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Colombia OKs Tax Breaks, Cheap Loans For Cos Hurt By Currency

Colombia OKs Tax Breaks, Cheap Loans For Cos Hurt By Currency

BOGOTA -(Dow Jones)- The Colombian government approved a package of 120 billion Colombian pesos ($63 million) in tax breaks and $222 million in subsidized loans for exporters whose costs increased due to the strengthening peso, the Trade Minister Luis Guillermo Plata said Friday.

The government will spend COP30 billion to subsidize the loans, which will be channeled by state development bank Bancoldex.

Only companies that can show they didn't reduce their staff levels will be eligible for the aid, Plata said. The tax breaks were approved for the first half of the year.

"The purpose of this aid is to protect jobs and the exchange rate's evolution may justify another package," Plata said.

The Colombian government had already approved last week a COP300 billion subsidy for exporters.

In the past four years, the Colombian peso has strengthened against the U.S. dollar due to foreign investment, remittances from Colombians living abroad and strong exports.

The currency hit a seven-year high last June at 1,871.60 Colombian pesos to the dollar, although it has weakened somewhat since then. The peso strengthened 11% in 2007 and has gained 6% so far this year versus the U.S. currency. The strong currency hurt the competitiveness of some Colombian exporters, such as flower producers and textile makers.

On Friday, the peso weakened slightly against the dollar to COP1,906.35 to the dollar from COP1,898.70 at Thursday's close.

-By Inti Landauro, Dow Jones Newswires; 57-1-600 19 80; colombia at dowjones.com

By billyb on Feb 15, 2008, 18:41 in Friendly Talkzone.

billyb says on Feb 15, 2008, 18:44:

Good move.

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billyb says on Feb 15, 2008, 22:13:

Rubi, I'll defer your economics degree, but believe me, the ones that will REALLY be hurting if these exporters close won't be the owners. It will be their employees, their families and all the secondary people that depend on this economic activity. But like I said, I will defer to your degree and your business experience in Colombia. BTW, how do you figure the flower exporting industry (one of the greenest, no pun intended, and the main one they have in mind) no longer has a place in Colombia? Do you ever think about what you are posting before you do it?

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billyb says on Feb 15, 2008, 22:31:

This is a temporary helping hand to a vital industry, not a hand out. But a loan made on favorable terms because it is favorable to the country in the long term. If they help the exporters through what is a temporary foreign exchange hiccup, they will get their money back and not have to find how to provide wellfare support for the million or so people directly or otherwise affected.

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Frank Rizzo says on Feb 15, 2008, 22:40:

Rubito, i'm going to have to lay down if the news gets any worse......god i hope you're wrong....on the exchange........ "where's that Costco sized bag of Tum's"...jajjaj

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billyb says on Feb 15, 2008, 22:53:

Dude, rubi, you have been saying that since the Clinton presidency (JK), ok, at least a couple of years. It won't happen during your SHORT residency in Bogota ;))

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jh816 says on Feb 16, 2008, 04:45:

While I'm not sure the peso will strengthen to 1500 anytime soon, with the difference in interest rates and relative growth, the trend will definately be to the stronger side. This government aid will be a bandaid for a broken leg.

The worst part about the package is its effect on the government's debt. They already spend way too much and this is keeping Colombia from getting its treasury debt back to investment grade by the rating agencies (this would be a huge step for the country).

There is still plenty of profit left in the export industries, but Colombia has one of the worst productivity rates in Latin America (which is also to say one of the worst in the world). The people may work long hours, but they don't get nearly as much done. If the government really wants to help business, they need to put that money into figuring out how to increase productivity (through better mfg. or quality control processes, labor study, or pushing the companies to upgrade equipment).

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