As Expected After IMF Loan, Colombia to Let Peso Float

BOGOTA, Colombia — The peso, under attack by speculators for weeks, will be allowed to float freely starting Monday, the Central Reserve Bank of Colombia announced Saturday.

The widely anticipated decision followed an announcement Friday that Colombia’s economic team had negotiated a $3-billion loan package with the International Monetary Fund to shore up an economy facing the worst recession in its history.

Finance Minister Juan Camilo Restrepo acknowledged in an impromptu news conference that the IMF loan was an important factor in the decision to withdraw support for the peso. The international financial institution is notoriously adamant that its funds not be used to defend battered currencies.

Last week alone, the government had to sell off $300 million of its international reserves to boost the peso’s value on currency markets.

The peso, which closed Friday at 1995.64 to the dollar, is expected to lose about 10% of its value, analysts said.

“There is a general consensus among market participants that the devaluations have been sufficient,” said Juan Manuel Velasco, research director for Suvalor investment advisors. He predicted that the peso will rebound by the end of the year.

The government had been defending the peso within a “band” designed to produce a gradual devaluation. So far this year the peso has lost 20% of its value.

That regime was implemented in 1994 to offer investors a measure of security against wild currency swings. The central bank had tried to stave off speculative attacks on the peso with a devaluation a year ago and another in June.

The announcement came as the government said it will resume peace talks with the Revolutionary Armed Forces of Colombia, this country’s oldest and largest rebel group. Negotiations had been suspended for more than two months in a dispute over international monitors.

The increased intensity of the fighting has raised fears of political instability that have contributed to economic problems, including a national budget deficit and 20% unemployment.