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Euro Zone Crisis To Hit Colombia, Chile; Won’t Derail Growth

PARIS (Dow Jones)–Chilean finance minister Felipe Larrain said Thursday his country will be hit by the euro-zone crisis in the coming months, though not strongly enough to derail economic growth.

In an interview with Dow Jones Newswires, Larrain stuck to his healthy gross domestic product growth forecast of between 4% and 5% in 2012, slower than the 6% reported in 2011 and the 5.6% reported in the first quarter of this year.

The Chilean minister said he expects the Chilean peso to weaken in the coming months as a result of the crisis as the flow of investment to the country is likely to get thinner.

“I do believe Chile is a safe haven but I’m not going to convince all the financial community,” Larrain said. “People are likelier to turn to the U.S., Japan or Germany,” he said.

Larrain was in Paris for a conference hosted by the Organization for Economic Co-Operation and Development.

Colombian finance minister Juan Carlos Echeverry, who was in town for the same event, said the euro-zone crisis will indirectly affect his country over the coming 12 to 18 months. Trade and financial links between Colombia and the European Union are narrower than the links between Colombia and the U.S., but in an interconnected world all countries suffer from uncertainty.

“When the sea is agitated all the boats move,” Echeverry said. He expects wide swings of the Colombian peso against the dollar over the next 12 to 18 months though the Colombian currency is still likely to stay within a COP1,750 and COP1,950 range to the dollar.

The resilience of emerging markets as the crisis hits Europe is a new element that will cushion the crisis, both ministers said.

Back in 2008-2009, the Colombian economy contracted as a result of the financial crisis, but this time is different, Echeverry said. First, commodity prices are still strong, and second, the government is prepared as it has saved money and kept an extra borrowing capacity to launch a stimulus package if needed.

Chile has been working on a contingency plan since last July, Larrain said. The plan includes measures to protect jobs, encourage investment and avoid a credit squeeze by using the foreign currency the government holds abroad. Thanks to a sovereign fund created with the copper revenue windfall, Chile is actually a foreign net creditor not a debtor, Larrain said.

Written by Rico

Rico

"Rico" is the crazy mind behind the Q media websites, a series of onlinemagazines that includes TodayColombia.com. Rico brings his special kind of savvy to online marketing. His websites are engaging, provocative, informative and sometimes off the wall, where you either like or you leave it. The same goes for him, like him or leave him.There is no middle ground. No compromises, only a passion to present reality as he sees it!