Dollar has more value vs Colombian Peso

[buencamino]

The peso closed at 3237 today. Terrific for us expats and the Colombians who receive remesas from family members in the US but all is not well. The country is on the cusp of some serious downsizing and belt tightening. This year the government is expecting less than half the oil revenue it received in 2013 and no signs of improvement on the horizon. The projection for growth for this year was 4.5% but with the fall in oil prices has been revised downward to 3.5% and a projection of only 2.6% for next year. The government is casting about for alternative ways to generate income and an obvious one is increase taxes. An increase in IVA, an across the board tax on just about everything has already been talked about and may well come to pass. It is currently 16%. El Pais has recently posted recommendations to Colombians for dealing with the high dollar. Don't by a new car it says, buy a used one and don't travel to Miami on your vacation, go to Santa Marta instead. I am wondering what effect all this will have on the Salario Minimo negotiations come December. The annual hike has typically been between 4 and 6 percent. Will they be asking for fifteen? Remember, all sorts of prices go up with the Salario Minimo increase including health insurance payments. Interesting times lie ahead.
the government

http://www.reuters.com/article/2015/03/18/colombia-economy-oil-idUSL2N0WK1CW20150318

[robert angel]

Great Scott! That is a good bargain. 


Fathertime!

Actually my brother in law just told my wife that the 12X12 ceramic tiles were about $1.05 each, so given how our place is not too big, it's just looking cheaper.

For the people there who cherish and when possible buy a lot of USA goods, the prices just get higher the stronger the US dollar gets and they have to look at alternatives.

The way they have life set up there is the larger you live, the more the prices increase incrementally. Not an exact example, but with electricity for starters, they might charge (no real idea the rate)  $10 for the 1st 1000 kilowatts, $20 for the second 1000Kw, double that $20 for the next 1000Kw and so on. So if you use a fan, you're probably OK, but if you're running air con, you might easily have a $400--$500 a month bill in a 3/2 house.

Want beef? Pay up, big time. Levis? Figure on $60 plus tax a pair to start and you won't catch them on sale. Same with Timex watches & the Nikes and Addidas stuff--even if it was made right there.

Now if you're one of the few rich, politically connected families that own everything, including the electric power utilities, you don't pay any of that!

Then there's the dreaded  VAT tax --'the value added tax', they now apply to everything the 'regular' people buy.

I mentioned the well connected Chinese are smuggling in PLASTIC rice mixed in with the real stuff. Doesn't sound cost effective, I know.

Just in the last week or so, the govt., there adopted a new policy and have begun opening a great deal of the boxes people send from overseas to their family there. Sure some people with businesses abused the practice, bringing in big ticket items cheaply, but now everyone's going to suffer, except the govt. workers. 

Now they will open up and hold your shipment hostage until you pay estimated fees--taxes (which you already paid in the USA!!) and customs duties. We just sent tablets, a couple laptop computers, a microwave oven, medicine, vitamins --lots and lots of stuff--three big boxes, jammed so full I can't even see how after they undo the 29 layers of duct tape, how they'll ever reseal them again.

Maybe they'll just eat half the chocolate we send to close the lids back. I shop real hard and even though for example, the Toshiba laptops cost me $250 ea new, they'll estimate that  they probably cost full retail--$500--$600--or worse yet, the good stuff we sent will get stolen, lost  or damaged.

Money and goods sent from overseas is that nation's life blood and literally keeps families from starving, but the damn govt. there keeps trying to suck more blood out of it, while making it harder and more expensive for Filipinos to obtain work overseas--you have to use an 'agency'.

If that's not bad enough, half the typhoon relief outfits can't account for most of the money received and people are still w/o homes. Makes Colombia sound like Switzerland sometimes!

[robert angel]

Actually my brother in law just told my wife that the 12X12 ceramic tiles were about $1.05 each, so given how our place is not too big, it's just looking cheaper.

For the people there who cherish and when possible buy a lot of USA goods, the prices just get higher the stronger the US dollar gets and they have to look at alternatives.

The way they have life set up there is the larger you live, the more the prices increase incrementally. Not an exact example, but with electricity for starters, they might charge (no real idea the rate)  $10 for the 1st 1000 kilowatts, $20 for the second 1000Kw, double that $20 for the next 1000Kw and so on. So if you use a fan, you're probably OK, but if you're running air con, you might easily have a $400--$500 a month bill in a 3/2 house.

