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RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC PRIORITY
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RUEHSN/AMEMBASSY SAN SALVADOR 2419
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UNCLAS SECTION 01 OF 03 BOGOTA 001814 
 
SENSITIVE 
SIPDIS 
 
MCC FOR MBOHN, SRHODES, SGAULL, MTEJADA 
 
E.O. 12958: N/A 
TAGS: EAID ECON PREL PGOV CO
SUBJECT: MCC MEETS WITH CROSS SECTION OF COLOMBIANS ON 
FACT-FINDING VISIT MAY 17-23 
 
¶1. (U) SUMMARY.  During its initial visit to Colombia, a 
delegation from the Millennium Challenge Corporation (MCC) 
explained the organization's mission and procedures to 
Colombian Government, civil society, and business 
communities.  The delegation's interlocutors in Bogota and 
Cali identified inadequate transport infrastructure, 
inefficient economic policies, and institutional issues as 
significant impediments to economic growth in Colombia. 
Tension between decentralization/centralization regarding 
public investment was an additional challenge that came up. 
The Colombians showed receptivity and enthusiasm to MCC's 
message, while remaining realistic about the time that it 
will take to arrive at an eventual compact.  The GOC 
committed to forming an interagency team that will work full 
time to analyze constraints to growth, hiring a National 
Program Coordinator to lead the team, defining a public 
consultation strategy, and developing a work plan, in close 
collaboration with MCC. The GOC also indicated that the 
National Planning Department would take responsibility for 
following up on Colombia's performance on the MCC indicators. 
 END SUMMARY. 
 
¶2. (U) The MCC delegation included Chief of Staff Matthew 
Bohn, Development Managing Director Stacy Rhodes, Senior 
Director Stephen Gaull, and Program Analyst Monica Tejada. 
During the May 17-23 visit, they met with GOC (MFA, 
Presidential social welfare agency (Accion Social), Finance 
Ministry, and National Planning Department) officials, local 
governments, NGOs, USAID beneficiaries, academics, 
multilateral development banks, and business organizations 
and leaders. 
 
MCC REACHES OUT TO STAKEHOLDERS 
------------------------------- 
 
¶3. (U) The purpose of MCC's visit was four-fold.  First, the 
delegation presented to stakeholders the implications of the 
December 2008 MCC Board decision that Colombia is eligible 
for MCC program assistance.  Second, the delegation stressed 
the importance of managing expectations with respect to 
potential size and timing of a compact, as well as the need 
to de-politicize the compact development process.  Third, the 
delegation listened to diverse viewpoints on constraints to 
economic growth in Colombia.  Fourth, the delegation sought 
to sensitize the GOC to MCC's mandate of reducing poverty 
through growth.  Accordingly, the delegation explained that 
it would be difficult for MCC to support the sort of social 
assistance programs that figure prominently in Accion 
Social's mandate, on which President Uribe places a political 
priority. 
 
¶4. (U) The delegation noted that Colombia must continue to 
score in the top 50th percentile of the Control of Corruption 
indicator as well as at least one-half of the indicators in 
each of the three policy categories (Ruling Justly; Investing 
in People; and Economic Freedom) to remain eligible for MCC 
assistance.  The team then laid out the process by which a 
country must conduct meaningful public consultations before 
defining a compact proposal based on a formal analysis of 
constraints to growth.  They pointed out that Colombia, as a 
lower middle income candidate, would have any compact capped 
at 25 percent of the MCC fiscal year's appropriated funds. 
The delegation also made clear to its Colombian partners that 
any compact could not be signed until FY 2011, given the time 
necessary to develop the proposal and MCC's other prior 
commitments of FY2009-2010 funding. 
 
¶5. (U) The delegation mentioned that MCC would seek to 
harmonize its efforts with the International Cooperation 
Strategy (a tri-partite agreement between GOC, donors, and 
civil society) and with other national development 
initiatives of the GOC.  MCC also noted that it would seek to 
collaborate operationally with other development partners, 
such as the World Bank and the International Finance 
Corporation, which are investing $1 billion and $100 million 
per year, respectively, in Colombia.  MCC expressed a desire 
to work closely with the Embassy to complement existing 
foreign assistance activities, including the proposed 
Colombia Strategic Development Initiative (CSDI).  Similarly, 
the MCC team noted the value of working with the private 
 
BOGOTA 00001814  002 OF 003 
 
 
sector to mobilize additional sources of capital, 
particularly given Colombia's relative sophistication and 
enabling environment for public-private partnerships.  The 
delegation explained MCC's comparative advantage in scaling 
up or replicating existing projects that meet the criteria of 
reducing poverty through growth. 
 
INFRASTRUCTURE MENTIONED REPEATEDLY AS MAJOR IMPEDIMENT 
--------------------------------------------- ---------- 
 
¶6. (SBU) In virtually all of their meetings, MCC heard how 
internal transport infrastructure (primarily roads) suffered 
from systemic underinvestment and represented a significant 
brake on Colombia's economic potential.  Competitiveness was 
a major recurrent theme stakeholders stressed, and one that 
experts have analyzed extensively at the national and 
regional levels.  Chamber of Infrastructure President Juan 
Martin Caicedo noted some advances on infrastructure over the 
last 10 years as the GOC has accepted the use of concessions. 
 However, he argued that numerous institutional problems, 
including weaknesses in the Ministry of Transport and the 
lack of an independent regulator in the transportation 
sector, continue to result in low public sector budget 
execution and to discourage private investment.  While some 
major highway projects are proceeding, such as the "Route of 
the Sun" from Bogota to Santa Marta, improvements in 
secondary and tertiary roads linking rural areas to markets 
-- an essential to combating rural poverty -- are lagging. 
 
