Colombia’s President Juan Manuel Santos and Finance Minister Mauricio Cardenas on Monday introduced extensive measures as part of a $2.7 billion stimulus plan to spur economic growth and ease gains in the peso.
The plan will reportedly focus on two measures: stimulating the economy overall and sector-specific measures to boost certain areas of the economy such as agriculture and industry.
Economy-Wide Stimulus Measures
Measures to stimulate the economy overall target the exchange rate, industry tax, tariffs on goods entering the country, competitive production and smuggling prevention.
According to Cardenas, preventing the Colombian peso from rising will be the biggest challenge. A stronger peso would make it harder for the country’s manufacturers to compete against cheaper imports in the global marketplace.
In order to slow the strengthening of the peso, state-run pension funds will be required to keep mining and oil royalties abroad, prompting an increase of $5 billion in foreign currency savings. This is in addition to the $3 billion the government predicts in overall foreign savings for May.
Industry will benefit from tax cuts to social and educational welfare programs as well. In the next two months, the government plans to eliminate employer contributions to the Colombian Institute for Family Welfare (ICBF) and the National Apprenticeship Service (SENA), which aims to provide employment education to citizens. According to the finance ministry, these cuts to social welfare programs represent a 5% reduction in labor costs.
To spur industrial growth, import duties on some goods and raw materials not produced in Colombia will be eliminated. The tariff elimination on more than 3,000 goods will last at least until August 2015 and is expected to alleviate costs up to $653.8 million.
Further measures to improve competitiveness include lowering energy costs for industry. The government will eliminate a 20% surcharge on energy and an 8.9% surcharge on fuel for industry.
The government will invest an initial sum of $54 million to finance a scrapping program to recycle 20,000 tractor-trailers in an effort to improve terrestrial cargo transportation.
Security is another big factor in Colombia’s economic competitiveness. The ministry announced that the government will invest $101 million to train as many as 2,500 new police recruits to “continue generating a climate of security and confidence for investment and growth.”
The final measure in the economy-wide policies addresses smuggling. President Santos has appointed a new customs and revenue police (POLFA) commander, Gustavo Moreno, and will increase the division’s officers by 1,000. The administration also plans on introducing a new bill to congress this month that will provide for more judicial strength to combat smuggling. “We are going to empower the head of the customs and revenue police so that they can coordinate with other organizations such as Colombia’s national tax office and the foreign ministry […] For the first time, we went through a process to select who would take responsibility for this area. This was not considered a very important position, but from now on the head of the customs and revenue police could make the transition to be the future police general,” said Santos.
Sector-Specific Stimulus Measures
The sector-specific measures aim to boost growth in infrastructure, housing, industry and agriculture.
Colombia will invest $387 million to accelerate infrastructure development projects currently in the works, enabling more access to remote locations across the country. “We’ve looked into public works that are scheduled for 2014, 2015 and 2016, to see which ones are a priority and which ones can be brought forward,” Santos said. The ministry of finance also reported that the Santos administration has just introduced a bill to congress that would specifically regulate transport infrastructure to promote efficiency and develop the sector that some experts say is damaging some industries.
To stimulate growth in the construction industry, subsidized loans will be available to middle class buyers; part of the subsidy will be paid for by the government and part will be paid by the banks. The finance ministry reports that the agreement between the banking sector and the government will allow financing for 32,000 middle-class homes.
Additionally, 100,000 homes will be directly subsidized for lower class citizens earning less than two minimum wage salaries. The government predicts a 25% growth in related sectors such as cement, metal, machinery, equipment and furniture directly related to the proposed housing subsidies.
The Colombian entrepreneurial development bank, Bancoldex, will launch a $435 million funding program to support industry which will allow businesses preferential lines of credit. The Colombian government will contribute $43.6 million to the program.
Colombia will allocate nearly $54.5 million to an agricultural program to improve the conditions of crops and prevent health risks that could threaten the production of various plants, including the palm, bananas, rice, cocoa and fruit.
A further $54.5 million will be used to restructure the dairy-farming sector which accounts for 25% of agricultural GDP, according to the finance ministry. The industry has been badly affected by foreign competition and restructuring seeks to increase productivity and employment.
To help protect agricultural exporters from volatile changes in the global market, Colombia will allocate $35.4 to a hedge that is set to offset any gains or losses that the industry incurs.
Colombia’s economic growth slowed to 4% in 2012, after the country enjoyed a growth rate of 6% in 2011. Santos aims to reach a growth rate of 4.8% in 2013 through the implementation of the new stimulus plan.
The finance minister on Monday assured the country that the plan will not threaten fiscal targets as the costs will be spread out and covered by the 2013 and 2014 budgets as well as savings made abroad.
“Some of these resources are already in place, others will be partly implemented this year, and others over the coming years. The impact is $2.7 billion, but we will not assume the entire cost this year. The measures in place are offset by the reduction in international interest rates,” explained Cardenas.
- Plan de Impulso a la Productividad y el Empleo; por un país más justo, moderno y seguro (Ministerio de Hacienda)
- Gobierno presentó “plan de choque” para la industria y el agro (El Tiempo)
- En marcha el “plan de choque” para impulsar la economía (Radio Caracol)
- UPDATE 2-Colombia’s plan to spur economic growth, curb peso rise (Reuters)