April 3, 2013 / 8:31 PM / in 5 years

UPDATE 1-Colombia's finmin calls strong peso 'mother of all problems'

By Helen Murphy

BOGOTA, April 3 (Reuters) - Colombia’s Finance Minister Mauricio Cardenas on Wednesday identified the strong currency as the “mother of all problems” in the economy, continuing his verbal intervention aimed at weakening the peso that has hurt the country’s manufacturers and exporters.

“If one could identify, maybe the mother of all problems - apologies to women for making it feminine - it’s the exchange rate,” Cardenas said at an industrialists’ conference in Bogota. “The exchange rate has generated competitive difficulties in all tradable sectors.”

Cardenas has made weakening the peso a priority since taking office last year. His efforts, along with those of the central bank, have curbed the rise in the currency, which began in 2009, bringing the peso down 2.8 percent against the U.S. dollar so far this year.

A stronger local currency cuts into the revenues of exporters and causes problems for manufacturers who struggle to compete with cheaper imports.

Cardenas, who has complained about the “tsunami” of U.S. dollars and euros causing problems in countries like Colombia, has said the ideal level for the peso is around 1,900 per dollar. On Wednesday, the peso closed at 1,820.40, well below his target.

Governments and central banks in advanced economies have resorted to unconventional policies to revive growth, cutting interest rates close to zero, which has led to a surge in capital flows into emerging economies, strengthening their currencies.

Investment in Colombia’s capital markets has also soared over the last decade and foreign direct investment, mostly in the oil and mining industries, has reached record levels, boosting the peso further and forcing the central bank to buy dollars.

Colombian authorities have rolled out numerous measures over the past year, using verbal as well as actual intervention, to slow gains in the peso. The central bank last year bought $4.8 billion and this year plans to buy at least $3 billion from February to May.

President Juan Manuel Santos will on April 15 reveal a series of measures aimed at “shocking” the economy and helping the manufacturing and agriculture sector. Among likely measures are tax breaks, reduced energy costs and increased pressure to target counterfeiting.

Cardenas has ruled out capital controls for now but signaled that more intervention may be included in the latest measures.

Some economists reckon that if Santos is unable to present a strong set of measures that weaken the peso and aid the most vulnerable sectors of the economy, the market will push the peso back toward 1,750 per dollar.

Economic growth last year reached 4 percent, well below the 6.6 percent expansion in 2011.

Cardenas has said the central bank’s half point cut in the benchmark lending rate last month - to 3.25 percent - may be enough to fuel economic growth to 4.8 percent this year.

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