Coronavirus: Why The Crisis In Colombia Could Be Colossal

With its oil-dependent economy and mostly privatized healthcare system, Colombia is particularly ill prepared for the pandemic.

Empty streets during the Coronavirus lockdown in Cali, Colombia
Empty streets during the Coronavirus lockdown in Cali, Colombia
Salomón Kalmanovitz


BOGOTÁ — The world economy is facing two enormous challenges. One is the pandemic, which can only be confronted by confining the populations of each country for a cautious period and will entail tremendous wealth loss as extreme therapeutic measures are taken. The second is the recent, brutal rupture of the quotas pact in OPEC, the Organization of Petroleum Exporting Countries.

China, South Korea and possibly Italy are stabilizing the contagion and will thus be able to start recovering their previous production levels. The United States and the rest of Europe, meanwhile, must go through the storm of controlling the coronavirus, so difficult to detect, trace and quantify. The underdeveloped world, with its lesser defenses, is awaiting its turn. Everywhere, a pandemic-induced recession is in sight.

In the United States, the private healthcare system makes its population highly vulnerable to the pandemic: 28 million people with no medical insurance, 11 million illegal migrants and 25% of the workforce without access to paid sick leave. This population is a breeding ground for spreading the virus and hampering the ability to fight it effectively. The great nation has become even more vulnerable since the Trump administration cut funding for public heath and medical research centers.

The struggle between Saudi Arabia and Russia for a greater share of the oil market, and Vladimir Putin's intention of pummeling U.S. producers behind the costly fracking system, were the last straw for the market's fragile equilibrium, sending prices tumbling from around $65 a barrel to some $30 now. U.S. crude is said to require more than $45 a barrel just to cover production costs.

Citizens making purchases before returning to lockdown in Cali, Colombia — Photo: Nano Calvo/VM/ZUMA

Colombia is highly exposed to both these crises. Its health system is mostly private, which means a precarious state of health for the large part of the population — approximately 52% — that lives and works in informal conditions. The shantytowns that surround metropolitan zones not only favor viral contagion, they also hinder its detection. We do not have a central command system that would coordinate efforts to fight the pandemic.

Complicating things even more is Colombia's over-reliance on oil, which constitutes 61% of its exports. The fall in crude prices is depriving the government of some 6.5 trillion pesos (nearly $2 billion) in Ecopetrol dividends and similar sums in reduced taxes. Finance Minister Carrasquilla trusted oil prices would remain stable and cut corporate taxes by 12 trillion pesos this year. Between the two, the public deficit will rise to 2.5% of the GDP and force gigantic public spending cuts on the government.

The public debt exceeds 56% of the GDP and global markets are currently not prepared to risk extending more credit to a government that has been fiddling with deficit figures and fiscal rules. The U.S. dollar is trading at around 4,000 pesos, which will affect inflation seeing as we are more dependent on imports now, especially of food.

The government has no tax savings, furthermore, to make up for the sharp fall in demand being provoked by falling crude prices and rising forex prices. Nor does it have enough fiscal capacity to confront the pandemic should it invade the country with the viciousness it has in poor countries like Iran. Let us hope it does not come crashing our way.

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Air Next: How A Crypto Scam Collapsed On A Single Spelling Mistake

It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money for a blockchain-powered e-commerce app. But the simplest of errors exposed the scam and limited the damage to investors. A cautionary tale for the crypto economy.

Sky is the crypto limit

Laurence Boisseau

PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.

Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.

Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.

Share capital of one billion 

The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).

The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.

Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.

While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.

screenshot of the typo that revealed the Air Next scam

The infamous typo that brought the Air Next scam down

compta online

Raising Initial Coin Offering 

Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.

For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."

What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".

Finding culprits 

Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.

Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.

Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.

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