Index trend
Previous quarterly editions
Expropriation risk: 49 49 54 54 ► Political violence risk:60 60 60 66 ▲Terrorism risk:83 84 86 86 ▲Exchange transfer and trade sanction risk: 45 45 45 45 ►Sovereign default risk:65 65 65 65 ►
Overall Risk Temperature: 68 (Medium high 2) TREND ▲
Special topic: Gray zone aggression
Degree to which the country relies on outbound gray zone action to achieve its strategic objectives1 = Not at all5 = Gray zone action is a core tactic
2
Impact of inbound gray zone attacks on the country1 = Negligible impact5 = Significant impact on economic growth and/or political stability
The Petro administration has tended not to engage in gray zone aggression toward other states, generally preferring to focus on domestic issues and foreign policy matters that directly affect Colombian domestic affairs.
President Gustavo Petro has been an outspoken critic of Israel’s action in Gaza and has taken numerous measures against the country, including severing diplomatic ties and suspending coal exports there. He and his government have nevertheless been upfront in their actions and open about the reasoning for and intentions behind them.
Petro’s Colombia has also been broadly spared gray zone aggression by others. While ostensible plans by Panamanian President Jose Raul Mulino to “close” the Darien Gap would, if effective, risk exacerbating migration challenges on the Colombian side of the border, that outcome would almost certainly be an unintended effect of the policy. Mulino’s motivations hinge largely on his own country’s migration issues and, possibly, a desire to forge stronger relations with Washington.
Tense relations between past Colombian administrations and Caracas have fed rumors of the Venezuelan government helping Colombian guerrilla groups operating in areas along the Colombia-Venezuela border, and numerous non-state armed groups do still have a presence on both sides of the frontier. However, Petro has made great efforts to restore ties with Caracas and re-normalize bilateral relations.
Caracas has become a guarantor of peace talks between the Petro administration and Colombian non-state armed groups and has hosted rounds of peace negotiations.
While Petro’s calls for democratic transparency in the wake of this year’s Venezuelan elections may have riled President Nicolas Maduro, relations will probably remain cordial, particularly as long as Petro continues to condemn U.S. sanctions against Venezuelans.
The return to office of a conservative administration after Colombia’s 2026 elections would probably see Colombia-Venezuela relations sour once again and could precipitate new gray zone aggression against Colombia on Caracas’s part, in the form of assistance for non-state armed groups. That scenario is probably all the more likely given the recent breakdown of peace talks between Bogota and the National Liberation Army (ELN) — one of Colombia’s largest guerrilla groups, and one that operates extensively within Venezuela.
For the moment, however, Colombia remains neither a perpetrator of, nor a particular victim of, significant gray zone aggression.
TREND ►Land ownership has long been at the center of the conflicts and injustices that Petro aims to address. He reiterated calls at the UN Security Council in July for a hastening of land reform as a way of underpinning Colombia’s peace efforts and has also espoused the establishment of agrarian courts to help settle complex questions of land ownership.
However, progress on this issue has always been slow, and with a long backlog of cases to address, it looks likely to remain so. Land redistribution, where it is achieved, is more likely to come about as a result of voluntary purchases and business deals than direct seizures from legal owners.
Peace talks with non-state armed groups might allow the army to access previously inaccessible areas of land that could be sold cheaply to poor farmers. With ownership of that land also likely to be contested, however, such action would raise potential for discord.
Petro has long expressed a desire to move the Colombian economy away from its reliance on oil and gas. With these sectors accounting for more than 40% of Colombian exports, he has trod fairly carefully, but gradual efforts to increase taxation or regulation could create challenges for extractive industry players, as could environmental protection legislation, which has at times resulted in legal challenges involving mining firms and the state.
Mining reform plans involve banning new contracts for thermal coal exploitation and giving the state priority in mining strategic minerals. The introduction of tighter regulation and more stages of regulatory approval could increase operational costs for mining firms. While mining operations would not necessarily be expropriated, and existing operations would probably be less affected than new ones, the private sector could face a much more difficult operating environment.
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Petro’s transformational, leftist vision for Colombia was always going to be a source of discord, and various reform moves have prompted demonstrations and counter-demonstrations. The greatest threat of major social unrest ahead, however, may lie not with those who fear the consequences of Petro’s plans being realized but rather with those who share his vision but are frustrated with his failure to achieve it.
Petro’s pro-government congressional majority crumbled less than a year into his presidential term. That has compounded the difficulty of achieving the radical change promised during his election campaign, generating anger among those who crave it. The Senate voted to shelve a health reform bill in April, and while a pension reform gained congressional approval in June, challenges to its legality have seen it held up in the Constitutional Court. Petro has encouraged street demonstrations over these issues and others, while opponents of the government have staged protests against the changes.
