June was a month of generalized devaluation of currencies in the largest economies in Latin America, with Chile (whose peso lost 9,380 % of value against the dollar) and Brazil (-8,31%) pulling the line.
The interest rate hikes in the United States, which attract investors to the American safe haven, and the fear of a global recession are factors that explain the appreciation of the dollar internationally at this time , but when you cut back from the beginning of the year, the perspective changes.
Despite the sharp devaluation of the real last month, the Brazilian currency has appreciated against the American currency since the beginning of 2022. When looking at the set of the ten largest Latin American economies (and considering the exceptionality of Ecuador and Puerto Rico, where the currency is the US dollar, and Cuba, which fixed the exchange rate at 24 pesos per dollar last year), Argentina, Colombia and Chile, all chaired by the left or close to it (the President-elect of Colombia, Gustavo Petro, takes office in August), are the only ones to show large increases in the dollar in the accumulated result for the year (see chart), which denotes local factors in addition to those that frighten all countries.
In the case of Chile, a localized factor is the drop in the price of copper, the country’s main export product . However, President Gabriel Boric himself also attributed the rise in the dollar – which for the first time exceeded 1,000 Chilean pesos – to the “uncertainty” about the proposed new Chilean Constitution.
In a referendum scheduled for 4 September, the population will decide whether it will replace the Magna Carta that came into force during the dictatorship of Augusto Pinochet (1973-1990).
This month, the English magazine The Economist classified the text of the new Constitution as a “fiscally irresponsible leftist wish list”, which could move investments away from Chile if approved. “The document is much less favorable to business and growth than the current Constitution,” the publication claimed.
In Colombia, the local currency, the Colombian peso, has been devaluing since the election of the first leftist president in the country’s history, Gustavo Petro, in 19 June .
The day before his victory in the second round over Rodolfo Hernández, the dollar was quoted at 3.905 ,90 Colombian pesos, less than in early January (4. ,33). Last week, the American currency exceeded 4,600 Colombian pesos, more than % more than before Petro was elected.
In the same period, the dollar appreciated by 4,66% on the real and 2,20% over the Mexican peso.
Analysts consider that the item in Petro’s government plan that has been causing most concern among investors is the forecast that new licenses for the exploration of hydrocarbons will not be issued, which could lead Colombia to import oil (now the main Colombian export product) and gas within a few years.
“In the last month, the Colombian peso has devalued a lot and this coincides with the election of Petro,” Ricardo Ávila, a senior analyst at the Colombian newspaper El Tiempo, told the BBC. “If the perception is that there will be a lower inflow of dollars, eventually this affects the exchange rate.”