IMF Executive Board Completes First Review Under the Stand-By Arrangement for Colombia

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Colombia’s performance under an 18-month SDR 405 million (about US$ 583.8 million) Stand-By Arrangement approved on April 29, 2005 (see Press Release No. 05/95). The Board has also approved a modification of performance criteria in order to lower the combined public sector deficit target, and granted a waiver for the nonobservance of the end June 2005 structural performance criterion on congressional approval of changes to the budget code on the basis of several corrective measures, including steps already adopted. The Board also granted waivers of applicability for the end-September 2005 quantitative performance criteria on the combined public sector deficit and on the net disbursement of short-term external debt of the public sector.

Completion of this review makes an amount equivalent to SDR 42.3 million (about US$ 61.0 million) immediately available to Colombia, in addition to SDR 193.5 million (about US$ 278.9 million) made available initially upon the program’s approval. However, the authorities continue to treat the arrangement as precautionary, and do not intend to draw on the credit available.

Following the Executive Board’s discussion of Colombia, Ms. Anne O. Krueger, First Deputy Managing Director and Acting Chair, made the following statement:

"The authorities’ strong economic policies are allowing the economy to benefit from the favorable global economic environment. In 2005, real GDP is expected to rise by 4 percent, reducing unemployment further, while inflation will remain at its lowest level in decades. The external sector has strengthened, benefiting from high world commodity prices, robust growth in nontraditional exports, and strong inflows of foreign direct investment. The government has lowered the 2005 target for the combined public sector deficit to below the original target, from 2.5 to 1.6 percent of GDP. This improvement in the fiscal position results from gains in tax administration, as well as continued control over spending and the effect of higher oil prices. Monetary policy continues to aim at achieving the inflation target, in the context of a managed float exchange rate policy.

"The economic outlook for 2006 is favorable, with good prospects for sustained growth and declining inflation. Fiscal policy is set to remain prudent, with a combined public sector deficit of no more than 2 percent of GDP. Moreover, the authorities also intend to save most of any oil price windfall accruing to the public sector, which will help keep the public debt on a declining path.

"Structural reforms are continuing to advance. The pension reform and the Securities Market Law were approved. The authorities have already adopted several key elements of the revised budget code that had been before Congress, and intend to implement as many of the remaining elements as possible through executive action. Financial supervision will continue to strengthen. The government intends to build political support for additional key medium-term reforms, such as strengthening tax policy, improving the system of revenue sharing, and reducing the extent of revenue earmarking.

“These policies will help lay the foundation for continued growth over the medium term and for a smooth exit by Colombia from financial support from the Fund,” Ms. Krueger said.

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