S/P DIRECTOR GORDON DISCUSSES COLOMBIA'S ECONOMIC

UNCLAS BOGOTA 002892 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: PHUM PGOV KJUS CO ECIN ECON SUBJECT: S/P DIRECTOR GORDON DISCUSSES COLOMBIA'S ECONOMIC OUTLOOK AND CHALLENGES REF: BOGOTA 2855 ¶1. (SBU) Summary: Finance Minister Oscar Ivan Zuluaga told Director of Policy Planning Dr. David Gordon on July 23 that the long-term outlook for the Colombian economy remains strong despite turmoil in international markets, rising inflation, and appreciation of the peso. He pointed to energy, infrastructure, and agriculture sectors as prime investment opportunities. Zuluaga pressed for conclusion of the U.S.-Colombia Trade Promotion Agreement (CTPA) as an important step to promoting investment, increasing competitiveness, and reducing poverty in Colombia. In separate meetings with the business community in Bogota and Medellin, private sector leaders expressed support for President Uribe's security and economic policies but had mixed views on his bid for a third term. Gordon urged the GOC to look at increasing economic relations with Asia and other emerging markets as a means for further investment in Colombia. He also urged regional cooperation with like-minded countries on security and counter-narcotrafficking efforts. Gordon added that public-private partnerships on infrastructure projects and education programs would also increase the effectiveness and impact of these efforts. End Summary. -------------- Minister of Finance: Strong Economic Outlook -------------- ¶2. (SBU) In a private meeting following the bilateral Policy Planning dialogue on July 23 (reftel),Finance Minister Oscar Ivan Zuluaga told Director of Policy Planning Dr. David Gordon that, despite current turmoil in international markets, rising inflation, and the steep appreciation of the Colombian Peso, the long-term outlook for the Colombian economy remains strong. Zuluaga highlighted the improved security situation and economic liberalization under President Uribe,s administration as key to Colombia,s strong economic performance in recent years. He acknowledged that Colombia was navigating a difficult course between rising inflation and currency appreciation, but expressed confidence that Colombia offered many opportunities for continued long-term growth. Zuluaga identified the energy, infrastructure, and agriculture sectors as prime investment opportunities. He cited the post-Uribe political outlook as the top risk to the economy, insisting that strong leadership must continue to make economic reforms and security gains �A;permanent. Zuluaga also emphasized that conclusion of the U.S.-Colombia Trade Promotion Agreement (CTPA) was extremely important to promoting investment, increasing competitiveness and building a solid foundation for job creation and poverty reduction in Colombia. ¶3. (SBU) Gordon reiterated that the USG remains fully committed to achieving approval of the CTPA and understood the political and economic implications of continued delay. Gordon characterized Colombia as positioned at a moment of great economic opportunity as a result of security gains, its resource base, and the strength of its democratic and economic institutions. He identified Colombia and Brazil as the best positioned countries in South America to take advantage of developments in the world economy. Gordon urged the GOC to look at increasing economic relations with Asia and other emerging markets as a means for further raising investment in Colombia. He also encouraged Colombia to look at sectors such as hydroelectric generation as growth opportunities. Gordon concluded by noting the positive cycle that Colombia was currently in had the potential to feed more positive growth as long as the GOC remained committed to the Uribe Administration,s successful democratic security and economic liberalization policies over the long-term. -------------- -------------- Private Sector Bullish; Need Infrastructure Investment -------------- -------------- ¶4. (SBU) At separate meetings in Bogota and Medellin, business leaders explained that strong institutions and increased security have bolstered a stronger private sector. Now, expanding competitiveness through infrastructure-building in ports, railroads, highways, and hydroelectric plants emerged as new necessities. They urged joint ventures in oil, gas, mining, and services sectors, along with a new outlook on biofuels. Politically, Colombia's successes are America's successes and should be publicized in that context, especially noting that Colombia remains a strong ally in a region that faces threats to democracy and stability from Venezuela, Bolivia, and Ecuador. ¶5. (U) Business leaders noted the need to increase productivity, science and technology projects, and focus on long term growth for sustainability. Corporate social responsibility is already a major focus among firms, and they want to see more investment towards education programs, including the Fulbright scholarships. They claimed there were more Cuban than American professors teaching at public universities in Colombia--a serious disadvantage for training future leaders. Colombia's flexible labor regulations, low corruption, strong arbitration, rule of law, security, tax incentives (greatest in the hemisphere),and human resources all contribute to favorable conditions for foreign investment. -------------- - Uribe Popular but Reelection Bad for Democracy -------------- - ¶6. (SBU) Despite President Uribe's high approval ratings in the country and within the business community, participants at the roundtable were mixed on a potential third term. Concerns remain about who could succeed Uribe and continue his pro-security, pro-business policies, especially given Colombia's history of having a "pendulum effect" of good presidents followed by bad ones. The head of a large mining concern queried whether the societal consensus that Uribe had generated in favor of democratic, private sector-led growth was firm enough to survive his departure in two years' time. Luis Carlos Villegas, an Uribe ally and President of Colombia's largest business association (ANDI),offered the opposing view, stating that changing the constitution for a third term reelection would be damaging for democracy and institution-building. He was on public record as opposing a third term, and believed ultimately Uribe would not run. ¶7. (U) In response to questions about U.S. views of Colombia, Gordon emphasized the strong bipartisan support and partnership through Plan Colombia. Colombia--along with Brazil, Mexico, and Chile--could be strong political and economic anchors in the region, and share experiences on security and counter-narcotrafficking efforts. Public-private partnerships would benefit infrastructure projects and education programs. He also encouraged business leaders to focus on balancing social inclusion with economic growth. ¶8. (U) S/P staff has cleared this message. BROWNFIELD