Cardenas Says Colombia Economy on Track to Surpass Argentina

(Updates with Cardenas quote in third paragraph.)

Jan. 23 (Bloomberg) -- Colombia’s economic growth will rebound this year, putting the country on track to overtake Argentina as the largest economy in the region after Brazil and Mexico, Finance Minister Mauricio Cardenas said.

Colombia’s weak third-quarter growth was caused by a temporary drop in mining output and a decline in public works spending that will be reversed this year, Cardenas said today in an interview at the World Economic Forum in Davos. The highest rate of investment in the region will allow Colombia to return to growth rate of about 4.8 percent this year, he said.

“High investment rates are the most significant predictors of economic growth,” Cardenas said. There is “no doubt” that gross domestic product will surpass Argentina’s in dollar terms as Colombian growth picks up and as the Argentine peso weakens, he said, without giving a time frame.

Traders are betting that the central bank will cut its benchmark interest rate for the fifth time since June at its policy meeting next week, which would give Colombia the lowest borrowing costs among major Latin American economies. Cardenas, who sits on the central bank’s policy committee, said he will argue that for a quarter-point cut to help boost growth.

The yield on three-month interest-rate swaps has fallen 28 basis points, or 0.28 percentage point, to 3.82 percent this month. That implies an 85 percent chance that the central bank will cut its policy rate a quarter point to 4 percent, according to Catalina Silva, a fixed-income analyst at Cia. de Profesionales de Bolsa in Bogota.

Getting Close

Colombia’s economy grew 2.1 percent in the third quarter from a year earlier, its slowest pace since 2008. The country is currently investing 29 percent of gross domestic product, which will allow the economy to grow close to 5 percent without generating inflation, Cardenas said.

Using Argentina’s unofficial exchange rate, Colombia has already surpassed it, Cardenas said. “If you use the official exchange rate, we’re close,” he added.

Colombia needs to cut energy and transport costs to allow its manufacturers to cope with the rally in the peso, Cardenas said. The country can fund its investments in improving transport networks without selling a stake in state-controlled oil company Ecopetrol this year, he said.

“The government is not planning to do that soon,” Cardenas said. “It’s an option that we have, we want to keep it open, but we’re not considering that this year.” The government would “maybe” consider a sale in 2014, he added.

The peso has strengthened 9 percent against the dollar since the start of last year, the fifth-best performer of more than 150 currencies tracked by Bloomberg.

Cardenas said that the biggest threat to world growth is a slowdown in China.

“The world is getting used to sub-par growth in Europe the U.S. and Japan,” Cardenas said. “What could come as a big surprise to us, which isn’t factored in, is China. So we have to keep our eyes very open to what goes on in China because so much depends on China’s performance.”

--Editors: Philip Sanders, Richard Jarvie