Email a colleague
  • To include more than one recipient, please seperate each email address with a semi-colon ';', up to a maximum of 5 email addresses


Market weighs up Colombian election run-off

Jun 5, 2014

Two pro-market candidates could still result in very different outcomes for the market and the economy, say analysts

The capital markets may not be overly nervous about the Colombian presidential election run-off at the end of next week. Both candidates endorse similar pro-market policies- their main difference lies on whether or not to negotiate a peace agreement with the FARC Marxist guerrilla.

But there are differences, too, in economic policy, says Bank of America Merrill Lynch research. Both candidates are likely to stick to orthodox policies, says the research, although the challenger, Óscar Iván Zuluaga, has taken a more conservative fiscal position on some issues, including the current government's public housing policies.

Moreover, under the incumbent president, Juan Manuel Santos, Colombia's central bank (whose policy committee is chaired by the central bank governor) has intervened more aggressively in the currency market than during the previous government, in which Zuluaga was finance minister.

Zuluaga has criticized the central bank's recent surprise rate hike, and he has also opposed privatizing the state electricity firm to fund infrastructure projects. Zuluaga's policy proposals in education and agriculture would also require increased spending, according to BAML. Yet it could be bad news for investors if Santos is voted out..

Bank of America says a Zuluaga victory would be market-negative as it would be more likely to result in a divided government: "Pro-Santos forces, including a faction of dissident conservative lawmakers, were able to capture a majority in both houses in the 9 March parliamentary election. While it is possible Zuluaga could negotiate with some lawmakers to reach a working majority if elected, this would almost surely imply concessions, some of which may be fiscally costly."

Perhaps most important, however, is that Santos' less hawkish attitude towards FARC would bring better prospects of peace talks being successful, according to BAML: "a Zuluaga victory would imply a high likelihood that talks would come to an end."

Peace would bring lower military spending (one of the highest in the region) and benefits to economic growth, via higher agricultural productivity and a lower risk premium for Colombia debt in international capital markets. "FARC attacks remain a significant hindrance to oil production, as well as an impediment to exploration in areas controlled by the insurgents," said the research.

Luckily for markets, Zuluaga is likely to lose, says the research.



Post a comment
  • All comments are subject to editorial review.
    All fields are compulsory.



Poll

Are populist governments like Venezuela & Argentina turning pragmatic?

Vote