Colombia and the IMF

[Robert Weissman <rob@essential.org>]

Tuesday July 20 1999
Financial Times

COLOMBIA: Pastrana weighs cost of austerity package
The Colombian leader is engaged in a desperate juggling act to secure $3bn
IMF credit. Adam Thomson sets out the options

Colombia's announcement last week that it would seek an International
Monetary Fund credit of $3bn to see off currency speculation and boost
investor confidence is already having the desired effect.

The peso gained 3 per cent on Thursday and Friday last week, while Bogotá's
stock market rose more than 5 per cent. But if Andrés Pastrana's government
is to convince the Fund to agree to the loan - considered vital to rescue
confidence in the economy - it must now talk Congress into accepting an
"austere" fiscal package.

The task will not be easy. Only last year, Congress showed its disdain for
fiscal tightening when it sliced a third of estimated revenues from the
government's tax reform. This time, there is unlikely to be a change of
heart. As part of the package, Juan Camilo Restrepo, the finance minister,
has said that next year's budget would be "draconian".

Only 3,200bn pesos ($1.76bn) of the total 40,300bn peso budget will be spent
on investment, for example. "We are calling it the Truth Budget because it
will faithfully reflect the economic situation we are in," he said recently.

Indeed, Colombia is facing the worst recession in memory. First quarter
growth this year shrank a record 5.85 per cent, unemployment is 19.5 per
cent and tax revenue is expected to fall by 1.3 per cent of gross domestic
product this year.

To rein in a growing fiscal deficit, the government proposes to complement
the tight budget with proposals to cut state funding for the provinces,
reform state pensions, and make the country's rigid labour laws more
flexible.

With the package in place, Mr Restrepo estimates that the deficit will fall
by 0.5 per cent of GDP per year, from the government's estimate of 3 per
cent this year.

A congressional reshuffle this week could complicate what is already on the
table. In a new legislative session starting today, the government could
lose several key posts as Congress votes for new presidents in the Senate,
House of Representatives and sub-commissions.

That would considerably weaken its tentative hold on Congress. Until now,
the government has managed to maintain a majority through a volatile
alliance of Conservatives, dissident Liberals and independent sympathisers.
Even so, the recipe has not always worked. In June, the government saw its
flagship political reform thrown out after eight months of intense lobbying.

Aware of its waning grip, the government is now trying to broker a deal to
avoid a similar fate for its fiscal package. Last week, Mr Pastrana invited
Horacio Serpa, his former Liberal rival in last year's presidential
elections, to discuss the package. However, Mr Serpa - now leader of the
Liberal party and capable of mobilising crucial votes in Congress - did not
like what he saw: "I made several criticisms and expressed my concern over
the situation of public order, the peace process [with the country's
guerrilla movement] and the economic situation," he said after the meeting.

Mr Serpa, who has long considered himself a deft negotiator with insurgent
groups, has repeatedly accused the government of sidelining the opposition
from peace talks with the country's leftwing guerrillas. That could soon
change, however.

Analysts say that if the government is to ensure the survival of its
much-needed fiscal package, it will have to cede considerable power to the
Liberals. One possibility, they say, is to afford Mr Serpa and his party a
central role in the peace process with guerrilla armies.

Another would be to take advantage of an imminent cabinet reshuffle. Mr
Pastrana is looking to change approximately five ministers - including
Humberto Martínez, the interior minister, and perhaps Mr Restrepo himself -
and appointing several Liberals may provide the only political capital
capable of swaying opinion in Congress.