Economy

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“Poor management” to blame for Colombian brokerage Interbolsa collapse

Interbolsa, Colombia

Colombian Finance Minister Mauricio Cardenas sought to quell any market unrest this week by blaming poor management within brokerage firm Interbolsa for its collapse rather than any widespread problems of liquidity within Colombia’s financial sector.

The firm, which had over 50,000 clients and carried out nearly 30% of Colombia’s brokerage activity, was liquidated on Wednesday with the company’s assets set to be sold in order to pay investors and meet its other financial obligations, a decision which Cardenas said was made because of “no viable alternatives”.

Cardenas claimed on Caracol Radio on Thursday that the markets were behaving as normal despite the liquidation: “There haven’t been any requests for support, which means there haven’t been any problems. Small brokerages are operating in stable conditions.”

Early analysis suggests that the company became overstretched by its reckless policy of depending on liquidity from reverse repurchase agreements tied to the price of shares.

An ex-employee of the firm, speaking to Financial Times blogger beyondbrics, claimed that the reverse repurchase agreements were “being used to raise more money so that they can own more stock than their own resources allow.”

The crisis began a week ago on the 2nd November when Interbolsa´s trading was suspended and financial regulators seized the firm after it failed to meet a US$11 million payment on a loan from a local bank.

It was initially expected that the regulators would take two months to take action on whether to liquidate the firm, however on Wednesday this decision was swiftly taken in order to “safeguard the interests of the Colombian financial market”.

Clients of the company have been shielded from the collapse through the option to apply for a transfer of their assets to another firm.

Interbolsa’s parent company, Grupo Interbolsa, has been unaffected by the liquidation and is expected to continue operation.

Interbolsa is the second brokerage to be liquidated in recent years due to poor management when Proyectar Valores was shut down in 2011.

In spite of this though, Colombia’s financial sector is one of the most stable and robust in Latin America, and has remained resilient amid the turmoil of the global economic crisis since 2007.

Category: Economy, News Review
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Santos: Tax reforms will increase equality and formal employment

Informal employment in Colombia, photo El Colombiano

Colombian President Santos claimed on Sunday that his government’s proposed tax reforms will help to improve equality and increase formal employment.

Speaking at the U Party General Assembly, Santos sought to continue to position himself firmly in the political centre ground as a proponent of “third way” politics, underlining his thesis of a free market but with a state that has a “hand that is firm and decisive when necessary.”

He boasted his government’s record on employment, which he claims has created two million jobs during his 26 months in office, and has led to a reduction in poverty and kept inflation rates low.

On the tax reforms, Santos claimed the current system “perpetuated inequality” and that it was “unfair” that those who earned more paid less. The reforms propose that those earning a salary of less than 3.35 million pesos – around US $1,800 – will pay no income tax.

Santos said the reforms will benefit those earning up to 5.150 million pesos, which he stated made up the “99% of people working.” The reforms also include the simplification of VAT rates and the introduction of an 8% tax on corporate profits which will offset this tax cut to ensure that government funding for health, the National Learning Service (SENA) and the Institute of Family Welfare (ICBF) is not affected.

The government hopes that the reforms will encourage firms to take more staff on the books and increase the level of formal employment, combatting the informal sector which in Colombia is –  according to research carried out by CEDLAS and the World Bank in 2011 – among highest in Latin America.

Public reaction to the proposed reforms in the business community has so far been positive. The President of the Colombia National Association of Foreign Trade (Analdex) Javier Diaz called the reforms “good stuff”, The National Business Association of Colombia (ANDI) president, Luis Carlos Villegas, claimed that the reforms “include many principles that the Colombian private sector has been pushing for decades” and backed the government’s estimates on the amount of jobs the reforms will create. Earlier in the year, the private sector had expressed concern at the proposals which Santos said “would make the rich squeal”.

Senator Jorge Enrique Robledo of opposition party the Polo Democratic Alternative alleged though that President Santos was “lying to the country” in his speech about the benefits of the reforms to the middle and class and poor. He said the proposals were  “regressive” and were of the same neoliberal type that was currently “suffocating Greece and Spain”.

Finance Minister Mauricio Cardenas Santamaria earlier this month presented the reforms to Congress and the government is comittmed to fast tracking their progress through the legislature.

