Colombia’s currency and stock index fell sharply on Tuesday, a market aftershock to the election of leftist former guerrilla Gustavo Petro as president on Sunday.
The Colombian peso lost five percent of its value on Tuesday, its largest drop since 2008, before recovering to a three-percent fall by the end of trading. Colombian stock index COLCAP also lost five percent, while stock in national oil company Ecopetrol tumbled almost 12 percent by the end of the day.
Colombia’s newspaper of record, El Tiempo, said a “stock market crash” took place on Tuesday. El Tiempo recalled Ecopetrol has only suffered one worse day of trading, at the height of the Wuhan coronavirus pandemic, and noted it took an even worse 10.8-percent beating on the New York Stock Exchange. Ecopetrol was one of the few energy companies in the entire world to lose value this week, and Colombia was one of the few markets to experience an overall loss. Only four of Colombia’s big index stocks actually gained in value on Tuesday.
Ecopetrol’s value might have been hit especially hard because Petro said he would ban new oil projects and eventually phase out oil production altogether in favor of solar energy.
“Colombia elected a leftist anti-oil president, which isn’t good news for the state-run oil company,” the Motley Fool investment website observed dryly.
The Motley Fool suggested investors are “stepping to the sidelines to see what happens in the months ahead,” mindful that Petro is nominally limited to a single term and lacks a parliamentary majority, so “he might have difficulty passing environmental legislation that can’t be instituted solely by executive mandate.”
Reuters likewise suggested the market dip and Ecopetrol plunge were not as bad as they might have been because Petro has “floated a variety of moderates” as possible ministers, and the business world is waiting to see who he picks.
“In the near term, we expect the administration to look to broaden its coalition and do not foresee disruptive policy proposals; when it comes to risks, the oil sector and the pension system are likely to be subject to more uncertainty,” Morgan Stanley said in a note to its clients.
Investor jitters were soothed by the relatively moderate candidates Petro has floated for ministerial positions, and hopes that a socialist president with a big spending agenda would not completely destroy the industry that supplies so much of the Colombian government’s revenue.
Colombia’s NoticiasRCN quoted analysts who said even Petro’s campaign promise to stop granting oil exploration licenses was “unbelievable” because it could knock a full percentage point off the nation’s GDP. However, natural gas and mineral companies also slid by over eight percent in trading on Tuesday, suggesting Petro’s promises are taken at least somewhat seriously by every natural resources industry.
NoticiasRCN talked to Colombian market researchers who said Petro’s choice of finance minister will be “decisive for the behavior the markets and the future of the Colombian economy.” The possibility of a moderate appointee with some flexibility kept the post-election market rout from being “much worse.”
Ricardo Bonilla, an economic advisor to the Petro campaign, promised big tax increases were coming in an interview on Wednesday. Bonilla envisioned “reforms” that would eliminate exemptions and target more of the earnings of “medium and high-income people.”
Bonilla nevertheless asked for markets to remain “calm” and portrayed Tuesday’s big value dives as more of a reaction to the “possibility of a recession” in the United States than to the election of Colombia’s first left-wing president.
“We are not going to be Venezuela. We are not going to be Nicaragua. We are going to make a government of social democracy,” he said.
Bonilla added that the closely-watched choice of finance minister could be announced by the end of this week.
Colombian business organizations pledged to work with Petro on Tuesday, but also urged him to make sensible cabinet appointments and safeguard the industries that provide so much of Colombia’s income.
“We have a country with important challenges, such as the fight against poverty, inequality, and corruption, as well as the opportunity to build a better nation for all and among all,” the National Trade Council said.
The Colombian Oil and Gas Association said it shared Petro’s interest to “strengthen the fight against climate change” and presented itself as a “pioneer” in developing climate management and decarbonization projects.
“At the same time, we highlight the importance of advancing in a responsible energy transition that guarantees energy security and self-sufficiency, national fiscal stability, and the generation of royalties for the regions,” the energy association advised.
Petro said on Tuesday that he had an upbeat telephone call with U.S. President Joe Biden, who seemingly had no problem with Petro’s background with the M-19 insurgent militia or his criticism of America’s anti-drug efforts.
“On the road to a more intense and normal diplomatic relationship I have just held a very friendly conversation with U.S. President Biden. In his words, a ‘more equitable’ relationship for the benefit of both peoples,” Petro said.