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Cablegate: Weathering the Venezuela/Ecuador Crisis - Goc And

VZCZCXYZ5227
PP RUEHWEB

DE RUEHBO #0901/01 0661949
ZNR UUUUU ZZH
P 061949Z MAR 08
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC PRIORITY 1809
INFO RUEHCV/AMEMBASSY CARACAS 0057
RUEHLP/AMEMBASSY LA PAZ MAR LIMA 5982
RUEHZP/AMEMBASSY PANAMA 1351
RUEHQT/AMEMBASSY QUITO 6634
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS BOGOTA 000901

SIPDIS

SENSITIVE
SIPDIS

WHA/EPSC

E.O. 12958: N/A
TAGS: ECON ETRD PGOV BEXP CO
SUBJECT: WEATHERING THE VENEZUELA/ECUADOR CRISIS - GOC AND
PRIVATE SECTOR PREPARE CONTINGENCY PLAN

REF: A. (A) BOGOTA 800

B. (B) BOGOTA 421

1. (SBU) SUMMARY. Following meetings with business leaders,
the GOC has announced a four-point contingency plan to
stimulate the Colombian economy in the event Venezuela cuts
all trade with Colombia for the killing of FARC senior leader
Raul Reyes in Ecuador (ref A). While presented as a
worst-case scenario contingency plan, GOC officials expressed
concern a complete cut-off of trade with Venezuela could cost
up to 1.3 percent of GDP growth and 100,000 jobs in 2008.
Meanwhile, the Colombian stock market rallied and the
Colombian peso stabilized amid investors' bets that a
diplomatic solution to the crisis would succeed. END
SUMMARY.

The Plan
--------

2. (SBU) Although Colombian border authorities tell us that
the diplomatic crisis with Venezuela and Ecuador has yet to
significantly disrupt or diminish trade flows, the GOC and
private sector began preparing for the worst-case scenario--a
complete cut-off of trade with Venezuela. After four hours
of meetings March 5 with representatives of 16 leading
business associations, Finance Minister Zuluaga announced a
consensus plan to stimulate the Colombian economy. The
general plan includes credits for small businesses, lower
tariffs on raw materials normally imported from Venezuela,
customs measures to avoid price manipulation of imports,
coordinated efforts to develop export customers in other
countries, and a potential relaxing of interest rates. The
announcement included no specifics or estimated cost for the
contingency plan.

3. (SBU) Private sector representatives praised the
initiative, in particular, the Central Bank's willingness to
lower interest rates if the economy begins to slow. National
Industrialist Association President Luis Carlos Villegas told
EconCouns that the Bank would await March inflation figures
before deciding to move. He added that the GOC plans to seek
accelerated approvals of free trade agreements with Chile and
Central America (now before Congress), and rapidly close the
pending agreement with Canada. Villegas is optimistic about
the country's capacity to adjust trade flows, remarking to
the press that during a 2005 dispute with Venezuela Colombia
successfully redirected almost USD 1 billion in exports from
Venezuela to other markets. (NOTE: This was prior to the
explosion of Colombian exports to Venezuela that has created
greater dependence. END NOTE)

4. (SBU) Luis Gustavo Florez, head of the shoe manufacturers
association (ACICAM), acknowledged that more details on the
proposed measures were necessary but said that government and
private sector representatives had agreed to regroup within
the next week to elaborate on the general outline. Private
sector leaders have firmly backed President Uribe and the
GOC's actions since the beginning of the diplomatic crisis.

Potential Economic Costs of the Crisis
---------------------------------------

5. (U) Following the meeting, Finance Minister Zuluaga
announced that, in the event of a complete closing off of
Colombian exports to Venezuela, the Colombian economy could
shed as much as 1.3 percent of its projected 2008 GDP growth.
Under this scenario, the GOC estimates the Colombian economy
would grow 3.7. percent rather than 5 percent as currently
envisioned and could lose between 80,000 and 100,000 jobs.
Zuluaga emphasized that the estimate was based on an
extreme-case scenario and that the current 5 percent GDP
growth projection for 2008 already incorporates an
anticipated decrease in automotive sector sales to Venezuela
following its decision to restrict auto imports last month
(ref B).

6. (U) Zuluaga's statements coincided with the release of
official 2007 trade data showing that global Colombian
exports rose from USD 24.4 billion to 29.9 billion. 5. 2
billion, or 17.4 percent, of exports went to Venezuela -- the
second largest trading partner -- while 34.5 percent of
exports went to the U.S. Ecuador ranked as Colombia's third
largest trading partner, with exports at 1.3 billion, .

Colombia's largest trade surplus was with Venezuela at 3.9
billion, up from 1.3 billion in 2006.

Local Markets Buoyed by OAS Diplomacy
-------------------------------------

7. (U) Despite lingering uncertainty, Colombia's stock market
rallied March 5 after two straight days of losses on hopes
that the GOC would resolve its dispute with Ecuador
diplomatically through the Organization of American States.
The market gained 5.2 percent--its strongest rise in six
weeks--after falling by almost as much the day before. Local
analysts said they now expected tensions to begin to diminish
after the progress made in the OAS on a resolution to defuse
the crisis. From the outset of the crisis, the peso has
remained relatively stable, devaluing slightly to around 1850
per 1 USD.
Brownfield

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