Colombian exporters are “learning to survive” the strong peso by boosting productivity and exploring new markets, the country’s trade minister told Bloomberg Wednesday.
Minister Sergio Diaz-Granados said “The plan is to encourage our companies to improve their productivity and the quality of their products, enter new markets.” He added that exporters should not expect “artificial protections through the exchange rate which are not sustainable over the long term.”
Exporting industries such as the cut-flower sector and the banana sector have been hit by the strong peso which is making their products more expensive to foreign buyers. Both sectors have also lost output as a result of the severe winter rains.
The value of the Colombian peso increased by 23% over two years with only the Brazilian real outperforming it. Granados-Diaz said that the finance minister and the central bank are trying to control the rise of the peso without resorting to capital controls. Although there is disagreement among members of the board of the central bank about the use of capital controls, Diaz-Granados is also of the opinion that there are alternatives to capital controls.
The minister said “we have used them in other occasions, in 2007 and 2008, and the result was more a cost to the reputation of the country than a benefit to the exchange rate. We are providing a a soft landing to the problem by devising appropriate policies.”
The alternative policies are keeping a $1.5 billion account abroad, and the central bank buying $20 million a day until June17, as opposed to capital controls which would place restrictions on the amount of foreign assets Colombians can acquire and vice versa.