Weekly Report - 16 September 2003

COLOMBIA | Court overturns extension of value-added tax. The extension of the value-added tax (IVA) to a number of goods included in the `basic family basket' has been thrown out by the constitutional court on the grounds that it violates the `right to equitable treatment' guaranteed by the constitution. Introduced in the tax reform approved last year by congress, the measure would have applied, from 2005, a 2% IVA to currently exempt products such as bread, fruit, milk, meat, medicines, public transport and schoolbooks. Court president Eduardo Montealegre said that, as all citizens are not equally able to pay, the tax breaches `the principles of equity and justice'.

This will deprive the public purse of an estimated Col$1bn (US$350m) a year. The government says it will ask congress to approve `a source of fresh funds to be devoted mainly to social investment.'

ECUADOR | Economy slips into recession. In the second quarter Ecuador's GDP shrank (by 0.7%) for the second quarter running, which puts the economy technically in recession. First-half GDP was down 0.6% on the second half of 2002. The central bank is now expecting the growth rate for this year as a whole to be 2.7%, instead of the initially predicted range of 3% to 3.5%.

PERU | IDB decides to back Camisea. The IDB announced on 10 September the approval of a make-or-break US$75m loan for the development of Peru's Camisea natural gas deposits, a scheme which had been fiercely opposed by environmentalists. The IDB loan provides the green light for another US$60m in financing from other sources. The consortia engaged in the project, headed by Pluspetrol of Argentina, have already invested US$1.1bn in developing the deposits and laying two pipelines over the Andes.

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