Previous Quarterly Editions
Expropriation Risk: 47 53 54 55 ► Political Violence Risk:60 60 60 60 ►Terrorism Risk:78 80 83 83 ▲Exchange Transfer and Trade Sanction Risk: 45 44 44 45 ►Sovereign Default Risk:57 57 +34 659859873 65 ►
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Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Medium Very HighAll protest: Low High
Cost-of-living protest risk in 2023*Wage protest: Medium Food/fuel policy protests: Medium
The election of President Gustavo Petro in June last year was a historic moment in Colombian politics, marking a break with decades of conservative rule and signalling a shift in the desires and priorities of the country’s electorate. As a former member of the M-19 guerrillas, Petro’s leftist leanings were clear to see, and with an Afro-Colombian environmental and human rights activist as his vice-president, he left little doubt in voters’ minds his government represented the change around which he has generated substantial expectations.
*Note: Protest intensity is calculated based on ACLED. Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of calculations, see the introductory essay.
Petro’s policy positions reflected the transformational aspirations of his supporters, including plans to end the war on drugs, achieve “total peace” with the country’s non-state armed groups, advance Colombia’s energy transition, and introduce substantive reforms in areas such as taxation, health and pension provision, and land ownership.
Almost immediately, the practical difficulties of achieving his stated aims also became clear. His success in securing a pro-government majority bloc in Congress was a notable achievement, but the need to include figures from a broad range of parties of varying political hues meant the bloc was fragile and that passing bills would require substantial negotiation and compromise, hindering radical change. Cabinet appointments reflected such dynamics, with individuals such as Petro of the Colombian Communist Party sitting alongside centrist Finance Minister José Antonio Ocampo of the Liberal Party.
If such challenges were not enough, Petro has come to power at a time of economic strain, amid high inflation, slow growth, and public debt amounting to more than 60% of GDP in the wake of the COVID-19 pandemic. With much of Colombia’s debt denominated in US dollars, and the peso relatively weak, interest rate hikes by the U.S. Federal Reserve have compounded the strain of debt repayment. A series of benchmark rate hikes by the Bank of Colombia took interest rates to 12.75% in January, as annual inflation topped 13.25%.
A 16% minimum wage hike this year will be welcomed by many, but could further exacerbate inflation, weighing on living standards. Unemployment, at 13.7% in January, was slightly down from 14.6% the previous year, but remains high. Poverty levels rose during the pandemic, from around 35% in 2019 to more than 42% in 2020, and while they have fallen somewhat since, they do not yet appear to have recovered to pre-pandemic levels.
Economic strain, political fragmentation, and high hopes of change among a long-suffering population make for a potentially dangerous combination. Petro’s public approval ratings in March fell to their lowest levels since he took office, seemingly affected by allegations of corruption against his son and brother, but most likely also reflecting wider frustrations with the direction of Colombia’s politics and economy.
Health reforms introduced to Congress on February 13 look likely to be diluted substantially, while political reform proposals were withdrawn by the government itself on March 23, on the basis they had been watered-down to the point of being ineffective. The government’s inability to address public concerns effectively and advance its agenda is likely to foster tensions among Petro’s support base and could begin to pose a threat to democratic norms.
Petro drew criticism in March 2023 for encouraging backers of his proposed health reform to take to the streets to demonstrate their support for the bill, the day after it was presented to Congress. Nearly 30,000 people are thought to have attended rallies, one of which Petro addressed directly in central Bogota. Such action could become increasingly common, particularly if Petro feels tempted to court support through populist rhetoric. Verbal attacks on opponents and state institutions could undermine faith in democracy and encourage unrest, though so too could public frustration alone, regardless of Petro’s response to it.
Petro has attempted to downplay fears of expropriation, going as far as signing an oath not to expropriate property during his election campaign, but land ownership has long been at the centre of the conflicts and injustices he claims to want 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. Petro’s stated aim is to buy millions of hectares of land.
Stated hopes peace talks with non-state armed groups might allow the army to access previously inaccessible areas of the countryside come alongside claims that newly secured areas of land might 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 with these sectors accounting for more than 40% of Colombian exports, he will not do so suddenly. Nor is he likely to attempt do so through expropriations, which would damage the reputation for economic prudence and stability he is cultivating. Instead, more gradual efforts will involve increased taxation of the extractive industries.
