Statement of the IMF Mission for Colombia

Press Release No. 08/153
June 27, 2008

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 this week for the mid-year staff visit 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-term outlook.

"Colombia's strong economic performance in recent years has benefited from sound macroeconomic policies and structural reforms, as well as from favorable external conditions. The economy grew an average of more than 7% in 2006-07, the strongest expansion since the late 1970s and above the average for Latin America. In 2008, growth is expected to ease to about 5 percent on account of less buoyant domestic demand and global growth.

"Rising international food and fuel prices have contributed to a pick up in inflation in recent months. The monetary tightening implemented by the Banco de la República during 2007 is helping to slow domestic demand growth and reduce inflationary pressures. Against this background, and with food inflation projected to decline in coming months, headline inflation is expected to fall during the second half of the year. In the external sector, high world commodity prices are boosting export earnings, and the current account deficit is expected to decline as a share of GDP, despite rapid import growth.

"The staff team considers it important that monetary policy remains focused on the goal of reducing inflation, while allowing for continued exchange rate flexibility. This will help anchor inflation expectations, and permit the economy to continue to adapt well to changes in external conditions. The mission underscores that the greatest risk to growth over the long run is inflation. The team considers that a stronger fiscal position in 2008-09 would enable a better mix of macroeconomic policies by reducing the burden on monetary policy for containing inflationary pressures. At the same time, it would contribute to a lower external current account deficit and could help reduce appreciation pressures on the peso. In this context, the mission team welcomes the recent announcement of the government that it will reduce expenditures relative to the original 2008 budget."



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