Colombia and the IMF
The Executive Board of the International Monetary Fund (IMF) today completed the first review under the Extended Arrangement for Colombia (see Press Release 99/63).
In commenting on the Executive Board discussion of the review, Stanley Fischer, First Deputy Managing Director, made the following statement:
"The Executive Board welcomed the continuation of the recovery of Colombia's economic activity, despite the challenges posed by the political and security situation, and fact that the the program supported by the Extended Arrangement is being implemented as planned.
"Essential elements for the restoration of confidence and recovery of private investment are the continued commitment on the part of the authorities to the objectives of their three-year economic program, further progress toward resolution of the internal conflict, progress in curbing the production and trafficking in illicit drugs, and addressing the social fall-out from these problems.
"Executive Directors welcomed the fiscal consolidation that has taken place under the program. Nevertheless, they urged that caution should be exercised to ensure that the new spending plans that had been introduced earlier this year and financed with the oil revenue windfall do not become entrenched and can be reversed if oil prices fall. In this regard, the authorities' commitment to introduce spending cuts, if necessary, should help ensure that the fiscal objectives for 2000 will be achieved. The recent decision to strengthen the fiscal effort by introducing additional tax measures later this year, will help the fiscal adjustment while allowing adequate budgetary resources to key social priorities on a more permanent basis. Executive Directors urged the authorities to eliminate the financial transactions tax which contributes to financial disintermediation by the end of 2002 as envisaged in the program.
"Executive Directors noted that the exchange market has remained orderly since the peso was floated and the foreign exchange auction system introduced last year is transparent and has been functioning well. To prevent a rekindling of price pressures, they encouraged the authorities to stand ready to tighten monetary policy if that becomes necessary to attain the inflation objective of the program.
"The strengthening of the financial system's prudential indicators is encouraging. Moreover, the authorities' plan to privatize or liquidate public banks should limit the scope for quasi-fiscal spending. The financial position of the savings and loan institutions continue to warrant close monitoring.
"The authorities' were encouraged to press ahead with the privatization program despite recent delays, as well as to work towards achieving a broad consensus on strengthening their structural policies by adding new reform initiatives to the program, especially those aimed at easing social tensions and improving investors' confidence", Fischer said.
IMF EXTERNAL RELATIONS DEPARTMENT