Colombians Reject Peace Agreement – Now What?

Colombia FARC protest

After almost four years of a very exhaustive negotiation process between the Colombian government and the FARC rebel group that resulted in a peace agreement signed by both parties on September 24, 2016, Colombia was finally facing “the moment of truth.” On October 2, the Colombian population had the responsibility to either approve or reject the terms of the agreement in a non-binding plebiscite.

After counting 99% of the votes, Colombia was in shock: 50.24% of voters decided to say NO to a long-awaited agreement that was intended to finish more than five decades of war.

This unexpected result immediately generated a wave of uncertainty about the true feasibility of peace in Colombia and the impact of the peace agreement rejection on the country’s economic outlook. This blogpost will shed some light on some of those key questions.

Why did Colombians decide to reject the agreement?

To understand the rationale behind Colombians’ rejection, it is important to analyze two characteristics that were present throughout the whole negotiation process:

  1. Negotiations were not inclusive

From the very beginning, negotiations were held behind closed doors in Havana, Cuba and only with members of the Colombian government and FARC. This structure of negotiation worked fairly well to make certain concessions without having to face public scrutiny, which would have slowed negotiations even more. However, as a consequence of that secretive isolation, most Colombians completely ignored what had been happening in Havana. Lack of public information about the specifics of the peace process explains why a vast part of Colombians felt disengaged with the process and stayed home the day of the vote (the abstention rate reached an astonishing 62%)

Another critical mistake made by the government was failure to involve key political stakeholders, such as Alvaro Uribe, Colombia’s former president and leader of the opposition party “Centro Democratico”. This mistake resulted in having Uribe – whose military stance against FARC is credited with having severely weakened the rebels’ movement – eventually become the leading voice, and a very credible one against the peace agreement.

  1. The terms of agreement were extremely lenient for FARC members

Besides the issue of lack of inclusion, Colombians’ main objection was the agreement’s high level of leniency for the FARC fighters. The peace agreement contemplated four main points:

(1) Economic and social development of rural areas and provision of land to poor farmers

(2) Participation of rebels in political activities

(3) Elimination of all illicit drug production associated with the FARCs

(4) Amnesty for FARC rebels, excluding those who had committed serious felonies

As the most contentious points for the public opinion to digest were points (2) and (4), Uribe centered his NO campaign around them. His platform very successfully disseminated the ideas that (i) They (Centro Democratico) was in favor of peace, but not under terms that would make the process unjust for most of FARC’s victims; and (ii) that allowing former FARC members to participate in the country’s political process as a legitimate political party could foster the growth of radical leftist movements like those in Cuba and Venezuela.

Uribe’s campaign proved to be very effective, particularly in urban areas (NO: 65% YES: 32%), where the government failed to spend enough time campaigning in favor of the peace agreement under the wrong assumption that the vast majority of urban voters would back the deal.

What happens now in terms of the agreement?

The most likely path forward is a renegotiation of the agreement. President Santos recently committed to maintaining the ceasefire accord and promised to continue working tirelessly towards a new peace agreement until the last moment of his mandate. FARC’s leader Rodrigo Londono also stated that his group remains committed to ending the conflict.

However, agreeing to new terms that are palatable to those Colombians that rejected the first agreement will not be fast nor easy. This is because for FARC members, avoiding jail time has until now been non-negotiable, and the new negotiation process will now include hard-liners like Uribe, who after his personal victory on October’s plebiscite will feel legitimized to try to impose tough conditions on the FARC.

While the exact length of a new negotiation process remains unclear, FSG believes that President Santos will push to have a new agreement signed with the FARC within the next 12 months. Given that President Santos’s party will retain control of congress for at least 18 more months, a new agreement could be potentially be brought forth to the Colombian people for a new vote before Santos leaves office in 2018.

Economic and business implications

Although the outcome of peace ratification vote took the investor community by surprise, there is a shared belief among investors that given the strong commitment of both parties to going back to the negotiating table, a new deal is a forgone conclusion. In addition, the recent selection of President Santos for the Nobel Peace Prize illustrates wide international support to Colombia’s peace process, and will act as a strong mandate for President Santos to seek a new peace deal, which should allow Colombia to continue to attract foreign direct investment.

Additionally, the recent agreement achieved by OPEC members to cut oil production could help stabilize oil prices, helping Colombia revive investments into its oil sector and boost economic growth, which could in turn drive additional investment to other sectors into the country.

In fact, many multinationals have recently restated their commitment to the Colombian market, despite the recent rejection of the peace agreement. Companies like Molson Coors, FEMSA, Telefonica, and Ecopetrol among others, have announced additional investments in the country, which illustrates the strength of Colombia’s long-term fundamentals and optimism about the eventual approval of a new peace agreement with the FARC. FSG’s forecasts are for a new agreement to be passed in Congress during the second half of 2017, which would add 40 basis points of additional growth in 2018, from 3.4% to 3.8%.

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