Press Release No. 04/134

Press Release: IMF Executive Board Completes Third Review Under Stand-By Arrangement for Colombia and Approves US$284 Million Disbursement

June 30, 2004

The Executive Board of the International Monetary Fund (IMF) today completed the third review of Colombia's performance under a two-year, SDR 1.5 billion (about US$2.3 billion) Stand-By Arrangement approved on January 15, 2003 (see Press Release No. 03/04). Completion of the review enables the release of SDR 193.5 million (about US$284 million), which would bring the total amount available under the arrangement to SDR 1.16 billion (about US$1.70 billion).

In completing the review, the Executive Board approved Colombia's request for a waiver of non-observance of a performance criterion.

Following the Executive Board's discussion of Colombia's economic performance, Agustín Carstens, Deputy Managing Director and Acting Chair, said:

"Colombia's strong policy track record is bolstering confidence and contributing to the economic recovery. In 2004, real GDP growth is projected to rise strongly, inflation to continue to decline, and the external sector to remain strong. Colombia is well placed to adjust to a gradual rise in interest rates in the United States, provided that economic policies continue to be strong. The main policy challenge for 2004 is to take advantage of the cyclical upturn in activity to press ahead with reforms that are crucial to sustain the economic recovery.

"Demand policies are set to remain prudent. The authorities are strongly committed to keeping fiscal policy on a path to reduce public debt over the medium term. The combined public sector deficit is targeted to decline in 2004, with some room to accommodate additional investment financed by nondebt-creating flows. The government intends to submit to Congress a budget for 2005 that provides for a combined public sector deficit of 2.4 percent of GDP. Monetary policy will remain directed at reducing inflation further, in the context of the inflation-targeting framework and a flexible exchange rate policy, while efforts will continue to strengthen the financial system, and improve supervision.

"Structural reforms are also set to advance further. The government intends to secure congressional approval of the revised budget code during 2004, which would allow the 2006 budget to be prepared under the new code. Tax administration is to be strengthened further, and a constitutional amendment on pension reform is to be submitted to Congress in July 2004. By September 2004, the economic policy cabinet will develop a plan to strengthen the current system of fiscal decentralization. Colombia has accepted the obligations of Article VIII, and the authorities plan to phase out the few remaining exchange restrictions in the next few years.

"These reforms, together with prudent macroeconomic policies, should lay a solid foundation for sustained growth and financial stability over the medium term, while also reducing poverty and improving social indicators," Mr. Carstens said.