Colombia’s Vice President Francisco
Santos said interest rates are too high and the central bank
should reduce them in a bid shore up the economy.
“Inflation is taming down, and I think they have it under
control,” Santos said in an interview with Bloomberg Television
in Tokyo. “The problem right now is liquidity. Interest rates in
Colombia are too high because of this cooling of the economy.”
Santos said that while Colombia is facing an economic
slowdown, it’s better positioned now than a decade ago when its
financial system collapsed, leading to the closure of several
banks.
Colombia, which has about $24 billion in international
reserves and has taken advantage of a strong peso over the past
five years to reduce its dollar debt, has attracted record levels
of foreign investment as the nation’s security improves. Santos
said Colombia is in more danger from the recession that looms
“around the corner” than the financial crisis.
“No country is going to not feel the impact of the economic
crisis,” Santos said, speaking in English.
Latin America’s fourth-largest economy is slowing faster
than the government had previously expected as the global credit
crisis and costly lending rates prompt consumers to reduce
spending. The government last month cut its 2007 growth forecast
to between 3.8 percent and 4.2 percent from 5 percent and lowered
next year’s estimate to between 3 percent and 4 percent from 5
percent as the crisis picked up steam.
Until this year, President Alvaro Uribe’s success in
battling the violence fueled by drug-funded rebel groups
encouraged consumers to increase borrowing for homes and durable
goods like washing machines, boosting economic growth to the
highest level in almost three decades and speeding up inflation.
The central bank has raised the benchmark lending rate 16
times since April 2006 to 10 percent to prevent consumer prices
getting out of control. Uribe has criticized the bank for being
too restrictive and said the spread between U.S. and Colombian
interest rates boost the value of the peso too much, eroding
exporters’ profits and putting jobs at risk.
The bank indicated at its last board meeting Oct. 25 that
its tightening cycle may be ending as food prices decline and
bank lending slows.
Santos said the finance ministry and planning department are
studying ways to trim spending from next year’s 140.5 trillion
pesos ($58 billion) budget. The government has already moved up
plans to borrow money from international lenders in a bid to
cushion itself against the global credit crunch.
“You have to maintain credibility with investors, which is
something that’s very important to us,” Santos said. (Bloomberg)