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The Red Hot Peso

BOGOTA, Colombia: Colombia's peso hit a seven-year high against the dollar Tuesday, as an International Monetary Fund mission arrived for talks on ways to cool off the red-hot economy.

Colombia's currency had surged 20 percent since 2004 and analysts had expected it to retreat this year. Instead, the peso has risen another 14 percent — more than any other currency in the world — as record investment continues to propel the economy.

On Tuesday the peso reached 1,954 against the dollar, its highest value since March 29, 2000.
Colombia's Central Bank raised reserve requirements on new deposits earlier this month in an effort to curb capital inflows that are blamed for the soaring peso. It also has steadily ratcheted up interest rates to blunt a resurgence of inflation.

In recent weeks economists have floated a range of ideas, from further interest rate hikes and monetary intervention to more extreme measures like adopting the dollar and imposing capital controls.
On Tuesday, the Central Bank said Colombia received US$5.5 billion (€4 billion) in net capital inflows this year, versus just US$357 million (€265 million) the same period a year ago. A little more than half of that amount came in the form of foreign direct foreign investment, though remittances from Colombians living abroad and repatriations of cash held overseas by companies also increased sharply.

The potent mix of inflation and a strong peso are hurting flower growers and other major exporters, which are forced to pay more for materials and wages even as margins on their dollar revenues shrink.
Benedict Clements, head of the IMF mission to Colombia, downplayed the currency's surge in comments to reporters, attributing it to market forces "consistent" with economic growth.

"The more important thing is to focus on inflation," he said.

Twelve-month rolling inflation reached 6.26 percent at the end of April, well above the central bank's target for 2007 of 3.5 to 4.5 percent.

The economy grew an estimated 7 percent in 2006 and it is expected to surpass 5.5 percent this year.
Clements also said Colombia could recover its investment grade status, lost in 1999 amid increasing guerrilla violence, by approving unspecified economic reforms.
In March, Standard & Poor's lifted the country's rating to one notch below investment grade, citing strong growth and healthier government accounts.

Colombia's last agreement with the IMF was a US$600 million (€450 million) "standby" line of credit that expired last November without being drawn upon. It has not been renewed and finance minister Oscar Zuluaga said Tuesday the government has no intention of seeking a new accord with the IMF.

By elk on May 23, 2007, 08:21 in Friendly Talkzone.

Waterdawg says on May 23, 2007, 08:30:

IMF .. " Benedict Clements, head of the IMF mission to Colombia, downplayed the currency's surge in comments to reporters, attributing it to market forces "consistent" with economic growth.. "

Sorry, but when ever the IMF. is on your side ; your on the wrong side of the coin !!!!!!!!!!

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Brians says on May 23, 2007, 08:43:

This peso is so out of whack higher inflation than the US yet currency appreciated 28%. These flows will reverse once this liquidity bubble bursts. However it could be months.

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cayita says on May 23, 2007, 09:03:

It really is pretty late for action when your brokers in the states carry you for months and months just to keep an alternative supply available in this world to hedge against climate issues. Then they tell you that they just can't carry you anymore with that peso around their neck as well what do you do?

When you pay your workers to produce a product that no one wants and project your sales 9 months out and you did that in hopes the peso would drop and it did not. Well then it is too late. If the peso went to 3,000 tomorrow it would be severel years before we would have any hint of normal business.

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gringoloid says on May 23, 2007, 09:07:

I only noted that the 1955 rate was sort of a break in the 'psychological barrier'. I spoke to two forex guys this morning from Bogota and Cali, and they're ready to pack up and go.

I can't understand why the govt. won't support the peso as this has to be hurting a lot of colombian manufacturers.

I don't know what is worse, the inflation and taxes, or the exchange rate.

I think it may be too late to get a rental apt to soften things up, unless you already have your dough in pesos.

Brian, I think things are really going to break this fall.....but of course, if i knew anything and had a crystal ball, I'd be trading right now.

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Ctg Bound says on May 23, 2007, 10:19:

Tinto I am also reading that Colombian bonds credit rating will soon be raised to Investment Grade.

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CaptainHowdy says on May 23, 2007, 10:48:

Soooo??? Is all this good or bad for investment purposes????

Teaching preteens the things they need to know!

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Ctg Bound says on May 23, 2007, 11:09:

CaptainHowdy Medium to long term good, if the Peso becomes over valued it will soon reverse.

