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Foreign investment: Colombia's too-mighty peso

As foreign investments flows in, Colombia deals with the fallout from its suddenly strong peso.

The peso was trading at 2,500 per dollar in March 2009. Since then, the dollar weakened to 1,771 pesos before rebounding to the current 1,846 (as of Oct. 27). Some analysts predict the peso will soon trade at 1,600 to the dollar and stay that way for several years.

Among the most vocal critics of the super-sized peso are the nation’s flower growers. Colombia is the world’s No. 2 exporter of fresh-cut flowers. But because cultivating roses and carnations is labor-intensive, it’s hard for business owners to cut operating costs when income drops.

Richard Franklin Cruz, vice president of Asocolflores, the business group representing flower growers, blamed the strong peso for provoking the sector’s worst crisis in 45 years. Some 15,000 flower workers — about 11 percent of the total — have been laid off while another 12,000 punch the clock for companies that have filed for bankruptcy and could soon lose their jobs.

“This has been devastating,” said one flower grower.

The country’s auto parts industry has lost $275 million in export profits this year while the shoe exports have declined 35 percent. In Medellin, Colombia’s industrial hub, factory closures have put 4,000 people out of work since the start of the year, said Javier Diaz Molina, president of the National Trade Association.

Some wags comment that even the drug traffickers are complaining.

Though critics say the government has reacted too slowly. The Central Bank is now buying up dollars while Echeverry, the treasury minister, has raised the possibility of capital controls — meaning taxes — on incoming portfolio capital to restrict the inflow of greenbacks, a measure which Brazil and other countries have taken.

But officials must walk a fine line between propping up domestic producers and sending the wrong signal to foreign investors. Besides, the factors pumping up the peso may shift.

“U.S. policies will change. Commodity prices won’t stay high forever. And the peso won’t always be so strong,” Cardenas said. “All of this is cyclical.”

http://www.globalpost.com/dispatch/colombia/101028/foreign-investment-emerging-markets-peso