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Economy

Govt could reign in strong peso by keeping money abroad

by Toni Peters April 27, 2011

Colombia News - Economy peso

The Colombian government may work to curb the strong peso by delaying plans to repatriate the entirety of a $1.5 billion account held abroad, Bloomberg reported Wednesday.

Finance Minister Juan Carlos Echeverry said in October that the money would stay out of the country “at least for the first months of 2011.” However, Public Credit Director German Arce hinted Tuesday that this time period may be extended, saying, “We want to avoid unnecessary pressures on the peso,” which would be further strengthened by repatriation of the account.

Higher than expected tax revenue in the first quarter of 2011 (a total of $10.3 billion, $558 million above the government’s target) has enabled this option to become viable.

Colombia is also taking additional measures to stem the peso’s rise. According to the Economist, state-run oil company Ecopetrol is being urged not to repatriate its international profits while the central bank has extended its plan to buy $20 million daily until June 17, despite the fact that it was only supposed to last for four months after its announcement in September last year.

The strong peso has resulted from high foreign direct investment flows this year caused by oil and precious metal discoveries coupled with an improved security situation. The peso’s value has risen 6.5% already in 2011, and is the second strongest of the seven Latin American currencies tracked by Bloomberg.

This week, the National Exporters Association called on the government to limit gains in the peso, as the strong currency is eating into profit margins by making goods bought in dollars more expensive.

To date, the other alternative to reign in the peso, capital controls — government policies which restrict locals acquiring foreign assets and foreigners acquiring local assets –, have been avoided with both Central Bank President Jose Dario Uribe and Echeverrry expressing their desire to not utilize such measures.

Uribe said in mid-April that he did not see any clear evidence that the benefits would outweigh the costs, with Echeverry further adding on Tuesday he is “not very fond of capital controls.”

Central BankColombia pesofinanceforeign investment

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