There is no sure way to know that it is over valued presently, there are many positives for Colombia and commodity exporting Countries only history will tell what the correct value was.

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elk says on May 23, 2007, 12:02:

Another view - Weak dollar the driving force behind liquidity Note: Colombia isn't the only country with problems. We may be seeing new lows in the coming weeks. I personally don't see the bottom at 1,900 COP or even 1,800 COP to the dollar. Hope I'm wrong...but only time will tell.

By Alan Ruskin
Published: 23/5/2007 | Last Updated: 23/5/2007 16:20 London Time
A large Campbell's can of soup was sold for $5.5m this month at auction. To be more precise, it was the Campbell's soup painting by Andy Warhol. Warhol's "Green car crash" went for $71m. Such price tags are the latest evidence of a profusion of global liquidity supporting asset prices.

What is driving this process? There is no better single explanation than a weak dollar, and the connivance of central banks, unwilling to let the dollar weaken further. A weak dollar, when resisted by interventionist non-US central banks, propels liquidity.

Firstly, it increases the money base of countries that intervene in foreign exchange markets to buy a falling dollar to ease upward pressure on their own currencies, unless such action is fully "sterilised" with offsetting moves to mop up liquidity such as bond issuance.

Second, it reduces global interest rates, notably long-term yields, as reserves are recycled back into the asset markets of the Group of Seven leading industrialised nations. And, most important, it suppresses domestic interest rates as central banks are restrained from tightening policy because of exchange rate priorities.

This explains why a weak US dollar leads OECD industrial production by close to a year and why one imperfect proxy for "global liquidity", global foreign currency reserves, closely tracks global output measures.

In turn, this points to at least one more chapter for booming liquidity. Pressure on the dollar will not easily abate, notably against those emerging economy currencies. Exchange rate pressure has now built to the point where inflation is starting to rise in several countries, including India and China. Russia and Brazil are at earlier stages of the reflation cycle. Other countries as diverse as Saudi Arabia and Colombia wrestle with increased price pressures, with the common component of policy being the limits imposed on their currency appreciation versus the dollar.

These countries are likely to find that past global disinflation forces are slowly turning. A closing global output gap; increased food inflation; and, more rapid money supply growth, all hint at global inflation tailwinds. Nominal OECD money supply growth is approaching its highest levels in 15 years.

In this context, the conflict between exchange rate objectives and the need for higher interest rates to contain inflation will become much more evident. "Fear of floating" is deep-seated, and many countries will tolerate only modest nominal exchange rate gains.

China and Malaysia fall in the camp of countries seeking a prospective modest acceleration to their controlled revaluation. Countries with somewhat more flexible regimes such as India, Brazil, Colombia, and Indonesia are tolerating more appreciation, but again not at the pace the market demands.

The market will ultimately have no truck with this. Limited exchange rate appreciation will only encourage speculative capital inflows as the market smells further currency gains, providing a new round of liquidity growth. And, reserve diversification will continue to add more fuel to the fire.

One great irony of diversification, is the countries that are diversifying out of dollars for investment purposes, are often the same countries that buy the dollars back because of exchange rate objectives, creating a giant engine for reserve growth.

Despite an ongoing broad creep higher in global short-term interest rates, the essential dynamic of a soft US dollar, that is resisted in the emerging world, driving the liquidity juggernaut, will probably only change gradually.

This may well encourage even greater asset valuation extremes, incubating future volatility, but from a global perspective is probably better than many alternatives.

Viewed from this vantage, a rapid change in currency regimes, notably in China, would be especially disruptive for liquidity growth, risk appetite, and, presumably the price of Andy Warhol originals.
Alan Ruskin is chief international strategist at RBS Greenwich Capital

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goin_south says on May 24, 2007, 11:22:

I jus saw a transaction rate of... Under 1900 pesos for a dollar. I think it was 1867. damn.

'what does it mean, when one of you (colombians) tell another: YOU WERE NOT/ARE NOT. 'COLOMBIAN ENOUGH'?? jejeje..a mixture, I think, of stupidity mixed with a false sense of arrogance.. How 'colombian' do you have to be? to be 'colombian enough

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Simon says on May 24, 2007, 11:56:

GO PESO, GO PESO, IT'S YOUR BIRTHDAY, IT'S YOUR BIRTHDAY!!!

