Strong peso is a thorny is­sue

GLOBAL CAP­I­TAL The ris­ing cur­rency aids many Colom­bians. But some, such as rose ex­porters, feel pinched.

Los Angeles Times - - Business - By Chris Kraul

bo­gota, colom­bia— The Colom­bian peso is on a hot streak, and that’s good for na­tional pride, con­sumers of lux­ury im­ports and tourists head­ing to Dis­ney World. But it’s a bou­quet of trou­ble for Bo­gota flower grower Car­los Bor­rero and the rest of this na­tion’s ex­port-cen­tered rose in­dus­try.

Like most grow­ers who sell abroad, Bor­rero is paid in dol­lars but ab­sorbs his costs in pe­sos. That means the rev­enue he’s tak­ing in buys about 40% less lo­cally than four years ago. Mean­while, the cost of his la­bor and ma­te­ri­als have risen 40% in the same pe­riod.

“It’s like I lost a full year of in­come be­cause of the ex­change fluc­tu­a­tion since 2004. How the hell can a small busi­ness sur­vive that?” asked Bor­rero, who has an en­gi­neer­ing doc­tor­ate from Michi­gan State and whose 75acre farm in the Bo­gota sub­urb of La Punta ships $2 mil­lion worth of roses and car­na­tions to the United States a year. Nearly all world cur­ren­cies

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[ have gained against the dol­lar in re­cent years; the dol­lar has slid 30% in value since 2002 against an in­dex of world cur­ren­cies, ac­cord­ing to the In­ter­na­tional Mone­tary Fund. But the green­back’s de­cline has been steeper against the cur­ren­cies of Third World coun­tries whose economies have been lifted by boom­ing de­mand for com­modi­ties such as cop­per, sugar and soy­beans, and the in­com­ing floods of dol­lars chas­ing them.

The dol­lar buys 20% fewer Colom­bian pe­sos than it did a year ago and 30% fewer than it did four years ago.

But there is more to the peso’s ap­pre­ci­a­tion than de­mand for Colom­bia’s oil, coal, ba­nanas, cof­fee and other com­modi­ties. As never be­fore, for­eign in­vestors are here buy­ing up banks, fac­to­ries and real es­tate.

To­tal an­nual in­vest­ment now equates to 27% of the na­tion’s an­nual eco­nomic out­put, re­flect­ing grow­ing con­fi­dence in Colom­bia and the poli­cies of Pres­i­dent Al­varo Uribe, said Stan­dard & Poor’s an­a­lyst Richard Francis in New York.

The rise in the peso’s value is vis­i­ble even on the streets: Sales of new cars, most of them im­ported, are up 50% in the first four months of this year, said econ­o­mist Mauri­cio Car­de­nas of the Fedesar­rollo think tank in Bo­gota. The peso’s in­creased pur­chas­ing power means more im­ports, which are grow­ing at a 23% an­nual rate, he added.

The num­ber of con­struc­tion per­mits grew 26.5% over the 12 months ended in March, a re­flec­tion of a real es­tate mar­ket frenzy. The boom has sparked con­cerns about in­fla­tion at Colom­bia’s cen­tral bank, which raised the bench­mark loan rate by a quar­ter per­cent­age point to 8.75% on Fri­day.

Many Colom­bian ex­ports haven’t suf­fered even though a strong peso makes them more ex­pen­sive. But that’s not the case with flow­ers.

Af­ter years of strong busi­ness fu­eled by Amer­i­cans’ ap­pre­ci­a­tion of big-bud­ded Colom­bian roses, the in­dus­try is fight­ing for sur­vival amid stiff com­pe­ti­tion from Ecuador, China, Kenya and Mex­ico — rel­a­tive new­com­ers to rose ex­port­ing.

Al­though Colom­bia shipped al­most $800 mil­lion in flow­ers to the United States last year, the in­dus­try has cut mar­gins to the bone to main­tain its mar­ket share. In­vest­ment in new va­ri­eties and tech­nol­ogy has shrunk, ac­cord­ing to the grower in­dus­try as­so­ci­a­tion, Aso­colflo­res.

Bor­rero, whose fam­ily has been in the flower busi­ness since 1969, said his com­pany, Rosas Sa­ban­il­las, will chalk up its first an­nual loss ever this year, af­ter barely break­ing even last year. He wor­ries about hav­ing to let some of his 230 em­ploy­ees go, many of whom are sin­gle moth­ers who took out mort­gages to buy houses.

Other com­pa­nies are far­ing far worse. Five ma­jor flower grow­ers have ei­ther scaled back op­er­a­tions or gone bank­rupt over the last year. To­tal jobs in the cut-flower in­dus­try have fallen by 12,000 since 2005, a 10% loss.

The in­dus­try is scream­ing for re­lief, go­ing so far as to pro­pose that Uribe stop let­ting the peso float freely and in­stead es­tab­lish a fixed “ex­change rate plat­form” of 2,500 pe­sos to the dol­lar. That would im­me­di­ately strengthen the dol­lar by 20% over its cur­rent value of about 1,987 pe­sos and make flower ex­ports more com­pet­i­tive.

“We are say­ing for the first time that we are in se­ri­ous dif­fi­cul­ties and at risk of ex­tinc­tion,” Bor­rero said.

Fedesar­rollo’s Car­de­nas said the peso’s high rel­a­tive value was cycli­cal, and it would even­tu­ally de­value back to an “equi­lib­rium” of 2,500 pe­sos to the dol­lar.

For Bor­rero, it can’t come too soon.

“The reval­u­a­tion of the peso is def­i­nitely cycli­cal,” he said. “What we don’t know is: Will we, the flower grow­ers, still be around for the turn­around?”

chris.kraul@la­times.com

Chris Kraul Los An­ge­les Times

PRES­SURED: Car­los Bor­rero re­ceives dol­lars for his ex­ported flow­ers. The cur­rency’s weak­ness has been bad for his busi­ness.

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