Press Release No. 07/251

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Press Release No. 07/251

An International Monetary Fund (IMF) mission headed by Mr. Benedict Clements, Division Chief in the Western Hemisphere Department, issued the following statement today in Bogota:

"An IMF team has been in Colombia over the past two weeks as part of the Article IV surveillance process. The team held discussions with the authorities and private sector about recent economic and financial developments and the near- and medium-term outlook.

"Colombia's economic performance has been impressive. Economic growth in 2006 equaled its fastest pace since the late 1970s, and at 6¾ percent, exceeded the Latin American average. Colombia's flexible exchange rate has helped it to weather well the recent turbulence in global markets, and the IMF team projects that growth will remain strong in 2007. Growth has been underpinned by the authorities' commitment to macroeconomic stability and the rising confidence in Colombia's long-term economic prospects.

"In the context of rapid demand growth and overheating pressures, the Central Bank has raised its policy interest rate further in 2007 to help reduce inflation and maintain robust growth over the medium term. In 2008, the IMF team projects that the continued application of prudent monetary policy will help achieve a reduction of inflation. Growth is projected to ease to 5 percent as domestic demand expands at a more sustainable level. The external current account deficit is projected to rise in 2008, in part because of a one-time increase in security-related imports. The authorities project that the deficit of the combined public sector, excluding the operations of ECOPETROL in 2008, would rise from 0.7 percent of GDP in 2007 to 1.4 percent of GDP in 2008.

"The IMF team noted it would be important that monetary policy remain focused on the goal of lowering inflation and to continue to allow the exchange rate to move flexibly. To ease the burden on monetary policy of containing demand pressures and help lower the external current account deficit, a more moderate expansion of the budget deficit in 2008 should be considered. This would also help accelerate the reduction in public debt, which would reduce vulnerabilities and improve prospects for returning to investment grade."