Category: Economy, News Review
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Colombian economy, a cause for concern?

Colombian President Juan Manuel Santos will be concerned by today´s International Monetary Fund (IMF) 0.4 growth rate downgrade, which now forecasts a  4.3 rise until end 2013.

The IMF´s report follows news that exports are also down, around 4%, but nevertheless expects Colombia to outperform the regional as a whole which will see growth between 3. 2 and 3.9% over the coming 15 months.

Colombia is not entirely shielded from the effects of the sclerotic world economy, but it has been protected by among other things record foreign investment and high commodity prices.

Santos has placed economic competence at the heart of his government and his re-election depends both on this and on the peace talks.

Over a million 800 thousand new jobs have been created during the Santos regime, inflation has been kept low, and despite an increase in state spending, a healthy approach to deficit management has been enshrined in the constitution – a measure designed to avoid a crisis similar to that endured in Europe and North America.

The new finance minister, Mauricio Cardenas is currently taking a tax reform bill through parliament, a piece of legislation he says is designed to address inequalities in the tax code and to reduce the burden on businesses, helping to stimulate a further estimated one million jobs.

Santos´government has also, through `Prosperity for all´ social programmes, helped to lift 1.2 million out of  poverty, the aim to take the figure below 40% of the population.

And in August, Santos promised that within two years – when his first term in office comes to an end – the rate of extreme poverty will be reduced to one digit.

Employment Minister Rafael Pardo has also sought to remove the informality of many Colombians´ employment, building on previous reforms that introduced favourable tax rates for new business incorporation.

Finally, the Santos regime has also placed free trade agreements at the heart of its foreign policy, working to kick-start the long-awaited Colombia – US FTA, and moving closer to finally signing a similar plan with the EU. Santos has been a globe-trotting president aiming to tie up agreements across the continents, not only to the north and in Europe, but also in Asia with China, Korea, and Japan all potential future trading partners.

Santos was given his first role in government by Cesar Gaviria (President 1990-94) the leader responsible for the famous ´apertura´or liberalisation of the Colombian economy, and is continuing the work of his old boss.

For now, although Santos will keep more than a watchful eye on the growth rate, he will hope that Colombia can weather the economic storm elsewhere and continue on its strong growth path.

What Santos will have to address if the economic future of Colombia is to be as bright as the wealth of natural and human resource means it should be, is the major lack of infrastructure provision. Santos has announced billions of investment to improve the road network, and has begun to talk of reintroducing a national rail network.

These improvements will make their mark, at the earliest, in Santos´second mandate, but most likely long after he has left power. His role in history will be judged as much on this issue as on his ability or otherwise to secure peace.

 

Category: Comment, Economy, News
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Forget about Europe Mr Cameron, Colombia awaits

Santos meets HM the Queen

The French and the Germans might yet regret treating the British so badly. The treaty cooked up in Berlin and Paris two weeks ago to cripple London’s financial services industry, the engine of the British economy, was highly cynical. Prime Minister Cameron had no choice but to exercise the veto. Britain was not going to pay for the mistakes and overspending of economies in a currency it had the good sense not to join.

The bad behaviour of Europe’s bully boys should act as the catalyst for Cameron to lift his gaze away from the failing markets across the English channel.  He should cast his eyes across the Atlantic to an economy whose third quarter growth was just short of 8%, where private-sector optimism is high and where the government actively wants to do business. That country is of course Colombia.

Should Cameron heed this call, he will find fellow Brit and ultra-entrepeneur, Richard Branson already there. Next year Britain`s most popular billionaire will launch Virgin mobile across Latin America, with Colombia a key market.

Britons, Colombia awaits.

Last month President Juan Manuel Santos visited his second home, the UK. Santos cites his time in London both studying at the London School of Economics and working for the Colombian Coffee Growers Federation as the one of the best of his life. Santos is a true anglo-phile.

As reported on this website, during his state visit to the UK, President Santos met Prime Minster Cameron, the Queen and Foreign Secretary William Hague to build stronger and deeper ties between the two nations.

Emerging from the talks Santos and Cameron heralded the start of a new relationship built on security cooperation intelligence sharing and trade. Bogotá and London had committed to grow two-way trade to £1.75 billion by 2015.

