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Colombia's Peso Weakens After Govt Tightens Capital Controls

Colombia's Peso Weakens After Govt Tightens Capital Controls
Fri, May 30 2008, 20:25 GMT
http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=65f0af80-...
http://www.djnewswires.com/eu

Colombia's Peso Weakens After Govt Tightens Capital Controls

BOGOTA (Dow Jones)--Colombia's peso weakened Friday after the government tightened capital controls on foreign portfolio investments, while imposing a new rule on foreign direct investment.

The peso weakened to COP1,746.75 to the dollar from COP1,740 on Thursday when it hit its strongest level in almost nine years.

On Friday, the government strengthened capital controls on foreign portfolio investments, requiring foreign investors to deposit 50% of their investments in a non-interest-bearing account at the central bank for six months, up from 40% previously.

In its latest move, the government also said foreign direct investment will have to stay in Colombia at least two years.

A year ago, the government imposed capital controls on foreign portfolio investment in a bid to stop the peso's appreciation. In spite of the measure, the peso gained 11% against the dollar in 2007.

"The measure won't weaken the peso strongly. We believe the peso will end the year around COP1,900, but not because of the measure," said Daniel Escobar, head of research at local brokerage Gesvalores.

The peso also weakened after the central bank auctioned $150 million worth of put options Friday to boost its international reserves, said Julian Pino, head of research at local brokerage Interbolsa.

The government's announcement was highly surprising to the market, which on the contrary, was expecting the government to ease capital controls.

On Thursday, Gerardo Hernandez, the central bank's executive manager, said the government may make the rules set to limit entry of foreign portfolio investment "more flexible in the medium or long term when the peso allows it."

"No one expected such big news," said Edgar Jimenez, analyst at the local unit of Stanford Group.

Meanwhile, the yield on the benchmark 2020 peso-denominated bonds, known as TES, rose to 11.394% from 11.355% Thursday1 as market participants anticipate a high inflation reading in May.

A Dow Jones Newswires survey of 10 analysts produced a median estimate of 0.42% in May, higher than the 0.30% reported in the same month last year.

The statistics department is expected to release inflation figures Sunday.

Finally, the IGBC stock index rose 0.9% to 10,042.54 points, propelled by state-owned oil company Ecopetrol (ECOPETROL.BO), which rose 0.7% to COP2,810.

Rodrigo Jaramillo, chief executive of the country's largest brokerage Interbolsa, told Dow Jones Newswires Friday that the flow of money to the Colombian stock market will be hurt with the government's announcement.

Juan Pablo Cordoba, chief executive of the Colombian stock exchange said: "According to my point of view, it isn't possible to develop a capital market without foreign investors." He was speaking on the sidelines of a seminar being held in Medellin.

-By Diana Delgado, Dow Jones Newswires; 57-1-6955450; diana.delgado at dowjones.com

(Inti Landauro in Medellin contributed to this article)

(END) Dow Jones Newswires

May 30, 2008 16:25 ET (20:25 GMT)

By sloopskipper on May 31, 2008, 06:04 in Friendly Talkzone.

sloopskipper says on May 31, 2008, 06:08:

bump

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podborski says on May 31, 2008, 06:17:

sounds to me like the strong peso must be really hurting exporters.

I don't think you'll be seeing 1,000....

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sloopskipper says on May 31, 2008, 06:30:

I would certainly think so.

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tejasmarcos says on May 31, 2008, 06:35:

pod - that is exactly the motivation here.... and then some. we used to call this type of investment "hot money" in the banking arena and it occurs when short term institutional investors move $$ around quickly in search of the highest returns. the govnt is obviously trying to deter "hot money". good move.......

trying to walk a straight line on sour mash and cheap wine...

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guacharaca says on May 31, 2008, 12:11:

and to curb speculators....which is good because even if the peso does not go down, the currency needs to be stable.

Colombianos: Las armas os han dado independencia, las leyes os daran libertad. (Santander)

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Piatt says on May 31, 2008, 12:19:

Pls go back to 2,400 pesos per dollar :)

gordo

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paulr says on May 31, 2008, 13:31:

Where is panthDave with his "GO PESO GO"? bless him.

Life is like a ten-speed bicycle. Most of us have gears we never use.

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Saltador says on May 31, 2008, 13:39:

"The measure won't weaken the peso strongly. We believe the peso will end the year around COP1,900, but not because of the measure," said Daniel Escobar, head of research at local brokerage Gesvalores."
This flies in the face of Roci's 1400 prediction for November. Somebody is going to be wrong.

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paulr says on May 31, 2008, 14:03:

Sure thing. You see so much crap on here by people who say "The peso is gunna keep getting stronger" i bet they don´t put their money where their mouth is and start making heavy investments. The truth is, you can have a good educated guess but no-one (un-less you are part of the world bank) knows for sure, some will be wrong, some will be right, we just gotta live with what ever happens and make the most of it.

Life is like a ten-speed bicycle. Most of us have gears we never use.

