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Santos, Chavez Seek to End Colombia-Venezuela Spat

Aug. 9 (Bloomberg) -- Colombian President Juan Manuel Santos will meet tomorrow with Venezuela’s Hugo Chavez in a bid to restore diplomatic ties and end a trade war between the two nations over Chavez’s alleged support for Marxist guerrillas.

Santos was sworn in over the weekend vowing to improve relations with Colombia’s neighbors after then-President Alvaro Uribe last month accused Venezuela of harboring as many as 1,500 rebels inside its territory. Chavez, in retaliation to Uribe’s charges, broke off diplomatic ties and put troops along the 1,375-mile (2,212 kilometer) shared border on high alert.

“War is not part of my vocabulary,” Santos said in his Aug. 7 inaugural speech, which was attended by Venezuelan Foreign Minister Nicolas Maduro, who Chavez sent to Bogota as a goodwill gesture. Tomorrow’s meeting in the Caribbean city of Santa Marta, Colombia will be the next step in an effort to restore ties, Foreign Minister Maria Angela Holguin said yesterday after meeting with Maduro.

Santos, 58, is seeking to revive trade with Venezuela, which was Colombia’s second-biggest export market after the U.S. until bilateral relations soured, as he aims to fulfill a campaign pledge of boosting annual economic growth to 6 percent within two years, up from an expected 4 percent forecast this year. He also wants to add 2.4 million jobs to reduce a 12.8 percent unemployment rate that is the highest in Latin America.

“Anything that complicates Santos’ plan to get trade back hurts his domestic economic agenda,” said Eric Farnsworth, vice president of the Council of the Americas in Washington.

Rebel Camp

Before his swearing-in, Santos didn’t comment even as Uribe’s government presented photos and satellite images to the Organization of American States that it said showed as many as 87 rebel camps inside Venezuela. At his inauguration he vowed to work to overcome that dispute and another with Ecuador over a 2008 attack on a rebel camp inside that country.

Trade between the nations tumbled to $651 million in the first five months of this year from $2.26 billion in the same period of 2008, the last year of normal relations, according to the country’s statistics agency.

Chavez, who previously called Santos a “warmonger” and threat to regional peace, has vowed to start anew.

“You don’t know what you have until it’s gone,” Chavez said yesterday on his weekly television program, adding that he would sleep peacefully ahead of the meeting with Santos. “I’ll be there with this extended hand and open heart.”

The self-declared 21st century socialist leader also called on the Revolutionary Armed Forces of Colombia, or FARC, to abandon their half-century insurgency, free all hostages and negotiate a peace plan with the support of South America.

Meat, Food

Fresh and frozen meat sales have been among the hardest hit, dropping to zero from about $800 million in 2008 before Chavez first halted trade after Uribe allowed the U.S. military greater access to seven bases used to fight the FARC.

“We haven’t replaced Venezuela yet, but it’s certainly replaceable,” Gustavo Castro, head of Bogota-based ACINCA, the beef industry association said in an interview. “It’s best not to have all our eggs in one basket.”

Only about a tenth of meat exports have shifted to new markets including Peru, Vietnam, and Hong Kong, said Castro, who is seeking as many as 15 new markets for the meat. The bulk has been absorbed into the local market at lower prices, he said.

Conciliatory Tone

As Uribe’s defense minister, the Harvard University-educated Santos delivered some of the biggest blows against the FARC. These include the 2008 rescue of French-Colombian politician Ingrid Betancourt. His raid into Ecuador killed the group’s second in command and prompted President Rafael Correa to cut diplomatic ties.

Correa said in an interview with Bogota-based El Tiempo newspaper he is hopeful diplomatic relations can be restored though he wants all the details on the attack. He would like Santos to visit Ecuador quickly, he said.

Santos has taken a conciliatory tone with Chavez since winning a landslide victory over former Bogota Mayor Antanas Mockus in a June runoff. He tapped Holguin, a former ambassador to Caracas, as foreign minister and invited Chavez to attend the inauguration.

Chavez sent Maduro instead. Correa attended the event, his first time visiting Colombia since the attack.

Global Recovery

Santos’s economic goals aren’t being held captive by Chavez, said Julian Cardenas, chief economist at Bogota-based brokerage Corredores Asociados SA. Colombia’s central bank, while acknowledging that the ongoing row cut into trade, says the impact is being offset by rising domestic demand and the global recovery.

The yield on the benchmark 11 percent bonds due 2020 has dropped to 7.24 from 7.96 since the election. The peso has gained 4.5 percent over the same period, the most among major Latin American currencies tracked by Bloomberg.

The yield on the bonds was little changed at 7.235 percent at 12:57 p.m. New York time, according to Colombia’s stock exchange.

Colombia has made up part of its lost trade with Venezuela with increased sales to China and the U.S., according to the statistics agency. Venezuela’s economy will likely contract 2.5 percent this year, according to the median forecast of nine banks in a Bloomberg survey.

Poultry farmers who saw their $65 million trade in eggs and chicken to Venezuela disappear have now diversified into countries such as China and Vietnam, according to Jorge Bedoya, head of the National Federation of Colombian Poultry Farmers.

“Chavez and his threats don’t keep us up at night,” said Bedoya in a telephone interview in Bogota. “If we were to go back we would have to be very careful about the game rules because Chavez opens and closes the border at will.”

To contact the reporters on this story: Helen Murphy in Bogota at Hmurphy1@bloomberg.net; Daniel Cancel at dcancel@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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