The joy could not last for ever

A couple of weeks ago it had been said that some countries barely had been hit by the financial crisis and that there was some hope that they would not feel it to a great extent. One of theses countries was Colombia, where the effect of the financial crisis had yet to be seen. But as of Friday the 24th of October, the crisis finally showed its knock on effect in this part of the world. The various companies in Colombia which make part of the BVC (Bolsa de Valores de Colombia) had experienced an increasing trend in the prices of their shares, but on Friday the 24th of October, this trend was no longer a positive trend. The Igbc (Indice general de la bolsa de Colombia) has decreased 37,62% this year but fortunately, compared to other stock markets, like for example the CSI in Shanghai, it has not suffered such a massive decline. The fear now in Colombia is if share prices have reached rock bottom, or if now, with the deceleration of the economy, shown by the fall in industrial production and retail sales, share prices will keep on decreasing.

Unfortunately, Colombians do not only have to be worried about the financial crisis. Furthermore, inflation has created another concern for the Colombian citizens. With borrowing rates as high as of 10%, Colombia faces serious problems as important indicators like the GDP and retail sales have been declining. With an already high borrowing rate, many jobs are now going to be at risk. On the other hand, the Colombian Central Bank believes that there is no need to worry as the fall in demand and the reduction in international prices will make inflationary matters stable even with the devaluation of the peso, fall in food prices, and possible major wage costs which will however try to increase the inflation rate. The Colombian economic crisis is now taking off and is something I will be following closely.

Shouldn't we all stick together through these hard times?

Even though Spain was also hit by the financial crisis, it can feel relieved as at least none of the national banks have gone bankrupt and the overall financial situation is relatively healthy. This however does not mean that the Spanish banks are not feeling the down turn and there is a big possibility of Spanish banks following in the steps of many other strong European economies, with mergers as a result. But it should be mentioned that at this point in time no official announcement of any mergers have been given.

Furthermore, Spain even though they have not felt the crisis to the same extent as many others, are willing to aid its financial sector in order to help restore the confidence needed in the markets, not only at home but globally. But at this point they are faced with various problems as it has not been clear to them whether European governments are trying to find solutions as a group or if each country should find its own solution. Due to this fact, Spain had decided not to take part in the pan-European deal to bring back confidence into the markets and were the ones with the lowest EU level to guarantee personal bank deposits.

After an emergency cabinet meeting on Monday the 13th of October, Spanish Prime Minister Jose Luis Rodriguez Zapatero, decided to provide up to €100bn for new debt issued by commercial banks. This has brought some discomfort within the country as opposing parties believe that they should not aim to help banks but rather focus more on helping families and SMEs in the country. Then again, the prime minister made clear that by helping financial institutions, they would be also helping families and SMEs in the end.

Opposing parties are mainly concerned about SMEs and families due to the fact that Spanish banks have not had to directly deal with the financial crisis that erupted in the US, but have primarily dealt with the problems of rising bad loans to enterprises and families following the crash in the country’s real estate market. Opposing parties believe that as property prices keep on decreasing and there is no hope that they will increase in the immediate future, all efforts should be focused internally. The main question now is to see if Spain will be selfish enough to focus on itself rather than help its fellow Europeans solve the financial problem collectively. This is a question that might affect Spain in the future and is something we will follow with great interest.

Has some of us not learnt their lesson?

It is astonishing to see how some people do not learn their lesson. As the financial market is at the verge of a total collapse, top executives can still find reasons to justify spendings of $440,000 on a luxury weekend conferance in California. This was the case of AIG executives that just a week after the governmental bailout of $85billion felt that there was room in the company budget for luxury spendings. One would think that at these difficult times, where companies are running out of funds, this would be out of the question. It is not hard to understand that the general public look at the future to come nervously, many have their savings in these companies and a bankruptcy and a loss of these savings would of course have great impact not only on the individual itself but the entire economy.

For these people to then read in the news that raised taxes used to finance major bail out packages contibute to a continuation of luxury behaviour and extremely high salaries, even up to $1 million a month, is not easily understood. At this point in time where there are discussions of a global recession, these top financial executives should more than ever be playing their part in creating stability in the market once again. There is one thing I believe any investor would agree on and that is that we will not be able to get the economy back on its feet individually but rather collectively.