Colombia’s Peace Won’t Come at Any Price

 

October 4, 2016 [COLOMBIA, FARC, PEACE]
Pablo Echavarria, CFA


Colombian voters narrowly defeated a government-sponsored peace accord with FARC insurgents, surprising pollsters and dashing President Juan Manuel Santos’ desire to end the five-decade conflict and cash in on a peace dividend.

Bogota, Colombia

A year of unexpected political outcomes is how 2016 will go down in history. Few predicted at the beginning of the year the U.K.’s vote to exit the European Union, or the rise of populist right-wing and hard-left parties across Europe. Nor did many foresee the election of “tough on crime” populist Rodrigo Duterte as president of the Philippines. And, of course, there’s Donald Trump’s nomination as the Republican candidate for the White House. Contributing to these surprises were polls that failed to identify voter frustration with governing elites and the status quo, or the deeper desire among large portions of the electorate for political change. In another such unexpected political twist, Colombian voters rejected a peace agreement that the administration of President Juan Manuel Santos spent five years negotiating with the Revolutionary Armed Forces of Colombia, a five-decade old nominally Marxist terror group more commonly known as the FARC.

Santos had lobbied extensively for Colombians to vote in favor of this peace agreement, and both he and the FARC had insisted there was no “plan B” if voters rejected the deal. The referendum’s failure will be viewed as a major setback for him personally and for members of his cabinet. Colombia’s top peace negotiator, Humberto de la Calle, has offered his resignation. The government had estimated that a deal could boost both consumer and business confidence, paving the way for a tripling in foreign direct investment and lifting potential economic growth nearly two percentage points. The deal’s rejection also implies that Santos will have a harder time passing key legislation, particularly a tax reform that was meant to help cushion the fiscal blow from lower hydrocarbon prices. Colombian assets have reacted negatively to the news, with the peso depreciating nearly 3% over the following two trading sessions and the MSCI Colombia Index shedding a bit more than 3%.The fragile governing coalition is also weaker now, with Santos seen as something of a lame-duck with two years left in his second term.

Polls heading into this past weekend’s voting had suggested a clear victory for the “Yes” camp, with local polling agency Cifras y Conceptos predicting that 54% of Colombians would vote in favor of the peace agreement while another by Ipsos-Napoleon Franco implied 66% of Colombians would vote “Yes.” The final outcome reflected a slight majority, 50.2% of the voters, deciding against the deal, although abstention was higher than expected. While Hurricane Matthew may have played a role in lower-than-expected voter turnout, just as in the U.K.’s “Brexit” vote, it appears the intensity of the opposition to the governing elite’s agenda was greater than the enthusiasm of those supporting it.

It’s clear many Colombians were not enthused about the generous terms that the government offered to members of the FARC, which both the U.S. and the E.U. had classified as a terrorist organization. As Thornburg’s Charles Roth commented in a recent article about the signing of the peace agreement, official estimates put the toll of those killed by the FARC at 220,000, with millions more displaced. FARC fighters who confess to war crimes will effectively be on parole and required to perform community service for up to eight years, and the group would have been allotted 10 seats in the country’s Congress. Those opposing the deal appear to want harsher penalties against members of the FARC, which has long financed itself through drug trafficking, kidnapping and extortion. It has also been broadly denounced for its induction of children into its ranks.

Where do we go from here?

It seems likely the peace agreement will need to be renegotiated to address the concerns of those Colombians who saw the FARC getting away with impunity for its decades of bloodshed and crimes. This will probably result in a more open discussion between the Santos administration and the opposition party, the Democratic Center, which is led by ex-President Alvaro Uribe Velez, who opposed the deal. During his time in office, Uribe pressed the military option that severely weakened the FARC and no doubt paved the way to Santos’ negotiating table. But Uribe, like many Colombians, wanted Santos to finish the job of securing the FARC’s surrender, not survival via transformation into a political party.

Although both the government and the FARC say the current cease fire will hold, that remains to be seen, as the electorate’s push for more stringent penalties on the FARC takes shape. In the coming months we will find out more details around the government’s plan to create a more acceptable peace accord. Uncertainty is likely to prevail for the time being.

The elites in Washington, D.C., Manila, Britain, Brussels and Berlin are learning the hard way that globalization and open borders aren’t seen as favorably by those in the electorate who, fairly or unfairly, feel ignored and adversely affected by the policies and entrenched interests of the traditional parties. Santos, the scion of a wealthy, prominent Colombian family, is learning that many Colombians who have long suffered the FARC’s depredations, want a just peace, not peace at any price.

Important Information
Before investing, carefully consider the Fund’s investment goals, risks, charges, and expenses. For a prospectus or summary prospectus containing this and other information, contact your financial advisor or visit our literature center. Read them carefully before investing.

Investments carry risks, including possible loss of principal. Additional risks may be associated with investments outside the United States, especially in emerging markets, including currency fluctuations, illiquidity, volatility, and political and economic risks. Investments in small- and mid-capitalization companies may increase the risk of greater price fluctuations. Investments in the Fund are not FDIC insured, nor are they bank deposits or guaranteed by a bank or any other entity.

The performance data quoted represents past performance; it does not guarantee future results.

The views expressed are subject to change and do not necessarily reflect the views of Thornburg Investment Management, Inc. This information should not be relied upon as a recommendation or investment advice and is not intended to predict the performance of any investment or market.

The performance of any index is not indicative of the performance of any particular investment. Unless otherwise noted, index returns reflect the reinvestment of income dividends and capital gains, if any, but do not reflect fees, brokerage commissions or other expenses of investing. Investors may not make direct investments into any index.

Please see our glossary for a definition of terms.