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Colombia News | Colombia Reports
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Economy

Colombian deficit sets limits on further stimulus: Minister

by Adriaan Alsema December 24, 2009

Colombia news - Oscar Ivan Zuluaga

Colombia’s economy was kept afloat in 2009 by government spending, although any further fiscal stimulus could be restricted by the need to rein in borrowing, Finance Minister Oscar Zuluaga said Wednesday.

“If anything is keeping the economy moving, it’s fiscal policy,” Zuluaga said. “What saved growth this year was public spending. Countercyclical fiscal policy has worked. But it’s limited because we also have to keep the debt under control.”

The Finance Ministry expects the central government’s consolidated deficit, which includes profits and losses reported by state-owned companies and surpluses and deficits of local governments, to be around 3.6% of GDP in 2010, up from a projected 2.6% of GDP in 2009.

Zuluaga declined to cite an upper limit for the deficit.

In 2008, the government’s consolidated budget deficit was just 0.1% of GDP, but increased sharply in 2009 as tax revenues fell due to the economic downturn.

Zuluaga said the Colombian government never had any intention of imposing capital controls to halt the appreciation of the peso.

“We never considered putting controls on capital,” Zuluaga told reporters. “We never even discussed it. The country didn’t have flows of short-term capital coming in, so it wouldn’t have made sense.”

The Colombian peso has strengthened this year against the dollar, adding to the pressure on exporters already struggling amid an economic decline and a slump in trade with Venezuela caused by a diplomatic dispute over the U.S. military presence in Colombia.

Zuluaga said he expects the peso to trade at an average COP2,000-COP2050 against the dollar in 2010.

The Colombian economy shrank 0.2% in the third quarter from the same period last year, according to data released Monday by the country’s national statistics department, or DANE. (Dow Jones)

economic crisiseconomy

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