MercoPress. South Atlantic News Agency

Strong Colombian peso debilitating exports and eliminating jobs

The country is a leading exporter of flowers, a labour intensive industry

The strong appreciation of the Colombian peso which so far this year has gained 14% against the US dollar and now stands below the 1.800 peso milestone is hitting exporters and could have an impact on employment, one of the most sensitive issues for Colombian public opinion.

Unemployment in Colombia stands at 12.6% but another 34.2% figure as under employed or partially employed. President Juan Manuel Santos in his inauguration speed in August promised to create 2.5 million jobs in four years.

“The strong appreciation of the currency impacts on labour intensive activities such as flower farming, and so far there are no compensatory measures” says Francisco Chaves, a stock exchange analyst.

According to the national Association of Flower Cultivators this year the sector has lost 5.000 jobs which must be added to the 18.000 gone in the last three years.

The budget deficit 4% of GDP and foreign credit to finance it is seen as one of the main causes behind the revaluation of the peso together with a considerable inflow of foreign investment.

Foreign investment in the first half of this year increased 20% compared to the same period a year ago, jumping from 5.3 billion USD to 6.4 billion.

Economist Roberto Steiner from a Bogotá think-tank points to the challenges the current inflow of investment represents for employment and jobs creation.

“The main attraction for foreign investors are mining and energy, which means Colombia is competitive in sectors which are not great generators of jobs, but punishing others that are such as the flower industry”, underlines Steiner.

Another economist, Carlos Ronderos also warns that agriculture and industrial exports are debilitating fast and the “fiscal budget is something which can’t be addressed immediately”.

Besides the “cheap” dollar has helped reconvert industry, with greater productivity and cost reduction which is good for the economy but not for jobs.

To tackle the problem Colombian economists suggest monetary measures and export incentives on a long term strategy.

“The problem is serious because the appreciation of the Colombian peso against the US dollar begun five years ago, and so far there has been no official reaction”, said Chavez.
However local brokers believe the Colombian central bank will buy dollars on the spot market to ease the pressure on the peso.

Two weeks ago central bank president Jose Dario Uribe said the institution would buy dollars in the spot market when it deems it “appropriate”.

Colombian central bank director Carlos Gustavo Cano said in an interview with La Republica newspaper that policy makers are considering capital controls in a bid to stem the appreciation of the peso. Cano said that the strengthening peso is a concern and the result of short-term capital inflows, according to La Republica.