Category: Colombia

Financial sector resists adopting central bank rates

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April 5th, BOGOTÁ (Colombia Reports) – Colombia’s financial sector has resisted lowering mortgage rates in accordance with the central bank interest rate cut to 3.25%, the bank’s most recent cut in March.

“The central bank has developed an expansionary monetary policy since July 2012, but the interest rate cuts have not yet been transferred to the rates of financial institutions,” said international market analyst Cristian Lancheros of Acciones y Valores, a Bogota-based brokerage firm.

“This scenario requires a greater commitment of financial institutions with reduced rates to encourage consumption … it will not deteriorate significantly household demand,” Lancheros added.

Worries of rising new real estate prices, which increased by 2.4% in the latter trimester of 2012, have fueled a fiery debate over the severity of the housing sector’s impact on the Colombian economy.

Finance Minister Mauricio Cardenas recently called on banks to be more responsive with the central bank in order to decrease interest rates in accordance with the cut, and in turn decrease the cost of mortgage lending for buyers.

“We are planting our concern with the financial sector regarding this situation … it doesn’t seem that the financial sector, let’s say, is helping in proportion to the central bank’s interest rate cut,” said Cardenas.

Cardenas, however, has kept the focus of Colombia’s growing pains toward the peso, naming it “the mother of all problems”. A strong peso, he has said, is the culprit behind a sluggish manufacturing sector and struggles in the agriculture business, which in turn is flaying the country’s exports.

Yet some experts disagree about where the problem is, saying that the most important risk to the Colombian economy right now is soaring housing prices.

Economist at the University of the Andes Marc Hofstetter told Colombia Reports that “the most important risk is that the central bank is lowering rates, but housing prices are still high.”

“By lowering rates, the central bank intends to stimulate the economy. Most of the economy needs a stimulus, but the housing sector does not need a boost in the middle of rising prices,” Hofstetter added.

Although lower interest rates intend to kick start the economy the central bank says it is growing below its potential, lower mortgage rates could further drive up prices in the housing sector. That could be dangerous for consumption.

And that potential danger is the same concern that was recently investigated by a handful of central bank researchers. Earlier this month, a report published by researchers at Colombia’s central bank warned of a housing bubble in Colombia’s market that could mirror the same conditions which led up to the United States mortgage crisis in 2008.

“We find evidence of a bubble (defined as explosive behavior in a sub-sample of the series) during the second semester of 2012,” Jair Ojeda-Joya, co-author of the central bank’s research said to Colombia Reports.

MORE: Colombia’s central bank warns of possible housing bubble

Rich Holman, a real estate broker and founder of First American Realty Medellin, is not convinced though. He says that the worry over Colombia’s housing market “is uniformed diatribe” and declares the idea of a bubble is nothing more than a “myth”.

“Is Colombia being overbuilt, is there too much inventory, is the property market overvalued and is Colombia having a real estate bubble?” asks Holman. “The answer is no, not yet.”

Sources

Moravia’s transformation toward legitimacy (PHOTO DOCUMENTARY)

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January 21st 2013 MEDELLÍN (Colombia Reports) – The Moravia neighborhood used to be one of Medellín’s most miserable neighborhoods, infamous for for its poverty and violence. However, the neighborhood grew up and — with the help of the local government — has now become one of Medellin’s most colorful barrios.

I visited the neighborhood, which was built alongside the Medellin river and on the city’s garbage dump, to learn about life in Moravia. Published in Colombia Reports

Foreign investment could hurt Colombia peso, economy: Analysts

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January 14th, MEDELLÍN (Colombia Reports) – Analysts worry over the consequences of a strengthening peso after Colombia recorded a jump in Foreign Direct Investment in 2012.

Colombia, the third largest economy in Latin America, reportedly received $16.7 billion in foreign direct investment in 2012, far exceeding the Ministry of Commerce’s goal of $10.8 billion. This marked a 25% increase from 2011.

Roughly 59% of capital inflows, however, poured in to Colombia’s booming energy and mining sectors, provoking concern amongst some analysts over the severity of a potential “Dutch disease,” which occurs when currency appreciation, in response to a steep rise in commodity demand, erodes the price competitiveness of other export products.

David Reese, an emerging markets economist and Colombia analyst with Capital Economics in London told the Financial Times that “on the one hand, it is good that Colombia is being seen as a favorable destination for FDI. It shows how far the economy has come in building investor confidence.”

But Reese expressed concern over the negative consequences that come with a sharp increase in foreign investment inflows.

“We’ve seen industry struggle for a long time now,” said Reese. “We have seen consumer spending slow and we have reached the point of low growth and rate cuts.”

The Colombian economy experienced an extreme slowdown in the third quarter of 2012 when GDP grew just 2.1% — a five percent drop from the same period in 2011.

As Reese explained, pressure on the peso warps sectors other than energy and mining.

Economist Ed Dolan explained that the behavior of the peso has in turn produced a loss of competition for Colombia’s manufacturing and agriculture sectors.

