Colombia

Politics:

• Analysis

  Colombia politics: Quick View - Santos changes strategy to boost his popula

  Event

  The administration of the president, Juan Manuel Santos, launched a new communications strategy aimed at increasing its popular support base ahead of the general elections, scheduled for March (legislative) and May (presidential) 2014.

  Analysis

  According to polls conducted between late February and early March, Mr Santos's popular approval ratios declined rapidly, to new lows, on account of widespread discontent about the deterioration of security conditions, poor health services, high unemployment, and, last but not least, slow progress in the peace process with the leftist guerrillas, the Fuerzas Armadas Revolucionarias de Colombia (FARC).

  While Mr Santos maintains relatively solid political backing to pass his main initiatives in Congress (although lawmakers will be more reluctant to approve unpopular measures as the general elections approach), his new communications strategy is strongly focused on improving his approval ratings. In this context, the government communications team has just been revamped, increased government co-ordination (with more frequent cabinet meetings) has been announced, and a new slogan has been adopted using the president's initials: J.M.S., "for a Just, Modern, and Secure country". The president is also increasing his public appearances to make strategic announcements. For example, Mr Santos (unusually) accompanied his minister of health to Congress to submit a contentious health reform in January.

  On the economic front, the president has become more vocal about asking the Banco de la Republica (Banrep, the central bank) to intervene in the exchange market to curb currency appreciation and lower interest rates further. Likewise, it is expected that in coming days the administration will announce new measures to boost key labour-intensive sectors, such as agriculture and manufacturing.

  In regards to the peace process-the government's flagship policy-Mr Santos has become visibly more upbeat about the possibility of reaching a peace agreement in the coming months, based on recent reports of progress in negotiations on agricultural issues (the first of the five topics on the negotiation agenda).

  March 20, 2013

• Background

  Colombia: Political forces at a glance

  Political outlook: Political forces at a glance

  Government: The centre-right president, Juan Manuel Santos, began his four-year mandate in August 2010. His broad "National Unity" coalition gives him almost 90% of the votes in the bicameral Congress (legislature), which consists of a 166-member Chamber of Representatives (the lower house) and a 102-member Senate (the upper house). Mr Santos's centre-right Partido Social de Unidad Nacional (Partido de La U), founded in 2004 and composed of dissidents from the traditional parties-the centre-right Partido Conservador (PC) and the centre-left Partido Liberal (PL)-is the largest party in both chambers of Congress. The coalition is made up of the PC, PL, the centrist Cambio Radical (CR) and, most recently, the Partido Verde (PV), whose candidate Mr Santos defeated in the June 2010 run-off election. The coalition has displayed significant discipline, voting according to the executive's plans. This reflects Mr Santos's abilities as a negotiator and power-broker. The coalition is likely to remain in place until the May 2014 presidential election, but parties will run independently at the March 2014 legislative poll. The leftist Polo Democrático Alternativo (PDA)-which has been weakened by significant defeats in the October 2011 regional election and corruption cases involving its leadership-is the only opposition to the Santos government in the legislature.

  Parliamentary forces, 2010
  (no. of seats)
  Party	Chamber of Representatives	Senate
  Partido Social de Unidad Nacionala	48	28
  Partido Conservador (PC)a	36	22
  Partido Liberal (PL)a	38	17
  Partido Cambio Radical (CR)a	16	8
  Partido de Integración Nacional (PIN)	11	9
  Polo Democrático Alternativo (PDA)	5	8
  Partido Verde (PV)	3	5
  Other Parties	9	5
  Total	166	102
  a Pro-Santos forces.
  Source: Congreso de la República de Colombia.

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  Next elections: Legislative, March 2014; presidential, May 2014; municipal and regional, October 2015.

