VZCZCXYZ0011
RR RUEHWEB

DE RUEHBO #0139/01 0341339
ZNR UUUUU ZZH
R 031339Z FEB 10
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 2465
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHBO/AMEMBASSY BOGOTA
RUEHBR/AMEMBASSY BRASILIA
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEHCV/AMEMBASSY CARACAS
RUEHLP/AMEMBASSY LA PAZ
RUEHME/AMEMBASSY MEXICO
RUEHOT/AMEMBASSY OTTAWA
RUEHPE/AMEMBASSY LIMA
RUEHQT/AMEMBASSY QUITO
RUEHSG/AMEMBASSY SANTIAGO
RUEHZP/AMEMBASSY PANAMA

UNCLAS BOGOTA 000139 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ELAB ECON PGOV CO
SUBJECT: MODERATE MINIMUM WAGE INCREASE, RECORD LOW INFLATION 
UNDERSCORE GOC FISCAL DISCIPLINE 
 
REF: 09 BOGOTA 3576; 09 BOGOTA 1829 
 
¶1. (U)  SUMMARY.  The Colombian government decreed a 3.6 percent 
increase in the federal minimum wage for 2010.  The increase was 
greater than the two percent inflation for 2009, meaning it should 
provide some stimulus to an economy just beginning to pull out of 
recession.  Annual minimum wage hikes is one area where Colombia 
has shown fiscal restraint that has kept inflation below 10 percent 
since 1999, after three decades of double digit price increases. 
END SUMMARY. 
 
 
 
TRIPARTITE PROCESS MORE CIVIL, BUT STILL INEFFECTIVE 
 
--------------------------------------------- ------- 
 
 
 
¶2. (U)  Colombian law requires an annual meeting of a tripartite 
"Commission of Salary and Labor Policies" - made up of organized 
labor, business, and government representatives - to negotiate the 
minimum wage, among other topics.  At the end of 2009, as has 
happened for the last several years, the Commission failed to reach 
agreement on the minimum wage increase, with unions pushing for 8 
percent; business groups 3.2 percent; and the government 3 percent. 
 
 
 
 
¶3. (U)  Once it became apparent in late December that the 
Commission would not come to an agreement, labor union 
confederations and business groups issued a surprisingly positive 
joint statement, praising the cooperative approach of the other 
side, despite an inability to reach accord.  The two sides also 
noted areas of agreement, such as the benefits of low inflation, 
the ill effects of the informal sector, the need to reduce 
unemployment (12 percent average for 2009), and the destructive 
results of Venezuelan trade restrictions.  This declaration came in 
sharp contrast to the 2008 dynamic, when union leaders threatened 
to sue the government for increasing the minimum wage by less than 
the poor population's market basket inflation. 
 
 
 
REAL INCREASE GOOD FOR ECONOMIC RECOVERY, ELECTIONS 
 
--------------------------------------------- ------ 
 
 
 
¶4. (SBU)  As a result of the Commission's lack of agreement, the 
GOC decreed on December 30, 2009 a monthly minimum wage for 2010 of 
515,000 pesos (currently about $260), a 3.6 percent increase. 
Given two percent inflation in 2009, the GOC expects the 1.6 
percent real minimum wage increase to be expansionary for an 
economy just beginning to exit recession.  At the same time, the 
increase is not expected to cause inflationary pressures, given 
estimates that current output is 4.5 percent below its potential. 
It is also worth noting that of the eight minimum wage hikes during 
Alvaro Uribe's presidency, election years have seen the highest 
(2006 - 2.0 percent) and third highest (2010 - 1.6 percent) real 
increases. 
 
 
 
¶5. (SBU)  Only about 720,000 Colombians receive the minimum wage, 
out of 8 million employed in the formal sector.  Nonetheless, many 
receive salaries indexed to the minimum and economists argue that 
the minimum wage has a "lighthouse effect" that can provide signals 
to employers where to set wages, even in the informal sector.  As 
 
 
such, the minimum wage is an important salary benchmark. 
Colombia's minimum wage is 60 percent of the country's average 
wage, compared to 30 percent in Brazil, Chile, and Mexico, 
according to labor economist Stefano Farne.  As such, economists 
point to Colombia's relatively high minimum wage and payroll taxes 
('parafiscales'), which add a 60 percent premium to employer salary 
costs, as key reasons for Colombia's high structural unemployment 
and rampant informal economy (Ref B). 
 
 
 
LOW INFLATION, BUDGET CUT BURNISH GOC FISCAL CREDIBILITY 
 
--------------------------------------------- ----------- 
 
 
 
¶6. (SBU)  Colombia's consumer price index (CPI) increased by 2.0 
percent in 2009, well below the Central Bank's target of 4.5 - 5.5 
percent.  It marked the lowest annual price increase in 55 years of 
inflation recordkeeping.  Food prices actually decreased by 0.3 
percent for the year.  Finance Minister Oscar Ivan Zuluaga told us 
he hoped a silver lining to the recession would be a strong 
dampening of inflation expectations in Colombia that could keep 
future inflation in check.  Since Colombia's 1999 recession, annual 
CPI increases have averaged 6.3 percent, following three continuous 
decades of double-digit inflation.  The inflation target for 2010 
is 2 - 4 percent. 
 
 
 
¶7. (U)  In mid-January, the GOC announced a 5.9 trillion peso ($3 
billion) cut in expenditures of the 2010 budget (Ref A) in order to 
maintain "fiscal sustainability."  The reduction, which will bring 
the budget deficit down to 3.7 percent of GDP, includes: 2.2 
trillion pesos ($1.1 billion) in unspecified operational expenses; 
2 trillion pesos ($1 billion) in public investment; and 1.7 
trillion pesos ($900 million) in an automatic adjustment from more 
favorable than expected inflation and exchange rates.  In public 
remarks, President Uribe asserted that fiscal cuts in an election 
year were the responsible thing to do and would help bolster 
investor confidence, one of the three pillars of his democratic 
security policy. 
BROWNFIELD