Wednesday, 21 January 2009

Colombia and Plunging Output Numbers

Yesterday, the government reported that Colombia's industrial production tumbled more than 13 percent in November. Technical reasons attributed the drop to two fewer working days compared to the year-on-year estimate. But many analysts say such reason is lame. For the 12 months ended in November, output fell 2 percent. Sectors affected include machinery and mainly exporters.

Plunging industrial production and slowing retail sales mean Colombia will collect less in taxes. As President Alvaro Uribe prepares for a second re-election, he will somehow have to stimulate the economy. With the deficit growing and the current account deficit remaining at significantly-high levels, the president has limited room to do that. He may opt to increase borrowings and keep spending rolling -- he isn't a very disciplined guy. The central bank will have to do the other part of the job (cutting rates) ... but leeway to do that is also very limited. Alianza Valores, a Bogota-based brokerage, is forecasting inflation to end the year at 6 percent, down from 7.7 percent last year (but still off the central bank target for the year. Forgive me if I am wrong.)

Fiscal Deficit Announcement

Finance Minister Oscar Zuluaga said yesterday that the deficit will widen this year to 3.2 percent of GDP, compared with the initial estimate of 2.6 percent of GDP. The reasons? lower tax collections and higher debt servicing payments. The target for the consolidated public sector deficit was upped to 1.8 percent of GDP from the initial estimate of 1.2 percent. And the government enacted a 3 trillion peso cut in spending!!!!!

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