Is Colombia heading toward default on its $40 billion in government debt? That's the question investors are asking following the Oct. 25 defeat of a referendum that would have given reformist President Alvaro Uribe authority to overhaul Colombia's state bureaucracy. Before the vote, Uribe warned Colombians they would face a fate similar to that of Argentina, which defaulted in 2002, unless voters approved his draconian spending cuts. Although Colombia can muddle through a while longer thanks to U.S. aid, the referendum was Uribe's best chance to stabilize a deteriorating fiscal situation. Next year's deficit target of 2.5% of gross domestic product assumed that Uribe's spending cuts would pass. Now he's left with the unpopular choice of raising taxes.
Copyright 2003, Bloomberg L.P.
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