Andean economies insulated from diplomatic strife

BOGOTA (Reuters) - The economies of Colombia, Venezuela and Ecuador will likely not be hurt by the diplomatic dispute that started last weekend with a Colombian military raid inside Ecuador, experts said on Thursday.

Trade between Colombia and Venezuela, which share a 1,400-mile border, has been limited to bare necessities, with Venezuela allowing in only perishable goods.

But considering the close links between the neighboring countries, economists do not expect the slowdown to last long.

"Colombia accounts for nearly a fifth of Venezuela's food supply," Royal Bank of Scotland analysts said in a research note. "With annual inflation running at 25 percent in Venezuela, a 'supply shock' would be a major blow for President (Hugo) Chavez."

Trade flows between Colombia and Ecuador have not been affected by the diplomatic rumble, and the 366-mile border is open.

The leftist governments of Venezuela and Ecuador are demanding that conservative Colombian leader Alvaro Uribe, a key U.S. ally in the region, apologize for the raid and promise never again to send troops into neighboring territory to chase down FARC leftist guerrillas.

"But there is plenty of reason to believe that the dispute will not escalate from here," the RBS analysts said.

Uribe has threatened to take Chavez to international court on charges of financing the FARC, which is labeled a terrorist organization by the United States and the European Union.

The last Chavez-Uribe diplomatic face-off, which had to do with the capture of a FARC rebel in Venezuela, lasted about one month and came at a time of record high popularity for Chavez. The Venezuelan leader is less popular at home this time around due in part to inflation pressures, the RBS note said.

Chavez, who has ordered tanks and war planes to the Colombian border, said on Wednesday he may nationalize Colombian company assets in Venezuela.

"Both sides are making threats that they probably cannot follow through on," said Pablo Casas, analyst at Bogota think-tank Security & Democracy. "Venezuelans need to buy the food and other goods that Colombia needs to sell. We need each other too much for this to escalate from here."

Colombia has not changed its view that gross domestic product will expand by 5 percent this year. But not all analysts are so sure the dispute will not take a toll.

"The diplomatic crisis will reduce (growth) another full percentage point and the Colombian economy will grow at 4 percent rather than 5 percent," said economist Mauricio Rodriguez, head of the CESA private business school in Bogota.

But HSBC Securities is standing by its prediction of 5.65 percent Colombian economic growth this year, 2.2 percent expansion in Ecuador and 7 percent growth in OPEC-member Venezuela, powered by high oil export revenues.

Just as Venezuela depends on Colombian food exports, Ecuador relies heavily on Colombian energy exports, mostly electricity, said Maya Hernandez, who follows Latin America for HSBC in New York.

"The trade relationship between Ecuador and Colombia is small but growing. (Ecuadorean President Rafael) Correa may get a nationalistic boost in his popularity from this dispute, but he's not likely to take it too far," Hernandez said.

(Reporting by Hugh Bronstein; Editing by Dan Grebler)