Index trend
Previous Quarterly Editions
Expropriation risk: 54 54 53 56 ▲ Political violence risk:60 66 66 66 ►Terrorism risk:84 86 86 90 ▲Exchange transfer and trade sanction risk: 45 45 45 45 ►Sovereign default risk:65 65 65 65 ►
Overall Risk Temperature: 69 (Medium high 2) TREND ▲
Special topic: Political polarization
Polarization is a deeply engrained feature of politics in Colombia, where the long-standing dominance of right-wing elites in past decades fostered the emergence of leftist guerrilla groups set on advancing change by violent means. The dedication of such groups to their founding ideological principles is now highly questionable, with factors such as the pursuit of power in localized areas and the temptation of drug money influencing members. However, their continued existence — and that of right-wing paramilitary groups established to counter them — is a glaring manifestation of the polarization that continues to characterize Colombian politics.
The election in 2022 of President Gustavo Petro — himself a former member of the April 19th Movement (M-19) guerrillas — marked a major breakthrough for the Colombian left, proving that leftist presidents could be elected, that the perceived monopoly of the right over the country’s top political positions was not unbreakable and that peaceful democracy was a viable route forward. However, the difficulties that Petro has faced in advancing his agenda, and his handling of those difficulties, have again highlighted, and potentially worsened, ideological polarization among politicians and the public alike.
Recent examples of the challenges faced by the Petro administration include the blocking by the Senate of labor reforms to boost workers’ rights. This prompted protests and calls by Petro for the matter to be put to the public, alongside health reforms, in a binding referendum that, if successful, would effectively bypass Congress. Petro’s often undiplomatic rhetoric feeds into society’s polarization, with claims that a corrupt oligarchy has betrayed the Colombian people echoing the rhetoric used by guerrilla groups in decades past.
The frustration felt by many on the Colombian left, over a leftist government having taken power only to have its plans routinely thwarted, has the potential to foster political violence and undermine faith in the democratic system. While the current political turmoil will certainly cement existing polarization, the extent to which it might worsen it — in a society that has for so long been split between the left and the right — is difficult to gauge.
TREND ▲Land ownership lies at the center of the conflicts and grievances that Petro aims to address. He has long advocated land reform and the establishment of agrarian courts to help settle complex questions of land ownership. Progress on this issue has always been slow, and with a long backlog of cases to address, it looks likely to remain so.
Recent population displacement due to violence in Catatumbo prompted the government to issue a decree (under a state of emergency) facilitating the acquisition, and possible expropriation, of land there with the purpose of returning displacement victims.
The government has nevertheless generally favored land redistribution through voluntary purchases and business deals, rather than by direct seizure from legal owners.
Peace talks with non-state armed groups in various parts of the country might allow the army to access previously inaccessible areas of land that could be sold cheaply to poor farmers. However, the ending of talks with several major groups and factions recently reduces the likelihood of that happening on any great scale. Ownership of any land that is pacified could also be contested, raising 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 a substantial proportion of Colombian exports, he has tread 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.
The introduction of tighter regulation and more stages of regulatory approval in industries such as mining could increase operational costs for 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 an increasingly difficult operating environment.
With the government lacking a clear majority in the legislature, the passing of reforms that are in any way controversial are also likely to run into difficulty.
TREND ►
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 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 Petro’s election campaign, generating anger among those who crave it. While a pension reform gained congressional approval in June 2024, that followed a Senate vote to shelve a health reform bill the previous April. The Senate commission that shelved that reform did the same with a labor reform in March this year and could potentially shelve a health reform bill again imminently.
Petro has accused the Senate of creating an “institutional blockage,” which should be broken by the people in a referendum. Should such a vote go ahead, it could prompt unrest whatever the result; if the move is blocked, Petro could encourage street demonstrations in protest.
Petro’s frustrations with the difficulties of advancing his agenda were recently laid bare in a live, televised cabinet meeting in which he slammed his team for its apparent failure to deliver his campaign promises, claiming, “The president is a revolutionary; the government is not.” While the public spectacle of cabinet infighting was highly unusual, Petro’s outspokenness generally is not and may intensify as his term nears its end and more goals prove to be out of reach.
More populist rhetoric and attempts to cast blame could feed anger with state institutions and deepen sociopolitical tensions. With protests already a regular occurrence across Colombia, risks of heavy-handed policing and human rights abuses are ever-present. Petro’s governance style will do little to ease those risks.
