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Colombians march in favor of "Peace Without Impunity" on December 13, 2014. (Photo: Centro Democratico)
FARC's top peace negotiator Ivan Marquez (inset). Collage based on photos from the US State Department (Marquez) and DEA (FARC event).
Monday, December 15, 2014
Perspectives

Colombia Peace Accord: Neither Growth Nor Peace

A skeptic’s view of the peace dividend from a possible government-FARC agreement.

BY ALBERTO BERNAL-LEÓN

On July 20, 2010, Colombian President Juan Manuel Santos thanked the nine million voters that had just made him president for the 2010-2014 period. In his speech to the nation that night, the president-elect promised to build on the foundation that had been laid “by a giant, our President Alvaro Uribe.” President Santos argued that Colombia could now look forward to the future with hope, thanks to the multiple successes that President Uribe had been able to achieve during his eight years in power. The president-elect also told Colombians that he would continue to implement the “democratic security strategy” until the terrorist groups operating in the country accepted three specific, non-negotiable conditions, the tres inamovibles. Namely, (1) renounce terrorism and kidnapping against civil society, (2) stop child recruitment, and (3) renounce narco trafficking.

The Colombian story since 2010 has evolved in an unexpected way, at least compared to initial expectations. First, the relationship between President Uribe and President Santos is now completely broken, and there is no realistic reason to expect the two men to ever reconcile. Second, President Santos is now engaged in a peace process with the FARC (Fuerzas Armadas Revolucionarias de Colombia) terrorists and will probably soon enter into a conversation with the ELN (Ejército de Liberación Nacional) terrorist organization despite the fact that the tres inamovibles (the three conditions just mentioned) were never met by these groups. In other words, the Colombian government has agreed to talk to the FARC, a terrorist and narco trafficking organization according to the European Union and the U.S. Department of State, even though this organization has not complied with the conditions initially presented by the Santos administration as “preconditions” to initiate a peace negotiation. In its defense, the Santos administration claims that the circumstances were “right” to initiate the conversations and that it is in the best interest of the country to end this very bloody conflict as soon as possible. The government also claims that if “peace” is in fact reached, the economic benefits for the country will be enormous. As Finance Minister Mauricio Cárdenas told the local economic press some time ago, the benefits of reaching a peace agreement with the FARC would include the possibility of Colombia increasing its potential growth rate from the current 4.7-4.8 percent to 6 percent year-over-year(y/y)as a result of the boomfrom the so-called peace dividend.

I disagree because of the following reasons:

1.The Expected Reduction in the Size of Colombia’s Army. The conventional wisdom in Colombia at this time is that the signing of a peace accord with the FARC will signify the immediate reduction in the size of the Colombian army. The payment of salaries to soldiers and policemen is one of the largest expenditures in the national budget. In fact, some members of society, mostly on the left of the political spectrum, have gone as far as to argue that the army should be dismantled completely once the peace treaty is signed. Clearly, if all the spending on defense were to be redirected to social spending, the benefits would be enormous. (According to official statistics, Colombia spends an estimated 3.4 percent of GDP on defense.) This view assumes that the members of the FARC will, in fact, be willing and able to give up their narco trafficking business in the future. From a practical standpoint, such a view seems highly unlikely. Even if the government and FARC leaders, who are meeting in Havana, could somehow find common ground and agree to work together to implement a strategy to achieve a “Colombia without cocaine,” it is naive to expect that at least some of the outlaw fighters will not return to their criminal activities. This happened when President Uribe negotiated the disarmament of the right-wing paramilitary groups. In the latter case, a spillover effect of the peace accord negotiated with the paramilitary militias was the birth of the so-called Bacrims — illegal, drug-funded groups that continue to commit a significant amount of violence against Colombia’s civil society.

In addition, it seems a stretch to argue that it is likely that the FARC leaders will disclose and return the money they earned through narco trafficking over the past several decades to the government or to a “victim’s fund” that, according to the press, will be created once a peace agreement is signed. In fact, the FARC leaders have already argued that they do not have “any assets.” This is obviously a lie, but one that is indicative of what may follow in the future (i.e., it is logical to expect a lack of deliverance on promises). It is also hard to imagine that the FARC will turn over to the Colombian government or to U.S. authorities the logistical information that they have regarding the flow of cocaine through Venezuela and Mexico to the United States and Europe. Is it logical to expect that “Iván Marquéz,” the second in command of the FARC, will present evidence against his ideological partners inside the Venezuelan government to U.S. authorities?

The origin of Colombia’s violence remains, in large part, a function of the drug trade. In fact, according to official data from the Ministry of Defense, only about 20 percent of the violent deaths that occur in the country annually are a direct function of FARC and ELN violence. The bulk of the violence is the result of common crime that is fueled by narco trafficking. The bottom line is that even if a peace agreement is signed with the FARC, violence will persist until Colombia is able to rid itself completely of the drug business. Good wishes and uplifting campaigns on “reconciliation” will not work.   

2--The Growth of Agroindustry. One of the main hopes of the peace process is that the so-called pacification of the country will lure local and foreign investment into the agro-industrial sector, especially to the sections of the country that have traditionally been victims of systematic violence. One of these areas is the altillanura, a region that lies on the eastern side of the country (neighboring Venezuela). The Uribe administration utilized a significant amount of military power and financial resources to recapture that area of the country, which had traditionally been under the control of either the right-wing paramilitary groups or the FARC and the ELN.