Want beef? Pay up, big time. Levis? Figure on $60 plus tax a pair to start and you won't catch them on sale. Same with Timex watches & the Nikes and Addidas stuff--even if it was made right there.

Now if you're one of the few rich, politically connected families that own everything, including the electric power utilities, you don't pay any of that!

Then there's the dreaded  VAT tax --'the value added tax', they now apply to everything the 'regular' people buy.

I mentioned the well connected Chinese are smuggling in PLASTIC rice mixed in with the real stuff. Doesn't sound cost effective, I know.

Just in the last week or so, the govt., there adopted a new policy and have begun opening a great deal of the boxes people send from overseas to their family there. Sure some people with businesses abused the practice, bringing in big ticket items cheaply, but now everyone's going to suffer, except the govt. workers. 

Now they will open up and hold your shipment hostage until you pay estimated fees--taxes (which you already paid in the USA!!) and customs duties. We just sent tablets, a couple laptop computers, a microwave oven, medicine, vitamins --lots and lots of stuff--three big boxes, jammed so full I can't even see how after they undo the 29 layers of duct tape, how they'll ever reseal them again.

Maybe they'll just eat half the chocolate we send to close the lids back. I shop real hard and even though for example, the Toshiba laptops cost me $250 ea new, they'll estimate that  they probably cost full retail--$500--$600--or worse yet, the good stuff we sent will get stolen, lost  or damaged.

Money and goods sent from overseas is that nation's life blood and literally keeps families from starving, but the damn govt. there keeps trying to suck more blood out of it, while making it harder and more expensive for Filipinos to obtain work overseas--you have to use an 'agency'.

If that's not bad enough, half the typhoon relief outfits can't account for most of the money received and people are still w/o homes. Makes Colombia sound like Switzerland sometimes!

After mentioning it above, I heard the President of the Philippines apparently issued a statement that they're going to scale the opening of the 'balikbayan boxes' that millions of Filipinos send to their families back home. They left open the door for some amount of random openings and x raying of contents, so it's not over yet. I just find it sick that most people buy and pay taxes and then after sending non commercial amounts home, the govt. would even think of adding additional fees.

http://www.rappler.com/move-ph/balikbayan/103684-aquino-caves-in-online-rage-balikbayan-box

http://www.gmanetwork.com/news/story/534185/news/nation/pnoy-stops-customs-inspections-of-balikbayan-boxes

[fathertime]

The peso closed at 3237 today. Terrific for us expats and the Colombians who receive remesas from family members in the US but all is not well. The country is on the cusp of some serious downsizing and belt tightening. This year the government is expecting less than half the oil revenue it received in 2013 and no signs of improvement on the horizon. The projection for growth for this year was 4.5% but with the fall in oil prices has been revised downward to 3.5% and a projection of only 2.6% for next year. The government is casting about for alternative ways to generate income and an obvious one is increase taxes. An increase in IVA, an across the board tax on just about everything has already been talked about and may well come to pass. It is currently 16%. El Pais has recently posted recommendations to Colombians for dealing with the high dollar. Don't by a new car it says, buy a used one and don't travel to Miami on your vacation, go to Santa Marta instead. I am wondering what effect all this will have on the Salario Minimo negotiations come December. The annual hike has typically been between 4 and 6 percent. Will they be asking for fifteen? Remember, all sorts of prices go up with the Salario Minimo increase including health insurance payments. Interesting times lie ahead.
the government

http://www.reuters.com/article/2015/03/18/colombia-economy-oil-idUSL2N0WK1CW20150318

Thanks BC, those appear to be legit concerns regarding the cost of living increases. If the dollar winds up sliding back into it's previous value, you will still be stuck with the new increases in the new living expenses.   


Fathertime!

[robert angel]

Yea--when the USD is strong, people abroad who rely on it for remittances really suffer. At least if you're being paid in that country's currency, you might have the choice to buy a non USA made product and beat the price increase.

I've been saying for weeks that China's kind of scary lately (well 'more scary than usual') and how the world economy is all interconnected, with one seemingly unrelated nation's woes effecting a host of others.

I think once again, September will be scary overall. I used to say 'unload in October' but now it's 'unload before September' If you look at recent years charts, there are some compelling patterns.

Rather be pretty happy now, than expecting to be super happy next month, only to be bummed out.

