Colombia set for rebound

21/03/2010 | Lucien Chauvin

The winner of Colombia’s May 30 presidential elections will take over an economy already pulling out of crisis, finance minister Oscar Zuluaga has told Emerging Markets

The winner of Colombia’s May 30 presidential elections will take over an economy already pulling out of crisis, Finance Minister Oscar Zuluaga has told Emerging Markets.

Zuluaga, who will step down when President Alvaro Uribe leaves office after the polls, said his successor will inherit “a strong position regarding public, fiscal and debt management.”

The government is forecasting growth of no more than 0.2% in 2009, when official numbers are released at the end of the month, but sees this increasing to 2.5% this year. Growth in the near future is estimated at a steady 4.5-5%.

Inflation should be between 3% and 4% for the year. Exports are also expected to pick up: they were down in 2009, as a result of the international crisis, but Colombia fared slightly better than nearly all countries in the region. Export earnings declined by 12.9% in 2009, while most others saw drops of 15% or more.

The government expects growth to be led by mining/hydrocarbons, industry and construction, with the extractive industries expanding in double digits. “These will be the pillars of growth,” Zuluaga said.

A key component is infrastructure, where Colombia lags behind other countries in the region. “Much has been done, but there is still a lot to do. Colombia in the next five years will receive investment in infrastructure between $12 and $15 billion.”

It is foreign relations and politics that could dampen economic forecasts, though. While Colombia has made progress in containing insurgent forces, drug traffickers and right-wing paramilitary groups, they continue to attack infrastructure and putting lives and investments at risk.

The trade relationship with Venezuela, formerly a major recipient of Colombian products, has been strained by Caracas’s decision to limit Colombian imports – which Zuluaga said will shave at least one point off growth this year. The US government is also still sitting on the fence over ratifying a free-trade agreement signed years ago with Colombia.

Other problems resemble those in other Latin American nations: low interest rates, 3.5%, and informality in the labour market. German Verdugo, economic research director at Colombia’s Correval, said these pressures are likely to keep GDP growth below the government’s forecasts.

On the other side of the coin, different sectors are calling on the government to be more aggressive with its monetary policy to keep the peso from getting too strong. Zuluaga said the central bank is ensuring that the peso does not get too strong – purchasing around $20 million daily to maintain equilibrium – but said there would be no other measures.

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