Country Report Colombia November 2009

Summary

Although time is running short, we still expect Mr Uribe to be able to stand for and win re-election in 2010. If he does not stand, we still expect that a centre-right candidate will win, providing general policy continuity.
The impact of the economic slowdown on revenue and spending pressures will contribute to a deterioration of the NFPS results, from a virtual balance in 2008 to deficits of 3% of GDP in 2009, 3.4% in 2010 and 2.8% in 2011.
Despite widening, Colombia's fiscal and current-account deficits appear manageable given liquid domestic markets, sustained FDI inflows into the oil and mining sectors and other capital inflows.
We expect that real GDP will perform better than the regional average and record slight growth in 2009 but recovery will be moderate in 2010-11 as GDP grows by 2.5% in 2010 and 3.5% in 2011.
After a strong rally since February, the peso will end the year at Ps1,991:US$1, mainly owing to government interventions. The rate will then depreciate only gradually to Ps2,045:US$1 by end-2011.
The current-account deficit, which we estimate will reach 3% of GDP in 2009, will narrow slightly to 2.4% of GDP in 2010, on a gradual improvement in the trade balance, before falling back slightly to 2.8% of GDP in 2011.

Polls show that 63% would vote for Mr Uribe in the next presidential election, up from 57% in May.
Recent investigations into the former minister of agriculture and the vice-president, both close allies of Mr Uribe, continue to hurt the government's reputation but have yet to affect domestic support.
The government and central bank both announced intervention measures in October to stem the strengthening peso, which resulted in a 7.5% nominal depreciation (as of October 29th) from a peak in mid-October.
Export sales to Venezuela fell by 46% year on year in August, signalling that the border restrictions imposed by Mr Chavez are having an impact and could dampen Colombia's economic recovery.
Annual declines in manufacturing activity and retail sales eased further in August although national unemployment rose to 11.7% while unemployment in the 13 largest urban centres hit 13.1%.