Finance Minister of the Year: Cardenas steadies the ship

By:
Rob Dwyer
Published on:

Colombia, more than any other Latin American country, has used the favourable winds of recent years to prepare for the rainy days ahead. But has finance minister Mauricio Cárdenas done enough to ensure Colombia stays afloat if there is a prolonged emerging market downturn?

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On meeting Mauricio Cárdenas one isn’t immediately reminded of Margaret Thatcher. Or Mikhael Gorbachev. But Cárdenas acknowledges that he has something in common with these politicians (and other notable examples): a big gap between domestic and international perception and appreciation.

Colombia’s finance minister must be at times frustrated by the level of internal criticism of his handling of the economy, which has at times strayed into personal territory when opposition politicians question his credentials for the office of managing Colombia’s economy and financial system. Fortunately for Cárdenas – and Euromoney would argue Colombia – the country’s president, Juan Manuel Santos Calderón, backs his finance minister unstintingly.

Cárdenas, a Berkeley-educated former scholar from the Brookings Institution, was one of the first reappointments in Calderón’s cabinet after he regained power in the 2014 elections and the president often asks his finance minister to appear at Sesiones de Controle Político, at which Congress grills members of the cabinet on government policy.

Cárdenas is running late for his appointment with Euromoney – a preceding meeting of the cabinet, chaired by the president, runs over. When Cárdenas appears, his height (he is well over six foot tall and a shock of thick, more-pepper-than-salt hair adds to the commanding appearance) and jovial demeanour (created by a loud, confident, booming and warm voice) strike an equal impression.

But the appearance of bonhomie belies a flinty resolve to push Colombia’s economic success story to the fore. It’s for this reason that – despite laughing away questions about whether he is personally affronted by continuing criticism of his record – he must surely harbour some feelings of disappointment beneath the surface about the lack of domestic appreciation for his performance with the economy.

And there is political cause for Cárdenas and Santos to worry if the finance minister is underappreciated – this isn’t a vanity issue. The president has pressed hard for a peace agreement with the FARC rebels, expending a lot of political capital to reach an agreement announced on September 23. However the president and Cárdenas meanwhile have identified fiscal reform as a key challenge to keep the economy on track – and legislation is planned – but if the minister can "own" fiscal reform and lever his personal political reputation to navigate approval through Congress then perhaps both objectives can be achieved concurrently.

To this end Cárdenas has revamped his personal PR team and hired a new spin doctor to focus just on the financial press – to explain and defend Colombia’s and Cárdenas’ record. Fortunately the new hire, who started in August, has plenty of positive messages to use in the charm offensive: Colombia has responded impressively to the severe terms-of-trade shock it is facing as the price of oil plummets. The country is a large oil producer and in 2013 oil receipts accounted for 20% of total government revenues – and 55% of all exports.

Today, the oil sector provides just 7% of revenues. The collapse in the price of oil has had a direct impact on the Colombian peso – down by 23% this year and by almost 60% in the past 12 months.

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"We have about $47 billion in reserves but we don’t think it’s wise to start using those unless we really know what the fundamentals are – and what are the new fundamentals"

Inflation has jumped, due to the pass-through effect of higher import prices, and now exceeds the upper bound of its target (4%) but – as yet – the central bank has not felt compelled to increase interest rates. Unlike other oil producing countries (such as Russia) and Latin American peers (such as Brazil) the stability in monetary policy points to well anchored expectations.

International investors are also calm: as CDS spreads and yields on sovereign debt have spiked elsewhere, Colombia has outperformed its peers – a big vote of confidence in the country’s macroeconomic management and a testament to the country’s structural fiscal discipline law.

The finance minister’s consistent articulation of his government’s commitment to adhere to fiscal constraints during the country’s stress test has often been credited as a key source of investors’ differentiation of Colombia amid weakening emerging markets.

And then there is the economy: the second quarter’s growth of 3.0% (year-on-year) surprised on the upside and July’s retail sales grew at 4.5% year-on-year, beating the consensus forecast of 3.0% and the average of 3.4% for the first half of the year. Although clearly moderating from growth rates of around 5.5% to 6% in previous years – the country is not only one of the quickest growing EM economies (above Mexico, Chile and Brazil and level with Peru) but confidently projecting that it will be the seventh fastest growing economy in the world this year.

Diversification away from oil and other commodities is providing a back-up engine: the government’s investment in the low income housing sector has led to a jump in construction (the sector grew by 8.7% in Q2 2015) and with the $50 billion "4G" series of road projects due to begin construction later this year – and boost GDP by up to 1.5 percentage points for the next four years – there is a very slim chance the country will flirt with the recessions that threaten much of the emerging market world. The country also continues to add jobs, with the employment rate rising 0.3 percentage points to 56.9% at the end of the first quarter, which is helping to buoy domestic consumption. In short, the economy is performing well nominally – and exceptionally well relatively.