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Government Announces Measures To Relieve Currency Pressures and Defend Employment

November 9, 2010

A tip of my hat to Clayton Steele and her enterprising colleagues at Posse Herrera & Ruiz abogados, who brought to my attention the following announcement of measures to ease upward pressure on the USD:COP.

From the National Planning Department

Translation by iGoogle/Hunter Carter


Bulletin 122

Bogotá, October 29, 2010 .- (GIS). The following is a summary of the package of measures adopted Friday by the National Government to relieve pressure and protect employment exchange:

1. The Government has decided not to monetize US$1,500 million projected to flow to the country in 2010. This represents a substantial relief in the supply of dollars of foreign exchange and therefore less pressure for currency revaluation. These funds will be frozen in accounts outside at least during the first months of 2011.

2. It also amended the 2011 financial plan to balance external funding sources and debt service, thereby reducing the flow of monetization of the national government by US$384 million for 2011.  The Ministry will implement a hedging strategy for the payments of external debt service the following year, through the purchase of currency in the forward market, provided that the exchange rate future to which these transactions are listed can be conducted at a reasonable cost to the nation. This coverage can be made up of 3,700 million dollars.

3. Tariff reform approved by the National Tariff Board, to continue to be discussed, reducing production costs of enterprises, encouraging imports and thus the demand for currency.

4. The Agriculture Ministry will establish, through Finagro, a facility whose value may be up to 50 billion pesos, to support the implementation of hedges by agricultural sector exporters.

5.  The income tax exemption will be eliminated for interest on loans contracted with foreign entities, except those obtained by Colombian credit institutions, short-term, arising from bank overdrafts, and those for foreign trade activity. Collection is to be done through withholding at source. This will equalize the tax treatment for internal and external credit and discourage external debt operations, easing exchange market pressures.

Decree 2105 of 1996 from the Ministry of Finance and Public Credit is amended, with a view
to limit the activities considered relevant to the economic and social development of the country, which exclude debt currently generating sources of income.   The amendment will provide that this exclusion applies only to debt for foreign trade activities. This becomes more expensive, by way of withholding, the foreign debt.

6. Will support the bill that transfers control of the payment of royalties to the DIAN, with a view to a further increase collection.  These measures are aimed at reducing the fiscal deficit of the nation and the pressure they can generate for external borrowing requirements.


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