[fathertime]

Yea--when the USD is strong, people abroad who rely on it for remittances really suffer. At least if you're being paid in that country's currency, 

Hey Robert, I could be mistaken, but did you misstate this?  It seems to me, that those relying on remittances in US dollars benefit greatly when the USD is very strong like it is now.  Say a person sends 200 monthly to Colombia in dollars....that gets over 600,000 in pesos now, whereas a year ago it would have only gotten 400,000.


Fathertime! 

[robert angel]

Hey Robert, I could be mistaken, but did you misstate this?  It seems to me, that those relying on remittances in US dollars benefit greatly when the USD is very strong like it is now.  Say a person sends 200 monthly to Colombia in dollars....that gets over 600,000 in pesos now, whereas a year ago it would have only gotten 400,000.


Fathertime!

Yes, Father Time--major brain freeze there. I guess I shouldn't gobble lunch and type--shorts my brain out. Yes--They LOVE dollars when they're high. Hell--they love the PEOPLE more when their dollar's are high! I never knew how popular Australians were abroad until their dollar sky rocketed!! (actually they're typically real nice people regardless) but while a strong US dollar does have some unexpected effects, receiving them via wire about now is about as nice an 'effect' as you're likely to find overseas.

The peso in the Philippines hasn't seen 47 to the dollar in over 5 years, but is close to that mark now.  It's been as low as 40, but mostly around 43-44 the last 5 years. I remember before the VAT --value added tax and before everything you bought went way up in price, making everything more expensive for almost everyone.

But the peso was low to mid 50's to the dollar for a while--the mall ATMs gave great (the best) exchange rates and it was like spending monopoly money, which tends to be a problem anyways--especially when you're on vacation and the money doesn't seem too real or familiar.

Good edit catch! If you're ever caught by cannibals,  eaten by the tribe and I see that the tribal chief's smiling, I know if I ask him why. He'll smile, rubbing his belly and say: "Editor in Chief!"

[utopiacowboy]

It looks like the party may be over:


http://www.zerohedge.com/news/2015-08-28/traders-are-panic-buying-colombia-pesos

[Elexpatriado]

Colombian Peso , and other resource based currencies, are pretty much tracking commodity prices...particularly oil prices..some with a greater dependency than others.


Since oil prices are curently at an unsustainably low level in the long run, I dont see the Peso going down much more--in the long run, although there could be some short term further depreciation. This is with "all other things being equal".


All other factors being equal, higher interest rates in a country increase the  value of that country's currency relative to nations offering lower interest  rates. However, such simple straight-line calculations rarely, if ever, exist in  foreign exchange.


I doubt whether the interest rate rise will be significant, and whether they will even do it soon, given a very low inflation environment, and the fact the US would not want to damage their export capacity further with an even stronger dollar. I would think they will do it after energy prices start to rise, adding to inflation, and in a very measured and small step manner.


Thus, I agree with Calipro it is probably a good time to purchase something in Colombia, if yo are so inclines. But no guaranties on anything. Pay yer money ya takes yer chances.

Hey Calipro,  you may be right although I see it a little differently.  Our interest rates currently are super low and despite this our dollar is currently appreciating in Colombia.  If indeed US interest rates go upwards that may well strengthen our dollar further.  If that is the case I can see the argument being that the dollar has a lot of upside vs the some currencies like COlombia's.   Of course there are a lot more factors then these one of which is what is happening in Colombia, but we shall see.  Maybe 2500-1 will be back, maybe more!  I hope so.


Fathertime!

[Elexpatriado]

This corresponds to the small  recovery in oil prices in the last 2 days.


I have been watching Canadian and Colombian Exchange rates vs oil prices for the last year.They pretty well dove-tail in unison, with the Colombian Peso being more sensitive to oil price change.


Is not too late though..wont be $80 oil soon..but 3 to 5 years down the road it will be a different story.

It looks like the party may be over:


http://www.zerohedge.com/news/2015-08-28/traders-are-panic-buying-colombia-pesos

[fathertime]

Colombian Peso , and other resource based currencies, are pretty much tracking commodity prices...particularly oil prices..some with a greater dependency than others.


Since oil prices are curently at an unsustainably low level in the long run, I dont see the Peso going down much more--in the long run, although there could be some short term further depreciation. This is with "all other things being equal".


