Country Report Colombia September 2009

Summary

Although time is running short, we still expect Alvaro 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 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 a deficit of 3% of GDP in 2009, widening to 3.4% of GDP in 2010.
Despite widening, Colombia's fiscal and current-account deficits appear manageable given liquid domestic markets, sustained FDI inflows into the oil sector and other capital inflows.
Real GDP will contract by 1% in 2009, the first contraction since 1999 (when it fell by 4.2%). A mild global recovery and Colombian monetary easing will help to lift GDP growth to 2.5% in 2010.
After rallying since February, the peso will weaken slightly during the rest of 2009, amid lower foreign-exchange inflows, to end the year at Ps2,133:US$1. In 2010 the rate will depreciate to Ps2,189:US$1.
The current-account deficit will widen to 3.2% of GDP in 2009 owing to falling export earnings, easing back slightly in 2010 as the trade account improves.

A bill to enable a national referendum on the extension of presidential term limits was approved on September 1st by the Chamber of Representatives. The final approval now rests with the Constitutional Court.
Relations with Venezuela have worsened, with the Venezuelan president, Hugo Chavez, stating that the proposed deal to grant the US greater access to up to seven Colombian bases was tantamount to a declaration of war.
The central bank has decided to keep its intervention rate unchanged for the second consecutive month, at 4.5%, as a result of declining inflation and indications that the economy bottomed in the second quarter.
Annual inflation has continued to fall this year and reached 3.1% in August, the lowest rate since 1962.
Despite a rise in consumer confidence and some other leading indicators, DANE statistics show that the national unemployment rate rose to 12.6% in July, up from 12.1% a year ago.
Total oil production during July exceeded 657,000 barrels/day, representing year-on-year growth of 12%.

Source: Country Report