The Colombian peso went into free fall earlier this week, as the country’s newly-elected president, Gustavo Petro, continued to announce measures to please his support base.
On Monday, a single US dollar was traded for almost 5,000 Colombian pesos, forcing Colombia’s central bank to intervene in the forex market.
The currency has lost more than 30% of its value against the US dollar since June this year and almost 10% since the first week of September alone.
The sharp fall places the Colombian peso among Latin America’s worst-performing currencies, with Argentina’s peso being the worst performer.
Market analysts have warned about stormy weather heading towards the Colombian economy, pointing to the widening fiscal and current account deficits as major factors.
Investors have punished the Andean country ever since the election of Gustavo Petro to the presidency. The leftist leader vowed to end new oil exploration, despite oil being a major source of export revenue for the country.
Moreover, he took out a US$100 million loan from international lenders to push for land reform.
The peso’s devaluation accelerated further as the government began to talk about raising taxes to fund expansion of social welfare programs.
Most of Colombia’s foreign debt is denominated in US dollars. A weaker national currency may push the country into a debt trap.