Pushing through reforms for peace and development

In just a decade, advances in the fight against insurgent groups, coupled with long-term policies that have generated confidence among investors, have radically changed the way the world looks at Colombia. Since its 1999 real estate bubble crisis, Colombia has demonstrated economic strength, particularly in the midst of the global recession only a few years ago. On the political front, the government of President Juan Manuel Santos Calderón has maintained a dialogue over the past 18 months with the Revolutionary Armed Forces of Colombia (Fuerzas Armadas Revolucionarias de Colombia, FARC), with hopes of achieving peace after 50 years of internal conflict.

The possibility of a peace agreement has the potential to redefine not only the political climate in Colombia but also the economy – important for a country that still faces several challenges. High crime rates in major cities, coverage gaps in education and health, and a high inequality coefficient are some of the issues the government will work to tackle in the next four years. At the international level, maintains a policy of economic and diplomatic openness, combining strong bilateral relations and active participation in regional groups, most notably the Pacific Alliance (PA), which includes Chile, Mexico and Peru.

Background 

Colombia’s modern democratic system began with the election of President José Vicente Concha in 1914. Since then, the democratic system has undergone a constant process of improvement, with one exception. In 1953 rising violence led to the establishment of a military dictatorship by General Gustavo Rojas Pinilla, who sought to re-establish stability. Rojas Pinilla’s rule lasted until 1957, when the democratic system was re-established. By 1963, the FARC had emerged and the internal conflict officially started in the following year. For the next two decades – the 1980s and 1990s – the country experienced its darkest days, marked by drug trafficking, civil war and social disputes. In mid-1991 a new constitution was drafted, opening a new chapter for development.

A New Leaf

The election of President Álvaro Uribe Vélez on May 26, 2002, replacing Andrés Pastrana, changed the country’s political direction. Uribe’s strong confrontation of insurgent groups confined guerrillas to marginal areas, and helped restore confidence in Colombia as a country emerging from its troubled past. After two terms, Uribe was succeeded in 2010 by President Santos. The Santos government built upon Uribe’s economic policy of trade openness; however, this policy has faced considerable opposition, especially from the manufacturing and agricultural sectors, two of the industries most affected by the signing of treaties and opening of borders. Despite the concerns, steady economic growth has helped Colombia put itself on the map as a dynamic emerging market. “Colombia has experienced GDP growth in 74 of the last 75 years because of its prudent fiscal policies,” Edgar Botero, president of Millennium Development, a domestic development firm in charge of the Hispania resort in Cartagena, told OBG. Increasing global interest from investors saw Colombia attract a record $16.8bn in foreign direct investment in 2013.

Under President Santos, national policy regarding the conflict with insurgent groups took a different approach. In October 2012 the government began peace negotiations with the FARC, the largest guerrilla group in Colombia, a decision that rekindled the national debate between those who favour imposing peace through confrontation and those who prefer dialogue. The initiation of peace talks did not, however, bring violence to a stop. In fact, the number of guerrilla attacks on oil pipelines has risen. According to Ecopetrol, the first quarter of 2014 registered 33 attacks. This trend is expected to be reversed once the terms of peace are negotiated. The notion of a ceasefire while the talks were held was rejected by the government to stave off accusations that it would allow insurgents to rearm and resupply.

Politics

After a tight election decided in the second round, Santos was re-elected in June 2014 for another four-year term. In the first round, which had 60% abstentions, opposition leader Óscar Iván Zuluaga received 29.2% of the votes against 25.6% for Santos. Nonetheless, the incumbent president achieved a narrow victory with 50.95% of the vote in the second round, compared to his opponent’s 45%. The FARC peace talks were a major factor in the campaigns. Zuluaga is a close adherent to former President Uribe’s policy of rejecting negotiations with FARC.

After his victory, Santos promised continuity in economic policy. Thus, the 2014-18 period should be one of consolidation of regional blocs and improvement in bilateral relations with neighbouring countries, particularly Ecuador and Venezuela. In addition to strengthening the PA, the presidency of which is now held by Mexico, Colombia remains committed to signing trade agreements with potential partners.

Borders

Meanwhile, the Colombian government has been reluctant to implement the verdict of the International Court of Justice (ICJ) on the maritime borders between Colombia and Nicaragua in the Caribbean Sea. After the 2014 election, Santos told local media, “The resolution of the ICJ cannot be implemented. Borders will not be changed except through a treaty, as defined in our Constitution.”

On the domestic front, the most imperative priority of the re-elected government remains the successful conclusion of the FARC talks, which began in October 2012. Despite half a century of internal conflict, Santos keeps his message of hope. “The conditions for peace are being created,” he told reporters.

During the electoral period, opposition leader Zuluaga advocated direct military confrontation with the FARC and other insurgent groups such as the National Liberation Army (Ejército de Liberación Nacional, ELN). The election results showed that Colombians prefer dialogue rather than open warfare against rebellious groups – but only just. “Today’s message is also for the FARC and the ELN: This is the end of 50 years of violence,” Santos told local and international press at the time of his inauguration.

