Colombia may try to limit gains in the peso by forgoing plans this year to repatriate all of a $1.5 billion account held abroad as higher-than-projected tax revenue reduces funding needs, Public Credit Director German Arce said.
“We want to avoid unnecessary pressures on the peso,” Arce, 39, said in an interview in his Bogota office yesterday.
Arce’s comments signal the government may keep the money outside the country longer than Finance Minister Juan Carlos Echeverry indicated in October, when he said it would stay overseas “at least for the first months of 2011.
” The peso has climbed 7.5 percent this year, the best performance among seven Latin American currencies tracked by Bloomberg.
The National Exporters Association called this week for the government to limit gains in the peso as the stronger currency crimps profits by making goods more expensive in dollar terms.
The government repatriated a “small” part of the money this year and has used a portion to make payments abroad, Arce said.
He declined to say how much of the $1.5 billion, which mostly stems from dividends paid by state oil company Ecopetrol SA (ECOPETL), was converted into pesos.
Tax revenue totaled 18.5 trillion pesos ($10.3 billion) in the first quarter, about 1 trillion pesos more than the government’s target.
“April is a critical month in terms of tax revenue,” Arce said. “Knowing how much was collected will allow us to extrapolate for the whole year and will tell us how much money we will have in pesos and what capacity we have to maintain funds abroad for longer periods of time.”
Government Measures
The peso’s 5.4 percent rally in the last month has sparked speculation the government will announce further measures this week to curb the advance.
The central bank may announce at its April 29 monetary policy meeting that it will boost the amount or extend the date on its daily dollar purchases, said Andres Munoz, head currency trader at financial services holding company Corp. Financiera Colombiana.
The government may also impose capital controls, according to Munoz.
Echeverry, a member of the central bank’s board, told reporters yesterday that the government isn’t a “fan” of such moves.
“We’ve been much more effective without capital controls than many countries that have imposed them,” Echeverry said. “If we have a good, efficient policy that is superior to others, I don’t see the need to change it.”
Foreign Investment
The currency today erased earlier declines, jumping 0.9 percent to 1,775 per U.S. dollar at 4:44 p.m. New York time.
Earlier this week it touched 1,774.01, the strongest level since August 2008. The peso has rallied amid higher foreign direct investment flows this year.
Foreign direct investment rose to $3.23 billion in the year through March, with 86 percent going into oil and mining, according to trade balance figures from the central bank.
That compares to $2.17 billion in the first three months of 2010.
Echeverry has also said that recent gains in the currency are a result of companies bringing in funds from overseas to pay local taxes between April 8 and April 25.
Companies dependent on international sales are facing a “difficult” situation, Javier Diaz.
The country should “closely monitor” short-term inflows including overseas borrowing, and consider imposing limits to ease the peso’s rally, Diaz said.
Investment Grade
The central bank in February extended a plan to buy a minimum of $20 million daily in the local market until “at least” June 17.
Record-low interest rates in the U.S. and an asset-purchase program that sought to spur economic growth in the world’s biggest economy has pushed gains in emerging-market currencies, including the Brazilian real and the Colombian peso, as investors increase their demand for higher-yielding assets.
The Federal Reserve’s trade-weighted dollar index has dropped 19 percent in the past two years.
Colombia will wait for a second investment grade rating before issuing debt abroad this year, Arce said.
The government plans to issue $2.24 billion in foreign bonds in 2011.
Standard & Poor’s raised the nation’s foreign debt rating one step on March 16 to BBB-, the lowest level of investment grade.
Moody’s Investors Service and Fitch Ratings rate Colombia one level below investment grade with a positive outlook.
Funding Pressure
“We don’t have the pressure in terms of funding needs so we can time it” to achieving a second investment grade rating, Arce said.
A second upgrade will “broaden Colombia’s investor base” and likely cut borrowing costs, Arce said.
He predicts Colombia will get a second credit rating upgrade “sometime” this year. Such a move will likely also help push down Colombia’s local borrowing costs, Arce said.
Colombia’s local peso bond curve “is steeper versus our peers,” he said.
The gap between yields on Colombia’s government fixed-rate peso bonds due July 2024 and August 2012 is 335 basis points, or 3.35 percentage points.