TREND ▲
Petro’s ‘Total Peace’ project has faltered of late, with major guerrilla organizations abandoning negotiations or fragmenting due to internal disagreements over how to move forward. An outbreak of violence between the National Liberation Army (ELN) and dissidents of the former Revolutionary Armed Forces of Colombia (FARC) in Norte de Santander in January saw dozens killed and thousands displaced, ending government peace talks with the ELN. ELN violence has since intensified in other parts of the country.
Two FARC dissident groups — the Central General Staff (EMC) and the Segunda Marquetalia — have fragmented over the past year, further perpetuating violence and reducing the prospect of a negotiated end to conflict. The government’s launch of “Operation Perseus” in Cauca in October has prompted a backlash by the EMC, which has seen violence in that region soar.
While negotiations with other non-state armed groups, such as the Gaitanist Self-Defense Forces of Colombia, are moving forward, they are fragile.
The recent breakdowns of peace talks demonstrate the difficulties inherent in pursuing peace with multiple, diverse non-state armed groups. 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 talks or ceasefires 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 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 in the months following Petro’s election in June 2022 to a low of more than 5,000 Colombian pesos to the U.S. dollar, the peso has recovered to around 4,300.
The U.S. Federal Reserve in March kept its target interest rate range at 4.25% to 4.50%. Colombia’s central bank has been gradually reducing its rate, from 13.25% in June 2023 to 9.50% currently. Annual inflation hit a four-month high of 5.28% in February, before easing to 5.09% in March — its lowest level since October 2021. The central bank has abandoned its 3.0% target for 2025, revising its inflation outlook for the year to 4.1%.
The U.S. is Colombia’s main trade partner, accounting for more than one-quarter of Colombia’s exports. It had a goods trade surplus with Colombia of $1.3 billion in 2024, suggesting that Colombia may avoid tariffs beyond the 10% recently announced by the Trump administration. Washington has nevertheless shown its willingness to weaponize tariffs in its pursuit of political goals. A diplomatic spat in January over U.S. migrant deportations saw U.S. President Donald Trump threaten substantial tariffs on Colombian imports. A recent trip to Bogota by U.S. Homeland Security Secretary Kristi Noem appears to have eased bilateral tensions since then.
Migration nevertheless remains one of several issues of importance toward which the Trump and Petro administrations have vastly different attitudes and preferred approaches. Disagreements on this and other matters such as coca eradication, security and foreign policy are likely to generate friction with Washington, which could use tariffs as leverage in efforts to bend Bogota to its will.
The finance ministry has had a turbulent few months, with Ricardo Bonilla resigning from the position of finance minister in December amid a corruption scandal, and his successor, Diego Guevara, resigning in March and replaced by German Avila. Guevara’s reasons for leaving after such a short stint in the post have not been confirmed, but reports suggest his decision may have been related to disagreements over budget cuts and the Senate’s blocking of reforms.
Lawmakers in December rejected a tax reform proposal intended to lower corporation tax for companies except those in the oil and gas sectors and increase VAT, taxes on the very wealthy, carbon tax and taxes on activities such as online gambling. They also rejected a planned budget for 2025 of 523 trillion Colombian pesos (COP), claiming it to be unrealistic, citing lower-than-projected tax collection and potentially overambitious tax avoidance and evasion reduction targets.
The lawmakers’ position forced the government to rethink its plans and to push through a reduced COP511 trillion budget by decree. Avila confirmed on March 27 that the government would also pursue a new tax reform targeting economic sectors with the capacity to pay more and seeking to avoid hitting workers or small businesses.
Colombia secured a two-year $8.1 billion flexible credit line agreement with the International Monetary Fund in April 2024, with the fund citing the country’s “strong economic fundamentals.” However, lower-than-expected tax revenues in 2024 saw the country’s fiscal deficit hit 6.8% of GDP, exceeding the government’s 5.6% target.
Doubts about the fiscal balance and the government’s ability to address it quickly saw Fitch Ratings lower the country’s outlook in March to negative from stable; it kept the country’s credit score at BB.
Colombia recorded a current account deficit in December of $2.2 billion, up from $1.7 billion in the third quarter and $1.6 billion in the second.
The country’s foreign exchange reserves hit $63.5 billion in February.