Weekly Report - 3 February 2004

PERU | Rethinking revenues. Apart from its purely political woes, the government of President Alejandro Toledo may have to find new ways of raising US$1.5bn over the coming five years. The congressional constitutional affairs committee has voted to recommend the repeal of the decree-law which introduced the tax on financial transactions (ITF), the expected source of those funds. The committee says the decree-law infringes the constitution on five separate counts. Though President Toledo announced days ago that he would launch a `crusade' to get the ITF approved, economy minister Jaime Quijandrí­a said just after the committee vote that he was willing to negotiate with the political parties the introduction of new tax measures to replace the ITF, if it is indeed repealed by the full congress. The government says that the tax, which it wants applied at a rate of 0.15%, is crucial to its objective of lowering the fiscal deficit this year from 1.9% of GDP to 1.4%.

VENEZUELA | Bid to revive trade with Colombia. The government of President Hugo Chávez has launched a campaign to revive bilateral trade with Colombia, which had plummeted as a result of customs regulations and exchange controls introduced by Venezuela, as well as by the slump in Venezuelan demand. An effort is being made to pay overdue debts with Colombian exporters (currency allocations have been authorised for 85% of the US$300m-or-so outstanding), and a modern, round-the-clock customs service is being established on land border crossings. The Venezuelan target is to boost two-way trade to US$3bn this year.

ECUADOR | Cooking gas subsidy to remain untouched. Economy minister Mauricio Pozo has risked the ire of the IMF, but probably ensured a modicum of social and political tranquillity, by announcing last week that there will be no increase this year in the price of cooking gas. As our readers know, attempts to eliminate the cooking gas subsidy, which costs the government about US$200m a year, have led to embarrassing climbdowns by a succession of governments. Pozo's rationale is quite simple: economic and financial performance last year was far better than expected, so the government can afford the outlay. He expects much the same to happen this year: he is projecting a GDP growth rate of about 6% and inflation down to 3-4%.

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