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  June 21, 2012

• Structure

  Colombia: Political structure

  Official name

  Republic of Colombia

  Form of government

  Democratically elected representative system with a strong executive

  Head of state

  The president, elected for a four-year term; (consecutive) re-election is possible for a second term

  The executive

  The president heads the cabinet

  National legislature

  Bicameral Congress; the 102-member Senate (the upper house) and 166-member Chamber of Representatives (the lower house) are both directly elected for four-year terms

  Legal system

  A national Supreme Court and a Constitutional Court; regional, municipal and district courts

  National elections

  The next legislative election is due in March 2014 and the next presidential election is due in May 2014

  National government

  Juan Manuel Santos, of the Partido Social de Unidad Nacional (Partido de la U) won the June 2010 presidential run-off election and began his term in office on August 7th 2010. Mr Santos has a healthy majority in Congress, backed by the Partido Conservador (PC), the Cambio Radical (CR), Partido Liberal (PL) and Partido Verde (PV)

  Main political organisations

  Following the March 2010 congressional election, the Partido de la U, PC, CR and PL vote with the government. The PV joined the coalition in 2011. The Partido de Integración Nacional (PIN) is on the far right, and the Polo Democrático Alternativo (Polo) represents the left

  Key ministers

  President: Juan Manuel Santos

  Vice-president: Angelino Garzón

  Agriculture: Juan Camilo Restrepo

  Commerce, industry & tourism: Sergio Díaz-Granados

  Culture: Mariana Garcés Córdoba

  Defence: Juan Carlos Pinzón

  Education: María Fernanda Campo

  Environment: Juan Gabriel Uribe

  Finance: Mauricio Cárdenas

  Foreign affairs: María Ángela Holguín

  Health: Alejandro Gaviria

  Housing: Germán Vargas Lleras

  Interior: Fernando Carrillo

  Justice: Juan Carlos Esguerra

  Labour: Rafael Pardo Rueda

  Mines & energy: Federico Renjifo

  Technology & communications: Diego Molano Vega

  Transport: Cecilia María Álvarez

  Central bank president

  José Darío Uribe

  March 19, 2013

• Outlook

  Colombia: Key developments

  Outlook for 2013-17

  • Peace negotiations between the government and the FARC guerrillas will dominate the political scene in the short term, with important implications for the government's political agenda if the talks fail.
  • Although his approval rating is often volatile, a limited number of high-profile contenders and high fiscal spending will boost the chances of the president, Juan Manuel Santos, gaining a second term in May 2014.
  • Mr Santos will continue to promote more inclusive growth to reduce inequality and encourage job creation, but structural bottlenecks and still-difficult global conditions will reduce policy effectiveness.
  • After slowing sharply to an estimated 3.7% in 2012, GDP growth will gather pace in 2013-17 (to an annual average of 4.6%), helped by gradual improvements in the business environment and by strong investment growth.
  • A steady consolidation of the public finances, underpinned by a fiscal rule restricting the structural fiscal deficit to 1% of GDP, will lead to a gradual reduction of the overall public debt, to 28.2% of GDP by 2017.
  • Monetary easing is forecast to continue in 2013, but Banrep is likely to raise policy rates later in the forecast period as growth picks up and interest rates in OECD countries begin to rise.
  • The peso will remain strong in 2013-17, reflecting continued positive interest rate differentials with developed countries and ongoing large inflows of FDI into the hydrocarbons industry and mining sector.

  Review

  • Mr Santos's popularity fell to 47% in mid-February from 60% at the start of 2013, partly reflecting increasing voter distrust in the peace process.
  • Seeking to enter the peace negotiations with the FARC, the smaller ELN guerilla group is trying to raise its profile by increasing violence.
  • The government has announced its intention to submit to Congress a package of reforms to the pension and health regimes in order to guarantee financial sustainability and increase coverage.
  • Growing domestic opposition to mining (and in particular to foreign multinationals) is putting the government's plans for the sector and foreign investment at risk.
  • The national unemployment rate fell to 10.4% in 2012, 0.4 percentage points below the 2011 figure and the lowest level recorded since the beginning of the data series in 2001.