The Colombian Civil Aviation Authority’s recent approval of a controversial merger between national flag-carrier Avianca and low-cost airline Viva Air is not an example of expropriation, but it has raised concerns about the government’s ability or willingness to protect competition in sectors such as air transport.
Petro’s transformational, leftist vision for Colombia was always going to be a potential source of discord, and various reform moves have already 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 who are frustrated with his failure to achieve it.
While Petro has succeeded in creating a pro-government majority in Congress, it is fragile and based on compromise. Radical change will be difficult to achieve, generating anger among those who crave it. Petro’s own frustrations with the difficulties of moving reforms through Congress, and 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.
The delivery of new, stricter engagement guidelines to the widely disliked riot police (known as ‘ESMAD’), and a potential re-branding, may help to dampen the prospect of deployments exacerbating, rather than calming, violence. Instances of heavy-handed policing nevertheless pose an ongoing risk of human rights abuses.
Meanwhile, the pursuit of peace processes with so many diverse groups carries major challenges – early stages raise risks of heightened violence as groups vie for position and 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 talks.
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Petro’s premature announcement of a bilateral ceasefire with Colombia’s largest guerrilla group, the National Liberation Army (or ‘ELN’) on December 31, prompted an awkward moment in that group’s peace talks, with negotiators claiming not to have been consulted about the stated development. Negotiations nevertheless appear now to be advancing towards that goal.
Efforts to achieve ‘total peace’ initially saw more than 20 non-state armed groups express an interest in engaging in peace and demobilisation talks. That apparent initial success has since become tainted however, not least by allegations that Petro’s brother Juan Fernando accepted money from a drug cartel in exchange for its inclusion in the project. Juan Fernando is now facing an official investigation into the matter.
The total peace project was dealt another blow in late March, when Petro announced the suspension of a ceasefire with the Gulf Clan – Colombia’s largest criminal organisation – citing the group’s alleged support for protests by illegal gold miners in the departments of Antioquia and Cordoba. The miners’ strikes have seen the establishment of roadblocks and the destruction of an aqueduct, in which the government believes the Gulf Clan was involved.
Peace talks will encourage groups to make their presence felt, raising terrorism risks. While conflict between armed groups and with the security forces generally takes place in rural parts of Colombia, attacks intended to send a political message are more likely to involve urban targets.
Attacks on civilian populations would galvanise existing opposition to Petro’s peace strategy both political and public and could see criticism of the government spread more broadly. Meanwhile, high oil prices may encourage more attacks on oil infrastructure.
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A plunge in the value of the peso since Petro was elected in June (to more than COP4,700 to USD1 from around COP3,800 to USD1) is probably attributable partly to concerns around Petro’s economic policies, but also to U.S. monetary tightening.
A series of hikes by the US Federal Reserve have taken that country’s benchmark interest rate to a range of 4.75-5.0%, which is the highest level since 2007. The Bank of Colombia took interest rates to 12.75% in January, as annual inflation topped 13.25%, more than four-times the Bank’s 3% target. Both countries’ central banks have indicated that hikes are nearing an end.
High global oil prices boost Colombia’s export income, but Petro aims to phase-out extractives. While fertiliser subsidies may help to arrest increases in food prices, moves gradually to raise fuel prices and end subsidies of those could exacerbate inflation.
The approval by Congress of a record COP405.6 trillion budget for 2023 was a political triumph for Petro and should boost spending substantially in areas such as education and health, as well as on agriculture and social programmes. Whether such spending makes up for any perceived failures improving living standards, however, remains to be seen.
The government hopes to generate increased income through higher taxation of businesses (corporate tax rates are already among the highest among OECD countries) and of citizens on middle and upper incomes. Tax reforms effective from January kept the general corporate income tax rate at 35% but introduced surcharges in various areas, for example oil and coal extraction.
The central government’s overall deficit narrowed to 5.5% of GDP last year, according to the IMF, from 8.2% in 2021. Meanwhile, the IMF last year approved a two-year USD9.8 billion credit line for Colombia, and international reserves remain substantial, at around USD57 billion.
