The Colombian Economy in the Time of Cholera?

In his well-known novel, recently made into a movie, the celebrated Colombian novelist Gabriel García Márquez argues that the symptoms of love are exasperatingly similar to those of cholera. We feel entitled to extrapolate to recent Andean country events: it seems to us that the symptoms of economic malaise can likewise be exasperatingly cholera-like.

This doesn’t happen always, or everywhere. It applies, especially, to tropical countries, where the heat, humidity and saturation of the environment sometimes obfuscates leaders’ minds, setting them on a kind of alternate track — a magical realism of policymaking, if you will. And, in that world – and in the real world– the destiny of millions of families could be on the verge of jeopardy.

We’re not being melodramatic: we are starting to think that this is a good way to describe the current situation of the inexorably interdependent Colombian and Venezuelan economies, both of them dependent upon the will and oil-power of President Hugo Chávez. The Venezuelan president embodies that dangerous combination: deep pockets and an inaccurate view of real-life economic affairs. Colombia has exploited the former, and has consequently put itself in the sphere of influence of the latter. Indeed, Chávez’s mood swings may bring an undesirable change of fortunes for Colombia in 2008 and 2009. Of course, Colombians have had to endure their president’s cholera outbursts as well. The two leaders have entered into a contest of verbal profligacy, a sport in which Chávez is admittedly unmatched. In the other corner, after a spirited start, Uribe has reverted to a more sober tone. The end result, though, is that bilateral relations seem to have suffered a permanent setback.

This illness began to break out in middle of this year, when Uribe sought the help of France’s then president-elect Nicolas Sarkozy in pressuring the FARC to release some of the kidnap victims held for as long as 10 years (the Colombian-French citizen and former Colombian senator Ingrid Betancourt the best-known among them.) Relying on foreign politicians was a new style for the Uribe government, and his initiative was put down domestically as a stratagem to shift public attention away from the stinky domestic political affair of the scandal surrounding politician-paramilitary links.

But the Chávez medicine, while initially promising, proved to have too many unsupportable side effects. Uribe first accepted the help of Colombian Liberal-left Senator Piedad Cordoba, until then a harsh critic of his administration. She immediately enlisted the help of Chávez, a heavyweight of Latin American politics, who allegedly has special links to FARC diplomacy. Everyone was surprised to see Uribe accepting Chávez’s apparently-disinterested and very timely aid, though the two men had to that point maintained a constructive working relationship.

But Colombian observers tended to view the Chávez “mediation” efforts with suspicion, expecting that, in one way or another, Colombia would have to pay dearly for them. The potential political benefits for Chávez, on the other hand, were considerable: this project could freshen up his international image, transforming him from a troublemaker into a constructive problem solver; he could recover his influence in Colombia, and offer a push to his leftist friends there; and finally, he could help the campaign for his own domestic political referendum (which ultimately failed).

Hence, the abrupt finale of his Colombian adventure was most unwelcome, from his point of view. Bogotá’s excuse was that Chávez had made an unauthorized call to a Colombian general, a move that Uribe had originally forbidden. Indeed, half jokingly, when Chávez mentioned the possibility of contacting the heads of the Colombian military directly, Uribe responded that he would not risk the possibility of his own military becoming chavistas. Uribe wanted a Chinese wall separating Coronal Chávez and the Colombian generals. After the forbidden call, Uribe’s cholera erupted, and he ended Chávez’s mediation efforts. Of course, there may have been other reasons he chose to bring this awkward situation to a close. For instance, Chávez also met with FARC leader Iván Marquez, without Colombian government officials present. So, the negotiations on behalf of the Colombian government were in reality taking place without Uribe knowing, exactly, what Caracas was doing. The absence of a Colombian official presence in such conversations, other than Sen. Cordoba, who is closer to Chávez than she is to Uribe, made the situation very uncomfortable. Finally, there was speculation that Chávez could end up just “buying” some of the Colombian hostages from the FARC, which would, absurdly, lead to further financing of the war in Colombia, help cleanse the FARC’s negative image and better Chávez’s international role – all while worsening the Colombian government’s standing vis-à-vis the guerrilleros. Fundamentally, the parties involved did not trust one another enough. All these possibilities were evident as time passed: they made it clear that Uribe had miscalculated the effectiveness, the means and the intent, of Chávez’s mediation.

Chávez later complained about the way Uribe ended his mediation efforts. Instead of a tête-à-tête between heads of State, he was informed by a second-rate public official of Colombia’s presidential palace, who read a public statement on late-night news. In all likelihood, if Uribe had tried to end the arrangement in a direct conversation with Chávez, things could have been difficult. So, an ultimatum was issued instead, and in the subsequent days the Venezuelan president displayed his best vociferous repertoire, escalating a rhetoric that portrayed Uribe as the bellboy of the American Empire – and that was one of the nicer things he said. Uribe responded, also on television, that Chávez’s expansionary strategy in Latin America would not be permitted in Colombia. At that, the Pandora box of Chávez’s mouth opened wide. It so happened that Venezuela’s constitutional referendum was taking place that very week – so the Colombian failure gave Chávez an opportunity to score some points, igniting nationalistic sentiments of some of his political constituencies. Then again, the Venezuelan president lost that one. Uribe’s ratings and popularity did not decline. Instead, politicians of all sides and ordinary people were outraged with Chavez’s insults, and fully backed their president.

