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Viewing cable 06BOGOTA4294, COLOMBIA: 1Q06 LOOKS GOOD

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Reference ID Created Released Classification Origin
06BOGOTA4294 2006-05-16 13:53 2011-08-25 00:00 UNCLASSIFIED Embassy Bogota
VZCZCXYZ0000
RR RUEHWEB

DE RUEHBO #4294/01 1361353
ZNR UUUUU ZZH
R 161353Z MAY 06
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 4950
INFO RUEHCV/AMEMBASSY CARACAS 7687
RUEHLP/AMEMBASSY LA PAZ MAY LIMA 3742
RUEHQT/AMEMBASSY QUITO 4380
UNCLAS BOGOTA 004294 
 
SIPDIS 
 
SIPDIS 
 
EXIM BANK: MARCELO LEFLEUR 
 
E.O. 12958: N/A 
TAGS: ECON
SUBJECT: COLOMBIA: 1Q06 LOOKS GOOD 
 
 
1. Summary. Colombia's 1Q2006 GDP is exptected to grow at 
more than 5 percent, driven by stronger domestic consumption, 
increased access to credit, and low inflation.  During the 
first quarter, the Colombian peso depreciated 2 percent 
relative to the dollar, highlighting the importance of the 
GOC's debt-swap activities, which have slowed somewhat after 
a very active 2005.  High oil prices contributed 
significantly to Colombia's 2005 balanced consolidated public 
sector budget (exceeding expectations of a 1.5 percent 
deficit).  2Q2006 is election season for Colombia. 
Regardless of the outcome of the elections, post expects 
budgetary reform measures will be presented to Congress when 
the new session begins on July 20.  End Summary. 
 
------------------------------- 
Strong Economic Growth Contiues 
------------------------------- 
 
2. Colombia's 1Q2006 GDP growth is estimated to be around 
5.37 percent according to the National Planning 
Administration.  Robust consumer spending benefitting from 
low inflation and interest rates is fueling the growth. 
During the first month of the year, Colombian exports grew by 
21.2 percent to USD 1.6 billion, while imports grew 22.8 
percent to a total of USD 1.7 billion.  In first quarter 
trade with the U.S., Colombia enjoyed an USD 829 million 
surplus resulting from Colombian exports of more than USD 2.3 
billion and imports of USD 1.4 billion.  Colombia's energy 
product exports to the U.S. accounted for 70 percent of 
production, totaling approximately USD 623 million. 
Colombia's current leading import is automobiles.  Oil and 
coal was a strong perfoming sector for Colombia, accounting 
for 56 percent of total exports because volume and price are 
both rising.  Some experts speculate that Colombia's coal 
exports will surpass 9 million tons making it the 3 or 4 
largest exporter.  Easier access to cheaper credit is driving 
growth in the retail, tourism, and the construction sectors, 
which have been the greatest contributors to GDP growth over 
the last 4 quarters.  The agricultural sector remains a 
concern, however, with negative GDP growth in output over the 
past three quarters. 
 
--------------------------------------------- -------- 
Central Bank Maintains the Spread as the Dollar Firms 
--------------------------------------------- -------- 
 
3.  In response to the U.S. Federal Open Market Committee's 
decision in April to raise U.S. interest rates, the Colombian 
Central Bank raised Colombia's inter-banking rate by 25 basis 
points at the end of April.  Healthy GDP growth over the past 
year gives the Central Bank some flexibility in interest rate 
policy, as inflation contiues to hover at historically low 
levels.  The Colombian peso depreciated 2 percent against the 
dollar towards the end of the first quarter.  The central 
bank attributed the devaluation, in large part, to the 
speculation concerning the future of the U.S. Federal 
Reserve's policy tightening strategy.  The depreciation is 
causing some concern among importers, and some experts 
speculate that the trade figures will respond to what appears 
to be a market correction in the value of the peso.  The 
domestic mortgage and consumer loan market is expanding as 
lenders repeatedly reduce interest rates to attract new 
customers. 
 
-------------------------- 
Restructuring Foreign Debt 
-------------------------- 
 
4. The Ministry of Finance's strategy to convert 
foreign-denominated sovereign debt into Peso-denominated 
sovereign obligations softened the affect of the peso's 
recent depreciation.  With regard to sovereign debt, in 2005, 
the GOC capitalized on the Peso's relative strength compared 
to the Dollar to arrive at an external debt to internal debt 
(32:78) ratio that allows Colombia to have a presence in 
world markets without being overly exposed to exchange rate 
fluctuations.  In 1Q2006, the pace of these conversions 
slowed dramatically as the Ministry of Finance swapped 250 
million USD worth of short-term high-interest 
foreign-denominated sovereign bonds, a fraction of the 2 
billion dollars worth of similar transactions completed in 
the 4th quarter of 2005.  The conversion of foreign debt into 
Peso-denominated financial obligations, together with strong 
GDP growth, have resulted in Colombia's foreign denominated 
sovereign debt to GDP ratio falling from a high of 54 percent 
in 2002 to just above 30 percent at the end of 2005. 
 
