Newsmakers : In The Hot Seat

COLOMBIA

 

 

Newsmaker_1

Zuluaga: Colombia
will have to live
with a strong
currency

Oscar Iván Zuluaga, who took over as Colombia’s new finance minister in March, faces important challenges ahead. Among these will be the need to guide the nation’s economy into a soft landing.


Zuluaga, an economist, is a former senator and adviser to president Alvaro Uribe. However, most of his experience has been in the private sector, including a stint as CEO of local steelmaker Acerías de Colombia. When predecessor Alberto Carrasquilla stepped down, he put Zuluaga on a short list of possible replacements.

Among key challenges will be to keep the economy from overheating. Zuluaga predicts GDP will grow nearly 5% this year after a 7% expansion in 2006. Manufacturing output grew 12.3% year-on-year in December, after a 17.3% expansion in November, bringing 2006 industrial output growth to a two-year high.

Inflation poses a problem, with a 4.7% year-on-year spike in January, compared with a central bank long-term target of 3%. The central bank raised the benchmark interest rate by 25 basis points to 8% in February as part of a tightening strategy that has pushed up rates by 200 basis points since April 2006.

A strengthening peso is another challenge. The peso gained 8% over the past six months, prompting a $1 billion central bank intervention in January to curb gains. “The strong peso is a consequence of a good economy,” Zuluaga told the media. “We have to live with it.”

The government expects to prepay domestic and foreign debt this year using increased tax revenues and funds raised through the sale of state assets. The government cut its debt-to-GDP ratio to 31% in 2006 from 48% in 2002.

Strong economic and fiscal performance have put Colombia on a path to regaining its investment-grade rating, with Standard & Poor’s upgrading the sovereign debt from BB- to BB+, which is just one notch below investment grade. Goldman Sachs predicts Colombia will achieve the coveted rating by the end of 2008 or early 2009.


Antonio Guerrero
 

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