Weekly Report - 9 September 2003

COLOMBIA | Portfolio flight leads investment plunge. The net inflow of foreign investment in Colombia last year reached little more than US$1bn — a plunge of 82% from the US$5.86bn recorded in 2001. What most influenced this was the outflow of US$1.01bn of portfolio investment, as against an inflow of US$3.34bn the previous year. Foreign direct investment (FDI) shrank by 19%, to just over US$2bn. Deputy trade minister Claudia Uribe, who painted this discouraging picture from data provided by the central bank and Coinvertir, the investment promotion agency, said, `The government is very concerned, not only to attract investment but also to retain what we've got.' She attributed the poor performance last year to the international financial environment and the public-order situation in Colombia.

PERU | Growth expectations lowered. The Peruvian government has lowered its growth forecast for next year from 5% to 4%, as part of a review intended to make `more realistic and consistent' its macroeconomic projections up to 2006 (originally made in May last year). Economy minister Jaime Quijandrí­a blames the world economic environment for the poorer performance expected. The government is expecting private investment next year to reach 14.9% of GDP (instead of 16.4%), and has cut its own investment from 3.3% of GDP to 2.8%. In real terms, the falls are greater than these figures suggest, since GDP will be smaller than anticipated.

Last year Peru grew by the highest rate in the region, 5.3%. In the first half of this year the rate slowed to 4.5% (still among the highest), but most economists expected a further slowdown in the second half.

Quijandrí­a has warned that a key feature of the projections, the fiscal deficit target of 1.4% of GDP, could be jeopardised if the budget is compromised by demands for higher spending from the regional governments and some unions.