Colombian exporters said on Thursday the government should help lower the cost of doing business and the central bank should take more measures to help firms weather a strengthening peso currency.
Various Latin American economies have seen their currencies contend with appreciation this year due to high rates of growth and foreign investment inflows.
Regional powerhouse Brazil is aggressively buying dollars, Peru is tightening deposit requirements and Chile has warned it may have to intervene.
Colombia’s peso — one of the region’s strongest-performing currencies — has firmed around 12 percent this year, hurting exporter profits and prompting the central bank to restart dollar purchases.
Luis Carlos Villegas, president of the National Association of Colombian Entrepreneurs, said the bank should lower its benchmark interest rate — currently 3 percent, down from 10 percent in 2008. He also said the central bank had scope to increase its foreign exchange reserves from the current eight months of import cover.
“You have to look at this in the medium and long term because what is needed is not that the (peso/dollar rate) go to 2,000 or 2,200 pesos, but that in the next five years the exchange rate remains at competitive levels,” he told local radio.
The peso fell 0.30 percent to 1,812.50 at 1300 EDTfrom Wednesday’s close.
The central bank’s monthly meeting will be held on Sept. 24 where analysts say the body could take more measures to combat the peso’s rise and may even lower the key rate.
Trade Minister Sergio Diaz Granados told Reuters in a recent interview that the central bank could have room to purchase up to $9 billion if the government’s fiscal reforms were passed by lawmakers.
Colombia has seen a boom in foreign investment, particularly in the oil and mining industries, as its decades-long guerrilla conflict ebbs, adding appreciation pressures on the peso. The country is now Latin America’s No. 4 oil producer and a major exporter of coal, coffee, flowers and nickel.
The coffee federation in Colombia, which is the world’s top exporter of high-quality washed Arabica beans, says the peso’s rise cost the sector as much as 55 billion pesos ($30.5 million) in the first half of 2010.
“The appreciation has harmed us a lot. High international coffee prices aren’t benefiting us much because buyers at some point sought coffee in other parts of the world where the premium for coffee is not as high as Colombia,” said Juan Arboleda, a coffee exporter in the Antioquia province,
Analysts said the central’s bank’s dollar purchases would help in the short term, but could not rule out the bank and the government taking more aggressive steps later in the year.
The government of President Juan Manuel Santos is trying to push a raft of reforms through Colombia’s legislature — including new fiscal rules — which it hopes will help the country get back the coveted investment-grade ratings status.
Javier Diaz, president of the National Association of External Trade, said that the government needed to help companies lower borrowing costs as well as costs for transport and electricity to help the firms be more competitive.
“Complementary actions are needed because (accumulating reserves) by itself does not guarantee that the dollar is going to maintain a rising tendency,” he said. “We need to see how to obtain lower costs for the productive machine.” (Javier Mozzo and Diana Delgado / Reuters)