Few issues have influenced recent Colombian politics more than the government's peace deal with the Revolutionary Armed Forces of Colombia (FARC). The agreement the government signed last year with FARC remains controversial and has split the country politically between those who supported President Juan Manuel Santos' peace efforts and those led by former President Alvaro Uribe, who opposed some aspects of the peace accord. But new issues have emerged as Colombians begin to look ahead to the country's presidential election in May 2018. A struggling economy burdened by falling commodity prices, deficits and low growth is combining with a massive influx of migrants from neighboring Venezuela to replace the peace deal as the dominant forces shaping next year's race.
An openness to free trade and foreign investment has characterized Colombia's economic policy over the past decade. Colombia founded the Pacific Alliance trade bloc with Mexico, Peru and Chile in 2012 and signed free trade agreements with the United States, South Korea and the European Union. But these trade agreements were negotiated and signed when commodities prices were high and Colombia's economy was growing. As oil and mineral prices have fallen over the past three years, Colombia's economy has faltered.
Expectations followed the drop in commodities prices that the decline would lead to a currency depreciation that could, as a positive side effect, make Colombia's manufacturing sector more price competitive. But though the value of the Colombian peso did fall around 50 percent in the past three years, the hope that the peso's depreciation would help the country's manufacturing sector proved illusory. Manufacturers have been unable to compete even domestically, since in many cases it's cheaper to import products than it is to buy them from Colombian producers.
The country's national department of statistics reported on Aug. 14 that Colombia's manufacturing production dropped 1.3 percent in the first six months of 2017 compared with the first six months of 2016. On the same day, the country's textile chamber warned that 1.8 million jobs were at risk of being lost after Colombia's textile industry reported a 9 percent drop in production so far this year. The industry blamed its crisis in part on the government's decision this year to increase the value-added tax from 16 percent to 19 percent, as well as on a rise in textile imports and textile smuggling. As a sign of the industry's troubles, the country's largest textile factory, Fabricato, announced this month it was suspending production for two weeks.
Retail sales also reported a contraction of 1.4 percent in the first six months of the year compared with the same period in 2016. In addition, the Finance Ministry revised this year's economic growth forecast downward from 2.2 percent to 2 percent this month, while private financial institutions and the country's central bank were more pessimistic, estimating that Colombia's economy will grow only 1.5 percent in 2017. Meanwhile, Colombia's unemployment rate has ranged from 8 percent to 11 percent over the past two years.
The Economy's Health Declines
Colombia's economy grew steadily for more than a decade, driven by oil and mining production, which represented about 60 percent of Colombia's exports between 2010 and 2014. During the boom in commodities prices, the country's total imports and exports grew from about $24 billion in 2002 to more than $115 billion in 2014. However, Colombia's economic growth became increasingly vulnerable to the fluctuation in commodities prices, and when they started to decline, Colombia's trade and economic growth followed. Colombia's total exports fell from almost $60 billion in 2012 to $31 billion in 2016, a drop of almost 50 percent in just four years. This dip not only drove down the country's total trade and gross domestic product, but it also harmed Colombia's fiscal health. The government is expected to report a 2017 deficit of 3.3 percent of GDP.
But the drop in commodities prices doesn't fully explain why Colombia entered an extended period of economic slowdown. Falling oil and mining revenue as well as the need to implement some of the peace agreement with FARC forced the government to raise taxes 3 percentage points on consumption, which affected retail sales. The total investments needed to implement the post-conflict projects agreed to with FARC will demand more than $40 billion in the next 15 years, but it is still uncertain as to whether the government will carry out most of them since the next president could decide to reduce the funds needed to pay for them. Nonetheless, according to Colombian newspaper El Tiempo, some of these projects, such as reparations to victims and the reincorporation of FARC members into civilian life, will cost more than $2 billion and already are underway. The government expects $800 million annually in international support over the next four years, but that figure doesn't cover the funds needed to meet the peace deal's short-term demands.
New Arrivals Bring New Strain
More than 400,000 Venezuelans have fled their country to move to Colombia in less than a year, adding to the strain on the Colombian economy. Previously, Venezuelans who moved to Colombia tended to be wealthier, but the new wave of immigrants are mostly escaping their country's turmoil to access basic needs such as food. On top of the Venezuelan migration, a countless number of Colombians who left for Venezuela to escape Colombia's armed conflict with FARC are now returning home.
This exodus of Venezuelans into Colombia at a time of economic hardship and high unemployment is creating social conflict. Cases of xenophobia against Venezuelan immigrants have been reported, including one in which the mayor of Bucaramanga, Rodolfo Hernandez, complained that his city was full of Venezuelan beggars. The continuing arrival of Venezuelan migrants will stoke more social tension, particularly if they compete for scarce jobs with Colombians in some parts of the country. Cucuta, for example, not only has reported the largest number of Venezuelan migrants, but it also had the second-highest unemployment rate in Colombia (15.4 percent) in 2016.
Voicing Concern at the Polls
Colombia's economic and immigration challenges likely will change the political dynamic created by the government's peace agreement with FARC. In a national poll conducted in May by Colombian magazine Semana, Blu Radio and Caracol TV, 21.5 percent of Colombians ranked unemployment as a major concern, along with health care (20.9 percent) and corruption (20.7 percent). Only 2.5 percent ranked the implementation of the peace agreement with FARC as a major concern, while peace talks with another guerrilla group, the National Liberation Army, was a concern for just 2.4 percent of Colombians surveyed.
The poll results suggest that the polarization created by the peace negotiations with FARC will not be a primary issue driving Colombia's presidential election next year, even though the future of the agreement's implementation is still a matter of debate. Santos, who carried the political costs and benefits of signing the peace deal with FARC, can't run for re-election. Moreover, Santos' ruling coalition has split into many camps and has been unable to come up with a presidential candidate it can unite behind. As a result, next year's election will be a more open race than those of the recent past, and the country's mounting challenges may give new political forces an opportunity to rise to power.