FARC peace deal boosts Colombian economy, but not yet

The 52-year war between the Colombian government and FARC insurgents officially ended on Monday with the start of a ceasefire and the peace deal is seen as boosting tourism and investment, but neither as much nor as quickly as some would like.

Capital Economics said the peace deal will boost the Colombian economy in the medium term, but not in the short term.

“While there is no doubt that the deal is a net positive for the economy, the more optimistic estimates of its impact on the economy in the near term are unlikely to be confirmed,” said Adam Collins, economist Latin American at Capital Economics. in a report last week.

Colombians in Bogota celebrate the conclusion of peace talks on August 24, 2016.

Guillermo Legaria | AFP | Getty Images

The FARC (Revolutionary Armed Forces of Colombia) was created as an armed wing of the Colombian Communist Party in 1964 and has since been in violent conflict with the government. At the height of his power, he controlled up to a third of the country, usually remote rural areas.

The conflict between the FARC and far-right government paramilitaries has reportedly claimed more than 220,000 lives over the years.

The official peace agreement began Monday at midnight local time. The FARC are supposed to hand over their weapons to United Nations observers within six months and become a legal political party once this process is completed.

US President Barack Obama pledged $ 450 million in aid to Colombia in 2017 to help it carry out its peace plan.

However, analysts say any hope of a rapid recovery in the country’s economy should be dashed.

The Colombian economy has slowed steadily since 2013, in part due to low commodity prices and the slowdown in the Chinese economy. It relies heavily on commodity exports including petroleum, coal, coffee and gold, although attempts are underway to diversify the economy.

Employees speak on a balcony at the Cartagena refinery in Colombia, May 20, 2016.

Mariana Chagrin | Bloomberg | Getty Images

Gross domestic product (GDP) increased 2.0% year-on-year between April and June, according to official statistics released on Monday. That figure was down from 2.5% in the first quarter and was the slowest growth rate in years.

The country is also grappling with inflation that reached 9.0% in July year-on-year and a rising budget deficit. The implementation of the peace agreement may delay efforts to combat this.

“The dividends of economic peace should… materialize gradually, thanks to an increase in tourism and domestic and foreign investment, especially in remote and less secure areas of the country and the rotation of budgetary resources from the military apparatus towards d ‘other more productive areas, such as physical areas. and social investment in neglected rural areas beset by armed conflict, ”said Alberto Ramos, head of Latin America’s economy at Goldman Sachs, in a report last week.

Peace talks between the government and the FARC began in Havana, Cuba, in 2012 and an unofficial truce began a few months ago. The deal is subject to a plebiscite on October 2, which is expected to broadly endorse the deal, “though there are concerns about how rebels who have committed atrocities will be treated.

Colombia’s chief delegate for the peace talks, Humberto de la Calle, and FARC member Ivan Marquez shake hands in Havana on August 12, 2016.

Adalberto Roque | AFP | Getty Images

“The security situation in Colombia has been improving steadily for more than a decade. As such, most of the economic benefits of peace in terms of increased investment and tourism have already been felt. As a result, we expect the economy to continue to slow this year. as it adjusts to lower oil prices, ”Collins said.

“Over time, the dividends of economic peace are expected to more than offset the initial costs associated with disarming and integrating rebel forces into civil society,” Ramos said.

“Finally, we expect the government to unveil a tax reform proposal soon (probably in October) to consolidate public finances and help the budget adjust to the loss of raw material revenue and upfront spending. implementation of the peace agreement, ”he added. .

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