DAVOS-Colombia defends austerity package amid protests

www.forbes.com Reuters, 01.24.03, 1:23 PM ET By Stephen Jukes

DAVOS, Switzerland, Jan 24 (Reuters) - Austerity measures designed to clamp down on Colombia's budget deficit are essential as the government pursues its war on drugs and tries to rebuild international confidence, President Alvaro Uribe said on Friday.

Shrugging off protests about the programme, Uribe told the World Economic Forum that strong measures were vital to hold the deficit in check at a time when spending on the military and police needed to rise to combat outlawed guerrilla groups.

The plan, which will be put to a referendum in mid year, seeks a two-year freeze on public spending and pension cuts and has already sparked a protest campaign from unions and left-leaning lawmakers.

The protests spread to Davos itself on Friday. Church groups piled hundreds of pairs of shoes in the snow at the gates of the World Economic Forum to represent 6,000 people they say have disappeared in Colombia's drug wars over the past decade.

They said Uribe's programme to meet International Monetary Fund (IMF) targets would hurt the poor and escalate the war.

But Uribe said he was confident that there was widespread support for the measures. The president has a high approval rating but this has been falling a little because of the economic package.

Colombia is Latin America's fifth largest economy and has received strong backing from the U.S. government for its fight to eradicate the world's largest cocaine industry. It has also won endorsement from the IMF but missed its 2002 deficit target and was granted a waiver.

Finance Minister Roberto Junguito told reporters that budget targets were 'tough but feasible' and he was confident they could be met. Colombia has agreed with the IMF to cut the government deficit to 2.5 percent of gross domestic product this year and 2.1 percent in 2004 from four percent in 2002.

In addition to clamping down on spending the government has been seeking to increase revenues, introducing a wealth tax and increasing some other taxes.

Junguito said tax rises might have to be brought forward if the austerity package were rejected in the referendum, adding that the government would need to asess any knock-on impact from the political unrest and oil strike in neighbouring Venezuela.

Colombia's floating exchange rate has come under pressure in the wake of Venezuelan unrest but Junguito said he did not see this as a reflection of concern about Colombia's economic programme and that confidence was growing.

'I don't see this as a structural problem or lack of confidence in the country,' he said.

He cited the nation's ability to raise $500 million earlier this month through a 30-year global bond offering.