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* Efforts to stem peso gains have muted effect
* Strong currency hurts exporters, manufacturers
* Could use savings from local debt management
By Helen Murphy and Nelson Bocanegra
BOGOTA, Feb 5 (Reuters) - - Colombia may retire foreign debt before it matures, by drawing on budgetary resources freed up by lower-than-anticipated domestic bond servicing costs, the country's finance minister Mauricio Cardenas said on Tuesday.
Colombia's peso softened after Cardenas' remarks in which he said he would every tool in the government's arsenal to weaken the peso, which he said was about 10 percent overvalued against the dollar.
"The government could make an additional effort because we have reduced the cost of domestic debt servicing, interest on TES bonds has fallen...so we have savings that could be used to prepay external debt," Cardenas said, speaking in an interview on local radio.
"We are also considering general spending cuts," Cardenas added, referring to the 2013 budget.
The peso gained 9 percent against the dollar last year. In 2013 it has retreated only negligibly.
By drawing on peso-denominated coffers at home to buy dollars to prepay foreign debt, the government would put downward pressure on the peso, analysts said.
The central bank cut its overnight lending rate a quarter percentage point last month to 4 percent and increased purchases of dollars on the spot market to $30 million a day from $20 million previously.
The price of the domestic Treasury bonds, known as TES, have now reached a record, meaning that their interest rates have fallen. Bond prices and interest rates move in inverse direction.
In Tuesday morning trade, the peso weakened 0.14 percent to 1790.30 pesos to the dollar. So far this year, it has softened barely 1 percent against the U.S. currency.
Despite government efforts, economists reckon the peso will not react much to the measures as its strength comes mostly from record dollar inflows into the economy as security in the Andean nation improves.
Colombia has been the victim of its own success in recent years as improved security over the last decade opened up many parts of the country to more investment from oil and mining companies, whose dollars are a key contributor to the peso's strength.
A strong peso hurts exporters who receive dollars for sales but pay costs in pesos while local manufacturing suffers from an influx of cheaper imports.
The government has vowed to keep dollars from overseas debt sales abroad and asked state-run oil company Ecopetrol not to take on dollar debt for financing. It also uses excess funds from the Treasury to buy dollars.
In its regular assessment of Colombia's economic health, the International Monetary Fund said on Monday the peso appeared over valued on a real exchange-rate basis by between 1 percent and 8 percent, though the strength also could reflect improvements in economic fundamentals.