Cameron must now act to make this happen. What better time than now with the Colombian economy set to record near 6% annual growth, and what better excuse than the Euro crisis to spur the Brits to look elsewhere for investment and trade.

While the global economy in 2011 has stumbled towards its recession death-fall and with the outlook for 2012 worse still, for Colombia this has been has 12 months of record-breaking economic success. GDP growth is running at pre-2008-crisis levels and is projected to grow by 5% next year, even more impressively, foreign investment will reach 15 million dollars by the end of the year. The buzz-word in Colombia is stability – something distinctly lacking elsewhere in the world.

Santos, this year wrote into law, strict government borrowing limits, leading the World Bank to conclude that the Colombian economy was safer than France’s. What’s more, inflation is uncharacteristically low for Latin America at 3%. Confidence in Colombia is also high among the credit rating agencies who earlier in the year bumped the country up to investor grade level. Next year the free trade agreement with the US will come into effect as it is expected will the agreement with the EU.

Despite the rosy outlook, Colombia still has its problems, not least its woefully lacking infrastructure, which it must improve urgently if it is to benefit fully from its access to the biggest markets in the world.  Yet these problems are also an opportunity. Take for example the need for major new transport links – contracts are waiting to be signed, money is promised, profit is certainly there to be made. British construction companies should be champing at the bit to provide their expertise in building the bridges and tunnels that must traverse and dissect this country’s extreme mountainous terrain. During Santos’ visit to the UK he secured assistance from the British Government on structuring the private, public loan and investment models required to generate the income for the works Colombia must deliver in the coming years. Should British business not be able to capitalise on these links it only has itself to blame.

Despite the alarmist talk from those on the British left, the UK will not be left on the sidelines of Europe. Trade with Europe is not going to go away. The UK’s economy is still reliant on a successful continental market. But while the Europeans are losing their heads, the Brits would be wise to seek alliances further afield.

The history of the UK was built on the success of its international trade, of daring to go where others had not yet ventured. Yet in recent years the country has slavishly stuck to the devil it knows best, Europe, and the US. The last time we had a Queen Elizabeth on the throne gold stolen from Spanish ships off the coast of Cartagena filled British coffers. As our more recent economic partners tank, now is the time to hoist up the Union Jack and set sail once more for the Americas.

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British eye Colombia as Santos’ pro-investment politics bear fruit

Santos and Prime Minister David Cameron, photo The Guardian

After meeting British Prime Minister Cameron and taking tea with HM the Queen yesterday, President Santos announced that British businesses will invest over 3.5 billion dollars in Colombia over the next three years.

Santos arrived in the UK as the head of the CIVET group of emerging economies; his mission to promote trade ties with a country that until recently has appeared to ignore the opportunities Colombia’s fast growing economy affords.

 The President claims that Colombo-British relations have never been so good, that there ‘has never been so much interest in what’s happening in Colombia’. If this is true it is in both nations’ interest.

As the US and EU economies falter, the UK needs to look to new markets if it is to return to growth. Colombia is not the country is was 20 years ago. Security has improved, the economy has doubled in 10 years and continues to grow by over 5% a year. The government is pro-business and pro-foreign investment. For this website, whose author is British, the hope is that the 3.5 billion dollars scheduled is just the start of a new wave of UK/Colombian trade.

Santos’ diplomatic mission

Juan Manuel Santos is an Economist. His politics are based on the simple premise that more work means less poverty. Since coming to power in August last year he has become a shuttle-diplomacy president, working hard to build Colombia’s reputation abroad and in so-doing to attract record levels of investment. Foreign Direct Investment (FDI) in Colombia this year has risen to 10 billion dollars, and the country reports record-breaking job creation figures – the best in Latin America. In recent weeks unemployment even fell below the mythical 10%.

Santos sees a once in a lifetime opportunity for Colombia. The government of his predecessor, Alvaro Uribe is credited with having turned around the country – beating the FARC back into the mountains, improving security and opening the doors to foreign investors. Before Uribe foreigners ran a mile from the country.

