The Andean Community Advisory Council of Treasury or Finance Ministers, Central Banks, and Economic Planning Officers, meeting in Caracas, Venezuela on June 21, 2001

Whereas:

• In order for commercial and economic relations in the subregion to flourish and for progressive advances to be made toward the target of forming the Andean common market by the year 2000 defined by the Andean Presidential Council in Cartagena in 1999 and reiterated in Lima in 2000, each Member Country must enjoy economic stability;
  
   

• In order to achieve and maintain that stability and to place the economies of the Member Countries on the road to sustainable growth, it is necessary to capitalize on their individual efforts of recent years, using Community mechanisms;
  
   

• It is important to intensify and develop measures for strengthening and integrating the financial systems in general, and the banking systems in particular, to ensure that they operate efficiently and constitute, in the medium term, an integrated Andean financial market in which the saving-investment process at the Community level is optimized.

Agrees:

1. To recognize the successes of the Andean countries in fulfilling the criterion for convergence of inflation rates, adopted in May 1999, which establishes the commitment to reduce and maintain inflation at a single-digit figure.

The Council notes with satisfaction that the growth rate of the consumer price indexes (CPI) in Bolivia and Peru, which were already below the single digit level before the Community criterion was adopted, have remained relatively stable at levels of less than 4% per year and encourages those countries to continue doing their utmost to keep prices stable at low levels.

It values highly the substantial advances made by Colombia, which reached the single-digit target in the second quarter of 1999. Since then, its CPI growth rate continues to be gradually reduced, having reached levels of around 8% in an environment of economic recovery.

In the case of Ecuador, the Council notes with satisfaction that the inflationary trend was turned around in the third quarter of 2000, after the adoption early that year of the official dollarization process, and continues to descend rapidly.

It underscores the rapid convergence of Venezuela’s CPI growth rate with the Community target. That variable has been almost halved, to 12% a year, since the Community criterion was adopted.

2. To set the target date of December 31, 2002 for all Member Countries that have not yet done so to reach a single-digit annual inflation rate as measured by their own consumer price indexes.

4. To assume the commitment to revise the existing criterion for the convergence of inflation rates in the fourth quarter of 2002, in order to reduce the level and volatility of inflation in each Member Country, as well as its spread, and thus be able to offer the Subregion’s economic agents a stable scenario to which to appropriately plan their decisions, using a broader horizon. The Council takes note of the agreement approved by the Governors of the Central Banks at the Seventy-Second Meeting of Presidents of Central Banks of the Americas and Spain (CEMLA), which is attached hereto.
    

• To adopt as a second criterion for convergence the following rules on fiscal matters, at the same time encouraging countries with more demanding targets to do their utmost to keep pursuing them:

As of 2002, the non-financial public sector deficit in each Member Country will not exceed 3% of its GDP; temporarily, during the period 2002-2004, the limit may be raised to 4% of GDP. In order to improve that target, it will be necessary to continue making the required analyses in this area. The criterion of fiscal convergence should include targets connected, in particular, with the running average of the total economic result of the non-financial public sector for an appropriate period of time, its structural component, and the public debt-to-GDP ratio. A working agenda will be established to perfect these targets, with the participation of the Central Banks, the Treasury or Finance Ministries, the General Secretariat, the FLAR, and the CAF. That agenda will include at least the following subjects:

• The sustainability of the public debt;

• The structure of the public sector income and expenditures for both the central government and the non-financial public sector (NFPS);

• An evaluation of the impact of the structural reforms on the fiscal budget;

• The standardization of the information for the NFPS.

• The balance of the explicit (domestic and foreign) public debt of the consolidated public sector will not exceed 50% of GDP at the end of each financial year. Each country on its own will determine the financial year as of which this target will be applicable to it, without going beyond the year 2015.

For purposes of the application of the rules, the economic result is the net variation of the non-financial public sector fiscal debt, excluding income from capital transactions resulting from the privatizing of State assets.

During years of recession, defined by the existence of a negative inter-annual variation in the real GDP for two consecutive quarters, Member Countries may go beyond the ceilings set in the first rule, but must present a macroeconomic plan for regularizing their situations in the course of the following 12 months, which should include structural measurements, if necessary.

