Colombia: Setting the Stage

This Sunday, 11 million Colombians went to the polls and set the stage for the upcoming presidential elections. They voted for 268 members of congress, of which 102 were senators and 166 were representatives. They also selected the final candidates for the Conservative and Green parties, thus narrowing the presidential slate. At the top of the list were the Conservatives and President Uribe’s U-party, which will dominate the senate. The U-party won 27 seats in the senate. The Conservatives secured 23, the Liberals 18 and the Greens only 5. The same pattern was repeated in the lower house, where the U-party and Conservatives won the lion share of the positions. The message from the electorate was one of continuity. The fact that the political right won so many seats is a confirmation that Colombia does not want to stray from its current direction. Former Bogota Mayor Antanas Mockus won the primary for the Green Party. Meanwhile, Noemi Sanin edged out Andres Felipe Arias in the Conservative primary. While this was good news for the Conservatives, since the selection of such a charismatic candidate increases their chances of winning the presidency. This could be bad news for Juan Manuel Santos, who could be forced to go into a second round on May 20th. Nevertheless, with two months to go until the elections, the presidential campaigns will now kick into gear.

With a Santos Administration looming close on the horizon, it is interesting to see how things could develop. On the surface, they should not be very different from the current approach. Juan Manuel Santos is from a prominent Colombian family, who once owned the country’s main newspaper—El Tiempo. His clan is a major force in local politics. Santos was recently President Uribe’s Defense Minister, and he served both as Finance and Trade Ministers under President Pastrana. His cousin, Francisco, is President Uribe’s Vice President.  He completed part of his studies at the Colombian Naval Academy in Cartagena, and he finished his degree at the University of Kansas, where he read Economics. Santos did his postgraduate work at the London School of Economics (LSE)—along with a specialization in journalism from Harvard. He is an accomplished economist, and his policies were well received. In contrast to President Uribe, who was largely ignorant of basic economic concepts, Santos can be expected to be much more circumspect in his actions. However, like some of his compatriots, he is extremely hot-headed. Therefore, military tensions with Venezuela and Ecuador could escalate. President Uribe had more patience and tact when dealing with his lowbrow neighbours. He could turn a deaf ear to the deluge of insults that were hurled his way. Instead, he would focus on the pragmatic issues of business and trade. However, Santos could be less diplomatic. With the best-armed and trained military force in the region, Santos will not allow his country to be insulted. This could herald a new era of military and diplomatic affairs in Latin America.

Nevertheless, Juan Manuel Santos will need to keep his temper in check. Venezuela is Colombia’s second most important trade partner, and the situation is not good. Colombian exports to Venezuela plunged by a third in 2009, to $4 billion. Venezuela absorbs almost a fifth of Colombia’s total exports. Moreover, Colombian exports to Venezuela are usually high-value—representing mainly manufactured goods. Given, the country’s political instability and President Chavez’s penchant for nationalization many multinationals and companies abandoned their Venezuelan operations, giving Colombian producers greater room to export. For example, many of the automobiles sold in Venezuela are assembled in Colombia. The same goes for basic products, such as food, staples and consumer goods. Bogota is looking for alternative markets, as Chavez puts more restrictions on Colombian imports, but it is having a tough go. Exports to China jumped 114% y/y in 2009, but they were mainly commodities and raw materials. The Chinese have little demand for Colombian-produced toothpaste or assembled cars. It also increased exports to Brazil, Chile and Central America. Still, these are small markets. Consequently, total exports declined 13% y/y in 2009 to $32.8 billion. Industrial production also fell 5.9% y/y. The continued appreciation of the peso is another factor that is making life difficult for Colombian exporters. With billions of dollars in Foreign Direct Investment (FDI) flowing into the energy and mining sectors, the Colombian peso continues to gain ground. The capital inflows help balance the widening current account deficit, but it is clear that the next president will need to strike a more conciliatory tone with his neighbours in order to keep the Colombian economy on an even keel.