Colombia approved increasing its foreign debt by $10 billion on Thursday after congress members shared strong cross-party support for the proposed economic measure.
The new law raises the country’s debt ceiling to $44 billion according to a report from business publication EuroWeek.
The purpose of the measure, according to the Ministry of Finance, is to keep Colombia’s funding sources diversified while allowing the state to pay external debt. Lifting the debt limit lets the Colombian government meet its financing needs without putting pressure on the peso, an issue that has become one of the greatest threats to the economy’s vitality.
“This debt is to meet our obligations abroad,” said Finance Minister Mauricio Cardenas. “We will not bring in a single dollar.”
The measure was accepted with strong cross-party support in congress, reflecting a near unanimous consensus for the direction of Colombia’s economic management among competing political factions.
Cardenas and the central bank have focused their concern on strengthening the peso. A higher debt level, according to the Ministry of Finance, will give the government room to exercise its fiscal and monetary policy without sending the peso soaring beyond control.
President Juan Manuel Santos has promised to unveil a series of “shock” treatments to boost particularly vulnerable sectors, like agriculture and manufacturing, which have suffered substantially from the peso over the past year.
Governments of developed countries around the world, according to a Reuters report, have sunk interest rates to levels near zero, forcing an overwhelming influx of capital into emerging economies, like Colombia. The result is a strengthening of currency in emerging economies. Last year, Colombia experienced record levels of foreign direct investment, which mostly hit its oil and mining industries.
In response, the Colombian government has taken steps to cool the peso and rebalance sector competitiveness. Last year the central bank bought $4.8 billion in U.S. dollars to offset currency appreciation. This year it plans to buy another $3 billion from February to May.
- Congreso aprobó apliación del cupo para celebrar operaciones de crédito público externo y interno en USD10 mil millones (Colombia Ministry of Finance)
- Colombia’s finmin calls strong peso ‘mother of all problems’ (Reuters)
- Colombia approves $10 billion more debt, will use $1.6 billion this year (EuroWeek)