Yet both Sarkozy and Chávez remain players in the FARC negotiation agenda – and we now may see other outside participation, welcome or not. Sarkozy has embraced the issue as one of national interest for France, while Chávez said recently in Buenos Aires (where he was attending inauguration of Cristina Fernandez de Kirchner) that, in spite of Uribe’s attitude, he would still be willing to mediate. We think he likely has established stronger communication with the FARC heads. Too, every Latin American president who chooses to stick his or her nose in Colombia’s affairs may now feel entitled to do so. What about Mr. Uribe? Will he be able to regroup, and recover the agenda-setting capabilities that are the prerogative of any president? We see this as the critical question before him. The only other course of action would be to continue governing so as to fend off cholera attacks – a conundrum his Venezuelan colleague would no doubt greatly enjoy. In an interesting twist of events, the Colombian government changed a strong position against granting a demilitarized zone for the “humanitarian exchange” of the kidnapped. This bold move represents a political loss for the Uribe government, but if brings back to it the initiative in the messy business of dealing with the FARC.

A previous friction between Uribe and Chavez could shed light upon the type of measures that could derive from a new Chávez sudden reaction. The incident was the kidnapping in Venezuelan soil of the so-called FARC “foreign minister” perpetrated by Colombian secret agents, allegedly with the compliance of Venezuelan military officers who had been bribed. Chávez’s outrage led to the closing of the border, at a potentially high cost to Colombian exports. If something similar is brewing for coming months, Colombian exports, manufacturing production and economic performance could seriously sour. Adding the imminent recession in the United States –which Colombians have already tasted, with the decline of exports to the United States since mid-2006 –the last thing the Colombian economy needs is trouble on its eastern border, and second biggest trading partner, too. Indeed, Venezuela has more than compensated for the decline of Colombian sales to the United States. Colombia expects to have a current account deficit of 5% of GDP next year, which could widen if some sales to Venezuelan were halted.

How vulnerable is Colombia to a cholera epidemic? Quite, as nearly every analyst has stressed recently. Figure 1 presents the trajectory of Venezuela-Colombia trade, which reveals a new direction starting in the early 1990s, with internationalization trends, adopted everywhere in emerging markets, being also adopted by these two countries too. It signaled the end of fruitless, decades-long struggles over some lost islands in the Maracaibo basin, allegedly full of oil (but still unexplored). Both countries found it far more fruitful to develop their manufacturing industries and export to each other, accepting regional division of labor and specialization– call it Adam Smith in the tropics. The successful story, told by Figure 1 to 2002, became an amazing success between 2004 and today, especially for Colombian exports.

image002_400_05.jpg

Figure 2 demonstrates how crucial these developments have become for Colombia, since, just as the trade surplus with Venezuela skyrocketed, it deteriorated with the rest of the world – in virtually compensatory amounts. Were Colombia to see a sharp drop in the flow of exports to its neighbor, it would have to face up to a drastic deterioration of its total trade balance, and most likely to a corresponding depreciation of its currency. Figures 3 to 6 display the sectoral composition of manufacturing exports (which comprise the majority of the exchange between the two economies, as Figure 3 shows). These indicate that the Colombian automobile and machinery (33% of total exports, and US $890 million in 2007), textile (22%, US $550 million), petrochemical (17%, US $430 million) and food (14%, US $365 million) industries would suffer most if the two presidents continue perpetuating their cholera.

On the other hand, Colombian imports from Venezuela comprise mostly petrochemicals, metal and automobiles. In spite of a decline in 2007, the size of these exports may be important for those sectors in Venezuela, especially the cars. Hence, Venezuela may weigh the cost of a mini-trade war that might depress employment in urban sectors, sensitive to the Chávez revolution, in addition to the inflationary pressures that could emerge from curtailing Colombian supplies.

image004_400_09.gif

In sum, sheer economic rationality is the only true antidote to cholera. How much weight will these two politicians give it? In Uribe’s case, it is easy to guess: as he presides over a relatively poor country, dependent upon manufacturing competitiveness and some minerals for its external balance, he’ll be forced to get well fast. But oil-rich Chávez may find it profitable to gamble politically to weaken Uribe, and in so doing to strengthen the Colombian left in the runup to the 2010 elections.

The next two years will probably witness fluctuations in the application of these real-economy (so to speak) and realpolitik considerations, on both sides of the border. Colombian entrepreneurs and policymakers are already counting on trade flow deterioration, and are looking around for any kind of alternative. image006_400_14.gif

image008_400_08.gif

image010_400_03.gif

image012_400_03.gif

image014_400_02.gif

One Response to "The Colombian Economy in the Time of Cholera?"

  1. Vitoria Saddi   December 29, 2007 at 5:36 pm

    Dear Juan, This is a great analysis of the conflict. However, what part of Hugo do you think Uribe have not understood? In other words, you know the ‘eye for eye’ idea in Latin politics, and hence I don’t think we are witnessing a “sister” and a “father” as the Uribe and Chavez battle. I disagree with the superficial analysis of Chavez from the non-Spanish press.Thanks for your pieceVitoria