Colomb-Economists and their odd Musings

Macarena finds the exchange rate debate in Colombia very entertaining.
An entire generation of otherwise reasonable people seems to have learned in grammar school that “productivity”, “export orientation” and “currency depreciation” are synonymous concepts.
Colomb-economists, as a very wicked friend of Macarena’s calls them, are quite a lovely bunch of mostly 40 and 50-something male oracles. They exhibit stern circumspection in arguing, in the local power point-intensive seminar circuit, that flexible exchange rates are a “good thing for the Country".
The problem is that ---whilst loving flexible exchange rates--- they hate exchange rate flexibility.
Or, at least, they despise any deviation of the real world rate, from where they would like to see the parity.
In thinking about deviations from their prior "estimates", colomb-economists come up with some very funny stuff… Hence Macarena’s delight whenever the peso moves around a bit, especially upwards.
In line with what has happened in many countries, the peso has strengthened in the last couple of years. In this 2-year perspective, appreciation vis-à-vis the U.S Dollar is roughly equal to that of Chile and Brazil, within the Latin American region, or Australia and Israel, outside the region. There has been a lot of volatility, true, but this probably has to do with Colombia’s much shallower and much more regulated derivative markets, rather than with anything profoundly macroeconomic.
Though there are many close competitors, Macarena’s most cherished colomb-economist model is the following.

Theorem 1: Exchange rate trends are explained by fiscal policy.

Nothing too surprising, right?. All reasonable models allow one to think that if fiscal policy becomes unsustainable, interest rates will increase, reflecting insolvency risks, people will want to substitute domestic assets for external assets, and so on. All of which will lead to currency depreciation, banking sector difficulties, run on reserves, and so on. The thirty year old first-generation BOP crisis model is a fixed exchange rate example of this: money-financed fiscal deficits cause a run on reserves, and so on. Easy enough to translate into the quasi flexible context of Colombia. Modern multiple-equilibrium models are not even necessary in this quite trivial fiscal insolvency scenario.

Theorem 2 (Macarena’s favorite): Any move towards fiscal insolvency appreciates the nominal exchange rate.

Now this is what Macarena calls a substantial contribution from Colomb-Economists to the world: If authorities want to strengthen their currencies, reduce interest rates, increase asset prices, and increase FDI and other capital flows TO the country, all they have to do is become fiscally insolvent, just as Colombia has –in their peculiar view— done in the last few years.