¶7. (U) Business leaders from Cali and Buenaventura noted the 
tremendous geographical advantage that Colombia has as the 
only South American country with Pacific and Caribbean 
coasts, and pointed to the growth potential associated with 
port complements, such as industrial parks and interior 
ports.  Representatives of multilateral lending institutions 
pointed out that Colombia lacks a facility to provide 
guarantees and credit enhancements for major project 
investments, unlike many other countries.  Such a facility 
could play an important role in mobilizing greater 
participation by local financial institutions and pension 
funds in infrastructure finance.  Institutional investors 
have been reluctant to invest in infrastructure, because of 
inadequately structured projects and changing rules of the 
game. 
 
ECONOMIC POLICY IMPROVEMENTS OFFER GROWTH POTENTIAL 
--------------------------------------------- ------ 
 
¶8. (U) Other interlocutors asserted that incoherent and 
inefficient government policies represented greater 
bottlenecks to growth than physical infrastructure.  Several 
pointed to the fact that freight rates are not set by the 
market, but instead dictated by the government under 
political pressure from truckers.  Similarly, high taxes on 
gasoline and new trucks translate into uncompetitive 
transport costs.  International business consultant Martin 
Gustavo Ibarra opined that domestic logistics costs are three 
times greater than elsewhere in Latin America, representing a 
12-14 percentage point premium on the cost of doing business 
in Colombia.  He added that reducing such costs is more 
important to Colombia's competitiveness than a free trade 
agreement with the U.S. 
 
¶9. (U) A group of noted Colombian economists identified 
several policies that limit Colombia's competitiveness and 
potential for economic growth.  Among them were tax 
loopholes; high non-salary benefits formal employers are 
required to pay; subsidies for well-established 
agro-industries, such as sugar and flowers; and a system of 
incentives that keeps families on welfare.  They all pointed 
to limits on land access because of informality and ambiguity 
in land titling as an impediment to economic growth.  Several 
participants noted that limited access to education results 
in low investment in poor areas because of a lack of human 
capital.  They also pointed to inefficient economic (but 
politically popular) public spending focused on consumption 
as opposed to investment. 
 
"HIGHLY CENTRALIZED" SYSTEM PRESENTS CHALLENGES 
--------------------------------------------- -- 
 
BOGOTA 00001814  003 OF 003 
 
 
 
¶10. (SBU) The MCC delegation heard several complaints about 
the tensions between decentralization, as outlined in the 
Constitution of 1991, and a high degree of centralization in 
Colombia, which has the potential to affect MCC activities. 
Roberto Steiner, President of think tank Fedesarrollo, opined 
that the "community councils" that President Uribe hosts 
throughout the country and give citizens the opportunity to 
raise issues with the President and his cabinet have had a 
detrimental effect on Colombian democracy.  "Community 
councils focus the national government's attention on local 
potholes instead of national highways, while absolving local 
leaders of accountability for issues the central government 
has now usurped," argued Steiner.  Moreover, local 
governments have little incentive to raise their own sources 
of revenue.  Other interlocutors noted that national-level 
institutions have been captured by political interests. 
Amunafro, an association of 92 municipalities with 
Afro-Colombian populations (where poverty is concentrated), 
argued that the central government did not have an accurate 
sense of the situation in the countryside and rarely listened 
to the regions.  For this reason, they urged MCC to continue 
direct communications with entities other than the GOC. 
Similarly, NGOs expressed mistrust of the GOC and any 
consultative process they could put together. 
 
NEXT STEPS: NAMING A TEAM AND DEFINING CONSULTATION MECHANISM 
--------------------------------------------- ---------------- 
 
¶11. (U) During outbriefs with the GOC and the Ambassador, the 
MCC delegation laid out next steps for Colombia.  First, the 
GOC will name a team to work full time on the compact 
proposal.  The GOC indicated the team would have 
representatives from Accion Social, the Department of 
National Planning, and the Ministry of Finance.  The GOC 
plans to hire someone from outside the government to lead the 
team.  MCC extended an invitation to two team members to 
attend the upcoming session of "MCC University" where they 
will have the chance to learn MCC procedures and practices in 
detail as well as interact with other countries working with 
MCC.  Second, economists from MCC and the GOC will jointly 
conduct a desk study of the myriad national-level studies on 
constraints to growth, prior to the GOC's official submission 
to MCC of a constraints analysis.  Third, the Colombian team 
will present to MCC its plan for conducting public 
consultations relating to use of compact funds.  Finally, the 
Colombians will present a high-level outline of their 
proposal for potential compact assistance, which would 
eventually evolve into a draft business plan. 
 
¶12. (U) The delegation encouraged the GOC to remain in 
contact with MCC to help guide and inform the process, in 
accordance with its regulations and procedures.  The MCC team 
noted the need to focus the compact in order to achieve 
impact.  This could include a regionally-focused compact in a 
country as large and diverse as Colombia, although a 
thematically oriented compact at a national level could also 
be possible.  The Pacific coast region was mentioned several 
times as a prime candidate, given its high poverty rates, 
strategic location, and potential for economic growth.  The 
Atlantic Coast was also mentioned frequently as an area that 
may be conducive to the sort of growth-oriented investments 
suited for MCC. 
 
¶13. (U) The MCC delegation cleared this cable. 
Brownfield