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Cárdenas: Colombia to target “more ambitious” investment program to offset global weakness

Oct 15, 2013

Colombia must redouble efforts to boost domestic growth through infrastructure investment as global conditions remain unfavorable, its finance minister says

Colombia’s finance minister Mauricio Cárdenas has said he is more convinced than ever of the need to boost his country’s economic self-reliance, as policy talks at the IMF’s annual gathering were overshadowed by global uncertainty and the threat of a US sovereign default.

Cárdenas told LatinFinance in an interview that he will redouble efforts to boost investment in critical infrastructure, including by advancing the sale of power generator Isagen.

"I am fully convinced that we need to prioritize a more ambitious program of domestic investment to offset a weaker external environment," he said. "If we want to grow 4% to 5% per year, we need to focus on the domestic side."

The prospect of tighter global liquidity and continued political gridlock in Washington mean emerging economies can no longer count on a favorable external environment, especially against a backdrop of lower commodity prices, Cárdenas said.

"It would be naïve to ask for the US authorities to incorporate reactions of other countries [into their decisions]. At the end of the day, decisions will be made with other priorities in mind," he said.

Colombia’s potential growth rate could hit 6.0% if talks with FARC rebels prove successful and lead to an economic "peace dividend" and if targeted infrastructure investments proceed to plan, he said. 

Cárdenas insisted that Colombia is well prepared for external shocks. Oil prices have remained high relative to other falling commodities, to the advantage of the oil-producing nation. However, he said that a strengthening US dollar will pose a challenge for emerging economies.

"I’m more and more convinced that this is the last chance markets have to buy cheap dollars," he said.

But he added that financial markets have overreacted to a growth slowdown across the emerging world, following fears that the US Federal Reserve would pare back its stimulus program.

"Markets may have exaggerated the extent to which emerging markets would be the new engine of global growth, but it is equally an exaggeration to say emerging markets are in a process of decline. The reality is somewhere in between," he said.

Cárdenas said the equilibrium exchange rate for Colombia’s currency was between 1,900 to1,950 pesos to the dollar, following an "excessive" high last year of 1,750. The peso was at around 1,880 per dollar Monday.

The government is in the process of auctioning $25 billion in road concessions, a package known as the "fourth generation."

It plans to help stimulate private financing for the winning bidders. Authorities also aim to use proceeds from the sale of the state’s stake in generator Isagen to support infrastructure funding. Roughly 75% of the road projects’ costs will be debt financed, and builders will need the help of the bond and bank markets.

Colombia expects to receive more than $3 billion for the 57.7% stake, and the proceeds will support the newly-created Fondo para el Desarrollo Nacional (FDN) fund, Cárdenas said. The fund can offer subordinated debt, guarantees and other credit enhancements.

The minister said the goal is an entity in the mold of Mexico’s Fonadin, rather than Brazil's BNDES, as FDN is "not going to be a development bank that subsidizes projects." The government’s goal had been to award the first concessions this year.

"The strategy to deal with the external circumstances is to mobilize funds from one sector to another," Cárdenas said.LF

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