Colombia’s Santos Rushes to Save Peace Talks After ’No’ Vote

  • Unexpected outcome triggers sell off in bonds and the peso
  • Former President Uribe’s party campaigned against the deal

Colombian Voters Reject Peace Accord With No Plan B

Colombian President Juan Manuel Santos is scrambling to salvage the nation’s peace process, sending his negotiating team back to Cuba and calling for meetings with political opponents, after voters rejected his government’s deal with Marxist rebels by a wafer-thin margin.

On Sunday, Colombians rejected an agreement between the government and the FARC by a 50.2 percent to 49.8 percent margin, just six days after Santos signed the accord to end the conflict in front of regional heads of state. Turnout was 37 percent and only 54,000 votes separated the two sides. The surprise result triggered a sell off in Colombian bonds and the peso, as investors bet that a weakened Santos will find it harder to pass tax legislation needed to plug a hole in public finances.

The president, who spent four years forging the accord and who had stated before the referendum that there was no “plan B”, was quick to call for a meeting between political groups on Monday -- and in particular the ‘no’ camp -- to determine the way forward. Both Santos and the Revolutionary Armed Forces of Colombia, or FARC, said they would keep respecting the cease-fire.

“As president, I retain my powers and my obligation to maintain public order and to seek and negotiate peace,” Santos said. “I will continue seeking peace until the last minute of my presidency.”

The ‘no’ campaign was led by the Democratic Center Party of former President Alvaro Uribe, Santos’ former ally. Uribe, who is likely to play a key role in whatever happens next, told reporters on Sunday that he wants to contribute to a “national pact,” and said he would back a lighter punishment but not impunity for the FARC. Santos and his allies denied that the accord granted the rebels impunity, and said concessions were worth paying to end violence that has left more than 200,000 dead in the nation of 49 million.

Voters in Bogota backed the deal, while the western coffee-producing region and Uribe’s home province of Antioquia rejected it.

On Monday, FARC leader Rodrigo Londono, who is better known by his alias “Timochenko,” still held out hopes for peace and said there are points in the agreement that need to be corrected. Santos’ chief negotiator Humberto de la Calle offered his resignation Monday.

“We’re hopeful that they can settle on a path” leading to “negotiated settlement” that all parties have indicated they’d like to see, White House spokesman Josh Earnest told reporters after being asked about Colombia.

Market Volatility

The referendum results weighed on government bonds and the peso once they resumed trading on Monday. The peso weakened 1.7 percent to 2930.95 to the dollar at New York. The currency has strengthened 8.4 percent this year, the best performer among major Latin American currencies after the Brazilian real.

People react after learning the results of a referendum in Bogota, on Oct. 2.

Photographer: Nicolo Filippo Rosso/Bloomberg

Colombian bonds fell, driving the yield on the government’s dollar-denominated debt due January 2026 up 18 basis points to 3.38 percent.

“The referendum vote will likely impact the timetable for the tax reform that was scheduled for October,” Bank of America strategist Ezequiel Aguirre wrote in a note to clients. “This will significantly increase the probability of a credit rating downgrade by Standard & Poor’s or Fitch, both of which have Colombia on negative watch.”

The government needs the tax reform caused to plug the hole in its finances caused by the fall in oil prices.

At least three polls published last week showed that voters would back the deal by 60 percent or more. Bad weather caused by Hurricane Matthew may have contributed to low turnout in the Caribbean coast, an area whose residents heavily backed the deal by a wide margin. Turnout was as low as 19 percent in the coastal province of La Guajira.

The agreement would have granted the largest guerrilla army in the Americas seats in Congress, agricultural reform and reduced sentences for crimes in return for handing in their weapons.

Drop in Violence

Levels of violence dropped during the talks, as the FARC declared a series of unilateral cease-fires and the air force stopped bombing guerrilla camps. Acts of terrorism fell to 167 in the first eight months of the year, according to the Defense Ministry, down 77 percent from the same period in 2012, the year the talks started.

During half a century of violence, the guerrillas fought for a Cuban-style revolution, ambushing army patrols, blowing up oil pipelines and charging businesses protection money.

Without the FARC scaring away investors and without the war diverting government spending from more productive uses, Colombia’s economy could grow 1 percentage point per year faster, according to the Finance Ministry.

— With assistance by Toluse Olorunnipa, Andrea Jaramillo, and Oscar Medina

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