All other factors being equal, higher interest rates in a country increase the  value of that country's currency relative to nations offering lower interest  rates. However, such simple straight-line calculations rarely, if ever, exist in  foreign exchange.


I doubt whether the interest rate rise will be significant, and whether they will even do it soon, given a very low inflation environment, and the fact the US would not want to damage their export capacity further with an even stronger dollar. I would think they will do it after energy prices start to rise, adding to inflation, and in a very measured and small step manner.


Thus, I agree with Calipro it is probably a good time to purchase something in Colombia, if yo are so inclines. But no guaranties on anything. Pay yer money ya takes yer chances.

Perhaps you didn't notice, but you replied to a post and related conversation from 10 months ago, when at the time the Peso was 2100-1.  I don't think Calipro or anybody was advocating buying at that point, but if anybody used dollars to buy at that point in time, it was likely an error, at least from getting the best possible bang for the US buck viewpoint. 


Now the Peso could have easily hit it's highest water mark earlier in the week, 3261-1.  The interest rates being raised in September is questionable with the market gyrating wildly like it has, which also affects the price of oil, and other commodities, AND the Colombian Peso.  I think everything is linked.  It is a given the rates will not be rising rapidly, considering the frail economy. 


Considering the incredible rise, the Colombian Peso party has to end at some point...now could easily be that time....buying now seems to be at least not the wrong time....unless we get another unexpected incredible rise. 


Fathertime! 

[fathertime]

Hey Buencamino, now that the Peso is rising, I'm curious if the bank TATM'S are still using the same measure, or are they now using the real time rates, which would be more harmful to expats?   


Fathertime!

[Gato4Astrid]

so is British pounds sterling!


1 = 4,700 COP  !!!  Last time I visited 1= 2,800 COP

[Elexpatriado]

hmm.how did that happen? well the discussion is actually more applicable to todays (in fact this weeks) events..


Matter of fact, I just renewed my Gym membership in advance to take advantage of the relatively high Canadian Dollar to Peso rate (2400), With exchange rate, reduced price they , and extra month they threw in, I saved about 30% to 35% from last year.

Perhaps you didn't notice, but you replied to a post and related conversation from 10 months ago, when at the time the Peso was 2100-1.  I don't think Calipro or anybody was advocating buying at that point, but if anybody used dollars to buy at that point in time, it was likely an error, at least from getting the best possible bang for the US buck viewpoint. 


Now the Peso could have easily hit it's highest water mark earlier in the week, 3261-1.  The interest rates being raised in September is questionable with the market gyrating wildly like it has, which also affects the price of oil, and other commodities, AND the Colombian Peso.  I think everything is linked.  It is a given the rates will not be rising rapidly, considering the frail economy. 


Considering the incredible rise, the Colombian Peso party has to end at some point...now could easily be that time....buying now seems to be at least not the wrong time....unless we get another unexpected incredible rise. 


Fathertime!

[Awesome]

I hope you guys realize that all of these dollar/peso fluctuations, interest rate fluctuations, price per barrel of oil fluctuations, oz of gold price fluctuations move up and down solely upon the whim of certain controlling powerful interests/parties.


Don't bother trying to make any other sense of "the market" other than that which will consolidate more power into "their" hands.  Yea RA is a tldr mofo all the way but he seems to understand what's really going on judging by his previous comments/mentions of Alexander Hamilton and his understanding of our monetary system.


Enjoy the favorable rate while it lasts, I'd truly love to be in latin america right now especially Colombia.  But as far as long term investments such as real estate or business interests I wouldn't put too much value into these potentially short term fluctuations especially taking into account just how volatile the political and security situation is in Colombia, a country that was on the brink of being a "failed state" only just a few years ago.

[buencamino]

FT not real time. You get at or close to what it closed at the day before.

[Elexpatriado]

Where Oil goes, so goes the Colombian Peso
 
http://www.reuters.com/article/2015/06/09/markets-emerging-latam-idUSL1N0YV1C220150609
http://www.bloomberg.com/news/articles/2015-08-13/colombia-s-peso-weakens-toward-record-low-as-crude-oil-tumbles
 
http://www.bloomberg.com/news/articles/2015-04-27/colombian-peso-advances-to-two-month-high-as-crude-oil-increases

[fathertime]

Now that the topic of a Fed rate hike is almost off the table, the dollar vs the peso has steadily declined.  When I looked this morning it was 2890-1.  Still good, but well off the peak. Lots of other factors at play I'm sure.


