COLOMBIAN ECONOMY WILL EXPAND BY 5.5% IN 2011

Colombia’s economy may expand as much as 5.5 percent in 2011, more than policy makers had been projecting, as strong expansion in credit and consumer confidence create “perfect” conditions for growth, central bank President Jose Dario Uribe said.

Latin America’s fourth-largest economy will be running close to full capacity in the second half of 2011, after expanding 4.3 percent in 2010, Uribe said in an interview in Washington yesterday.

“Consumer confidence is increasing again, credit growth is very dynamic,” said Uribe, 52, in an interview in Washington yesterday during the semi-annual meetings of the International Monetary Fund. “There are a lot of signals that the economy is strong, and is growing fast.”

The central bank’s 2011 economic growth projection is 4.5 percent, though this could be revised in the bank’s next quarterly inflation report to be published in roughly three weeks, Uribe said. Policy makers raised Colombia’s benchmark interest rate by a quarter point for a second straight month in March to 3.5 percent, noting the rise in consumer confidence, bank lending and retail sales.

As Colombia’s economic expansion gains momentum, inflation has been accelerating. Annual inflation was 3.19 percent in March, up from a five-decade low of 1.84 percent a year earlier. The central bank forecasts inflation near the 3 percent midpoint of its target range at the end of 2011 and 2012, Uribe said.

‘Stable, Sustained Path’

Economists cut their forecasts for year-end inflation to 3.31 percent in a central bank survey published last week, from 3.48 percent in the March survey.

“I see the Colombian economy in a perfect situation, on a very stable and very sustainable path,” said Uribe, who has a doctorate in economics from the University of Illinois at Urbana-Champaign, where he studied alongside Alexandre Tombini, the president of Brazil’s central bank.

The peso appreciated 1.1 percent last week to 1798.43 per dollar, its strongest level since October. The currency has gained 6.1 percent against the dollar this year, the best performer of seven Latin American currencies tracked by Bloomberg.

Recent gains in the peso are a result of companies bringing in funds from overseas to pay local taxes, Finance Minister Juan Carlos Echeverry said in an interview in Washington. Companies are slated to pay taxes between April 8 and April 25.

The currency’s strength has not prevented the “tradeables” sector of the economy from growing as fast as non-tradeables, Uribe said. Tradeables are goods that can be exported or substituted by imports, and so are sensitive to changes in the exchange rate.

Controls, Vigilance

Uribe said he sees no need for the sort of capital controls used in Brazil to stem gains by the peso. Such capital controls create distortions and should not be implemented without “clear evidence” that the benefits would outweigh the costs, Uribe said.

Colombia’s credit rating was raised one-level to BBB- by Standard & Poor’s last month, restoring the investment grade status lost in September 1999.

The yields on Colombia’s peso bonds fell to their lowest level in three months last week, as economists cut inflation forecasts and as bets mounted that funds from government securities maturing next month will be reinvested in debt.

The central bank needs to watch for signs that optimism about the Colombia’s economy could lead consumers and companies to take on too much debt, Uribe said.

“I’m not worried, but you have to always be alert that we don’t go mad and spend in excess,” Uribe said.

Gross credit expanded 19 percent to 183 trillion pesos ($102 billion) in the year through February, the fastest pace since October 2008, according to the financial regulator.

Asset price bubbles inflated by capital inflows could be dealt with by regulation of financial markets, Uribe said.

--Editors: Robert Jameson, Joshua Goodman

http://www.businessweek.com/news/2011-04-17/colombia-may-grow-faster-than-expected-5-5-in-2010-uribe-says.html

COLOMBIA OIL OUTLOOK IMPROVES WITH NEW FIND, HIGHER OUTPUT.

BOGOTA, April 26 (UPI) -- Colombia is seeing the outlook for its energy sector improve with progress on two fronts -- new oil finds and higher production from existing wells.

Ecopetrol President Javier Gutierrez said the company, the largest integrated hydrocarbons company in the country, would aim to be producing at least 1.45 million barrels per day of oil equivalent by 2013.

Rising oil prices have given fresh incentives to petroleum prospecting worldwide despite warnings that more expensive oil and oil gas could spell further trouble for global economic recovery.

Last year Colombia embarked on an aggressive campaign to attract more investment and industry expertise into its unexplored and under-exploited oil resources.

With economic growth set to continue through this year the government expects domestic oil demand to continue rising and also wants to reduce dependence on refining abroad.

Colombia depends on Mexican Gulf Coast refiners to buy and refine most of its heavy, sulfur-laden crude and it ranks 10th among the exporters of oil to the United States. It shipped an average of 365,000 barrels per day to the United States last year.

Ecopetrol said results of tests on a new oil well in the south of the country showed encouraging assessments.

The 7,371-foot deep Nunda-1 well in the Tello municipality of the department of Huila was first drilled on Jan. 27. Initial tests had a flow of 318 barrels of fluid a day, 71 percent of which was water, corresponding to an average of 92 barrels per day of crude oil, the company said in a news release.

The well was drilled as part of an exploration and exploitation agreement signed between Ecopetrol and the National Hydrocarbons Agency dating to 2006. Ecopetrol has 100 percent participation in the project.