But as Santos took hold of the reins, FDI was at record levels, GDP growth was running at a decade average of over 4% and Colombia was highlighted by The Economist as a CIVET nation, the group of emerging markets next in line behind the famous BRICs. As Colombia’s image changes and the Western world looks to invest in new markets, Santos has set about capitalising on the conditions of this perfect storm.

Although he has faced somecriticism at home for his international travel, Santos remains a hugely popular president, and the majority of Colombians can see the benefit of Colombia’s new-found diplomatic clout.

Brits in Colombia 

Britain has always been a key investment partner for Colombia. In 2010, UK businesses had 18 billion dollars worth of investment in the Andean nation, making the country the biggest foreign player in Colombia, behind the US.

The UK is a major investor for Colombia, but for the UK Colombia lies way down the list of places to do business. As British Minister for Latin America, Jeremy Browne admitted in a speech last year, while the economy of Colombia is about the size of South Africa’s, the UK there invests 14 times as much as it does in Colombia.

The reality of Browne’s words is perhaps even starker when we consider that, according to UK Trade and Industry, investments are concentrated in mining and the drinks industry. The UK has equally failed to diversify is export products which (again according to UKTI) are targeted on pharmaceuticals and medical products, machinery, whiskey and cars.

You can’t help thinking that the Brits have been allowing a huge opportunity to pass. Colombians are consumers – their values are similar to a number of the UK’s European partners. Emerging markets often require time and investment to generate consumer desire – to educate the market. Colombia’s growing middle class are culturally ready and have growing purchasing power. Many are champing at the bit to buy the products sold on the high-streets of London, Manchester and Glasgow. The old world is in fashion, she should capitalise on this.

The previous government invested no time in Colombia. The current administration has placed trade at the heart of its foreign policy. Although the Latin American minister is not an hispanophone he did, to his credit, visit Colombia early in his tenure. The agreement signed yesterday – which commits the nations to double bilateral trade by 2015 – owes at least as much to Santos’ hard work, and love for the UK as it does to the British Government’s interest in the nation.

Santos’ message to the world

Santos understands that Colombia cannot sit back and wait for foreign investment to arrive of its own accord. He must sell Colombia to the world. In some quarters Colombia’s association with drug-traffickers and guerrillas prevails – it must be actively combated. This explains why Santos has, since becoming president, set off on a whirlwind tour of those countries he considers have the potential to be major players in the Colombian economy.

Trade agreements with Canada and Switzerland have come into force during Santos’ reign, the US agreement has been signed off and the EU agreement is making its way through the institutions in Brussels.

The agreement signed yesterday in London commits both governments to work together to grow business links between the nations. This, combined with the EU/Colombia FTA, marks a unique opportunity not only for UK businesses to diversify their investment portfolios in a country so far largely unaffected by the winter of economic discontent spreading across the Western world, but also to export a wider range of products.

For Colombia this should mean more jobs, cheaper UK products and greater opportunities for export. Britain must now answer Colombia’s call.

Category: Comment, Economy
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Colombia US trade agreement – it’s the politics, stupid!

After years of procrastination, the US Senate is expected finally to sign off the Free Trade Agreement with Colombia – the House has already voted in favour.

Don’t listen to the misguided voices against it, the FTA is an important and necessary step – both for Colombia and for the US.

While for Colombia the advantages of privileged access to the largest market in the world are obvious, the FTA is – for this website – of even greater importance to the US.

Failure to sign the agreement on the part of the US would represent an economic and diplomatic retraction in a key emerging market in a region of strategic geopolitical importance.

Economically the US is already in retreat in the continent. Chinese investment in Latin America continues to rise – exponentially. If the US doesn’t act China will soon become the major economic force in the region.

But the agreement is about more than just trade and the economy. The FTA is also crucial for US foreign policy. There are signs the US’ influence in the South is on the wane. Given Colombia is the US’ closest ally in the region, the failure to deepen ties with the country would represent extreme negligence, and accelerate its diplomatic decline.

This is not a time for the US to rest on its laurels.

The economic necessity

The FTA will increase US exports by over 1 billion dollars. It will create thousands of new jobs, and help stimulate an economy in the doldrums.

Colombian is one of Latin America’s fasting growing import markets. In 2010 imports rose to 41 billion dollars.  But the US is not taking advantage of this. In fact the US’s share of this market is retreating, and fast. In 1999, US products represented 37 per cent of the total imports to Colombia. But by 2010 this had fallen to 26 per cent.

