Event

After five decades of fighting, president Santos confirms that his government will be holding peace talks with the Revolutionary Armed Forces of Colombia (the FARC), the oldest insurgent group in the region. The second biggest rebel group, the National Liberation Army (ELN), has also indicated its readiness to talk. The peace negotiations would be based on three conditions: they must lead to peace, the army will continue its anti-guerrilla operations and no mistake of the past must be repeated. This last condition is particularly important as in 1999, peace negotiations began but the FARC used it to regroup and rearm as then president Pastrana granted them a large demilitarized zone. As a result, in 2002, when President Uribe took office, the FARC were much stronger and insecurity was higher. Uribe’s hard-line security policy proved successful for improving security conditions and weakening the FARC. Nevertheless, the group remains active and is still able to hold attacks as shown by the recent attacks on energy infrastructure. The announcement of peace negotiations has been well-received domestically and internationally with the exception of the former president Uribe, who is a vocal opponent of both peace talks and president Santos. With approval ratings for the government declining, president Santos reshuffled his cabinet yet retaining some key ministers (among other the defence and foreign ministers) to ensure continuity in policy.

Impact on country risk

It is too early to say whether the peace talks will be successful but the negotiations create new prospects for a return to peace in Colombia. If the government succeeds in putting an end to the five-decade conflict, ONDD is likely to upgrade its medium- and long-term political risk rating, which is constrained by the still unresolved conflict with the FARC. The Colombian economy has benefited from political stability, the improved security situation and a boom in the mining and oil sector during the last decade that contributed to a decline in external debt, a surge in foreign direct investments and macroeconomic stability. Even if the country is well positioned to withstand a slowdown in global demand, it remains vulnerable to commodity prices and oil prices in particular.

Analyst: Pascaline della Faille, p.dellafaille@credendogroup.com