Colombian Finance Minister Juan Carlos Echeverry said he is studying ways to stem a rally by the peso this year that has outstripped gains by every other currency.
Colombia should use a “diverse set of instruments” to halt the gains, protect jobs and help bring the unemployment rate below 9 percent by the end of the year, Echeverry said, without specifying what steps the government may take.
“My first task is to maintain Colombian jobs,” Echeverry said April 13 in an interview in Cartagena, where he was attending a meeting of business leaders at the Summit of the Americas. “If the exchange rate stays too strong for too long then definitely I’m worried. Definitely, I think we can do more.”
The peso has strengthened 9.2 percent this year to 1,775.5 per dollar, more than all 171 currencies tracked by Bloomberg and compared with a 1.3 percent gain for Brazil’s real. Colombian central bank chief Jose Dario Uribe said April 13 that he’d like to see a weaker peso too, while President Juan Manuel Santos has repeatedly complained of the damage the stronger currency is inflicting on the Andean nation’s manufacturers and farmers.
Brazil, which has a jobless rate of 5.7 percent, half of Colombia’s 11.9 percent, has increased import tariffs to defend local industry and raised taxes on foreign investment to weaken the real. Last month, President Dilma Rousseff extended a 6 percent tax on foreign loans and bonds issued abroad to include lending with a maturity of as much as five years, to shield Brazil from what she called a “monetary tsunami.”
Colombia’s government has kept its economy more open as it benefits from record levels of foreign investment and credit growth of more than 20 percent. Echeverry expects gross domestic product to expand 5 percent or more this year, after increasing 5.9 percent last year, its fastest pace since 2007.
The peso has rallied after policy makers raised interest rates nine times since the start of 2011, bucking a global trend for lower borrowing costs.
The central bank has since taken action to weaken the currency, vowing to purchase a minimum of $20 million daily in the spot market until at least Aug. 4.
The government is also avoiding bringing dollars into the country to ease pressure on the peso. State oil company Ecopetrol SA will make its first two 2011 dividend payments to the government in April and July in pesos and the following two abroad, Echeverry said.
In a separate interview over the weekend Ecopetrol president Javier Gutierrez said the company is a “small player” in the currency market, selling about $25 million per day.
Echeverry said that cutting the national jobless rate below 9 percent by the end of the year, from 11.9 percent in February, is his “number one goal,” and that policy makers should aim for low unemployment as well as price stability.
“We have inflation at 3.4 percent, and we are going toward 3 percent by the end of the year,” Echeverry said. “So, great. But it’s only valuable if you pair it with a declining unemployment rate.”