| BUSINESSWEEK ONLINE : JUNE 28, 1999 ISSUE | ||||||||
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| BUSINESS OUTLOOK
Colombia: Is Bogota Nearing the Bottom? Colombia, mired in the worst recession in 70 years, got more bad news in mid-June. Moody's Investors Service and Standard & Poor's suggested that Colombia could lose its investment-grade credit rating. Moody's cited the recession, while S&P stressed the economic costs of Colombia's conflict with rebel groups. Real gross domestic product fell 4.8% last quarter, after a 3.14% drop in the fourth quarter (chart). Unemployment was 19.5% in March, and industrial output plunged 19.1% in the first quarter. On the political front, talks with Colombia's largest guerrilla group and mass kidnappings by a smaller rebel group have worried investors that the government might, among other things, annex land to hand over to peasants or change the tax laws to forge a peace plan. Yet many expect the economy to begin to improve--albeit slightly--by yearend. Growth estimates for 1999 vary from a 1.5% contraction to the official forecast of 1.6% growth. Yearly inflation in May hit the coveted one-digit level at 9.98%, suggesting 1999 inflation will fall below the official 15% target. Lower inflation and central bank easing have meant lower interest rates, with real rates down about 10 percentage points. Another small but positive sign is increasing industrial optimism: Inventories have begun to fall, and orders are stabilizing. But fiscal reform remains key. Lower-than-expected tax receipts, due to the recession and the rebuilding of the earthquake-devastated coffee region, have forced the government to revise its consolidated public-sector deficit target to 3% of GDP. But private estimates are as high as 4%. Before yearend, Congress is expected to debate constitutional amendments to cut public pension outlays and budget transfers to regions and cities--measures needed, along with further government spending cuts, to ensure a narrower deficit. The good news is that lawmakers are likely to support fiscal reform that will bolster chances for a solid recovery. By Suzanne Timmons in Bogota _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS Colombia: Is Bogota Nearing the Bottom? CHART: Colombia Is Mired in a Deep Recession INTERACT E-Mail to Business Week Online | |||
