The IMF and Colombia have agreed an 18-month $600m stand-by programme, according to West LB. The agreement shows the strong commitment of multilateral lenders to the country as well as confidence that the economic growth of the past two years will continue.
The programme, which will start in April, will last for the rest of President Uribe's term until September 2006. Under its conditions, Colombia has to limit its fiscal deficit to 2.5% of GDP this year and 2% of GDP next. The programme is based on the assumption of a growth rate of 4%. In 2004, Colombia experienced 4% growth and a fiscal deficit of 2.5%.
"There is a clear sense that the region is enjoying its best growth performance in a decade and Colombia's pursuit of sound economic policies has ensured that it is sharing fully in the upswing", said IMF director Rodrigo de Rato after his visit to the country last week. Rato was confident that fiscal reforms would continue.
Nicolas Tingas, country analyst at West LB welcomed the agreement. "The scenario of the programme is reasonable. The IMF is strongly asking Colombia to do something about the deficit," he says. "The 2% deficit target for 2006 indicates that the international community and the IMF expect something on the reform front."
But with 2006 being an election year, passing reforms might prove challenging. "The legislative branch will pass something, but it will be watered down [from the proposal]" said Morgan Harting, director at Fitch Ratings. Support from multilateral lenders is likely to continue, though. "The US is the largest shareholder in the multilateral agencies and Colombia is a top priority in US foreign policy."