US embassy cable - 04BOGOTA2187

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