VZCZCXYZ0000
RR RUEHWEB

DE RUEHBO #0273 0222126
ZNR UUUUU ZZH
R 222126Z JAN 08
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 1051
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHCV/AMEMBASSY CARACAS 9802
RUEHLP/AMEMBASSY LA PAZ JAN LIMA 5803
RUEHZP/AMEMBASSY PANAMA 1107
RUEHQT/AMEMBASSY QUITO 6510

UNCLAS BOGOTA 000273 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
WHA/EPSC FOR PMAIER; EEB/OMA:ASIROTIC; TREASURY FOR MEWENS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV CO
SUBJECT: INTERNATIONAL FINANCIAL TURMOIL ROILS COLOMBIAN 
MARKET 
 
REF: BOGOTA 2 
 
¶1. (SBU) SUMMARY: Amid recent turmoil in global markets and 
fears of a recession in the United States, the Colombian 
stock market suffered its fourth-worst drop ever on January 
¶21.  Despite regaining some ground on January 22, the market 
remains in negative territory for 2008 and concern has grown 
in the Colombian private sector that a U.S. economic downturn 
could slow Colombia's economic expansion (reftel).  While 
most analysts believe Colombia is well-positioned to weather 
turbulence in international markets, many local investors 
worry the Banco de la Republica will keep Colombia's interest 
rates high, putting further short-term negative pressure on 
the Colombian economy.  END SUMMARY. 
 
¶2. (SBU) Colombia's stock index (IGBC) fell 7.65 percent 
after all listed stocks, including index powerhouse 
Ecopetrol, declined January 21.  The Colombian market 
rebounded moderately following the Federal Reserve's January 
22 three-quarter point interest rate cut, but remains down 
over 15 percent for 2008.  Since the beginning of the year 
fears have grown among the local private sector that a U.S. 
recession could impede Colombia's 2008 growth outlook of 5.3 
percent. 
 
¶3. (SBU) Colombia's close economic relationship with the 
U.S.--the U.S. remains Colombia's largest trading partner and 
source of foreign direct investment--amplifies the impact of 
economic downturns in the U.S. on the Colombian economy. 
Exports to the U.S. slowed in 2007 while imports increased 
due to the Colombian Peso's 11 percent appreciation against 
the dollar.  The currency appreciation not only hurt key 
Colombian export sectors such as textiles and cut flowers, 
but the consequent shift in trade has increased pressure on 
Colombia's current account deficit.  Colombian exporters 
increasingly fear that a recession in the U.S. could 
exacerbate the slowdown in demand and worry the Banco de la 
Republica will maintain high interest rates (9.5 percent) to 
control inflation while other central banks cut rates to 
stimulate growth, thereby driving the Colombian peso still 
higher against the dollar and further harming export 
competitiveness. 
 
¶4. (SBU) According to German Verdugo, Economic Research 
Director for the local brokerage firm Correval S.A., in the 
last 40 years when the U.S. economy has grown less than one 
percent per annum, the Colombian economy shed as much as two 
percent off GDP growth in the same year.  However, Verdugo 
said that, due strong global demand for Colombian hydrocarbon 
and mineral commodities at the moment, he expected the 
negative effects of a potential U.S. recession to register 
less than in previous cases.  Finance Ministry Public Credit 
Director Julio Torres similarly noted  Colombia's strong 
growth fundamentals, rising international reserves, and 
improving debt picture as evidence Colombia can absorb this 
round of international market turmoil. 
 
¶5. (SBU) Conversely, Anwar Rodriguez, Economic Researcher at 
Colombia's prominent economic thinktank Fedesarrollo, said 
the deceleration of the U.S. economy has traditionally 
lowered demand for Colombian products in the U.S. and slowed 
inflows of investment capital.  Rodriguez told us that, if 
turmoil in international markets continued to persist or the 
U.S. slipped into recession, the impact on the investment 
side may be more acute because of capital controls the GOC 
instituted in May 2007 to bridle speculative capital inflows. 
 Rodriguez believes that the controls could dissuade foreign 
investors from parking capital in Colombia just when the 
economy needs it the most. 
Brownfield