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sloopskipper says on May 31, 2008, 14:26:

Currency speculation is a place I sure DON'T wanna go.

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tejasmarcos says on May 31, 2008, 17:07:

rubito greenspan has spoken.....

trying to walk a straight line on sour mash and cheap wine...

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ColombianoGringo says on May 31, 2008, 17:42:

I like the guy, but here's to Roci being dead wrong. 1,900 sounds pretty good these days. `

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rocinante says on Jun 1, 2008, 06:32:

I like him too, (Roci - not Greenspan). And I hope I'm dead wrong as well. If the Peso goes to 2400 (or GIB's 4000) I'll be rich!

However all you guys who think the COP is going to tank or hit 2300 NEVER EVER EVER say why you think this. I talk alot of crap but at least I back everythng up even if my reasons are nonsense (you can quote me on that)

"Wishing won't make it so." Ayn Rand

To the article which was posted in another thread I adapt my same comments...

This whole thing ("Govt Tightens Capital Controls") hurts equities (which have tremendous upside potential anyway) and adds a slightly higher speed bump than the speed bump already there to the fixed income investors, but what it really does is curb COP volitility meaning the peso will gain slower. The curbing of volitility shows a MORE stable and steady economy because the COP chart will be more predictable. Long term serious investors LIKE that steady stability thing. Also this helps out the Colombian banks who are receiving a 10% increase in free money, in essence raising the gringo tax if you will. In other words "you foreigners are are taking advantage of something we have here and we want to make MORE money on it."

However it is still attractive to foreign investors.

I think dreaming of a 2000 exchange rate is just that. Dreaming. Unless the Central Bank pegs the peso (which ain't happening) little attempts like this just retard the inevitable and puts more money in the Colombia economy and the banks here.

Quote from the article that people seemed to miss:

"A year ago, the government imposed capital controls on foreign portfolio investment in a bid to stop the peso's appreciation. In spite of the measure, the peso gained 11% against the dollar in 2007."

"World economic indicators point to a democrat winning 2008. It will surely be Obama. Peso 1400 by November" Feb 5, 2008

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rocinante says on Jun 1, 2008, 06:41:

Another thng not mentioned in the other thread (my post above) is that this 50% deposit and hold for two years, yes keeps the volitility down, but that this is needed because the Colombian money supply is thin. Imagine what would happen if the 100 biggest Hedgefunds and 100 biggest Mutual Funds and 100 biggesst instutions made marginal investments in Colombia and needed pesos to do so? How easy was it for the Hunt borothers to swing the entire global silver market?

The Colombian Central bank does not want to lose control of their currency or for it to become a yo yo. This all doesn't mean that the the exchange rate is necessarily going to do a 180.

"World economic indicators point to a democrat winning 2008. It will surely be Obama. Peso 1400 by November" Feb 5, 2008

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BillBigD says on Jun 1, 2008, 11:24:

I could add more comments but a 2 year holding period is a big deal.

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rocinante says on Jun 1, 2008, 11:28:

It is a big deal but a necessary step. The central bank is very smart to do this. There is and will be enough capital flooding into Colombia especially once the political and debt ratings are upgraded.

"World economic indicators point to a democrat winning 2008. It will surely be Obama. Peso 1400 by November" Feb 5, 2008

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dwmte7 says on Jun 1, 2008, 17:15:

heh, roci.....and i'll bet you'll believe it when you believe it.

dwmte

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rocinante says on Jun 1, 2008, 17:31:

Douglass, you, me and Yogi Berra. Ha!

"World economic indicators point to a democrat winning 2008. It will surely be Obama. Peso 1400 by November" Feb 5, 2008

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goin_south says on Jun 1, 2008, 17:45:

i wouldn't be getting too excited about anything, with the peso moving from 1740 to 1746... geeze, what gives here? Most never even noticed. What's the dig, sloopskipper?

Ciao! Gustav. Bienvenitos, Ike.

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rocinante says on Jun 1, 2008, 17:56:

Most don't notice much - but then again most of these guys are of the "What comes up must come down!" mindset. Yet not one person here has EVER explained or hypothesized as to why the Dollar will gain back to the days of 2000. (the thread ends when i ask)

"World economic indicators point to a democrat winning 2008. It will surely be Obama. Peso 1400 by November" Feb 5, 2008

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goin_south says on Jun 1, 2008, 23:55:

One (other) Thing that appears to not be coming down,
slippery as it is:
.........OIL !

Ciao! Gustav. Bienvenitos, Ike.

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goin_south says on Jun 2, 2008, 00:34:

It was ... 'cheap'.... 5 or 6 years ago.
but, even I remember a 'gas war', in Tulsa my first year in college, and gas went to somewhere between 11 and 16 cents a gallon.
I guess that would be probably... hummmm... might BE at least 2 or 3 dollars a gallon, if adjusted for inflation.

Ciao! Gustav. Bienvenitos, Ike.

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