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Financial markets in Colombia plummeted following the election of far-left candidate Gustavo Petro. While most of the world’s stock exchanges opened higher, the index that measures the pulse of the Colombian financial market, the ICOL, plummeted 8% at its opening.
“We are the stock exchange that falls the most in the world and while oil companies and oil prices rise, here Ecopetrol —the Colombian state oil company— falls 12%”, Sebastián Toro, financial professor and founder of the trading academy, Arena Alfa, told El American, while he watched on his screen as all Colombian stocks turned red, denoting a massive fall.
Gustavo Petro’s proposal scares financial markets in Colombia
Gustavo Petro was elected with a populist proposal that promises an economic transition in the country, supposedly to stop depending on hydrocarbons. Although the candidate has not clarified how his energy transition plan would work, he has insisted that in his presidency he will prohibit exploration and investment in new oil wells, which generates panic among Ecopetrol investors.
Ecopetrol’s stock alone weighs 25% on the ICOL, making it one of the most important companies in Colombia, the fall in the Colombian oil giant’s stock market naturally brings down the entire index.
The president-elect has also put Colombia’s financial markets in check with his threat to take the stock of private pension funds to finance his pension program and transfer the money to the bankrupt public insurer, Colpensiones.
The Pension Funds are key players in the Colombian financial markets, so taking the savings of the pensioners that capitalize on the stock market, to put them in the pyramidal system of Colpensiones, causes alarm.
As explained by the financial analyst Juan Pablo Figueroa, “pension funds have a participation of 20% of the total shares circulating in Colombia, if you liquidate that position, the financial markets in Colombia will go to the floor.”
Although in his campaign he didn’t mention it again, during 2021, then-Senator Gustavo Petro repeatedly warned that he would violate the independence of the Bank of the Republic so that the issuing body would make direct loans to the Government and finance public spending, a formula that led to a hyperinflationary disaster in countries such as Argentina or Venezuela.
Massive run on the financial markets in Colombia.
“The economic stock market is made up of two very important sectors, the mining and energy sector, and the financial sector,” explained Figueroa.
The share price of Bancolombia, the largest commercial bank in the country, closed with a loss of 3%, gas, aviation, financial services, and construction companies also fell during the day. In total, of the 35 companies listed on the stock exchange in Colombia, 27 gave negative returns following the election of Gustavo Petro.
Even a company like Celsia, whose business is the generation of electricity through photovoltaic sources, fell as much as 7% during the day on Tuesday, revealing that even the candidate’s energy transition proposal is diffuse for the market.
“The falls presented by Colombian papers in the market are a response to the electoral results, because Colombia’s index in the New York Stock Exchange was going up,” explains Luis Guillermo Vélez, professor of economics at Eafit University.
The dollar rose in Colombia after Petro’s victory
The price of the dollar in Colombia also suffered a rise as a result of Petro’s victory, although much more moderate than what many analysts predicted. On Tuesday, the dollar registered a rise of almost 3% in Colombia and is currently around 4,000 Colombian pesos.
Although the rise was not as sudden as expected, on holiday Monday thousands of Colombians crowded the exchange houses desperate to buy dollars. The high demand put the American currency above 5,000 Colombian pesos.
“The street dollar is very scarce, the exchange houses in Bogotá and Medellín are running out of dollars and are buying them at a very high price,” comments Professor Velez.
Although the Colombian stock market has partially recovered from Tuesday’s financial panic, investors are waiting to see what President-elect Gustavo Petro, who is expected to appoint a moderate Finance Minister to calm the frightened markets, will do.
Economist, writer and liberal. With a focus on finance, the war on drugs, history, and geopolitics // Economista, escritor y liberal. Con enfoque en finanzas, guerra contra las drogas, historia y geopolítica