Regional Integration 

In recent years Colombia has dramatically opened its borders. In addition to strengthening its bilateral relations, the country has become part of numerous regional blocs. The first big grouping that Colombia joined was the Andean Community of Nations (Comunidad Andina de Naciones, CAN). Created in 1969, the CAN encompasses Bolivia, Ecuador, Peru and Colombia. Its existence was later complemented through its association with southern bloc Mercosur, another sub-regional trade bloc formed by Argentina, Brazil, Paraguay, Uruguay and Venezuela.

On the political front Colombia joined the Union of South American Nations (Unión de Naciones Suramericanas, UNASUR) in 2008. Since its establishment, UNASUR has sought out greater political and economic integration, pushing for the creation of a single currency following the EU model. However, the progress made by UNASUR in its six years of existence has been marginal. The bloc has created various councils that contribute through recommendations at the regional level in areas like innovation, health, pharmaceuticals, energy and finance.

Since its creation in 2011, the bloc that has perhaps brought most hope to Latin America is the PA, which is focused purely on economics and seeks to boost trade flows among member countries as well as with other parts of the world, especially Asia and the Pacific. In addition, the PA is working towards the free movement of people, goods and services among member states. While Colombia’s three partners in this bloc have extensively increased trade relations with Asia (and particularly with its largest economy, China) in the past three years, Colombia has hardly evolved in that regard. According to local newspaper and Honduras. The latest agreement to enter into force was the FTA with the EU, which became effective on August 1, 2013. Colombia is also waiting for its agreements with Israel, South Korea, Costa Rica, Panama, and among PA members to take effect. In addition, at the time of writing, Colombia is negotiating economic treaties with Japan and Turkey.

Economists from around the world have praised the Andean country’s policy of openness, though this has represented a challenge for the local manufacturing and agricultural industries. In the face of increased global competition, Colombia has intensified a programme to improve its transport infrastructure, in particular the efficiency and capacity of roads, ports and airports (see Transport chapter).

Peace Process

On September 4, 2012 the national government announced the beginning of a negotiation process with the FARC. The talks, which began in Oslo on October 18 and are continuing in Havana, aim to reach an agreement with the guerrilla group on a series of key points, including agricultural policy, participation of the FARC in national politics, drug policy, the end of the conflict, and the reparation process for victims. At the time of writing, the government and the FARC had reached a partial agreement on two issues, agricultural policy and political participation for the FARC, while negotiations continue for the remaining issues. One contentious area is a possible amnesty offering forgiveness of offences committed by members of the guerrilla group. Although the 2014 presidential election demonstrated that the majority of the population supports the peace talks, many agree that guerrilla warlords should be prosecuted for the crimes committed.

Although any agreements arising from the talks will have to be approved by referendum, the country is starting to prepare for the significant social, economic and demographic impact that a peace agreement would generate. To this end, the government recently created the Colombian Agency for Reintegration (Agencia Colombiana para la Reintegración, ACR). The institution is working on generating employment and reintegration opportunities for the guerrilla soldiers, while also raising awareness so that victims and offenders can live in peace. Alejandro Eder, general-director for the ACR, told OBG that this would be a timeconsuming and challenging process. “The demobilised soldiers will need to go through a psychological stabilisation process that lasts seven years, before being reintegrated into Colombian society,” Eder said. In addition to this difficult mission, the government will also have the task of relocating many military assets and properly developing the country’s unused countryside. Peace would have an enormous impact on economic development (see analysis).

Further Priorities

While peace negotiations dominated the electoral agenda, Colombia has a large number of other internal challenges that demand urgent attention. Social differences, particularly evident in large cities, have contributed to high crime rates. Rural areas also present significant problems although statistics from the National Administrative Department of Statistics (Departamento Administrativo Nacional de Estadística, DANE) are evidence that government efforts in this direction are beginning to show results. In 2013 there was a significant decline in the number of people living in poverty, according to DANE, with the overall level falling by 2.1% over 2012. The year ended with 30.6% classified as poor. In rural areas, where proportionately more people are affected by poverty, there was a drop of 4%, to 46.8%.

In economic terms, the government will continue working to reduce poverty and inequality, decreasing informality, and creating jobs in value-added sectors to reduce dependence on export revenues from the hydrocarbons industry. So far, levels of inequality have yet to fall. The Gini coefficient of the World Bank, which measures inequality, remained at 0.539 in 2013, the same figure as in the previous year. The eradication of coca crops, along with the illegal trafficking of cocaine and gold and other aspects of a large underground economy, require attention.

Outlook

President Santos nailed his political colours firmly to the mast during the election campaign. Though peace talks with the FARC were not the only important item in his manifesto, they were certainly the most contentious. The Havana discussions represent the best chance for internal peace in Colombia at any time in the past half-century. Though Santos himself is constitutionally barred from standing for a third term, it follows that the political fortunes of the president’s supporters rest heavily on the results of a process already taking longer than originally hoped.

A combination of economic liberalisation, FTAs and entry to a variety of trade blocs has produced steady growth over the past few years despite the global vagaries of the mining business and potential volatility in hydrocarbons. Diversification and higher levels of competitiveness should slowly overcome the downside of the raft of FTAs, highlighting as they have the inefficiencies of some parts of Colombian industry.