Colombia - Future trends

Most of Colombia's dilemmas at the beginning of the 21st century are political rather than economic. The confrontation between guerrilla groups allied to the narcotics industry has become highly delicate, and is likely to remain so throughout the rest of the Pastrana presidential period, which will end in 2002. This situation will also affect the modernization of the political system and any economic recovery. Despite a better structural situation than other countries in the region, the continuous violence not only stops major advances, due to the uneasiness of foreign investors, but also creates major incentives for the emigration of the elite and professional groups. Putting all his eggs in the basket of the peace process has led to frustration over the failure of Pastrana's efforts. The weak economic performance has additionally undermined the popularity of the president. His administration has enjoyed strong support from the U.S. government, which in 2000 agreed to an aid package of US$1.7 billion (Plan Colombia) to combat illegal drugs in the south, southeast, and northern areas.

According to most sources, peace talks with the guerrillas that started in 1999 continue against a background of violence. Although some progress has been made, the conflict has escalated and the guerrillas' commitment to ending the hostilities is questionable. Negotiations with the largest guerrilla group, the Fuerzas Armadas Revolucionarias de Colombia (FARC), have followed a stop-and-go trend, stagnating for half a year and then resuming after continuous confrontations. So far the clashes have not ended. Pastrana and his successor are likely to come under increasing pressure to abandon talks and opt for a purely military solution if progress continues to prove elusive. Despite the eventual promise of military support from the United States, it is unlikely that such an option will be followed, mostly because of the risks involved in an open civil war against well-armed and widely dispersed guerrilla forces. Also, the peace talks still enjoy the support of important civil sectors, including the Church and non-government organizations (NGOs). While Bogotá continues to try to negotiate a settlement, neighboring countries worry about the violence spilling over their borders.

Colombia's leading exports, oil and coffee, face an uncertain future. New exploration is badly needed to offset a pending decline in oil production, and the coffee harvest has dropped because of aging plantations and natural disasters. The lack of public security is a key concern for investors, making progress in the government's peace negotiations with insurgent groups an important driver of economic recovery. Net foreign direct investment fell to about US$675 million in 1999 from US$2.5 billion in 1998, reflecting poor business confidence. The tide changed again in 2000, more than doubling the previous figure amid lower interest rates, greater oil investment, and privatization. Officials are also offering better contract terms to encourage greater foreign investment in the oil industry. In spite of pipeline bombings and kidnappings, current oil prices remain a powerful incentive for further oil investments, especially since Colombia's untapped oil reserves are estimated to be huge. According to the International Energy Agency, oil production is expected to top 1.2 million barrels a day within the next 5 years and show little decline through 2020.

Despite the end of the recession, investor sentiment and economic recovery will remain vulnerable to further troubles in the beleaguered financial sector and the delicate peace process.