This while China’s imports have risen six fold over the last ten years – and 47 per cent in the last year alone. China is now Colombia’s second largest trade partner; it is threatening in the coming years to overtake the US.

Colombia’s economic star is rising. As reported on this website last month, the World Bank and the IMF have both given the country glowing reports, while the credit rating agencies have awarded it investment grade status.While economies across the world struggle, Colombia’s GDP will increase by over 5 per cent this year.

So it’s little surprise that the competition to invest in the country is heating up – free trade agreements with the EU and with South Korea should be in force next year, while the agreement with Canada is already active.

The US economy is retreating. Sitting back and watching others benefit from privileged access to the emerging markets on her doorstep is a luxury Washington cannot afford. The US will act today out of necessity.

The political necessity 

Latin America has endured a history of instability. Democracy is has not been ubiquitous, dictatorships and military leaders have been as visible as elected presidents. Colombia is a stable democracy, representing the values the US wishes to project. She must be supported.

Two of Colombia’s neighbours, Venezuela and Ecuador represent an anti-American socialism that seeks to replace the free-market and individual liberalism of the Washington consensus with a distorted idea of state-control Bolivarianism.

Should the US’ – and other Western democracies’ – influence continue to decline, the authoritarian regimes of Chavez and Correa, emboldened, will see their potency to tip the balance of power in the region in favour of the Bolivarian revolutionist movement increase. Chavez has cultivated friendships with Iran, China and Russia – Latin American democrats will not forgive the US for allowing Chavez’s attempts to replay the Cold War to bear further fruit.

Colombia – alongside Chile and Peru – are the standard bearers for a more liberal politics in South America (the election of Humala earlier this year in Peru has put the future of that country in doubt, however). Promoting the principles of free-trade through active agreements reinforces the liberal democratic counterweight to threat of a potential Caracas consensus.

FTA – an unavoidable decision

The FTA to be signed today is part of Colombia’s emergence as an important world economy. It will create new jobs and business opportunities as well as increase the spending power of the average family.

But the reality is Colombia is no longer reliant on the US. While the US has been inexplicably coy – taking years to consummate the trade marriage to one of her closest allies – Colombian President Santos has been busy forming other economic alliances. He has successfully positioned the country as an attractive investment opportunity for Europeans and Asians alike.

Despite concerns about the protection of union workers in Colombia, despite protectionist views in the US Democrat party, and despite the fear in Colombia that certain parts of the economy are not ready to trade on an level playing field with the US, the FTA is ultimately an opportunity the US can not afford to allow pass by – economically and politically.

Category: Economy, US Relations
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World economies lose their heads as Colombia’s is held high

