Colombia’s Deteriorating Security Outlook Could Impair Ronda Colombia’s Outcome

Colombia’s security environment is swiftly deteriorating as the Colombian government aggressively offers more than a hundred oil and gas exploration and production blocks in the Ronda Colombia 2012 bidding process. Oil and gas exploration is a key driver of the Colombian government’s revenue. A deteriorating security outlook could disincentive investors interested in bidding for the blocks offered in in key areas such as the Caguán-Putumayo basin.

Left-wing guerrillas have wreaked havoc in Bogotá, Caquetá, Guajira, Putumayo, and more recently in Cauca (where indigenous groups have strongly opposed the presence of armed groups). Analysts are divided about what is causing the Fuerzas Armadas Revolucionarias (FARC) and, to a lesser extent, the Ejercito de Liberación Nacional’s (ELN) recent blows to the Colombian Army, the Police force, and the country’s infrastructure. Some analysts believe this upsurge in guerrilla attacks is a defensive strategy amid the heavy military pressure of the Colombian state on areas where the guerrillas have historically been strongest, such as Caquetá in the case of the FARC. Other analysts, however, argue the uptick in guerrilla activity is the result of the government’s lack of military initiative and of the government’s military fatigue. Regardless of the cause, an emboldened guerrilla does not bode well for the outcome of the Ronda Colombia 2012, a bidding round of over a hundred exploration and production blocks in mature areas, new frontier basins, and areas with little geological knowledge.

The FARC and ELN guerrillas each have affected key oil infrastructure like the Caño-Limón and Oleoducto Transandino pipelines, which bring hydrocarbons to market through ports in the Atlantic and the Pacific coast, respectively. The rebels have also targeted railways transporting coal mined in the departments of La Guajira and Cesar. These attacks have not only affected production targets, but they are now forcing key players to re-evaluate their investment decisions. Gran Tierra Energy (GTE:CN), with assets in the rugged Caguán -Putumayo basin in southwestern Colombia, cut its capital expenditure budget by 14 percent for the remaining of this year in response to production constraints resulting from the guerrilla’s attacks on oil infrastructure. If decisions like this one are any indicator of what investor offers in the Caguán-Putumayo basin would look like, Colombian officials must be starting to feel strong shivers down their spines.  Continue reading

Advertisements

The end of a two year lapse: Colombia’s Constitutional Court rules against a third reelection

Today Colombia’s Constitutional Court concluded a two-year debate on a proposal for a referendum to decide whether President Álvaro Uribe could run for a third term. The discussion started in 2007 when Uribe’s supporters decided to collect signatures to modify the Constitution instead of modifying it through legislation, as was the case of the mechanism used for the President’s first re-election in 2006. The argument presented by Judge Humberto Sierra Porto and discussed by the Court challenged the procedures and constitutionality of the law. Seven judges backed Porto’s argument while two rejected it. As La Silla Vacia highlithed yesterday, it was likely that the Court would rule against it. There will be no referendum to decide whether a President (Álvaro Uribe) can be reelected for a consequitive third term for the 2010 election year.

The relection debate has eclipsed Colombian legislative and national agenda, to the expense of many pressing issues including the status of the country’s economy and the division of powers in that country. Colombia’s leading think tank Fedesarrollo has affirmed through its Legislative Advisory papers, Op-Eds, rountables, and interviews throughout these two years that key economic discussions have been put aside. For example, Fedesarrollo has advocated for reducing non-wage labor taxes known as parafiscales because of its effects on increased costs of labor, informality, underemployment, and unemployment. One reason for Uribe’s reluctance to deal with this or other urgent economic issues according to Guillermo Perry Fedesarrollo’s former Executive-Director is that dealing with urgent matters affects the chances to reelect an incumbent. In fact, Uribe’s Social Protection Minister Diego Palacio affirmed that reforming parafiscales was highly unlikely because dealing with them will be unpopular vis-à-vis upcoming elections.

Despite successful, incremental yet highly controversial security policies Uribe’s government is leaving Colombia with high rates of unemployment (12%), informality (58% urban, 75% rural), and worrisome levels of underemployment as economic magazine Dinero suggests. Moreover, under the rubric of improving investor’s confidence in the country where Democratic Security = Confidence = Investment = Growth, Colombia’s current government has granted generous tax breaks and subsidies creating long-term fiscal problems. The government’s generosity created a distorted playing field for competitors in the market and eventual new entrants as those tax breaks and subsidies are only benefiting few companies. Coincidentally, many of those companies have contributed financially to Uribe’s two presidential campaigns and are linked to members of his Cabinet or allies in Congress.

In face of upcoming elections, this situation creates an opportunity for political parties running for Congress and the Presidency. Yet it is unclear what will Uribe do in the upcoming weeks as he and his supporters will still influence the electoral process. There are significant bright-minds running for seats in Congress, and supporting campaign efforts and platform development behind the scenes. Moreover, after years of political party weakness, political parties are more relevant now than in the recent past – a situation determined by some electoral law reforms and the Uribe presidency itself. The Liberal Party is attempting to reinvent itself after judiciously leading the opposition. The Conservative Party finally decided that its destiny may not be at Uribe’s mercy. The Alternative Democratic Pole (PDA) will contest its third national election, and most likely will continue to play a relevant role. And even Bogotá’s former mayors Antanas Mockus, Enrique Peñalosa, and Luis Garzón joined efforts in a Green Party although it remains to be seen whether this is just a temporary front or a long-term effort.

Colombia’s Constitutional Court decision ended a two-year decision-making lapse in the country. The economy and the country’s institutions have been severely weakened as a result of a highly personalized presidency. Upcoming elections represent an opportunity to get the country back on its course and effectively achieve growth and investment through genuine democratic governance and a truly market-oriented economy.