Óscar Iván Zuluaga has overseen the end of an economic boom and the onset of a period of uncertainty since becoming Colombia’s finance minister in February 2007. The Banker interviewed him at the Finance Ministry in Bogota. Writer Jane Monahan.

Q  Security has improved considerably in Colombia in recent years. How has this improvement been positive for the economy?

A What has changed in Colombia is that investors have recovered confidence. In 2002 foreign direct investment represented 15% of gross national product. Now it is 28% of GNP. It is one of the most important increases [in FDI] in Latin America in the past five years. At the same time Colombia is undergoing an important process of technological renovation. Imports of capital goods have increased drastically. And growth is spread across all economic sectors, both traditional and non-traditional. In this way, the country has made a lot of progress.

Q  But on the other side of the coin, what will be the impact on FDI and Colombia’s economy if the free trade agreement with the US is not ratified by Congress?

A It would be very serious. [Not having the treaty] would be regrettable for the economy’s prospects in the medium- to long-term. The free trade agreement is crucial in terms of increasing investment, increasing employment and increasing our exports to the US.

Q  Do do you think the treaty will eventually be ratified in the US?

A Yes, I think so. The problem is mainly one of timing. But we think there are no reasons why the US Congress can’t sign the agreement. Congress has already approved a [free trade] agreement with Peru and other countries. But regrettably [in Colombia’s case] the matter coincided with America’s electoral campaign and created political difficulties. But once the electoral cycle is over we believe Congress will take up the matter with Colombia again, in a constructive and positive way.

Q  Colombia is coming out of a credit boom, inflation is rising, the country has a high current account deficit, and uncertainties over an international financial crisis are continuing. How is your ministry coping?

A The situation in Colombia is different for these reasons. Since April 2006 we anticipated the development of expectations that could significantly affect the sustainability of the country’s medium- to long-term growth and generate considerable inflationary pressures. For this reason Colombia has had one of the most active monetary policies in the world, with the result that today the possibility of controlling inflationary expectations is greater than in many Latin American countries. Meanwhile, the current acc­ount deficit has been declining. This year we estimated it would reach 5% [of GDP] but figures now are showing us it is about 2.5%. [The current-account deficit] has been falling significantly because of the strong performance of our exports.

Q  What areas of the economy need investment and reform most to make Colombia more competitive in a global economy?

A We believe we have to make a bigger effort in infrastructure, and science and technology. If we make progress in those areas, and strengthen access to credit, especially by small and medium-sized companies, we will be heading in the right direction for making the country competitive.

Last year Colombia introduced capital controls on international portfolio investments to halt speculative capital flows, which were apparently contributing to a sharp appreciation of the peso in relation to the dollar. But exchange rates for the peso have recently stabilised, so will the capital controls be lifted?

This July there was a correction, and the peso devalued slightly, which was a source of stability. Meanwhile, we have always said the capital control measure is temporary. The president has said when conditions permit, the government will lift the restriction. For the moment no decision has been taken. We are monitoring when would be the right moment to lift the restriction.

Q  What is being done to develop Colombia’s pension industries and capital markets?

A A financial reform is currently being debated in parliament that will create a variety of pension funds, just as was done in Peru and Chile. This will help encourage savings in pension funds directed towards certain sectors of the economy and provide opportunities for financing activities, such as infrastructure, which are crucial for the country’s competitiveness. Meanwhile with respect to Colombia’s access to markets for long-term financing, today almost 72% of the central government’s public debt is raised in our own currency and only 28% in a foreign currency. Everyday we depend more on our internal capital markets and less on external markets. Colombia also has a very good risk rating in international markets. It is also working towards obtaining an investment grade rating for its debt from international rating agencies.

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