The peso’s gain in 2012 prompted the Central Bank to shore up its dollar-buying policy in order to cool down the peso and prevent a more dangerous onset of Dutch disease. Jose Dario Uribe, Manager of the Central Bank, told local media that in 2013 the bank plans to buy at least $4.6 billion in US currency.

Land reform, decreased inequality minimum demands for peace: FARC

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January 15th, 2013 MEDELLÍN (Colombia Reports) – Colombia’s largest rebel group, FARC, on Monday set agrarian reform and a decrease in inequality as their minimum demands for reaching a peace agreement with the government.

In an interview sent to Colombia Reports, the guerrilla’s lead negotiator “Ivan Marquez” — whose real name is Luciano Marin — laid out their principal demands in negotiations.

“The minimums? Comprehensive rural reform and the reversal of the Gini coefficient,” said Marquez. The Gini coefficient is the main statistical measure of a country’s inequality. According to the World Bank, Colombia currently has the seventh worst in the world, comparable with Haiti and Angola.

“There’s a common diagnosis on the situation of misery that, like a weed, invaded the Colombian countryside. The Gini coefficient of 0.89 is a mirror that reflects the terrible inequality that is prevalent in this sector. The government doesn’t even have the strength or the arguments to challenge those sad figures of injustice,” explained Marquez.

Though the Colombia government has claimed that its economic model is not up for debate in the peace talks, Marquez insists that omitting it from the talks is “not consistent with the spirit of the General Agreement of Havana.”

“It is impossible for the deepening of neoliberal policy, promoted by [President Juan Manuel] Santos, and the delivery of territory to the multinational extractive industry to escape the discussion about land access and use, and food sovereignty,” said the rebel negotiator.

“Dignified life in the cities depends on rural stability, and vice versa. It should strengthen the symbiotic relationship so that Colombia moves forward. We must democratize national life, beginning with the democratization of land ownership,” Marquez claimed.

Just prior to the restart of negotiations on Monday, the Colombian government and FARC studied more than 500 proposals from citizens, gathered during a forum hosted by the U.N., along with input from university professors, experts, and peace commissions regarding the contentious matter of land reform.

Marquez said that all input from the committees would be given serious consideration by the FARC delegation, declaring that “they contain the hope of solving the problem that many rural people have longed for…this is the key to peace.”

In the interview, the rebel leader showed a willingness to reach a peace agreement before November, the deadline imposed by President Santos, but said he refused to prematurely sign a deal.

“Although we’re in no electoral hurry, we hope to be able to have an integrated agrarian reform before November,” Marquez said.

Both the government and rebels have labeled land reform as crucial for the signing of any treaty that would put an official end to almost 50 years of fighting — the longest-running civil conflict on the continent.

During his Christmas address, Santos spoke of the importance of reaching social justice, signaling a willingness to confront the same issues Marquez speaks of in future rounds of talks. In a speech towards the end of December, the Colombian presidentspoke of “a true peace; a peace that is not just the end of violence but also progress towards a greater social justice.” The FARC, ever since peace talks began, have stressed the necessity for peace “with social justice.”

Nevertheless, according to Marquez peace is not yet within reach.

“We are taking the first steps [that] we all know are complex. We need navigation equipment. To reach our destiny of peace we need GPS and compass, statistics, figures and land registries. But in Colombia this support does not exist or is insufficient. We need to know what is going to be redistributed, returned and formalized. It can’t just be wastelands.”

The sergeant in his labyrinth: José Guarnizo’s story

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January 8th, 2013 MEDELLÍN (Colombia Reports) – The Odyssean story of Sergeant Jose Guarnizo, a former hostage now condemned for participation in a massacre, has shed light on the extraordinary complexity of Colombia’s half-century armed conflict.

Guarnizo fell into the hands of the country’s largest guerrilla group, FARC, in July 1997 in the northern Antioquia department. Along with a handful of high-ranking officials, the sergeant was taken captive, and remained a hostage for six years until May 2003 when he was rescued by security forces. The rescue, however, did not run smoothly, and ended in the deaths of other hostages, including former Defense Minister Gilberto Echeverry and the then-governor of Antioquia, Guillermo Gaviria.

Then, two years after his release, Guarnizo was convicted for his role in a 1992 massacre of seven farmers in the central Meta Department. The courts sentenced him to over 33 years in prison.

But three years later, in 2008, a local court in the Meta Department acquitted him on the grounds that it was impossible for Guarnizo to have been in the town during the time of the murders.

Liberation was fleeting for the sergeant — just before courts entered recess in December 2011, the sentence was reinstated.

“They have not issued the arrest warrant, but they left me with a sentence of 34 years for the process that I had won in the first instance,” Guarnizo told the Associated Press.

Much like the Sergeant’s story, Colombia’s half century of armed conflict between leftist guerillas, illegal paramilitary groups and the Colombian state is like a labyrinth.

Where it will end is hard to see.