Cablegate: Colombia: Capital Controls Lifted

VZCZCXYZ0022
RR RUEHWEB

DE RUEHBO #5588 1721757
ZNR UUUUU ZZH
R 211757Z JUN 06
FM AMEMBASSY BOGOTA
TO SECSTATE WASHDC 6215

UNCLAS BOGOTA 005588

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN CO
SUBJECT: COLOMBIA: CAPITAL CONTROLS LIFTED

REF: BOGOTA 0511257

1. After markets closed on June 13, the Ministry of Finance
announced the immediate elimination of Colombia's capital
control on transitory investment (a tax on foreign capital
resident less than one year in country), put in place in 2004
to counter a rapidly appreciating peso. The following day,
share values on Colombia's national stock index inreased
fifteen percent on strong volume.

2. Finance Minister Carasquilla announced in mid-2005 that
Colombia would lift its capital control regime, but domestic
pressure from export-oriented business groups kept the
program in place until after the May 2006 elections. With
the elections over and the dollar rebounding to nearly 2500
COP/USD (up from 2250 COP/USD in December 2004), Carasquilla
took advantage of public attention surrounding the decline in
Colombia's stock market (reftel) to recind the decree.

3. Comment: It appears the markets were kind to
Carrasquilla, as a regional surge in stock values pulled
Colombia's market upwards as well the day after the GOC's
announcement on capital controls. As a result, an unpopular
program (to everyone except exporters) was emlinated, and the
GOC was seen by many in the public as being proactive in
bringing a stop to the troubling stock market slide.
WOOD

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