Bogotá — Gustavo Petro has completed his first year in office as Colombia’s President. In order to assess his government while putting aside any political bias or controversy surrounding his persona, it is best to examine four of the country’s key economic indicators.
Petro took office on August 7, 2022, and at that time, expectations were that inflation would continue to rise. Moreover, the economy, having experienced two strong years of growth, was expected to slow down due to high interest rates and uncertainty stemming from a potential recession in the United States.
Inflation in the Petro Era
The surge in prices in Colombia began in 2020 with the global Covid-19 pandemic, which impacted economies worldwide. However, the country’s CPI rose even higher than its regional counterparts, in part due to social unrest in April 2021, which was triggered by an ambitious tax reform proposal from the previous administration, led by Iván Duque and former Minister Alberto Carrasquilla.
The protests, which left the country divided and immersed in profound ideological differences, persisted until the third quarter of 2021. The recovery to pre-social unrest price levels took longer than anticipated, particularly in the food sector, which was further aggravated by a Russia-Ukraine war that affected agricultural production across nations.
By August 2022, when Gustavo Petro assumed leadership in Colombia, inflation stood at 10.84%, with food prices soaring by 25.57%.
Controlling inflation isn’t within the government’s purview. Rather it lies with the domain of the Central Bank, which operates independently to the Executive. Nonetheless, the coordination between the central bank’s monetary policy and the government’s economic policy allows tend to support price control policies.
In Colombia, inflation continued to rise until this past March, when it peaked at 13.34%. However, food prices were already beginning to ease in their price surge by that time, showing a year-on-year variation of 21%, a similar but lower trend compared to other emerging economies.
As Petro’s first year in office ends, pending July’s inflation data, the overall Consumer Price Index (CPI) has begun to decelerate, running at 12.1%, while food prices currently exhibit a 14.31% increase.
Unemployment
One of the variables most concerning to Colombians is unemployment, which, which has only briefly managed to drop below 10%. Economic activity is often correlated to the unemployment rate, as increased activity generates a greater need for labor. During economic difficulties, civil construction sectors usually lead in growth and job creation.
In August 2022, when Petro was already president, the unemployment rate stood at 10.6%, reflecting 2.6 million unemployed individuals in the country.
Recently, the National Administrative Department of Statistics (DANE) released unemployment data for June 2023, the most current available, revealing that for the first time since 2021, the rate had dropped below 10% to 9.3%. This means that 2.4 million Colombians were jobless in June, indicating a decrease of 200,000 compared to Petro’s assumption of office.
Exchange rate volatility
The exchange rate is another indicator affecting the population at all levels. In some cases, it’s crucial for the pricing of goods traded in the country; in others, it’s pivotal for decisions, such as in tourism.
The exchange rate should be viewed over two periods: when Gustavo Petro won the run-off election and since he assumed office. Economists have demonstrated that historically, the exchange rate reacts to a new president’s election and later responds to their governance style.
In Colombia, the exchange rate the day before the run-off presidential election was $3,905 per dollar, and following Gustavo Petro’s victory, it increased in the subsequent trading session to $4,026.
The dollar’s price continued to rise in the subsequent months during the transition period between Petro and Duque, while also reacting to ministerial appointments made by the elected president.
By August 6, the day before Petro’s inauguration, the exchange rate was $4,337, and during his early months in office, it reacted negatively to issues such as non-petroleum exploration and hints of monetary issuance.
The peak was reached on November 4, 2022, when it closed at $5,133. In 2022, the Colombian peso saw historical devaluation, one of the largest in the region, far from its counterparts in Latin America.
However, in 2023, it managed to reverse this trend and solidify as the strongest currency against the dollar, despite recent episodes of depreciation. The dollar’s strength this year is explained by a rebound from the significant depreciation in 2022 and the robust system of checks and balances in Colombia that prevented the government from passing reforms as presented. Negotiations with the legislative branch are ongoing to finalize these changes.
Currently, the exchange rate is $4,077, very close to the $3,905 pre-election level and lower than when Petro assumed power.
Persistently High Debt
External debt is an indicator that is closely monitored by multilateral organizations and credit rating agencies, if not by the general public. Furthermore, debt shouldn’t be observed as a single number, as it’s natural for it to increase over months. Instead, it should be viewed relative to the Gross Domestic Product (GDP).
Data from the Central Bank indicates that as of August 2022, Colombia’s external debt was $177.836 billion, equivalent to 51.8% of the GDP. After the first year of Petro’s administration, the debt as a proportion of GDP increased to 55.3%, totaling $187.318 billion as of April, the most recent data reported by the Central Bank.