Identifier
Created
Classification
Origin
04BOGOTA2187
2004-03-02 22:05:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Bogota
Cable title:  

COLOMBIA MEETS IMF FISCAL DEFICIT TARGETS

Tags:  ECON EFIN ELAB PGOV CO 
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UNCLAS BOGOTA 002187 

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: ECON EFIN ELAB PGOV CO
SUBJECT: COLOMBIA MEETS IMF FISCAL DEFICIT TARGETS

UNCLAS BOGOTA 002187

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: ECON EFIN ELAB PGOV CO
SUBJECT: COLOMBIA MEETS IMF FISCAL DEFICIT TARGETS


1. (U) The GOC announced February 25 that it met the IMF
target of 2.8 percent of GDP for its 2003 fiscal deficit.
The GOC cut current expenditures and froze some investment
projects, especially in the energy sector, in order to
achieve this result. The announcement was greeted positively
by market analysts, but they tempered their enthusiasm,
noting that the GOC may have difficulty meeting the 2004
deficit of 2.5 percent of GDP as a result of current
structural problems, such as growing public debt (52.7
percent of GDP) and the current pension crisis. While
international investors welcomed the announcement, they are
also worried about these factors.


2. (SBU) According to Fitch Ratings staff, the news that the
overall public sector balance was consistent with the revised
2.8 percent of GDP target was positive. However, higher than
expected economic growth of 3.8 percent (Twice the original 2
percent growth target) had led to expectations that the GOC
would surpass the target. Furthermore, the rigidity of
expenditures and the automatic increase in transfers make the
2004 deficit target a difficult one.


3. (SBU) Comment. The Colombian government's ability to
meet the 2004 deficit target will depend on continued growth
of 3.5 to 4 percent and the resulting increase in revenues.
Further tax reforms seem unlikely (although the GOC has
publicly committed to pursuing them in 2004) and efforts to
reform the pension system or limit transfer growth will
likely not enter into effect this year. The GOC's strategy
to meet the 2004 deficit depends on three items: 1) further
investment and discretionary spending cuts; 2) increased tax
collection (both through increased efficiency and economic
growth); and 3) the sale of public assets. The first attempt
to sell off assets, the sale of the National Coffee Bank,
failed to bring in any bidders, however. The government can
control its discretionary spending and investment, but
potential savings from these items will not be enough to
guarantee the fiscal deficit levels. End Comment.
WOOD