INTRODUCTION
Colombia had a long history of internal conflicts which resulted in the government losing control over a large proportion of the country, even to the point that it might descend into civil war and/or failed state status. Guerrilla warfare, drug trafficking, paramilitary activity and widespread corruption were prevalent within its borders. From 1998 to 2008, the two major guerilla groups, the FARC and ELN, controlled 30% to 40% of Colombian territory. Homicide, kidnappings and bombings were part of daily life and led to increased discontent and migration.
Alvaro Uribe Velez was elected president in 2002, an event that was pivotal in rescuing Colombia from near chaos and beginning a decade of major change. His electoral platform focused on escalating operations against guerrilla organizations, slashing the national administration's expenses, combating corruption and engaging the people through referenda to identify political and economic concerns. During his first term as president (2002-2006), he introduced the Democratic Security Policy as a key element in fighting insurgent and paramilitary groups. Previous administrations had been unable to achieve a military victory, lasting cease-fire, or demobilization of the rebels.
GENERAL POLITICAL ENVIRONMENT: URIBE’S LEGACY
Alvaro Uribe Velez's first order as president, was to declare a national state of emergency. He saw this as a necessary step that would permit the armed forces to take the conflict to the guerillas. The administration positioned the national army as the instrument that would ensure stability and security for the people, a priority Uribe had established during the presidential campaign.
In 2002, his administration applied a 1.2% tax on the liquid assets of the wealthy. This was later expanded to include well-established corporations and businesses. The forecasted potential return was approximated at $800 million USD, yet the official return totaled $650 million. This additional revenue was aimed at increasing military spending: Military expenditure, in fact, rose from 3.6% of GDP in 2002 to 6% by 2006 allowing for modernizing, training and recruiting additional security forces. This tax marked the first step toward the envisioned defense project.
The Democratic Security Policy was ground breaking legislation approved by the legislature in 2003. Through this policy, the government sought to target the illegal drug trade, a major financing operation for terrorism, corruption and other criminal acts. The fall of the Medellin and Cali cartels in the 1990s afforded the opportunity for guerrilla and paramilitary groups to seize many of the established cocaine smuggling routes. The income generated through the illicit drug industry strengthened the finances and capabilities of insurgency groups. Dismantling the drug trade coupled with strategic engagement would be key to weakening the FARC and ELN grasp over the countryside.
Within the first two years of the program the security forces gained considerable success. Confrontations between the conflicting parties resulted in major victories for government forces, most notably Operación Jaque. This was a well-coordinated military operation resulting in the rescue of 15 highprofile hostages held by the FARC. The success of this operation on July 2, 2008 further boosting the popularity of the administration, as “César”, a high ranking FARC leader, was also captured.
With major US assistance, the Uribe government continued to increase military and police presence throughout the country. The capacity to mobilize and move combat-ready units rapidly was enhanced. The police and military also established controls over much of the country's transportation infrastructure.
SANTOS ON STRONG GROUND
Alvaro Uribe may well have been Colombia’s most popular president with approval levels averaging over 80% throughout his two terms in office. Although a hard act to follow, current President Juan Manuel Santos has continued Uribe's defense program. His performance as Defense Minister during Uribe's presidency was strong, and he is considered as having played a major role in bringing order and security to Colombia. He has also received favourable recognition for disciplinary actions he instigated against high-ranking military officials for wrongdoing. He promoted the creation of review commissions composed of European, American and Colombian NGOs to impartially investigate accusations concerning the military's actions. Upon reaching a verdict, he considered recommendations and acted upon these by dismissing officials that were declared guilty. It is expected that he will continue talking strong measures to combat the insurgency.
THE PUSH FOR INVESTMENT GRADE
Juan Manuel Santos and his entourage have inherited the task of bringing the country to investment grade rating. During Uribe's eight years in power, economic performance remained strong, regardless of the global crisis and trade dislocations with Ecuador and Venezuela. The government introduced fiscally responsible policies that received international recognition accompanied by the confidence of the business security. The benefit was demonstrated through an increase in foreign investment from $2 billion in 2002 to $10 billion this year. A significant proportion of this capital has been invested in the oil and mining sectors. Natural resources are abundant in the region, primarily coal, natural gas, hydropower, petroleum, iron ore, gold and emeralds, which have become more accessible as the insurgents are driven back towards Colombia’s borders.
The oil industry fuels close to a third of the country's economy. According to British Petroleum, Colombia has proved oil reserves of 1.51 billion barrels or 0.12% of the world's reserves. However oil production had been allowed to decline and Colombia was producing little more than local demand. Oil production is managed through Empresa Colombiana de Petroleos (ECOPETROL) which is legally responsible for exploration, extraction, production, transportation and marketing. The regulatory body is the Agencia Nacional de Hidrocarburos (ANH). Foreign corporations can enter into contracts with ECOPETROL, and Canadian-based energy companies have already begun joint ventures. The majority of Colombia’s oil exports are destined to the US market.
The World Bank has charted impressive growth in the country's GDP over the past ten years, notwithstanding the violence, insurgency and paramilitary activity. The World Bank’s 2000 estimates show a GDP of $100.4 billion USD. In 2005, the GDP had risen to $146.6 billion, followed by $242.6 billion in 2008, and closing 2010 at $283.1 billion. The World Economic Forum meetings for Latin America in 2010 singled out Colombia for its outstanding democratic turnaround and economic growth performance. Colombia’s policies were so successful that they were proposed as a model for building a strong and sustainable economy that could weather future economic storms.
