Colombia’s central bank ought to
lower interest rates this week as losses tied to the collapse of
local pyramid schemes, along with the global financial crisis,
hurt economic growth, Finance Minister Oscar Ivan Zuluaga said.
As many as 500,000 Colombians face losses of money invested
in Ponzi schemes that promised returns of as much as 200 percent
in about a week, Zuluaga said in an interview today in Bogota
with Bloomberg Television. As much as 2 trillion pesos ($850
million) may have been entrusted to the fraudulent financial
companies, according to unofficial estimates, he said.
“The pyramid schemes will have an economic impact,
especially in the regions where this problem is concentrated,”
Zuluaga said, adding that he hoped to have official numbers on
the magnitude of the crisis in about a week. “The feeling is
that the conditions are clearer, more adequate to begin to cut
interest rates.”
Two people were killed in mass protests across Colombia
last week after the government shut down schemes that President
Alvaro Uribe said were linked to the country’s cocaine cartels.
Banking regulator Cesar Prado resigned as a result of the
scandal that has sparked riots among poor Colombians who, unable
to open bank accounts, handed over their life savings to the
unregulated financial groups. The government has declared a 30-
day state of social emergency to restore order.
Zuluaga said the government wouldn’t provide funds for
people who were swindled. Instead, government efforts were aimed
at prosecuting those responsible and making sure economically-
hit areas recovered quickly with farming loans and housing
subsidies.
“There will be no resources from the state or the budget
because clearly these were illegal activities and citizens were
conscious of the risk they were assuming,” he said. “We are
designing a plan for social investment in the regions that are
most hurt.”
Zuluaga said the expected economic fallout from the pyramid
schemes, especially in rural southern Colombia, should bolster
the government’s argument for lower rates to stimulate growth.
The magnitude of the losses may be equivalent to 3.7 percent of
Colombia’s foreign currency reserves of $23 billion.
Rate Cut Plan
“The discussion within the board is not if, but when, we
should cut rates,” said Zuluaga, who represents the government
on the seven-member board. “Hopefully it’s this Friday and the
government will defend that position.”
Policy makers have increased borrowing costs by 4
percentage points since April 2006 to rein in inflation that’s
held above the bank’s 3.5-to-4.5 percent target range for more
than a year.
At the bank board’s meeting on Nov. 21, the board will hold
the overnight lending rate at a seven-year high of 10 percent,
according to 27 of 31 economists surveyed by Bloomberg. Four
economists expect a quarter percentage point cut to 9.75
percent.
DMG, the larger of the two financial schemes shut down, has
insisted that it followed the law and was the victim of a
government campaign.
Colombia’s chief federal prosecutor, Mario Iguaran, today
ordered the arrest of the company’s founder, David Murcia
Guzman, along with six other executives on charges of money
laundering. Two, including the company’s spokesman and lawyer,
have already been arrested and police in Panama are helping to
hunt down Guzman there, Iguaran’s office said in a statement.
Coca Region
Guzman, 27, started DMG three years ago in the sparsely
populated southern state of Putumayo, epicenter of Colombia’s
coca trade. It gradually expanded with branches nationwide,
luring money from a network of associates in exchange for points
entitling them to everything from televisions to cars at
approved vendors, Guzman said in an interview with Semana
magazine in February.
The long-haired Guzman, who says he studied acting before
devoting himself to helping the poor, vowed to fight what he
called the aristocracy’s “financial terrorism.”
“I know they can kill me, believing that by eliminating me
they will eliminate our family that has grown into an economic
revolution,” he said in a video posted on You Tube this week.
Gerson Arias, a political analyst for the Bogota-based
Ideas for Peace Foundation, said Uribe’s government faces more
destabilizing violence stirred by class-based resentment.
“We’re witnessing the same political discourse against the
rich and powerful that Pablo Escobar wielded so effectively two
decades ago,” Arias said in a telephone interview. “It’s
unforgivable for Uribe, whose central strategy is to clamp down
on illegal activities, to have allowed this thing to explode the
way it has.” (Bloomberg)