The global economy is closer to the solution to its economic woes than even a week ago, the governor of the central bank of Colombia told Emerging Markets as he prepared to fly back to Bogota last night from the IMF annual meeting in Tokyo.
José Dario Uribe said that policymakers now had a good chance to engineer their way out of the lingering crisis in spite of prevailing uncertainty. “There are still huge challenges but the mood is more positive than it was six months ago,” he said.
The main concern for commodity-exporting countries such as Colombia, which has become an important oil producer in Latin America in recent years, is the decline in commodity prices, but Colombian officials have pursued an orthodox policy to deal with negative external shocks.
“One of the possibilities is to adopt a counter cyclical monetary policy and have exchange rate policy, which may act as a shock absorber, as it happened after Lehman,” he said.
“We have a strong, well capitalized system in Colombia, with good provisions and very limited currency mismatches. This is also an asset for us. And also, we have some mechanisms that are available to provide some liquidity in local and foreign currencies,” he said.
Colombia is pursuing a strategy to buy $20 million daily on the foreign exchange market to boost the level of its reserves to some $40 billion. It has already cut its base interest rate twice this year, although it decided to leave the 4.75% rate unchanged at the latest meeting of its monetary council last month.
Nevertheless, independent economists feel that the central bank will have to loosen monetary policy further in the coming weeks. Some also say that the Colombian economy has suffered the impact of extra loose monetary policy in the US, the EU and now Japan.
Nevertheless, the outlook for the Colombian economy, as the rest of the emerging markets, is likely to worsen a great deal if the Chinese economy declines faster than expected.
Oil now represents almost half of Colombia’s exports. At the same time trade links between the Andean country and China have intensified. Uribe said that Colombia was exporting $600 million five years ago, but foreign sales have since increased fivefold.
It also signed a free trade deal with South Korea and is one of leading members of the new Pacific Alliance, which is a group of Latin American countries that seek to promote trade with Asian countries. All of these countries, including Mexico and Chile, already have free trade agreements with the US.
Amid persistent tensions in Spain and other countries, Uribe has acknowledged that there is still a significant stigma among a large part of the international community attached to some of the prevention tools offered by the IMF, such as its Flexible credit line (FCL).