The banking sector took a heavy hit during the 1990s. Strict regulation measures and consolidations followed, affording a more attractive market for foreign banks as there is an increased solvency and profitability. The more recent global crisis had little impact on Colombian financial institutions as their external exposure was limited, in contrast to more global banking systems. Colombia's banking network is comprised of 18 banks with assets of more than $120 billion, approximately the equivalent of 43% of the GDP, a far lower figure than for Brazil, Chile or Mexico.
Canadian credit and risk agencies conducted thorough evaluations of Colombia's economic performance and deemed the business climate to have improved greatly. They announced in 2009 that the country had achieved investment grade based on an evaluation including analysis of debt management, increased public security and responsible economic policies. Counterparts in the United States and Europe, however, determined that Canada had overlooked critical information in reaching its decision and have yet to follow suit. Nevertheless, the results have enabled Canadian businesses to calibrate their desire for risk and begin a wave of investment. We do not envisage Santos making major changes to what have been largely popular macro-economic policies.
INTERNATIONAL DISPUTES
Colombia shares borders with Brazil, Ecuador, Panama, Peru and Venezuela. Diplomatic relationships with its neighbours have varied. During the period between 2002 and 2010, tension increased with Ecuador and Venezuela. On several occasions Ecuador and Venezuela closed their borders to Colombian exports, and diplomatic relations between Colombia and Venezuela were severed on July 22, 2010 at Venezuelan insistence. They were re-established in August 10, 2010, shortly after the inauguration of Colombia's President, Juan Manuel Santos.
During the Uribe administration, frictions were high between both countries. Venezuelan President Hugo Chavez vehemently criticized Colombia's rapprochement with the US seeing a USA-Colombia alliance as a potential threat to his government. For its part, Colombia was concerned about FARC bases in Venezuela which apparently enjoyed Chavez’s protection. Uribe remained firm in his opposition to FARC safe havens, despite Chavez’s bombast.
In March 2008, Uribe ordered Colombian forces to attack a FARC base in Ecuador. Ecuador's President Rafael Correa called this raid an overt act of aggression against his country and closed the border. Chavez supported Correa and added that in the case this would happen on his turf, his army would launch a counter-offensive into Colombia, considering it a direct attack from a foreign aggressor. Uribe refused to back down, earning disapproval in much of the region, but boosting his domestic popularity. Colombian officials then published information from captured computers as proof that Ecuador and Venezuela were harbouring terrorists and, in the case of Venezuela, actively supporting the FARC with arms, and money. We would expect Santos to take much the same hard line with his counterparts in Colombia and Ecuador, placing domestic national security above international image.
CONCLUSIONS: SANTOS’ PROSPECTS
Colombian leaders have managed to position their country as a safer place to do business. Juan Manuel Santos has demonstrated a commitment to continuing the promotion of security and transparency.
The FARC and ELN have been pushed further towards the borders and their operational capabilities are diminished. Their numbers and leadership have been serious depleted, but they remain a threat. However, the number of insurgent attacks has gradually decreased and FARC/ELN ability to mount serious operations in large urban centers is extremely limited.
The Colombian economy is predicted to continue growing as investment opportunities in mining and oil/natural gas are still widely available. As guerrilla and paramilitary groups are weakened, outlying locations have become more secure. As Canada has already qualified the country for investment grade, its companies may well enjoy an advantage over foreign competitors. Companies such as Calgary-based Saxon Energy Services and Gran Tierra Energy, Toronto-based Pacific Rubiales Energy have already set up operations and more are expected to follow.
Colombia's banking sector shows high potential for growth. The proportion of the population who currently hold bank accounts is considered low, but through further exposure and with a growing economy and middle class, there is some potential. During the past three years, the client base has grown by 10%.
Colombians with access to banking encompass close to 58% of the total population, which is small compared to Brazil, Chile or Mexico, which have enjoyed greater stability. The Bank of Nova Scotia Group has bought out the Royal Bank of Scotland and is effectively competing among the top banks in the country.
Venezuela - Colombia relations will remain delicate and Santos will have to manage bilateral relations personally with an unpredictable Chavez, rather than through his foreign minister. The FARC safe havens and a stable trade relationship will dominate their agenda. He will have to ensure that the Colombia-USA Free Trade Agreement (still an Obama priority, as stated in his recent State of the Union Address, but lacking congressional approval) is not perceived as “ganging up” against Venezuela – again, Santos will place national good ahead of relations with Venezuela. Colombia and Canada have also negotiated a Free Trade Agreement, but legislative approval is also lacking. The human rights record Colombia has enjoyed over the past years, including an international backlash from the security policy, are reasons Canadian NGOs have cited for Canada not to enter into such an agreement.
We do not see the current tensions between Colombia, Venezuela and Ecuador escalating into a major armed conflict. The most plausible scenario is continued, sporadic, cross-border skirmishes similar to those that have already occurred. Many Colombians see Chavez as the reason for the sour relationship, and any move Santos makes which would worsen the relationship should not hurt him in future elections.
Colombians perceive a Venezuelan military incursion as a probability, but we do not believe the Venezuelan armed forces can, as currently configured, stand up to those of Colombia in a full-blown conflict. Santos may well turn out to be a one-term president. While a competent technocrat, he lacks charisma, and Uribe’s popularity. He may well turn out to be a “caretaker”, filling in until Uribe decides to return (Under the Colombian constitution, a president may not serve more than two consecutive terms in office – in theory Uribe could run again in 2014.
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