Political Crisis Looms in Colombia as Peace Deal Collapses

  • Nation’s sovereign debt may be downgraded without tax reform
  • Government coalition under strain in aftermath of ‘no’ vote

The vote that was supposed to bring an end to Colombia’s conflict instead only served to show how divided the nation has become on the issue, and may signal the start of a drawn-out political crisis.

The 50-50 split that torpedoed President Juan Manuel Santos’s proposed peace accord on Sunday will embolden his opponents to challenge him at every turn, analysts said after the vote. The result could be a lame-duck government that limps through to the end of its term in 2018, unable to pass needed legislation. For investors worried about how the country will scrape together the funds to close its fiscal deficit and avoid a credit-rating downgrade, that’s a big worry. They dumped the peso as soon as trading opened on Monday, and its 3.2 percent drop since the vote is the biggest among more than 140 currencies tracked by Bloomberg.

People react after learning about the rejection of a peace deal in Bogota on Oct. 2.

Photographer: Nicolo Filippo Rosso/Bloomberg

On Sunday, Colombians rejected an agreement between the government and the Revolutionary Armed Forces of Colombia, or FARC, by 50.2 percent to 49.8 percent. The result will strengthen the hand of former President Alvaro Uribe’s Democratic Center Party, which opposed the deal, at the same time that it causes allies in Congress to desert Santos, according to to Sandra Borda, a political scientist and dean of the Social Sciences Department at Bogota’s Jorge Tadeo Lozano University.

“What we saw in terms of opposition up to now is nothing to what we’re going to see in the next two years -- they aren’t going to let anything pass in Congress,” Borda said Monday. “The government’s ruling coalition is going to fall apart.”

The political upheaval is likely to delay the tax reform that the government needs to pass in order to plug a hole in its finances caused by the drop in the oil price over the last two years, according to Bank of America. Santos’ weak position also increases the chance of a watered-down reform that raises less revenue, increasing the chance that the nation’s sovereign debt will be downgraded, 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,” Aguirre said.

Jumping Ship

The Radical Change Party, led by Vice President German Vargas Lleras, has only been a lukewarm supporter of the peace process, and now has an interest in jumping ship to be better placed for the presidential and congressional elections in 2018, Borda said. The party has 9 of 102 senators and 16 of 166 representatives in the lower house.

For a QuickTake Q&A on Colombia’s peace process, click here

At the same time, some left-wing politicians may refuse to work with the government, since they were on board with the peace process but not with other initiatives, Borda said.

Radical Change Party President Rodrigo Lara said in an interview that the party is definitively part of the ruling coalition and that it is “absolutely committed” to seeing the tax reform passed.

“President Santos’s ability to govern is obviously weakened,” said Green Party Senator Claudia Lopez, who supported the peace accord but otherwise opposes the government. “The peace process and the tax reform are linked. This government has no chance of passing a tax reform - it has neither the political support nor the legitimacy.”

Jorge Restrepo, director of the CERAC research institution that monitors the conflict, said that the result was a “heavy blow” to Santos that will severely affect his ability to govern, but that he should be able to hold the ruling coalition together until he leaves office.

The peace 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. Many Colombians objected to a group known for bomb attacks and kidnapping receiving lenient treatment. Opposition to the deal was led by Uribe, who wants tougher penalties for the FARC. More than 200,000 Colombians have lost their lives in the conflict, which began in 1964.

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