IMF backs Colombia with $2.1bn loan

news.ft.com By James Wilson in Bogotá Published: January 16 2003 1:44 | Last Updated: January 16 2003 1:44

The International Monetary Fund on Wednesday gave its anticipated blessing to Colombia's economic plans by approving a 2-year, $2.1bn stand-by agreement with President Alvaro Uribe's government.

The IMF's backing for Colombia is in contrast to the difficulties of some Latin American neighbours in getting the Fund to approve loan agreements. It caps months of strong lobbying by Mr Uribe in which multilateral lenders such as the World Bank also agreed to increase their exposure to Colombia.

Mr Uribe had argued that Colombia deserved more international financial support to compensate for his government's need to boost military spending in an effort to counter drug trafficking and a widespread guerrilla insurgency. Multilateral lenders are offering Colombia $8bn over the next 3 years, thought to be one of the largest loan programmes ever in Latin America relative to the size of the economy.

Horst Köhler, the IMF's managing director, described Colombia's economic roadmap as a "strong reform programme" echoing the views of Wall Street analysts who have welcomed a slate of tax-raising and cost-cutting measures approved by Colombian lawmakers at the end of last year.

Colombia came under IMF tutelage in 1999 after the worst recession of the century but did not draw on any of the $2.7bn offered by the Fund over the past 3 years. The IMF said Colombia would also treat the new credit as precautionary.

Colombia says it will slash its public sector deficit to 2.5 per cent this year from more than 4 per cent in 2002. It is also pledging to strengthen the financial system and sell off state-owned Bancafé, one of the country's biggest banks, by the end of this year.

Colombia is forecasting economic growth of 2 per cent in 2003, a slight increase on last year. But the government is warning that the political and economic crisis in neighbouring Venezuela, Colombia's second most important export market, could cut cross-border sales by more than half this year.