IMF backs Colombia economic plan

Mr Uribe has vowed to press ahead with reforms

The International Monetary Fund has agreed to let Colombia increase its budget shortfall following the defeat of a austerity referendum last month.

Plans by the government of President Alvaro Uribe to raise taxes sharply were "appropriate", the IMF said.

The IMF also agreed that the country's budget deficit could widen to 2.8% from 2.5% following the poll defeat.

But it criticised President Uribe's move to pay debt using foreign currency reserves, calling the idea "dangerous".

Colombia did not have any foreign exchange to spare, it warned.

Change of plan

The aftermath of the referendum has thrown Colombian politics into some disarray.

Three ministers have already resigned, along with the police chief and the head of the army, allowing Mr Uribe to add business associates with limited political experience to his cabinet, but sparking fears that his promises to tackle corruption could prove empty.

The national vote had been on a $7bn package of painful spending cuts, designed to placate the IMF and ensure future lending so as to under-write economic and government reforms.

Its defeat spurred a rethink with tax hikes taking the place of the cutbacks, on which the IMF's mission was consulting with Mr Uribe.

The talks, mission chief Robert Rennhack told reporters, had been "favourable".

"I think we have to take into account that the government's plan changed a bit with the results of the referendum," he said.

"But the government has proposed a package of very important measures."

The country could grow at 2.5% this year, Mr Rennhack said, faster than the 2% the IMF had previously predicted.