Colombia Finance Minister Juan Carlos Echeverry said Tuesday the government doesn’t support the use of capital controls to halt gains in the peso, which has surged 5% against the dollar this month.
“We’re not very fond of capital controls, for several reasons,” Echeverry said at congressional event in downtown Bogota. “Capital controls, at the end of the day, reflect a government that isn’t exercising fiscal austerity. That is, the government wants to keep spending.”
Colombia’s government, he said, has demonstrated that it is committed to fiscal responsibility.
Echeverry’s comments come ahead of a meeting of Colombia’s central bank Friday, where some analysts have said the bank may announce new measures to stem the peso’s strength. The finance minister is a member of the bank’s board.
The central bank already buys at least $20 million a day in the forex market to curb peso gains, but it hasn’t been enough lately. The peso closed Tuesday at COP1,790.00 for $1 from COP1,871.50 at the end of March.
Strong gains in the peso can damage Colombia’s important export sector as it makes exports more costly abroad. As such, some sector leaders and lawmakers have called for capital controls or other measures to prevent a stronger peso. Many analysts say that if the bank announces any new forex measures Friday, it’s unlikely to be capital controls. Instead, the bank may say it plans to increase the amount of daily dollar purchases it makes.
Capital controls are sometimes imposed by governments or their central banks to regulate the amount of foreign currency or other flows into or out of the country. The control can be in the form of transaction taxes or direct limits on the amount of money that can come into the country. By doing so, such controls can affect the exchange rate.
