Weekly Report - 9 March 2004

COLOMBIA | About-face on debt reduction. President Alvaro Uribe last week announced that the executive was abandoning the scheme to draw down US$500m from Colombia's international reserves to pre-pay part of the external debt — a measure to which the central bank had agreed under considerable government pressure. Colombia's external debt (public and private) is currently equivalent to 51.6% of GDP. The country's international reserves stand at US$10.6bn. Uribe said that going ahead with the operation would send the signal that the government was not worried about the appreciation of the peso over the past few weeks and may even encourage further appreciation.

COLOMBIA | Drive to reduce unemployment. The government's council for economic and social policy (Conpes) last week announced a package of measures designed to bring down the open unemployment rate, which has shot up since the end of last year. It said that exchange policy would be adjusted to contain the appreciation of the peso, that interest rates would be lowered, and that there would be tax refunds for exporters. Also, the housing subsidy would be extended, and public works at municipal and national level would be expedited.

Of this package, the exchange policy and interest-rate components depend on the acquiescence of the central bank, which is one of the most autonomous in Latin America. Only in late February did the bank reduce its `intervention' interest rate (by a quarter of a percentage point, to a range of 7-10.75%) after holding it steady for 10 months running, despite entreaties by Uribe to ease it.

ECUADOR | No acceptable bids for power firms. The Fondo de Solidaridad de Ecuador has had to scrap plans to contract out the management of 13 state-owned power utilities. Only one company — Soluziona Consultorí­a y Tecnologí­a, of Spain — qualified as a bidder, and at the last minute it decided to pull out when its demand for `sovereign guarantees' was rejected. The Fondo is the government agency charged with upgrading the state-owned power and telecommunications concerns.