That compares to the 224 basis point and 34 basis point gap, for similar-maturity fixed-rate debt in Mexico and Brazil, respectively.
“We want to avoid unnecessary pressures on the peso,” Arce, 39, said in an interview in his Bogota office yesterday.
Arce’s comments signal the government may keep the money outside the country longer than Finance Minister Juan Carlos Echeverry indicated in October, when he said it would stay overseas “at least for the first months of 2011.
” The peso has climbed 7.5 percent this year, the best performance among seven Latin American currencies tracked by Bloomberg.
The National Exporters Association called this week for the government to limit gains in the peso as the stronger currency crimps profits by making goods more expensive in dollar terms.
The government repatriated a “small” part of the money this year and has used a portion to make payments abroad, Arce said.
He declined to say how much of the $1.5 billion, which mostly stems from dividends paid by state oil company Ecopetrol SA (ECOPETL), was converted into pesos.
Tax revenue totaled 18.5 trillion pesos ($10.3 billion) in the first quarter, about 1 trillion pesos more than the government’s target.
“April is a critical month in terms of tax revenue,” Arce said. “Knowing how much was collected will allow us to extrapolate for the whole year and will tell us how much money we will have in pesos and what capacity we have to maintain funds abroad for longer periods of time.”
Government Measures
The peso’s 5.4 percent rally in the last month has sparked speculation the government will announce further measures this week to curb the advance.
The central bank may announce at its April 29 monetary policy meeting that it will boost the amount or extend the date on its daily dollar purchases, said Andres Munoz, head currency trader at financial services holding company Corp. Financiera Colombiana.
The government may also impose capital controls, according to Munoz.
Echeverry, a member of the central bank’s board, told reporters yesterday that the government isn’t a “fan” of such moves.
“We’ve been much more effective without capital controls than many countries that have imposed them,” Echeverry said. “If we have a good, efficient policy that is superior to others, I don’t see the need to change it.”
Foreign Investment
The currency today erased earlier declines, jumping 0.9 percent to 1,775 per U.S. dollar at 4:44 p.m. New York time.
Earlier this week it touched 1,774.01, the strongest level since August 2008. The peso has rallied amid higher foreign direct investment flows this year.
Foreign direct investment rose to $3.23 billion in the year through March, with 86 percent going into oil and mining, according to trade balance figures from the central bank.
That compares to $2.17 billion in the first three months of 2010.
Echeverry has also said that recent gains in the currency are a result of companies bringing in funds from overseas to pay local taxes between April 8 and April 25.
Companies dependent on international sales are facing a “difficult” situation, Javier Diaz.
The country should “closely monitor” short-term inflows including overseas borrowing, and consider imposing limits to ease the peso’s rally, Diaz said.
Investment Grade
The central bank in February extended a plan to buy a minimum of $20 million daily in the local market until “at least” June 17.
Record-low interest rates in the U.S. and an asset-purchase program that sought to spur economic growth in the world’s biggest economy has pushed gains in emerging-market currencies, including the Brazilian real and the Colombian peso, as investors increase their demand for higher-yielding assets.
The Federal Reserve’s trade-weighted dollar index has dropped 19 percent in the past two years.
Colombia will wait for a second investment grade rating before issuing debt abroad this year, Arce said.
The government plans to issue $2.24 billion in foreign bonds in 2011.
Standard & Poor’s raised the nation’s foreign debt rating one step on March 16 to BBB-, the lowest level of investment grade.
Moody’s Investors Service and Fitch Ratings rate Colombia one level below investment grade with a positive outlook.
Funding Pressure
“We don’t have the pressure in terms of funding needs so we can time it” to achieving a second investment grade rating, Arce said.
A second upgrade will “broaden Colombia’s investor base” and likely cut borrowing costs, Arce said.
He predicts Colombia will get a second credit rating upgrade “sometime” this year. Such a move will likely also help push down Colombia’s local borrowing costs, Arce said.
Colombia’s local peso bond curve “is steeper versus our peers,” he said.
The gap between yields on Colombia’s government fixed-rate peso bonds due July 2024 and August 2012 is 335 basis points, or 3.35 percentage points.
That compares to the 224 basis point and 34 basis point gap, for similar-maturity fixed-rate debt in Mexico and Brazil, respectively.
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