COLOMBIA: CAPITAL CONTROLS LIFTED

UNCLAS BOGOTA 005588 SIPDIS SIPDIS E.O. 12958: N/A TAGS: ECON EFIN CO SUBJECT: COLOMBIA: CAPITAL CONTROLS LIFTED REF: BOGOTA 0511257 ¶1. After markets closed on June 13, the Ministry of Finance announced the immediate elimination of Colombia's capital control on transitory investment (a tax on foreign capital resident less than one year in country),put in place in 2004 to counter a rapidly appreciating peso. The following day, share values on Colombia's national stock index inreased fifteen percent on strong volume. ¶2. Finance Minister Carasquilla announced in mid-2005 that Colombia would lift its capital control regime, but domestic pressure from export-oriented business groups kept the program in place until after the May 2006 elections. With the elections over and the dollar rebounding to nearly 2500 COP/USD (up from 2250 COP/USD in December 2004),Carasquilla took advantage of public attention surrounding the decline in Colombia's stock market (reftel) to recind the decree. ¶3. Comment: It appears the markets were kind to Carrasquilla, as a regional surge in stock values pulled Colombia's market upwards as well the day after the GOC's announcement on capital controls. As a result, an unpopular program (to everyone except exporters) was emlinated, and the GOC was seen by many in the public as being proactive in bringing a stop to the troubling stock market slide. WOOD