Colombia’s Central Bank Holds Urgent Meeting To Review Deteriorating Global Economy: Coronavirus, Saudi-Russian Oil Price War, Falling Currency

The members of the Board of Directors of Colombia’s central bank, Banco de la República, the Minister of Finance and Public Credit (Minhacienda), and the Financial Superintendent of Colombia (Superfinanciera) met earlier today to analyze the economic and financial situation following recent external developments such as the precipitous fall in the price of oil due to a new petroleum trade war between Saudi Arabia and Russia, and the deterioration exhibited by international financial markets amidst the international Covid-19 Coronavirus health emergency.

The governor briefed the participants on the main conclusions of the Global Economic Meeting, the teleconference convened by the global Bank for International Settlements (above photo). In the conference, the world’s major and emerging market central banks shared insight into the current development and status of their economies at the present juncture, where they have focused attention and resources, and the coordination mechanisms they have been adopting.

After analyzing the available information, the Colombian financial authorities concluded that:

1. The fundamentals of the Colombian economy remain strong and allow to absorb the external shocks herein described without severe effects on real activity and financial stability.
2. The financial system exhibits adequate solvency, liquidity, and risk management indicators, and is capable of absorbing significant market risk, liquidity, and credit shocks, which are permanently being simulated by the Committee for the Coordination and Follow-Up of the Financial System.
3. Global conditions have deteriorated rapidly, and the exchange rate is responding as expected to these changes.
4. The following fronts will be monitored continuously: liquidity and volatility of the foreign exchange market; conditions of domestic and external liquidity; and possible fiscal implications.
5. The authorities will adopt appropriate actions in a coordinated manner; decisions will be announced jointly and in a timely manner.

Despite these reassurances, Colombia is in a precarious financial situation. The government is in danger of not collecting adequate resources after passing its Fiscal Reform Law. Now, with the Coronavirus dampening international travel and tourism, a major sector for Colombia, and a new trade war between Russia and the Saudis that saw oil prices plunge 30% overnight, Colombia has few shields to defend itself against the worsening geo-financial situation. Its currency in the past week fallen to record lows against the dollar.

Despite attempts at reassurances, it remains to be seen whether the administration and central bankers can navigate the worsening situation, especially has President Ivan Duque has run low on political capital after widespread protests at the end of 2019.