UPDATE 3-Colombia seeks to avoid capital controls -official

By Helen Murphy and Carlos Vargas

BOGOTA, Jan 27 (Reuters) - Colombia will seek to avoid imposing capital controls to ease gains in the peso currency and instead aim for long-term measures that will not cause 'distortions,' a senior Finance Ministry official said on Friday.

With developed nations offering near-zero interest rates and Latin American economies such as Colombia providing fast-paced growth and relatively high yields, investors have flooded the Andean nation with cash, accelerating gains in the currency.

'We would prefer to use micro-structural reforms before a capital control,' Ana Fernanda Maiguashca, one of two vice ministers of finance, told Reuters in an interview.

'Micro-structural' reforms, such as lowering taxes, have been used in the past to boost business competitiveness.

The peso has strengthened 6.7 percent this year, creating concern that exporters will begin to lay off workers and shutter businesses because they pay costs in pesos but receive money from sales in U.S. dollars.

'The aim is to do things that are clean, structural and long term, and there are obviously all kinds of counter-cyclical and macro-prudential considerations that we have to take into account,' Maiguashca said.

With some Latin American countries cutting interest rates and the U.S. Federal Reserve pledging to keep the benchmark U.S. rate low through 2014, demand for Colombian assets may increase as investors seek higher yields, putting more pressure on the local currency.

Colombia's government and central bank imposed unpopular capital controls in 2007 to stem gains by the peso that they said were caused by speculative capital entering the market.

The Andean nation will attract about $15 billion in foreign direct investment this year, slightly more than the record $14.8 billion recorded in 2011, Maiguashca said.

The investment flows would not necessarily impact the currency because some of the money would be used to pay for goods such as machinery and other items overseas, she said.

The government, which brought in $86 billion in tax revenue last year, also aims to reduce debt levels this year, she said.

Colombia's economy is likely to grow more than expected this year and next, Maiguashca said. The government has previously said growth could reach about 6 percent in 2011 and 5.1 percent this year.

'This year is a complicated year like last because there is so much international uncertainty,' Maiguashca said. 'But even though we think that growth this year will be slightly lower than 2011, we think there is a positive and optimistic dynamic.'

(Editing by Leslie Adler) Keywords: COLOMBIA ECONOMY/

(helen.murphy@thomsonreuters.com)(+571-634-4139)(Reuters Messaging: helen.murphy.reuters.net@reuters.com)

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