Category: Colombia

Colombian Finance Minister Alberto Carrasquilla has admitted the obvious: Congress will not approve his “budget flexibilization” legislation. Instead of coming to grips with Colombia’s disastrous public finances, the politicos – with encouragement from President Alvaro Uribe – have focused on approving his reelection laws and a plan to disarm Colombia’s insurgents.

Yet the government had promised the IMF that Congress would approve a plan to reform its inoperable budget process by the end of June. But the politicians have already weakened the mind-numbingly dull law. And while the minutiae of budget procedures are certainly tedious, it is hard to exaggerate the importance of Carrasquilla’s package. With luck, Congress will revisit a strengthened law later this year.

Colombia was once an investment grade country until a financial crisis and a batty new constitution in the late 1990s turned it into one of Latin America’s less impressive credits. Politicians adopted Argentine notions of fiscal responsibility. Colombia now faces years of hard work to get its finances under control. Sound finances are a necessary condition for stable growth, so making the politicians focus on balancing the books would do Colombia a lot more good than reelecting Uribe.

Colombia’s benchmark 10-year peso bond yield declined at a government auction Wednesday to 11.74 percent from 12.1 percent at an auction two weeks ago. The government sold all $107 million of the 10-year, six-year, five-year, three-year and one-year securities it offered. Colombia plans to sell between $900 million and $1.2 billion worth of peso-denominated bonds in the domestic market in the second quarter, after selling $1.4 billion of the securities in the first quarter.

Colombia’s state-run oil company Empresa Colombiana de Petroleos (Ecopetrol) posted a net profit of $373 million for the first quarter, up 39 percent year-on-year. Revenues grew 16 percent to $1.74 billion. Ecopetrol is aiming to boost oil exploration in Colombia and has promised to award new concessions in order to increase output. Most of the company’s oil fields are located in Magdalena province in northern Colombia.

Colombia issued $355 million in bonds maturing in 2013 and will use some of the proceeds to buy back $160 million in debt set to mature in 2009. The move is part of the finance ministry’s strategy of prepaying expensive debt and replacing it with lower-cost debt. Last month Colombia prepaid $1.25 billion owed to the Inter-American Development Bank.

The World Bank has approved a $260 million loan to support Colombia’s Natural Disaster Vulnerability Reduction Project, a 10-year governmental program that seeks to reduce the fiscal vulnerability of the state when reacting to natural disasters. The loan is repayable in 14 years and will have a grace period of eight and a half years. The World Bank estimates floods and earthquakes cost Colombia over $1 billion annually.

Colombia has received a $613 million loan from the International Monetary Fund as part of an agreement that commits the government to limiting growth in spending. The IMF agreed to let the government increase this year’s budget deficit target to 2.5 percent of gross domestic product from 2.3 percent. Colombia will stick to a budget deficit target of 2 percent of GDP for 2006.

Colombia is seeking loans of another $1.2 billion from the Inter American Development Bank (IADB). The highly-indebted country, which accounted for 12 percent of total lending approved by the IADB in 2004, has recently announced it would disburse $1.3 billion in emergency loans extended by the IADB in 2003. IADB president Enrique Iglesias has said that the bank plans to experiment in extending loans to Colombia in Colombian pesos.

Heineken announced that it is among companies interested in buying Colombia’s Grupo Empresarial Bavaria as demand for beer in emerging markets outpaces consumption in the US and Western Europe. Fourteen percent of Heineken’s sales last year came from the Americas.