What's next for Colombia?

Tuesday, October 4, 2016

As Colombians come to terms with the surprising result of a referendum that rejected the peace agreement reached by the government and the country's main guerrilla group Farc, here's a look at the next steps in the efforts to put an end to over half a century of the armed internal conflict, as well as the fallout in the economy.


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The constitutional court that greenlighted the peace referendum had said that, should the voters reject the deal, the agreement would have to be renegotiated. In that sense, Farc is supposedly open to modifying the agreement.

"We're calmly analyzing the result in order to continue, because this does not mean the battle for peace has been lost," Farc leader Timoleón Jiménez, also known as Timochenko, said from Havana.

Meanwhile, the administration of President Juan Santos is trying to build a national political pact – that would include former president Álvaro Uribe, the leading critic of the peace deal and the plebiscite's big winner – to salvage the agreement with Farc. Uribe has said he's willing to contribute to the pact, but will seek to influence a new deal, after not being involved in the four-year talks that led to the agreement signed in Havana.

The criticism from Uribe and others mainly centered on the fact that former Farc fighters would not serve jail time, would be subsidized by the state, and could even pursue a political career in congress.


"Colombia's plebiscite result is negative for its credit profile," said Moody's senior analyst Samar Maziad. The country has a 'Baa2' credit rating, with a stable outlook.

"The narrow defeat of the peace deal signals a polarized political scene which will likely undermine the government's ability to pass other reforms."

Sure enough, the voters' rejection of the deal negotiated by the Santos administration leaves the president weakened, and the chances of passing a structural tax-reform bill in congress before the end of the year, as was expected, are now uncertain. Another possibility is a watered-down bill, according to market analysis firm Credicorp Capital. The bill is to be voted next Monday.

"The fiscal reforms are necessary to help the government address the shortfall in oil-related revenues, and preserve Colombia's credit strengths," added Maziad.

Meanwhile, the peso reacted to the referendum result by weakening on Monday, and could continue to do so amid the uncertainty surrounding the tax reform bill, according to Alexander Rios of consulting agency Estratégica, who was quoted by local paper Portafolio.

The country's economic development – particularly investments in key industries such as mining, energy and agriculture – hinged on the approval of the peace agreement.

"The mining and energy sectors have been highly affected by the conflict. With peace, those hard-to-reach territories in conflict zones will be areas where oil, mining and energy projects will become a reality," mining and energy minister Germán Arce Zapata had said in August.