The main problem is that only large agricultural projects are economically feasible in this region because the quality of the soil is poor (it is too acidic) and the country lies on the equator. This means that days are shorter during the summer months compared to countries not situated on the equator, so the amount of sunshine in the country is lower, which is an issue that affects crop yields. According to local experts, in order for this region to become economically viable, large agricultural projects will be needed since the treatment of the soil to allow for the planting of palm oil or other industrial-scale crops, for example, is quite expensive.

The country has already had a preview of what may lie in store on this front from political leaders that are close to the FARC. In a very well-documented case, Senator Iván Cepeda, son of one of the original ideologues of the FARC and a well-known political enemy of former President Uribe, has launched a frontal attack against Cementos Argos, a Colombian cement company that during the Uribe presidency decided to initiate a pulp industrial project in Montes de Maria, a region that had been under the control of outlaws for a very long time, but eventually became peaceful after the army was able to regain territorial control. Senator Cepeda has been accusing Cementos Argos of having taken advantage of defenseless peasants by purchasing the land at very low prices, which the senator considers to be “illegal.” The key issue here is that the FARC and its political allies will continue to place as many barriers as possible to prevent corporate ventures from being successful, in order to reach the FARC’s goal of converting Colombia into a “Bolivarian-style” country in which there are no large rural estates, but rather a system of small land-holdings.

Another relevant case occurred against the Colombian-Brazilian businessman German Efromovich (owner of Avianca Airlines), where Incoder, the government agency that handles rural land-title issues, decided to expropriate part of the land that Mr. Efromovich and a private equity fund from New York had bought and already treated (to reduce the acidity of the land) in the altillanura. The decision to expropriate that land, despite the fact that the consortium had already fixed the lingering title issues and had hired 1,100 peasants to work on the project and improve the quality of the land, placed the multi-million dollar investment into a legal limbo. The decision has been appealed, but the damage to judicial certainty has already been done.

There is also a very strong push from the FARC and its allies in Congress to move ahead with the implementation of the zonas de reserva campesina (comparable to Indian reservations in the United States). These “peasant reserve zones” have as their goal the self-rule by the peasants of large rural sections of the country, specifically those that are controlled by the FARC or where the FARC has a large influence over narco trafficking activity. For example, according to local experts and some press reports, the implementation of the reserve zone of Catatumbo, which borders on Venezuela, appears to already have been arranged, and apparently production of cocaine from that zone is once again increasing.

3. The FARC Remains a Well-Known Enemy of the Market Economy. President Santos has argued repeatedly that the economic model will not be negotiated with the FARC. We believe that the president is telling the truth. That said, the spending commitments that are being negotiated in Cuba to get this terrorist group to disarm are likely to be quite onerous. As a result, Colombia will need to find additional sources of future revenue to finance these expenses. The clear targets for increased taxation are the hydrocarbon and mining industries. This uncertainty regarding the level of taxes they will have to pay in the future may generate some angst among capitalists in the sector, reducing some of the willingness to invest in new projects.

4.The Colombian Economy Needs More, Not Less, Certainty. The Colombian economy needs more, not less, certainty and more stability in the rules of the game. Granting political power, even if limited, to a violent group that finances itself with proceeds from narcotrafficking, extortion and kidnapping is more likely to generate more uncertainty, not less, among investors.

Colombia is already enjoying its “peace dividend.” The 180-degree change that the country experienced following the inauguration of President Alvaro Uribe in 2002 and his extremely successful implementation of “democratic security” and “investment confidence” strategies, have allowed Colombia to experience the change from being categorized as a failed state by Foreign Policy Magazine to being regarded as the country that has achieved “the most impressive change in the history of the world” according to Klaus Schwab, president of theWorld Economic Forum.This is why Colombia is currently regarded as one of the champions in the emerging market group of countries.

The evidence shows that the implementation of Uribe’s democratic security strategy, which was accompanied by creation of an unequivocally pro-market economic model, allowed the rate of economic growth to increase from 1.9percenty/y in 2001 to almost 5percenty/y in 2010, as a result of the increase in the ratio of investment to GDP from 13percentto more than 25percent. More rapid growth has allowed Colombia to improve its living standards materially: since 2002, the country’s economy has expanded by an accumulated 62 percent, compared to, for example, 28 percent in Brazil and 25 percent in Mexico.

Conclusion

Signing a peace agreement with the FARC may bring material happiness to Colombians in the short-term, since the population will probably assume that the end of Colombia’s 50-year violence nightmare is around the corner. Unfortunately, a signed peace agreement with FARC outlaws will not generate increased growth or social peace because the stability of the “rules of the game” will not be assured. Only continued security advances against terrorist and narco trafficking organizations, the swift punishment of criminals, judicial certainty for investors and a strong push for a modernized educational curriculum will allow Colombia to join the group of countries that are able to sustain a growing economy.


Alberto Bernal-Leónis head of research and partner at Bulltick Capital Markets,a boutique investment bank based in Miami that specializes in international investment in Latin America. Previously, he was market director of emerging fixed income research at Bear Stearns, Inc., in New York City, covering the Latin American region. Prior to his position at Bear Stearns, Mr. Bernal was head of Latin America economic research at IDEAglobal, Inc., in New York City.

This column is an excerpt from the Perspectives on the Americas series from the University of Miami’s Center for Hemispheric Policy. Republished with permission.




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