La sombra de la reciente medida impuesta por el gobierno de Brasil de imponer un impuesto del 2% sobre la inversión extranjera, esta cayendo sobre Colombia al recordar la medida del control de capitales impuesta hace un año en el país. Estas medidas son fuertemente castigadas por los inversionistas internacionales quienes no dudarán en llevar sus inversiones a otros países donde se respeten las reglas del libre mercado de capitales, aunque esperamos que Colombia haya aprendido la lección.

On September 1st 2008 the Finance Minister announced the end of the stigma that was Capital Controls here in Colombia, detested by foreign investors they completely failed in their attempt to weaken the Peso and paid no more than lip service to the exporters who as ever are too busy crying for help as opposed to streamlining their businesses and preparing them for the 21^st Century. Additionally they were at odds to modern free market economic practice and led to the rating agencies ignoring any claims Colombia may have had to Investment Grade and led to the MSCI threatening to downgrade the country to Frontier Status.

What lunacy then that the subject should even be discussed in intellectual circles once again both ahead of last week’s summit between the Government & Central Bank and today after Brazil shot themselves in the foot and introduced a 2% tax on new investments. The Bovespa took a huge hit and the Real also fell – foreign investors instantaneously punished the country for anti-market practices. The talk then amongst foreign investors was whether Colombia would follow suit and re-introduce controls of some description, that is a damning indictment of the reputation this administration has attained due to the recently ill thought out dalliance with Capital Controls.

The simple truth is that if the Government. wants to retain it credibility with foreigners and continue to see US$ billions of FDI pour into this country on an annual basis they have to ignore the sirens of doom and stay on the current path of free market economics. There is simply no place for reactionary policy in this day and age, the measures taken last week were appropriate, they unsettled speculators and kept the Peso under control. How is any business, exporter or importer, expected to operate with the shadow of Government intervention hanging over them.

The reality is that any attempt to control the Peso is as doomed as any attempt to control the Real, Pound, Euro or any other currency or commodity you care to discuss. What is occurring is a potentially multiple year appreciation against the dollar – the US is spending money like water and eventually hopes to reflate its economy via that means, the by product of that down the road will be an oversupply of dollars and inflation. No investor wants overexposure to the dollar in that scenario and they are investing in all manner of currencies as well as commodities across the board. Additionally a tremendous amount of US debt is held by non –aligned overseas Governments who if they decide to sell down their positions will cause another wave of dollar selling.

Does the Govt. here think that anything they can do here will halt that trend ? Judging by last week’s meeting they understand this and have acted accordingly, if they suddenly think they can influence global economic direction then I am sure the rest of the world will be calling for advice.

So what about the traditional export industries such as textiles, flowers and banana growers who seem to be foremost in the chorus of complaints about the Peso – surely I am not suggesting they be thrown to the wolves ?? Actually yes – as the Finance Minister stated when recently questioned, they have had years of appreciation to get used to the idea of a strong Peso and have all manner of financial instruments by which they can hedge their currency positions and limit the damage caused. I do not recall the importers complaining with such verve when the Peso went to 2600 ?