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International Monetary Fund Concludes Article IV Consultation with Colombia

The International Monetary Fund (IMF) recently concluded an Article IV Consultation with Colombia. During this consultation, the IMF appears to have focused primarily on Colombia’s ability to cope with external shocks as well as economic growth promotion in general.

The IMF praised Colombian policymakers for their macroeconomic management and policy framework improvements, according to a press release.

The current account deficit fell to 3.4 percent of gross domestic product (GDP) noting that the deficit continues to be financed to a large extent by foreign direct investment.

“Portfolio inflows moderated somewhat but remained ample with further increases in foreign participation in the local government debt market,” explained the IMF. “The banking system has weathered the economic slowdown well and the planned implementation of the conglomerates law this year will improved the regulatory and supervisory framework including the management of corporate and overseas risks.”

The deficit is projected to fall to 2.6 percent of GDP in 2018.

Economic growth in Colombia is expected to accelerate to 2.7 percent this year from 1.8 percent in 2017.

“The combined impact of the structural tax reform, a brighter outlook for oil prices and the authorities 4G infrastructure agenda will underpin investment while reducing Colombia’s relatively large infrastructure gap,” said the IMF.

However, Colombia still remains susceptible to global financial conditions.

“While the outlook is positive, the economy remains vulnerable to uncertainties from a sudden tightening of global financial conditions and escalation of trade or geopolitical tensions,” cautioned the IMF. “Directors welcomed the authorities’ commitment to maintain very strong policies and ambitious structural reforms to address remaining vulnerabilities, ensure macroeconomic stability, and foster sustainable and inclusive growth.”

Inflation in Colombia has remained within policymaker’s target after reaching nearly 9 percent two years ago. Inflation has remained under 4 percent in 2018 and was 3.14 percent in March.

Historic inflation rates in Colombia (blue) with central bank tolerance bands (red). / Data from Banco de la República – Colombia / Graph by Nathan Davis
Historic inflation rates in Colombia (blue) with central bank tolerance bands (red). / Data from Banco de la República – Colombia / Graph by Nathan Davis

The Directors also “noted that the current monetary policy stance should be conducive to a recovery in activity and that reducing the rate further in line with inflation expectations could be warranted if the recovery faltered.”

Article IV of the Articles of Agreement of the International Monetary Fund lays out the obligations of member-states vis-à-vis the IMF and the ability of the IMF to surveil its members’ monetary policies.

Article IV section 3(b) states that “the Fund shall exercise firm surveillance over the exchange rate policies of members, and shall adopt specific principles for the guidance of all members with respect to those policies.”

The IMF explains that regular surveillance of a county is a routine matter, often occurring annually.

“During an Article IV consultation, an IMF team of economists visits a country to assess economic and financial developments and discuss the country’s economic and financial policies with government and central bank officials,” explains the IMF.

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