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