The economy is likely to pick up steam this
year. The decline in unemployment and interest rates are likely to boost
consumption, which has been subdued for two years now, while a more
favourable international outlook is set to propel the export sector and
industry. However, the stepping up of the civil war and uncertainty over
nationwide elections are likely to overshadow both business and consumer
Legislative elections reflect voter
dissatisfaction with traditional parties
The outcome of the nationwide legislative elections on 10 March clearly
showed not only voters dissatisfaction with the traditional Conservative
and Liberal parties but also with the political system in general.
According to data from the National Electoral Council (CNE, Consejo
Nacional Electoral), 58% of all voters abstained, 3 percentage points
above the 1998 figure. In addition, blank and spoilt ballots accounted for
another 13% and of the positive votes counted, neither of the traditional
parties' candidates ranked among the top 10 most-voted contenders.
Furthermore, both traditional parties suffered strong losses to
independent parties. The Liberal party (PL, Partido Liberal Colombiano)
suffered a strong loss in the chamber of deputies with its share of total
seats dropping from 59.0% to 32.5%. Similarly, the Conservative Partys (PCC,
Partido Conservador Colombiano) share declined from 31.3% to 13.9%.
Alvaro Uribe Velez, the former Liberal Party member turned independent has
emerged as an apparent winner of the elections. Uribe supporters have
managed to garner a substantial share of the Senate with 27 of the 102
seats. Even though his share remains well below the 38 seats claimed by
Liberal Party presidential hopeful, Horacio Serpa, the Uribe figure came
in above the 23 seats garnered by the Conservative Party.
The most recent March 2002 polls, have Uribe well ahead of other
candidates for the 26 May presidential elections with 59.5% of total votes
(up from 57.9% in February). Liberal Party candidate Horacio Serpa is
second with 24.0% (down from 31.1% in February). Well behind in third
place is independent candidate Noemí Sanin with 5.1% of the votes (up drom
3.1% in February). Given that the Conservative Party candidate, Juan
Camilo Restrepo, dropped out of the presidential race on 12 March, the
party may decide to form a pragmatic coalition with independent Uribe.
Conservatives are likely to seek a compromise with Uribe that allows for a
more business and investment friendly economic platform in exchange for a
strong commitment towards supporting increased military intervention into
the civil war. Given Uribes commitment to a military build-up to combat
the Revolutionary Armed Forces of Colombia (FARC, Fuerzas Armadas
Revolucionarias de Colombia) and the Conservative Partys desire to
maintain fiscal discipline, social spending is likely to be cut back if
the potential alliance between Uribe and the Conservative Party emerges as
the winner in the presidential elections. This, in turn, may raise
political tensions if current high unemployment (18.8% in February) does
not begin to come down.
continues on downward path amidst subdued economy
Consumer prices increased 0.7% in March, a 0.1 percentage point notch
below the Consensus number. The increase brought down annual inflation
from 6.7% in February to 5.9% in March, the lowest level observed since
October 1970 and below the Central Bank target for this year. The
favourable inflation environment can be attributed principally to the
subdued pace of economic activity as high unemployment and slow credit
growth are offsetting a more pronounced consumption pick up. The Central
Bank anticipates that consumer prices will decline further even though the
economy is likely to begin to bounce back and the El Niño weather
phenomenon may exert upside pressures on food prices. Consensus Forecast
participants appear to be adjusting their projections gradually in line
with the more favourable downward trend in price hikes. This months
Consensus figure is 0.1 percentage point below the March number and 0.7
percentage points lower than the Consensus estimate three months ago.
Moreover, the Consensus inflation figure appears to be gradually
converging with the Central Banks official target, as participants are
increasingly encouraged by authorities ability to keep inflation
contained by applying the necessary monetary tightening. The favourable
March figure has also prompted some participants to revise interest rate
forecasts, as the low inflation environment is likely to give the Central
Bank additional leeway to lower interest rates in the shorter term.
Nevertheless, Consensus data indicate that this year the pick up in the
economy and accelerated currency depreciation relative to the US$ (7.5%
compared to 2.7% in 2001) are likely to force monetary authorities to
tighten the monetary reins by raising the benchmark DTF rate from its
current 10.3% (12 April) to 11.9% by year end.
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Colombia. For more details please click here.