-------------------------------- 
Foreign Reserves at 10 Year High 
-------------------------------- 
 
5.  At the end of the first quarter, Colombia's foreign 
reserves totaled just over 15.1 billion USD or an average of 
8 months worth of imports.  In the first quarter of 2006, the 
central bank used a sale of USD 168 million to address 
exchange rate volatility.  Colombia purchased 1.19 billion 
dollars in foreign currency for discretionary intervention 
purposes.  Central Bank purchases started out strong in 
January and Februray but tapered out towards the end of the 
quarter because of the Peso's devaluation.  According to the 
Central Bank, repatriation of savings combined with strong 
exports are contributing to the growth in Colombia's foreign 
currency reserves. 
 
------------------------------------ 
Can Colombia Keep a Balanced Budget? 
------------------------------------ 
 
6.  In mid 1Q2006, President Uribe announced Colombia had 
achieved a balanced budget in 2005 as a result of strong 
petroleum revenues.  GOC officials said Colombia is likely to 
achieve a balanced budget in 2006 so long as exports (namely 
petroleum and coal) remain strong and international commodity 
prices remain high.  In 2006, the obligation of funds 
allocated in the national budget has been slower than 
expected as the government's ability to commit funds has been 
limited by the Ley de Garantias which prohibits contracting 
new employees or completing most government purchases until 
after the presidential elections.  Subsequent balanced 
budgets are more likely if the GOC can pass meaningful 
territorial transfer and budgetary reform. 
 
---------------- 
What Lies Ahead? 
---------------- 
 
7.  The majority of the business community beleives President 
Uribe will win the presidential election on May 28.  Since 
the Uribe victory is so widely predicted, little 
post-election change in investment or consumption likely.  If 
the May 28 election wre to result in a second round, many 
businesspersons would probably become hesistant since Uribe's 
two opponents are far less business friendly.  We are 
watching with great interest the introduction of long-awaited 
fiscal reform, which should be presented to Congress early in 
its upcoming July session.  It is unclear how comprehensive 
the president's reform package will be, or how much of it 
will survive congressional debate.  Tax reform, a 
restructuring of the territorial transfer system, and reform 
of the banking sector have been identified as priorities for 
the 2006-2007 legislative year.  Delays over the verification 
of the FTA texts has pushed ratification of the free trade 
agreement well into 2007, though we expect some significant 
investment over the next two quarters in anticipation of the 
agreement's entry into force. 
 
 
GDP Growth 
---------- 
 
2000    2.9 
2001    1.5 
2002    1.8 
2003    3.9 
2004    4.1 
   1Q05   3.93 
   2Q05   5.62 
   3Q05   5.75 
   4Q05   5.10 
2005      5.13 
   1Q06   5.00(p) 
 
Source: National Planning Department 
 
GDP GROWTH BY SECTOR 
-------------------- 
 
Sector         2002   2003   2004   2005 
Agriculture     0.6    3.1    2.09   2.12 
Mining          4.3   12.1    2.82   3.04 
Utilities       3.0    3.3    2.91   3.20 
Manufacturing   1.1    4.2    4.77   3.95 
Construction   12.7   12.4   10.65  12.57 
Hotel/Rest.     1.4    5.1    5.62   9.21 
Transport/Comm  3.0    4.5    5.05   5.08 
Financial       2.4    4.6    4.33   3.53 
Social Svcs     0.9    1.2    2.76   4.04 
Bank Svcs             13.9   12.16   8.52 
Subtotal        1.8    3.9    3.82   4.54 
Taxes w/o IVA  -2.3   -1.9    5.96  13.29 
GDP             1.8    3.9    3.96   5.13 
 
Source: National Planning Department 
 
 
CPI Index / Inflation 
--------------------- 
 
1998   16.7 
1999    9.23 
2000    8.75 
2001    7.65 
2002    6.99 
2003    6.48 
2004    5.50 
2005    4.90 
 1Q06    1.91 
 
Source: Central Bank (Banco de la Republica) 
 
Unemployment (Percent) 
------------ 
 
1998    15.6 
1999    18.1 
2000    19.7 
2001    13.8 
2002    15.1 
2003    13.1 
2004    12.1 
2005    10.4 
 Jan    13.4 
 Feb    13.2 
 Mar    11.3 
 
Source: DANE (National Statistics Directorate) 
 
TRADE 
----- 
 
YEAR      IMPORTS    EXPORTS    BALANCE    (USD million) 
1998      14,638     10,822     -3,816 
1999      10,659     11,596        936 
2000      11,800     12,700        900 
2001      11,996     12,329        333 
2002      11,897     11,975         78 
2003      13,022     13,127        105 
2004      15,626     16,729      1,103 
2005      21,187     19,798      1,389 
 
WOOD