The Search for El Dorado

Three Days in Florida

This time last week I found myself in Florida listening to the esteemed Steven Leach who knows his way around an economy and sat alongside him was Monica de Bolle, a fearsome academic from the same field – their thoughts on Latam as a whole and Colombia were interesting. Brazil has been a big disappointment and the key issue of Pension Reform is running into the usual issues – whilst pensions stand at 54% of Government primary spending no-one wants it to be their pension that gets cut, the same issue we had here in Colombia when it came to the tax reform, everyone in favour as long as it was someone else who was paying more. Mexico badly needed the airport make-over but it is crime that continues to be an issue, AMLO at this point has no plan to combat the situation whilst his 4% GDP growth forecasts simply have no validity. Peru hardly mustered a mention and in Chile we find Piñera fighting against the healthy economic performance last time he was in power – as for Argentina they continue in the 10/12 year crisis loop which makes the country hard to invest in, granted it has now been given Emerging Market status but if Cristina or one of her minions regains power later in the year we will be back to square one. When it came to Colombia and Venezuela, Monica sees them as Siamese twins due to the strain that one is placing upon the other however she did rather concentrate on the fiscal costs of the crisis as opposed to the contribution that the Government expects the refugees to make to GDP growth.

IMF Out Of Cash ?

The demands on the IMF were a cause for concern, they are already stretched with Argentina and Ecuador and if Venezuela does one day resolve itself then it will need a monstrous amount of money over a multi-year period – that will leave the cupboard bare for anyone else who decides to have a crisis over the coming years. Overall the two economists admitted to painting a somewhat gloomy picture however as people who live by the slide-rule they are given to such behaviour when the equations aren’t an exact science – and little in Latam is. In terms of the individual Latam capital markets who all had a chance to individually present themselves there were differing stories in terms of progress however s the new boy at the BVC it is clear that whilst we may lack the liquidity and issuers of some countries around the regions, as a capital market we have more products than most and also have a lot of improvements in the pipeline. There is of course, as per all markets, work to do – it is a mystery to many, including myself, why the forex and bond market traders head for home at lunchtime whilst everyone else stays around for the duration, whilst the mysteries of the Colombian tax system require Scooby Doo and the rest of the team in order to find an answer according to many investors. This same issue has been coming up for several years and in the ‘Doing Business’ study for 2019 (released late 2018) of the 190 countries surveyed Colombia came in at 146 when it came to ‘paying taxes’. Finally switching back to Venezuela the President has got his way and had some minor adjustments made to the Fiscal Rule, those changes are unlikely to bring the regulators calling (there is always 2020 if the tax situation isn’t organized properly) however one wonders if they were necessary at all. The country has $45bn sat in foreign reserves, twice what they were a decade ago and managed to continue to build those reserves even during an oil crisis that was far more impacting than the Venezuelan situation - there are plenty locally who feel the refugee crisis is being talked-up by the Duque Government in order to be able to play with the finances as well as to try and curry favour with the Trump administration, one doesn't have to squint too hard to see where that argument comes from. Whilst some of the recent macro data has been favourable it certainly continues to be spotty at best, inflation, despite this weekend's reading, and interest rates are completely under control – the same as in Peru and Chile which led Mr Leach to describe the three of them as boring, although I doubt none will complain. As one of those boring countries Colombia will have been delighted to read the World Bank's fresh off the press update where they are still looking at 3.3% GDP growth for 2019 which versus the South America (ex Venezuela) reading of 1.8% is healthy indeed - they see it rising again to 3.7% in 2020. Turning to the markets the COLCAP has performed far better than expected, albeit off a low base however the disappointment is that it has been a low liquidity rise with not enough clients invested in the rally – either stuck in local funds or simply caught out by the speed of the rally, dips are now likely required in order to wet the appetite of investors once again.