Talking About Colombia

Dearest Colombia,

This is the world economy writing. Sorry that this year we will not buy much of your flowers, your coffee, or your oil.
Colombia, sorry also that you were not invited to the Big Fat Greek Wedding but I’ll tell you what I observed–as good Greeks, they ate too much, toasted too much, broke the dishes, and now, they can’t pay what they owe. Spain and Portugal, too, had their own party. I watched them indulge in too many siestas. I saw they gulped a little too much port, and now, they, too, can’t foot their bill.
The Greek, Spain and Portugal crisis will pillage Europe first, followed potentially by China, US, and all of us, the global economy. None of us will be spared. We expect, overall, to face slower global growth, reduced investment, low commodity prices. And reduced risk appetite (on another commodity risk: who wants to buy oil stocks and feel responsible for another ecological crisis?)
So, Colombia, you, too—be expecting lower export revenues, lower investment, and lower growth. Colombia, you are expected to grow at around 3 percent for 2010 and will continue around that same 3 percent for 2011. (Colombia’s growth in 2009 during the midst of the Great Recession was 0.2 percent. Hooray! You are remarkable, you grew while others shrunk.)
Colombia, you are tied to the hip to Spanish banks—Santander and Banco Bilbao Vizcaya, in particular—and a financial crisis in Spain will introduce profit repatriation back to headquarters to cover their asses and their financing needs. This will reduce lending and foreign direct investment to you. But, some good news: Colombia, you don’t rely on wholesale or cross-border lending (Colombians don’t borrow money directly from abroad for international lending transactions between banks). Colombia, lucky you, your funding is mainly covered by local deposits (deposits made by Camilo, Juan and Maria. And the narcos???). This should—somewhat—reduce the impact from the current financial crisis.
I say, wait and see. If the crisis does escalate, demand your government create more jobs to stimulate government spending. (Colombia could use more roads despite anything, right? Isn’t that one of the main problems anyways, that the mafia’s system of getting their product to market is better set up, more competitive?) Demand the government keep financial liquidity in the system, and keep the interest rates low (right now, Banco de la Republica’s policy rate is at 3 percent where it has been for a few months; that’s low already).
Take care. All my best to Juan Manuel Santos, he has the know-how to get you out of this bind.

ooxx,
The World Economy

Links:

Bill Maher to Nouriel Roubini: Do you ever despair Dr. Doom?

Video: The Greek crisis explained, a simple (but entertaining) explanation.