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.
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.
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.