ECONOMIC WOES OVERTAKE SECURITY ATOP COLOMBIANS'

UNCLAS BOGOTA 002558 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EFIN EIND ETRD SUBJECT: ECONOMIC WOES OVERTAKE SECURITY ATOP COLOMBIANS' LIST OF WORRIES ¶1. (U) SUMMARY. A plurality of Colombians now believe the economy is the number one problem the country faces, more so than security, according to a recent Gallup poll. While the data undoubtedly reflect the perception of an improved security situation (particularly in the wake of Operation Jaque),they also show the growing unease associated with increasing inflation and a slowing economy. END SUMMARY. ¶2. (U) In the poll of 1,000 residents of Bogota, Medellin, Cali and Barranquilla (taken July 3-4),44 percent of Colombians ranked the economy as the principal problem, while only 31.5 percent said security was the most pressing issue. A similar poll in January, 2008 showed that only 26 percent believed the economy was the dominant concern, while 54 percent considered security the country's chief problem. -------------- --- PERCEPTIONS OF INFLATION AND UNEMPLOYMENT WORSEN -------------- --- ¶3. (U) According to the poll, 73 percent of Colombians believe the situation surrounding their cost of living is getting worse, up from 69 percent in April. The annualized inflation rate for June jumped to 7.18 percent, well outside the Central Bank's stated 2008 target of 3.5 - 4.5 percent. ¶4. (U) Similarly, 51 percent of Colombians believe the unemployment situation is worsening, up from 49 percent in April. Official figures suggest the unemployment rate has been steady or declining over the last several months, but clearly the public perceives otherwise. ¶5. (U) GDP growth dropped from 8.2 percent in 2007 to an annual rate of 4.1 percent for the first quarter of 2008, and most analysts predict a continued slowdown for the remainder of 2008, with overall growth centering around 5%. Consumption growth is down, as is consumer confidence, according to official figures. Industrial growth for the first semester of 2008 dropped to 1.9%, the lowest in several years. ¶6. (SBU) Finance Minister Zuluaga told visiting Ex-Im Vice President John McAdam that the GOC was facing the uncomfortable combination of an appreciating currency, higher inflation and an economic slowdown. He considers combating the strong peso the GOC's primary priority, a view not shared by most financial analysts who see bringing inflation down as the principal goal. The expectation is that the Bank will raise rates at the upcoming July 25 meeting from 9.75% to 10%, further antagonizing Colombia's export sector. A senior economic research company official -- who wished to remain anonymous -- told us that Uribe administration efforts to bring down interest rates in the face of worsening inflation were "unsustainable." -------------- -------------- MAJORITY STILL HAS FAITH IN GOC ECONOMIC TEAM AND FTA -------------- -------------- ¶6. (U) Despite the increasingly sour views on the economy, 56 percent of those polled approved of the way President Uribe is handling the economy. Additionally, 51 percent approve of the job the Central Bank is doing versus only 22 percent who disapprove. ¶7. (U) Interestingly, despite the gloomy economic outlook, the percentage of Colombians who approve of the free trade agreement with the U.S. rose from 57 percent in April to 66 percent in July. -------------- COMMENT -------------- ¶8. (SBU) The Gallup poll indicates that Colombians are feeling the effects of the slowdown, and re-focussing on pocketbook concerns as GOC successes on the political front make them feel more secure. President Uribe still enjoys the kind of stratospheric approval rating (85 percent) most politicians only dream of. However, as more Colombians begin to feel the pinch of increased inflation and unemployment, we expect the economy to increasingly dominate public discourse and play a significant role in the lead-up to the 2010 elections. BROWNFIELD