MercoPress. South Atlantic News Agency

Colombian assessing impact of trade loss with neighbors

Colombia is assessing the economic impact of the current diplomatic conflict with Ecuador and Venezuela which represented 9 billion US dollars in trade last year and a significant boost for the country's economic expansion.

Colombian Finance minister Oscar Ivan Zuluaga said the "extreme" scenario contemplates a complete closure of trade with Venezuela for a whole year with the impossibility of finding new markets for that production. In this case Colombia's GDP would stall 1.3%. Venezuela and Ecuador have militarized border areas, cut diplomatic relations with Bogota and expelled Colombian ambassadors following the killing by Colombian troops in Ecuadorian territory of a FARC leader. "The Colombian economy is going through its best moment in thirty years and it's the starting point to understand that addressing difficulties when the economy is expanding obviously means better chances of success", said Zuluaga. So far the crisis has deepened the fall in Colombian corporations shares, 16% in 2008, and a significant 60% drop in trade by land with neighboring Venezuela. Further economic reprisals from Venezuela could increase the Colombian current account deficit and eventually moderate the strength of the Colombian currency, according to a report from Goldman Sachs. Fitch Ratings announced Tuesday in Bogotá that it's not certain that the current turbulence should harm Colombia's credit risk assessment in the short term. However the war threats could have an impact because Colombia is about to obtain "investment grade" which means easier and cheaper access to international credit. However if President Chavez insists on cutting trade links with Colombia, Venezuela is set to loose the most since it would generate "even more scarcity and more inflation". Venezuela depends to a great extent on Colombian beef, poultry and pork. Western Venezuela also recently began benefiting from Colombian gas, extracted in the Caribbean and pumped to that area. Colombia is also Ecuador's main supplier of energy, food, clothing and petrochemical products. Colombian authorities had already reduced the 2008 growth estimate to a conservative 5% after reaching 5.8% of 2007 following on Caracas' decision to cut the quota of Colombian assembled vehicles exported to Venezuela. Sources close to Colombia's Finance ministry estimate that a complete trade blackout with Venezuela could cost anywhere between 80 and 100.000 jobs plus a 7% retraction in domestic demand, one of the main dynamos of the local economy. However Colombian businessmen are better prepared nowadays to reorient their production, than in 2002 and 2003 following on the failed coup attempt against President Chavez. Minister Zuluaga has promised soft loans in case of an "extreme" scenario and in spite of the current situation direct foreign investment keeps pouring into the country having reached 2 billion US dollars so far this year. Nevertheless the Colombian private sector is also concerned with the consequences of economic success for the export industry: higher interest rates and a stronger Colombian peso which means a significant increase in local costs. But the overall view is of optimism: President Alvaro Uribe has consistently shown the highest percentage of popular support of any leader in South America; public opinion and the Armed Forces are closely united in his hard line approach towards the 40 year old insurgence now linked to the cocaine trade, and the economy has been expanding at sustained rates for the last few years. "Today we have better trade policy instruments to substitute markets", said Luis Carlos Villegas, president of Colombia's Businessmen Association, in reference to the 2002/03 period. At the time Colombian entrepreneurs were able to redirect a billion US dollars in exports originally destined to Venezuela to other markets, in six months. "Now we're trained and should be more fluid".