Colombia and the IMF
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"The IMF team that has been in Bogota over the past 10 days has reached mission-level agreement with the authorities toward completing the first review under the Fund-supported program approved in April 2005.
"The economy has continued to perform very well in 2005, with improving confidence, increasing international reserves, strong growth in real investment, and robust exports, and with inflation well under control. Through June, fiscal policy was significantly stronger than expected. Among structural reforms, congress approved the new securities market law and the pension reform but not the revised budget code.
"The near-term outlook remains very favorable, allowing economic policy to be strengthened further so as to lock in the benefits from the current benign external environment for Colombia. Real GDP is expected to rise by 4 percent for the year as a whole, while inflation during 2005 is likely to amount to 5 percent, as targeted. The external current account deficit should be much lower than targeted, at about 1.0 percent of GDP, reflecting the strength of world commodity prices, especially for oil, as well as strong growth in non-traditional exports. Net capital inflows are expected to remain strong, resulting in part from a significant pick up in foreign direct investment, especially oil, coal and telecommunications.
"Given the strength of the economy, the government has proposed to advance fiscal consolidation more rapidly, which will accelerate the decline in public debt and further reduce vulnerabilities. Thus, the 2005 target for the combined public sector (CPS) deficit is being lowered to a range of 1.5 percent to 2 percent of GDP, compared with 2.5 percent of GDP that was originally expected. Gains in tax administration are bolstering revenues, while the government sees no need for a supplementary budget this year. This lower fiscal target already includes the effects of higher oil prices, and will not be reduced further. For 2006, the target for the CPS deficit will remain at 2.0 percent of GDP, assuming a conservative export price of oil.
"The Banco de la Republica remains fully committed to achieving its inflation target for 2005 and to reducing annual inflation further to the range of 2 to 4 percent over the medium term.
"Structural reforms will continue to advance. The government intends to implement as many provisions as possible of the revised budget code through decree or other actions that do not require legislation. Financial supervision will continue to strengthen, especially with the process of selling Granahorrar and the development of a framework for corporate governance of public banks.
"The next step is for management to review the revised program in Washington in the coming days, with the Executive Board of the Fund expected to discuss the first review most likely in October 2005."
IMF EXTERNAL RELATIONS DEPARTMENT