Colombia’s central bank should step up dollar purchases to curb the world’s biggest currency rally and give the Andean nation a “much higher” level of foreign reserves, President Juan Manuel Santos said.
“The size of our foreign trade has increased, and according to many studies we can have a much higher level of reserves, about $13 billion higher,” Santos, 60, said in a July 14 interview while flying on his presidential jet to a group of Caribbean islands and coral reefs. “I would recommend to the central bank that they increase the amount they purchase on a daily basis, and I imagine they are studying that.”
Even as Europe’s debt crisis has led investors to dump riskier emerging market assets, oil and mining projects in Colombia continue to draw near-record levels of foreign investment, putting pressure on the peso. The currency has appreciated 9 percent since the start of the year, the biggest gain of 170 tracked by Bloomberg, even after the central bank announced a $20 million daily purchase program to halt its rise.
Since taking office in 2010, Santos has set about expanding exports, taking advantage of investor interest in resource-rich parts of the country that were off-limits during the height of drug-fueled, guerrilla violence in the 1990s. A graduate of the University of Kansas, he persuaded Democrats in the U.S. Congress last year to abandon their opposition to a free trade agreement that the government is now using as a model for deals with South Korea and the European Union.
Santos, a former finance minister, said decisions about dollar purchases will be taken by the bank, which manages the country’s $34 billion in international reserves, and that he “respects very much” the institution’s independence. The peso declined 0.2 percent today to 1,779.80 per U.S. dollar.
Still, his government is doing its part to curb inflows, such as storing abroad dividends from state-run oil company Ecopetrol SA. Last month he told policy makers that the government would assume any fiscal cost of increasing its reserve pile. The bank’s current dollar-buying program started in February and is scheduled to conclude in early November.
Oil accounted for 49 percent of Colombia’s exports last year, up from 24 percent in 2007. As well as contributing to the peso’s strength, which is causing complaints from exporters such as coffee and banana growers, the oil bonanza is creating another headache for Santos as it attracts the attention of Marxist guerrillas.
The Revolutionary Armed Forces of Colombia, or FARC, have stepped up attacks on oil workers, pipelines and energy towers this year to try to derail what Santos says is the country’s growth “locomotive.” The guerrillas murdered five workers at a well in southern Colombia this month, and acts of sabotage nearly tripled to 37 in the first four months of 2012, according to government statistics.
“Modesty apart, nobody has hit the FARC as hard as I have,” Santos, who was credited with some of the biggest battlefield victories against the FARC as defense minister between 2006 and 2009, said as his plane approached the island of San Andres.
“Their sources of finance through drug trafficking have been diminished, so they are desperate, and they are trying to go back to extortion to see if they can raise some money,” he added.
The FARC’s resurgence in areas where it had long been absent is contributing to a slump in Santos’ approval ratings, even after his government tracked down and killed the group’s two most senior commanders. The increase in attacks is hampering Colombia’s goal of increasing oil output to 1 million barrels a day, from 914,000 barrels a day last year.
It also means that, if Santos runs for re-election in 2014, he’ll likely run against an ally of former President Alvaro Uribe demanding a harder line on security. Santos was also damaged last month by a scandal in Congress, when lawmakers inserted last-minute changes to a judicial system overhaul that would have paralyzed investigations into politicians with links to organized crime.
The proportion of Colombians with a favorable image of the president fell to 48 percent in June from 64 percent in April, according to a poll published June 28 by Gallup Colombia.
This month, Uribe and hundreds of his followers met in Bogota and heard speeches attacking what they say is the government’s backsliding on security. Uribe, who supported Santos’ candidacy in 2010, now attacks him almost daily via his Twitter site and in interviews. Former Finance Minister Oscar Ivan Zuluaga told El Tiempo newspaper in an interview last week that he hopes to be the “Uribista” candidate in 2014.
After growth outpaced much of Latin America in 2011, the economy is performing weaker than expected this year, as a global slowdown cuts demand for exports. Industrial output fell 1.7 percent in April from a year ago, its worst performance since 2009, while urban unemployment unexpectedly rose in May to 11.9 percent.
Gross domestic product expanded 4.7 percent in the first quarter from a year earlier, its slowest pace since 2010. Central bank chief Jose Dario Uribe said in a radio interview last week that policy makers had been surprised by the weakness of industry and exports. At least two members of the bank’s board said that the slowdown in industry and agriculture justifies a cycle of interest rate cuts to revive growth, according to the minutes of the bank’s June policy meeting.
Landing on Colombia’s San Andres island, Santos met with ministers to discuss a yet-unveiled plan to boost government spending on infrastructure. He also took a helicopter to nearby Bolivar island to insist on Colombia’s sovereignty over the archipelago, which is disputed by Nicaragua.
Increased public works spending will help sustain the economy as global growth slows, said Santos, the scion of one of Colombia’s wealthiest families, which founded El Tiempo.
Santos said that Franklin Delano Roosevelt, who spearheaded an infrastructure drive of his own aimed at ending the Great Depression in the 1930s, is one of the politicians that he most admires. In his free time, the Colombian president said he is working his way through Arthur M. Schlesinger Jr.’s series of U.S. presidential biographies, and most recently read the volume on Depression-era president Herbert Hoover.
The government has no urgent need to sell part of its 88.5 percent stake in Ecopoetrol, Santos said. The Bogota-based company is the world’s seventh-most valuable oil producer, with a market capitalization greater than the rest of Colombia’s Colcap index combined. Shares in the company have risen 29 percent in dollar terms this year, the biggest gain among oil companies worth more than $50 billion.
“We’re not in a hurry with that,” Santos said. “It depends on the world markets, it depends on the financing, but today we don’t really need it.”