FROM THE TOP DOWN: COLOMBIA'S ECONOMIC POLICY

C O N F I D E N T I A L BOGOTA 000560 SIPDIS E.O. 12958: DECL: 02/24/2019 TAGS: ECON EFIN PGOV PINR ENRG CO SUBJECT: FROM THE TOP DOWN: COLOMBIA'S ECONOMIC POLICY PROCESS REF: A. (A) 08 BOGOTA 3289 ¶B. (B) BOGOTA 15 ¶C. (C) 08 BOGOTA 4157 ¶D. (D) 08 BOGOTA 2918 ¶E. (E) BOGOTA 43 ¶F. (F) 08 BOGOTA 4243 ¶G. (G) 07 BOGOTA 8119 ¶H. (H) BOGOTA 168 Classified By: ECONOMIC COUNSELOR LAWRENCE J. GUMBINER FOR REASONS 1.4 (B) AND (D) ¶1. (C) SUMMARY: Since 2002 Colombia has pursued a clear, if at times episodic, strategy to liberalize its economy, welcome foreign investment, and expand international trade. The strategy, technically implemented through a byzantine planning and interagency coordination process, is ostensibly the product of competing tensions among ministries and public policy analysts. But at the end of the day, President Uribe's personal management style casts a dominant shadow over economic policy. He leans on instinct, his powerful command of information and minutiae, as well as the advice of businessmen -- who he is more comfortable with -- often displaying distrust of technical economic experts. While his forceful style has arguably weakened the institutional policymaking structure, it has undoubtedly led to a focused, consistent economic policy that has won plaudits from the private sector, and most importantly, produced results. END SUMMARY. The Official Process: CONPES -------------- ¶2. (C) Established in 1958, the interagency National Council of Economic and Social Policy (CONPES) serves as the national advisory and coordination authority for planning economic policies and establishing resource priorities. The President chairs the CONPES, which is comprised of the economic-related ministers (Finance, Trade, Agriculture, Transport, Labor, etc.) senior presidential advisors for Afro-Colombian Communities and Women, as well as the President of the Central Bank. The National Planning Department (DNP) maintains the influential role of executive secretary for the CONPES, determining the agenda and shepherding draft policy documents through a rigorous, and often time-consuming, interagency clearance process until consensus is reached. DNP Policy Analyst Maria Patricia Sandoval told us the clearance process takes a minimum of three months and often longer. Once surviving proposals are fully cleared, DNP schedules their consideration at the CONPES monthly meeting. In practice, no economic program requiring interagency approval is likely to succeed without tacit DNP support. Moreover, DNP's explicit clearance is required for all public-sector investment appropriations prior to their inclusion in the annual budget by the Finance Ministry ¶3. (C) Critics of the CONPES acknowledge that the laborious process provides for necessary interagency coordination, but complain that resulting proposals are often so watered down or obscured by endless technical information that they serve little use as tangible policy guidance. They also note that the CONPES process focuses inordinately on proposal development and formal communications between national ministries rather than implementation, with little or no watchdog authority at the departmental or municipal levels. Additionally, as National Association of Financial Institutions (ANIF) President and former Vice Minister of Finance Sergio Clavijo told Econoff, the generality of CONPES policies allows for political interpretation and micromanagement by ministers or the President. Competing GOC Institutions -------------- ¶4. (C) Various Colombian ministries and the Central bank have day-to-day responsibility for implementing economic policy, often at odds with each other and at times President Uribe. The Finance Ministry is the most visible of the economic ministries, but subject to frequent criticism for preaching constraint on public spending. While its role as the coordinator of the CONPES's sister Council on Finance (CONFIS),which traditionally approves funding for CONPES policies, has largely been eclipsed with the dilution of CONFIS authority under the Uribe Administration, the Finance Ministry still maintains influence as the drafter of the national budget. It has also helped shape the GOC's strategy to achieve coveted investment grade status for sovereign debt, based on rising reserves, more sustainable debt management, and increasing transparency and efficiency in tax administration. One exception was the implementation of capital controls in 2007, at the behest of President Uribe and political pressure from influential export sectors, to reduce the appreciation of the Colombian Peso (ref A). ¶5. (C) The Trade, Agriculture, Energy, and Transportation ministries play important roles in GOC economic policymaking as well. The Trade Ministry has pursued an aggressive agenda of free trade and bilateral investment treaty negotiations (ref B),promoted the modernized free trade zone regimen to encourage foreign investment in Colombia (ref C),and identified specific sectors for concentrated GOC support. The Agriculture Ministry maintains primary jurisdiction over agricultural trade, credit and price support issues, often putting it in conflict with the Trade Finance ministries. The Energy Ministry controls controversial price settings and subsidies for transportation fuels, which have made fuel prices one of the most distorted segments of the Colombian economy and fiscal burden on the state. Finally, the Transportation Ministry is responsible for pursuing infrastructure development, frequently cited as the most significant constraint on Colombian competitiveness, for which its lackluster performance has been widely criticized. ¶6. (C) The quasi-autonomous Central