If a week’s a long time in politics, at the moment it seems like a life-time in economics. As markets plunge across the world you’d be forgiven for believing that it’s all doom and gloom. But take a quick look at Colombia for a quite different picture of the future.
The week’s stories from Bogota point towards a continued and sustainable growth in the Colombian economy. Here are four reasons for optimism.
1. As reported in the previous post, the World Bank and the IMF have both this week given Colombia glowing reports – the most eye-catching conclusion being that Colombia’s economy is a safer bet than France’s. Incredible when one considers that France is the world’s fifth largest economy and Colombia, the 30th. Colombian President, Juan Manuel Santos recently amended the constitution to introduce a lock on government borrowing, increasing overnight confidence in the economy and the government’s ability to maintain control on debt levels – a quality distinctly missing from many of the G20 economies.
2 As President Santos stood up in Washington to deliver his speech to the UN earlier this week, news of Colombia’s second quarter growth figures came through. GDP growth stands at 5.2%, with experts predicting this to continue to rise beyond year end. Colombia’s GDP has doubled in ten years, and the IMF cited the country’s economic performance as being among the best in the world. Growth is considered to be driven by consumption at home and by investment from abroad. FDI will be above 10 billion dollars this year, fueled partly by the drive to buy commodities – Carlos Slim, the world’s richest man, this week reiterated his belief that profit is to be had in Colombia’s oil. And, when in Washington President Santos confirmed to a meeting of the Americas Society that projections indicate Colombia could soon be producing more oil than its neighbour Venezuela.
3.While in Washington, Santos took the opportunity to continue to lobby for the speedy ratification of the free trade agreement between the US and Colombia. President Obama announced that he expected the FTA finally to be signed off within the next few weeks. At the same time, the EU Commission announced that it had agreed the FTA between Colombia and the EU. The document will now go to the Council and the European Parliament. The EU trade commissioner expects the FTA to come into force in the second half of 2012.
4.The Colombian government is not about to rest on its laurels. Attracting investment is essential to Colombia’s continued and sustainable growth, something the Santos regime instinctively understands. With this in mind, Colombia’s trade minister today announced that the country would expand the number of free trade zones in the country. It is expected that by 2014 the country will have 20 million hectares of FTZs, almost double the 11 million hectares currently in operation.These FTZs are designed to attract foreign investment through extremely favourable tax and customs conditions – including up to 50% tax break on sales to the local market. The Colombian government sees FTZs a key tool to attract foreign investment – as does the World Bank, which listed Colombia as Latin America’s most business friendly country in their latest ‘Doing Business’ report.
For Colombia’s economy to continue to grow, structural changes are needed, and major investment is required to improve infrastructure in the country. Good news this week does not a successful economic future make. Against the backdrop of almost universally depressing news elsewhere, however, there are reasons for optimism if you look further than the traditional markets.
Category: Comment, Economy
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World Bank – Colombia’s economy safer than France’s

Colombia’s economy is one of the safest and fastest growing in the world, according to the World Bank and the IMF.
Are Colombia’s politics – and the policies pursued over the last decade – propelling the nation onto the world stage?
Two pieces of economic news will have brought cheer to Colombian presidential palace, the Casa de Nariño, this morning. The World Bank today labelled Colombia a safer economic bet than France; claiming it was less likely to default on its debts than the AAA rated, fifth largest economy in the world. At the same time, the IMF also revealed that Colombia looks likely to record one of the highest rates of growth in the world for 2011, 2012.
Since coming to power 13 months ago, President Juan Manuel Santos has been the happy recipient of an almost endless supply of good news stories on the economy. Growth figures have shot up, and unemployment figures have started to come down. The success is even more impressive against the backdrop of the pitiful performance of the world economy and the devastating effects of the worst winter flooding Colombia has ever seen.
According to World Bank Chief Economist for Latin America, Augusto de la Torre, Colombia is one of the countries with the best economic performance of the decade – during which time per capita GDP has doubled. This has been achieved in no small part because of political decisions, he concludes – through strengthening its macroeconomic and financial policies, setting an inflation target (Colombia enjoys a stable, and low rate of inflation), imposing strict banking regulations, and by adopting a strong position on fiscal and public debt.
The IMF have also concluded that Colombia has a ‘sound and healthy’ economy in which there are no ‘inflationary or demand pressures’.
All this is a far cry from little more than a decade ago when the country was considered something of a failing state, from which investors ran a mile.
Colombia has seen foreign direct investment (FDI) in the country continue to rise since the turn of the century. This year, FDI is expected to be higher than 10 billion dollars. Colombia is also exporting its goods at a record level – some 43 billion dollars worth of Colombian products are expected to have made their way to foreign markets this year.
Pro-business reforms have also significantly increased the export of oil and coal – a significant driver of economic growth. Colombia is now the US’ third largest supplier of oil, and the country is the world’s fifth largest exporter of coal. So positive are the conditions that the world’s richest man, Carlos Slim (a Mexican) has highlighted Colombia (and in particular these markets) as a key geographical focus for his investments.
Experts expect Colombia’s economy to continue to grow – and possible exponentially so – once the free trade agreement (FTA) with the US is finally signed off by the US Congress. Colombia is also looking forward to preferential access to the European market, the EU FTA is making its way through Brussels’ institutions.
The positive news also comes with a warning. The IMF indicated that Colombia now needs to undergo structural reform if it is to reduce substantively its unemployment rate. It must also invest in infrastructure improvements – whose poor state make transport of goods and human resources difficult in this vast and geographically diverse nation.
Few can doubt, however, that Colombia’s economic star is in the ascendance.
Category: Comment, Economy