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Colombia plans curbs for foreign investments

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From the Associated Press

The government of Colombia announced capital controls on some foreign investments Wednesday to try to curb the soaring peso.

Finance Minister Oscar Zuluaga said that starting immediately, foreign portfolio investors will be required to deposit 40% of their investments in non-interest-bearing accounts in the central bank for six months. The measure is designed to absorb a glut of dollars and discourage speculative investing.

The controls complement similar actions announced May 6 by the Colombian central bank to freeze 40% of offshore loans and deposits repatriated by local companies. The monetary authority has also steadily ratcheted up interest rates to blunt a resurgence of inflation.

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Colombia’s currency has appreciated 29% against the dollar in the last 12 months.

The measures are backed by conservative President Alvaro Uribe, who said Tuesday that “the government must defend exporters’ revenues, taking measures to avoid speculative capital that continues to erode our exchange rate.”

The potent mix of inflation and a strong peso are hurting flower growers and other major exporters, which are forced to pay more for materials and wages as the value in pesos of their dollar revenue shrinks.

Colombia has received $5.5 billion in net capital inflows this year, up from just $360 million in the same period a year earlier, the central bank said Tuesday. A little more than half of that came from direct foreign investment, which economists say is the main force behind the peso’s sharp rise.

Colombia recorded 7% economic growth in 2006 and is expected to surpass 5.5% this year.

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