Bank manages monetary policy and, in pursuit of its constitutional mandate to manage inflation, rather than explicitly ensure growth, it has often been a political target of President Uribe. Despite the fact that Finance Minister Zuluaga sits on the Bank board along side several Uribe appointees, which cause some observers to question the Bank's autonomy, the President has frequently blamed the Bank for undercutting growth with excessively high interest rates (ref D). Various ministries have also frequently and openly criticized bank policies and statements. Recent examples included a public dispute with the Agriculture Ministry over food import tariffs (ref E) and spat with the Energy Ministry over fuel prices in which Energy Minister Martinez publicly offered to give Bank President Jose Dario Uribe "some little classes" on the economics of world oil prices. Independent observers, such as former Minister of Transportation and Director of Fedesarrollo Mauricio Cardenas, have suggested the proliferation of economic responsibilities among various ministries and consequent public tension have become significant constraints on the overall effectiveness of GOC economic policy. Private Sector's Influential Access -------------- ¶7. (C) In this context, the Colombian private sector enjoys significant direct access to President Uribe and the cabinet, playing an important role in shaping national economic policy. Uribe often eschews the advice of GOC technical experts and economists in favor of businessmen. Former Director of Public Credit Julio Torres explained that Uribe is more personally comfortable with the business community and maintains an inherent distrust of technical economic experts, who he views as obstacles to expediency. While special interests at times have skewed policy to their priorities, such the push by the textile, flower, and banana exporters for capital controls, broader private sector representatives often make positive contributions. For example, the Colombian Chamber of Infrastructure, lead by former Bogota Mayor Juan Martin Caicedo, has raised the long-neglected need for infrastructure development to the top of the GOC economic agenda (ref F) as well as taken the Transportation Ministry to task over its poor administration of construction bids. Likewise, the private sector has served as strong supporter of trade liberalization, transparency and the GOC's democratic security strategy. The private sector serves as a trusted partner to Uribe on economic issues with business leaders often accompanying and advising him during the course of international economic policy meetings and negotiations. The Final Say: President Uribe -------------- ¶8. (C) All of our contacts agree that President Uribe maintains a very hands-on approach to economic issues and the final say on all but the most mundane economic policy decisions. Although not formally trained in economics, Uribe regularly displays his impressive memory for and understanding of economic figures in private meetings with Embassy officials. Former GOC officials such Torres tell us that this command of information, along with a penchant for micromanagement and quick results, frequently leads President Uribe to bypass his ministers and call directly to technical directors or key personnel for answers on specific subjects--an assertion that Embassy officers have witnessed firsthand with technical contacts regularly pulled out of meetings to take a call from the President. ¶9. (C) Fedesarrollo Deputy Director Mauricio Santa Maria also point to a tendency by President Uribe to make snap economic decisions based on domestic political pressure or optics, such as his surprise announcement in October 2007 to join the Venezuelan-backed Bank of the South (ref G). Torres concurred, citing Uribe's decision to implement capital controls over the unanimous opposition of Finance Ministry, Trade Ministry and Central Bank, based on political pressure from influential export sectors. He also recounted regular occasions in which Finance Ministry's budget director would receive a call directly from President Uribe instructing her to allocate funds for a particular project requested by an influential governor or member of congress. ¶10. (C) At the same time, President Uribe has often resisted bureaucratic solutions to economic problems--even reducing the number of government ministries and blocking the elevation of new ones (ref H). He has similarly hesitated to bring on strong new economic ministers or advisors even when faced with their ineffectiveness, such as the case of Transportation Minister Gallego, who has served since President Uribe's 2002 election amidst universal criticism due to his ineffectiveness. COMMENT: Micromanaging - With Results -------------- ¶11. (C) President Uribe's strong management style has led to a broad concentration of economic decision-making in Casa Narino and a weakening of the interagency and institutional policymaking process. Both former Finance Minister Roberto Junguito and ANIF's Clavijo have commented to Econoffs separately that "Uribe doesn't want ministers; only secretaries." Nonetheless, as his detractors admit and the economic data confirm, the Uribe style has led to a coherent strategy to reduce poverty and increase economic opportunity largely through market-and investment-based solutions. Businessmen -- and the foreign investment community -- regularly lavish praise on the President for his consistent vision and support for private sector-led development and growth. This style has worked wonders during the fat years; it remains to be seen how it survives the coming lean times, and how it will impact Colombia once the President leaves office. BROWNFIELD