Member Countries that already have or that set in the future, via constitutional provisions or other measures with the force of law, macrofiscal targets that are more demanding than the Community rules cited above, shall maintain their own targets but shall be subject to the oversight mechanism that is established in the following paragraph.

5. To formalize the Permanent Technical Group (PTG), made up of a delegate from each institution participating in the Advisory Council and a delegate from each of the following: the Andean Community General Secretariat, the FLAR, and the CAF, which will report to the Advisory Council and whose main function will be the overseeing of the inflation and fiscal convergence targets. The PTG will use as reference material for its analyses the Convergence Action Programs that the countries will submit in the third quarter of each year and in which they will specify the macroeconomic assumptions and the economic policies they plan to implement the following year. The Annex to this Report specifies the duties and responsibilities of the group and the support it will enjoy, as well as the short-term schedule it should carry out.
   
    

6. To express its satisfaction at the progress made by the CAF and the General Secretariat in reinforcing the national financial systems, a subject that has been, and continues to be, a matter of repeated concern to the Council. In regard to the recent advances made towards harmonizing basic banking provisions, for which specific proposals have been put forward on six basic aspects, the Council recommends holding a meeting of the Banking Superintendencies in the Subregion. The purpose of that meeting will be to evaluate what has been discussed to date and to study the general guidelines for harmonizing the Subregion’s prudential provisions, in line with the provisions followed by more advanced countries in the Americas, and with those issued by the Basle Committee. The CAF, as secretariat of the meeting, is asked to prepare a report on the results and to submit it to the Council Chair by September 30, 2001.
   
    

7. To express its satisfaction at the criteria incorporated into the reformulated Common External Tariff that have been advanced by the General Secretariat because they conform to the recommendations made by the Advisory Council at its special meeting in August 1999 to create a tariff instrument that will be fully applicable by the five countries, with harmonized systems that would guarantee the operation of a customs union. Reduction of the spread in tariff levels and harmonization of the systems for suspension and liberalization, which would contribute to making Andean exports more competitive, will ensure efficient national production and cut down on tax evasion. The Advisory Council, as a result, commits its support to the Commission for perfecting the customs union, to which end it should prepare a timetable that would enable the Member Countries to fulfill the proposed aim.
   
    

8. To express its satisfaction at the progress made by the FLAR in the analytical study for substantiating the importance to Andean integration of macroeconomic harmonization, particularly in the areas of fiscal and inflation harmonization.
   
    

9. To accept ECLAC’s invitation to participate in the REDIMA Project that institution is sponsoring, with the commitment that in the Andean case, the network in question will specifically support the working agenda of the Advisory Committee and will promote macroeconomic policy harmonization in the Subregion in general. The General Secretariat is asked to transmit this answer to the Executive Secretary of ECLAC. It also reaffirms the importance of the participation of the General Secretariat, the CAF, and the FLAR in the REDIMA.

The members of the Advisory Council express their special appreciation to Dr. José A. Rojas Ramírez, Minister of Finance of Venezuela and Chairman of the Council, for the efficient organization and conduct of this meeting and the generous hospitality offered.

For BOLIVIA

Fernando Quiroga Ramírez
Vice-Minister of the Budget and Accounting
Ministry of the Treasury of Bolivia

Armando Méndez Morales
Director of the Central Bank of Bolivia

For COLOMBIA

Catalina Crane
Technical Vice-Minister
Ministry of the Treasury and Public Credit of Colombia

Cristina Fernández
Advisor to the Management
Bank of the Republic of Colombia

Juan Carlos Echeverry
Director
National Planning Department of Colombia

For ECUADOR

José Luis Ycaza
Chairman of the Board of the Central Bank of Ecuador

For PERU

Javier Abugattás
Vice-Minister of Economy
Ministry of Economy and Finance

Javier de la Rocha Marie
General Manager
Central Reserve Bank of Peru

For VENEZUELA

José Alejandro Rojas
Minister of Finance of Venezuela

Diego Luis Castellanos
President
Central Bank of Venezuela

Fernando Hernández
Vice-Minister of Planning and Development
Ministry of Planning and Development