Market weighs up Colombian election run-off
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
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
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