Fathertime!   

[buencamino]

The euphoria wa short lived.

[Elexpatriado]

Oil is up from $45 to $50. Thats the main reason
 

Now that the topic of a Fed rate hike is almost off the table, the dollar vs the peso has steadily declined.  When I looked this morning it was 2890-1.  Still good, but well off the peak. Lots of other factors at play I'm sure.


Fathertime!

[fathertime]

Oil is up from $45 to $50. Thats the main reason

I don't think so....Oil was $44-45.75 on Monday yet the dollar had already dropped significantly by that point.  I'm sure it is all a factor, but I don't believe that is the main reason.  By having an easy money policy, the price of oil can inflate while demand remains constant...so a chicken and the egg scenario can develop.   


Fathertime!

[fathertime]

The euphoria wa short lived.

Well you are still riding pretty high, just not as high as before.


Fathertime! 

[Elexpatriado]

Actually oil is the chicken and US dollar (relative to oil producing country currencies) is the egg. In the long run, Oil price is mostly determined by supply and demand, not so much by US policy or market speculation.


Here is a link that explains correlation between the COP and WTI


https://rstudio-pubs-static.s3.amazonaws.com/108399_66e9af15e17d49fbbdc250527611a580.html


Conclusion from the analysis:


It is unlikely that the price of oil sees significant increases, not at least in the short term, with the looming threat of fracking techniques just around the corner to estabilize prices (usually towards the lower boundary.) Unless a new variable comes to play, for example a significant replacement for GDP income, the peso will continue to lose parity power against the US dollar, and the emergence of double-digit inflation, could very well be the result for a nation well-used to the availability of imported goods.

I agree with all, except the part of oil prices going lower. I think they will stick in the $40 to $50 range for a while, but eventually go higher in the next 3 to 5 years. So I dont think the COP will drop in value much  anymore.Maybe go back to where it was 2 weeks ago for a while.

Anyway, you look at it, whether oil prices go higher, Colombia´s other exports an GNP expands to diminish the effect of oil, or US undertakes monetary policy to lower the Dollar, pretty strong evidence that US dollar exchange to COP is at or near its peak (within 10%).

I could be wrong. Have been before. But if you are the type to buy property in Colombia, now would be as good as any a time to do it.

I don't think so....Oil was $44-45.75 on Monday yet the dollar had already dropped significantly by that point.  I'm sure it is all a factor, but I don't believe that is the main reason.  By having an easy money policy, the price of oil can inflate while demand remains constant...so a chicken and the egg scenario can develop.   


Fathertime!

[fathertime]

Actually oil is the chicken and US dollar (relative to oil producing country currencies) is the egg. In the long run, Oil price is mostly determined by supply and demand, not so much by US policy or market speculation.

We shall see....The dollar will probably weaken at the same time that oil goes higher...which one that causes the other...who knows for sure...but they are related.

 


It is unlikely that the price of oil sees significant increases, not at least in the short term, with the looming threat of fracking techniques just around the corner to estabilize prices (usually towards the lower boundary.) Unless a new variable comes to play, for example a significant replacement for GDP income, the peso will continue to lose parity power against the US dollar, and the emergence of double-digit inflation, could very well be the result for a nation well-used to the availability of imported goods.

I agree with all, except the part of oil prices going lower. I think they will stick in the $40 to $50 range for a while, but eventually go higher in the next 3 to 5 years. So I dont think the COP will drop in value much  anymore.Maybe go back to where it was 2 weeks ago for a while.

Anyway, you look at it, whether oil prices go higher, Colombia´s other exports an GNP expands to diminish the effect of oil, or US undertakes monetary policy to lower the Dollar, pretty strong evidence that US dollar exchange to COP is at or near its peak (within 10%).

I could be wrong. Have been before. But if you are the type to buy property in Colombia, now would be as good as any a time to do it.

It would be surprising to me if the dollar strengthens up higher than the 3275 mark or wherever it topped out....Quite a few economists don't think the fed will  raise interest rates very much, if at all...


  No house buying for me this time around....maybe I'll be ready next time....but if I were in the market, I think I'd have taken a very serious look since the dollar has been so high. 


Fathertime! 

[fathertime]

Dollar is riding high once again....3145-1.  As a side note, it is very high against the Euro as well.  Let the good times roll! 


Fathertime!