  March 19, 2013

Economy:

• Background

  Colombia: Country fact sheet

  Fact sheet

  Annual data	2012a	Historical averages (%)	2008-12
  Population (m)	48.2	Population growth	1.4
  GDP (US$ bn; market exchange rate)	365.7	Real GDP growth	3.7
  GDP (US$ bn; purchasing power parity)	498.8b	Real domestic demand growth	4.8
  GDP per head (US$; market exchange rate)	7,593	Inflation	4.0
  GDP per head (US$; purchasing power parity)	10,356b	Current-account balance (% of GDP)	-2.8
  Exchange rate (av) Ps:US$	1,798	FDI inflows (% of GDP)	3.6
  a Actual. b The Economist Intelligence Unit estimates.

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  Background: Since becoming a republic in 1819, Colombia has been plagued by political violence. Power-sharing deals between liberals and conservatives reduced violence in the early 1960s, but excluded other political forces, which contributed to the emergence of guerrilla groups. Colombia's economic track record has generally been one of the best in the region in recent decades. After booming in 2010-11, following a weak period in 2008-09, the economy started to lose momentum in 2012 as credit growth slowed and the implementation of public programmes was delayed.

  Political structure: Colombia is a unitary republic. The president heads the executive branch and is elected for a four-year term, with the possibility of being re-elected for a second term. Legislative power is vested in Congress (the legislature), which consists of the Senate (the upper house) and the Chamber of Representatives (the lower house), both elected by popular vote for four years. The Partido Social de Unidad Nacional (Partido de la U)-founded in 2004 by dissidents from the main traditional parties, the Partido Liberal (PL) and the Partido Conservador (PC)-became the majority political force after the March 2010 legislative election. The judicial system is composed of the Constitutional Court, the Supreme Court, the Council of State, the office of the prosecutor-general, tribunals and judges.

  Policy issues: Orthodox, market-friendly policies have been in place since 2000 and underpin stability for investors. Policymaking will focus on boosting economic growth through reforms to fiscal policy and some aspects of the business environment. The government will target social and infrastructure spending to reduce still-high levels of poverty and to boost competitiveness and trade links. Land restitution is set to take place in the forecast period, but significant capacity obstacles persist. The public debt/GDP ratio is set to fall over the medium term, bolstering debt sustainability. Reforms are needed to improve labour flexibility and lower non-wage costs.

  Taxation: The top rate of income tax fell from 38.5% in 2007 to 33% in 2009. Free-trade zone (FTZ) legislation offers investors a lower, 15% rate and investor stability contracts are available, shielding new investments from adverse changes in taxes. There is a 0.4% debit transactions tax. The administration of the president, Juan Manuel Santos, will seek to widen the value-added tax (VAT) base and eliminate income-tax exemptions.

  Foreign trade: Firm prices for commodity exports (in particular, oil) and increased production compensated for a sharp import rebound in 2010-11. On the back of these trends, the deficit on the current account declined to 3% of GDP in 2011.

  Major exports 2011	% of total	Major imports 2011	% of total
  Petroleum & petroleum products	49.1	Intermediate goods	38.7
  Coal	14.7	Capital goods	35.0
  Coffee	4.6	Consumer goods	18.9
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  US	37.9	US	28.8
  Netherlands	4.2	China	11.7
  China	3.8	Mexico	7.9
  Ecuador	3.6	Brazil	5.2

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  March 19, 2013

• Structure

  Colombia: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 19, 2013

• Outlook

  Colombia: Country outlook

  Colombia: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: In 2013-17 the political scene will be dominated by security issues and by rising challenges to the government's development model. In the short term, attention will focus on peace negotiations between the government and the Fuerzas Armadas Revolucionarias de Colombia (FARC) guerrillas. The attempt by the president, Juan Manuel Santos of the centre-right Partido Social de Unidad Nacional (Partido de la U), to end the 50-year conflict is a bold political move intended to bring further institutional strengthening and development, particularly to rural regions. However, the risks to the outlook in terms of achieving progress in this area are substantial, and include delaying tactics by the FARC to weaken the government's position and failure by the government to guarantee the security of demobilised combatants. The government's biggest challenge over the long term will be to ensure that the negotiations lead to long-lasting peace and that demobilised members of the FARC rejoin civilian life, rather than regrouping in criminal bands involved in drug-trafficking.

