Business adulation is a constant, but to understand what they think, you have to see what they do with their money. The data is not encouraging, every time less private capital arrives to the country. Net private equity withdrawals contracted 63% as of September 30, from US $ 9,645 million to US $ 3,588 million. It is normal for investors to withdraw from emerging markets to find refuge in the US in times of turmoil. This adjustment may go further than Colombia’s economic fundamentals. That US $ 6,057 million stop arriving is not a minor issue; if the withdrawal of private capital continues to increase, it is a message not only for the Government but for the country.
It is understandable that during the pandemic, foreign direct investment, which invests in tangible assets, is put off in the face of uncertainty. In Colombia, this decreased by US $ 1,880 million in September, 26% compared to the previous year, reaching only US $ 5,371 million. The improvement in other sectors, by US $ 432 million, does not compensate for the 43% drop in hydrocarbons. For what there is no covid is for the direct investments of Colombians abroad, which increased by US $ 5 million.
In the TES auction in September, foreign funds broke a record with net purchases of US $ 1.5 billion. These reflect the confidence of the financial community in the management of macroeconomic policy. Another country that had our debt figures, would have already lost investment grade. Colombia’s appetite for risk also reflects the US $ 10 trillion of global stimulus on account of the covid-19. Excess liquidity, together with interest rates close to 0%, makes Colombia’s yields attractive. This inflow of foreign capital should have led to an appreciation of the peso, but the exodus of local capital is what sustains the change at about $ 3,850.
The portfolio investment flow of Colombians abroad as of September went from US $ 985 million to US $ 4,698 million. This is explained by the increase in pension funds, trusts, and collective portfolios of US $ 4,531 million. The diversification of assets and currency, in the light of today, clearly benefits the Colombian pensioner. The mere fact that 37% of the pension portfolio is in dollars means that these investments are 17.6% higher in pesos. What is unfortunate is that there are no good investments in the country.
The phenomenon in Colombia is not unique, according to the IMF, 30% of the debt capital has been withdrawn in emerging markets. What is different is that usually in crises, foreigners get the money and locals stay, not the other way around. This year the government has repatriated US $ 8,896 million, halting the devaluation of the peso. Next year only US $ 2 billion of repatriation from the government is expected. Absent this phenomenon we can have foreign exchange surprises.
Now more than ever we need economic coordination and messages of stability. If the Government decides to return to the Banco de la República an appendix of the Ministry of Finance, it better have loose votes. A prolonged struggle to define its management does damage beyond the institutional one. If political uncertainty scares, the institutional struggle has just killed.