwide COVID-19 lockdown measures in late June 2020. The move came as virus-related deaths accelerated in the main urban areas. With the government forecasting a contraction of 5.5% this year, Duque remains keen to restart economic activity as soon as practically possible but realises that the rising numbers in areas at high risk of contagion transmission show that the situation is not under control. Bogotá remains the epicentre, but the coastal cities have been particularly badly hit. National and regional administrations have repeatedly clashed over the lockdown, with Bogotá Mayor Claudia Lopez deeply critical of a decision to proceed with a 'VAT-free' shopping day in June 2020. This was planned before the pandemic and had produced a five-fold increase in sales nationwide on the same day last year in 2019. It again produced large crowds and Lopez said that the event ruined gradual efforts to reopen shops safely. Two more scheduled ‘VAT-free’ days may now be restricted to online sales. While polls suggest that the public is unimpressed by political points scoring during the pandemic, the economic challenges facing Duque continue to grow. GDP contracted by 20% year-on-year in April after a 4.9% drop in March. With the lockdown particularly impacting the construction, tourism and mining sectors, an estimated 23.5% of Colombians are now unemployed. Duque is aware that he will need to exit the COVID-19 crisis with plans for a more interventionist and welfare-focused economic policy in order to prevent a recurrence of last year’s unusually bitter clashes. Duque also goes into the second half of a difficult year with three scandals threatening further damage to his low approval ratings. One involves possible campaign funding from an individual linked to drug trafficking and another concerns illegal surveillance by military intelligence, but the most damaging is the abuse by the military of women and children from the country’s indigenous communities. The pandemic halted rising complaints from former FARC members about Duque’s failure to honour commitments made by his predecessor, but the government will be keen to defuse a serious rift with the FARC despite the cost of funding the programmes that formed a central part of the 2016 peace deal. At the same time, Colombia is under increased pressure from Washington to allow a return to US-led coca eradication and interdiction operations even though this is likely to escalate levels of rural violence involving civilians, the military, criminal organisations, and non-state armed groups. Although UN figures show that the area of Colombia under coca cultivation fell by 9% in 2019, the US has presented figures showing that the manufacturing of cocaine was up by 8%. Washington has used this data to justify the dispatch of more than 50 personnel from the US Security Forces Assistance Brigade (SFAB) to Colombia in June 2020 for the stated mission of providing technical support to Colombian counter-narcotics units. However, the insistence from the US to concentrate on the area along the border with Venezuela will raise concerns about Washington’s ultimate objective- the presence of SFAB is already the subject of a legal challenge in Colombia.
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Avianca, Colombia’s national airline and the second largest in Latin America, filed for Chapter 11 bankruptcy in the United States in May 2020 as the shutdown in aviation across the region added to its existing troubles. The airline lost 900 million USD last year and a further 120 million USD in the first quarter of 2020, which was before the pandemic began to have a significant impact. It spent the second quarter of 2020 effectively grounded, offering no scheduled flights with most of its 21,000 employees being furloughed. The government, which sold its majority stake in the airline in 2004, did not respond to the airline’s plea for a 1.2-billion-dollar (USD) rescue package despite the jobs involved, largely due to the company’s parlous condition before the pandemic.
Recent reports of military atrocities against women from indigenous groups have added to rising concerns over the safety of women in Colombian society. Gender violence has increased since the introduction of COVID-19 quarantine measures in March 2020. This has produced calls for government action which will become louder as domestic violence and military crimes increase the pressure for justice and change. The protests in late 2019 against public spending cuts, and labour reforms, produced enough of a government retreat to prevent a repeat in early 2020, although the heavy-handed action of the government’s Mobile Anti-Disturbance Squadron (ESMAD) was also a factor in discouraging protests. The issue of labour reform is likely to resurface in some form after the COVID-19 crisis, and further clashes are possible then.
The National Liberation Army (ELN) released several hostages during June 2020 in an apparent bid to restart talks with the government that collapsed 18 months ago. However, President Duque has little intention of resuming dialogue, concentrating instead on persuading individual fighters to surrender via an initiative that has had some success. In response, the ELN hopes that increased poverty due to the COVID-19 crisis makes recruitment easier. Both the ELN and the remaining elements of the FARC are heavily involved in narcotics and large areas of Colombian territory are controlled by non-state armed groups involved with drugs. The increased cocaine production figures are reportedly due to higher concentrations of coca being grown in particular places and suggest such groups are developing better cultivation and production techniques.
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Following three monthly cuts of 50 basis points in its benchmark rate, a similar cut at the end of June 2020 brought the central bank rate down to 2.5%. With inflation dropping below the bank’s 3% target (as consumer spending falls fast), there is room for one or two similar cuts before the end of the year. Meanwhile, the central bank has been increasing liquidity and urging commercial banks to extend repayment terms for smaller businesses. The peso lost 7% of its value against the dollar (USD) during 2019 but was strengthening during the first months of 2020 until the collapse of oil prices and COVID-19 pushed it down again.
In May 2020, the Fiscal Rule Advisory Committee raised the legal deficit limit for this year to 6.1% from 4.9%. The 4.9% itself itself was a recent increase from 2.3% that was meant to cope with the costs associated with Venezuelan refugees. The government still has access to an IMF line of credit and began the COVID-19 crisis with foreign reserves at a record high of 53 billion USD, but the political crisis over the state of the economy, even before the pandemic arrived, will mean significant levels of state spending during the second half of 2020.
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