Colombia Obituary Shows Currency Hits Uribe Growth

By Andrea Jaramillo

June 30 (Bloomberg) -- The obituary pages of Colombia's newspapers are becoming required reading for currency traders.

Thirty-seven flower exporters placed mock death announcements in El Tiempo, the country's largest daily, on June 20, blaming their demise on the peso's five-year, 49 percent rally and on the interest-rate increases that helped spark the appreciation. ``Rest in peace'' is scrawled next to a cross along the top of most of the obits.

Mounting job losses in Colombia's export industry are threatening President Alvaro Uribe's greatest achievements: the fastest economic expansion in three decades and victories over guerrillas that have cut the murder rate by 40 percent. Uribe is now turning his focus on defeating currency speculators who he blames for driving the peso to dangerous levels.

``The concern is that people lose jobs and have no other alternatives in the legal economy,'' said Javier Diaz, head of the National Exporters Association in Bogota. ``And then the drug trade becomes their only alternative.''

The South American country is the biggest supplier of flowers to the U.S. and is the world's third-largest exporter of coffee and bananas. The Colombian countryside is also home to the thousands of guerrillas who remain in combat. The rebels recruit unemployed farm hands to exploit their main source of financing - - the world's biggest supply of coca.

Economic `Instability'

``An exchange rate that isn't competitive creates instability in the economy,'' Uribe, 55, said at a June 26 news conference in Bogota.

Uribe on May 30 stiffened controls on short-term foreign investment in assets such as stocks and bonds by raising deposit requirements to 50 percent from 40 percent. This month he ordered financial authorities to identify the ``speculators'' who are bidding up the peso and called on the central bank to cut interest rates from a six-year high of 9.75 percent.

While central bankers refused that request, they announced on June 20 a plan to buy $20 million a day in the currency market. The move sparked an 11 percent decline in the peso last week to 1,888.4 per dollar.

That slide left the peso down 3 percent in the second quarter, paring its advance this year to 6.8 percent. It rose 20 percent through June 20, more than any other currency in the world except for the Paraguayan guarani and the Zambian kwacha.

`Relentless Tear'

The peso had been ``on a relentless tear,'' said Win Thin, a New York-based currency strategist at Brown Brothers Harriman.

Before the central bank stepped into the market Thin advised his clients to buy the peso. Now he's telling them to ``stay on the sidelines.'' Edwin Gutierrez, who manages $5.5 billion in emerging-market securities for Aberdeen Asset Management Plc in London, said he missed the peso rally and is ``waiting for an opportunity'' to start buying the currency.

Uribe may be his own worst enemy as he tries to push down the peso. His success in crippling the country's guerrilla movement has buoyed Colombians' sense of security, unleashing pent-up consumer demand that has driven the expansion.

The Revolutionary Armed Forces of Colombia, the country's biggest guerrilla group, have been gutted. Their ranks total about 8,000, down from 17,000 in 2002, the year Uribe took office. Terrorist attacks in the country dropped to 387 in 2007 from 1,645 in 2002, according to the government.

GE, SABMiller

``Uribe has changed the dynamic of the conflict,'' said Alvaro Vargas Llosa, a senior fellow at the Independent Institute, a Washington-based policy research group. ``When he took power, the government was defending itself from the terrorists' offensive. Today the terrorists are holed up.''

The economy grew 4.1 percent in the first quarter after expanding more than 7 percent last year. Colombia has received record investment from companies including Fairfield, Connecticut-based General Electric Co. and London-based SABMiller Plc. Annual foreign direct investment soared to an average of $8.6 billion over the past three years from $2.3 billion the previous three years.

``There is no better advertisement than the results,'' Vargas Llosa said. ``And what the figures show is that investors are betting on Colombia.''

Colombia is also the beneficiary of the commodity rally that's swelled export receipts throughout Latin America. The 26- member UBS Bloomberg Constant Maturity Commodity Index has risen more than threefold since 2003. Oil and coal are Colombia's two biggest exports.

Rising Inflation

As growth picked up, so has inflation. The annual rate jumped to a four-year high of 6.4 percent in May from 3.9 percent two years earlier, prompting the central bank to raise its benchmark lending rate 3.75 percentage points.

That rate is 7.75 percentage points above the Federal Reserve's 2 percent benchmark rate, enticing investors to borrow money in the U.S. and plow the proceeds into Colombian fixed- income assets. Uribe, frustrated that these inflows have added to the peso's gains, told reporters in the cattle-ranching city of Cerete on June 20 that he was considering fining speculators.

Uribe has pledged 500 billion pesos in subsidies this year to stem the firings by exporters in labor-intensive industries such as flowers, bananas and textiles. Colombia's rural jobless rate climbed to 7.8 percent in the second quarter of 2007, the most recent figure available, from 6.8 percent a year earlier.

The flower industry has lost 18,000 jobs, about 9 percent of its total workforce, since the peso rally began, according to the Colombian Flower Exporters Association.

C.I. Flores Gambur Ltda., one of the companies that took out a mock obit, has fired nine of its 70 workers this year, said manager Luis Fernando Burgos. Gambur exports 800,000 carnations a month to the U.S., Spain and Russia from its fields in the Andes mountains that surround Bogota.

``The appreciation has hit us hard,'' Burgos, 58, said in a telephone interview. ``We're on the verge of collapse.''

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net