I.D.E.A. Global Focus Nov 17 1998 11:35AM CSTArchives...
Colombia Focus -- State of economic emergency good for banks Colombian president Andres Pastrana declared a state of economic emergency Monday. The peso should feel support from the government's prudent fiscal action.
Colombian banks are on the verge of collapse, and action needed to be taken fast. By declaring a state of economic emergency, Pastrana can avoid congressional deadlock and implement bank-saving measures without sending them to congress.
Colombian banks have felt increasing pressure since the beginning of 1998. In late 1997, the central bank hiked interest rates to defend the peso. The bank thought it would be a quick fix to a short-lived attack on the currency. Banks continued to make loans, even with interest rates so high.
But pressure on the peso didn't ease. Rates continued to stay at high levels in 1998. The current benchmark interest rate is 36.2%. The high rates have crushed banks. Loans with such high interest were impossible to pay back and small and medium-sized savings and loans institutions began to fail.
The Colobian government bailed the institutions out, creating Fogafin, a bank rescue fund. The government has already spent $440m.
Still, the government needs more cash to prevent other banks from failing. December is typically a time of increased demand for money, and the banking system is usually unable to cope effectively. It wants to use $600m from Inter-American Development Bank loans and $1bn in central bank profits for Fogafin. Under normal conditions, this money couldn't be used until the first quarter of 1999.
Under a declared state of emergency, Pastrana could access the funds sooner, saving banks before they failed.
The term 'state of emergency' might sound dramatic. But InterMoney thinks the government is taking prudent action and facing reality. Measures passed in during the state of economic emergency will help the ailing financial system.
The peso has already strengthened to 1,585 to the dollar from 1,590. It should strengthen to 1,580 and be supported there for the next couple of days.
I.D.E.A. : Tue Nov 17 17:12:38 1998 [GMT] |
