Index trend
Previous Quarterly Editions
Expropriation risk: 54 49 49 49 ► Political violence risk:60 60 60 60 ►Terrorism risk:83 83 84 86 ►Exchange transfer and trade sanction risk: 45 45 45 45 ►Sovereign default risk:65 65 65 65 ►
Overall Risk Temperature: 64 (Significant) TREND ►
Special topic: Relationship with the 'global rules-based order'
In 2022 Gustavo Petro, a former member of the April 19 Movement (M-19) guerrilla group, became Colombia’s first-ever leftist president. His election raised concerns about the prospect of radical leftist politics taking hold and Colombia experiencing crises of democracy, diplomacy and the economy similar to those of Venezuela. Such concerns have proven unfounded.
Petro’s restoration of diplomatic ties with Venezuela (cut in 2019 under former President Ivan Duque) drew some criticism, particularly in light of opponents’ framing of him as a new Hugo Chavez. It was also practical, however, given the long border and close cultural and historic links that the countries share. Petro is generally more pragmatic than many critics gave him credit for, and congressional opposition has also constrained potentially more radical policies.
His presidency does nevertheless mark a departure from previous policies in numerous areas. He has sought to reduce the Colombian economy’s reliance on extractives, for example, emphasizing the need for an energy transition to address climate change. He has also proposed a new approach to tackling the cocaine trade, by shifting away from the U.S.-backed “war on drugs” — the militarized nature of which he considers to have been damaging to Colombia — toward a more holistic approach, based on rural development and treatment for drug users.
He has sometimes grouped these issues, criticizing humanity’s “addictions” to drugs, oil, coal, irrational power, profit and money. This stance has, at times, put him at loggerheads with Washington (Colombia’s long-standing ally), the United Nations (U.N.) and global financial actors such as the International Monetary Fund. Petro has suggested that the latter, and the broader global financial system, require reform. He shares this position with figures such as U.N. Secretary-General Antonio Guterres, who has claimed a need for institutions to better reflect the modern world and meet the needs of the Global South.
Petro has maintained U.S. ties, despite points of difference, and has sought to work within the existing structures of international organizations in suggesting reforms rather than attempting to break such institutions or force change from outside.
Petro presents himself as a defender of human rights and is a vocal proponent of peace, both within Colombia and elsewhere in the world. He has called for U.N. peace summits to seek solutions to the conflicts in both Ukraine and Gaza and, in so doing, provide examples of how to make peace elsewhere.
In some respects, he represents a radical move away from the traditional stances of Colombia’s political elite. He has expressed a desire for reform and shifts in global priorities, but he does not appear to have any intention of threatening the global rules-based or liberal international order.
TREND ►Petro has downplayed expropriation concerns, but land ownership has long been at the center of the conflicts and injustices he aims to address. Moves to do so look set to involve tax hikes on unproductive land to encourage owners to sell but are unlikely to involve direct seizures from legal owners.
Peace talks with non-state armed groups might allow the army to reach previously inaccessible areas of land that could be sold cheaply to poor farmers. With ownership of such land 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, but they account for more than 40% of Colombian exports, so he will not do so suddenly. Nor is he likely to attempt to do so through expropriations. Instead, more gradual efforts will involve increased taxation of the extractive industries.
A draft reform to the mining code (as yet unapproved) proposes banning new contracts for thermal coal exploitation and shortening mining exploration time frames. It would introduce tighter regulation and more stages of regulatory approval that could increase operational costs for mining firms. Mining operations would not necessarily be expropriated, but the private sector could face a much more difficult operating environment, with new rules affecting existing operations as well as new ones.
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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 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 will compound the difficulty of achieving the radical change promised during Petro’s election campaign, generating anger among those who crave it. The Senate’s recent impediment of a health reform bill demonstrates this dynamic, which is likely to be seen again with regard to pension reform, sowing political frustration.
Opposition politicians performed well in sub-national elections in October, particularly in urban areas. They do not affect Congress directly but give 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-state administrations.
Petro’s own frustrations with the difficulties of moving reforms through Congress — and the 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.
Protests are a regular occurrence across Colombia and raise the risk of heavy-handed policing and human rights abuses.
Bilateral government ceasefires with several of Colombia’s largest armed groups should help to ease terrorism risks somewhat; however, the recent partial suspension of a ceasefire with the Estado Mayor Central guerrillas demonstrates the fragility of such arrangements. Violence between non-state armed groups will continue, posing ongoing risks for civilians, as will acts of violence by groups that have not agreed to any cessation of hostilities.
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.
While conflict between armed groups and the security forces generally takes place in rural areas, attacks intended to send a political message are more likely to involve urban targets.
Attacks on civilian populations would galvanize existing opposition to Petro’s peace strategy both political and public and could see criticism of the government spread more broadly.
Having initially plunged in value against the dollar following Petro’s election in June 2022, the Colombian peso (COP) has strengthened again against the U.S. dollar (USD), to around COP3,900:USD1.
A series of hikes by the U.S. Federal Reserve took the U.S. benchmark interest rate to a range of 5.25% to 5.50% in July, where it has remained since; cuts may take place in the coming months. Colombia’s central bank raised interest rates to 13.25% in mid-2023 but dropped them to 13.00% in December and then to 12.75% in January. Inflation appears to be easing, at 7.74% in February, down from 8.35% the previous month; it nevertheless has some way to go before reaching the central bank’s 3% target.
High global oil prices boost Colombia’s export income, but Petro aims to phase out extractives. Moves to raise fuel prices and end subsidies could exacerbate inflation.
The approval by Congress last year of a record COP502.6 trillion budget for 2024 should help with debt repayment and boost spending substantially in such areas as education and health as well as on agriculture and social programs. Whether such spending makes up for any perceived failures to improve living standards, however, remains to be seen.
The government hopes to generate increased income through higher taxation of businesses and citizens on middle and upper incomes. Tax reforms effective as of January 1, 2023, kept the general corporate income tax rate at 35% but introduced surcharges in various areas, for example, oil and coal extraction. The government plans further tax reforms this year but has announced they will be delayed pending healthcare and pensions reforms. They are expected to propose a reduction in corporate tax to 30% and to increase taxation of higher-income taxpayers.
In February 2024, the government 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. It will use them to fund its peace strategy and budget plans. Bogota raised its fiscal deficit target to 5.3% of GDP in February, noting plans to implement counter-cyclical spending.
Colombia’s current account deficit at the end of 2023 represented 2.7% of GDP — its lowest level in 13 years. The country had substantial foreign exchange reserves of $59.5 billion in February — down slightly on December and January but up on most of 2023.
