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Cablegate: Colombia Lifts Capital Controls in the Face Of

VZCZCXYZ0003
RR RUEHWEB

DE RUEHBO #3729/01 2832144
ZNR UUUUU ZZH
R 092144Z OCT 08
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 5043
INFO RUEHBR/AMEMBASSY BRASILIA 8432
RUEHCV/AMEMBASSY CARACAS 1158
RUEHLP/AMEMBASSY LA PAZ OCT LIMA 6634
RUEHZP/AMEMBASSY PANAMA 2488
RUEHQT/AMEMBASSY QUITO 7324
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS BOGOTA 003729

SENSITIVE
SIPDIS

WHA/EPSC FOR MROONEY; EEB/IFD/OMA FOR ASIROTIC; WHA/AND:
RMERRIN; TREASURY FOR MEWENS

E.O. 12958: N/A
TAGS: ECON EFIN EINV PGOV CO
SUBJECT: COLOMBIA LIFTS CAPITAL CONTROLS IN THE FACE OF
GLOBAL FINANCIAL CRISIS

REF: A. BOGOTA 3588
B. BOGOTA 3289
C. BOGOTA 3076

1. (SBU) SUMMARY On October 8, President Uribe announced the
elimination of remaining capital controls on foreign
investment, as part of a plan to ensure liquidity to
Colombian markets in the face of the worsening global
financial crisis. Uribe also outlined draft legislation that

would offer amnesty of tax obligations on any previously
undeclared, licit capital that Colombians bring back from
abroad. Further to these measures, the GOC has said it will
use upcoming meetings at multilateral financial institutions
to secure its international financing needs over the next
several years. Financial sector contacts indicate that
credit markets in Colombia are functioning normally, but
nonetheless applaud the GOC moves as prudent and of long-term
benefit. END SUMMARY.

FINANCIAL CRISIS PUSHES DOWN COLOMBIAN PESO AND STOCKS
--------------------------------------------- ---------

2. (U) While most analysts believe the Colombian economy's
exposure to the global financial crisis to be limited (Ref
A), Colombia, like other countries in the region, has felt
effects in the form of a weaker currency and losses in the
stock market. At the beginning of September, the exchange
rate was 1932 pesos per dollar. On October 9, it dropped to
2326 pesos per dollar, its lowest level since the end of
2006. The weaker peso, presumably a result of investors
seeking refuge in dollar-denominated assets, is a welcome
development for Colombian exporters, who less than four
months ago were trying to cope with an exchange rate of fewer
than 1700 pesos per dollar (Ref C). Colombia's primary stock
market index (IGBC) has fallen by 12 percent in the last
month.

GOC TAKES MEASURES TO ENSURE LIQUIDITY
--------------------------------------

3. (SBU) In a May 2007 effort to stem the appreciation of the
peso, the GOC announced a series of measures to restrict the
inflow of foreign portfolio investment. The measures placed
deposit requirements of up to 50 percent of the investment
for periods extending to two years. In September 2008, the
GOC lifted the deposit requirement for investment in stocks,
but left it in place for fixed income securities (Ref B). On
October 8, President Uribe lifted all remaining capital
controls, noting that the original intent was for them to be
temporary. Many in the financial community had criticized
the controls and noted they did little to stem the peso's
appreciation. While many doubt that lifting the capital
controls will have a significant impact on the peso's current
depreciation, they nonetheless applaud the move, as the
controls were a major factor international rating agencies
cited in withholding an investment grade rating from Colombia.

4. (U) The President also announced the GOC would submit
legislation which would grant amnesty to repatriated
Colombian capital that had not previously been declared to
tax authorities, as long as the money had not been used for
illicit purposes. While the details of the draft legislation
had not been finalized, critics of the proposal noted that
the Constitutional Court had deemed tax amnesty
un-Constitutional.

5. (U) Uribe also announced that during meetings starting
October 10 in Washington, Minister of Finance Zuluaga would
work with the IMF and World Bank to secure the international
financing Colombia needs for 2009 and possibly beyond. The
goal of all of these moves, according to Uribe, was to avoid
crises of liquidity and confidence in Colombia, in light of
world events.

COMMENT: COLOMBIA TRYING TO STAY AHEAD OF THE CURVE
--------------------------------------------- ------

6. (SBU) Carlos Rojas, Vice President of the Colombian
Association of Financial Institutions, said a credit crisis
in Colombia was not evident at this point but that the GOC's
focus on ensuring liquidity was nonetheless prudent. The

Central Bank, with a record 24 billion dollars in foreign
reserves, is well positioned to inject liquidity into the
Colombian banking sector if the need were to arise. We have
already begun to see public calls for the Central Bank to
lower its inter-bank rate, currently at 10 percent. While
Colombia is certainly not immune from the global financial
gyrations and is already seeing economic growth slow, the GOC
has begun to take prudent steps to help Colombia weather the
economic storm.
BROWNFIELD

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