HERE'S SIMON!!!!

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elk says on May 24, 2007, 16:37:

Controls not working BOGOTA, May 24 (Reuters) - Colombia's peso weakened at the start of Thursday trading, but then firmed against the dollar even after the government announced controls on short-term capital to curb the currency's appreciation.

Colombia late on Wednesday introduced a mandatory 40 percent, six-month deposit requirement on short-term foreign portfolio investment to slow a surge in the peso, which has appreciated more than 11 percent this year.

The peso showed renewed signs of strength Thursday despite the measures. It climbed about 0.5 percent to 1,954.65 pesos to the dollar, erasing its 0.22 percent initial loss at the open. The peso closed in local markets at 1,965.5 on Wednesday before the controls were announced.

"The measure should be a short-term palliative that will slow down the speed of appreciation of the currency, but not powerful enough to reverse the appreciation trend," Goldman Sachs analyst Alberto Ramos said in a research note.

President Alvaro Uribe had urged his economic team to take measures after he came under pressure from exporters of key products such as coffee, bananas and flowers worried about appreciation undermining their competitiveness.

Colombia's economy is growing rapidly driven by strong foreign investment and domestic demand. But analysts are concerned about inflation missing government target of 3.5 percent to 4.5 percent for this year.
© Reuters 2007. All Rights Reserv

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Man Tequila says on May 24, 2007, 19:25:

The Canadian dollar is at a many year high against the US dollar too. It has basically held its own against the peso.

Aunque no me creas/ si me lo propongo/ lograre olvidarte/ porque a fin de cuentas/ no soy tan cobarde./ Y termino todo una de estas tardes/ no sera dificil buscar algún sitio donde refugiarme/ donde nunca mas vuelvas a encontrarme. (Polo Montañez)

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Brians says on May 25, 2007, 05:37:

Colombia is already ahead of their targeted inflation rates for the year. Should be interesting to see the Colombian Bond market take it in the butt very soon. Bond markets smell out inflation.

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goin_south says on May 25, 2007, 08:23:

yesterday was 1897 .

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Tinto (Moderator) says on May 25, 2007, 08:26:

Nope, it closed at 1962 www.banrep.gov.co

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webmanco says on May 25, 2007, 10:29:

If the Euro keeps strong It means that there would be more Colombians visiting PowPow.

And maybe more Colombians don´t go as much to Venezuela.

Full Article

Mayo 25 de 2007

Bolívar se cotiza a 53 centavos de peso colombiano, su punto más bajo en la historia

Foto Arturo Peñaloza, El Tiempo

La moneda venezolana había alcanzado su tope máximo en 1983, cuando llegó a cotizarse a 16,80 pesos.

Los 614 mil bolívares que se ganó en abril Mario Suárez como empleado de una empresa de carga en San Antonio (Venezuela) no le alcanzarán este mes para sufragar la totalidad de gastos en Cúcuta, donde vive con sus padres.

El empleado, de 25 años, es uno de los tres mil colombianos afectados por la depreciación del bolívar, pues casi todas las compras las hacen en el área metropolitana de Cúcuta, donde la semana pasada estuvo por encima de los 60 centavos antes de empezar a bordear el medio peso.

Expertos consideran que es otra consecuencia de la revaluación de la moneda colombiana frente al dólar.

ARTURO PEÑALOZA
Corresponsal de EL TIEMPO
Cúcuta

Full Article

(I really hate it when women get their panties all bunched up their butt, they can get so cranky!) Poor butt happy

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pedro says on May 25, 2007, 11:10:

Remittances? I think you'll find it's more likely to be hedge funds. These guys are the ultimate short to medium term opportunists. They like stuff that is flavour of the month and appreciating in price.

Colombia fits the bill right now.

We should find out soon enough. You would have to think this week's new round of capital controls are aimed at stemming the heavy tide of hedge fund "hot money".

que nota!

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poco says on May 25, 2007, 13:54:

Which peso ??? The Canadian dollar is at a many year high against the US dollar too. It has basically held its own against the peso.

Define holding ? Maybe something like the difference between a “hold up�? and a “stick up�? ?

One Year Chart - Canadian Dollar vrs. Colombian Peso.

"Violence is the first refuge of the incompetent" - Isaac Asimov

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