  ELECTION WATCH: The next legislative and presidential elections are set for March and May 2014 respectively. Although Mr Santos's re-election chances are dependent to a large extent on security issues and progress with peace talks--with polls showing little public support for the president's policies and re-election--his position will be boosted by higher fiscal spending on disadvantaged groups. In addition, assuming that the Unidad Nacional coalition--composed of the Partido de la U, the centre-right Partido Conservador (PC), the centre-left Partido Liberal (PL), the centrist Cambio Radical (CR) and the centrist Partido Verde (PV)--remains relatively united until the end of Mr Santos's term, the number of high-profile contenders will be limited, ensuring less competition for the incumbent. Mr Uribe is constitutionally barred from running for president ever again, but he is likely to head a group of right-wing legislators, or even run as vice-president on a new right-wing political ticket. However, this group's electoral appeal will remain limited (due to its more radical stance), as will that of the leftist Polo Democrático Alternativo (Polo), which has been weakened by corruption scandals. Barring a complete failure to reach a peace agreement, or a significant rise in social discontent in the next 12 months, the Economist Intelligence Unit expects Mr Santos to retain the presidency in 2014-18, assuring policy continuity.

  INTERNATIONAL RELATIONS: Colombia's external relations under Mr Santos will be driven by pragmatic considerations, with an emphasis on further economic integration with countries along the Pacific Rim of the Americas--particularly Chile, Mexico and Peru--to increase trade and investment flows. The government will also seek to maintain a conciliatory stance with its neighbours, particularly Venezuela. A ruling by the International Court of Justice (ICJ) granting Nicaragua a larger area of maritime territory around the San Andrés archipelago (which is part of Colombia) has created some diplomatic tensions. However, the risk of a prolonged conflict is very small, as is the risk of a renewed deterioration of diplomatic and trade relations with Venezuela. Although military and financial assistance under Plan Colombia (US legislation aimed at curbing drug-smuggling) will gradually decline, the US will remain a key ally, with trade and investment flows between the two countries benefiting from a free-trade agreement (FTA) that came into force in early 2012. Following the implementation of FTAs with Western trade partners (Canada and the EU), Colombia will concentrate on expanding its links with Asian economies. A trade deal with South Korea was signed recently and formal discussions with Japan are likely within the next year.

  POLICY TRENDS: Besides improving the business environment and attracting foreign direct investment (FDI) in infrastructure, mining and the hydrocarbons industry, the main thrust of economic policy under Mr Santos is the promotion of more inclusive growth and formal job creation. However, the president will face difficult global conditions, especially in the short term, as well as structural bottlenecks that will reduce the effectiveness of policy and constrain GDP growth. Challenges include reducing underemployment, improving road and port infrastructure, enhancing the quality of education and making further changes to Colombia's complex tax regime (even after a recent reform), all of which affect competitiveness. In the short term, the government is also planning to submit two key reforms to the pension and healthcare systems in order to guarantee fiscal sustainability and increase coverage. Although the reforms are likely to be watered down, their approval will allow a further consolidation of macroeconomic policies. Indeed, Colombia will retain one of the most stable and pro-business frameworks in the region, partly reflecting the improvement of the country's fiscal position--including the adoption of structural fiscal reforms and the creation of a new sovereign wealth fund from oil royalties. This will reduce the risks of contagion from global volatility and allow for countercyclical fiscal policy. Moreover, there is some scope for monetary easing, as shown by recent rate cuts by the Banco de la República (Banrep, the central bank).

