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Central Bank outlines inflation
targets for 2002 and 2003
Consumer prices rose 0.8% in January, just a 0.1 percentage point notch
below the Consensus figure. The increase brought down annual inflation
from 7.6% in December to 7.4% in January. The Central Bank expects
inflation to drop further this year despite the likelihood for increased
economic activity and potential upside pressures on food prices resulting
from the El Niño weather phenomenon (see Peru for details on El Niño).
The official target of 6% remains in place but monetary authorities
anticipate that inflation could range between 5.8% and 6.4% this year.
Inflation is expected to drop further in 2003 to a range between 4% and
6%. Despite the Central Bank’s continued compliance with quarterly IMF
inflation targets since December 2000, participants remain sceptical about
authorities’ ability to keep inflation contained. Furthermore, Consensus
data indicate that the combination of increased economic activity and
accelerated currency depreciation are likely to force monetary authorities
to tighten by raising the benchmark DTF rate from its current 10.87% (8
February) rate.
Government meets fiscal deficit
target despite increased fiscal burden and economic slowdown
On 30 January, the Central Bank reported that the consolidated public
sector deficit reached 3.3% of GDP in 2001, which was on par with the
fiscal deficit target agreed to with the IMF. The government had revised
its 2001 target from 2.8% of GDP in October as public sector income
dropped due to lower economic growth and guerrilla sabotage undermined
activity in the oil sector. As a result, tax collection reached US$ 10.7
billion, US$ 69 million below the budgeted level. On the spending side,
the civil war induced higher defence outlays and the Supreme Court
mandated retroactive public sector salary increases. The non-financial
public sector deficit reached 3.4% of GDP last year, which was 0.2
percentage points above the deficit figure anticipated by panellists in
last month’s publication. Panellists expect the pickup in economic
activity this year and progress on further structural reforms to enable
the government to lower the fiscal deficit.
Dissident Liberal Party presidential
candidate leads polls
On the political front, nationwide Congressional and Presidential
elections are becoming an increased focus of attention. Congressional
elections are scheduled for 10 March and the first round of the
Presidential elections will be held on 26 May. Álvaro Uribe Vélez, a
dissident of the Liberal Party and independent candidate, is the current
leader in opinion polls with 39% support. Uribe is a strong supporter of
increased military intervention into the civil war, including assistance
by foreign troops. Furthermore, Uribe endorses the current government’s
strategy to tackle unemployment via stronger export growth by providing
increased tax incentives rather than subsidies and exempting capital goods
imports from sales taxes and import duties. Right behind Uribe is the
official Liberal Party social democratic candidate, Horacio Serpa Uribe, a
former Interior Minister under the Samper administration and previous
presidential candidate in 1998. Serpa is currently running close behind
Uribe with 30.1% of the vote, followed by independent Noemí Sanín Posada,
former Minister of Foreign Relations, 1998 presidential candidate and
former ambassador to Venezuela and the United Kingdom.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Colombia. For more details please click here.
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