Strong performances by opposition politicians in sub-national elections in October 2023, particularly in urban areas, do not affect Congress directly but have given opposition representatives more leverage with which to hinder the government’s agenda. Tensions between the national government and local leaders could likewise impede the implementation of certain policies and influence government financial transfers to unfriendly sub-national administrations.
Petro’s own frustrations with the difficulties of moving reforms through Congress, and his need to shore up support, could encourage him to pursue more populist rhetoric and attempt to cast blame, inadvertently feeding anger with state institutions and deepening tensions.
An attack by the ELN on a military base in Arauca in September has dealt a major blow to Petro’s Total Peace project. The attack, which left two dead and 26 injured, appears to have come in response to the government’s decision to negotiate separately with a dissident ELN faction and came after a bilateral ceasefire had lapsed. Petro nevertheless said in the aftermath that it has likely put an end to the peace process.
Peace talks with the Central General Staff have also faltered, and while negotiations with other major non-state armed groups — such as the Segunda Marquetalia and the Gaitanist Self-Defense Forces of Colombia — are moving forward, they are fragile.
Petro’s pursuit of peace processes with diverse non-state armed groups carries major challenges; early-stage talks raise risks of heightened violence as groups vie for attention and seek to establish strong bargaining positions, while later stages pose risks of spoiler attacks by groups, factions or individuals who disagree with the direction of negotiations.
Violence between rival non-state armed groups — including those that have agreed to ceasefires or talks with the government — will continue, posing ongoing risks for civilians. Critics of peace negotiations claim groups act in bad faith, using the relative calm of ceasefires to strengthen their positions rather than to work toward securing peace.
While conflict between armed groups and with the security forces generally takes place in rural areas, attacks intended to send a political message are more likely to involve urban targets.
Direct attacks on civilian populations would galvanize existing political and public opposition to Petro’s peace strategy and could see criticism of the government spread more broadly.
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Having initially plunged in value against the dollar in the months following Petro’s election in June 2022, to a low of more than COP 5,000 to the U.S. dollar, the peso recovered, to around COP 3,800 in April, and has since weakened again, to just over COP 4,000.
The U.S. Federal Reserve in September announced a benchmark interest rate cut of 50 basis points, taking it to the 4.75% – 5.00% range and signaling the end of a period of tightening. Colombia’s central bank has been gradually reducing its rate, from 13.25% in June 2023, to a two-year low of 10.25% in late September 2024, when it announced a fifth consecutive 50-basis-point cut. Inflation has been easing with annual inflation standing at 6.12% in August. That remains some distance away from the central bank’s 3.0% target, and while the central bank recently revised its inflation outlook for the year to 5.7%, from 5.5% previously, it expects to reach 3.0% in 2025.
Moves to gradually raise fuel prices and end subsidies could exacerbate inflation. Nationwide lorry-driver strikes against such moves were resolved in September with a government promise to implement a lower-than-planned price hike, but the government maintains that it needs to ease the burden of fuel subsidies on the state.
A fiscal reform plan and a COP 523 trillion budget proposal for 2025 have met with opposition in Congress, but the government looks determined to push them through, potentially by decree, according to Finance Minister Riccardo Bonilla. The government hopes to address a COP 12 trillion budget deficit through fiscal reform, which would lower corporation tax for companies except those in the oil and gas sectors, while increasing value-added tax, taxes on the very wealthy, carbon tax and taxes on activities such as online gambling.
Critics in Congress reject the tax hikes and argue that the budget is unrealistic, citing lower-than-projected tax collection and potentially overambitious tax avoidance and evasion reduction targets.
The government in February announced the signing of several new loan agreements with German state development bank KfW and the Inter-American Development Bank, worth around $1.2 billion, to fund its peace strategy and budget plans. Falling tax revenues and lower profits at companies such as state oil firm Ecopetrol later saw the government pursue further loan deals, securing, as a precautionary measure, an $8.1 billion flexible credit line agreement with the International Monetary Fund in April.
The government raised its fiscal deficit target to 5.3% of GDP in February, noting plans to implement counter-cyclical spending; it has since increased that to 5.6%.
Colombia’s current account deficit in the second quarter of 2024 was $1.6 billion, representing 1.6% of GDP — down from 2.7% at the end of 2023, a level which, at that time, was Colombia’s lowest in 13 years. The country’s foreign exchange reserves hit an all-time high in August, of $62.8 billion.
