* Efforts to stem peso gains have muted effect
* Strong currency hurts exporters, manufacturers
* Central bank, govt have intervened in market
By Helen Murphy and Nelson Bocanegra
BOGOTA, Feb 5 Colombian Finance Minister
Mauricio Cardenas said on Tuesday the government plans to reduce
external debt to help curb gains in the peso but ruled out
prepaying existing foreign bonds.
Cardenas clarified his earlier comments that he was
considering prepaying foreign debt by using budget savings or
cash freed up by lower-than-anticipated domestic bond servicing
costs in a bid to weaken the peso, which he said was
about 10 percent over valued against the dollar.
A rekindling in risk appetite among investors and continued
low interest rates in developed countries have prompted many
experts to predict a bumper year of inflows to higher-yielding
emerging markets, potentially boosting exchange rates further.
"We will not pay bonds that have already been issued,"
Cardenas said in an interview on state radio, referring to
prepayment of foreign bonds.
"We can take on less debt in the exterior and dedicate
additional resources to amortize existing debt. But prepaying
existing bonds isn't a good idea because if you say you are
going to pay the bonds it increases the price."
Colombia had external public sector debt worth $45.5 billion
as of October 2012, according to central bank data, and has
multilateral loans with institutions, including the World Bank.
Peru, which is also struggling with hot money inflows, said
on Dec. 22 it would prepay up to $1.5 billion in debt in 2013 to
try to stem the sol's appreciation.
Such a measure would help ease gains in Colombia's peso,
which despite efforts by the government and central bank has
remained stubbornly strong.
The peso gained 9 percent against the dollar last year. In
2013 it has retreated only slightly.
In an attempt to prevent further strengthening, 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
In Tuesday trade, the peso strengthened 0.05 percent to
1,786.98 pesos to the dollar. So far this year, it has softened
barely 1 percent against the U.S. currency.
Even with new measures, economists reckon the peso will not
react much as its strength comes mostly from record dollar flows
into the economy as security in the Andean nation improves.
Improved security has 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.