Colombia Finance Chief Sees Asia-Like Growth If Rebels Disarm
Colombia’s economy could see Asia- like growth of 6 percent to 7 percent “for decades” if the government strikes a peace deal with Marxist rebels in soon-to- begin negotiations, Finance Minister Mauricio Cardenas said.
An eventual deal with guerrillas of the Revolutionary Armed Forces of Colombia, or FARC, could open the country’s eastern plains to Brazilian-style agribusiness, and divert tax revenue from security and defense spending to more productive uses, Cardenas said in an interview in his Bogota office.
“My bet is that if anything is going to grow faster in Colombia with the end of the conflict, it’s going to be agricultural production,” the 50-year-old Cardenas said in an interview 17 days after being sworn in as finance chief. “We’re talking about palm oil, soybeans, rubber, sugarcane, things like that.”
The FARC surprised many Colombians Sept. 4 by agreeing to sit down with President Juan Manuel Santos’ government next month, in Oslo, for the first talks in a decade aimed at ending Latin America’s longest-running armed conflict. A U.S.-funded crackdown has already improved security for oil and mining companies across much of the Andean nation, helping lure record foreign investment that’s allowed Colombia to overtake Argentina as South America’s second-biggest economy.
While a peace dividend would spur growth and investment even further, the economy can still grow at an “outstanding” long-term pace of 4.5 percent to 5 percent even if the talks fail, Cardenas said.
“I don’t want to give the impression that our success and the good momentum of the Colombian economy hinges on good results in that process,” said Cardenas, who served as Santos’ mining minister before switching jobs as part of a Cabinet shake-up. “It would be a nice thing to have, it will add to economic growth, but we already have outstanding economic growth.”
Cardenas’ comments came the same day the national statistics agency reported that economic growth accelerated in the second quarter.
The FARC have been waging war on the Colombian state for nearly five decades, leaving large parts of the Andean nation off-limits for investors.
Agriculture has been held back more than energy and mining by the guerrillas, since oil facilities are more localized and easier to protect than farms, Cardenas said.
The talks come as the FARC step up attacks on oil workers, pipelines and energy towers this year to try to derail what Santos says is one of the country’s growth “locomotives.”
Attacks on oil pipelines more than quadrupled to 88 in the first seven months of the year, from 20 in the same period in 2011, according to government statistics, even after the Santos government tracked down and killed the FARC’s top two commanders.
University of California, Berkeley-educated Cardenas was appointed to his post on Aug. 23 and took over the finance ministry this month from Juan Carlos Echeverry. Cardenas was best man at Echeverry’s wedding, and says he shares many of his friend’s views on economics.
Before being appointed as minister of mines and energy last year, Cardenas had served as director of the Latin America Initiative at The Brookings Institution beginning in 2008.
The economy Echeverry left him grew 4.9 percent in the second quarter from a year earlier, the national statistics agency said yesterday, faster than Brazil and Mexico, while lagging behind Chile and Peru.
Over the last decade, Colombia’s economy had an annual average growth rate of 4.5 percent.
Even though annual growth in the second quarter exceeded the forecasts of all 29 analysts surveyed Bloomberg, Cardenas says there are “good reasons” for the central bank to continue to cut interest rates to offset the global slowdown.
More interest rate cuts would also help curb the peso’s appreciation as the U.S. Federal Reserve’s third round of quantitative easing weakens the dollar, Cardenas said.
At the same time, retail sales and industrial production reports for July, published by the statistics agency on Sept. 19, both came in below the median estimates of economists surveyed by Bloomberg.
Sales rose 1.3 percent, below the 3.6 percent forecast, while output grew 1.5 percent, lower than the estimate of all but two of 20 economists’ forecasts.
The central bank cut interest rates by a quarter point at each of its last two policy meetings, citing the weak global economy, which has cut demand for the country’s commodities exports. In Colombia the finance minister sits on the central bank’s seven-member policy committee.
The central bank will hold its benchmark interest rate at 4.75 percent at its September policy meeting next week, according to the median forecast in a Bloomberg survey of 14 analysts.
The Colombian peso has strengthened 8.1 percent this year, the biggest gain of the 31 most traded tracked by Bloomberg, behind the Mexican peso, Chilean peso and the Hungarian forint.
Cardenas said the Treasury will continue to intervene in foreign exchange markets to reinforce the central bank’s daily dollar purchase program and weaken the peso.
The Petroleum Stability Fund will also buy an additional $500 million by the end of the year, taking its total holdings to close to $1 billion in savings abroad, to reinforce the central bank’s dollar purchase program.
The government wants to weaken the peso to help the country’s manufacturing sector, which is one of the government’s main worries, Cardenas said.
The government won’t present a bill to Congress this year to allow it to sell a stake in Ecopetrol SA (ECOPETL), Colombia’s largest oil company, Cardenas said.
“We will not be pushing that bill this year, we have other priorities,” he said. “It’s not that we’re ruling that out permanently, but it’s not a pressing issue for us.”