Press Release No. 08/276

Press Release No. 08/276

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 has thus far weathered well the turbulence in global financial markets. Sovereign debt spreads, equity prices and the exchange rate have moved broadly in line with the rest of Latin America. However, domestic debt and interbank markets have continued to function without disruption, and there have been no signs of liquidity strains.

"The Colombian authorities have responded swiftly to the international financial crisis, helping bolster domestic confidence. The measures adopted include securing contingent financing from multilateral institutions and taking preventive steps to ensure adequate liquidity in the financial system. They have also restated their commitment to the fiscal targets for 2009.

"While the Colombian economy has performed strongly in recent years, the less favorable external conditions are a challenge. The global financial crisis is weakening growth in Colombia's key trading partners, and leading to substantially lower commodity prices. Against this background, and with domestic demand conditions less buoyant than in recent years, economic growth in 2008-09 is projected to decelerate, before rebounding in 2010 as the world economy recovers. The past tightening of monetary policy and lower international food and fuel prices are expected to reduce inflation in 2009.

"Macroeconomic policies should continue to be flexible to guide the economy toward a soft landing. The Banco de la República's close monitoring of forward-looking indicators of economic activity and inflation expectations to guide the course of monetary policy is appropriate. Continued exchange rate flexibility will also be needed to help the economy adjust to external shocks. At the same time, maintaining the fiscal targets for 2009 will help limit financing needs and keep public debt ratios on a declining path."