If someone bought Colombian government bonds, known as TES, in late October 2022 and sold them today, they would earn a 55% return in dollar terms. The reason for this enormous profitability, not the only but the most important, was the lack of communication of the Petro government.
I say that basically it was a matter of communication errors, because many announcements remained and did not lead to effective political action. But the mere announcements have done damage. Let’s take a quick inventory.
The no to new oil exploration, capital controls, the possibility that congressmen could become ministers and switch parties, the sacrifice of the Health Provider Entities (EPS), the death of the Pension Fund Administrators (AFP), the increase in Sunday night labor costs make it difficult to lay off workers, buy three million acres and distribute them to farmers, use the Bank of the Republic’s issuance to pay actors in the conflict, reward criminals with a million pesos a month, and vandals of the protests to be released from prison .
The first year of government has passed and none of it has become public policy. It is just advertising. But they triggered panic in the markets.
In the government’s first six months, this series of announcements led to stoking an environment of uncertainty that pushed up the exchange rate, depressed the TES price, sent the Colombian debt risk indicator skyrocketing and triggered the government’s default insurance policy, called Trueques de Debt Default (CDS for the English acronym Credit Default Swaps).
In his book Liars’ Poker, Michael Lewis says that the markets are always waiting for the government to stuff stuffing into the suckling pig and then eat it (Lewis uses turkey instead of suckling pig, but the Tolimense dish is closer to our culture). This is what happened: In the first six months of the Petro administration, the government fed the piglet, and then the financial markets got fed up.
Newsletter
Analysis of current affairs and the best stories from Colombia, every week in your mailbox
GET THIS
It is tremendously ironic that the ideologically inspired ministers who headed the Departments of Mines and Energy, Health, Labor and Environment and the President of the Republic ended up working to enrich the financial markets, which must certainly give them a boost.
The sum of the announcements made buying Colombian debt ridiculously cheap. As one investor put it, “It’s so bad, it’s right.” According to a Bloomberg article, a handful of Wall Street investors, including BlackRock Inc., Franklin Templeton, and T. Rowe Price Group Inc., made $1 billion from the move.
However, the financial markets were right in their investment, betting that Colombia’s institutions would withstand the onslaught. The government has managed to arouse the concern of thousands of actors, citizens, experts and politicians and make them oppose this series of reckless pronouncements. Many people considered these suggestions not only dubious, but also harmful. If that were the much-discussed change, it would be a costly setback for a country where each step forward sometimes takes a decade.
This iron resistance speaks well for Colombia’s institutions. It came from political parties and sometimes their congressional factions, from the supreme courts, from the reserve military, from the media, from governors and mayors, from hundreds of former ministers and pundits signing smart letters, and even from ministers in Petro’s own cabinet, from polls and, last but not least, from people on the street.
Because of these denials and protests, the agenda in Congress faltered. Some ministers and the President himself threw tantrums, insisting that this was “the change the people voted for” and that they did not want to change a comma. That left them with announcements and uncertainty. They didn’t understand that they were moving around a glassware shop and that they shouldn’t take careless elephantine steps to knock things over here and destabilize things there.
As institutions woke up and government reforms and initiatives faltered, investors realized that buying cheap Colombian bonds was a bargain as the price could only go up; and the exchange rate would improve. It was a safe bet as they acted together and confirmed their own expectations. As we said at the beginning, the profitability of buying Colombian assets has been great. A succulent suckling pig from Tolima.
Did taxpayers pay part of the bill? Government interest rates rose sharply, and while falling, remained much higher than pre-petro. In the 2023 budget, interest on government debt is 70 trillion pesos (trillion), up from 40 trillion in 2021. It exceeds subsidies to the poorest (18 trillion), defense and police (48 trillion), health and social protection (50 trillion), and education (54 trillion). Not to mention housing (6.4 bn), justice (4.3 bn), agriculture (4 bn), sports and leisure (0.9 bn).
The uncertainty created by the verbal fireworks has meant that, in addition to the suckling pig being stuffed and eaten by others, an even larger proportion of the taxes we pay go towards paying down the national debt. A shot in the foot.
Subscribe here to the EL PAÍS newsletter on Colombia and receive all the latest information about the country.
Subscribe to continue reading
Read without limits