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The Limits of Colombia's Imminent Peace Deal

Apr 8, 2016 | 16:30 GMT

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The Limits of Colombia's Imminent Peace Deal

Colombia is at a historic juncture. After 52 years of infighting, the country is on the verge of a peace agreement with the Revolutionary Armed Forces of Colombia, known as the FARC. But the deal will solve only some of Colombia's problems, which extend well beyond security. With oil prices low and likely to stay that way, Colombia has already entered one of its periodic busts, and the government will have to manage sluggish growth and a deteriorating economy. Amid this tough situation, the FARC deal – and related talks with the National Liberation Army (ELN) – will open up the ruling Social Party of National Unity to criticism from its opponents.

But from an investor's point of view, Colombia's straitened circumstances may be a boon. Thousands of militants will soon demobilize, the peso will depreciate, and state-owned energy firm Ecopetrol will likely sell some of its assets. The government will have to navigate the next few years carefully, implementing policies to deal with the secondary effects of low oil prices, including fewer infrastructure improvements, government austerity measures and a wider-than-normal trade deficit.

In the meantime, Colombia's security problems will not disappear. The nature of the recent peace agreement makes it likely that many — if not the majority — of low-ranking FARC members will not be immune to prosecution for crimes committed during the conflict. They will find it difficult to reintegrate, and many may turn to criminal activities. The same will likely be true of the ELN. In particular, the cocaine-producing centers of Putumayo, Cauca, Narino, Meta, Caqueta, Norte de Santander and Choco will likely continue to operate as before. And the insurgents and organized crime groups based in those areas will continue to extort private businesses nearby. Moreover, without the unifying command of either the FARC or ELN, isolated former militants engaged in crime may fight among themselves. The resulting sporadic outbursts of violence could have spillover effects on businesses investing in hydrocarbons, minerals and agriculture.