  ECONOMIC GROWTH: Colombia will remain one of Latin America's most attractive investment locations in 2013-17, helping to drive relatively solid GDP growth rates. However, economic performance will be weaker than in the boom years of 2004-08 (when growth averaged 5.4% per year), as structural bottlenecks and volatile external conditions limit private consumption and export growth, and as the rapid investment gains in the energy sector lose steam. Indeed, 2012 was a challenging year for Colombia's economy, with GDP growth at an estimated 3.7%. We expect GDP growth to pick up gradually in 2013, to 4.3%, in part as the effects of recent monetary easing take hold, but risks stemming from global financial volatility will persist. Economic performance will gain momentum in 2014-17 (when GDP growth will average 4.6% per year), in line with modest improvements in addressing infrastructure bottlenecks, although Colombia's rising dependence on a small base of commodities industries will leave the country increasingly exposed to swings in external conditions. Risks of severe delays in infrastructure spending (particularly in Bogotá, the capital) will constitute a further challenge.

  INFLATION: Prudent macroeconomic management will keep annual inflation within the central bank's target range of 2-4% in 2013-17. Slower economic growth eased domestic demand pressures in 2012 (with inflation falling to 2.4% at year-end) and will help to keep inflation moderate in 2013 (averaging 2.2%), supporting monetary easing early in the forecast period. Although global food prices and demand-side pressures are set to increase in the medium term, a return to monetary tightening, combined with a continuing surge in investment (which will gradually boost productive capacity), will help to keep inflation at the mid-point of the range--averaging 2.6% per year in 2014-17, compared with 4.2% per year in 2007-11. The main risks to our forecasts stem from food supply bottlenecks arising from adverse weather or external disruptions, which would have an effect on overall inflation.

  EXCHANGE RATES: Appetite for emerging-market currencies--fuelled by interest rate differentials and monetary easing in the developed world--will continue to put some appreciation pressure on the peso in the short term, but movements in the currency's value will be contained by a more active role by Banrep in purchasing foreign exchange (the central bank has raised the limit on purchases to US$500m per month until March 2013, a policy that will certainly be extended). Excluding major surges in global risk aversion--which would lead the currency to lose ground and will remain a moderate risk throughout the outlook period--we expect the peso to remain broadly stable in 2013, due to Banrep's intervention, at around Ps1,780:US$1. Despite recent monetary easing (and persistent current-account deficits), Colombia's comparatively high interest rates will continue to attract foreign portfolio inflows, which, combined with strong FDI inflows, will keep the currency relatively strong until 2014. In 2015-17 we expect the peso to weaken faster against the US dollar, reaching Ps1,838:US$1 by end-2017, as the Federal Reserve (the US central bank) finally raises interest rates. Nonetheless, this will not be enough to offset the peso's sustained real appreciation--the real trade-weighted exchange rate is currently 25% over its ten-year average--which hurts Colombia's competitiveness in non-energy sectors.

  EXTERNAL SECTOR: A rising income deficit will produce a further modest widening of the current-account deficit to an average of 3.5% of GDP in 2013-17 (from 3.2% of GDP in 2012), but strong FDI inflows will support the external sector. Growth in exports will be underpinned by expanding hydrocarbons and agricultural production--with oil exports accounting for half of total earnings--and by rising demand from newly-signed trade deals with non-traditional and traditional trade partners (mainly boosting non-traditional exports). However, this will be outweighed by firm growth in the import bill, driven by strong investment and private consumption growth, keeping the trade surplus at an average of only 1.1% of GDP in 2013-17. Growth in tourism inflows and services exports (such as business outsourcing) will partly offset a rise in freight costs, leading to a slight narrowing of the services deficit, to 0.7% of GDP by 2017. By contrast, reflecting growing profit remittances from foreign companies based in Colombia, the income deficit will widen to 5.1% of GDP by 2017 (from under 2.5% of GDP a decade ago). Helped by FDI inflows, international reserves will rise to above US$54bn in 2017, providing ample import cover.

