The IMF team gave a guarded welcome to President Alvaro Uribe's rescue plan for the economy in the wake of his failed austerity referendum. Although the Fund backed his ideas for tax reform and cuts in government spending, it was less than whole hearted in its support of the idea of using (some) of the foreign currency reserves to pay off foreign debt ahead of schedule.
The IMF welcomed the stronger-than-expected economic growth rate and falling unemployment. It almost ignored the government neglect of the fiscal targets. The government is budgeting for the fiscal deficit this year and the next to be above the levels agreed with the Fund. The government is expecting a deficit of around 2.8% of GDP in 2003 and 2.5% in 2004, against IMF demands of 2.5% and 2.1%, respectively.
The IMF's refusal to nit-pick is realistic, following the failure of the 25 October referendum to cut spending. The debt markets are just beginning to sense that the country may have a problem and that, unless the government takes swift action, the problem may become a crisis.
The failure of the electorate to support the government's austerity programme means that the government will have to try to get the cost-cutting measures, rejected by the voters at the referendum, through congress. Worryingly for Uribe, he cannot guarantee the support of congress. Although Uribe himself is popular, the government does not command a majority in congress.
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