Nothing like Brazil

With his deep, chanting voice and contagious laughs he can convince you everything is going according to plan. 

“We have systematically and purposefully over-performed,” says Juan Carlos Echeverry, Colombia’s finance minister. 

For him, it is a virtuous circle: confidence, which leads to job creation, which leads to poverty reduction. “

Confidence in the economy is intact. 

That is what every finance minister looks for.

Even though the eurozone’s woes have led investors to dump some riskier emerging market assets, Colombia’s booming hydrocarbons and mining sectors continue to attract near-record levels of foreign investment, contributing to economic growth of 5.9 per cent last year. 

Colombia is the globe’s fourth biggest exporter of coal and the fourth-biggest oil producer in the region.

But the economy is performing less well than expected this year, as the global slowdown has cut demand for commodity exports.

“We had tailwind last year, with very high oil and coal prices, and headwind this year,” Echeverry told beyondbrics. 

Colombia’s gross domestic product expanded 4.7 per cent in the first quarter from a year earlier, its slowest pace since 2.010. 

That has led some to worry that Colombia might go the way of Brazil, where growth has fallen sharply from 7.5 per cent in 2.010 to less than 2 per cent this year.

“We used the tailwind, the high price of commodities, to save. 

Those savings helped us reduce fiscal deficit from 3.6 per cent last year to around 1 per cent this year,  this is more than what we’ve promised, and also more than what anyone would have asked us for,” the New York-educated minister explains. 

According to him, more than 50 per cent of Colombia’s economy is growing at more than 4.5 per cent. 

“So we have enough base to get to the 4.5 per cent growth this year. If we can deliver 4.5 per cent this year, everyone will say ‘this is good for Colombia’.”

So for Echeverry, Colombia is nowhere near its big neighbour. 

“We are not going to be like Brazil, we have been very careful about being over indebted, be it households or firms. 

And we don’t have an inflation problem. 

My problem with Brazil is whether we will get some sort of contamination coming from Brazil, because Brazil has a lot of weight on the region,” he says. 

“Besides, people are increasingly seeing Colombia as a standalone story, and there are a lot of Brazilians investing here now.”

He recognises certain ironies in the state of the Colombia economy, though. 

“Our problem is not portfolio investment, it is FDI. 

This year we are expecting $17bn in FDI. that’s exactly what you want to have, especially during a worldwide crisis, you want to be a safe haven. 

So I cannot complain.”

But in practice, this means the jackhammer of currency appreciation. 

“In agriculture and manufacturing we have the problem of the appreciation of the peso. 

I cannot deliver or promise devaluation, but I can give support to the exchange. 

In a world characterised by the currency wars, this is not easy, we have to fight our currency war, otherwise we will lose it,” he says. 

The Colombian peso is among the world’s best-performing currencies to date this year, rising more than 9 per cent against the dollar.

With $34bn, Colombia is the country with the lowest ratio of foreign reserves to GDP in Latin America. 

The central bank has a nine-month dollar-buying programme of $20m a day already in place that is scheduled to end in early November. For Echeverry it does not seem enough.

“I have asked the bank for $40bn. I see Mexico, I see Chile, I see Brazil and they have been doing much better in terms of the exchange rate, they have devalued more than Colombia. 

If they have done it, and they are as serious as we are, we should be able to do it without compromising inflation.”

Why isn’t Colombia doing it, then?

“Probably because we are too conservative. 

I am a conservative, but my mother used to say ‘nothing in excess is good, not even prudence’,” Echeverry says.