Colombia Expat Forum

fecherklyn
Joined 2015
Posts: 1349

6 years ago

How to drain your money away

6 years ago

I know there are a few other forum members who have also managed to save a few pence, or dimes and have wondered if it could be beneficial to put them into Colombian savings schemes (Cuentas de ahorros, CDT’s, corporate or treasury bonds) because of the higher local interest rates. For those fortunate persons, the Colombian Fedessarrollo (Chamber of Commerce?) gave the following estimates for Colombia today:

- PIB lowered to 2,0% for 2017
- PIB increased to 2.80% for 2017
- Inflation end 2017 estimated at 4.3%
- Tasa de Intervencion (Bank Rate) was 7.75% in Dec 2016
- Tasa de Intervencion is 5.75% at the moment (June 2017)
- Tasa de Intervencion estimated at 5.00% for 31/12/2017.

If these estimates are anything like correct, I feel it makes Colombia less and less attractive as a home for expat savings if your intention is to PRESERVE their value.

Let’s imagine there are a few honest expats amongst us who make Colombian tax declarations AND pay Colombian taxes. It does not take much for your marginal incomes to become taxable at 33%. If this is the case, your hard earned savings will be remunerated at end 2017 at:

- Say Tasa de Intervencion plus 1% = 6.0% before tax. (Presently you get approx 7.75%)
- Which becomes 6% less 33% after tax = 4.0% net
- Whilst the realizable value (after inflation) is declining at 4.3%

In other words, despite you doing your best to preserve its value, it is still declining even BEFORE you take into account the risk you are taking depending on the type of savings form you have chosen. For example, using Colombian corporate bonds as your savings vehicle certainly involves some risk of capital loss.

In a word, Colombia HAS had a reputation over recent years as a good place for your savings, but I have seen this gradually disappearing over the last twelve months. To add to the dilemma, any reversal of the cross border monetary flows with a net outflow of foreign savings back to safer havens will also have an impact on the Colombian peso exchange rate. Time to search for the “Risk Off” button?

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