Press Release No. 04/4

Press Release: IMF Completes Second Review of Colombia's Stand-By Arrangement, Approves US$145 Million Disbursement and Grants Waivers

January 12, 2004

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Colombia's performance under a two-year SDR 1.5 billion (about US$2.2 billion) Stand-By Arrangement that was approved in January 15, 2003 (see Press Release No. 03/04). This decision entitles Colombia to the release of a further SDR 96.7 million (about US$145 million), which brings the total amount disbursed under the program to SDR 774 million (about US$1.2 billion). The Colombian authorities have treated the arrangement as precautionary and not made any drawings.

In completing the review, the Executive Board approved Colombia's request to waive the nonobservance of the structural performance criterion on the submission to congress of a revised budget code before the end of October 2003. Draft legislation on reforming the budget code was subsequently submitted to congress before the end of December 2003. The Executive Board also approved Colombia's request to waive the applicability of the performance criteria for the end of December 2003 due to the unavailability of the information at the time of the Board's discussion.

Following the Executive Board's discussion on Colombia, Anne Krueger, First Deputy Managing Director and Acting Chair, said:

"The government of Colombia has made commendable progress in carrying out a strong economic reform program aimed at faster economic growth and improved social equity. This program has begun to deliver encouraging results, with strong growth in investment and economic activity and a significant decline in unemployment.

"Economic policies in 2003 were broadly on track. The overall public sector deficit is expected to have declined, reflecting both revenue measures and firm control over expenditures. The monetary policy conducted by the Banco de la Republica has contributed to lower inflation. All quantitative performance criteria for end-September 2003 were observed, and it is expected that the performance criteria for end-December will also have been observed. Structural reforms proceeded largely as scheduled.

"Economic policies for 2004 aim to support a further pick up in economic growth and a continued decline in inflation. The government and congress have put in place revenue and expenditure measures designed to lower the overall public sector deficit to two and one half percent of GDP in 2004. Moreover, the authorities intend to announce a further strengthening of the primary surplus for 2005, with a view to achieving a significant reduction in public debt as a share of GDP by 2010. Monetary policy will continue to be conducted in the context of the inflation targeting framework, together with a flexible exchange rate.

"Colombia's economic reform program and the government's firm intention to maintain the pace of structural reform have helped reduce the risks to the economic outlook. Firm implementation of the program will, nevertheless, remain necessary to lay the basis for sustained growth and improved equity. In particular, the adoption of the revised budget code, the rationalization of Colombia's system of fiscal decentralization and further strengthening of the pension system will be critical to moderate the growth of public expenditure and preserve fiscal sustainability. In addition, steps to broaden the revenue base and simplify many of the existing taxes would contribute to achieving a durable strengthening of public revenues."