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Colombia Won’t Need Davos Cash as Cardenas Fights Peso Surge

January 16, 2013

Colombia Won’t Need Davos Cash as Cardenas Fights Peso Surge

Mauricio Cardenas, Colombia's minister of mines and energy, speaks at the 2012 CERAWEEK conference in Houston, Texas. Photographer: Aaron M. Sprecher/Bloomberg

Colombian Finance Minister Mauricio Cardenas says that when he travels next week to Switzerland for a meeting of the world’s richest capitalists, he won’t be lobbying for investment. After spending his first four months on the job trying to protect the economy from a currency rally, he doesn’t need more dollar inflows.

“I’m just going to tell a good story,” Cardenas, who will attend the World Economic Forum’s annual meeting in Davos, said in an interview yesterday in Bogota.

Foreign direct investment this year should surpass last year’s record $16 billion, Cardenas said, keeping pressure on manufacturers struggling to compete with a currency that outperformed all of Latin America in 2012. While the government can boost dollar purchases and take other steps to weaken the peso toward a “more natural” level of 1,800 per dollar, Colombia’s track record for market-friendly policies will make it attractive to investors for some time to come, he said.

“These things are proving to be more positive than they were perceived three years ago,” said Cardenas, adding that he doesn’t favor trying to curb the peso’s rally through taxes on foreign portfolio investments and other capital controls used in Brazil. “What matters in the long run is that you have consistent policies.”

The peso jumped 10 percent last year and over the past decade soared 65 percent, more than any other emerging market currency. Much of the rally has been fueled by investment in the country’s oil and mining industry, which were off-limits until U.S.-backed security forces began reclaiming large parts of the countryside from Marxist guerrillas in the last decade.

Peso Floor

Cardenas said that he sees no fundamental reason for the peso to have jumped in recent weeks -- it touched an 18-month intraday high of 1,750.50 on Jan. 2 -- and that it should “go back to 1,800 pesos very soon.”

The peso fell the most in five months yesterday after Cardenas said the Treasury will boost dollar purchases this month and buy about $1 billion this year for its oil stability fund. The peso weakened 0.2 percent to 1,772.68 per dollar at 8:22 a.m. today in Bogota.

The central bank can also do more, and policy makers will discuss potential measures when they meet Jan. 28, Cardenas said in his office in Bogota. The bank in 2012 bought a record $4.8 billion, part of a program of daily dollar purchases of at least $20 million.

Room to Cut

“Would I like to step up those interventions? Yes, of course,” said the University of California, Berkeley-educated economist, adding that he doesn’t want to anticipate what action, if any, the seven-member board he presides over will take. “I don’t have a number in mind. I think we have to understand better the causes of this appreciation, and discuss potential measures.”

Another way to take pressure off the currency is to lower interest rates, which Cardenas says is likely as long as inflation remains under control and the economy is forecast to grow below its 4.8 percent potential.

If these conditions hold “then naturally there’s room for further reductions” in borrowing costs, he said. In 2012, the economy likely expanded less than 4 percent, the central bank said last month.

The bank is forecast to cut its overnight rate by a quarter point for a third consecutive meeting this month, according to 16 of 19 economists surveyed by Bloomberg. Three expect the rate to stay at 4.25 percent.

The 50-year-old Cardenas, who served as minister of mines and energy before becoming finance chief last September, said that at Davos he will explain to investors how Colombia plans to take advantage of the current investment boom to reduce poverty and reach the next stage of its development.

One of the reforms he said he’ll highlight as a lesson for other developing countries, especially in Latin America, is a recently-passed tax overhaul that reduces payroll and corporate taxes that he said discourage businesses from creating jobs.

“This government isn’t being passive,” said Cardenas. “We’re not just enjoying the good times, we’re thinking about reform.”

To contact the reporters on this story: Joshua Goodman in Rio de Janeiro at jgoodman19@bloomberg.net; Oscar Medina in Bogota at omedinacruz@bloomberg.net.

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net.


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