Ecopetrol will begin evaluating the discovery to determine its commercial viability. Company officials quoted in Colombian news media said they were confident about the outcome of the tests.

Colombia already producing a little less than 1 million barrels a day so the goal of producing 1.45 million barrels a day in two years is not overoptimistic, industry analysts said.

Colombian oil production in March reached 884,000 barrels per day, up 15 percent from the same month in 2010.

Ecopetrol and its associates extracted 786,000 barrels per day, while the contracts administered by the National Hydrocarbon Agency ANH exceeded 98,000 barrels per day, Ecopetrol said in a news release. On average Colombia has produced 860,000 barrels of crude oil daily so far in the first quarter of 2011.

"The discovery opens up a new era for Ecopetrol by branching out to new types of exploration activities involving stratigraphic traps (those in which hydrocarbons accumulate due to variations in the deposit environment) in the Valle Superior del Magdalena and helps increase reserve inventories in this area of the country," the company said in a statement.

Ecopetrol, Colombia´s largest integrated oil and natural gas company responsible for 60 percent of total production, is one of the top 40 oil companies in the world and the fourth largest oil company in Latin America.

Ecopetrol is also involved in exploration and production activities in Brazil, Peru and the U.S. Gulf Coast, and owns the main refineries in Colombia. The company also owns most of the network of oil and multiple purpose pipelines in the country, petrochemical plants, and is entering into the biofuels business.

Read more: http://www.upi.com/Science_News/Resource-Wars/2011/04/26/Colombia-oil-outlook-improves-with-new-find-higher-output/UPI-81971303840263/#ixzz1KjTPtX4b

PETRI-DISH ECONOMIES: COLOMBIA INFLOWS, OUTPERFORMING

“I WAS here ten years ago when the economy was in crisis and every day’s news was worse than the day before. Now all the news is better than expected.” Juan Carlos Echeverry was a top official in Colombia’s finance ministry when the country, then violence-ridden, went through a messy mortgage bust and budget crunch in the late 1990s. Now, as finance minister, he is in charge of an economy on the rise.

Foreign investment is up, drawn by an improved security situation, the lure of minerals and a bouncy regional market. Public coffers are swelling, thanks to rising commodity prices and oil output. Standard & Poor’s hiked Colombia’s sovereign-debt rating to investment grade last month.

It is Mr Echeverry’s task to manage the consequences of this good news. High oil prices could encourage outsize demands for government spending. A flood of foreign capital could send the peso soaring and cause credit bubbles, while threatening the viability of industries from cut flowers to food processing. The decision to create an integrated regional bourse with Peru and Chile will attract more money.

Colombia is not the only emerging economy to face these issues. Countries from Brazil to South Korea have introduced a plethora of taxes and restrictions to deter foreign inflows. But Colombia is one to watch. Along with Chile, it pioneered the use of capital-inflow controls in the 1990s. Yet its strategy today is subtly different from many others, with more weight on fiscal reforms and less on controls.

The country’s technocrats do worry about the impact of inflows but they see the exchange rate as the most important shock absorber. And with Colombia’s long-term prospects improving, they believe a gradually stronger currency is inevitable. José Darío Uribe, governor of the central bank, puts a lot of weight on using prudential rules to stop inflows causing financial instability. The central bank does not allow banks to borrow in foreign currency and then lend in pesos, for instance. It guards against maturity mismatches in foreign currency and it has long limited banks’ foreign-exchange derivative bets.

Mr Uribe is less convinced that capital controls can do much to affect the exchange rate. Though no one rules them out, such controls are clearly not Colombia’s first line of defence. And when the central bank does intervene to try to stem excessive strength in the peso, the tactics are different from, say, Brazil’s.

On September 15th 2010 the central bank announced that it would buy $20m of foreign exchange every day for four months. That policy has been extended to mid-June. Mr Uribe is convinced that this kind of transparent, small, predictable intervention is much more effective than the large-scale but unpredictable accumulation of foreign-exchange reserves that other emerging markets have gone for. Colombia’s currency has depreciated slightly over the past six months, in contrast to most others in the region (see chart). How much this owes to the intervention strategy is debatable. Roberto Steiner of Fedesarrollo, a think-tank, says the goal is to insulate the central bank from pressure to intervene more fiercely.

The big question is whether Colombia’s government will be able to resist political pressures to spend. The budget deficit is likely to be well over 3% of GDP in 2011. Colombia urgently needs better infrastructure. Despite the government’s military gains against the FARC guerrillas, plenty of money still needs to be spent on security and reparations. As Alejandro Gaviria at the Universidad de los Andes says: “Colombia faces the demands of conflict and post-conflict spending at the same time.” And painfully high income inequality means pressure for social spending, too.

Mr Echeverry is trying hard to hold firm. A recent tax reform slashed tax breaks on investment. A Chilean-style fiscal rule, designed to limit the deficit and force the prudent use of commodity receipts, is working its way through Congress. But in a country whose constitutional court can force public spending (by, say, declaring that people have a right to expensive health care), that may not be enough. So the government is also pushing for a German-style constitutional amendment to enshrine the notion of fiscal sustainability. Mr Echeverry is confident. “The whole economic plan of our government is tailor-made to manage a boom,” he boasts.

http://www.economist.com/node/18560513