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Expropriation Risk: 42 45 47 53 ▲ Political Violence Risk:60 60 60 60 ►Terrorism Risk:76 78 80 83 ▲Exchange Transfer and Trade Sanction Risk: 45 45 45 44 ►Sovereign Default Risk:57 57 57 57 ►
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Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
The June election of Gustavo Petro as Colombia’s first leftist president has raised largely unfounded concerns of a major realignment of Colombian foreign policy, away from longstanding Western allies. Such concerns, often stoked by Petro’s domestic critics, have been driven partly by Petro’s personal history of guerrilla membership, and partly by planned policies, such as the normalisation of diplomatic relations with neighbouring Venezuela.
This rapprochement, which is Petro’s initial foreign policy priority, does not sit entirely comfortably with the position of Washington, which still refuses to recognise Nicolas Maduro as Venezuela’s president. The move is nevertheless based on a pragmatic need to address matters of dual importance, from border trade to migration to dealing with non-state armed groups, some of which not only operate in border areas but have also expanded their operations from Colombia deep into Venezuelan territory.
Attempts by political opponents to liken Petro to former Venezuelan President Hugo Chavez during the election campaign failed to scupper Petro’s election hopes. His politically diverse cabinet and success in forming a pro-government majority in a highly fragmented congress have since demonstrated his political skill and pragmatic desire to ease market fears of a dramatic leftward shift. The realities of Colombia’s domestic politics and the need for legislative negotiating would constrain any effort by Petro to pursue such a shift, even if he wanted to.
The U.S. has long been Colombia’s closest ally, particularly in the military realm, with Washington having provided billions of dollars in funding over the last two decades, including for a counternarcotics strategy that has largely failed. Petro’s intention to pursue a new, less militarised, more holistic approach towards drugs, security, and rural development, involving peace talks, ceasefires, and drug decriminalisation, will probably be met with scepticism, and perhaps even hostility, in military circles both in the U.S. and Colombia. However, it is unlikely to break U.S.-Colombia ties.
Cuba’s hosting of upcoming peace negotiations between the Colombian government and the National Liberation Army (ELN) offers Havana a renewed, internationally high-profile role in a matter of great regional importance. It also points to improved Colombia-Cuba relations after the collapse of ELN talks in Havana in 2019, and Cuba’s subsequent refusal to extradite ELN negotiators. The arrangement is nevertheless pragmatic and does not represent a broader shift in Colombia’s geopolitical position.
Unlike former President Ivan Duque, who aligned with Washington in taking a staunchly pro-Ukraine stance regarding the Russia/Ukraine crisis, Petro has pursued a nuanced approach, emphasising the importance of peace, without vocally condemning Moscow’s actions. Such an approach maybe intended to smooth rapprochement efforts with Russian allies Venezuela and Cuba, as much as to avoid tensions with Russia itself. While it will do little to impress Colombia’s traditional Western allies, it does not place the country in Russia’s camp.
Chinese investment in Colombia has grown in recent years, with the awarding of major infrastructure projects, such as the construction of Line 1 of the Bogota Metro, to Chinese companies, prompting concern in the U. S.. While Chinese involvement in Colombia is likely to continue under Petro, it is part of a trend that pre-dates his presidency, was courted by Duque, and is reflected all over Latin America.
Petro has attempted to downplay fears of expropriation, 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.
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Petro’s transformational, leftist vision for Colombia was always going to be a potential source of discord, and proposed tax reforms have already prompted protests. The greatest threat of major social unrest ahead, however, may lie not with those who fear the consequences of Petro’s plans being realised, 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.
The delivery of new, stricter engagement guidelines to the widely disliked riot police (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.
Petro’s mission to achieve ‘total peace’ in Colombia so far appears to be advancing, with more than twenty non-state armed groups having reportedly expressed an interest in peace talks, and around half of those having agreed to enter a ceasefire. The pursuit of peace processes with so many diverse groups nevertheless poses major challenges. Early stages raise the risk 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.
With early-stage peace processes likely to encourage groups to make their presence felt, terrorism risks are high. 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 around COP4,600:USD1 from around COP3,800:USD1 is probably attributable partly to concerns around Petro’s economic policies. It is also partly to U.S. monetary tightening. A 75-basis-point benchmark interest rate hike by the U.S. Federal Reserve on September 21 was followed by a 100-point hike by Colombia’s Bank of the Republic on September 29. Over the last year, Colombia has increased its benchmark rate by 825 points, to 10%;, with further hikes looking likely as inflation rises.
Annual inflation hit 10.84% in August and a record 11.44% in September, nearly four times the 3% target of the Bank of the Republic. While high global oil prices boost Colombia’s export income, Petro’s desire to phase out extractives negates the likelihood of new fuel subsidies, which might help to ease inflationary pressures. Indeed, a COP200-per-gallon surcharge on petrol could rise, exacerbating inflation further. Subsidies of fertilisers are reportedly under consideration, as a way of bringing down food prices.
On September 13 Congress gave preliminary approval to a record COP405.6 trillion (USD93.3 billion) budget for 2023, with a view to delivering on Petro’s ambitious plans in areas such as rural development, education, and health. The government hopes to generate increased income through higher taxation of businesses, with corporate tax rates already being the highest among OECD countries, and of citizens on middle and upper incomes. Proposed tax reforms had been intended to raise an additional COP25 trillion next year, though congressional wrangling has since seen this reduced to COP22 trillion, and may yet push it down further.
The government is targeting a fiscal deficit of 5.6% of GDP this year and 3.6% next year.
The International Monetary Fund in April approved a new, two-year USD9.8 billion credit line for Colombia, and international reserves remain substantial, at nearly USD57 billion in August.
