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Cablegate: Colombia's 2010 Budget: Social Protection and Security Stll

VZCZCXYZ0000
RR RUEHWEB

DE RUEHBO #3576/01 3131549
ZNR UUUUU ZZH
R 091548Z NOV 09
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 0790
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBO/AMEMBASSY BOGOTA
RUEHBR/AMEMBASSY BRASILIA 0165
RUEHCV/AMEMBASSY CARACAS 0637
RUEHLP/AMEMBASSY LA PAZ NOV LIMA
RUEHQT/AMEMBASSY QUITO
RUEHSG/AMEMBASSY SANTIAGO

UNCLAS BOGOTA 003576

SIPDIS

E.O. 12958: N/A
TAGS: ECON CO PGOV EFIN
SUBJECT: COLOMBIA'S 2010 BUDGET: SOCIAL PROTECTION AND SECURITY STLL
TOP THE AGENDA

REF: 09 BOGOTA 3267

1. (U) Summary. The GOC budget for 2010 (US$ 78 billion) reflects
a seven percent increase from 2009, with increases in defense and
security, education, transportation, agriculture, social programs,
and the Congress. For the first time, the defense and security
budget surpassed education, in part due to military pension
payments and medical services. Finance Minister Zuluaga said,
however, that the budget will maintain its social component;
approximately 47 percent of the budget is allocated for poverty
reduction measures and social programs. Critics of the budget note
the baseline economic figures -- such as the 2010 GDP growth
figures and exchange rate forecasts -- are overly optimistic and
the increased spending will cause the GOC to go deeper into debt.
End Summary.

2. (U) On October 20, the GOC approved its 2010 budget, totaling
$148 billion pesos (roughly US$ 78 billion). The budget, titled
"Investment Sustainability in the Middle of the Crisis," increased
by 15 percent government expenditures, which represent 56 percent
of the entire budget. Transfers to state and municipal governments
make up 42 percent of the budget, personnel costs 11 percent, and
government operating expenses 3 percent. The budget allocates
remaining resources to public sector investment (17 percent) and
debt service (27 percent).

--------------------------------------------- ----------------------
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Protect the Public and Stimulate Private Investment

--------------------------------------------- ----------------------
-

3. (U) In line with President Uribe's campaign to reinforce
security gains, the defense budget rose to roughly US$ 11 billion,
a 10.5 percent increase from last year. For the first time, the
defense budget surpassed funding for education by about 2.6
percent. Although defense and security represents 14.2 percent of
the national budget, a significant portion of the defense budget
goes to pension payments, medical services, the Defense Ministry's
airline and hotel enterprises, and investments/procurement.

4. (SBU) The GOC also increased budgets for government social
programs, such as Accion Social -- the presidential agency that
coordinates assistance for Internally Displaced Persons (IDP). The
2010 budget allocates approximately US$ 685 million for IDP
assistance, a 15 percent increase over the 2009 budget. The budget
supports the GOC's new policies for integrated attention to IDPs,
including additional support for emergency humanitarian assistance,
health, education, housing, land, and income generation. The
increased funding also supports prevention and protection
activities, as well as the implementation of differentiated
assistance and protection programs for vulnerable IDP populations,
such as women, children, disabled, indigenous, and Afro-Colombians,
(see reftel).

5. (U) Colombia seeks to increase private investment through a
series of major public sector investments, totaling US$ 12.5
billion. A majority of these investments will be directed toward
the final consolidation of the Democratic Security policy, highways
and tunnels, communications equipment (e.g. submarine cables and a
satellite), mass transportation, and social programs, such as
Families in Action, potable water and basic sanitation equipment,
and urban housing to include subsidies for displaced persons.

--------------------------------------------- ------------

Balanced Budget or Going Deeper Into Debt


--------------------------------------------- ------------

6. (SBU) The GOC expects to cover its expenditures through taxes
(48 percent), debt financing (38 percent), government funds (6
percent) and the sale of the government's stake in state-owned
enterprises (8 percent). The fiscal deficit, however, is expected
to rise from 3.7 percent of GDP in 2009 to 4.3 percent in 2010.
The Finance Ministry also anticipates public sector debt to
increase to 36 percent of GDP in 2010 and continue that trend,
reaching close to 41 percent in 2014. The Ministry attributes the
trend to increases in government expenditures, particularly in
infrastructure, defense and security, and social programs.

7. (SBU) Former Central Bank co-director Salomon Kalmanovitz told
Econoff that the GOC budget is worrisome because it reduces public
sector investment by roughly US$ 2 billion from 2009, which could
lead to economic stagnation. Sergio Clavijo, President of
Colombia's National Association of Financial Institutions and
former co-director of the Central Bank, told us the Ministry of
Finance utilizes an overly optimistic exchange rate ($2,365 pesos
to the dollar; currently it's at $1,981) and an estimated 2.5
percent GDP growth in 2010 to base its revenue streams. Clavijo
predicts that budget revenues will be less than expected, forcing
the fiscal deficit to rise above the GOC-projected 4.3 percent of
GDP.
BROWNFIELD

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