  March 25, 2013

• Forecast

  Colombia: Country forecast summary

  Country forecast overview: Highlights

  • The centre-right president, Juan Manuel Santos, will continue to pursue an ambitious agenda to entrench macroeconomic stability, reduce poverty, inequality and unemployment and address long-standing ills derived in part from the 50-year old civil conflict. To achieve his aims, Mr Santos will enjoy stable support from a large coalition in Congress.
  • As the legislative and presidential elections approach in the first half of 2014, however, divisions within the ruling coalition are expected to become more marked, not least because of a growing rift between Mr Santos and his predecessor, Álvaro Uribe (2002-10). Mr Uribe, who remains popular, will pose the biggest risk to Mr Santos's re-election, as he is likely to seek an active role in politics (he is barred from running for president, but is likely to lead a new right-wing party). Nonetheless, the Economist Intelligence Unit's baseline forecast is for Mr Santos to be re-elected.
  • Security issues will remain crucial in 2013-17, with the government embarking on new peace negotiations with the Fuerzas Armadas Revolucionarias de Colombia (FARC) guerrillas that are set to last until mid-2013. The government is putting all its political capital into reaching an agreement; we therefore expect some progress to be made before the 2014 elections, possibly even providing the FARC with some form of political representation. However, violence and organised crime associated with drug-trafficking and newly formed groups from demobilised combatants will remain high by international standards.
  • Colombia's non-financial public-sector (NFPS) deficit will remain mild in 2013-17 and the public debt burden low, as structural fiscal reforms approved in 2011 and an increased capacity for countercyclical spending put the public finances on a sounder footing.
  • Amid relatively weak global conditions, GDP growth will average 4.6% annually in 2013-17, a strong expansion by historical and regional standards. Growth will be supported by high levels of investment and robust private consumption, although the external sector will act as a drag on growth. Barring supply-side shocks, inflation should remain moderate in 2013-17, supported by an inflation-targeting framework that aims to keep it within a 2-4% range.
  • Free-trade agreements (FTAs) with the US, Canada, the EU and South Korea will help to bolster trade flows, as well as attracting investment in energy and non-energy sectors. This, combined with a large and increasingly affluent population, will sustain firm levels of GDP growth in the medium and longer term.

  

  March 19, 2013

View detailed map

Country Briefing

Land area

1,038,700 sq km

Population

46.4m (2012, World Gazetteer estimate)

Main towns

Population ('000; 2012, World Gazetteer estimate):

 Bogotá (capital): 7,539

 Medellín: 2,420

 Cali: 2,278

 Barranquilla: 1,144

Climate

Tropical on coast, temperate on plateaux

Weather in Bogotá (altitude 2,560 metres)

Hottest month, March, 9-21°C; coldest months, July and August, 8-19°C (average monthly minimum and maximum); driest month, February, 51 mm average rainfall; wettest month, October, 160 mm average rainfall

Languages

Spanish (official); many indigenous languages

Measures

Metric system. The following special weights and measures are also used:

libra = 0.5 kg carga = 125 kg

arroba = 12.5 kg vara = 79.8 cm

quintal = 50 kg cuadra = 80 metres

saco = 62.5 kg fanegada = 0.64 ha

Currency

Peso (Ps)=100 centavos; exchange rates in 2011: Ps1,848:US$1 (average); Ps1,943:US$1 (year-end)

Time

5 hours behind GMT

Public holidays

January 1st; January 9th; March 19th; April 5th; April 6th; April 8th; May 1st; May 21st; June 11th; June 18th; July 2nd; July 20th; August 7th; August 20th; October 15th; November 5th; November 12th; December 8th; December 25th

January 09, 2013